PennantPark Floating Rate Capital .(PFLT) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the quarter ended June 30th, net investment income was $0.29 per share, including $0.01 of other non-recurring income [7][18] - GAAP NAV decreased by 3.2% to $12.21 per share, driven primarily by a decrease in investment valuations [7][18] - The debt-to-equity ratio was 1.5x, indicating a diversified capital structure with no near-term maturities [19] Business Line Data and Key Metrics Changes - The joint venture (JV) portfolio reached $747 million, with a target to grow to $1 billion over time [8] - The portfolio remains highly diversified, with 87% invested in first lien senior secured debt and 13% in equity [19] Market Data and Key Metrics Changes - The portfolio is 100% floating rate, with 82% having a LIBOR floor, which positions the company well for rising interest rates [19] - A 100 basis point increase in base rates translates into approximately $0.04 per quarter of net interest income [9] Company Strategy and Development Direction - The company focuses on financing high-growth middle market companies in five key sectors: business services, consumer, government services and defense, healthcare, and software and technology [10] - The company aims to preserve capital while seeking investment opportunities in growing middle market companies with high free cash flow conversion [16] Management's Comments on Operating Environment and Future Outlook - Management believes the portfolio is well-positioned to grow net investment income as base rates rise, with a significant cushion to support stable investment income [14] - The company is optimistic about the performance of its borrowers and the overall credit quality of the portfolio [14][15] Other Important Information - The company has only two non-accruals out of 123 investments, representing 0.9% of the portfolio at cost [15] - The company has a long-term track record of generating value, with an IRR of 28% on equity co-investments since inception [11] Q&A Session Summary Question: Breakdown of unrealized losses recorded in the quarter - Management indicated that the unrealized losses were primarily driven by market and credit spreads rather than specific credit events [24] Question: Positive events regarding marketplace events returning to accrual status - Management explained that the recovery of a home goods tradeshow business impacted by COVID is a positive development as the company normalizes [25] Question: Target year for growing the PSSL to $1 billion - Management estimated that the PSSL could reach $1 billion in the next 18 months to two years, depending on market opportunities [27] Question: Incremental NII per share impact from rising base rates - Management noted that while there are many variables, the portfolio is positioned to benefit from rising rates, with a significant portion already capturing the rising rate environment [30] Question: Attractive industries in the current environment - Management highlighted government services and defense as sectors with strong creditworthiness and stability, while being cautious in the consumer sector [31]