PennantPark Floating Rate Capital .(PFLT) - 2023 Q3 - Quarterly Report

PART I. CONSOLIDATED FINANCIAL INFORMATION This section presents the company's consolidated financial statements and related disclosures Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements for PennantPark Floating Rate Capital Ltd. as of June 30, 2023, and for the three and nine months then ended Consolidated Statements of Assets and Liabilities As of June 30, 2023, total assets were $1.18 billion, a decrease from $1.22 billion at September 30, 2022 Consolidated Balance Sheet Summary (in thousands, except per share data) | Metric | June 30, 2023 | September 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Investments (Fair Value) | $1,105,265 | $1,164,254 | -5.1% | | Total Assets | $1,183,223 | $1,223,866 | -3.3% | | Total Liabilities | $574,796 | $696,774 | -17.5% | | Total Net Assets | $608,427 | $527,092 | +15.4% | | Net Asset Value per Share | $10.96 | $11.62 | -5.7% | Consolidated Statements of Operations For the three months ended June 30, 2023, total investment income increased 46.6% year-over-year to $37.7 million, driven by higher interest income Operating Results Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Investment Income | $37,713 | $25,729 | $103,603 | $76,699 | | Total Expenses | $19,211 | $13,906 | $54,626 | $40,773 | | Net Investment Income | $18,502 | $11,823 | $48,977 | $35,926 | | Net Realized/Unrealized Loss | $(12,909) | $(16,908) | $(37,762) | $(19,334) | | Net Increase (Decrease) in Net Assets | $5,593 | $(5,085) | $11,215 | $16,592 | | Net Investment Income per Share | $0.36 | $0.29 | $1.02 | $0.90 | | Net Increase (Decrease) in Net Assets per Share | $0.11 | $(0.12) | $0.23 | $0.42 | Consolidated Schedules of Investments As of June 30, 2023, the company's total investment portfolio had a fair value of $1.105 billion, down from $1.164 billion at September 30, 2022 Portfolio Composition by Investment Type (as of June 30, 2023, in thousands) | Investment Type | Fair Value (in thousands) | % of Total Investments | | :--- | :--- | :--- | | First Lien Secured Debt | $950,244 | 86.0% | | Second Lien Secured Debt | $149 | <0.1% | | Preferred Equity | $12,930 | 1.2% | | Common Equity/Warrants | $91,727 | 8.3% | | Equity Interests in PSSL | $50,216 | 4.5% | | Total Investments | $1,105,265 | 100.0% | Top 5 Industry Concentrations (as of June 30, 2023, % of portfolio excluding cash) | Industry Classification | Percentage of Portfolio | | :--- | :--- | | Media | 8% | | Personal Products | 8% | | Professional Services | 7% | | IT Services | 7% | | Commercial Services & Supplies | 6% | Notes to Consolidated Financial Statements The notes detail the company's organization as a BDC, significant accounting policies including investment valuation methodologies, and related-party agreements - 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 private companies. At least 80% of managed assets are expected to be in floating rate loans, with at least 65% of the portfolio in first lien secured debt[50] - The company utilizes a multi-step valuation process for illiquid investments, involving its Investment Adviser, independent valuation firms, the audit committee, and the board of directors to determine fair value in good faith[63][68] - The Investment Adviser earns a base management fee of 1.00% of average adjusted gross assets and a two-part incentive fee based on pre-incentive fee net investment income and realized capital gains[90][91][94] - As of June 30, 2023, the company had $150.3 million in unfunded commitments to portfolio companies and zero remaining unfunded commitment to its PSSL joint venture[167] - Subsequent to quarter-end, the company issued 3.2 million shares via its ATM Program for $35.2 million in net proceeds and increased its Credit Facility commitment by $20 million to $386 million[170][171] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, portfolio activity, and liquidity Portfolio and Investment Activity As of June 30, 2023, the portfolio totaled $1.105 billion across 130 companies, with a weighted average yield of 12.4%, up from 10.0% at September 30, 2022 Portfolio Summary | Metric | June 30, 2023 | September 30, 2022 | | :--- | :--- | :--- | | Total Portfolio Value | $1,105.3 million | $1,164.3 million | | Number of Companies | 130 | 125 | | Weighted Avg. Yield on Debt | 12.4% | 10.0% | | % First Lien Secured Debt | 86% | 87% | | Non-Accrual (at cost) | 1.0% | 0.9% | - For the nine months ended June 30, 2023, the company invested $231.0 million in 13 new and 63 existing portfolio companies. Sales and repayments totaled $258.1 million, including $121.2 million of sales to the PSSL joint venture[201] Results of Operations For the three months ended June 30, 2023, investment income rose to $37.7 million from $25.7 million year-over-year, driven by higher portfolio yields - The increase in investment income for the three and nine months ended June 30, 2023, was primarily due to a higher cost yield on the debt portfolio and a dividend from the Dominion Voting Systems equity investment[236] - The increase in expenses was primarily driven by higher financing costs on debt liabilities and a rise in performance-based incentive fees resulting from higher pre-incentive fee net investment income[237] - For the nine months ended June 30, 2023, the company reported a net change in unrealized depreciation on investments of $22.0 million, primarily due to the operating performance of portfolio companies and changes in capital market conditions[241] Liquidity and Capital Resources The company's liquidity is sourced from operations, investment repayments, and debt and equity financing - As of June 30, 2023, the company's asset coverage ratio was 210%, compared to the minimum required 150%[245] Debt and Liquidity Summary (as of June 30, 2023) | Facility | Total Size/Principal | Outstanding | Unused Capacity | | :--- | :--- | :--- | :--- | | Credit Facility | $366.0 million | $64.4 million | $301.6 million | | 2023 Notes | $138.6 million (original) | $76.2 million | N/A | | 2026 Notes | $185.0 million | $185.0 million | N/A | | 2031 Asset-Backed Debt | $301.4 million (original) | $228.0 million | N/A | - During the three months ended June 30, 2023, the company raised $64.1 million in net proceeds by issuing 5.8 million shares through its ATM Program[263] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk, as 100% of its debt portfolio consists of variable-rate investments, while its borrowings also have variable components - As of June 30, 2023, 100% of the company's debt portfolio consisted of variable-rate investments, making its income sensitive to changes in interest rates like SOFR[296] Annualized Impact of Hypothetical Interest Rate Changes (in thousands) | Change in Interest Rates | Change in Net Interest Income (in thousands) | Change in Net Interest Income Per Share | | :--- | :--- | :--- | | Down 1% | $(7,182) | $(0.13) | | Up 1% | $7,182 | $0.13 | | Up 2% | $14,364 | $0.26 | | Up 3% | $21,545 | $0.39 | | Up 4% | $28,741 | $0.52 | Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2023 - A material weakness related to the timely transmission of portfolio company financial information to independent valuation service providers, identified in the fiscal year 2022 10-K, has been remediated[300] - Management concluded that as of June 30, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level[301] PART II. OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, and other disclosures Item 1. Legal Proceedings The company reports that neither it, its Investment Adviser, nor its Administrator is currently subject to any material legal proceedings - The company, its Investment Adviser, and its Administrator are not currently subject to any material legal proceedings[304] Item 1A. Risk Factors This section highlights a specific risk concerning cash balances held by the company and its portfolio companies at financial institutions, which may exceed federally insured (FDIC) limits - A key risk factor is that the company and its portfolio companies may hold cash balances at financial institutions in excess of FDIC insurance limits, exposing them to potential loss in the event of a bank failure[306] - Adverse developments in the financial services industry, such as liquidity constraints or instability, could significantly impair the company's and its portfolio companies' access to funding and credit[307][308] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - None[310] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the period - None[311] Item 5. Other Information The company states that none of its officers or directors have adopted or terminated any Rule 10b5-1 trading arrangements - No officers or directors have adopted or terminated any Rule 10b5-1 trading arrangements[313] Item 6. Exhibits This section lists the exhibits filed with the report, including CEO and CFO certifications and Inline XBRL documents