PennantPark Investment (PNNT) - 2021 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted NAV increased by 4.1%, rising from $9.20 to $9.58 per share, and is up over 9% from pre-COVID levels as of December 31, 2019 [8] - Core net investment income was $0.14 per share, excluding one-time expenses [10][29] - NAV per share increased from $9.24 to $9.59, up 3.8% from the prior quarter [31] Business Line Data and Key Metrics Changes - Generated $51 million in cash proceeds from the equity portfolio during the quarter [9] - The portfolio consists of 86 companies across 29 different industries, with an average debt-to-EBITDA of 4.6x and an interest coverage ratio of 3.4x [12][33] - Equity investments appreciated by approximately 45% over the past 12 months [23] Market Data and Key Metrics Changes - The company has a diversified portfolio with 41% in first lien secured debt, 14% in second lien secured debt, and 35% in preferred and common equity [33] - The overall debt portfolio has a weighted average yield of 9.2% [33] Company Strategy and Development Direction - The company aims to grow net investment income through a three-pronged strategy: increasing assets on the balance sheet, growing the PSLF joint venture, and rotating out of equity investments into yield instruments [10][24] - Focus on core middle market companies, defined as those with EBITDA below $50 million, to avoid competition with higher-leverage markets [25][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of portfolio companies, particularly in sectors like healthcare and technology [17] - The company is optimistic about new loan originations, with $69 million in new originations since June 30 [11][62] - Management noted that the current repayment activity has abated, indicating a potential shift in market dynamics [11][62] Other Important Information - The company has no non-accruals on its books, indicating strong portfolio performance [12] - The company has reduced its energy investments to only 7% of the overall portfolio [22] Q&A Session Summary Question: Current outstanding debt on RAM and repayment capability - Management indicated that RAM has about $40 million of debt, which can be paid down over the next two to three years as the company generates cash flow [39][41] Question: Consideration of a share repurchase program - Management is open to considering a share repurchase program if proceeds from equity investments continue to grow [42][43] Question: Capital structure and SBA debt reduction - Management confirmed that the SBIC financing will wind down over the coming quarters, with a preference for increasing unsecured financing [47][48] Question: Securitization in the joint venture - Management discussed the potential for securitization to increase leverage and improve returns in the joint venture [50] Question: Equity co-investment strategy modifications - Management stated that they have not modified their equity co-investment strategy and continue to seek new investments [55][59] Question: Expectations for revenue and EBITDA growth - Management noted significant year-on-year growth in revenue and EBITDA, particularly in COVID-impacted sectors [69][70] Question: Yield on the portfolio outlook - Management expects stable yields and spreads, with a focus on selecting high-quality companies for investment [72][75]