PennantPark Investment (US:PNNT)2022-11-17 21:52Financial Data and Key Metrics Changes - For the quarter ended September 30, core net investment income was $0.18 per share, excluding one-time financing costs, while net investment income totaled $0.14 per share including $0.01 per share of other income [20][37] - The company's net asset value (NAV) per share decreased by 6.9% to $8.98 from $9.65 in the prior quarter, primarily due to unrealized mark-to-market adjustments [21][40] - The weighted average yield to maturity on the debt portfolio increased to 10.8% from 9.3% in the previous quarter [15] Business Line Data and Key Metrics Changes - The debt portfolio remains diversified with 123 companies across 32 different industries, with 51% in first lien secured debt and 11% in second lien secured debt [41] - The company invested $134 million in new and existing portfolio companies during the quarter, with sales and repayments totaling $176 million [19] Market Data and Key Metrics Changes - Approximately 96% of the company's assets are floating rate, compared to 47% of liabilities that are fixed rate, positioning the company well to benefit from rising interest rates [15] - The weighted average debt-to-EBITDA ratio on the portfolio was 4.6 times, and the average interest coverage ratio was 3.6 times, indicating a strong capacity to cover interest expenses [31] Company Strategy and Development Direction - The company focuses on capital preservation and is well-positioned as a lender in the current market environment characterized by inflation and rising interest rates [9][10] - The strategy includes optimizing the portfolio and balance sheet, growing the PSLF joint venture to $1 billion, and rotating out of equity investments into cash pay yield instruments [22] - The company aims to generate attractive risk-adjusted returns through income while preserving capital, targeting high-growth middle market companies with strong free cash flow [35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the quality of new loans and the attractiveness of the current vintage, citing lower leverage and tighter covenants [19][34] - The company believes that the borrowers in its investment portfolio are performing well and is optimistic about future quarters [31] Other Important Information - The Board of Directors approved a quarterly dividend increase to $0.165 per share, payable on January 3, 2023 [13] - The company completed an amendment and extension of its Truist Credit Facility, increasing its size from $465 million to $500 million and extending the maturity to 2027 [17] Q&A Session Summary Question: Ability to buy first lien loans in the secondary market - Management indicated that these loans are typically from companies they have previously financed, allowing them to buy at a discount and expect a return to par over time [49][50] Question: Upfront fee for credit facility amendment - Management explained that the upfront fee is taken as a one-time expense due to accounting obligations, which is considered shareholder-friendly as it avoids ongoing expenses [52][54] Question: Mark on RAM Energy investment - Management clarified that RAM Energy is performing well, and the markdown was influenced by external market factors, particularly the price of oil and gas [70][72] Question: Evaluation of secondary purchases - Management stated that each investment is evaluated on its own merits, comparing potential returns from secondary purchases against new loans [76] Question: Equity co-investment strategy - Management emphasized that equity co-investments are generally part of their strategy, particularly in buy-and-build scenarios, and are not typically a trade-off against yield [80][81]