Q1 2022 Pennantpark Investment Corp Earnings Call
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Speaker 1: on hold for this Pennant Park Investment Corporation's first...
Speaker 1: quarter 2022 earnings conference call. At this time, we are assembling today's audience and plan to be underway shortly. We appreciate your.
Speaker 2: You You
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Speaker 1: Good afternoon and welcome to the Pennant Park Investment Corporation's first Fiscal Quarter 22 Earnings Conference Call. Today's conference is being recorded. At this time, all participants have been placed in a listen-only mode. The call will be open for a question and answer session following the speaker's remarks.
Good afternoon, and welcome to the pennant Park investment Corporation's first fiscal quarter 'twenty Two earnings Conference call. Today's conference is being recorded at this time all participants have been placed in a listen only mode. The call will be opened for a question and answer session. Following the Speakers' remarks.
Speaker 1: you would like to ask a question at that time, simply press star 1 on your telephone keypad.
If you would like to ask a question at that time simply press star one on your telephone keypad.
Speaker 1: like to withdraw your question, press star 2 on your telephone keypad. It is now my pleasure to turn
If you would like to withdraw your question Press Star two on your telephone keypad.
It is now my pleasure to turn the call over to Mr. Art, Penn Chairman and Chief Executive Officer of Pennant Park Investment Corporation, Mr. Penn Conference.
Speaker 1: Chairman and Chief Executive Officer of Pennant Park Investment Corporation.
Speaker 3: Good afternoon, everyone. I'd like to welcome you to Penn and Park Investment Corporation's first fiscal quarter 2022 earnings conference call.
Good afternoon, everyone I'd like to welcome you to the pennant Park investment Corporation's first fiscal quarter 2022 earnings conference call.
Speaker 3: I'm joined today by Richard Chung, our Chief Financial Officer. Richard, please start off by disclosing some general conference call information and include a discussion about forward-looking statements.
I'm joined today by Richard Junger, Chief Financial Officer, Richard Please start off by disclosing some general conference call information.
A discussion about forward looking statements.
Speaker 4: Thank you, Art. I'd like to remind everyone that today's call is being recorded.
Okay what.
I'd like to remind everyone that today's call is being recorded.
Speaker 4: Please note that this call is the property of Penn and Park Investment Company.
Please note that this call is the property of pennant Park, That's my Corporation.
Speaker 4: that any unauthorized broadcast of this call in any form is strictly prohibited.
Any unauthorized broadcast of this call in any form is strictly prohibited.
Speaker 4: Audio replay of the call will be available by using a telephone number and PIN provided in our earnings press release, as well as on our website.
Audio replay of the call will be available by using a telephone numbers and pin provided in our earnings press relief if it wasn't a website.
Speaker 4: I'd also like to call your attention to the Customary Safe Harbor disclosure and our press release regarding forward-looking information.
I would like to call your attention to the customary safe Harbor disclosure now press release regarding forward looking information.
Speaker 4: Today's conference call may also include forward-looking statements and projections and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially.
Today's conference call May also include forward looking statements and projections and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these projections.
Speaker 4: not undertake to update our forward-looking statements unless required by law.
Do not undertake to update our forward looking statements unless required by law.
Speaker 4: To obtain copies of our latest SEC filings, please visit our website at pennandpark.com or call us at 212-905-1000.
Yeah, I think copies of our latest SEC filings. Please visit our website at <unk> Dot com.
Cause that 212905 1000.
Speaker 4: At this time, I'd like to turn the call back to our Chairman and Chief Executive Officer, Art Penn.
At this time I would like to turn the call back to our chairman and Chief Executive Officer Art Penn.
Thanks Richard.
Speaker 3: I'm going to spend a few minutes discussing how we fared in the quarter ended December 31st, how the portfolio is positioned for the.
I'm going to spend a few minutes discussing how we fared in the quarter ended December 31st.
How the portfolio is positioned for the upcoming quarters.
Speaker 3: capital structure and liquidity, the financials, and then open it up for Q&A. We are pleased with our
Our capital structure and liquidity the financials and then open it up for Q&A.
We were pleased with our performance this past quarter.
Speaker 3: Due to this performance and the successful execution of our equity rotation program, we are pleased to announce a three-part plan to increase long-term shareholder value.
Due to this performance and the successful execution of our equity rotation program. We were pleased to announce a three part plan to increase long term shareholder value.
Speaker 3: Number one, an increase in our quarterly dividend by 17% to $0.14 per share per quarter, up from $0.12, starting this quarter and in March 31st.
Number one an increase in our quarterly dividend by 17% to 14 cents per share per quarter up from 12 cents. Starting this quarter ended March 31.
We anticipate using up to $25 million of the proceeds from the exit of pivot to engage in a stock buyback program over the next 12 months.
Speaker 3: We anticipate using up to $25 million of the proceeds from the exit of PIVOT to engage in a stock buyback program over the next 12 months.
Speaker 3: And number three, an increase in our investment in our PSLF-JV with Pantheon, which will enhance NII over time. Now to re-
And number three and increasing our investment in our P. S. L F JV with pantheon, which will enhance NII over time.
Now to review the results, which support this plan.
Speaker 3: The quarter ended December 31st and net investment income was 19 cents per share, including 2 cents per share of other income.
For the quarter ended December 31st net investment income was <unk> 19 cents per share, including <unk> <unk> per share of other income.
Speaker 3: We achieved a 2.7% increase in NAV. NAV went up 27 cents per share from $9.85 to $10.11 per share.
We achieved a 2.7% increase in NAV.
And if you went up 27 cents per share from $9 85 to.
The $10.11 per share.
Speaker 3: We are particularly pleased that our NEB as of December 31st, 2021 was up 15% from what it was pre-COVID on December 31st, 2019.
We are particularly pleased that our LTV as of December 31, 2021 was up 15% from what it was pre Covid on December 31 2019.
As part of the filing of our 10-Q, you will see a substantial increase in the value of our investment and pivot physical therapy or P. T network.
Speaker 3: As part of the filing of our 10-Q, you will see a substantial increase in the value of our investment in Pivot Physical Therapy or PT Network.
Speaker 3: It's been in the press that Pivot is being sold to Athletico Physical Therapy.
It's been in the press that pivot is being sold to athletic or physical therapy.
Speaker 3: This transaction is expected to close in the next few weeks.
This transaction is expected to close in the next few weeks.
Speaker 3: We will generate approximately $160 million of cash proceeds on our $18 million common and preferred stock investments in PIVX.
We will generate approximately $160 million of cash proceeds under $18 million common and preferred stock investments in pivot.
Speaker 3: We will also receive $73 million from the redemption of our second lien investment.
We will also receive $73 million from the redemption of our second lien investment.
Speaker 3: We believe in the combination of Let It Go and Pivot, and we'll invest $10 million of equity.
We believe in the combination of atlantico, and pivot and we'll invest $10 million of equity.
And the company.
Speaker 3: Over the last couple years, we've been targeting a reduction of the equity portion of our portfolio and using cash proceeds to invest in loans to increase net investment income.
Over the last couple of years, we've been targeting a reduction in the equity portion of our portfolio and using cash proceeds to invest in loans to increase net investment income.
Speaker 3: At its peak, equity was 36% of the portfolio on March 31st, 2021.
At its peak equity was 36% of the portfolio at March 31 2021.
Speaker 3: For a former for the exit of pivot, the percentage of our portfolio that will be equity will be down to 20%. Our long-term target.
Pro forma for the exited pivot the percentage of our portfolio that will be equity will be down to 20%.
Our long term target continues to be 10%.
Speaker 3: The exits are a combination of investments from our successful equity co-investment program, such as Wheel Pros, Walker Edison, DECO PAC, WBB, Summit, and Jupiter, as well as the successful outcomes of restructuring, such as PIVOT.
The exits are combination of investments from our successful equity co investment program, such as wheel Pros Walker Edison <unk> Pak W. B b.
And Jupiter.
As well, it's the successful outcomes of restructuring such as pivot.
Speaker 3: including the $160 million from the pivot exit. Equity proceeds since the peak on March 31st, 2021 will equal approximately $225 million.
Including the $116 million from the pivot exit equity proceeds since the peak on March 31, 2021 will equal approximately $225 million.
Speaker 3: As part of our business model, alongside the debt investments we make, we selectively choose to co-invest in the equity side-by-side with a financial sponsor.
As part of our business model alongside the debt investments, we make we selectively choose to co invest in the equity side by side with the financial sponsor.
Speaker 3: Our returns on these equity co-investments have been excellent over time. Overall for our platform from inception through December 31st, our 297 million of equity co-investments have generated an ILR of 29% and a multiple on invested capital of 2.9 times.
It turns on these equity call investments had been excellent over time.
Overall for our platform from inception through December 31, $297 million of equity co investments and generated an IRR of 29% and a multiple on invested capital of two nine times.
Speaker 3: In a world where investors may want to understand differentiation among middle market lenders, our long-term returns on our equity convestment program are a clear differentiator.
In a world where investors may want to understand differentiation among middle market lenders are long term returns on our equity co investment program are clear differentiator.
With regard to net investment income we continue to have a strategy, which includes number one optimizing the portfolio and balance sheet at P. N N T. As we move towards our target leverage ratio of 1.25 times debt to equity.
Speaker 3: With regard to net investment income, we continue to have a strategy, which includes number one, optimizing the portfolio and balance sheet at PNNT, as we move towards our target leverage ratio of 1.25 times debt to equity.
Speaker 3: Number two, growing our PSLF JV with Pantheon to about $750 million of assets from approximately $420 million of assets through additional investments from PNNT and Pantheon and balance sheet optimization including a potential securitization. And three, the opportunity to rotate out of our equity investments over time and into cash pay yield instruments. We are well on our way to implement.
Two growing our P. S L. Lotte JV with pantheon to about $750 million of assets from approximately 420 million of assets through additional investments from P. N N T and pantheon and balance sheet optimization, including a potential securitization and.
And three the opportunity to rotate out of our equity investments overtime and into cash pay yield instruments.
We are well on our way to implementing the NII growth strategy.
Speaker 3: The investment portfolio of P&NT increased by approximately $190 million to $1.45 billion from $1.26 billion over this past quarter. ESLF's investment portfolio.
Investment portfolio P. N N T increased by approximately $190 million to $1 45 billion from $1 two 6 billion over this past quarter.
Yes, L Fs investment portfolio also grew.
Speaker 3: $422 million from $405 million, an increase of $16 million.
$422 million from $405 million, an increase of $16 million.
Speaker 3: Subsequent to quarter end, we in Pantheon have agreed to increase our commitments to TSLF from about $170 million to approximately $235 million. Our portion of this upsize
Subsequent to quarter end, we had patheon have agreed to increase our commitments to tsls.
Only about $170 million to approximately $235 million.
A portion of this upsize is $39 million.
Speaker 3: We are focused on the core middle market, which we generally define as companies with between 10 and 50 million of EBITDA. And the target market where we think we add the most value and where we get the strongest package of risk return is in the 10 to 30 million of EBITDA range.
We are focused on the core middle market, which we generally define as companies with between 10 to 15 million of EBITDA and the target market, where we think we add the most value.
And where we get the strongest package of risk return is in the $10 million to $30 million of EBITDA range.
Speaker 3: We like the core middle market because it's below the threshold and does not compete with a broadly syndicated loan or high-yield market.
We like the core middle market, because it's below the threshold and does not compete with a broadly syndicated loan and high yield markets.
Speaker 3: As such, we do not compete with markets where leverage is higher, equity cushion lower, covenants are light, wide, or non-existent, information rights are fewer, EBITDA adjustments are higher, and less diligence, and the timeframe for making an investment decision is compressed. On the other hand, where we focus
As such we do not compete with markets, where leverages higher equity cushion lower.
Covenants are light wide or nonexistent information rights or fewer EBITDA adjustments are higher and less diligence and the timeframe for making an investment decision is compressed.
On the other hand, where we focus in the core middle market.
Generally our capital is much more important to the borrower as such Leverages lower equity cushion higher we have real quarterly maintenance covenants, we received monthly financial statements to be on top of the companies.
Speaker 3: Even though adjustments are more diligent than achievable, and we typically have six to eight weeks to make a thoughtful and careful investment decision.
EBITDA adjustments are more diligence and achievable and we typically have six to eight weeks to make a thoughtful and careful investment decision.
Speaker 3: According to Lincoln International, the covenant light share of direct lending loans increased from 20% in Q3.
According to Lincoln International.
Covenant light share of direct lending loans increased from 20% in Q3.
Speaker 3: 2021 to 35% in Q4 2021. A 15% increase in Covenant Lite in the direct lending world in just one quarter.
2021% to 35% in Q4, 2021, a 15% increase in covenant light in the direct lending world in just one quarter.
Speaker 3: We believe this was driven primarily by the growth of the mega multibillion dollar direct loans done by the largest direct lenders who compete heavily among themselves as well as competing with the broadly syndicated loan market.
We believe this was driven primarily by the growth of the Mega multibillion dollar direct loans done by the largest direct lenders to compete heavily among themselves.
As well as competing with a broadly syndicated loan market.
Speaker 3: less covenant protection may ultimately have important ramifications down the road to outcome.
Less covenant protection May ultimately have important ramifications down the road to outcomes.
Speaker 3: virtually all of our loans in the core middle market and meaningful covenant packages which protect lenders.
Virtually all of our loans in the core middle market and meaningful covenant packages, which protect lenders.
Speaker 3: According to S&P, loans to companies with less than $50 million of EBITDA have a lower default rate and a higher recovery rate than those loans to companies with higher EBITDA than $50 million.
According to S&P loans with companies loans to companies with less than 50 million of EBITDA had a lower default rate and a higher recovery rate.
Those loans to companies with higher EBITDA that $50 million.
Speaker 3: We believe that meaningful covenant protections of the core middle market have been an important part of this differentiated performance.
We believe that meaningful covenant protections of the core middle market have been an important part of this differentiated performance.
Speaker 3: Our portfolio performance remains strong. As of December 31st, average debt-to-eBitdoll in the portfolio was five times, and average interest coverage ratio, the amount by which cash interest income exceeds cash interest expense, was 3.3 times.
Our portfolio performance remained strong.
At December 31st average debt to EBITDA on the portfolio was five times and average interest coverage ratio the amount by which cash interest income exceeds cash interest expense was three three times we.
Speaker 3: We have no non-accruals in our book in PNNT and PSLS.
We have no non accruals on our book in PMT and PSL asset.
Speaker 3: The portfolio is highly diversified with 107 companies and 30 different industries.
The portfolio is highly diversified with 107 companies in 30 different industries.
Speaker 3: Since inception, PNNT has invested $6.6 billion and an average yield of 11%. This compares to a loss ratio of about nine basis points annually.
Since inception P. N N T has invested $6 $6 billion at an average yield of 11%. This compares to a loss ratio of about nine basis points annually.
Speaker 3: This strong track record includes our energy investments, our primarily subordinated debt investments made prior to the financial crisis, and now the pandemic.
This strong track record includes our energy investments are primarily subordinated debt investments made prior to the financial crisis and now the pandemic.
Speaker 3: As we analyze our 15-year track record at PNNT, it is clear that our returns took a step function up starting in 2015.
As we analyze our 15 year track record of P. N N T. It is clear that our returns took a step function up starting in 2015.
Speaker 3: The IRR of our investments made prior to 2015 was 9.7% and since 2015 we've achieved a 14.1% IRR. We believe this is due to four key factors.
<unk> of our investments made prior to 2015 was nine 7% and since 2015, we've achieved a 14, 1% IRR.
We believe this is due to four key factors.
Speaker 3: Number one, better company selection within industry verticals where we have domain expertise.
Number one better company selection within the industry verticals, where we have domain expertise.
Speaker 3: Number two, avoidance of investments in the energy industry and other cyclical.
Number two avoidance of investments in the energy industry and other cyclicals.
Speaker 3: Number three, excellent results from our equity co-investment program. And number four, a substantially increased focus on the core middle market companies where our capital is more important to those companies.
Number three excellent results from our equity co investment program.
And number four a substantially increased focus on the core middle market companies, where our capital is more important to those companies.
Speaker 3: Or middle market to us means below 50 EBITDA, and our primary market focus today and where we see the best risk-adjusted returns is in the $30 million of EBITDA and below range.
Or middle market to us means below 50 of EBITDA and our primary market focus today, and where we see the best risk adjusted returns is in the $30 million of EBITDA and below range.
Speaker 3: Many of our portfolio companies are in industries such as government services, healthcare, technology and software, business services, and select consumer companies where we have the meaningful domain expertise.
Many of our portfolio companies are in industries, such as government services healthcare technology software business services, and select consumer companies, where we had meaningful domain expertise.
Speaker 3: Journey to Ram Energy, Ram Energy had record revenue, EBITDA on cash flow in 2021.
Turning to Ram and Ram Energy Ram energy had record revenue EBITDA and cash flow in 2021.
Speaker 3: The company has a strong liquidity position and continues to benefit from improved prices in 2022.
The company has a strong liquidity position and continues to benefit from improved prices in 2022.
Speaker 3: While RAM analyzes its hedging weekly, the majority of its liquids, which are oil and NGLs, the majority of that production is unhedged to the upside, which comprises the majority of the revenue.
Ram analyzes its hedging weekly.
Majority of its liquids, which are oil and Ngls. The majority of that production is unhedged to the upside which comprises the majority of the revenues.
Speaker 3: In light of the current oil and gas market and to further enhance the cash flow and value of RAM for an eventual sale, in December , the company launched the drilling of two new wells in its horizontal Austin Chalk Acre.
In light of the current oil and gas market and to further enhance the cash flow and value of ramp for an eventual sale in December the company launched the drilling of two new wells and its horizontal Austin chalk acreage.
Speaker 3: date, Ram has drilled 11 wells in the Giddings Field and is the operator on a hundred percent of the Dalston Chalk Acre.
Hey, Ram has drilled 11 wells in the Giddings field and is the operator on 100% of its Austin chalk acreage.
Speaker 3: These wells are 100% working interest wells, and once completed and producing, substantially all of Rams Fayette County acreage will be held by production.
Wells are 100% working interest wells and once completed and producing substantially all of ramps Fayette County acreage will be held by production.
Speaker 3: All of the costs and expenses for these wells and the related gathering system expansion are being funded from cash on balance.
All of the costs and expenses for these wells and the related gathering system expansion are being funded from cash on balance sheet.
Speaker 3: The outlook for new loans is attractive. We are as busy as we've ever been in 15 years in business, reviewing and doing new deals.
The outlook for new loans is attractive we are as busy as we've ever been in 15 years in business reviewing and doing new deals.
Speaker 3: With our experienced, talented, and growing team, our wide funnel is producing active deal flow that we can then carefully and thoughtfully analyze so that we can be selective as to what ends up in our portfolio. Let me now turn the call over to Richard, our CFO , to take us through the financial results.
Our experienced talented and growing team are wide funnel is producing active deal flow that we can then carefully and thoughtfully analyzed so that we can be selective as to what ends up in our portfolio.
Let me now turn the call over to Richard our CFO to take you through the financial results.
Speaker 4: Thank you, Art. For the quarter ended December 31st, net investment income totaled $0.19 per share, including $0.02 per share.
Thank you all for.
For the quarter ended December 31st net investment income totaled <unk> 19 per share.
Moving to <unk> per share of other income.
Speaker 4: Looking at some of the expense categories, base management and performance-based incentive fees totaled $7.8 million.
Looking at some of the expense categories base management and performance based incentive fees totaled $7 8 million packs.
Speaker 4: Taxes, general and administrative expenses totaled $1.2 million and interest expense totaled $1.2 million.
Taxes general and administrative expenses totaled $1 2 million and interest expense totaled $6 9 million.
Speaker 4: Net real life losses on investments were $26.1 million or $0.39 per share.
Net realized losses on investments were $26 1 billion.
<unk> 39 per share.
Speaker 4: We redeemed our 2024 notes in full, which resulted in a real-life loss from debt extinguishment of $1.7 million, a two-cent split.
We redeemed our 2024 notes in full which resulted in a real life loss from debt extinguishment of $1 7 billion or two cents per share.
Speaker 4: I realized gains on our investments instead of any associated tax.
Realized gains on investments net of any associated tax provision were $41 7 billion or 62 cents per share.
Speaker 4: or $41.7 million, or $0.62 per share.
Speaker 4: Change in the value of our credit facility, decrease our NAV by one cent.
Change in the value of our credit facility decreased NAV by <unk> <unk> per share.
Speaker 4: Our net investment income was an excess-allowed dividend by $0.07 per share.
Our net investment income was in excess of our dividend by seven cents per share.
Speaker 4: Consequently, NAV per share went from $9.85 per share to $10.11 per share, up 2.7% from the prior quarter.
Accordingly, NAV per share went from $9 85 per share to $10 11 per share up two 7% from the prior quarter.
Speaker 4: As a reminder, our entire portfolio, credit facility, and senior notes are marked to market by our Board of Directors each quarter using the exit price provided by Independent Valuation
As a reminder, our entire portfolio credit facility and senior notes are marked to market our board of directors each quarter using the exit price provided by independent valuation firms.
Speaker 4: Securities Exchanges, an independent broker-dealer quote, when active markets are available.
Securities exchanges on dependent broker dealer quotes when active markets available.
<unk> 2020 five.
In cases, where broker dealer quotes are inactive we use independent valuation firms to value the investments.
Speaker 4: In cases where broker-dealer quotes are inactive, we use independent valuation firms to value them better.
Speaker 4: Our GAAP debt-to-equity ratio, instead of cash, was 1.1 times.
Our GAAP debt to equity ratio.
Cash was one one times.
Speaker 4: We have a strong capital structure with diversified funding sources and no near-term maturity.
We have a strong capital structure with diversified funding sources and no near term maturities.
Speaker 4: We have a $465 million revolving credit facility maturing in 2024 with a syndicated bank.
We have a $465 million revolving credit facility maturing in 2024 with a syndicate of banks.
Speaker 4: $64 million of SBA debentures maturing in 2027 and 2028.
$64 million of SBA debentures maturing in 2027 and 2028.
Speaker 4: $315 million of unsecured notes maturing in 2026, which includes the issuance of $165 million of unsecured notes with an interest rate of 4% during the quarter ended December
$350 million of unsecured notes maturing in 2026, which includes the issuance of $165 million of unsecured note.
The interest rate of 4% during the quarter ended December 31st.
Speaker 4: Our overall debt portfolio has a weighted average yield of 8.8%.
Our overall debt portfolio has a weighted average yield of eight 8%.
Speaker 4: December 31st, our portfolio consisted of 107 companies across 30 different
On December 31, our portfolio consisted of 107 companies across 30 different industries.
Portfolio was invested in 47% in first lien secured debt 15.
Speaker 4: The portfolio was invested in 47% in first lien secured debt, 15% in second lien secured
10% in second lien secured debt.
Speaker 4: 8% in subordinated debt, including 4% in PSLF, and 30% in preferred and common equities, including 3%.
8% in subordinated debt, including 4% in <unk> and 30% in preferred and common equity declined 3% and P. S O F.
Speaker 4: 93% of the debt portfolio has a floating rate, of which has a liable floor. The average liable floor is 1%. Now, let me turn the call back to Art.
93% of the debt portfolio has a floating rate of which has a LIBOR floor. The average LIBOR floor is 1%.
Now, let me turn the call back to art.
Thanks Richard.
To conclude we want to reiterate our mission our goal is to generate attractive risk adjusted returns through income coupled with long term preservation of capital.
Speaker 3: Our goal is to generate attractive risk-adjusted returns through income, coupled with long-term preservation of capital.
Speaker 3: Everything we do is aligned to that goal. We try to find less risky middle market companies that have high free cash flow conversion.
Everything we do is aligned to that goal, we try to find less risky middle market companies that have high free cash flow conversion.
Speaker 3: We capture that free cash flow primarily in debt instruments and we pay out those contractual cash flows in the form of dividends to our shareholders.
We capture that free cash flow, primarily in debt instruments, and we pay out those contractual cash flows in the.
The form of dividends to our shareholders.
Speaker 3: In closing, I'd like to thank our extremely talented team of professionals for their commitment and dedication. Thank you all for your time today and for your continued investment and confidence in us.
In closing I'd like to thank our extremely talented team of professionals for their commitment and dedication.
You all for your time today and for your continued investment and confidence in us.
Speaker 3: That concludes our remarks and at this time I would like to open up the call to questions.
That concludes our remarks at this time I would like to open up the call to questions.
Speaker 1: And if you would like to ask a question, please signal by pressing star 1 on your telephone keypad.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Speaker 1: If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We'll take our first question. This is a question for you. Can you hear me? Yes. Can you hear me? Yes. Can you hear me? Yes. Can you hear me? Yes. Can you hear me? Yes. Can you hear me? Yes. Can you hear me? Yes. Can you hear me? Yes. Can you hear me?
If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.
We will take our first question from Casey Alexander with Compass point.
Speaker 3: Hi, good afternoon. And Art, I think you and your team are entitled to a victory lap on PT Network's outcome. Truly, congratulations on that and holding to your goal of reducing equity as a percentage of the portfolio. Congratulations on that.
Hi.
Good afternoon, and and art I think you and your team are entitled to a victory lap on P. T networks outcome.
Truly congratulations on that and and holding to your goal of reducing equity as a percentage of the portfolio congratulations on that.
Speaker 3: Thank you. Appreciate it. Yep. I would like to.
Thank you I appreciate it yeah.
Yes, I would.
<unk> two.
Speaker 3: you know, kind of better understand the sort of overall RAM strategy.
You know kind of better understand the <unk>.
Sort of overall Ram strategy.
Speaker 5: In that it's a business that we've been trying to exit.
It's a business that we've been trying to exit.
Speaker 5: And yet, at the same point in time, you're investing more capital into the business. And I understand that, for instance, with PT Networks.
And yet at the same point in time, you are investing more capital into the business.
And I understand it for instance, with P. T networks was the same thing it was a business youre trying to exit you invested more capital to buy more stores and ultimately did exited.
Speaker 5: the same thing. It was a business you were trying to exit. You invested more capital to buy more stores and ultimately did exit it with great success. And so I really want to understand the RAM strategy.
With great success, and so I really want to understand the Ram strategy.
Speaker 5: that in a business that we're trying to exit, we're investing more, does having more wells not only improve the valuation because it increases the barrels of oil per day that you're producing, but does a larger field get a better multiple somehow? I'm really curious to understand the overall strategy that hopefully results in an exit of this business.
That is the business that we're trying to exit we're investing more.
Having more wells not only improve the valuation because it increases the barrel barrels of oil per day that you are producing but does a larger field get a better multiple somehow I'm really curious to understand the overall strategy that hopefully results in an exit of this business.
Speaker 3: Yeah, thanks. Thanks Casey. So there are some similarities. Obviously, there's a big difference between physical therapy and oil and gas, but the similarity is.
Yeah. Thanks. Thanks, Casey. So there are some similarities obviously is a big difference between physical therapy, and oil and gas, but the similarity is two to optimize exit sometimes you have to put more money than we did but we did a bunch of tuck in acquisitions and invested in de novo's and that created an incrementally EBITDA ultimate.
Speaker 3: to optimize exits, sometimes you have to put more money in. We did at Pivot, we did a bunch of tuck-in acquisitions.
Speaker 3: and invested in DeNovos and that created incrementally EBITDA and ultimately, you know, more, you know, very creative exit because we knew that for every dollar of EBITDA we could create, we get a very high multiple on it, on the exit, that's what we thought.
<unk>.
More very accretive exit because we knew that for every dollar of EBITDA, we take rate, we get a very high multiple on it on the <unk>, that's what we thought and that played through.
Speaker 3: and that played through. In RAM, the situation is somewhat similar. First, the wells in and of themselves are accretive.
And Ram situation is somewhat similar first the wells in and of themselves are accretive.
At today's prices.
Speaker 3: You can put a dollar in the ground and you can get a really good return on that dollar. So, you know, really good expected.
Put a dollar in the ground and you can get a really good return on that dollar so.
Really good expected irr's on the on the on the money that we're that we're using to drill a new well so ended up themselves that creates better cash flow better.
Speaker 3: on the money that we're using to drill new wells. So in and of themselves, that creates better cash flow, better...
Speaker 3: you know, better economics for the company. And then yes, because you're proving the worth of the field, you're expanding the worth of the field, and you're playing offense to some extent, perhaps it makes you more attractive on the exit to potential buyers. So, you know, the well's on their own two feet, irregardless of any exit, you know, makes sense. They're accretive.
Better economics for the company and then yes, because you're you're proving the the worst of the field, you're expanding the worst of the field.
And Youre playing offense to some extent, perhaps it makes you more attractive on the on the exit to potential buyers. So.
The the wells on their own two feet and regardless of any exit.
It makes sense they are accretive.
Speaker 3: And then, yes, we hope it means a better exit for us.
And then yes, we hope it means better exit gross.
Speaker 5: I mean, I was looking at the press releases from Ram and noted that Ram had a record year in 2021.
Would I mean I was looking at the press releases from Ram and noted that Ram had a record year in 2021.
Speaker 5: Would you characterize still no change in the M&A market or is there beginning to be indications of interest? How would you characterize the market for M&A in oil and gas in the Austin Chalk?
Would you characterize still no change in the M&A market or is there beginning to be indications of interest how would you characterize the market for M&A in in oil and gas in the Austin chalk.
Speaker 3: But we think it's getting a little bit better. We think it's stalling a little bit.
Well, we think it's getting a little bit better we.
We think it's falling a little bit.
Speaker 3: So, it's moving in the right direction. Obviously, if oil continues to stay at an attractive price today, it's over $90. It should continue to fall and, you know, set up the M&A market, the middle market M&A market for oil and gas to be more active hopefully as we get into 2022.
<unk>.
So it's moving in the right direction, obviously, if oil continues to stay at a at an attractive price today, it's over $90.
It should continue to fall and said you know setup the M&A market, the middle market M&A market for oil and gas to be to be more active hopefully as we get into 2022.
Speaker 5: All right, my last question is, to a certain extent, playing down.
Alright, and then my last question is is.
And to a certain extent playing Devil's advocate, let's say, if you're not getting a price that you want to complete these wells you bring them online they're producing in line with the rest of the field at what point in time do you build enough cash that say for instance, you could pay off the main street loan and start dividend in cash to the BDC.
Speaker 5: Let's say that you're not getting a price that you want to, you know, you complete these wells, you bring them online, they're producing in line with the rest of the field. At what point in time do you build enough cash that, say, for instance, you could pay off the Main Street loan and start dividending cash to the BDC? Not that that's the outcome that we want, but perhaps that's the outcome that we end up with at some point in time. You know, how does that play itself out and what sort of timeline might that be? It's a good question.
Not that that's the outcome that we want but perhaps that's the outcome that we end up with at some point in time.
How does that play itself out and what sort of timeline might that be.
It's a good it's a good question I think it's.
Speaker 3: you know, to try to put a pin in and timing on that. Look, if we continue, if the prices continue to be good, and, you know, every dollar you put in the ground, you can make $2 or something like that, you just keep doing that. And at some point you say, gee, this loan that we got through the Fed Mainstream Program is attractive as it is.
You know to try to put a pin in and timing on that look if we continue if the prices continue to be good.
And.
Every dollar you put in the ground you can make $2 or something like that.
Can you just keep doing that and at some point you say gee that the loans that we got through the fed Mainstreet program as attractive as it is.
Speaker 3: you know, we could we could pay off and just continue to generate good cash flow. And of course, at that point, also send cash flow up to up to PNNT. So, you know, it depends on how long this good market continues.
We could we could pay off and just continue to generate good cash flow and of course at that point also saying cash flow up to up to P. N N T. So.
It depends on how long this good market continues.
Speaker 3: And if we can continue to get excellent returns, then yeah, you'll look at it. I don't know when that would be. Is that six or 12 months down the road? And depending on where the M&A market is, you could theoretically say that the cash flows are really attractive. Just keep drilling wells and we'll send back chunks of cash to pay off the debt and then out to the BDC.
And if we can continue to get excellent returns then Dan Yeah, Youll look at it I don't know when that would be.
Is it six or 12 months down the road, depending where the M&A market is you could you could theoretically say the cash flows are really tracked just just keep putting just keep drilling wells and will send back chunks of cash to pay off the debt and then then out to the BDC.
Speaker 5: All right, well, again, congratulations on the PT Network's outcome, and thank you for taking my questions. Thanks, Casey.
Alright, well again, congratulations on the P. T networks outcome and thank you for taking my questions.
Thanks Keith.
Next question.
From Robert Dodd with Raymond James.
Speaker 6: Hi, guys, and congratulations on the quarter and the pivot exit. A couple of semi-housekeeping ones, if I can, first, and then I've got a couple more detailed ones. I mean, first, on pivot, with the exit, is there going to be any...
Hi, guys.
Congratulations on the quarter and up to the exit.
Couple of semi housekeeping ones. If I can first and then I've got a couple of more detailed ones I mean first on pivot with the X is that going to be any.
Speaker 6: In addition, obviously, the cash proceeds and repayments, but is there going to be any one-time income? I mean, are you getting any success fee, any last-minute dividend up to PNNT or anything like that that's going to flow through NII, or is all of it going to come in in terms of just, you know, below that?
In addition, obviously the cash proceeds and repayments, but is there going to be any one timing comment I mean are you getting any success fee any.
It's been a dividend up to <unk> or anything like that that's going to flow through NII or is all of it is going to come in in terms of.
Just a blood clot.
Speaker 3: Yes, it's virtually all and Richard correct me if I'm wrong, virtually all of it, if not all of it is is coming in below the line.
Yes, it is virtually all in which you're correct me if I'm wrong virtually all of it if not all of it is is coming in below the line.
That is correct yes.
Speaker 6: got it and then what's the what's the target leverage within the J
Got it and then what's the what's the target leverage in the JV.
Speaker 6: and it's 1.25 at the payment, but what about within...
And just 125.
What about within the JV.
Speaker 3: That's a great question. Look, I think if you said we're taking our commitments up to us in Pantheon to $235 million and we, you know, would expect over time to have that JV be $750 million. I guess that looks something like 2 to 1. Yeah, something like 2 to 1.
It's a great question.
Look I think if you said, we're taking our commitments up to us and pantheon to $235 million and we.
We would expect over time to have that GBP $750 million I guess that look so much at.
Yes, we the one yes, something like two to one.
Speaker 6: Got it.
Got it.
Okay.
Oh.
Speaker 6: Moving on to assets that did get marked down, Cascade and Mail South, the equity got marked down. Based on what you know right now and the trends of those businesses, should we have any concerns?
Moving on to two assets that did get marked down Cascade in mail south.
The equity got locked down.
Based on what you know right now and the trends of those businesses should should we have any concerns.
Speaker 6: on, more on the debt front, obviously they're both high-paying PICT coupon loans.
On a more on the debt, obviously that both high paying pik coupon loans.
Speaker 6: uh... so uh... is is there any concern that that that could be an issue uh... on on the loan side which i put box pretty well
So is there any concern that there could be an issue.
On the loan side, which are both box pretty well still.
Speaker 3: Yeah, no, I think the marks, you know, would indicate on the debt that there's still money good. There's still cushion there to pay them and pay them in cash. And the markdowns were really on the junior capital, the preferred and common stocks for various reasons and can go through them, you know, you know, however you want to go through them. But we feel like they were fairly marked by the debt and the equity, obviously, through third parties and are accurate in terms of how they're being valued.
Yeah, No I think the marks.
Indicate on the debt that.
There is still money good theyre still cushion there to pay them and pay them in cash.
And the markdowns were really on the junior capital the preferred and common stocks for various reasons and can go through them you know.
However, you want to go through that but we.
We feel like they were fairly market, both the debt and the equity obviously.
Through third parties and and and and.
And are accurate in terms of how they are being valued.
Speaker 6: Got it, got it, thank you. And then the last one for me, on the equity co-invest side, I mean, you laid out some numbers there. You do have, I mean, a 29% IRR over time is really attractive. So in the market today,
Got it got it. Thank you and then last one from me.
Only equity co invest side I mean, you laid out some numbers that you do have.
Being a 29% of all the time its Israeli attractive so.
In the market today.
Uh huh.
Speaker 6: How are the terms you're seeing or the availability even of equity co-invest?
All the other terms you are seeing or the availability of equity co invest do you.
Speaker 6: Do you think there's still, you know, multiples are up in the business and I'm sure you're not getting a discount when you do equity income investment. You're paying the same multiple as the people, right? So I mean, is it, you know, is that 29% sustainable do you think, or do you think in the environment today, not that this really affects NII obviously, right?
Do you think that's still multi.
Multiples are up in the business and I'm sure you don't get a discount when you do it.
That's the.
At the same multiple as the Pea.
Right.
Is it is that 2029% sustainable do you think or do you think in the environment today.
The visibility of that because obviously right.
Speaker 6: you know, is that 29% sustainable or should we expect that to come down? I mean, I realize it's a pretty tough question.
Is that 29% sustainable or should we expect that to come down.
Couple of questions.
Speaker 3: Yeah, look, it is a great question and time will tell. As I said, I think in most cases...
Yeah look I would say that is a great question and time will tell as I said I think in most cases.
Speaker 3: We are part of the first institutional capital in a company that's owned by a founder, an entrepreneur, or a family.
We are part of the first institutional capital and a company that's owned by founder and entrepreneur or a family.
Speaker 3: that founder, entrepreneur, or family are selling to a private equity firm in large part because there's a game plan for taking that $10 or $20 million EBITDA company and taking it to $30, $40, $50, $70, $100 million of EBITDA and you're right, in some cases the multiples are pretty high today. There's a lot of private equity. Multiples are high on one hand. On the other hand, when you're taking the company from $15 to $50 of EBITDA.
That's a founder entrepreneur or a family or selling to a private equity firm.
In large part because there's a game plan for taking that 10 or $20 million EBITDA company and taking it to 30, 40, 50 $70 million to $100 million of EBITDA.
And you're right in some cases, the multiples are pretty high today, there's a lot of private equity multiples are high.
On one hand on the other hand, when you're taking the company from 15 50 of EBITDA.
Speaker 3: you know, regardless of paying a high multiple, you're going to get a very good return on that equity capital. Our debt is helping to fuel that growth. I mean, that's part of the social contract with the private equity firm is, you know, permitting us to co-invest in the equity is that we are helping to drive that growth through our debt investments as a partner, and then we're participating in the ups through the co-invest.
Irregardless of paying a high multiple youre going to get a very good return on that equity capital Howard that he.
He is helping to fuel that growth I mean, that's part of the.
Part of the social contract with a private equity firm is.
Permitting us to co invest in the equity is that we are helping to drive that growth through our dead investments as a partner and then we're participating in the ups through the co invest so.
Speaker 3: You know, it's 29% sustainable. I mean, I'm thrilled and excited that it's been 29% and that MOIC is 2.9 times.
Is 29% sustainable.
We're thrilled and excited that it's been 29% in <unk> two nine times sure I mean, we're skeptical people where that people are always saying you know what.
Speaker 3: Sure, I mean, we're skeptical people, we're dead people. We're always saying, you know, we should always kind of create cushion and kind of think about it as a 20% IRR type of thing and maybe not 2.9 times, it's 2.4 times or something like that.
We should always kind of.
Great question.
So kind of think about it as a 20% IRR type of thing and maybe not two nine times at two four times or something like that I mean that would be.
Speaker 3: That would be us as credit people and skeptics, that's probably how we'd model it, something like that. But we've gone through an extraordinary time period and I'd say kind of the one thing that's newer, I highlighted this in the call, we've been in business at Pennant Park now, we're in our 15th year, we've really honed in in the last handful of years on where we had the most value.
US as credit people and skeptics, that's probably how we'd model something like that.
But we've gone through an extraordinary time period end.
I'd say kind of the one thing that's new were highlighted this in the call and we've been we've been in business a pennant park now we're in our 15th year, we've really homed in the last handful of years on where we add the most value.
Speaker 3: where we bring the most knowledge, where we can avoid the most mistakes.
Where we bring the most knowledge, where we can avoid the most mistakes.
Speaker 3: where we can get the best package of risk-adjusted return, including covenants. And it seems to be kind of below this radar, you know, a lot of press about the upper-middle market and the mega-unit tranches and all this other stuff, but where we add this most value is kind of in this 10 to 30 VBDA where we're partnering as part of the first institutional capital, you know, of a company. So, it's been working. It's been working better. I feel like we're continuously improving and getting better in that vein, but time will tell.
Where we can get the best package of risk adjusted return, including covenants and it seems to be kind of below. This radar you know a lot of press about the upper middle market and the Mega unit tranche as all the other stuff, but where are we at its most value is kind of in this 10 to 30 of EBITDA, where we're partnering as part of the first institutional capital.
So it's been working its been working better I feel like we were continuously improving and getting better in that vein.
Tom will tell.
Speaker 6: Thank you, and congrats on the quarter, the NAV, the dividend, and the buyback. Thanks.
Thank you.
Congrats on the quarter, the AAV the dividend and the buyback.
Thank you.
Yeah.
Our next question from Ryan Lynch with K B W.
Speaker 7: a good afternoon, Art, and I'll just join everybody else by saying congrats on the next quarter and probably more importantly, the successful exit of PT Networks. That's really great to the kind of long-term strategy of equity monetizations. So kind of on that point, though, obviously super successful exit or monetization of that investment, but
Hey, good afternoon.
Joining everybody else bye bye. Thank you congrats on the nice quarter and probably more importantly.
Thanks, a lot.
P. T networks, that's really great to that kind of a long term strategy of equity monetization.
So kind of on that point, though obviously super successful.
Exit or monetization of that investment, but that's going to throw a lot of cash coming back at your $225 million a lot of that non yielding equity, but you also have some some.
Speaker 7: That's going to throw a lot of cash coming back at you, you know, $225 million. A lot of that's non-yielding equity, but you also have some, you know.
Speaker 7: also a chunky higher yielding debt and preferred piece. So, just wanted to get your thoughts and outlook on capital deployment. Obviously, fourth quarter was incredibly busy, you know, kind of capped off a very strong 2021. How is early in 2022 shaping up as far as, you know, redeploying some of that capital?
It's also a chunky higher yielding.
Gagen preferred piece so.
Just wanted to get your thoughts and outlook on <unk>.
Capital deployment, obviously fourth quarter was incredibly busy kind of capped off a very strong 2021.
How is early in 2022 shaping up as far as redeploying some of that capital.
Speaker 7: growth from here. And I would assume that you expect, you know, based on the big repayment of or exit of PT networks in calendar Q1, I would assume you would expect a net repayment in that quarter.
Portfolio growth from here and I would assume that you expect based on the big repayment or exit of <unk> networks.
Calendar Q1.
I would assume you would expect.
Net net repayments in that quarter.
Sure Yeah no it's.
Speaker 3: You know, as we say in our business, when someone pays you back, and when you get a big one like this, you say thank you and you shouldn't complain about it, because obviously, you know, we do have to, we do, you know, one of our main goals is predictable NII, and we're not complaining, right? We'll take it back and we'll take the cash, and yes, it's a juicy second lien that we're getting paid off on.
As we see in our business when someone pays you back when you get a big one like this you say, thank you and you shouldnt complain about it because obviously.
We do have to do one.
Our main goals is predictable NII and and we're not complaining quite well, we'll take it back and we will take the cash and yes. It's a juicy secondly, they were getting paid off on that.
Speaker 3: That was too expensive for Atletico to take, so we're going to put our heads down and try to find good deals. We're not going to rush it. We're not the type to rush deployment.
It was too expensive for athletic OTA to take so.
We're going to you know put our put our heads down and try to find good deals, we're not going to rush it and we're not the types of kind of rush deployment we've.
Speaker 3: We've seen how that can harm long-term interest, so in a methodical, careful way, we're going to deploy the capital over the coming quarters. Part of it will be deployed in the JV with Pantheon. Part of it will be deployed in the stock buyback. Part of it we're going to roll into the Atletico deal, $10 million in equity. But yeah, we've got to put our head down and invest, at the same time being very careful.
We've seen how that can.
Our long term interests, so methodical careful way we're going to.
Deploy the capital over the coming quarters.
Part of it will be deployed into the JV with pantheon, a part of it will be deployed in the stock buyback part of it we're going to roll into the athletic wear deal and you know $10 million in equity so, but yeah, we got to put our head down and invest at the same time being very careful and selective.
Speaker 3: about what comes into the portfolio. In terms of kind of activity levels, 21 was
About what comes into the portfolio in terms of kind of activity levels 21 was <unk>.
Speaker 3: My God, what a blizzard of deals, particularly at the end of the year.
What a blizzard of deals, particularly.
Particularly at the end of the year.
Speaker 3: I think everyone in there is probably still recovering, whether it's those of us who are the lenders or the accounting firms, law firms, other people who are providers, just a record level year-end. Right now, and you've probably heard it from our peers, we're kind of going through a typical year seasonality-wise, where
I think everyone in her and she is probably still recovering whether it's.
Those of US who are the lenders or the count accounting firms law firms. Other people who are providers just a worker level at year end and.
No right now and you've probably heard from our peers were kind of going through a typical year seasonality wise, where.
Speaker 3: It's a little slow in January , February because, you know, of the blizzard of deals that were done in December , we still feel like 2022 will be an active year.
It's a little slow in January February because of the <unk>.
Doesn't mean deals that were done in December and we still feel like 2020 to be an active year.
Speaker 3: Don't know how active that will be. If you had to kind of pick a base case to model, maybe it looks a lot like 2019, pre-COVID.
Don't know how active that will be if you had to kind of pick a base case to model maybe it looks a lot like 2019 pre COVID-19 .
Speaker 3: Um, it may, it may not, I mean, we're still early, but, uh, you know, talking to our deal teams, uh, they feel like, you know, there's good dialogue, there's going to be, you know, nice activity levels and, and we'll have an active year, you know, here in 2022. Okay.
It may it may not I mean, we're still early but you know talking joined L. Teams. They feel like there's good dialogue and I'm just going to be you know nice.
A nice activity levels.
And we will have an active year in 2022.
Okay that makes sense and then.
Sure.
Speaker 7: On the point of capital deployment, you guys announced that the $25 million share repurchase program, that's one form of capital deployment. How do you guys view...
On kind of the point of capital deployment, you guys are now $25 million share repurchase program. That's one form of capital deployment, how do you guys view.
Speaker 7: how you guys plan on deploying the capital part of that program. Is that going to be kind of pretty consistent, pretty consistent deployment over the next four quarters or will that kind of have...
How do you guys plan on deploying the capital as part of that program is that going to be kind of pretty consistent.
Pretty consistent deployment over the next four quarters or will that kind of have has been flows depending on where your guys' stock price trades and the relative attractiveness, you guys view and share repurchases.
Speaker 7: ebbs and flows depending on where your stock price trades and the relative attractiveness you guys view it in the sharing.
Speaker 3: Yeah, it's a good question. At this point, we think of it as kind of, you know, equivalent pieces over the course of the next four quarters. It's certainly what we've done historically. But I'm also looking at the stocks here and saying, you know, it still remains, you know, really, really cheap relative to NAD and where we think it's going. So, you know, I think we think about it right now as, you know, equivalent bites over the course of the four quarters, but you never know.
Yeah. So good question at this point, we think of it as kind of.
You know equivalents pieces over the course of the next four quarters, that's certainly what we've done historically.
But I'm also looking at the stock here and saying you know it's.
Still remains really really.
Relative to NAV.
And anywhere where we think its going so.
I think we think about it right now as you know equivalent bites over the course of the four quarters, but you never know.
Okay Fair enough and then.
Speaker 7: Fair enough. And then, just one last question, following up on on Robert's question regarding, you know, mail south and cascade, would you be willing to provide, you know, an update? I mean, obviously, there was the equity, you know, for both of those investments got got marked down to zero. So there obviously was something there either fundamentally or or from a valuation standpoint that changed pretty materially. You know, could you just provide an update?
Just one last question just following up on Robert's question regarding male style from Cascade would you be willing to provide an update I mean, obviously there was.
The equity for both of those investments got marked down to zero. So there obviously was with something there either fundamentally or from a valuation standpoint does that change pretty materially.
Could you just provide an update on what kind of drove those marks.
Speaker 3: Sure. So Cascade is in the soil testing business, environmental soil testing.
Sure. So cascade is in the soil testing business environmental sort of testing.
Speaker 3: You know, Omicron certainly in late 21 took a, you know, really slowed it down. You know, the testing slowed down as the crews could not really.
Omicron certainly late 'twenty, one took a yeah.
<unk> really slowed it down.
Testing slowed down as the crews could not really.
Speaker 3: not really operating, particularly the jurisdictions they were in, California and New Jersey, which were restrictive in terms of the operations. So, we hope that bounces back here as Omicron has flowed through the population, but it certainly harmed the company kind of in late 21. MSpark is a direct...
Not really operate and particularly the jurisdictions, they ran a California, and New Jersey, which works.
In terms of the operation So we hope that's.
That bounces back here as you know omicron has flowed through the flow.
Flow through the population, but it certainly.
Harmed the company kind of in late 'twenty one.
And spark is the direct mail business.
Speaker 3: Unfortunately, a big part of its market is restaurants and retail, which is...
Unfortunately, big part of its market is restaurants and retail.
Speaker 3: got hurt during COVID, are still soft. We've executed a management change there and brought in a new CEO who we think very highly of.
Which.
Got hurt during Covid is still well still.
There are still soft.
We've executed a management change there and brought in a new CEO is we think very highly of.
Speaker 3: who we think will take this company to higher heights and help it rebound. We thought that made sense in late 2021 to execute that management change.
We think we will.
We'll take this company to higher Heights, and help a rebound, but we we thought that made sense.
Late 'twenty, one to execute that.
At the management change.
Yes.
Speaker 7: I think that's a helpful update. Thanks again for taking my questions, and again, congrats on the very successful.
Okay.
That's helpful update.
Thanks, again for taking my questions and again congrats on another very successful exit.
Thanks, Brian .
Our next question from Mickey <unk> with Ladenburg.
Speaker 5: Yes. Good afternoon, Art. Just a couple questions. Your unfunded commitments at PNNTF about tripled over the last few quarters. How much of that is for delayed draw, and what are your expectations for the timing to fund those commitments when we consider how active the M&A markets are currently?
Yes, good afternoon art, just a couple of questions.
Your unfunded commitments at PMT of about tripled over the last few quarters, how much of that is for delayed draw.
And what are your expectations for the timing to fund those commitments when we consider how active the M&A markets are currently.
Speaker 3: Yeah, it's a good question. I don't have the legs of a horse to revolve with my fingertips, Richard. I don't know if you do. If not, we can certainly get back to you after the call.
Yeah. It's a good question I don't have delayed draw revolver at my Fingertips, Richard I don't know if you do if not we can certainly get back to you. After the call. My sense is a lot of it's going to all as we.
Speaker 3: a lot of it's the late fall, you know, as we, as we, you know, work with these companies and we have these growth plans to take us from 15 to 50, a lot of what we're doing.
As we are.
Our work with these companies and we had these growth plans to take it from 15% to 50, a lot of what we're doing is kind of a delay draw to fuel that close but Richard any any particular color you have your finger tips, unless we can call call call me later.
Speaker 3: kind of late, we'll also fuel that close. But Richard, any particular color? You have your fingertips, so we can call him again later.
Speaker 4: Yeah, no, we'll call you back. It's about 50-50 between delay, drum, and revolver, but I can give you a precise breakdown.
Yes, now we can call you back it's about 50 50.
It's been delayed drawn revolver, but I can give you a precise.
Breakdown.
Speaker 5: That's fine, Richard, I understand. My other question, Art, your debt investment in PRA events is marked nicely. Does that reflect an expectation for prepayment or is it from something else like the company's performance or market multiples?
Nicole.
Yeah, that's fine Richard I understand.
My other question art.
That investment in PRA events as Mark nicely does that reflect an expectation for prepayment or is it from something else like the company's performance or market multiples.
Speaker 3: Yeah, you know, so this is an events company. It's called PRA Events. Obviously, during COVID, it was kind of shut down. Company's bouncing back very nicely here, thankfully, mostly corporate events. And companies are booking those corporate events again. And we're optimistic that, you know, they'll have a nice bounce here into 2022.
Yeah. So this is a live events company, it's called PRA, obviously during COVID-19 .
It was kind of shut down.
Company is bouncing back very nicely thankfully, mostly corporate events.
And companies are broken those corporate events again, and we're optimistic.
Have a nice balance here into 2022.
Speaker 8: Terrific, that's it for me. And I'd like to also congratulate you on the patience of your portfolio management in this quarter's results. Thanks a lot. That's it for me. Thank you, Michael.
Terrific. That's it for me and I would like to also congratulate you on the patience of your portfolio management in this quarters.
Results. Thanks, a lot that's it for me.
Thank you Mickey.
Go to our next question from Kyle Joseph with Jefferies.
Speaker 9: Hey, thanks for having me on, taking my questions, and let me echo the sentiment on, congrats on the positive developments we've seen. Most of my questions have been asked. I just wanted to follow up and just kind of get a sense from a high level in terms of portfolio performance and what sort of trends you're seeing in terms of EBITDA growth, and specifically margins, given the inflationary environment we find ourselves in.
Hey, Thanks for having me on and taking my questions and let me echo the sentiment on congrats on the positive developments we've seen.
Most of my questions have been asked I just wanted to follow up and just kind of get a sense for from a high level in terms of portfolio performance and what sort of trends you're seeing in terms of EBITDA growth and specifically margins given the inflationary environment, we find ourselves in.
Speaker 3: Yeah, look, we've seen nice, uh, Iguagabras, um...
Yes look we've seen a nice EBITDA growth.
Speaker 3: We're at large in the quarter at two year over year, I'm going to guess around 10%. And most
Writ large in the quarter and year over year, Yeah, just around 10%.
Hmm.
And most of the companies.
Had you know a good situation in terms of being able to raise their prices by definition.
Speaker 3: had, you know, a good situation in terms of being able to raise their prices. By definition, you know, we're always asking ourselves the question, does this company have a real reason to exist? Who cares if they go away? Which means the EBITDA margins are typically in excess of 20%, which means when there's inflationary pressures, their cost of goods are going up, their labor's going up, the supply chain issues, they have a better shot of increasing their prices because they're so important to their customers.
We're always asking ourselves. The question does this company have a real reason to exist who cares if they go away, which means the EBITDA margins are typically in excess of 20%, which means when there's inflationary pressures or cost of goods are going up so the labor is going up.
Fly chain issues, they have a better shot of.
Of increasing their prices because they're so important to their customers. In addition in this environment you have the.
Speaker 3: In addition, in this environment, you have the additional fact pattern of it's in the news, everyone sees inflation, everyone sees costs going up, so it has not been hard for
Additional fact pattern of it's in the news that we're seeing.
One sees inflation everyone's whose costs are.
Going up so it has not been hard for.
Speaker 3: in our portfolio companies to raise prices to protect themselves. Some are earlier than others, the ones who did it earlier have performed better, but others are catching up and will catch up ultimately. Like anything, sometimes quick.
Our portfolio companies to raise prices to protect themselves somewhere earlier than others, but once he does your earlier have performed better.
But others are catching up and we will.
Bob.
We'll catch up ultimately so.
Like anything sometimes quick.
Speaker 3: quick action in these environments is helpful and most of our companies are relatively quick in making that price increase.
Quick action in these environments is helpful and most of our companies were relatively quick.
That are making that caught me that price increase.
Got it very helpful. Thanks for answering my question.
Thank you Kyle.
Our next question from Melissa.
With.
J P Morgan.
Speaker 10: Good morning appreciate you taking my questions today. A couple of things I wanted to circle back on 1st on the dividend.
Good morning, appreciate you taking my questions today.
A couple of things I wanted to just circle back on <unk>.
First on the dividend.
Speaker 10: when we think about the portfolio rotation that's sort of occurring real time, increasing the dividend to a 14 cent per share level, should we think about that as reflecting maybe a little bit of margin in terms of sort of ongoing NII earnings power of the portfolio, so maybe a steady state earning power somewhere a little bit above that?
When we think about the portfolio rotation that sort of occurring real time, and increasing the dividends or <unk> <unk> per share level should we think about that as reflecting.
Maybe a little bit of margin.
In terms of sort of ongoing NII earnings power of the portfolio. So maybe a steady state.
Earnings power or somewhere little bit above that.
Speaker 3: Yeah, I mean, good question, Melissa. We feel very comfortable going to the 14 cents. We think it's
Yeah, I mean, it's a good question Melissa we feel very comfortable going to the 14th we think it's.
Speaker 3: You know, almost in any scenario you run comfortably covered with NII.
You know almost in any scenario you, Brian comfortably covered with NII.
Speaker 3: And we'll see where we go, you know, we'll see, you know, how, what the earnings power of PNNT and then the JV is, we'll see about the equity rotation, we'll see about live work going up and what, you know, what kind of impact that's going to have on the, on the NII. So, lots of different things going on, but for us, this was a first move and hopefully not the last move over time as we hopefully continue to grow NII. So.
And we will see where we go you know, we'll see you know now.
Al.
What the earnings power of the P&L and the new JV is we will see that the equity rotation, you'll see we'll see about LIBOR going up and what you know what kind of impact that's going to have on the on the on the NII. So lots of different things going on but for US. This was the first move and hopefully not the last move over.
Over time, as we hopefully continue to grow NII.
Okay got it that's that's very helpful. I appreciate that and then on <unk>.
Speaker 10: And then in thinking about further equity rotation, we've talked about a couple of names today. There are some equity positions in the portfolio that
And thinking about further equity rotation that we talked about a couple of names today. There are some equity positions in the portfolio that well maybe had a volatile mark in the December quarter.
Speaker 10: while maybe had a volatile mark in the December quarter.
Speaker 10: versus the September quarter preceding it, you still have a large unrealized gain in the position even if the mark came down sequentially.
The September quarter preceding it.
You still have a large.
Unrealized gain in that position, even if the market came down sequentially. So given the size of the exit that's about to occur and the cash that we'll generate.
Speaker 10: So, given the size of the exit that's about to occur and the cash that that will generate.
Speaker 10: Does this impact how you're thinking about the pace of rotation on other names?
This impact how you're thinking about the pace of rotation on other.
Speaker 3: Quick question, most of the time, yeah, most of the time, we don't really have control, right? So, PT, we have control, right? We have control, have control. And we'll not have control, hopefully, in the near future. Icano, which is a big name, that's been, you know, the stock's been up, it's been down, it kind of got hurt because it was kind of related to SPACs, but now it's been bouncing back for the last week or two. So,
Just a quick question most of the time, yes, most of the time on so we don't really have control right. So <unk>. We have control right now we had control and control and will not have control hopefully in the near future.
I can which is a big game.
That's been the stocks went up and spin down it kind of got hurt because it was kind of related to <unk> announcement bouncing back in the last week or two so.
Speaker 3: We don't have control there, and that's a public stock, and it just gets valued, you know, every minute in the stock market, so.
We don't have control there are some public stock and it just gets valued.
Every minute and stock market so.
Speaker 3: You know, it's the right time, it's the right place. Of course, we'd love to, you know, convert that to cash and invest in yield instruments. So that's a big name that we've done.
It's the right time at the right place of course, with the who'd love to convert that to cash and invest in yield instruments. So that's a big name is he doing.
Speaker 3: have control over. There's J&F, J&F, Johnson Frank, that's a big name. Again, we're more partnered with the current equities fund there.
No control over.
As J J.
Jana Johnson Frank.
That's a big name again were more partnered with private equity fund there.
Speaker 3: where the minority shareholder, we don't have control of that one. We can rattle off the names, but it's clearly identified in the SOI where we have control and where we don't.
We're the minority shareholder we don't have control of that one and we can we can rattle off the names.
But it is clearly identified in the Soi with where we have control on where we don't.
Speaker 3: You know, and we do have control of RAM, of course. We do have control of RAM, and I think we've touched on that. So, it's a mixed bag, and...
And but we do have controlled ramp of course, we do have the golar winter.
We've touched on that so it's a mixed bag and.
Speaker 3: You know, we're going to do everything in our power to have the balancing act of getting to our long-term goal of.
You know, we're going to do everything in our power to to have the balancing act of getting to our long term goal of of a vaccine.
Speaker 3: of exiting these equity positions while at the same time trying to optimize.
And exactly positions while at the same time trying to optimize.
Speaker 3: Optimized exit proceeds, RAM is a great example of that. We've talked about that for a long time and trying to find the balance of optimizing proceeds at the same time as having the goal of exiting is a challenge, but it's kind of, you know, I guess what we're supposed to be doing.
Optimize exit proceeds Ram is a great example of that and we've talked about that for a long time and are.
Trying to find the balance of optimizing proceeds at the same time as having the goal.
Of exiting is a challenge, but it's kind of you know I guess, what we're supposed to be doing.
Thanks, Eric.
Today's question and answer session. Mr. <unk> at this time I'll turn the call back to you for any additional or closing remarks.
I just want to thank everybody for being on the call today and the call will be in early may.
Speaker 3: I just want to thank everybody for being on the call today. Our next call will be in early May for the March quarter. Thank you for your interest in our company, and have a great day.
March quarter. Thank you for your interest in our company.
And have a great day.
Today's call. Thank you for your participation you may now disconnect.
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Okay.
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Speaker 2: You
Uh huh.
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Yeah.