PennantPark Floating Rate Capital Ltd. Q4 FY2025 earnings call

• Announced $250 million portfolio acquisition and formation of PSSL joint venture with initial targeted portfolio of $500 million, aiming to enhance earnings power through scale, diversification, and disciplined capital deployment. • Encouraged by steady increase in private middle market lending transaction activity, expecting higher loan origination volumes. • Maintained conservatively structured portfolio with low PIK percentages (1.8%), strong credit metrics (3 nonaccruals at low levels), and focus on core middle market sectors (business services, consumer, government services/defense, health care, software technology) with recession resilience. • Since inception, invested $8.4 billion in 539 companies, with only 25 nonaccruals and 11 basis points annual loss ratio on invested capital. • Participated in equity co-investments, generating excellent returns with $596 million invested and 25% IRR and 2x multiple on invested capital from inception through September 30.

For the quarter ended September 30, core net investment income was $0.28 per share. The portfolio acquisition of $250 million is projected to increase net investment income by $0.01 to $0.02 per share quarterly. The portfolio grew to $2.8 billion from $2.4 billion prior quarter. Weighted average yield on debt investments was 10.2%, ~99% floating rate, PIK income 1.8%, 3 nonaccruals representing 0.4% at cost and 0.2% at market value. Portfolio is diversified across 164 companies in 50 industries, with 90% first lien senior secured debt, 2% in PSSL equity, 7% in equity co-investments. Debt-to-EBITDA on portfolio was 4.5x, interest coverage 2x; new platform investments had median debt-to-EBITDA 4.4x, interest coverage 2.3x, loan-to-value 44%.

• Portfolio acquisition projected to add $0.01 to $0.02 per share quarterly net investment income on a full quarter basis. • PSSL 2 JV expected to grow to over $1 billion in assets, with run rate net investment income projected to approximate current dividend as portfolio ramps. • Anticipate increased transaction activity in private middle market lending translating to higher loan origination volumes in future quarters. • Believes scale of PSSL balance sheet will drive mid-teens return on invested capital and enhance earnings momentum. • Goal to grow PSSL 2 similar to existing joint ventures, with net investment income well exceeding current dividend as scale is achieved.

• Market factors such as soft consumer spending, high inflation, and tariffs could impact portfolio companies. • Potential credit issues in sectors like logistics post-COVID. • Actual results may differ materially from forward-looking statements due to factors outlined in SEC filings, with no undertaking to update forward-looking statements unless required by law.

Q: On the portfolio acquisition, how did it come about and are there more opportunities?

A: It was a joint venture with a third-party involving self-originated assets from a couple of years ago, with high spreads and known assets. More opportunities may exist, but it's about similar asset types.

Q: When were the $310 million of assets sold to JVs initially originated and NII contribution?

A: The $250 million portfolio acquisition was mid-quarter, so full quarter ramp would add $0.01 to $0.02 per share NII, and JVs become accretive as they scale.

Q: On stock price trading below book, any consideration of buybacks?

A: Board of Directors always considers all options including buybacks, and it appears to be a good value currently.