PennantPark Investment Corporation Q2 FY2026 earnings call

Art began with an overview of second quarter results including portfolio review. He shared perspective on market environment and how PNNT is positioned. Jose then gave a detailed review of financial results. Art spoke about core middle market providing attractive investment opportunities, rigorous underwriting standards, PNNT's history of investing $9.3 billion at an average yield of 11.2% with low loss ratio. He also mentioned equity co-investments with excellent returns. Jose detailed GAAP net investment income and core net investment income were 14 cents per share, operating expenses, net realized and unrealized change on investments and debt, NAV, and key portfolio statistics.

For the quarter ended March 31st, core NII was 14 cents per share. As of March 31st, the portfolio totaled $1.2 billion. During the quarter, $108 million was invested including six new platform investments. The portfolio remains conservatively positioned. There were 4 non-accrual investments representing 2.7% of the portfolio at cost and 1.3% at market value. The PSLF joint venture portfolio totaled $1.3 billion at March 31st with an average NII yield on invested capital in the JV of 15.8% over the last 12 months. Software exposure was approximately 4.6% of the portfolio. The portfolio was highly diversified with 160 companies across 38 industries, 48% first lien senior secured debt, 2% second lien secured debt, 14% supported notes to PSLF, 7% other subordinate debt, 5% equity in PSLF, and 24% in other preferred and common equity co-investments, 88% of debt portfolio floating rate, debt to EBITDA 4.7 times, interest coverage 2.0 times.

Expect increased transaction activity to drive repayments across the portfolio including opportunities to monetize equity co-investments. Expect a meaningful realization from the equity co-investment in Echelon this quarter where upon closing the $1.1 million equity co-investment is expected to generate approximately $16 million in total proceeds.

Software exposure could have potential risks. Geopolitical environment may impact defense-related investments. Oil and commodity price fluctuations could impact the consumer sector which has some exposure in the portfolio. There is risk associated with non-accrual investments.

Q: About the market outlook, including software and government services and oil and commodity prices.

A: On market outlook, hopeful for more normalized environment but proof in pudding. Software exposure is small due to high leverage concerns. Government services is an area of growth with long relationships. Oil and commodity price fluctuations could impact consumer sector which has some exposure.

Q: About the echelon transaction.

A: Echelon transaction will close in next 60 days, marked at fair value at deal price. There are other less impactful equity positions.

Q: About drop in total interest income quarter over quarter and portfolio companies migration.

A: Smaller average portfolio over the quarter may be a reason. No significant migration of portfolio companies from high-tax states to lower-tax states seen yet