Q1 2025 PennantPark Investment Corp Earnings Call

February 11, 2025

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Speaker Change: Good afternoon, and welcome to the pennant Park investment Corporation's first fiscal quarter of 2025 earnings Conference call. Today's conference is being recorded at.

Operator: Good afternoon, and welcome to the PennantPark Investment Corporation's Q1 2025 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. If you would like to ask a question at that time, simply press star one on your telephone keypad. 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 PennantPark Investment Corporation. Mr. Penn, you may begin your conference.

Speaker Change: 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 Change: Okay question at that time simply press star one on your telephone keypad.

Speaker Change: If you would like to withdraw your question Press Star two on your telephone keypad.

Speaker Change: 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 You May begin your conference.

Speaker Change: Good afternoon, everyone I'd like to welcome you dependent Park investment Corporation's first fiscal quarter 2025 earnings Conference call I'm joined today by Rick a Lauder, our CFO rich. Please start off by disclosing some general conference call information and included discussion about forward looking statements. Thank.

Art Penn: Good afternoon, everyone. I'd like to welcome you to PennantPark Investment Corporation's Q1 2025 Earnings Conference Call. I'm joined today by Rick Alorda, our CFO. Rick, please start off by disclosing some general conference call information and include a discussion about forward-looking statements.

Richard T. Allorto, Jr.: Thank you, Art. I'd like to remind everyone that today's call is being recorded. Please note that this call is the property of PennantPark Investment Corporation, and that any unauthorized broadcast of this call in any form is strictly prohibited. An audio replay of the call will be available on our website. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. 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. We do not undertake to update our forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at pennantpark.com or call us at 212-905-1000.

Rick Allorto: Thank you, Art. I'd like to remind everyone that today's call is being recorded. Please note that this call is the property of PennantPark Investment Corporation, and that any unauthorized broadcast of this call in any form is strictly prohibited. An audio replay of the call will be available on our website. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. 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. We do not undertake to update our forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at pennantpark.com or call us at 212-905-1000.

Speaker Change: Thank you art I'd like to remind everyone that today's call is being recorded. Please note that this call is the property of pennant Park investment Corporation and that.

Speaker Change: Any unauthorized broadcast of this call in any form is strictly prohibited.

Speaker Change: An audio replay of the call will be available on our website.

Speaker Change: I'd also like to call your attention to the customary safe Harbor disclosure in our press release regarding forward looking information.

Speaker Change: 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, we do not undertake to update our forward looking statements unless required by law.

Speaker Change: To obtain copies of our latest SEC filings. Please visit our website at pennant Park dot com or call us at 212905 1000.

Richard T. Allorto, Jr.: At this time, I'd like to turn the call back to our Chairman and Chief Executive Officer, Art Penn.

Rick Allorto: At this time, I'd like to turn the call back to our Chairman and Chief Executive Officer, Art Penn.

Speaker Change: At this time I'd like to turn the call back to our chairman and Chief Executive Officer Art Penn.

Art Penn: Thanks, Rick. We're going to spend a few minutes and comment on the current market environment for private middle market credit, how we fared in the quarter ended 31 December, how the portfolio is positioned for upcoming quarters, our dividend coverage and spillover income balance, a detailed review of the financials, then open it up for Q&A. For the quarter ended 31 December, our GAAP and core net investment income was $0.20 per share, which is $0.04 below our quarterly dividend. PNNT has $65 million or $0.99 per share of undistributed spillover income. In order to continue to comply with the tax rules, we are required to distribute this spillover income over time. We believe PNNT can generate core NII of $0.21 to $0.22 per share.

Art Penn: Thanks, Ric we're going to spend a few minutes and comment on the current market environment for private middle market credit.

Art Penn: How we fared in the quarter ended December 31st.

Art Penn: How the portfolio is positioned for upcoming quarters, our dividend coverage has spillover income balance a detailed review of the financials and then open it up for Q&A.

Art Penn: For the quarter ended December 31st our GAAP and core net investment income was <unk> 20 per share, which is four cents below our quarterly dividend.

Art Penn: P N N T a $65 million or 99 cents per share of undistributed spillover income.

Art Penn: In order to continue to comply with the tax rules, we're required to distribute this spillover income overtime.

Art Penn: We believe P. N N T can generate core NII of 21 to 22 cents per share. However, if core NII remained at the current level of <unk> 20 per share it would take over 24 quarters.

Art Penn: However, if core NII remained at the current level of $0.20 per share, it would take over 24 quarters or 6 years to fully distribute the spillover income. GAAP and adjusted NAV increased by 0.1% to $7.57 per share from $7.56. As of December 31, our portfolio totaled $1.3 billion. During the quarter, we continued to originate attractive investment opportunities and invested $296 million in 12 new and 61 existing portfolio companies at a weighted average yield of 10.6%. We continue to see an attractive vintage in the core middle market. For investments in new portfolio companies, the weighted average debt to EBITDA was 4x, the weighted average interest coverage was 2.2x, and the weighted average loan to value was 62%.

Art Penn: Or six years to fully distribute the spillover income.

Art Penn: GAAP and adjusted NAV increased to 0.1% to $7 57 per share from $7.56.

Art Penn: As of December 31st our portfolio totaled $1 $3 billion and during the quarter, we continued to originate attractive investment opportunities.

Art Penn: And invested $296 million in 12, new and 61 existing portfolio companies at a weighted average yield of 10, 6%.

Art Penn: We continue to see an attractive vintage in the core middle market for investments in new portfolio companies. The weighted average debt to EBITDA was four times. The weighted average interest coverage was two two times and the weighted average loan to value was 62%.

Art Penn: As of December 31st the portfolio's weighted average leverage ratio through our debt security was four nine times and the portfolio's weighted average interest coverage was one nine times. These attractive credit statistics are a testament to our selectivity.

Art Penn: As of December 31, the portfolio's weighted average leverage ratio through our debt security was 4.9 times, and the portfolio's weighted average interest coverage was 1.9 times. These attractive credit statistics are a testament to our selectivity, conservative orientation, and our focus on the core middle market. In the core middle market, the market yield on first lien term loans appears to have stabilized in the 7 + 500 to 550 range. As the credit statistics just highlighted indicate, we continue to believe that the current vintage of core middle market loans is excellent. In the core middle market, leverage is lower, spreads are higher, and covenants are tighter than the upper middle market, and we are still getting meaningful covenant protections. Our JV portfolio continues to grow and be a significant contributor to our NII.

Art Penn: Conservative orientation, and our focus on the core middle market.

Art Penn: In the core middle market the market yield on first lien term loans appears to have stabilized in the silver plus 500 to 550 range as.

Art Penn: As the credit statistics, just highlighted indicate we continue to believe that the current vintage of core middle market loans is excellent in the core middle market, Leverages, lower spreads or higher and covenants are tighter than the upper middle market.

Art Penn: And we are still getting meaningful covenant protections are JV portfolio.

Art Penn: That continues to grow and be a significant contributor to our NII.

Art Penn: As of December 31, the JV portfolio grew to $1.3 billion. During the quarter, the JV invested $354 million, including $286 million of purchases from PNNT. Over the last 12 months, PNNT earned an 18.4% return on invested capital in the JV. The JV has the capacity to increase its portfolio to $1.6 billion, and we expect that with the continued growth in this portfolio, the JV investment will enhance PNNT's earnings momentum in future quarters. The credit quality of our investment portfolio remains strong. We had 2 nonaccruals as of December 31, which represented 4.3% of the portfolio at cost and 1.5% of market value. Now let me turn to the current market environment.

Art Penn: At December 31, the JV portfolio grew to $1 $3 billion and during the quarter, the JV invested $354 million, including $286 million of purchases from P. N N T.

Art Penn: Over the last 12 months P. N N T earned an 18, 4% return on invested capital in the JV.

Art Penn: The JV has the capacity to increase its portfolio to $1.6 billion and we expect that with the continued growth in this portfolio. The JV investment will enhance P. N N Ts earnings momentum in future quarters.

Art Penn: The credit quality of our investment portfolio remains strong we had two non accruals as of December 31st which represented four 3% of the portfolio at cost at 1.5% of market value now, let me turn to the current market environment, we're well positioned as a lender focused on capital preservation in the United States, We continue to.

Art Penn: We're well-positioned as a lender focused on capital preservation in the United States. We continue to believe that our focus on the core middle market provides the company with attractive investment opportunities where we provide important strategic capital to our borrowers. We have a long-term track record of generating value by successfully financing growing middle market companies in five key sectors. These are sectors where we have substantial domain expertise, know the right questions to ask, and have an excellent track record. They are business services, consumer, government services and defense, healthcare, and software technology. These sectors have been recession resilient and tend to generate strong free cash flow. In the core middle market, companies with 10 to 50 million of EBITDA is below the threshold and does not compete with the broadly syndicated loan or high yield markets, unlike our peers in the upper middle market.

Art Penn: And believe that our focus on the core middle market provides the company with attractive investment opportunities, where we provide important strategic capital to our borrowers.

Art Penn: We have a long term track record of generating value by successfully financing growing middle market companies and five key sectors. These are sectors, where we have substantial domain expertise and the right question to ask and I have an excellent track record. They are business services consumer government services and defense health care and software technology.

Art Penn: These sectors have been in recession resilient intend to generate strong free cash flow.

Art Penn: In the core middle market companies with 10 to 15 million of EBITDA is below the threshold and does not compete with the broadly syndicated loan or high yield markets. Unlike our peers in the upper middle market.

Art Penn: In the core middle market, because we are an important strategic lending partner, the process and package of terms we receive is attractive. We have many weeks to do our diligence with care. We thoughtfully structure transactions with sensible credit stats, meaningful covenants, substantial equity cushions to protect our capital, attractive spreads, and equity and call investments. Additionally, from a monitoring perspective, we receive monthly financial statements to help us stay on top of the companies. With regard to covenants, unlike the erosion in the upper middle market, virtually all of our originated first lien loans have meaningful covenants which help protect our capital. This is a significant reason why we believe we are well-positioned in this environment. Many of our peers who focus on the upper middle market state that those bigger companies are less risky.

Art Penn: Core middle market, because we are important strategic lending partner the process and package of terms, we receive is attractive.

Art Penn: Any weeks to do our diligence with care, we thoughtfully structure transactions with sensible credit stats meaningful covenants substantial equity cushions to protect our capital attractive spreads and equity co investments.

Art Penn: Additionally from a monitoring perspective, we received monthly financial statements to help us stay on top of the companies.

Art Penn: With regard to covenants. Unlike the erosion in the upper middle market virtually all of our originated first lien loans have meaningful covenants, which help protect our capital. This is this is a significant reason why we believe we're well positioned in this environment.

Art Penn: Many of our peers, who focus on the upper middle market state that those bigger companies are less risky.

Art Penn: That is a perception and may make some intuitive sense, but the reality is different. 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 loans to companies with higher EBITDA. We believe that the meaningful covenant protections of the core middle market, where there's more careful diligence and tighter monitoring, have been an important part of this differentiated performance. As a provider of strategic capital who fuels the growth of our portfolio companies, in many cases, we participate in the upside of the company by making an equity co-investment. Our returns on these equity co-investments have been excellent over time.

Art Penn: That is a perception that may makes some intuitive sense, but the reality is different according to S&P loans with companies with less than 50 million of EBITDA have a lower default rate and a higher recovery rate the loans to companies with higher EBITDA we.

Art Penn: We believe that the meaningful covenant protections of the core middle market, where there's more careful diligence and tighter monitoring had been an important part of this differentiated performance.

Art Penn: As a provider of strategic capital it fuels the growth of our portfolio companies in many cases, we participate in the upside of the company by making an equity co investment returns on these equity co investments had been excellent over time overall for our platform from inception through December 31, we've invested over $563 million in equity comp.

Art Penn: Overall, for our platform from inception through December 31, we've invested over $563 million in equity co-investments and have generated an IRR of 26% and a multiple on invested capital of 2x. Since inception nearly 18 years ago, PNNT has invested $8.6 billion at an average yield of 11.3% and has experienced a loss ratio on invested capital of approximately 20 basis points annually. This strong track record includes the investments of primarily subordinated debt that we made prior to the global financial crisis, legacy energy investments, and recently the pandemic. With regard to the outlook, new loans in our target market are attractive. Our experienced and talented team and our wide origination funnel is producing active deal flow. Our continued focus remains on capital preservation and being patient investors.

Art Penn: <unk>.

Art Penn: And have generated an IRR of 26% and a multiple on invested capital of two times.

Art Penn: Since inception, nearly 18 years ago P. N N T has invested $8 $6 billion at an average yield of 11, 3% and has experienced the loss ratio on invested capital of approximately 20 basis points annually. This.

Art Penn: This strong track record includes the investments are primarily subordinated debt that we made prior to the global financial crisis legacy energy investments and recently the pandemic.

With regard to the outlooks new loans in our target market are attractive our experienced and talented team and our wide origination funnel is producing active deal flow and a continued focus remains on capital preservation and being patient investors.

Art Penn: We want to reiterate our goal to generate attractive risk-adjusted returns through income. Coupled with long-term preservation of capital, we seek to find investment opportunities in growing middle-market companies that have high free cash flow conversion. We capture that free cash flow primarily through debt instruments, and we pay out those cash flows in the form of dividends to our shareholders. Let me now turn the call over to Rick, our CFO, to take us through the financial results.

Art Penn: We want to reiterate our goal is to generate attractive risk adjusted returns through income coupled with long term preservation of capital, we seek to find out investment opportunities and growing middle market companies that have high free cash flow conversion, we capture that free cash flow primarily through debt instruments, and we pay out those cash flows in the form of dividends to our shareholders.

Art Penn: Let me now turn the call over to Rick our CFO to take us through the financial results.

Richard T. Allorto, Jr.: Thank you, Art. For the quarter ended 31 December, GAAP and core net investment income was $0.20 per share. For the quarter, NII was negatively impacted by $0.012 per share as a result of placing our investment in Pragmatic Institute on full nonaccrual. Operating expenses for the quarter were as follows, interest and credit facility expenses were $11.7 million, base management and incentive fees were $7 million, general and administrative expenses were $1.75 million, and provision for excise taxes was $0.7 million. For the quarter ended 31 December, net realized and unrealized change on investments and debt, including provision for taxes, was a gain of $3.1 million.

Rick Allorto: Thank you, Art. For the quarter ended 31 December, GAAP and core net investment income was $0.20 per share. For the quarter, NII was negatively impacted by $0.012 per share as a result of placing our investment in Pragmatic Institute on full nonaccrual. Operating expenses for the quarter were as follows, interest and credit facility expenses were $11.7 million, base management and incentive fees were $7 million, general and administrative expenses were $1.75 million, and provision for excise taxes was $0.7 million. For the quarter ended 31 December, net realized and unrealized change on investments and debt, including provision for taxes, was a gain of $3.1 million.

Rick Lauder: Thank you art for the quarter ended December 31st GAAP and core net investment income was <unk> 20 per share for.

Rick Lauder: For the quarter NII was negatively impacted by $1 <unk> per share as a result of placing our investment in pragmatic Institute on full non accrual.

Rick Lauder: Operating expenses for the quarter were as follows interest and credit facility expenses were $11 7 million base management and incentive fees were $7 million Jeff.

Rick Lauder: General and administrative expenses were $1 $75 million and provision for excise taxes.

Rick Lauder: <unk> point $7 million for.

Rick Lauder: For the quarter ended December 31, net realized and unrealized change on investments and debt, including provision for taxes was a gain of $3 1 million.

Rick Lauder: As of December 31st our GAAP and adjusted <unk>.

Richard T. Allorto, Jr.: As of 31 December, our GAAP and adjusted NAV was $7.57 per share, which is up 0.1% from $7.56 per share in the prior quarter. As of 31 December, our debt-to-equity ratio was 1.57 times, and our capital structure is diversified across multiple funding sources, including both secured and unsecured debt. As of 31 December, our key portfolio statistics were as follows: our portfolio remains highly diversified with 158 companies across 35 different industries. The weighted average yield on our debt investments was 12%. We had 2 nonaccruals, which represent 4.3% of the portfolio at cost and 1.5% at market value.

Rick Allorto: As of 31 December, our GAAP and adjusted NAV was $7.57 per share, which is up 0.1% from $7.56 per share in the prior quarter. As of 31 December, our debt-to-equity ratio was 1.57 times, and our capital structure is diversified across multiple funding sources, including both secured and unsecured debt. As of 31 December, our key portfolio statistics were as follows: our portfolio remains highly diversified with 158 companies across 35 different industries. The weighted average yield on our debt investments was 12%. We had 2 nonaccruals, which represent 4.3% of the portfolio at cost and 1.5% at market value.

Rick Lauder: Was $7 57 per share, which is up 1% from $7 56 per share in the prior quarter.

Rick Lauder: As of December 31, our debt to equity ratio was 157 times and our capital structure is diversified across multiple funding sources, including both secured and unsecured debt.

Rick Lauder: As of December 31, our key portfolio statistics, whereas follows.

Rick Lauder: Our portfolio remains highly diversified with 158 companies across 35 different industries.

Rick Lauder: The weighted average yield on our debt investments was 12%.

Rick Lauder: We had two non accruals, which represent four 3% of the portfolio at cost.

Rick Lauder: And one 5% at market value.

Richard T. Allorto, Jr.: The portfolio is comprised of 50% first lien secured debt, 4% second lien secured debt, 11% subordinated notes to PSLF, 6% other subordinated debt, 6% equity in PSLF, and 23% other preferred and common equity. 94% of the debt portfolio is floating rate. Debt-to-EBITDA on the portfolio is 4.9 times, and interest coverage is 1.9 times. Now let me turn the call back to Art.

Rick Allorto: The portfolio is comprised of 50% first lien secured debt, 4% second lien secured debt, 11% subordinated notes to PSLF, 6% other subordinated debt, 6% equity in PSLF, and 23% other preferred and common equity. 94% of the debt portfolio is floating rate. Debt-to-EBITDA on the portfolio is 4.9 times, and interest coverage is 1.9 times. Now let me turn the call back to Art.

Rick Lauder: The portfolio is comprised of 50% first lien secured debt.

Rick Lauder: 4% second lien secured debt.

Rick Lauder: 11% subordinated notes to P. S. L F C.

Rick Lauder: 6% other subordinated debt.

Rick Lauder: 6% equity in P. S L F and 23% other preferred and common equity.

Rick Lauder: 94% of the debt portfolio is floating rate.

Rick Lauder: Debt to EBITDA on the portfolio is four nine times and interest coverage is one nine times now.

Art Penn: Now, let me turn the call back to art.

Art Penn: Thanks, Rick. In closing, I'd like to thank our dedicated and talented team of professionals for their continued commitment to PNNT and its shareholders. Thank you all for your time today and for your continued investment and confidence in us. That concludes our remarks at this time. I would like to open up the call to questions.

Art Penn: Thanks, Rick and closing I would like to thank our dedicated and talented team of professionals for their continued commitment to P. N N T and its shareholders.

Art Penn: You all for your time today and for your continued investment and confidence in us.

Art Penn: That concludes our remarks at this time I would like to open up the call to questions.

Art Penn: And as a reminder, that is star one if you would like to ask a question.

Operator: As a reminder, that is star one if you would like to ask any question. We'll now take our first question from Mark Hughes with Truist.

Speaker Change: Well now take our first question from Mark Hughes with Trulia.

Mark Hughes: Yes. Thank you part I'm, just sort of curious that any commentary about the level of capacity or competition in the core middle market I think.

Mark Hughes: Yeah, thank you. Art, I'm just sort of curious. Any commentary about the level of capacity or competition in the core middle market? I think you've described spreads as relatively stable, so that's one, meaningful indicator. But I'm just curious whether you've seen more folks in the market pursuing these type of loans.

Speaker Change: Describe spreads is relatively stable.

Speaker Change: One a meaningful indicator, but I'm just curious whether you've seen more folks in the market pursuing these type of loans.

Mark Hughes: It's a good question Mark we have not.

Art Penn: Good question, Mark. We have not seen new players. The larger players have not chosen to come down into this kind of space. We've seen them exit and go upmarket. There's really just a handful of players that we view as kind of peers in this market. Frankly, there's not many of those peers who kind of have our game plan of being willing and able to finance a $10 million EBITDA company, for instance, and then have a game plan to finance the growth of that company up to $30, $40, $50 million of EBITDA. We're one of the only couple players, I think, that can kind of are willing, able, and would like to do that kind of growth financing.

Speaker Change: Not seen new players.

Mark Hughes: The larger.

Mark Hughes: <unk> have not chosen to come down into into this kind of space, we've seen them exit and go up market.

Mark Hughes: So there is really just a handful of players that we view as kind of peers in this market and in fact frankly.

There's not many of those peers, who kind of have our game plan.

Mark Hughes: Being willing enable to finance a 10 million dollar EBITDA company for instance, and then have a game plan to.

Mark Hughes: Finance the growth of that company up to 30 40 $50 million of EBITDA. So we're one of the only couple of players I think that can kind of are willing able and would like to do that.

Mark Hughes: Kind of a gross financing in many cases will make an initial loan to the platform.

Art Penn: In many cases, we'll make an initial loan to the platform, and we will structure a delayed draw term loan to fuel the growth of that company. No new competitors of any meaning. Spreads have kind of, you know, stabilized at 500, 550 in general. You know, it's been a pretty good environment to be a lender.

Mark Hughes: And we will structure a delayed draw term loan to fuel the growth of that company. So.

Mark Hughes: No new no new competitors, meaning spreads if kind of you know.

Mark Hughes: Stabilized at $505 50 in general.

Mark Hughes: And it's been a pretty good.

Mark Hughes: <unk> to be a lender.

Mark Hughes: Okay.

Mark Hughes: How about your appetite or the Oh.

Mark Hughes: How about your appetite or the companies or private equity, the appetite for the equity co-investments? Is that something you're pursuing more or less? Is that gonna be a stable part of the investment portfolio?

Mark Hughes: Companies are private equity the appetite for the equity co investments.

Mark Hughes: Nir.

Mark Hughes: Pursuing more or less is that going to be a stable part of the investment.

Mark Hughes: Investment portfolio.

Mark Hughes: Yeah, you know I don't think we do have more or less their each individual investment decisions. We first try to figure out if we can make it good and safe loan.

Art Penn: Yeah, you know, I don't think we do it more or less. They're each individual investment decisions. We first try to figure out if we can make a good and safe loan, and then separately, as a separate investment, we evaluate the equity co-investment. In those prototypical deals where we're fueling the growth and we're helping these companies and private equity sponsors grow, we think it makes a lot of sense to be participating in that upside to some extent that we're helping to create with our loans. In many of those cases, we will ask for and receive some form of upside equity co-investment instrument to capture some of that growth.

Mark Hughes: And then separately as a separate investment.

Mark Hughes: We evaluate the equity co invest.

Mark Hughes: In those prototypical deals, where we're fueling the growth and we're helping these.

Mark Hughes: Companies and private equity sponsors grow.

Mark Hughes: We think it makes a lot of sense to be participating in that upside to some extent that we're helping to create with our with our with our loans. So in many of those cases, we will ask for and receive some form of upside equity co invest.

Mark Hughes: Instrument to capture some of that growth and we think it makes a lot of sense as a portfolio matter.

Art Penn: We think it makes a lot of sense as a portfolio matter. Because even though we're highly diversified and we're very selective and we try to keep leverage low, we like having something in our portfolio that's got a little bit of lift. On those co-invest over time, as we've said, we've had a 26% IRR and 2x MOIC. That's helped to solidify NAV over time.

Mark Hughes: Because even though we're highly diversified and we're very selective and.

Mark Hughes: And we try to keep leverage low we like having something in our portfolio.

Mark Hughes: That's got a little bit of lift and end on those co invest overtime as we've said we've added 26% IRR and two times <unk>. So that has helped too.

Mark Hughes: Certify NAV over time.

Mark Hughes: Yeah, and then when we think about net investment activity for P. N N T. Obviously the JV.

Mark Hughes: Yeah. Then when we think about net investment activity for PNNT, obviously the JV took down a lot of the investments. How do you think that'll trend in kind of the first half of the year? Would we expect PNNT to be a net investor, net positive investment activity?

Mark Hughes: It took down a lot of a.

Mark Hughes: A lot of the investments.

How do you think that will trend in the kind of the first half of the year would we expect being N T to be.

Mark Hughes: Our net a net investor net positive our investment activity.

Mark Hughes: Hey at this point P. S T N N Ts optimized.

Art Penn: At this point, PNNT is optimized. You know, I still think we believe PNNT long term should be leveraged in the 1.25, 1.3 times debt to equity range. PNNT is a little bit higher than that right now, really just as a holding pen for assets that are gonna end up in that growing joint venture. Long term, we're still anticipating PNNT's leverage back down to that 1.25, 1.3 times zone, but a little bit more leverage than that for now, temporarily as it holds assets that will ultimately end up in that joint venture.

Mark Hughes: Still think we believe pan anti long term should be leveraged in the one to 513 times debt to debt to equity range. So.

Mark Hughes: P N N Ts.

Mark Hughes: Below bit higher than that right now really just as a.

Mark Hughes: As a holding holding pen for assets that are going to end up in that growing joint venture. So long term, we're still anticipating pmt's leverage back down to that 1513 times at zone.

Mark Hughes: Well, a little bit more leverage than that for now temporarily as as it holds assets that will ultimately end up in that joint venture.

Thank you.

Mark Hughes: Thank you.

Art Penn: Thank you.

Speaker Change: We will now take our next question from Robert Dodd with Raymond James.

Operator: We'll now take our next question from Robert Dodd with Raymond James.

Robert Dodd: Good morning.

Robert Dodd: Morning. How are you doing? On the spillover income question, I mean, you've got to your point in the prepared remarks was helpful. I mean, $0.99, I mean, that's basically your dividend run rate. Which means functionally, you can't cut the dividend until that's worked down, not without paying corporate tax at least. Where-

Mark Hughes: Hey, How're you doing.

Speaker Change: On the spill over income question I mean, you've got to your point in the prepared remarks was helpful. I mean 99 cents I mean, that's basically you your dividend run rate, which means functionally you you.

Speaker Change: Corn cut the dividend until that's that's worked down not without paying corporate taxes, So where would you like to work that spillover income down to in terms of like you know how many quarters of dividend or a dollar number I mean, because that's it's to your point, it's going to take a long time.

Art Penn: Right.

Robert Dodd: Would you like to work that spillover income down to in terms of like, you know, how many quarters of dividend or a dollar number? I mean, because that's to your point, it's gonna take a long time at the rate it's getting eaten into. But just give us any color on what your target kinda level would be for that.

Speaker Change: At the rate, it's getting eaten into but just give us any color on what your target kind of level would be.

Speaker Change: That.

Speaker Change: It's a great question and part of it is is what's the market opportunity, whereas the yield in the market, what's our equity rotation looking like.

Art Penn: It's a great question, and part of it is what's the market opportunity? Where's the yield in the market? What's our equity rotation looking like? At this point, we're kinda steady as she goes. We think we should be earning more than 20 on a core basis. You know, as we said, 21, 22, we should be. We're hoping that 2025 will give us an opportunity to rotate equity. You see some of the names that have been marked up. You know, we would hope we can turn some of those into cash. I don't necessarily know that we have a target. We know that our shareholders like a steady, stable dividend stream, and we think we've got plenty of runway to do that under the current construct.

Speaker Change: Hum.

Speaker Change: At this point more kind of steady as she goes we think we should be earning more than 20 on a core basis. You know as we said 'twenty one 'twenty two we should be we're hoping that 2025 will give us an opportunity to.

Speaker Change: To rotate equity.

Speaker Change: And you see some of the names that have been marked up.

Speaker Change: We would hope we can we can turn some of those into cash. So I don't necessarily know that we have a target. We we know that our shareholders like a steady stable dividend stream in.

Speaker Change: We think we've got plenty of runway to do that under the current construct.

Art Penn: We'll kinda grind through 2025, see where we end up and, you know, continuously, you know, speak to our board about it and try to understand where the market is, and how the overall platform is doing in terms of, you know, kind of getting rotation on the equity. You know, I don't really have an exact answer for you. It's kind of like we take it as it goes. You know, this year-

Speaker Change: But we'll we'll kind of grind through 2025 see where we end up in continuously speak speak to our board about it and trying to understand where the market is.

Speaker Change: And how the overall platform is doing in terms of kind of getting a rotation on the equity.

Speaker Change: I don't really have an exact answer for you it's kind of like we take it as it goes this year. That's the game plan is clear for 2025.

Robert Dodd: Mm-hmm.

Art Penn: The game plan is clear for 2025. Steady as she goes, grind our way through it, try to rotate some equity, come up for air in a year and we are committed to keeping the dividend where it is.

Speaker Change: Steady as she goes grind our way through it try to rotate some equity come up for air in a year in <unk>.

Speaker Change: And we are committed to keeping the dividend where it is.

Robert Dodd: Got it. Thank you. Moving on. On Pragmatic, obviously, you're full nonaccrual now. What are the prospects for a restructuring there? Like, maybe, you know, some of that, you know, equitization of some of the debt or something like that, where the remainder of the debt comes back onto an accrual. I mean, is that a likely or potential outcome in the near medium term for that asset?

Speaker Change: Got it got it thank you moving on to the other on pragmatic obviously your full non accrual now.

Speaker Change: Well, what what are the prospects for.

Speaker Change: We stopped doing that and it may be you know some of that.

Speaker Change: Act would ization of some of the debt or something like that where the remainder of the debt comes back on to accrual. I mean is that is that a likely or potential outcome in the near medium term for that asset.

Art Penn: Yeah, it's a good question, and we're figuring out as we speak. Our current assumption is that during this quarter, Q1 ended March, there will be some form of restructuring there, some debt will be converted, and there'll be a yield instrument coming out of that.

Speaker Change: Yeah. It's a good question and we're figuring out as we speak our current assumption is that during this quarter the quarter ended March.

Speaker Change: There will be some form of restructuring there some that will be converted and there'll be a yield instrument coming out of that.

Robert Dodd: Got it. Thank you. Just to kind of follow on from Mark's questions. In terms of the environment, you know, I mean, you are very active. What areas do you... You talked about some really attractive vintage, but I mean, what areas in particular that you'd like to ramp up exposure more in the portfolio? Obviously, there's you know, even within the JV as well, right? I mean, there's industry concentrations you're trying to manage and things like that. So, I mean, are you seeing the right kind of industries that in terms of being attractive also to manage your concentrations in that vehicle and directly on balance sheet as well?

Speaker Change: Got it got it thank you.

Speaker Change: And then just.

Mike: Kind of following on from Mike's questions in terms of the environment.

Speaker Change: I mean, you you are very active.

Speaker Change: What areas do you you've talked about in some really attractive mintage, but it isn't.

Speaker Change: It's in particular that you'd like to.

Speaker Change: Exposure more in the portfolio, obviously that there's you know even within the JV as well I mean, there's there's industry concentrations, you're trying to manage and things like that so I mean are you are you.

Speaker Change: You're seeing the right kind of industries that.

Speaker Change: In terms of being attractive also to to manage your concentrations in that vehicle and directly on balance sheet as well.

Art Penn: Yeah, you know, as you know, we kind of respond to what's being shown us in the marketplace and where the middle market private equity community finds value. Certainly we can de-emphasize certain areas, and we can emphasize others. You know, healthcare is the biggest portion of the economy. It's the biggest portion of our portfolio. We try to, in healthcare, particularly with reimbursement risk, try to find areas that are on the right side of cost containment, try to find providers, service providers, and other types of companies that can provide healthcare at a lower cost and still maintain high quality. That's something that is probably just a big part of the portfolio. I think our performance healthcare has probably been better than some of our peers.

Speaker Change: Yeah. So you know as you know we kind of work.

Speaker Change: Responds to what's being shown us in the marketplace and where.

Speaker Change: The middle market private equity community finds value so.

Speaker Change: Certainly we can de emphasize certain areas and we can emphasize others healthcare is the biggest portion of the economy. It's.

Speaker Change: It's the biggest portion of our portfolio.

Speaker Change: And we tried to in health care, particularly with reimbursement risk try to find areas that are on the right side of cost containment try to find providers service providers and other types of companies that can provide.

Speaker Change: Health care at a lower cost and still maintain a high quality. So that's something that.

Speaker Change: Just a big part of the portfolio, we've I think our performance health care is probably even better.

Speaker Change: Some of our peers I think some of our peers have gotten caught in it you know whether it's just not picking the right credits that are on the right side of cost containment or just having higher leverage as you as you you've heard our incoming debt to EBITDA for new loans is under four times. So.

Art Penn: I think some of our peers have gotten caught in it, you know, whether it's just not picking the right credits that are on the right side of cost containment or just having higher leverage. As you've heard, our incoming debt to EBITDA for new loans is under 4 times. You know, or 4 times exactly here in this vehicle. When you structure deals with more reasonable leverage, you know, you can deal with a curveball or two. Healthcare will remain. Government services, again, that's topical given what's going on with the government. We believe we're on the right side of financing companies that are driving cost containment for the government and are aligned with government payment.

Speaker Change: When you are four times exactly here in this vehicle so when you structure deals with.

More reasonable leverage you can deal with the curve ball or two so.

Speaker Change: Health care will remain government services.

Speaker Change: Again, that's topical given what's going on with.

Speaker Change: The government we believe we're on the right side of financing companies that are driving cost containment for the government are aligned with government payment.

Art Penn: Again, we're responding to what our sponsors are showing us, and there's a whole proliferation of other types of industries, business services, consumer, and others that were shown. We can kind of dial things up or dial things down. For us, it always begins with, is it a steady, stable cash flow stream that is protected? Is anyone really gonna care if this company goes away or not? Trying to keep leverage as low as we possibly can. Then, of course, alignment with the sponsors putting in a lot of equity beneath us.

Speaker Change: Again, we're responding to what our sponsors you're showing us.

Speaker Change: And there's a whole proliferation of other types of industries business services.

Speaker Change: Consumer and others that that were shown but more.

Speaker Change: We do not we can kind of dial things up or dial things down.

Speaker Change: For us it always begins with is it a steady stable cash flow stream that is protected as anyone ever really going to care. If this company goes away or not.

Speaker Change: And trying to keep leverage as low as we possibly can and then of course alignment with the sponsors putting in a lot of equity beneath us.

Speaker Change: Got it. Thank you appreciate it.

Mickey Schleien: Got it. Thank you. Appreciate it.

Robert Dodd: Got it. Thank you. Appreciate it.

Speaker Change: Thank you.

Art Penn: Thank you.

Speaker Change: We will now take our next question from Brian Mckenna with citizens JMP.

Operator: We'll now take our next question from Brian McKenna with Citizens JMP.

Brian McKenna: Great. Thanks. Just on the portfolio rotation opportunity, is there any way to think about the timing and magnitude for monetizing some of your equity investments and then redeploying this capital into loans? I guess, you know, ultimately, where does the percent of equity investments within the portfolio settle in at longer term?

Speaker Change: Great. Thanks, So just on the portfolio rotation opportunity is there any way to think about the timing and magnitude of monetizing some of your equity investments and then redeploying that capital into loans and I guess, you know ultimately where does the percent of equity investments within the portfolio.

Settling out longer term.

Speaker Change: Yeah, So I'll try to deal with the.

Art Penn: Yeah. You know, I'll try to deal with the last question first, which is what are we targeting? We're certainly targeting less equity. Certainly you can look at the equity book and see where there's been markups, and the goal would be that's kind of a leading indicator for where there might be some monetization opportunities. But in terms of the equity book, I mean, let's exclude the JV equity, which is about 6% of the portfolio, and that's just part of this JV that's generating a very healthy 18% return in cash.

Speaker Change: The the.

Speaker Change: The last question first which is.

Speaker Change: What are we targeting we're certainly targeting less equity.

Speaker Change: Certainly you can look at the equity book and see where there's been markups and.

Speaker Change: The goal would be that is kind of a leading indicator for where there might be some monetization.

Speaker Change: Opportunities.

Speaker Change: But in terms of the equity book I mean, let's exclude the JV equity, which is about 6% of the portfolio and Thats just part of this JV. This generating a very healthy 18% return and cash and is over 20% and other equity some of its co invest and think about half of it's kind of from co invest.

Brian McKenna: Yeah.

Art Penn: There's over 20% in other equity. Some of it's co-invest. I think about half of it's kind of from co-invest, where we've co-invested, and the other half is restructured equity, where we converted debt to equity. Some of both of those has been marked up. We hope that 25 is the year where we're gonna see more M&A activity in this core middle market, where we can monetize some of those names and convert that, you know, equity to cash and ultimately yield. Look, we'd like to get that 20-ish percent number down in half if we can. That's our goal. Try to cut that in half over time. We have not met that goal. It's taken us too long, to be honest with you.

Speaker Change: Where we co invested in the other half is restructured equity, where we converted debt to equity.

Speaker Change: Some of that some of them some of both of those had been marked up so we hope. The 25 is the year, where we're going to see more M&A activity in the core middle market, where we can monetize.

Some of those names and convert that that that equity to cash and ultimately yield look we'd like to get that 20, 20% number down in half if we can that's our goal.

Speaker Change: Tried to cut that in half over time, we have not.

Speaker Change: I met that goal, it's taken us too long to be honest with you and some of it we kind of control some of it we don't but that's got to be our target and that's where we're where we're going to try to do.

Art Penn: Some of it we kinda control, some of it we don't. That's gotta be our target, and that's what we're gonna try to do.

Speaker Change: Yeah.

Brian McKenna: Okay, great. That's helpful. And then, Art, I've asked you this in the past, but you know, assuming you are successful kind of rotating out of the equity and into loans and that kind of ratio looks similar and the percent looks similar to PFLT. I mean, do you you know, ultimately maybe potentially look to you know, merge the two so you have one publicly traded BDC? Yeah, I'd just love to get your updated thoughts there.

Art Penn: Okay, Great. That's helpful. And then art I've asked you. This in the past, but you know assuming you are successful kind of rotating out of the equity and into loans and that kind of ratio looks similar and in the percent look similar to <unk> I mean do you ultimately maybe potentially locked.

Art Penn: To emerge this year. So you have one publicly traded BDC that yeah I just wanted to get your updated thoughts there.

Art Penn: Yeah look there's there's nothing more update than what we've talked is which is we got a we've got a little bit of a cleanup scenario here. We've got a we've got a focus on it.

Art Penn: Yeah. Look, there's nothing more updated than what we've talked about, which is we've got a little bit of a cleanup scenario here. We've got to focus on it. We'll lift our head up and kinda look at the options. There's certainly arguments to do something and certainly arguments not to do something. You know, all options are always on the table. There has been historically differentiated portfolio, difference in yields, difference in underlying portfolio. We've got a little bit of a job to do first, and then we'll come up and try to assess what's best for shareholders.

Art Penn: Then we will lift our head up and kind of look at the options. There's there are certainly arguments to to do something that certainly arguments not to do something all options are always on the table.

Art Penn: There has been historically differentiated portfolio difference the difference in yield difference in.

Art Penn: Underlying portfolio.

Art Penn: We got we got a little bit of a job to do first and then we will come up and try to assess what's what's best for shareholders.

Speaker Change: Okay, Great that's helpful I'll leave it there.

Brian McKenna: Okay, great. That's helpful. I'll leave it there.

Art Penn: Thank you.

Paul Johnson: Well now move to Paul Johnson with <unk>.

Operator: We'll now move to Paul Johnson with KBW.

Paul Johnson: Yeah. Good afternoon, thanks for taking my questions.

Paul Johnson: Yeah, good afternoon. Thanks for taking my questions. On some of those investments that were marked higher, I noticed By Light was marked higher again this quarter. That's a mark that's been moving up over the past few quarters. I mean, should we take that as an indication of, you know, interest that you might think the company's been receiving, or has that just been more of a result of just, you know, performance?

Paul Johnson: Uncle of those investments that remarks fire I noticed.

Paul Johnson: Violate.

Paul Johnson: Higher again this quarter, but the market's been moving up over the past few quarters.

Paul Johnson:

Paul Johnson: I mean should we take that in any case or interests that you might go to.

Paul Johnson: <unk>.

Paul Johnson: Then receiving or has that just been more of a.

Paul Johnson: Results are just.

Paul Johnson: Performance.

Paul Johnson: Yeah.

Art Penn: Yeah. Look, it's hard for me to. You know, I can't comment on M&A and all that. I can comment that the company has performed well, and you've seen that in the markups. Most of these companies are owned by private equity firms who ultimately try to sell. Can't comment on a specific name, but, you know, the company's been performing well.

Paul Johnson: Look it's hard for me to.

Speaker Change: You know I can't comment on M&A and all of that I can comment that the company has performed well and you've seen that in the markups in most of these companies are owned by private equity firms, who ultimately ultimately trying to sell.

Speaker Change: Can't comment on specific name, but the company has been performing well.

Speaker Change: Yeah.

Speaker Change: Got it thanks and then.

Paul Johnson: Got it. Thanks, Art. Then last question was I noticed that PNNT participated in the Marketplace Events loan that PennantPark reinvested with the company following the sale of the business. Just given that I don't believe PNNT participated in the previous investment and it's just a slightly lower yield. I was just curious as to why PNNT participated this time.

Last question was I noticed that PNM team participated in the marketplace event.

Speaker Change: Our loan.

Speaker Change: At pennant Park reinvested with the company.

Speaker Change: Following the sale of the business.

Speaker Change: Just given that I don't believe P&L participated in an accretive investment.

Speaker Change: And it's just a slightly lower yield I was just curious as to as to why our total he participated this time.

Speaker Change: I'm going to defer to Rick I don't think that T N T.

Art Penn: I'm gonna defer to Rick. I don't think that PNNT was involved in Marketplace. Rick, any color?

Speaker Change: He's involved the marketplace, Rick any any color.

Speaker Change: Okay.

Richard T. Allorto, Jr.: You're correct in terms of the realization. PNNT did participate in the new loan.

Speaker Change: You are correct in terms of the realization.

Rick Allorto: You're correct in terms of the realization. PNNT did participate in the new loan.

Speaker Change: But if you did participate in the new loan.

Art Penn: Oh.

Richard T. Allorto, Jr.: The thought there, Paul, is again, that loan will ultimately live at the joint venture.

Speaker Change: The thought there all is again that that loan will will ultimately leave that at the joint venture Oh, yes, the new long yes.

Rick Allorto: The thought there, Paul, is again, that loan will ultimately live at the joint venture.

Art Penn: Oh, yes. The new loan, yes. Yeah.

Speaker Change: Thank you good afternoon.

Richard T. Allorto, Jr.: The new.

Rick Allorto: The new.

Art Penn: Right. There was a new buyer that came in and bought Marketplace Events. PFLT and a group of other lenders were the shareholders. PFLT was the lead equity investor. A new private equity sponsor came in, bought the company at an attractive price. As part of that, there was an attractive loan to be made in a company that we obviously knew very well. We did buy that loan across the platform, PFLT, PNNT, and ultimately, the joint venture as well. We'll own a piece of that Marketplace Events loan.

Speaker Change: Right. So there was a new buyer that came in and bought marketplace events.

Speaker Change: P F L T in a group of other lenders for the.

Speaker Change: Or the shareholders.

Speaker Change: And <unk> was the lead equity Investor a new private equity sponsor came in and bought the company at an attractive price and as part of that there was an attractive loan.

Speaker Change: To be made.

And a company that we obviously knew very well so we did buy that loan across the platform <unk> and ultimately the joint venture is well well along in a piece of that marketplace events alone.

Speaker Change: Yeah.

Got it and when you made that loan with that alone that you chose to reinvest in the company or was that.

Paul Johnson: Got it. When you made that loan, was that a loan that you chose to reinvest in the company? Or was that a loan that was essentially carried over to enact the deal?

Speaker Change: Loan that was essentially carried over to.

Speaker Change: Enacted deal.

Speaker Change: Yeah. It was a separate transaction so the.

Art Penn: Yeah, it was a separate transaction, so the funds that were in the old Marketplace Events got cash. We evaluated where the new loan and a new Equity co-investment would make sense. Then across the platform, PennantPark platform bought new senior debt and new Equity co-investment in the new Marketplace Events, where another sponsor came in and bought the company. That's been allocated across the platform.

Speaker Change: The funds that were in the old marketplace events got cash.

Speaker Change: And then we evaluated where the new loan and a new equity co invest.

Speaker Change: Would would makes sense and then across the platform kind of art platform bought new senior debt and new nuke equity co invest in the new.

Speaker Change: Marketplace events word another sponsor came in and bought the company and that's been allocated across the platform.

Speaker Change: Okay. Thank you art, that's all for me.

Paul Johnson: Okay. Thank you, Art. That's all for me.

Art Penn: Thank you.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: We will now move to Mickey Schlein with Ladenburg.

Operator: We'll now move to Mickey Schleien with Ladenburg Thalmann.

Mickey Schleien: Yeah. Art, just a couple questions from me. What did you assume in terms of, the fund's balance sheet leverage and equity rotation in your core NII guidance?

Yeah, just a couple of questions for me.

Mickey Schleien: Yeah. Art, just a couple questions from me. What did you assume in terms of, the fund's balance sheet leverage and equity rotation in your core NII guidance?

Speaker Change: What did you assume in terms of the.

Speaker Change: The fund's balance sheet leverage and equity rotation in your core NII guidance.

Speaker Change: Core NII was actual actual NII.

Art Penn: Core NII was actual NII. There's no, you know, this kind of actual for the quarter ended 31 December. In terms of the guidance going forward. Oh, your question is about the guidance going forward.

Speaker Change: There is no kind of actual for the quarter ended.

Speaker Change: At December 31st in terms of the guidance going forward out. Your question is about the guidance going forward.

Mickey Schleien: Yes.

Art Penn: That's kind of just assuming continued growth of the joint venture.

Yes.

Speaker Change: We just said that's kind of just assuming continued growth in the joint venture.

Art Penn: That's kind of just assuming continued growth of the joint venture.

Speaker Change: Okay, and the balance sheet leverage remaining where it is.

Mickey Schleien: Okay. The balance sheet leverage remaining where it is.

Art Penn: Over time, you know, kind of getting back down to 1.3 after we fill up that joint venture. We could acquire that joint venture. We could do another joint venture. We hope to be able to get some equity realizations here in the next number of quarters, which will certainly be helpful.

Speaker Change: Yes, yes, and overtime, you know kind of getting back down to one three after we fill up that joint venture.

Speaker Change: <unk> that joint venture, we could do another joint venture, we hope to be able to get some equity realizations here.

Speaker Change: And the next number of quarters, which will certainly be helpful.

Speaker Change: For sure and.

Mickey Schleien: For sure. Just a housekeeping question, maybe for Rick. What were the main drivers of the realized loss and the unrealized gains?

Speaker Change: Just a housekeeping question maybe for Rick what were the main drivers of the realized loss and the unrealized gains.

Speaker Change: Sure.

Richard T. Allorto, Jr.: Sure. Let's see. The main drivers for the unrealized, there was a write-up in the JF Intermediate and a write-up in Federal Advisory Partners. Those are the two larger write-ups on the write-downs that netted that down. The equity investment in Cascade Environmental and additional write-down on Pragmatic were the two main large drivers on the write-down side. In terms of realized gain or, sorry, realized loss for PNNT, that was a restructuring for STG, also goes by a reception purchaser. That was the main driver for the realized loss during the quarter.

Rick Allorto: Sure. Let's see. The main drivers for the unrealized, there was a write-up in the JF Intermediate and a write-up in Federal Advisory Partners. Those are the two larger write-ups on the write-downs that netted that down. The equity investment in Cascade Environmental and additional write-down on Pragmatic were the two main large drivers on the write-down side. In terms of realized gain or, sorry, realized loss for PNNT, that was a restructuring for STG, also goes by a reception purchaser. That was the main driver for the realized loss during the quarter.

Speaker Change: <unk>.

Speaker Change: So the main drivers.

Speaker Change: For the unrealized.

There was a write up in the J F intermediate.

Speaker Change: And a write up in federal Advisory partners.

Speaker Change: The two larger.

Speaker Change: Larger write ups.

On the write down that netted that down.

Speaker Change: The equity investment in Cascade environmental.

Speaker Change: And additional.

Speaker Change: Additional write down on pragmatic, where the the two main large large drivers on the on the right downside.

Speaker Change:

Speaker Change: In terms of realized gain or sorry realized loss with E N N T.

Speaker Change:

Speaker Change: That was a restructuring or STG also goes by reception purchaser.

Speaker Change: That was the main driver for us.

Speaker Change: For the realized loss during the quarter.

Speaker Change: I understand that's it for me this afternoon. Thank you.

Mickey Schleien: I understand. That's it for me this afternoon. Thank you.

Speaker Change: Thanks Becky.

Art Penn: Thanks, Mickey.

Speaker Change: I will now move to Melissa <unk> with J P. Morgan.

Operator: We'll now move to Melissa Wedel with JPMorgan.

Melissa: Good afternoon. Thanks for taking my questions. Most of mine have been asked but I thought I would follow up and clarify a couple of things.

Melissa Wedel: Good afternoon. Thanks for taking my questions. Most of mine have been asked, but I thought I would follow up and clarify a couple of things. Firstly, on the growth of the JV, when we look at the dividend income to the BDC from that JV, it looks like that was pretty flat quarter-over-quarter, except that the portfolio assets at the JV had grown pretty decently, even since 30 September. How should we think about the growth in the dividends to the BDC from PSLF and, like, the cadence of that going forward?

Speaker Change: Firstly on the growth of the JV when we look at the dividend income to the BDC from that.

Speaker Change: That JV it looks like that was pretty flat quarter over quarter.

Speaker Change: That the portfolio portfolio athletes at the JV had grown pretty decently, even since September 30th.

Speaker Change: Should we think about the growth in the dividend.

Speaker Change: The BDC from P. S L a and like the cadence of that going forward.

Speaker Change: Yeah, It's a great question and the growth in the underlying JV portfolio should should match what comes over to PMT.

Art Penn: It's a great question. The growth in the underlying JV portfolio should match, you know, what comes over to PNNT. We don't book income unless it's actually distributed. There's a bit of a reserve that we create at the joint venture. There's no particular reason we're creating a reserve there. There's other than just to have excess cash so that we have a bit of a reserve. You would imagine, and it would certainly normalize over time where growth in the joint venture and growth in the investment in that joint venture will yield, you know, the dividends.

Speaker Change: But we don't we don't book income unless it's actual actually distributed.

Speaker Change: So there's a bit of a reserve that we we create.

Speaker Change: The joint venture.

Speaker Change: And.

Speaker Change: There's no particular reason, we're creating reserve there there's other than just to have excess cash. So that we have a bit of a reserve, but you would imagine.

Speaker Change: It would certainly normalize overtime where growth in the joint venture and growth in the.

Rick Lauder: And the investment in that joint venture will will yield the dividends Rick I don't know if you have any particular explanation for why.

Art Penn: Rick, I don't know if you have any particular explanation for why, you know, the phenomenon Melissa's, you know, talking about, you know, in this particular quarter.

Melissa: The phenomenon Melissa is talking about.

Rick Lauder: Particular for.

Rick Lauder: Yes, sure Melissa last quarter.

Richard T. Allorto, Jr.: Yeah, sure. Melissa, last quarter, the JV did distribute some of that reserve Art just mentioned. I believe we detailed that out last quarter, as kind of a core NII adjustment because, you know, that portion was, I'll say, less recurring. Additionally, we fund the JV through both debt and equity. So as we fund additional capital to fuel the growth of that JV portfolio, the economics back to us, a portion is in that debt instrument, so you just don't see it in that dividend line item, on the income statement.

Rick Allorto: Yeah, sure. Melissa, last quarter, the JV did distribute some of that reserve Art just mentioned. I believe we detailed that out last quarter, as kind of a core NII adjustment because, you know, that portion was, I'll say, less recurring. Additionally, we fund the JV through both debt and equity. So as we fund additional capital to fuel the growth of that JV portfolio, the economics back to us, a portion is in that debt instrument, so you just don't see it in that dividend line item, on the income statement.

Speaker Change: The JV did distribute some of that reserve or just mentioned.

Rick Lauder: And I believe we detailed that out last quarter.

Rick Lauder: As kind of a core NII adjustment because.

Rick Lauder: That portion was was I'll say less recurring.

Rick Lauder: Additionally.

Rick Lauder: The.

Rick Lauder: We fund the JV through.

Rick Lauder: Both debt and equity.

Rick Lauder: So as as we fund additional capital to fuel the growth of that JV portfolio.

Rick Lauder: The economics back to US a portion of it is in that debt instruments that you just don't see it.

Rick Lauder: In that dividend in line item.

Rick Lauder: On the income statement.

Melissa Wedel: Okay.

Rick Lauder: Alright, so the somewhat one way to look at it as comprehensively between the debt instrument in the equity instruments alright.

Art Penn: All right. There's some,

Melissa Wedel: Um, and then-

Art Penn: Yeah, one way to look at it is comprehensively between the debt instrument and the equity instrument, right?

Rick Lauder: Yes.

Melissa Wedel: Yeah. Just to clarify, I wasn't quite sure I fully followed your comments on the exposure to government services and defense companies. How much exposure is there in the portfolio to this, any potential sort of reimbursement risk, whether that's in the government segment and defense segment or even in the healthcare segment of the portfolio? Have you taken a more critical look at that?

Rick Lauder: And then just to clarify.

Rick Lauder: I wasn't quite sure I fully follow on your comments on it.

Rick Lauder: The exposure to government services companies.

Do you have how much exposure is there in the portfolio to any potential sort of reimbursement risks, whether that's in the government sector.

Rick Lauder: In defence segment or even in the healthcare segment of the portfolio have you.

Rick Lauder: Taking a more critical look at that.

Speaker Change: Yeah, No we're looking at it.

Art Penn: Yeah. No, we're looking at it.

Melissa Wedel: Same question for any tariff. Sorry.

Rick Lauder: Okay.

Rick Lauder: Sorry, yeah yeah.

Art Penn: Yeah.

Melissa Wedel: Same question for any tariff exposure as well?

Art Penn: Tariffs, yeah. Yeah, we have limited tariff exposure. Most of the companies that would be impacted by tariffs, we're not really involved in, and the ones that we are kind of had a dry run of tariff exposure, you know, during the last Trump administration. The tariff exposure is very, very limited. Biggest part of the US economy and biggest part of our portfolio is healthcare. For sure, there is, you know, government reimbursement risk in healthcare. The way we comport ourselves in that is we try to focus on healthcare companies that are driving lower costs with reasonable quality. If we're on the right side of that, which is lower cost, reasonable quality, in any environment, we're likely to be okay. Then we layer on the fact that we keep leverage lower.

Speaker Change: Oh, Yeah, Yeah, Yeah, we have a limited tariff exposure most of the.

Speaker Change: Most of the companies that won't be impacted by tariffs, we're not really involved in and the ones that we are kind of had a dry run of tariff exposure.

Speaker Change: No.

Speaker Change: During the last Trump administration so the.

Speaker Change: Tariff exposure is very very limited.

Speaker Change: The biggest part of the U S economy and biggest part of our portfolio is health care. So.

Speaker Change: For sure.

Speaker Change: There is.

Speaker Change: Government reimbursement risk in health care, the way, we comport ourselves and that is we try to focus on health care companies that are driving lower costs.

Speaker Change: With with reasonable quality.

So if we're on the right side of that which is lower cost reasonable quality in any environment, we're likely to be okay.

Speaker Change: And then we layer on the fact that we keep leverage lower the average new loan is four times debt to EBITDA in this portfolio with at least 50% equity beneath us so.

Art Penn: You know, the average new loan is 4x debt to EBITDA in this portfolio with at least 50% equity beneath us. Where some of our peers may have stumbled occasionally in healthcare, to date, we're relatively clean because of those two facts. Same applies on the government services and defense side. When you look at that portfolio, we're not doing tanks, we're not doing missiles. We are focused typically on service companies where you have individuals, people walking into offices and sitting behind computers doing things like cybersecurity, intelligence, maneuvering satellites, doing technology updates. Those, again, typically are what we would call on the right side of cost, on the right side of being very efficient with taxpayer dollars, you know, going into government contracting and defense.

Speaker Change: Some of our peers may have stumbled occasionally in health care.

Speaker Change: To date, we're relatively clean because of those two facts so.

Speaker Change: Same applies on the government services and defense side.

When you look at that portfolio.

Speaker Change: We're not doing tanks were not too in missiles. We are focused typically on service companies, where you have.

Speaker Change: Individuals people walking into offices and sitting behind computers doing things like cyber security intelligence.

Speaker Change: <unk> satellites.

Speaker Change: <unk> technology updates those again typically are what we would call on the right side of cost on the right side of.

Speaker Change: Being very efficient with taxpayer dollars.

Speaker Change: Now going into government contracting and <unk> and.

Speaker Change: And defense.

Art Penn: When you drill down one layer deeper in those companies, they typically get paid in two ways. One is cost-plus, where they provide the cost, and they create a margin above that. On those companies, those companies by and large are in making single-digit EBITDA margins. They're not making excess margins on cost-plus. If they were making excess margins on cost-plus, they would be more at risk. The other way companies get paid is through fixed-price. You know, where they take risk. They essentially go long, providing a service for a fixed price, in which case the government's dishing the risk off to the provider. The provider's taking risk.

Speaker Change: And then when you drill down one layer deeper in those companies. They typically get paid in two ways one is cost plus.

Speaker Change: Where they provide the cost and they create a margin above that and on those companies those companies buying larger in making single digit EBITDA margins are not making excess margins on cost plus if they were making excess margins on cost plus.

Speaker Change: There will be more at risk.

Speaker Change: And then the other way companies get paid is through fixed price, where they say they take risks essentially go along.

Speaker Change: Providing a service for fixed price in which case the government's fishing the risk off to the provider to providers taking risk in those cases those companies could earn higher margins.

Art Penn: In those cases, those companies could earn higher margins, and they could also earn lower margins, depending on how they priced their service relative to their cost. Again, if you look at that piece of that portfolio, we've seen they're very good operators who are generating fair margins, not exorbitant, but fair margins. They're taking risk off the government, and they're going long a service. We think we're relatively well insulated, but you know, every day is a new day, as you know. We don't know.

Speaker Change: And they could also earn lower margins depending on how they priced.

Speaker Change: They're they're service relative to their cost.

Speaker Change: Again, if you look at that piece of that portfolio, we've seen that very good operators, who are generating fair margins.

Speaker Change: Not exorbitant, but fair margins and they are taking risk off the government and they're going long service. So we think were relatively well insulated but.

Speaker Change: Every day is a new day as you know.

Speaker Change: We don't know, but you know kind of you know.

Art Penn: You know, kind of, you know, we've comported ourselves in those two industries which have government exposure to be focused on the right side of cost containment and then add on the layer of keeping debt to EBITDA 4x or below, so that if there are curve balls, they could be dealt with appropriately.

Speaker Change: We've completed ourselves in in those two industries, which which have government exposure to be focused on the right side of cost containment and then add on the layer of keeping debt to EBITDA of four times or below so that if there are curve balls they could be.

Speaker Change: They can be dealt with appropriately.

Speaker Change: Alright, I appreciate all the detail there I think one final question for you.

Melissa Wedel: Art, I appreciate all the detail there. Actually, one final question for you. I take your point on hoping for some equity rotation in the coming quarters, as you said. It occurs to me, though, that you also have a pretty elevated balance in treasuries. Is that something that could be a source of funds to deploy into something higher yielding until you get that equity rotation? Thanks very much.

Speaker Change: Take your point on looking at hoping for some equity rotation in the coming quarters.

Speaker Change: And of course means though that you also have a pretty elevated balance and treasuries and.

That something that could be a source of funds to deploy into something higher yielding.

Speaker Change: So you get that irritation, thanks, very much the triggers.

Art Penn: Yeah. Thank you. Good question. The Treasuries are balance sheet management that we do at quarter end. Typically, that's temporary to optimize our 30% bucket. You know, we wanna optimize our 30% bucket for the JV and for other 30% type assets. That is a technique we use to optimize that bucket.

Speaker Change: Thank you good question the treasuries are balanced.

Speaker Change: Balance sheet management that we do at quarter and typically that's temporary to optimize our 30%.

Speaker Change: Bucket, we want to optimize our 30% bucket.

Speaker Change: For the JV and four for other 30% type assets. So that is a technique we used to optimize that.

Speaker Change: That bucket.

Speaker Change: Okay.

Melissa Wedel: Thank you.

Speaker Change: Thank you.

Casey Alexander: Well now move to your Casey Alexander with Compass point.

Operator: We'll now move to Casey Alexander with Compass Point.

Casey Alexander: Hi, Good afternoon, I've got a few questions for you first of all.

Casey Alexander: Hi. Good afternoon. Art, I've got a few questions for you. First of all, we know that the base rates have gone down 100 basis points, but there's a delay in the way in which they flow through your balance sheet. What percentage of that 100 basis points would you suggest has already flowed through?

Casey Alexander:

Speaker Change: We know that the base rates have gone down 100 basis points, but theres a delay in the way in which they flow through your balance sheet, what percentage of that 100 basis points would you suggest is already flowed through.

Rick Lauder: Oh, that's a really good question, Rick any I'll defer to Rick I don't know if you have an estimate Ric are also coffer, we can certainly get back to you Casey.

Art Penn: Oh, that's a really good question. Rick, I'll defer to Rick. I don't know if you have an estimate, Rick, or off the cuff, or we can certainly get back to you, Casey, later on. Any sense?

Speaker Change: Later on but.

Speaker Change: Any sense.

Yeah.

Speaker Change: It is an off the cuff I would say the majority of.

Richard T. Allorto, Jr.: It is an off the cuff. I would say the majority of the borrowers are electing three-month LIBOR contracts, so they are flowing through on kind of a three-month basis. The quarter ends are. There's a higher volume, a higher number of borrowers that kind of you know roll their contracts towards the quarter end, but they do roll all throughout the period. Off the cuff, I would say you know it's in that 50 to 75% is already in the numbers.

Rick Allorto: It is an off the cuff. I would say the majority of the borrowers are electing three-month LIBOR contracts, so they are flowing through on kind of a three-month basis. The quarter ends are. There's a higher volume, a higher number of borrowers that kind of you know roll their contracts towards the quarter end, but they do roll all throughout the period. Off the cuff, I would say you know it's in that 50 to 75% is already in the numbers.

Speaker Change: The borrowers are electing three month LIBOR contracts. So they are flowing through on kind of a three month basis.

Speaker Change: The.

Speaker Change: Quarter ends or are there is a higher volume a higher number of borrowers that kind of.

Speaker Change: Roll their contracts towards the quarter end, but they do roll all throughout the throughout the period.

Speaker Change: Off the top I would say.

Speaker Change: In that 50% to 75% it is already in the in the in the numbers.

Casey Alexander: You're halfway through flowing through to maybe three-quarters of the way flowing through?

Speaker Change: So you're halfway through flowing through to maybe three quarters of the way flowing through.

Casey Alexander: You're halfway through flowing through to maybe three-quarters of the way flowing through?

Speaker Change: Yes, it would be your guess yeah.

Art Penn: Yeah.

Casey Alexander: that would be your guess.

Art Penn: Yeah. Right. We also have liabilities obviously that are floating as well. We have some fixed, and we have some floating liabilities. You know, there's some matching going on.

Speaker Change: And we also have liabilities, obviously that are floating as well. So we have some fixed and we have some floating liabilities. So.

Speaker Change: There's some some matching Ghana.

Casey Alexander: Yeah, I'm aware. Thanks. Based upon the amount that you shipped down to the JV this quarter, another quarter like that, and you're basically gonna be at capacity. Do you think that you'll be at or near that capacity by the end of Q1?

Speaker Change: Yes, I'm aware I'm aware of thanks.

Speaker Change: The based upon the amount that debt that you shipped down to the JV this quarter.

Speaker Change: Yes, another quarter like that and you're basically going to be at capacity do you think that you'll be at or near that capacity by the end of the first calendar quarter.

Art Penn: I'd say it probably takes us 2 to 3 quarters to get that JV more fully ramped and optimized. Gives us time to evaluate financing options, gives us time to evaluate equity rotation options, you know. Once we're optimized, we're optimized, and we'll do everything we can to add value thereafter. You know, kind of we're expecting and hoping for some, you know, kind of equity rotation between now and then.

Speaker Change: Yeah, I'd say for the next I'd say, probably takes us two to three quarters to get that that JV.

Speaker Change: More fully ramped and optimized gives.

Speaker Change: It gives us time to evaluate financing options gives us time to evaluate equity rotation options.

Speaker Change: <unk>.

Speaker Change: And then once were optimized for optimized.

Speaker Change: And we will do everything we can to tad.

Speaker Change: To add value thereafter.

Speaker Change: But you know kind of where we're expecting and hoping some for some.

Speaker Change: For some you know kind of equity rotation between now and then.

Speaker Change: So we should be thinking about it a little bit slower pace going down to the JV over the next couple of quarters, if we compare that relative to this last quarter.

Casey Alexander: We should be thinking about a little bit slower pace going down to the JV over the next couple quarters if we compared it relative to this last quarter.

Art Penn: Yeah. Yeah. Part of it is just the activity levels. We're seeing a what I'll call normal quarterly flow. The Q4 was very busy. As you saw, the Q1 that we're in today is a little bit slower. That's a normal seasonal, you know, activity. We still think 2025 can be a very active year, but this quarter that we're in right now is a little bit slower.

Speaker Change: Yeah, Yeah, Yeah, and then part of it is just the activity levels, we're seeing.

Speaker Change: What I'll call normal.

Speaker Change: Quarterly flow the December quarter was very busy as you saw the March quarter that we're in today is a little bit slower that's a normal seasonal.

Speaker Change: Activity, we still think 25 can be a very active year, but this quarter that we're in right now is a little bit slower.

Speaker Change: Right Okay.

Casey Alexander: Right. Okay. So let's have a conversation about the dividend distribution. I'm just curious, have you guys considered switching off to a year-end special distribution to clear up some of the spillover and right-sizing the dividend? Because it's pretty common knowledge that when you appear as though you're chronically under-earning your dividend, the market tends to impact your valuation in a negative way because you're doing that. If you switch to a year-end special distribution, you could right-size the dividend relative to your current earnings power, and perhaps the market would treat your valuation better. Have you considered that as an option?

Speaker Change: So, let's so let's have a.

Speaker Change: The conversation about the dividend distribution.

Speaker Change: I'm just curious have you guys considered.

Speaker Change: Switching off to our year end special distribution to clear up some of the spillover and right sizing the dividend because because it's pretty common knowledge that when do you appear as though youre chronically under earning your dividend the market tends to impact your values.

Speaker Change: And in a negative way because youre doing that.

Speaker Change: And if you switch to a yearend special distribution you can rightsize the dividend relative to your current earnings power and perhaps the market would treat your valuation better have you considered that as an option.

Art Penn: Casey, we're happy to consider and happy to talk to you anytime you like about dividend policy and try to figure out the optimal way to get our stock trading even better. We can talk about that and talk about different things and what our shareholders would prefer. You know, I don't know. Like, what you have institutional shareholders, you have retail shareholders. You know, what's the preference? What do people want? What's the reaction gonna be? We don't have to have the call here, have that discussion in front of the community, but we're always happy to talk about it and talk about it with our board as to what's gonna help our stock trade better.

And we have and in case, you were happy to consider it and happy to talk to you anytime you like about dividend policy and try to figure out the optimal way to to get our stock trading even better so.

Speaker Change: We can talk about that and talk about different things than what our shareholders would prefer.

Speaker Change: Is there.

Speaker Change: I don't know like what you have institutional shareholders you have retail shareholders.

Speaker Change: What's the preference what people want and what's the reaction going to be so we can.

Speaker Change: I have to have the call here have that discussion in front of the community, but we're always happy to talk about it and talk about with our board as to what's going to help or.

Speaker Change: Our stock trade better and if theres other methodologies or other ways to do it where we are all yours.

Art Penn: If there's other methodologies or other ways to do it, we are all ears.

Speaker Change: I would be more than happy to have that conversation with you.

Casey Alexander: I would be more than happy to have that conversation with you.

Art Penn: Great.

Speaker Change: Right.

Casey Alexander: You mentioned that the JV, when it reaches its capacity, that you might enact another JV. Is there any technical limitations given that when this JV has completed its capacity, you know, it's gonna be larger than the on-balance sheet BDC itself. So I'm just wondering if there's any practical limitations to how much you can take off balance sheet relative to the size of the on-balance sheet BDC itself.

Speaker Change: You mentioned.

Speaker Change: But that the JV.

Speaker Change: When it when it reaches its capacity that you might enact another JV I'm just is there any technical limitations.

Speaker Change: Given that when this JV has completed you know its capacity its going to be larger than the on balance sheet BDC itself and so I'm just wondering if theres any practical limitations.

Speaker Change: How much you could take off balance sheet relative to the size of the on balance sheet BDC itself.

Speaker Change: Yeah, It's a great question and certainly there's a couple of limitations a it's part of the 30% bucket right. So.

Art Penn: Yeah, it's a great question, and certainly there's a couple limitations. A, it's part of the 30% bucket, right? No more than 30% of our overall balance sheet at PNNT can be in one of these vehicles. You're correct that the JV itself can get quite large, but PNNT's ownership of it, you know, can be a different number, right? PNNT's a little bit more than 50% owners of it. The JV can continue to grow, and PNNT can own less than 50%. I mean, there are some of our peers who have the BDC owning 10 or 12 or 15 or 20% of a JV that can be very large with third-party investor capital. The relevant thing is, what's the 30% bucket and how much of that is in a JV-type structure.

Speaker Change: No more than 30% of our overall balance sheet at PNM can be in one of these vehicles and youre correct that the BDC that the JV itself can get quite large, but PNM ts ownership of it.

Speaker Change: It can be a different number right, where we're <unk> a little bit more than 50% owners of it. The JV can continue to grow and pay an antique and own less than 50% I mean, there are some of our peers who.

Speaker Change: The BDC owning 10, or 12, or 15 or 20% of a JV that can be very large with third party investor capital. So the relevant thing is what's the 30% bucket and how much of that is in <unk>.

Speaker Change: JV type structure. The Jv's are Korea had been very accretive for us here, it's been generating 18%, which is accretive to.

Art Penn: The JVs have been very accretive for us here. It's been generating 18%, which is accretive to PNNT. When you think about it, you know, kind of our investment management company is managing, you know, all these assets, and we're not charging our shareholders an incremental management fee for it. It's just showing up in the form of incremental ROE. We think it has some benefits. You know, it's been a good thing for PNNT, and we've seen it be a good thing for our other BDCs. We'll continue to look at it, and we'll continue to look at our 30% bucket and continue to figure out if we can add value through using the JV mechanism to do so.

Speaker Change: Two P N N T and when you think about it kind of our investment management companies managing.

Speaker Change: You know all of these assets and we're not charging our shareholders and incremental management fee for it's just showing up in the form of incremental ROE. So we.

Speaker Change: It has some benefits.

Speaker Change: You know it's been a it's been a good thing for PMT and we've seen it be a good thing for other BDC. So we'll continue to look at it we'll continue to look at our 30% bucket and continue to figure out if we can add value through using the JV mechanism.

Speaker Change: To do so.

Casey Alexander: Lastly, have there been any notable credit events that have taken place in the portfolio since the end of the quarter?

Speaker Change: Lastly has there been any notable credit events that have taken place in the portfolio since the end of the quarter.

Casey Alexander: Lastly, have there been any notable credit events that have taken place in the portfolio since the end of the quarter?

Speaker Change: There's a company called Zips car wash.

Art Penn: There's a company called Zips Car Wash, which has filed a prepackaged bankruptcy. It's not particularly big in our portfolio here, but it is, you know, out there. It's public information. It's not that material. It was appropriately marked, we believe, as of December 31 and is in the marks. If you were to flow through the potential income, you know, impact, it might be a half penny a share.

Speaker Change: Which.

Speaker Change: Has.

Speaker Change: Filed a pre packaged bankruptcy, its not particularly big and our vehicle.

Speaker Change: Here, but it is it is.

Out there it's public information, it's not that material. It was appropriately marked we believe as of 12 31 and is in the marks.

Speaker Change: If you were to flow through the.

Speaker Change: The potential income.

Speaker Change: In fact, it might be a half penny a share.

Casey Alexander: That includes the amount of Zips that is located within the JV?

Speaker Change: That includes the amount of zips that is located within the JV.

Casey Alexander: That includes the amount of Zips that is located within the JV?

Art Penn: Yep. JV and on balance sheet.

Speaker Change: Yep.

Art Penn: Yep. JV and on balance sheet.

Speaker Change: JV and an on balance sheet.

Speaker Change: Alright, great. Thank you for taking my questions I appreciate it.

Casey Alexander: All right, great. Thank you for taking my questions. I appreciate it.

Art Penn: Thank you.

Speaker Change: Thank you.

Speaker Change: We will now take a follow up from Robert Dodd with Raymond James.

Operator: We'll now take a follow-up from Robert Dodd with Raymond James.

Robert Dodd: Hi, guys just a quick follow up.

Robert Dodd: Hi, guys. Yeah, just a quick follow-up from Melissa's question, actually. I mean, there is a visible gap to your point in terms of stocking a reserve, so to speak. There was an extra $2 million of that paid out in June. So, I mean, is there gonna be a true-up distribution from the JV kind of? Is it gonna be once a year, or is it gonna be once in a while? I mean, should we expect an annual distribution from that vehicle that kind of captures that, or is it just a true-up whenever you and the partner decide it's appropriate?

Robert Dodd: This question actually I mean, there is a visible got to your point in terms of stocking of reserve so to speak.

Robert Dodd: And there was an extra couple of million of that paid out in June. So I mean is that gonna be a true up distribution from the JV kind of is it going to be once a year or is it going to be once in a while I mean should should we expect.

Robert Dodd: Annual distribution from that.

Robert Dodd: Recall that the kind of captures that or is it just a true up when whenever you and the partner.

Decided to put it.

Robert Dodd: More of the latter.

Art Penn: More of the latter. You know, kind of we try really to distribute the vast majority of NII out on a quarterly basis every so often because the credit performance has been good there. We just have a little bit of excess, and we'll distribute it, you know, when appropriate.

Robert Dodd: We try really to distribute that distribute the vast majority of Nia out on a quarterly basis.

Robert Dodd: Every so often because the credit performance has been good there, we just have a little bit of excess and we'll distribute it.

Robert Dodd: Appropriate.

Robert Dodd: Got it thank you.

Robert Dodd: Got it. Thank you.

Operator: We'll now take a follow-up from Melissa Wedel with JPMorgan.

Speaker Change: We will now take a follow up from Melissa Wedel with Jpmorgan.

Operator: We'll now take a follow-up from Melissa Wedel with JPMorgan.

Robert Dodd: Thanks.

Melissa Wedel: Thanks. One more follow-up actually to Brian's question about, you know, whether PNNT and PFLT would ever make more sense in a combined vehicle. You mentioned that there's a little bit of cleanup work to do. I just wanted to better understand what that means to you. Is that a function of non-accruals, equity exposure, something else? I ask that because in the past, I know you've probably gotten that question a number of times over the years. In the past, you had referenced the multiple, and the disparity between multiples on the two vehicles, and that seems to be less of an issue now. Appreciate any clarifying thoughts you have on that.

Speaker Change: One more follow up actually to Brian's question about.

Robert Dodd: You know, whether PNM T&D P F L P would ever.

Robert Dodd: Mike Morrison combined vehicle, you mentioned that Theres, a little bit of cleanup work to do and I just wanted to better understand what that means to you is that a function of.

Robert Dodd: Nonaccrual equity exposure.

Robert Dodd: Something else.

Speaker Change: Ask that because in the past I know, you've probably gotten that question a number of times over the years in the past you had referenced.

Robert Dodd: Multiple.

Robert Dodd: The disparity between multiples on the on the two vehicles and that seems to be less of an issue now. So appreciate any clarifying thoughts you have on that.

Art Penn: Yeah. That could be. It's all kind of maybe the same thing, Melissa, which is, I believe if we can get some reasonable equity rotation, which will de-risk the portfolio, de-risk the NII, that will be cleanup, right? That'll be the cleanup I'm referring to. Then we can take a look and evaluate different options.

Robert Dodd: And that could be and so it's all kind of may be the same.

Robert Dodd: Thing, Melissa which is I believe if we if we can get some reasonable equity rotation.

Robert Dodd: Which will derisk the portfolio.

Robert Dodd: De risk the NII.

Robert Dodd: That will be cleanup right that'll be the cleanup I'm referring to.

Robert Dodd: And then we can take a look and evaluate different options.

Robert Dodd: Thank you.

Melissa Wedel: Thank you.

Robert Dodd: That does conclude today's question and answer session I would like to turn the conference back over to Mr. Penn for any additional or closing comments.

Operator: That does conclude today's question and answer session. I'd like to turn the conference back over to Mr. Penn for any additional or closing comments.

Art Penn: Just really wanna thank everybody for their participation. Wanna thank the research community for your excellent questions. It's good that there's engagement and some interest. We look forward to speaking with you all again next in early May as we discuss the March numbers. Thank you very much. Have a good rest of the winter.

Robert Dodd: Just a really want I want to thank everybody for their participation.

Art Penn: Thank the research community for your excellent questions.

Robert Dodd: It's good that there is engagement and some interest.

Robert Dodd: And we look forward to speaking with you all again next in early May as we discuss.

Robert Dodd: The March the March numbers. Thank you very much have a good rest of the winter.

Robert Dodd: And once again that does conclude today's conference. We thank you all for your participation you may now disconnect.

Operator: Once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.

Robert Dodd: [music].

Robert Dodd: Okay.

Robert Dodd: [music].

Yeah.

Yes.

Q1 2025 PennantPark Investment Corp Earnings Call

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