Q1 2025 PennantPark Floating Rate Capital Ltd Earnings Call
Speaker Change: Good morning and welcome to the Pennant Park Floating Rate Capital's first fiscal quarter 2025 earnings conference call. Today's conference is being recorded. At this time, all participants have been placed
Speaker Change: in a listen-only mode. The call will be open for question and answer session following those speakers' remarks. If you would like to ask a question at this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, press star 2 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 Floating Rate Capital. Mr. Penn, you may begin your conference.
Speaker Change: Thank you and good morning everyone. I'd like to welcome you to Penn and Park Flooding Rate Capital's first fiscal quarter 2025 earnings conference call. I'm joined today by Rick Allorto, our Chief Financial Officer. Rick, please start off by disclosing some general conference call information and include a discussion about forward-looking statements.
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 Penn and Park Floating Rate Capital 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.
Rick Allorto: I'd also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking information.
Rick Allorto: 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.
Rick Allorto: We do not undertake to update our forward-looking statements unless required by law.
Rick Allorto: To obtain copies of our latest SEC filings, please visit our website at pennandpark.com or call us at 212-905-1000.
Rick Allorto: 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 discussing the current market environment for private middle market lending, how we fared in the quarter ended December 31st, how the portfolio is positioned for the upcoming quarters, a detailed review of the financials, then open it up for Q&A.
Art Penn: For the quarter ended December 31st, our GAAP net investment income was 37 cents per share and our core net investment income was 33 cents per share.
Art Penn: As of December 31st, our portfolio grew to $2.2 billion, or 11% from the prior quarter.
Art Penn: During the quarter, we continued to originate attractive investment opportunities and invested $607 million in 11 new and 58 existing portfolio companies at a weighted average yield of 10.3%.
Art Penn: During the quarter, we completed the successful exit of our investment and marketplace events.
Marketplace Events is a leader in business-to-consumer home goods shows.
Art Penn: These events were shut down during COVID and EBITDA went to zero.
Art Penn: We led the lender group in a restructuring and took control of the company in 2020
Art Penn: We worked with the company's excellent management team to turn around the company.
Art Penn: The exit generated a 2.6 times multiple on our invested capital and a 19% annualized return over four years.
Art Penn: We utilize our experience and challenge situations to navigate a complex restructuring and create significant value for our shareholders through operational expertise and strategic execution.
Art Penn: We continue to see an attractive vintage in the core middle market. During the quarter, for investments in new portfolio companies, the weighted average debt to EBITDA was 3.7 times, the weighted average interest coverage was 2.1 times, and the weighted average loan to value was 53 percent.
Art Penn: Subsequent to quarter end, we continue to remain active, have a robust pipeline, and expect to be able to continue to deploy capital into attractive new portfolio companies.
Art Penn: In the core middle market, the market yield of first lien term loans appears to have stabilized in the SOFR plus 500 to 550 range.
Art Penn: And the core middle market leverages lower, spreads are higher, and covenants are tighter than in the upper middle market. We continue to get meaningful covenant protection.
Art Penn: paying kind or PICC income is only 2.3% of our overall interest income.
Art Penn: This is among the lowest in the industry and is a testament to the quality of our underwriting and our portfolio versus our peers.
Art Penn: As of December 31st, our debt-to-equity ratio was 1.4 times to 1, and with a target ratio of 1.5 to 1, we believe that we are well positioned to generate stable and growing NII going forward.
Art Penn: We expect continued stability in net investment income, in part due to our investment in the PSSL joint venture.
Art Penn: As of December 31st, the JV portfolio totaled $1.1 billion, and the JV remained active during the quarter, and invested $225 million in 17 new and 8 existing portfolio companies at a weighted average yield of 10.3%.
including $188 million of assets purchased from PFLT.
Art Penn: Last quarter we announced that PFLT and our JV partner committed an additional hundred million of capital to the JV. Our share is 87.5 million dollars which is consistent with the existing economic ownership percentage.
Art Penn: This additional capital will allow the JV portfolio to grow to approximately 1.5 billion dollars of assets.
Art Penn: We believe that the increase in scale of the JV's balance sheet will continue to drive attractive mid-teens returns on invested capital and enhance PFLT's earnings momentum.
Art Penn: Also during the quarter, we grew the Truist Revolving Credit Facility by $100 million, resulting in total commitments of $736 million.
Art Penn: There were no changes to the terms of the facility, and our interest rate on the facility is SOFR plus 225.
Art Penn: Additionally, securitization financing continues to be a good match for our lower risk first lien assets.
Art Penn: Last week we priced a new financing that we expect to close by early March. The new financing is a $361 million term debt securitization transaction with a weighted average spread of 1.59%, a four-year reinvestment period, and a 12-year final maturity.
Art Penn: The weighted average spread of 1.59% is a decrease of 30 basis points from an existing securitization financing that we refinanced in July of 2024.
Art Penn: The main contributor to this decrease was a favorable market environment in which the AAA portion of the structure priced at an attractive weighted average spread of 1.49 percent.
Art Penn: The ratio of external debt to PFLT's junior capital was 3.2 times to 1, which creates plenty of liquidity for the company.
Art Penn: We believe securitizations are attractive financing structures as they have a 12-year stated maturity and generally have 4 to 5-year reinvestment periods.
Art Penn: They are governed by an indenture similar to other bond instruments, as opposed to other secured financings where you may have a bank credit officer on the other side of the table.
Art Penn: For securitizations, the indenture prescribes how the securitization deals with credit deterioration, which means there is no risk of irrational behavior from our counterparties.
Art Penn: It's important to note that securitizations are non-mark-to-market financings, and that assets are held at par regardless of broader market volatility.
Art Penn: The only time an asset gets marked to market would be if there are defaults or if we experience triple-C downgrades that will cause an excess triple-C concentration whereby the excess triple-C collateral is marked to market.
Art Penn: Once again, this is all prescribed via the indenture, and importantly, our securitization vehicles are managed with attractive triple C and over-collateralization cushions, which further mitigate any financing risk.
Art Penn: Our securitization issued in September of 2019, we managed that securitization through the depths of COVID and the financing worked exactly how we expected.
Art Penn: This has driven our confidence and our belief that securitizations are an extraordinarily attractive financing structure for our vehicles. With our lower risk, lower leveraged, first lien portfolio, securitizations provide an attractive cost of capital that is well matched to the portfolio.
Art Penn: Equally important, they provide a downside mitigation tool given the stable and consistent long-term nature of the financing.
Art Penn: GAAP and adjusted NAV increased at 0.3% to $11.34 per share from $11.31 per share. The increase in NAV for the quarter was due primarily to one-time net investment income from our realization of marketplace events.
Art Penn: Credit quality of the portfolios remains strong. We didn't add any new investments to non-accrual status, and non-accruals represent only 0.4% of the portfolio cost and 0.1% at market value.
Art Penn: As of December 31st, the portfolio's weighted average leverage ratio through our debt security was 4.3 times, and the portfolio's weighted average interest coverage was 2.2 times.
Art Penn: We believe this is one of the most conservatively structured portfolios in the direct lending industry and is a testament to our focus on the core middle market.
Art Penn: We like being positioned for capital preservation as a senior secured first lien lender focused on 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.
Art Penn: We have a long-term track record of generating value by successfully financing growing middle market companies in five key sectors.
Art Penn: 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 also been resilient and tend to generate strong free cash flow.
Art Penn: And the core middle market, which we define as companies with 10 to 15 million EBITDA, is below the threshold and does not compete with the broadly syndicated loan or high-yield markets, unlike our peers in the upper market.
Art Penn: In this core middle market, because we are an important strategic lending partner, the process and package of terms we receive is attractive.
Art Penn: We have many weeks to do our due 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-investment.
Art Penn: Additionally, from a monitoring perspective, we receive 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 a significant reason why we believe we are well positioned in this environment.
Art Penn: Many of our peers who focus on the upper middle market state that these bigger companies or those bigger companies are less risky.
Art Penn: That 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.
Art Penn: We believe that the meaningful covenant protections of core middle market loans, more careful diligence, and tighter monitoring have been an important part of this differentiated performance.
Art Penn: Our credit quality since inception over 13 years ago has been excellent. PFLT has invested $7.3 billion and over 500 companies, and we have experienced only 20 non-accruals. Since inception, our loss ratio on invested capital is only 10 basis points annually.
Art Penn: 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, overall for our platform from inception through December 31st.
Art Penn: We have invested over $563 million in equity co-investments and have generated an IOR of 26% and a multiple uninvested capital of two times.
Art Penn: our experienced and talented team, and our wide origination funnels producing active deal flow.
Art Penn: Our continued focus remains on capital preservation and being patient investors. Our mission and goal are a steady, stable, and protected dividend stream, coupled with the preservation of capital. Everything we do is aligned to that goal. We seek to find investment opportunities in growing middle market companies that have high free cash flow conversion.
Art Penn: We capture that free cash flow primarily in first lien, senior secured instruments, and we pay out those contractual cash flows in the form of dividends to our shareholders. Let me turn the call over to Rick, our CFO, to take us through the financial results in more detail.
Rick Allorto: Thank you, Art. For the quarter ended December 31st, GAAP net investment income was $0.37 per share and core net investment income was $0.33 per share.
Rick Allorto: Core net investment income excludes four cents per share of accelerated accretion income net of the impact on incentive fees related to the realization of our investment in marketplace events.
Rick Allorto: General and administrative expenses were $1.7 million and provision for taxes were $0.2 million.
Rick Allorto: By the quarter end of December 31st, net realized and unrealized change on investments, including provision for taxes, was a loss of 1.6 million.
Rick Allorto: As of December 31st, both GAP NAV and adjusted NAV were $11.34, which is up 0.3% from $11.31 per share last quarter.
Rick Allorto: As of December 31st, our debt-to-equity ratio was 1.4 times, and our capital structure is diversified across multiple funding sources, including both secured and unsecured debt.
Rick Allorto: As of December 31st, our key portfolio statistics were as follows. Our portfolio remains highly diversified with 159 companies across 49 different industries.
Rick Allorto: The weighted average yield on our debt investments was 10.6%, and approximately 100% of the debt portfolio is floating rate.
Pick income equaled only 2.3% of total interest income.
Rick Allorto: We had two non-accruals, which represent 0.4% of the portfolio at cost and 0.1% at market value.
Rick Allorto: The portfolio is comprised of 90% first lien, senior secured debt, less than 1% in second lien debt.
2% in equity of PSSL and 8% in other equity.
Rick Allorto: Our debt to EBITDA on the portfolio is 4.3 times and interest coverage was 2.2 times.
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 the continued commitment to PFLT and its shareholders. Thank you all for your time today and for your investment and confidence in us.
Speaker Change: That concludes our remarks. At this time, I would like to open up the call to questions.
Speaker Change: We will now open the Q&A portion of our call. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question.
Speaker Change: And our first question is going to come from Robert Dodd from Raymond James. Please go ahead.
Hi, hi guys.
Speaker Change: On the securitization, on the rating, right, so you said it's a non-market-to-market facility, so, you know, there's a shadow rating, otherwise the...
the securitization and what are the circumstances.
How do the shadow ratings change?
If at all.
Yeah, thanks Robert. Each loan gets an annual update.
and if there is an event...
Speaker Change: During the year we we go to the S&P in this case and we share the event.
Thank you very much.
Speaker Change: on the Volvo, so it's pretty attractive. How much of your debt stack would you be comfortable having in securitizations versus the Volvo unsecured, however you want to chop it up?
Speaker Change: yeah so versus revolver we'd like having both revolvers flexible it can fund it can you know we view kind of securitization as a term out of revolver it's kind of like a term loan for us
So revolver is good to to take care of
you know, kind of funding needs that are more immediate.
Speaker Change: And also, it's good to have a revolver to manage that triple C bucket, right? If you get some triple C's, the revolvers will give you a barring base. In certain cases, that's better than the securitization.
Speaker Change: having, and we're a believer in unsecured debt too, so we believe in having diversified funding sources.
being able to
Speaker Change: move things around if need be to optimize the outcome. So we like having a revolver, we like having securitization in our mind, it's a turnout of the revolver and we like having unsecured in the capital stack.
Got it, thank you.
Congratulations on your marketplace events.
Speaker Change: control of that. So you've got to pick when. Are you seeing more movement on owners of equity that might have the decision power versus you in terms of wanting to monetize this year on the equity side or any color on...?
who used that a pretty nice return.
Yeah, look, it's a good time to assess M&A options.
and we've seen it.
Speaker Change: both in cases like marketplace events where we do have an ownership stake, as well as when we're more passive as an equity co-invest. We do believe 2025 will be active.
for longer environment, it seems like.
Speaker Change: But we do think it's time, you know, after many years of kind of...
Speaker Change: It's coming, it's coming, kind of this year as being the year. That said, in the middle market, as you can see...
Speaker Change: It's different than the upper market. The upper market's been a lot more dormant than...
Speaker Change: have some runway to grow and do add-on acquisitions. So we think on the buy side we're going to continue to be active and we also believe that 25 will be active on the exit side. You know, PFLT's got a, you know, as we said, about a 9% equity co-invest portfolio. We think that'll rotate nicely here in 2025.
Speaker Change: Okay, one more if I can. On the GVR, I mean, obviously now we've got capacity up to a billion and a half. It's a really nice return. So, I mean, how fast, you know, if 25 is that active, do you think you're going to...
Bill: Bill that that 1.5 by say year end or is it a longer term I mean
Speaker Change: You've been putting quite a lot of assets on, so... Yeah, look, to us it's all comprehensive, it's all one ecosystem, PFLT and the JV.
Speaker Change: So, you know, we obviously put assets in PFLT on the initial, we season them for a little while, then when applicable, they move over to the JV, if it makes sense.
Speaker Change: Look, to the prior comment, we think 25 will be busy, so we think that we'll be able to get to the 1.5 billion in the JV, you know, in the next 9 to 12 months.
Got it. Thank you. Appreciate it.
Thank you.
Speaker Change: And our next question is going to come from Brian McKenna from Citizens JMP. Please go ahead.
Brian McKenna: Alright, thanks. Good morning guys. So a question on deployment to start. Clearly it was a robust quarter with $600 million plus of originations. You have a bit more capacity on leverage. So how should we think about the pace of originations over the next few quarters?
Look, it was an unusually active quarter end of December.
Brian McKenna: calendar quarter one which we're in at this point is a little slower and that's a typical seasonal
Brian McKenna: seasonal Movement people always want to close deals by December they come up for air in January and takes a little slower So right now it's a little bit slower than it was in December and we are getting some repayments, you know along the way so
Brian McKenna: Again, to my prior comments, I think 25 overall will be busy, but we think it's kind of in ramp mode right now with kind of Q1, Q calendar quarter one through February 11th today, relatively modest.
Brian McKenna: So, it will be time to reload, get some refis, you know, look for deals for both the balance sheet and the JV.
Brian McKenna: and look to try to, most importantly, remain selective. I mean, you can see the new loans that we're doing are cash pay, PICC is only 2% of this portfolio, you know, kind of four times or less debt-to-debt, two times or more interest coverage, loan-to-value of 50%.
Brian McKenna: That's our strike zone, and we're going to stick to it, and we're not going to lose our minds where there's no software in this portfolio, there's no ARR loans.
Brian McKenna: We're going to try to keep a cautious and conservative posture at the new loan level, and then we will try to optimize our financing the way we've been talking about it, through securitization, through revolvers, and through the JV.
Brian McKenna: Yeah, that's helpful And then, you know, just to follow up on, you know, Originations, you know, how should we think about the mix of new investments?
Speaker Change: to add on, so what's the expectation here, you know, over the next, you know, 12 months, call it, and then, you know, we'll see exactly the trajectory of kind of new deals in M&A, you know, broadly, but, you know, does this split start to become more balanced kind of over time?
Speaker Change: Yeah, we think it'll be more balanced look one of the nice things about the way we do things is our prototypical deals We'll start with it
10 to 15 to 20 million dollar EBITDA company.
Speaker Change: with a game plan by the sponsor to grow that company to do add-on acquisitions. So we will set up, in many cases, some substantial delayed draw term loans.
Speaker Change: which are kind of built in flow in companies that we know and we like, where we're a strategic partner, where it's not about the last base point, where we do have a co-invest and we can benefit from.
Speaker Change: you know, those delayed draws. So, you know, if you set it up right to begin with, which is kind of how we try to do it, the flow comes, and it's your, it's kind of, in some ways, shooting fish in a barrel, because you know, you kind of know exactly what you're getting.
Speaker Change: Okay, that's great. And then, you know, just one last one for me are, you know, just a bigger picture question. You know, you've clearly built a great business here, the broader Penned Park platform, I believe manages about $10 billion of AUM. So I'm curious, I mean, where does the platform go longer term, you know, just kind of thinking about growth or even the trajectory of AUM, and then as you reach greater levels of scale over time, you know, what does that ultimately mean for PSLT?
Speaker Change: Yeah, look, the mission of PFLT, which is to provide senior, secured, floating-rate capital in a conservative fashion to middle-market private equity sponsors.
Speaker Change: You know, there really aren't that many people who are left in that space, like us, who will take a company literally from Tenneveh, Bedah, up to 50, and can do it all in-house. We can now do that.
Speaker Change: We couldn't always do that, but with the growth of the platform to the AUM that you talked about, we're one of only a few who's willing to start out at 10 of EBITDA and can say, we got you up until 40, 50 million, and you only need to talk to us.
Speaker Change: that's a that's a nice place to be we're below the radar of the big
Speaker Change: you know massive branded direct lenders who seem to have no interest in this kind of below-the-radar space so we think we've got a lot of runway and there's you know it's a great thing about the American economy there's all kinds of interesting companies out there
and we get to learn and we get to select.
Speaker Change: you know, which of these companies and sponsors and management teams we want to back. So it's a real joy to come to work every day and see the American economy, you know, in all these different areas. And we're really excited about it. To be direct, we think there's a lot of runway for what we're doing, you know, for a long period of time.
Super helpful, thanks Art.
Thank you.
Speaker Change: And our next question is going to come from Mark Hughes from Truth. Please go ahead.
Yeah, thank you. Good morning.
care of.
Speaker Change: As you look at your portfolio, how do you think you're positioned relative to some of these dynamics?
Yeah, so thankfully on tariffs there's very limited...
Speaker Change: Exposure, you know, those are those tariffs are usually around, you know, offshore manufacturing. It's a little bit of it, but it's not really that material and
Speaker Change: you know, the Far East. So, tariffs is kind of, you know, back again, but many, many of our companies, you know, kind of took proactive action and those companies are a relatively small part of the portfolio. Our two biggest industry groups are health care, number one, and government contracting and defense, number two.
Speaker Change: because if you're, you know, reimbursement risk is always a risk in health care, so one way you deal with that is you back companies that are delivering cost savings.
and still delivering high-quality care.
Speaker Change: So we think we're we're well positioned there to whether anything that is thrown at us because we're backing companies that are reducing costs
Speaker Change: They're going to win. Same thing on government contracting, you know, a lot of the government contracting are I call them people businesses where people walk into offices, they sit behind computers, and they can be doing cyber security, they can be doing satellites, they can be doing intelligence.
Speaker Change: It's not very much in tanks and missiles and things of that nature. And again, most of these companies are on the right side of either technology upgrades and or reducing costs.
Speaker Change: to drill down further, there's generally two types of contracts in government contracting. There's the cost plus
Speaker Change: where the government's reimbursing for the cost of the team plus a margin and in those cases those EBITDA margins are typically under 10% so it's not like any of those companies
Speaker Change: and if they do it well, if they operate well, they're going to make higher margins and obviously if they don't operate well, they're going to make lower margins or lose money.
The piece of the portfolio that has fixed price
Speaker Change: You know, we believe we're excellent operators. They're making very good margins because they're really excellent operators.
Speaker Change: and are not going to price a fixed price contract unless they make sure it's judicious and careful.
Speaker Change: and also providing value to the government. So that's a long-winded answer, and we can go into more detail offline if you like, but by and large, we think we're well-positioned.
Speaker Change: But we're and we're we're watchful and of course as taxpayers we want The government to spend its taxpayers dollars our taxpayers dollars efficiently, so you know time will tell but we believe we're on top of it
Speaker Change: Understood. And then what kind of visibility or what should we anticipate in terms of just the portfolio shifts from PFLT to PSSL? You know, some meaningful moves this quarter. How should we think about the coming quarter or so?
Speaker Change: Yeah, it ebbs and it flows. It depends on, you know, kind of where we are in that
Speaker Change: cycle of ramping up and security to the earlier question. We kind of use securitizations and PSSLs, kind of a term out kind of thing. So as we built the PSLT balance sheet, we'll then sell.
Speaker Change: Assets, you know, upon approval of our JV partner, remember our JV partner has to approve every transfer, upon approval of the JV partner, the asset will move over and then we'll try to finance it efficiently over in the joint venture. So it has been a flow, it really just depends on deal flow and refinancing and.
Speaker Change: You know, when facilities, when credit facilities get ramped up to $300 or $350 or $400 million, that's a good time for us to think about doing a securitization.
Thank you
Thanks, Mark.
Speaker Change: And our next question is going to come from Mickey Schlein from Ladenburg. Please go ahead.
Mickey Schlein: Good morning everyone. Art, you mentioned that we finally saw some stabilization of spreads in the market this quarter. I'd like to understand what you think were the trends behind that and what is your outlook for spreads this year?
Speaker Change: spread over SOFR for this core middle market. Occasionally, you'll see a 475, you know, when...
Speaker Change: a particular lender, you know, kind of loves, loves, loves the scenario.
Speaker Change: What drove it was just kind of math. You know, at a certain level in the core middle market, you know, it just doesn't make sense. So I think the math was helpful. I think people want to feel good about delivering a double-digit unlevered return.
Speaker Change: to their investors, you know, leverage can obviously enhance that and
Speaker Change: and all of that, but I think kind of both the absolute spread of a double-digit and a relative spread, and then also relative to the broadly syndicated low market, which has compressed. So, for now, it's stable. I think supply-demand could...
Speaker Change: What goes on in the geopolitical sphere, what goes on with Washington, with tariffs, all this, the Fed, all this will certainly play into it, but at least at this point in time, for the next quarter or two, we sense some stability.
Speaker Change: Could you just give us a high-level sense of what's driving those markdowns, which has sort of persisted quarter after quarter for quite a while?
Mickey Schlein: Yeah, I mean, look, as you know, Mickey, and you cover the industry, and you also cover the CLO industry.
Not all deals perform well.
and the JV does not take equity co-invest.
Mickey Schlein: All right, so the equity co-invest is retained in PFLT. So that that investment that might have some upside which are the co-invest is Not part of the JV. Our JV partner did not want to co-invest so So when there's markdowns or when there's a default
Mickey Schlein: The JV will participate in that and not have the opportunity to participate in that, you know, 26 percent, two times MOIC, upside opportunity that we
We have in the BDC the PF-LT balance sheet.
Mickey Schlein: So, if you look at some of the markdowns, the JV participates in the markdowns but does not have the benefit of the markups, and that's really because our JV partner at the time we set up was not interested in participating in the Columbus.
Speaker Change: Yeah, I understand. I didn't realize that was the case and that makes sense. A couple of sort of more housekeeping questions. What proportion of your...
Speaker Change: Unfunded Commitments, which are almost $700 million, are at your discretion versus your borrower's discretion.
Speaker Change: Yeah let me see if I have some data for you and Rick Allorto you can you can chime in there's two types of commitments generally there's the revolver
Rick Allorto: which is, at their sway, I think it's about $437 million to be exact, $238 million.
Rick Allorto: of Revolver. So that's at their discretion. And if you go back to COVID...
Rick Allorto: are meeting their covenants and meeting their commitments, and that's a little over 400 million, 437 million to be exact, in delayed draws by and large. So that's a little bit more in our sway.
Rick Allorto: are never, they're never happening at the same time. You go back to COVID.
Rick Allorto: People drew their revolvers to some extent. The delay draw activity went to zero because there was no deal flow and everyone kind of pulled back.
Rick Allorto: On the other hand, when economic times are good, people do not draw revolvers and the delay draw activity tends to be a little bit more active.
Yeah, understood so so liquid it looks fine
Speaker Change: And lastly, just in terms of the balance sheet, I know from time to time,
the external manager.
subsidizes to some extent
ATM issuance, so you're not issuing below an AV.
Speaker Change: Can you just give us a sense of how much of a subsidy, you know, the external managers are willing to absorb? You know, for example, would you issue stock at this current price relative to NAV?
Speaker Change: At certain cases, I think a lot of it depends on deal flow and activity levels and vintage. So if you think you're capturing a good vintage, and you think that vintage is going to be accretive for shareholders,
Speaker Change: You may look to subsidize if you think if you're slower or The vintage is a little less attractive. You may not so it's a case-by-case basis every day is a new day with what what's going on With our flow and then what's obviously going on with the the stock market and the price
Speaker Change: Look, we will consider things that are created for shareholders, going back to a long time ago, you know, PFLT bought a busted BDC called MCG Capital.
Speaker Change: and the management company wrote a pretty big check to do that deal and that was very accretive for the company, it added a lot of heft, it added a lot of liquidity.
Speaker Change: and it ended up being, you know, a really, really good deal. And we wrote a big check at that point, and in some ways, these little ATMs are smaller versions of that. It just depends on the facts and circumstances at that point in time.
Speaker Change: I understand. That's it for me this morning. Thanks for taking my questions.
Thanks, Mickey.
Speaker Change: And we have one more question from Paul Johnson. Please go ahead.
Paul Johnson: Yeah, thanks. Good morning. Does the marketplace events exit, does that trigger any sort of special dividend potentially over the course of the year?
Paul Johnson: I'll kick it over to Rick. It certainly increases our spillover amount. We tend not to pay out special dividends. We tend to use spillover as cushion.
Paul Johnson: for Dividends. We can certainly talk offline all you want about dividend policy and the right dividend policy or the wrong dividend policy and supplementals.
Paul Johnson: And we're always learning from from others as to how to best Think about that, but you know kind of in general we use it to increase spillover and which increases, you know cushion For a steady stable dividend, which is one of our highest You know goals is to provide a steady stable dividend
Speaker Change: Thanks, Art. And just one last question on credit higher level. You know, non-accruals were obviously stable quarter over quarter. You know, it seems like another good quarter for credit. But how would you, I guess, describe any sort of, you know, amendment activity you might have seen during the quarter or, you know, here to start the year and, you know, if any sort of, you know, broader maybe credit migrations just within the portfolio?
Speaker Change: There's always a handful of companies that, you know, the covenants may be an issue or they may be underperforming, including the non-accruals. So nothing abnormal, but as you'd imagine, it's one of the reasons we like being so diversified with 159 companies is...
Speaker Change: No one company can really kind of bring you down. So I'd say it's normal activity There's nothing abnormal, but we're always watchful and we're always on on top of it And and hey, if you have an average debt to you, but off 4.3 times an average interest coverage of 2.2 times
Speaker Change: Hopefully we've built in substantial cushion, you know, even if there were some curveballs thrown against this portfolio.
Thank you.
And Paul, will that be the last question?
Yep, that's all for me. Thank you.
Speaker Change: All right, thank you so much. That concludes today's question and answer session. I'd now like to turn the conference back over to Art Penn for any additional or closing remarks.
Speaker Change: Thank you everybody for being on the call today. We look forward to speaking with you next in early May when we'll be talking about the 331 financial results. In the meantime, wishing everybody a great rest of the winter and we'll speak to you, you know, kind of in the early spring.
Richard Allorto
Speaker Change: And this concludes today's call. Thank you for your participation. You may now disconnect.
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