PennantPark Floating Rate Capital .(PFLT) - 2022 Q2 - Quarterly Report

PART I. CONSOLIDATED FINANCIAL INFORMATION Consolidated Financial Statements The company's consolidated financial statements show increased assets and net assets, with net investment income rising but overall net asset growth from operations declining due to investment losses Consolidated Statements of Assets and Liabilities Total assets and liabilities increased as of March 31, 2022, leading to a rise in net assets while net asset value per share remained constant Consolidated Statements of Assets and Liabilities Highlights (in thousands) | Metric | March 31, 2022 (unaudited) | September 30, 2021 | | :--- | :--- | :--- | | Total Investments (at fair value) | $1,192,613 | $1,081,619 | | Total Assets | $1,287,891 | $1,170,856 | | Total Liabilities | $767,904 | $680,245 | | Total Net Assets | $519,986 | $490,611 | | Net Asset Value per share | $12.62 | $12.62 | Consolidated Statements of Operations Investment income increased for the six months ended March 31, 2022, but net asset growth from operations declined due to a net realized and unrealized loss Statement of Operations Summary (in thousands, except per share data) | Metric | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Total Investment Income | $50,971 | $40,169 | | Total Expenses | $26,867 | $20,136 | | Net Investment Income | $24,104 | $20,032 | | Net Realized and Unrealized (Loss) Gain | $(2,424) | $17,772 | | Net Increase in Net Assets from Operations | $21,679 | $37,804 | | Net Investment Income per Share | $0.61 | $0.52 | | Net Increase in Net Assets per Share | $0.55 | $0.98 | Consolidated Statements of Changes in Net Assets Net assets increased by $29.4 million, driven by operations and capital transactions, partially offset by stockholder distributions Changes in Net Assets (Six Months Ended March 31, 2022, in thousands) | Component | Amount | | :--- | :--- | | Net Assets, Beginning of Period | $490,611 | | Net Increase from Operations | $21,679 | | Distributions to Stockholders | $(22,361) | | Net Increase from Capital Transactions | $30,057 | | Net Assets, End of Period | $519,986 | Consolidated Statements of Cash Flows Operating activities used cash due to increased investments, while financing activities provided cash, resulting in a slight decrease in cash equivalents Cash Flow Summary (Six Months Ended March 31, in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(102,030) | $117,751 | | Net Cash Provided by (Used in) Financing Activities | $101,618 | $(107,745) | | Net (Decrease) Increase in Cash Equivalents | $(411) | $10,007 | | Cash and Cash Equivalents, End of Period | $50,064 | $66,573 | Consolidated Schedules of Investments The investment portfolio grew to $1.19 billion, primarily in first lien secured debt across 119 portfolio companies Investment Portfolio Composition by Fair Value (in thousands) | Investment Type | March 31, 2022 | September 30, 2021 | | :--- | :--- | :--- | | First lien secured debt | $1,031,932 | $934,418 | | Second lien secured debt | $1,035 | $8,949 | | Preferred & Common Equity | $159,646 | $138,252 | | Total Investments | $1,192,613 | $1,081,619 | - The portfolio was invested in 119 companies with an average investment size of $10.0 million as of March 31, 2022[192] Notes to Consolidated Financial Statements Notes detail the company's BDC structure, accounting policies, investment portfolio, debt facilities, and financial highlights including asset coverage Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's investment strategy, portfolio growth, income, liquidity, and critical accounting policies, highlighting market risks - The company's investment objective is to generate current income and capital appreciation by investing primarily in floating-rate loans to U.S. middle-market companies with annual revenues between $50 million and $1 billion[171][172] - Management highlights risks from the COVID-19 pandemic, which could impact portfolio company performance, and the ongoing transition from LIBOR to alternative rates like SOFR, which could affect investment income and debt costs[178][184] - For the six months ended March 31, 2022, the company invested $448.4 million in 23 new and 65 existing portfolio companies and received $342.2 million from sales and repayments[194] Results of Operations Comparison (Six Months Ended March 31) | Metric (in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Investment Income | $51.0 | $40.2 | | Expenses | $26.9 | $20.1 | | Net Investment Income | $24.1 | $20.0 | | Net Realized (Losses) | $(12.3) | $(2.3) | | Net Change in Unrealized Appreciation | $14.0 | $34.6 | Quantitative and Qualitative Disclosures About Market Risk The company is highly exposed to interest rate risk, with 100% of its debt portfolio in variable-rate investments - As of March 31, 2022, 100% of the company's debt portfolio consisted of variable-rate investments, making it sensitive to changes in interest rates like LIBOR[278] Annualized Impact of Hypothetical Interest Rate Changes | Change in Interest Rates | Change in Net Interest Income (in thousands) | Change in Net Interest Income Per Share | | :--- | :--- | :--- | | Down 1% | $(693) | $(0.02) | | Up 1% | $2,460 | $0.06 | | Up 2% | $8,231 | $0.20 | | Up 3% | $14,002 | $0.34 | Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective in providing reasonable assurance that required information is recorded, processed, and reported in a timely manner[282] - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, internal controls[283] PART II. OTHER INFORMATION Legal Proceedings The company, its Investment Adviser, and Administrator are not subject to any material legal proceedings - The company is not currently subject to any material legal proceedings[285] Risk Factors The company highlights risks from global uncertainty and increased leverage due to a reduced asset coverage requirement - The ongoing invasion of Ukraine by Russia and related sanctions have increased global political and economic uncertainty, which may have a material adverse impact on the company's portfolio[287] - The company operates with a reduced asset coverage requirement of 150% (down from 200%), allowing it to incur more debt (up to a 2-to-1 debt-to-equity ratio), which increases the risk of investing in the company[288][290] - The company is partially dependent on its subsidiary, Funding I, for cash distributions to maintain its RIC status, but Funding I is limited by covenants that may restrict these distributions[291] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the period - None[295] Defaults Upon Senior Securities No defaults upon senior securities occurred during the period - None[296] Exhibits This section lists exhibits filed with the report, including CEO/CFO certifications and the Joint Code of Ethics