PennantPark Floating Rate Capital .(PFLT) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the quarter ended December 31, Core Net Investment Income was $0.27 per share, consistent with GAAP net investment income [5][14] - NAV decreased by 3.1% from $10.83 per share to $10.49 per share [14] - Debt-to-equity ratio was 1.57 times, reduced to 1.5 times after asset sales post-quarter end [15] Business Line Data and Key Metrics Changes - The new joint venture, PSSL Two, invested $197 million during the quarter, with a total portfolio of $326 million [5][6] - The portfolio remains well-diversified, comprising 160 companies across 50 industries, with a weighted average yield on debt investments of 9.9% [15][16] - PIK interest represented only 2.5% of total interest income, indicating a conservative portfolio structure [8][16] Market Data and Key Metrics Changes - An increase in M&A transaction activity in the private Middle Market is noted, expanding the pipeline of new investment opportunities [6][7] - Pricing on high-quality first lien term loans remains attractive, typically ranging from SOFR plus 475-525 basis points [7] Company Strategy and Development Direction - The company aims to scale PSSL Two to over $1 billion in assets, consistent with existing joint ventures [6] - The focus remains on core Middle Market companies, providing strategic capital with strong underwriting and covenant protections [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in covering dividends through projected run rate NII from the new joint venture, contingent on M&A activity [24][25] - The current environment is seen as favorable for lenders with strong private equity sponsor relationships [7] Other Important Information - The company has invested $8.7 billion in 545 companies, with a loss ratio on invested capital of only 13 basis points annually [12] - The company continues to originate attractive investment opportunities, investing $301 million at a weighted average yield of 10% during the quarter [12][13] Q&A Session Summary Question: Why is software such a low exposure within the portfolio? - Management indicated that the low exposure is a strategic decision to focus on cash flow loans with reasonable multiples and strong covenants, avoiding high-leverage software loans [19][21] Question: Does the expectation to cover the dividend assume full optimization of the new JV? - Management confirmed that the expectation is based on ramping the JV to about $1 billion, with M&A activity expected to populate the JV and facilitate equity rotation [22][24] Question: What are the drivers of the unrealized marks in the quarter? - Management noted that markdowns were primarily related to the 2021 vintage, with some specific companies experiencing softness, but overall, they do not foresee significant additional markdowns [41][44] Question: What is the mix of loans by vintage year in the portfolio? - Management did not have the exact data on hand but suggested that it would be useful for further analysis [45] Question: Is the $3.6 million charge related to the credit amendment a recurring item? - Management clarified that the charge was about $500,000 and is a one-time item [48]