Q3 2026 PennantPark Floating Rate Capital Ltd Earnings Call

August 11, 2026

Operator 1: Good morning, and welcome to the PennantPark Floating Rate Capital's third fiscal quarter 2026 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 Floating Rate Capital. Mr. Penn, you may begin your conference.

Operator: Good morning, and welcome to the PennantPark Floating Rate Capital's Third fiscal quarter 2026 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.

Speaker #1: The call will be open for question-answer session following the speaker's remarks. If you would like to ask a question at that time, simply press star 1 on your telephone keypad.

Speaker #1: If you would like to withdraw your question, press star 2 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 Floating Rate Capital.

Operator: It is now my pleasure to turn the call over to Mr. Art Penn, Chairman and Chief Executive Officer of PennantPark Floating Rate Capital. Mr. Penn, you may begin your conference.

Speaker #1: Mr. Penn, you may begin your conference.

Speaker #2: Thank you, and good morning, everyone. Welcome to PennantPark Floating Rate Capital's third fiscal quarter 2026 earnings conference call. I'm joined today by Rick Allorto, our Chief Financial Officer.

Art Penn: Thank you, and good morning, everyone. Welcome to PennantPark Floating Rate Capital's third fiscal quarter 2026 earnings conference call. I am joined today by Richard Allorto, our Chief Financial Officer. Rick, please start off by disclosing some general conference call information and include a discussion about forward-looking statements.

Speaker #2: Rick, please start off by disclosing some general conference call information and include a discussion about forward-looking statements.

Speaker #3: Thank you, Art. I'd like to remind everyone that today's call is being recorded and is the property of PennantPark Floating Rate Capital. Any unauthorized broadcast of this call in any form is strictly prohibited.

Richard Allorto: Thank you, Art. I would like to remind everyone that today's call is being recorded and is the property of PennantPark Floating Rate Capital. 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 would also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Our remarks today may also include forward-looking statements and projections. Please refer to our most recent SEC filing 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 would like to remind everyone that today's call is being recorded and is the property of PennantPark Floating Rate Capital. 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 would also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Our remarks today may also include forward-looking statements and projections.

Speaker #3: 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.

Speaker #3: Our remarks today may also include forward-looking statements and projections. Please refer to our most recent SEC filing for important factors that could cause actual results to differ materially from these projections.

Rick Allorto: Please refer to our most recent SEC filing 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. At this time, I would like to turn the call back to our Chairman and Chief Executive Officer, Art Penn.

Speaker #3: We do not undertake 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 #3: At this time, I'd like to turn the call back to our Chairman and Chief Executive Officer, Art Penn.

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

Speaker #2: Thanks, Rick. I'll begin with an overview of our third quarter results. Including the continued expansion of our PSSL2 joint venture, I will then discuss the current market environment and how we believe PFLT is positioned going forward.

Art Penn: Thanks, Rick. I will begin with an overview of our third quarter results, including the continued expansion of our PSSL II joint venture. I will then discuss the current market environment and how we believe PFLT is positioned going forward. Rick will follow up with a detailed review of our financial results, after which we will open up the call for questions. For the quarter ended 30 June, our core net investment income per share was $0.26. This exceeded our current base dividend of $0.08 per share per month or $0.24 per share for the quarter. In accordance with our revised dividend policy, PFLT will pay a supplemental dividend of $0.0033 per share over the next three months for an aggregate supplemental dividend of $0.01 per share. The supplemental dividend represents 50% of the excess of net investment income above the base dividend.

Speaker #2: Rick will follow up with a detailed review of our financial results after which we will open up the call for questions. For the quarter ended June 30th, our core net investment income per share was $26.

Speaker #2: This exceeded our current base dividend of $0.08 per share per month or $0.24 per share for the quarter. In accordance with our revised dividend policy, PFLT will pay a supplemental dividend of $0.33 per share over the next three months for an aggregate supplemental dividend of $0.01 per share.

Art Penn: In accordance with our revised dividend policy, PFLT will pay a supplemental dividend of $0.0033 per share over the next three months for an aggregate supplemental dividend of $0.01 per share. The supplemental dividend represents 50% of the excess of net investment income above the base dividend. As of 30 June, our NAV per share was $10.26, which is down approximately 2% from the prior quarter. The portfolio continues to perform well. The decline in NAV was primarily attributable to a write-down in one of our non-accrual investments.

Speaker #2: The supplemental dividend represents 50% of the excess of net investment income above the base dividend. As of June 30th, our NAV per share was $10.26, which is down approximately 2% from the prior quarter.

Art Penn: As of 30 June, our NAV per share was $10.26, which is down approximately 2% from the prior quarter. The portfolio continues to perform well. The decline in NAV was primarily attributable to a write-down in one of our non-accrual investments. Our portfolio remains highly diversified and conservatively positioned. Median debt to EBITDA was 4.6 times, median interest coverage of 2.1 times, and the loan to value was 44%. PIK income equaled just 2.4% of total investment income, among the lowest levels in the industry. We ended the quarter with four non-accrual investments, representing just 1% of the portfolio at cost and 0.4% at market value. These portfolio metrics reflect the consistency of our underwriting process and our disciplined approach to credit selection. During the quarter, we invested $212 million in both new and existing investments at a weighted average yield of 9%.

Speaker #2: The portfolio continues to perform well the decline in NAV was primarily attributable to a write-down in one of our non-accrual investments. Our portfolio remains highly diversified and conservatively positioned.

Art Penn: Our portfolio remains highly diversified and conservatively positioned. Median debt to EBITDA was 4.6 times, median interest coverage of 2.1 times, and the loan to value was 44%. PIK income equaled just 2.4% of total investment income, among the lowest levels in the industry. We ended the quarter with four non-accrual investments, representing just 1% of the portfolio at cost and 0.4% at market value. These portfolio metrics reflect the consistency of our underwriting process and our disciplined approach to credit selection.

Speaker #2: Median debt to EBITDA was $4.6 times median interest coverage of $2.1 times and a loan-to-value was $44%. PIC income equaled just $2.4% of total investment income among the lowest levels in the industry.

Speaker #2: We ended the quarter with four non-accrual investments representing just 1% of the portfolio at cost and $0.4% at market value. These portfolio metrics reflect a consistency of our underwriting process and our disciplined approach to credit selection.

Speaker #2: During the quarter, we invested $212 million in both new and existing investments at a weighted average yield of 9%. We invested $106 million into five new platform portfolio companies with a median debt to EBITDA ratio of 2.3 times interest coverage of 4.2 times and a loan-to-value of 30%.

Art Penn: During the quarter, we invested $212 million in both new and existing investments at a weighted average yield of 9%. We invested $106 million into five new platform portfolio companies with a median debt to EBITDA ratio of 2.3 times, interest coverage of 4.2 times, and a loan to value of 30%. Our existing portfolio continues to generate attractive deal flow. During the quarter, we invested an additional $106 million across 18 existing platform companies with credit metrics that were similarly attractive to our new investments.

Art Penn: We invested $106 million into five new platform portfolio companies with a median debt to EBITDA ratio of 2.3 times, interest coverage of 4.2 times, and a loan to value of 30%. Our existing portfolio continues to generate attractive deal flow. During the quarter, we invested an additional $106 million across 18 existing platform companies with credit metrics that were similarly attractive to our new investments. We remain focused on scaling PSSL II in a measured and disciplined manner. As of today, the portfolio totaled $390 million. Over time, we expect to grow the joint venture to more than $1 billion of assets consistent with our existing joint venture. Based upon the current conditions, we expect this expansion to occur over the next 12 to 18 months while maintaining our disciplined underwriting standards.

Speaker #2: Our existing portfolio continues to generate attractive deal flow during the quarter. We invested an additional $106 million across 18 existing platform companies. With credit metrics that were similarly attractive to our new investments, we remain focused on scaling PSSL2 in a measured and disciplined manner.

Art Penn: We remain focused on scaling PSSL II in a measured and disciplined manner. As of today, the portfolio totaled $390 million. Over time, we expect to grow the joint venture to more than $1 billion of assets consistent with our existing joint venture. Based upon the current conditions, we expect this expansion to occur over the next 12 to 18 months while maintaining our disciplined underwriting standards. For the quarter ended 30 June, PSSL II has generated a cash yield on invested capital of 12.7%.

Speaker #2: As of today, the portfolio totaled $390 million. Over time, we expect to grow the joint venture to more than $1 billion of assets, consistent with our existing joint venture.

Speaker #2: Based upon the current conditions, we expect this expansion to occur over the next 12 to 18 months while maintaining our disciplined underwriting standards. For the quarter ended June 30th, PSSL2 has generated a cash yield on invested capital of $12.7%.

Art Penn: For the quarter ended 30 June, PSSL II has generated a cash yield on invested capital of 12.7%. During the quarter, we generated a meaningful realization from the equity co-investment in the leading defense technology company. We received approximately $45 million in proceeds on our original $3.2 million investment, representing nearly a 14 times multiple on invested capital. Government services and defense continues to be one of our highest conviction investment sectors and has consistently been among our best-performing verticals. Since inception, we have invested approximately $3 billion across this sector, including roughly $1.3 billion through PFLT. These investments are 92% first-lien senior secured and generated an overall IRR of 12.2%, demonstrating our ability to identify businesses operating in strategically important markets. We remain highly constructive on the long-term outlook for government services and defense because the sector possesses several characteristics that align well with our investment philosophy.

Speaker #2: During the quarter, we generated a meaningful realization from the equity co-investment in the leading defense technology company. We received approximately $45 million in proceeds on our original $3.2 million investment, representing nearly a 14 times multiple on invested capital.

Art Penn: During the quarter, we generated a meaningful realization from the equity co-investment in the leading defense technology company. We received approximately $45 million in proceeds on our original $3.2 million investment, representing nearly a 14 times multiple on invested capital. Government services and defense continues to be one of our highest conviction investment sectors and has consistently been among our best-performing verticals. Since inception, we have invested approximately $3 billion across this sector, including roughly $1.3 billion through PFLT.

Speaker #2: Government services in defense continues to be one of our highest conviction investment sectors, and has consistently been among our best-performing verticals. Since inception, we've invested approximately $3 billion across this sector, including roughly $1.3 billion through PFLT.

Speaker #2: These investments are 92% first lien senior secured and generated an overall IRR of $12.2%. Demonstrating our ability to identify businesses operating in strategically important markets.

Art Penn: These investments are 92% first-lien senior secured and generated an overall IRR of 12.2%, demonstrating our ability to identify businesses operating in strategically important markets. We remain highly constructive on the long-term outlook for government services and defense because the sector possesses several characteristics that align well with our investment philosophy. Demand has historically been supported by durable federal funding priorities and long-term contracts that provide meaningful revenue visibility and stability.

Speaker #2: We remain highly constructive on the long-term outlook for government services in defense because the sector possesses several characteristics that align well with our investment philosophy, demand has historically been supported by durable federal funding priorities and long-term contracts that provide meaningful revenue visibility and stability.

Art Penn: Demand has historically been supported by durable federal funding priorities and long-term contracts that provide meaningful revenue visibility and stability. Many of these businesses exhibit resilient cash flow profiles, variable cost structures, and are generally less sensitive to broader economic cycles than many commercial industries. In addition, the sector continues to benefit from active M&A markets and strong valuation support, thereby providing multiple avenues for value creation. Our portfolio is concentrated in businesses supporting the Department of Defense and other mission-critical government agencies. We focus on companies addressing high-priority national security initiatives, including modernization of defense systems and digital infrastructure, cyber and electronic warfare capabilities, modeling and simulation, counter-drone technologies, and next-generation autonomous systems. We believe these priorities will remain central to US defense spending for years to come, creating a favorable backdrop for continued investment opportunities.

Speaker #2: Many of these businesses exhibit resilient cash flow profiles variable cost structures and are generally less sensitive to broader economic cycles than many commercial industries.

Art Penn: Many of these businesses exhibit resilient cash flow profiles, variable cost structures, and are generally less sensitive to broader economic cycles than many commercial industries. In addition, the sector continues to benefit from active M&A markets and strong valuation support, thereby providing multiple avenues for value creation. Our portfolio is concentrated in businesses supporting the Department of Defense and other mission-critical government agencies.

Speaker #2: In addition, the sector continues to benefit from active M&A markets and strong valuation support, thereby providing multiple avenues for value creation. Our portfolio is concentrated in businesses supporting the Department of War and other mission-critical government agencies.

Speaker #2: We focus on companies addressing high priority national security initiatives including modernization of defense systems and digital infrastructure, cyber and electronic warfare capabilities, modeling and simulation, counter-drone technologies, and next-generation autonomous systems.

Art Penn: We focus on companies addressing high-priority national security initiatives, including modernization of defense systems and digital infrastructure, cyber and electronic warfare capabilities, modeling and simulation, counter-drone technologies, and next-generation autonomous systems. We believe these priorities will remain central to US defense spending for years to come, creating a favorable backdrop for continued investment opportunities.

Speaker #2: We believe these priorities will remain central to U.S. defense spending for years to come creating a favorable backdrop for continued investment opportunities. Today, government services in defense represents approximately 18% of PFLT's portfolio and given our experience sourcing capabilities and the attractive opportunity set, we intend to maintain or increase that exposure over time.

Art Penn: Today, government services and defense represents approximately 18% of PFLT's portfolio, and given our experience, sourcing capabilities, and the attractive opportunity set, we intend to maintain or increase that exposure over time. Software remains an area of focus for market participants. Our exposure is limited to approximately 4.3% of the portfolio and is structured consistently with our core middle market strategy. These investments are primarily cash-pay, covenant-protected loans with moderate leverage, relatively short durations as well. They are concentrated on mission-critical enterprise software businesses serving regulated end markets, including defense, healthcare, and financial services. Now let me turn to the broader market environment. M&A activity has increased over the last six to nine months, although overall conditions remain uneven. Private equity sponsors remain active, and we are seeing a growing pipeline of attractive opportunities across both new originations and add-on investments.

Speaker #2: Software remains an area of focus for market participants. Our exposure is limited to approximately 4.3% of the portfolio and a structured consistently with our core middle market strategy.

Speaker #2: These investments are primarily cash pay covenant protected loans with moderate leverage relatively short durations as well. They are concentrated on mission-critical enterprise software businesses serving regulated and markets including defense, healthcare, and financial services.

Art Penn: They are concentrated on mission-critical enterprise software businesses serving regulated end markets, including defense, healthcare, and financial services. Now let me turn to the broader market environment. M&A activity has increased over the last six to nine months, although overall conditions remain uneven. Private equity sponsors remain active, and we are seeing a growing pipeline of attractive opportunities across both new originations and add-on investments. We are optimistic that activity levels will remain elevated throughout the back half of this year.

Speaker #2: Now, let me turn to the broader market environment. M&A activity has increased over the last six to nine months although overall conditions remain uneven.

Speaker #2: Private equity sponsors remain active, and we are seeing a growing pipeline of attractive opportunities across both new originations and add-on investments. We are optimistic that activity levels will remain elevated throughout the back half of this year.

Art Penn: We are optimistic that activity levels will remain elevated throughout the back half of this year. We expect increased transaction activity to drive repayments across the portfolio, including opportunities to monetize equity co-investments and redeploy that capital into income-generating investments. In the core middle market, the pricing for high-quality first lien term loans remains attractive, typically ranging from SOFR + 500 to 550 basis points, with leverage of approximately 4.5 times EBITDA. Importantly, these structures continue to include meaningful covenant protections in contrast to the covenant-like structures prevalent in the upper middle market. We believe the current market environment favors lenders with established private equity sponsor relationships, consistent access to deal flow, and disciplined underwriting, and these are long-standing strengths of our platform. We continue to believe that the core middle market offers attractive risk-adjusted opportunities.

Speaker #2: We expect increased transaction activity to drive repayments across the portfolio including opportunities to monetize equity co-investments and redeploy that capital into income-generating investments. In the core middle market, the pricing for high-quality first lien term loans remains attractive typically ranging from SOFR plus 500 to 550 basis points with leverage of approximately 4.5 times EBITDA.

Art Penn: We expect increased transaction activity to drive repayments across the portfolio, including opportunities to monetize equity co-investments and redeploy that capital into income-generating investments. In the core middle market, the pricing for high-quality first lien term loans remains attractive, typically ranging from SOFR + 500 to 550 basis points, with leverage of approximately 4.5 times EBITDA. Importantly, these structures continue to include meaningful covenant protections in contrast to the covenant-like structures prevalent in the upper middle market.

Speaker #2: Importantly, these structures continue to include meaningful covenant protections and contrast to the covenant-like structures prevalent in the upper middle market. We believe the current market environment favors lenders with established private equity sponsor relationships, consistent access to deal flow, and disciplined underwriting, and these are long-standing strengths of our platform.

Art Penn: We believe the current market environment favors lenders with established private equity sponsor relationships, consistent access to deal flow, and disciplined underwriting, and these are long-standing strengths of our platform. We continue to believe that the core middle market offers attractive risk-adjusted opportunities. Companies in this segment generally have EBITDA of $10 million to $50 million and often operate below the practical threshold of the broadly syndicated loan and high-yield markets.

Speaker #2: We continue to believe that the core middle market offers attractive risk-adjusted opportunities. Companies in this segment generally have EBITDA of $10 million to $50 million and often operate below the practical threshold of the broadly syndicated loan and high-yield markets.

Art Penn: Companies in this segment generally have EBITDA of $10 million to $50 million and often operate below the practical threshold of the broadly syndicated loan and high-yield markets. As a result, lenders can typically conduct extensive diligence, negotiate meaningful financial covenants, structure transactions with appropriate leverage and equity cushions, and maintain regular access to company financial information. Our credit quality since our inception over 14 years ago has been excellent. PFLT has invested $9.2 billion in 556 companies, and we have experienced only 27 non-accruals. Since inception, our loss ratio on invested capital is only 13 basis points annually. As a provider of strategic capital, we fuel 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.

Speaker #2: As a result, lenders can typically conduct extensive diligence, negotiate meaningful financial covenants, structure transactions with appropriate leverage and equity cushions, and maintain regular access to company financial information.

Art Penn: As a result, lenders can typically conduct extensive diligence, negotiate meaningful financial covenants, structure transactions with appropriate leverage and equity cushions, and maintain regular access to company financial information. Our credit quality since our inception over 14 years ago has been excellent. PFLT has invested $9.2 billion in 556 companies, and we have experienced only 27 non-accruals. Since inception, our loss ratio on invested capital is only 13 basis points annually. As a provider of strategic capital, we fuel the growth of our portfolio companies.

Speaker #2: Our credit quality since our inception over 14 years ago has been excellent. PFLT has invested $9.2 billion in 556 companies and we've experienced only 27 non-accruals.

Speaker #2: Since inception, our loss ratio on invested capital is only 13 basis points annually. As a provider of strategic capital, we fuel the growth of our portfolio companies and many cases we've participated in the upside of the company by making an equity co-investment.

Art Penn: 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 30 June, we have invested over $629 million in equity co-investments, have generated an IRR of 25%, and have generated a multiple on invested capital of two times. Looking ahead, our experienced team and broad origination platform position us well to generate attractive deal flow.

Speaker #2: Our returns on these equity co-investments have been excellent over time overall for our platform from inception through June 30th. We've invested over $629 million in equity co-investments have generated an IRR of 25% and have generated a multiple on invested capital of two times.

Art Penn: Overall, for our platform from inception through 30 June, we have invested over $629 million in equity co-investments, have generated an IRR of 25%, and have generated a multiple on invested capital of two times. Looking ahead, our experienced team and broad origination platform position us well to generate attractive deal flow. Our mission remains consistent to deliver a stable and well-covered dividend while preserving capital. Everything we do is aligned to that objective. We continue to focus on investing in high-quality middle market companies with strong free cash flow generation. We capture that value through first-lien senior secured loans, and we pay out those contractual cash flows in the form of dividends to our shareholders. With that overview, I will turn it over to Rick for a more detailed review of our financial results.

Speaker #2: Looking ahead, our experienced team and broad origination platform position us well to generate attractive deal flow. Our mission remains consistent to deliver a stable and well-covered dividend while preserving capital.

Art Penn: Our mission remains consistent to deliver a stable and well-covered dividend while preserving capital. Everything we do is aligned to that objective. We continue to focus on investing in high-quality middle market companies with strong free cash flow generation. We capture that value through first-lien senior secured loans, and we pay out those contractual cash flows in the form of dividends to our shareholders. With that overview, I will turn it over to Rick for a more detailed review of our financial results.

Speaker #2: Everything we do is aligned to that objective. We continue to focus on investing in high-quality middle market companies with strong free cash flow generation. We capture that value through first lien senior secured loans, and we pay out those contractual cash flows in the form of dividends to our shareholders.

Speaker #2: Without overview, I'll turn it over to Rick for a more detailed review of our financial results.

Speaker #1: Thank you, Art. For the quarter ending June 30th, GAAP and core net investment income was $26 per share. Investment income was comprised of $59 million in interest income, $6.2 million in dividends from our joint ventures, and $0.8 million in other income.

Richard Allorto: Thank you, Art. For the quarter ending 30 June, GAAP and core net investment income was $0.26 per share. Investment income was comprised of $59 million in interest income, $6.2 million in dividends from our joint ventures, and $0.8 million in other income. Our operating expenses for the quarter were as follows: interest and expenses on debt were $25 million, base management and performance-based incentive fees were $12.9 million, general and administrative expenses were $2.3 million, and provision for taxes was less than $0.1 million. Net realized and unrealized change on investments, including provision for taxes, was a loss of $18.3 million for the quarter. As of 30 June, NAV was $10.26 per share compared to $10.47 per share last quarter. At quarter end, our debt-to-equity ratio was 1.56 times, and our capital structure is diversified across multiple funding sources, including both secured and unsecured debt.

Rick Allorto: Thank you, Art. For the quarter ending 30 June, GAAP and core net investment income was $0.26 per share. Investment income was comprised of $59 million in interest income, $6.2 million in dividends from our joint ventures, and $0.8 million in other income. Our operating expenses for the quarter were as follows: interest and expenses on debt were $25 million, base management and performance-based incentive fees were $12.9 million, general and administrative expenses were $2.3 million, and provision for taxes was less than $0.1 million.

Speaker #1: Our operating expenses for the quarter were as follows. Interest and expenses on debt were $25 million. Base management and performance based incentive fees were $12.9 million.

Speaker #1: General and administrative expenses were $2.3 million, and provision for taxes was less than $0.1 million. Net realized and unrealized change on investments, including provision for taxes, was a loss of $18.3 million for the quarter.

Rick Allorto: Net realized and unrealized change on investments, including provision for taxes, was a loss of $18.3 million for the quarter. As of 30 June, NAV was $10.26 per share compared to $10.47 per share last quarter. At quarter end, our debt-to-equity ratio was 1.56 times, and our capital structure is diversified across multiple funding sources, including both secured and unsecured debt. Subsequent to quarter end, we reduced borrowings under our revolving credit facility, bringing our debt-to-equity ratio to 1.5 times within our target range of 1.4 to 1.6 times.

Speaker #1: As of June 30th, NAV was $10.26 per share compared to $10.47 per share last quarter. At quarter end, our debt to equity ratio was 1.56 times and our capital structure is diversified across multiple funding sources including both secured and unsecured debt.

Speaker #1: Subsequent to quarter end, we reduced borrowings under our revolving credit facility, bringing our debt-to-equity ratio to 1.5 times, within our target range of 1.4 to 1.6 times.

Richard Allorto: Subsequent to quarter end, we reduced borrowings under our revolving credit facility, bringing our debt-to-equity ratio to 1.5 times within our target range of 1.4 to 1.6 times. As of 30 June, our key portfolio statistics were as follows. The portfolio remains well-diversified, comprising 159 companies across 51 industries. The weighted average yield on our debt investments was 9.8%, and approximately 99% of the debt portfolio is floating rate. LTM PIK income equaled only 2.3% of total interest income. The portfolio is comprised of 89% first-lien senior secured debt, 1% in second lien and subordinated debt, 3% in equity of PSSL and PSSL II, and 7% in equity co-investments. With that, I'll turn the call back to Art for closing remarks.

Speaker #1: As of June 30th, our key portfolio statistics were as follows. The portfolio remains well diversified comprising 159 companies across 51 industries the weighted average yield on our debt investments was 9.8% and approximately 99% of the debt portfolio is floating rate LTM pick income equal only 2.3% of total interest income the portfolio is comprised of 89% first lien senior secured debt 1% in second lien and subordinated debt 3% in equity of PSSL and PSSL2 and 7% in equity co-investments.

Rick Allorto: As of 30 June, our key portfolio statistics were as follows. The portfolio remains well-diversified, comprising 159 companies across 51 industries. The weighted average yield on our debt investments was 9.8%, and approximately 99% of the debt portfolio is floating rate. LTM PIK income equaled only 2.3% of total interest income. The portfolio is comprised of 89% first-lien senior secured debt, 1% in second lien and subordinated debt, 3% in equity of PSSL and PSSL II, and 7% in equity co-investments. With that, I'll turn the call back to Art for closing remarks.

Speaker #1: With that, I'll turn the call back to Art for closing remarks.

Speaker #2: Thanks, Rick. In conclusion, I'd like to thank our exceptional team for their continued dedication and our shareholders for their trust and partnership. We remain focused on delivering durable earnings preserving capital and creating long-term value for all stakeholders.

Art Penn: Thanks, Rick. In conclusion, I'd like to thank our exceptional team for their continued dedication and our shareholders for their trust and partnership. We remain focused on delivering durable earnings, preserving capital, and creating long-term value for all stakeholders. That concludes our remarks. At this time, I would like to open up the call to questions.

Speaker #2: That concludes our remarks at this time I would like to open up the call to questions.

Speaker #3: Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Operator 2: Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment, and again, press star one to ask a question. We'll pause for a moment to allow everyone an opportunity to signal for questions. While we wait, we will take our first question from Chris Muller with Citizens Capital Markets. Please go ahead.

Operator: Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment, and again, press star one to ask a question. We'll pause for a moment to allow everyone an opportunity to signal for questions. While we wait, we will take our first question from Chris Muller with Citizens Capital Markets. Please go ahead.

Speaker #3: And again, press star one to ask a question. We'll pause for a moment to allow everyone an opportunity to signal for questions. While we wait, we will take our first question from Chris Mueller with Citizens Capital Markets.

Speaker #3: Please go ahead.

Chris Muller: Hey, guys. Thanks for taking the questions, and nice to be on with you this morning. I wanted to ask about the government services part of your portfolio. It looks like rates are poised to move higher into 2027, which tends to precede an uptick in credit issues. I guess, how does that government services sector perform in times of stress compared to other sectors you guys have in the portfolio?

Speaker #4: Thanks for taking the questions, and nice to be on with you this morning. So, I wanted to ask about the government services part of your portfolio.

Speaker #4: So it looks like rates are poised to move higher into 2027, which tends to precede an uptick in credit issues. So I guess how does that government services sector perform in times of stress compared to other sectors you guys have in the portfolio?

Speaker #2: Yeah, thanks Chris and welcome. Look, government services has been extraordinarily resilient. A lot of it goes into the defense and intelligence and defense and intelligence uses.

Art Penn: Well, thanks, Chris, and welcome. Well, government services has been extraordinarily resilient. A lot of it goes into the defense and intelligent uses. We do not need to worry about the bills getting paid. Through different presidential administrations, it has been very solid. So our track record of $3 billion over 65 deals or so is kind of from inception, kind of 19 years ago. So it has been a really great space. Not a lot of people traffic in it. It is a differentiator for us. And given the geopolitical winds and given what is going on kind of in the United States, we think it will continue to be a resilient space. We just had that big win with that defense tech deal where the equity co-invest was a 14x on the equity.

Speaker #2: We don't need to worry about the bills getting paid. It's through different presidential administrations it's been very solid. So our track record of $3 billion over 65 deals or so is kind of a from inception kind of 19 years ago.

Speaker #2: So it's been a really great space. Not a lot of people traffic in it. It's a differentiator for us, and given the geopolitical winds and given what's going on in the United States, we think it will continue to be a resilient space.

Speaker #2: We just had that big win with that defense tech deal where the equity co-invest was a 14-times on the equity. So that is really nice validation for us, and we expect and will continue to be doing more of that type of thing.

Art Penn: We just had that big win with that defense tech deal where the equity co-invest was a 14x on the equity. So that is kind of really nice validation for us, and we expect and continue to be doing more of that type of thing.

Art Penn: So that is kind of really nice validation for us, and we expect and continue to be doing more of that type of thing.

Chris Muller: Got it. And where do you think the exposure in that sector trends over time? Is this a good level, or could we see you guys lean into that a little more going forward?

Speaker #4: Got it. And where do you think the exposure in that sector trends over time? Is this a good level or could we see you guys lean into that a little more going forward?

Speaker #2: I mean, we're at 18% now. I think it's probably in this zone. We still want to maintain proper diversification. It's been a great space.

Art Penn: We are at 18% now. I think it is probably in this zone. We still want to maintain proper diversification. It has been a great space. We have had a great track record. But at 18%, it is plus or minus. Obviously, the equity co-invests can, if they are marked up, can move that a little bit. But in this zone is probably appropriate because we do want to maintain proper diversification.

Speaker #2: We've had a great track record. But kind of at 18%, it's kind of plus or minus. Obviously, the equity co-invest can if they're marked up can move that a little bit.

Speaker #2: But kind of in this zone is probably appropriate because we do want to maintain proper diversification.

Speaker #4: Got it. Very helpful. Appreciate you guys taking the questions this morning.

Chris Muller: Got it. Very helpful. Appreciate you guys taking the questions this morning.

Speaker #2: Thank you.

Art Penn: Thank you.

Speaker #3: Thank you. And we'll next go to Paul Johnson with KBW. Please go ahead.

Operator 2: Thank you. We will next go to Paul Johnson with KBW. Please go ahead.

Operator: Thank you. We will next go to Paul Johnson with KBW. Please go ahead.

Speaker #5: Yeah, thanks. Thanks. Good morning. Thanks for taking my questions. So I'm just curious, you mentioned higher potentially higher repayments here. If activity picks up, which could be beneficial for the portfolio and rotation there.

Paul Johnson: Yeah, thanks. Good morning. Thanks for taking my questions. I am just curious, you mentioned potentially higher repayments here if activity picks up, which could be beneficial for the portfolio and rotation there. But if I am looking at your guys' dividend yields just based on where you trade today, almost a 16% dividend yield, and a cost of debt that is stepping up here. There was a recent bond issuance that was a little north of 7%. Incrementally higher cost of capital would also say that you would need a relatively high yield on the asset side or a relatively accretive environment to offset the higher cost of capital today. How, I guess in terms of what you are looking at, you seem to have a favorable outlook on the investment. Favorable investment outlook, I will say. How are you balancing all of that with where the stock trades today?

Speaker #5: But if I'm looking at your guys' dividend yield just based on where you trade today, almost a 16% dividend yield. And a cost of debt that's stepping up here, there was a recent bond issuance that was a little north of 7%.

Speaker #5: So, incrementally higher cost of capital would also mean that you would need a relatively high yield on the asset side, or a relatively accretive environment, to offset the higher cost of capital today.

Paul Johnson: Incrementally higher cost of capital would also say that you would need a relatively high yield on the asset side or a relatively accretive environment to offset the higher cost of capital today. How, I guess in terms of what you are looking at, you seem to have a favorable outlook on the investment. Favorable investment outlook, I will say. How are you balancing all of that with where the stock trades today? Balancing that with potential leverage reduction or a return of capital. How do you kind of balance that out?

Speaker #5: So how, I guess, in terms of what you're looking at, you seem to have a favorable outlook on the investment. Favorable investment outlook, I'll say.

Speaker #5: How are you balancing all of that with where the stock trades today, and balancing that with potential leverage reduction or a return of capital?

Paul Johnson: Balancing that with potential leverage reduction or a return of capital. How do you kind of balance that out?

Speaker #5: How do you kind of balance that out?

Speaker #2: Yeah, it's a great question, Paul, and thank you. It is a balancing act. We do have the two JVs—one is fully mature, one is growing and ramping. And those JVs, as we know, can generate teens returns.

Art Penn: Yeah. It is a great question, Paul, and thank you. It is a balance act. We do have the two JVs. One is fully mature. One is growing and ramping. Those JVs, as we know, can generate teens returns. In some sense, if we do bonds at 7% or so and we are generating a teens, that is accretive. That is kind of how we think about the ROE. Then, of course, we want to make sure we are appropriately leveraged and also prudently leveraged at the PFLT level. So we have this kind of 1.5 times kind of a zone that we think is the appropriate leverage for the underlying portfolio, which is among the lowest risk portfolios in the space. You could see it in our PIK percentage. You could see it in the leverage ratios of our underlying portfolio. So we think we are appropriately balanced.

Speaker #2: So in some sense, if we do bonds at 7% or so and we're generating a teens that's accretive. That's kind of how we think about the ROE and then of course we want to make sure we're appropriately leveraged and also prudently leveraged at the PFLT level.

Speaker #2: So we have this kind of 1.5 times kind of a zone that we're we think is the appropriate leverage for the underlying portfolio which is among the lowest risk portfolios in the space.

Speaker #2: You You could see it in our pick percentage. You could see it in the leverage ratios of our underlying portfolio. So we think we're appropriately balanced.

Art Penn: You could see it in our PIK percentage. You could see it in the leverage ratios of our underlying portfolio. So we think we are appropriately balanced. It is not going to surprise you if I say I think the stock is cheap. Most management teams say that, but it is cheap relative to the underlying risk in the portfolio, we believe, as well as the leverage we have to be prudently leveraged and also optimize NII. So that is what we are trying to modulate.

Speaker #2: It's not going to surprise you if I say I think the stock is cheap. Most management teams say that but it is cheap relative to the underlying risk in the portfolio.

Art Penn: It is not going to surprise you if I say I think the stock is cheap. Most management teams say that, but it is cheap relative to the underlying risk in the portfolio, we believe, as well as the leverage we have to be prudently leveraged and also optimize NII. So that is what we are trying to modulate.

Speaker #2: We believe as well as the leverage we have to be prudently leveraged and also optimize NII. So that's what we're trying to modulate.

Speaker #5: Okay, got it. And then just one on maybe credit overall. I mean, what are you guys doing in terms of amendment activity? You mentioned you guys have low PIK.

Paul Johnson: Okay. Got it. One just on maybe credit overall. What are you guys doing in terms of amendment activity? You mentioned you guys have low PIK. If amendments are coming up in the portfolio, are you typically able to extract tighter terms and documentations where they are occurring? Are they requiring you to be a little bit more flexible with the sponsor at this point? It did not look like there was an increase in PIK or anything, but what are you seeing there in terms of amendments in the portfolio?

Speaker #5: But if amendments are coming up in the portfolio, are you typically able to extract tighter terms and documentation where they're occurring, or are they requiring you to be a little bit more flexible with the sponsor at this point?

Speaker #5: It didn't look like there was an increase in pick or anything, but what are you seeing there in terms of amendments in the portfolio?

Speaker #2: Yeah, it's a good question, and the portfolio is relatively clean. The one area we have—and we saw why—is the NAV down a little bit this quarter.

Art Penn: Yeah, it is a good question, and the portfolio is relatively clean. The one area we had, and we saw why is the NAV down a little bit this quarter, it is from that post-COVID vintage in the zero interest rate environment when consumer strength was through the roof. The one or two non-accruals we have are really from that post-COVID vintage now going on five years. The rest of the portfolio is pretty clean. We are always going to have a handful of amendments. You have about 159 companies in this portfolio, so there is always something going on. But it has been relatively light, and we are just churning through whatever remains of that post-COVID vintage and getting beyond that and kind of leaning into the government services and defense, and resilient healthcare companies and other areas where we think there is a solid risk-adjusted return.

Speaker #2: It's from that post-COVID vintage. When the zero interest rate environment when consumer strength was through the roof. So the one or two non-accruals we have are really from that post-COVID vintage now going on five years.

Speaker #2: So, the rest of the portfolio is pretty clean. We're always going to have a handful of amendments. You have about 159 companies in this portfolio.

Speaker #2: So there's always something going on but it's been relatively light and we're just churning through whatever remains of that post-COVID vintage and getting beyond that and kind of leaning into the government services and defense and healthcare resilient healthcare companies and other areas where we think there's solid risk adjuster return.

Art Penn: But it has been relatively light, and we are just churning through whatever remains of that post-COVID vintage and getting beyond that and kind of leaning into the government services and defense, and resilient healthcare companies and other areas where we think there is a solid risk-adjusted return. The new loans we are originating, as you can see where the credit stats are really on the lower end of the risk spectrum of the industry. We think that mixes well with how we capitalize the company, how we manage the risk. But the amendments itself are relatively light.

Speaker #2: I mean, the new loans were originating as you can see with the credit stats are really on the lower end of the risk spectrum of the industry and we think that mixes well with how we capitalize the company, how we manage the risk.

Art Penn: The new loans we are originating, as you can see where the credit stats are really on the lower end of the risk spectrum of the industry. We think that mixes well with how we capitalize the company, how we manage the risk. But the amendments itself are relatively light.

Speaker #2: But the amendments itself are relatively light.

Paul Johnson: Got it. That is helpful. At what percent, I guess, would you say the portfolio today is kind of in this post-COVID vintage?

Speaker #5: Got it. That's helpful. At what percent, I guess, would you say the portfolio today is kind of in this post-COVID vintage?

Speaker #2: Yeah. Let me—I actually have a chart here. I think it's probably on the order of 10 to 15 percent price or profit. Most of them have performed well.

Art Penn: Yeah. I actually have a chart here. I think it is probably on the order of 10% to 15% post-COVID. Most of them have performed well. There is just a few that the world reverted to the mean, and the one issue we had this quarter was a consumer company that was doing very well for a long period of time. So you had the reversion to the mean, and then you had tariffs. So kind of a series of unfortunate events with that particular company. The reversion to the mean with consumer and then tariffs kind of really hurt it.

Speaker #2: There's just a few that the world reverted to the mean and the one issue we had this quarter was the consumer company that was doing very well for a long period of time.

Speaker #2: And so you had the reversion to the mean and then you had tariffs. So kind of a series of unfortunate events with that particular company kind of the reversion to the mean with consumer and then tariffs kind of really hurt it.

Speaker #5: Okay, got it. Thank you very much. That's very helpful.

Paul Johnson: Okay. Got it. Thank you very much. It is very helpful.

Speaker #2: Thank you.

Art Penn: Thank you.

Speaker #1: We'll next go to Robert Dodd with Raymond James. Please go ahead.

Operator 2: We will next go to Robert Dodd with Raymond James. Please go ahead.

Operator: We will next go to Robert Dodd with Raymond James. Please go ahead.

Speaker #6: Hi guys. And congrats on the progress. And next one. Kind of switching two things together. To your point, the post-COVID vintage, there was a big swell during COVID of consumers being cash rich, etc.

Robert Dodd: Hi, guys, and congrats on the progress. Echelon, kind of smushing two things together. To your point, the post-COVID vintage, there was a big swell during COVID of consumers being cash-rich, et cetera, so certain underlying metrics looked better when things were underwriting. It caught a lot of people out. Is there any risk of that in the government services side? To your point, it seems really great right now. Is there an excess of spend in that sector right now that has any chance, I guess budgets never seem to go down, but is there any risk that there is some inflated cash flows within that sector that could turn around three, four years from now?

Speaker #6: So certain underlying metrics looked better when things were underwritting. It caught a lot of people out. Is there any risk of that in the government services side?

Speaker #6: To your point, it seems really great right now. Is there an excess of spend in that sector right now that has any chance? I mean, I guess our budgets never seem to go down, but is there any risk that there's some inflated cash flows within that sector that could turn around three or four years from now?

Robert Dodd: To your point, it seems really great right now. Is there an excess of spend in that sector right now that has any chance, I guess budgets never seem to go down, but is there any risk that there is some inflated cash flows within that sector that could turn around three, four years from now?

Art Penn: Yeah. It is a great question. Just to give you some historical context, during the Obama administration, there was that period of sequestration you may remember.

Art Penn: Yeah. It is a great question. Just to give you some historical context, during the Obama administration, there was that period of sequestration you may remember. Military expenditures were tightened. We did have quite a bit of exposure then. The companies made it through okay. It was not a happy time, but they did what they needed to do. We did not really have any big issues with government services and defense at that point in time.

Speaker #2: Yeah. Yeah. So it's a great question. And just to give you some historical context, during the Obama administration, there was that period of sequestration.

Speaker #2: You may remember where military expenditures were tightened. And we did have quite a bit of exposure then. The companies made it through okay. It wasn't a happy, happy time but they did what they needed to do.

Art Penn: Military expenditures were tightened. We did have quite a bit of exposure then. The companies made it through okay. It was not a happy time, but they did what they needed to do. We did not really have any big issues with government services and defense at that point in time. But it is a good question. When we are underwriting a new loan, we always kind of hark back to the sequestration time and try to figure out if something like that happened again, if we had a different administration, what might it look like. Then you also have in the space itself things going on, as you could tell. Our big win recently was this defense tech company that is all wrapped up into AI and drones and autonomy, which is kind of where the action is happening and less so on kind of traditional.

Speaker #2: We didn't really have any big issues with government services and defense at that point in time. But it's a good question. We always kind of when we were underwriting a new loan, always kind of heart back to the sequestration time and try to figure out if something like that happened again, if we had a different administration, what might it look like?

Art Penn: But it is a good question. When we are underwriting a new loan, we always kind of hark back to the sequestration time and try to figure out if something like that happened again, if we had a different administration, what might it look like. Then you also have in the space itself things going on, as you could tell. Our big win recently was this defense tech company that is all wrapped up into AI and drones and autonomy, which is kind of where the action is happening and less so on kind of traditional.

Speaker #2: And then you also have, in the space itself, things going on, as you could tell. One of the big ones recently was this defense tech company that is all wrapped up into AI and drones and autonomy, which is kind of where the action is happening.

Speaker #2: And less so on kind of traditional. Now, we've historically been most focused on services government services where you have people walking into an office building somewhere and sitting behind a computer doing something.

Art Penn: Now, we have historically been most focused on services, government services, where you have people walking into an office building somewhere and sitting behind a computer doing something. That could be intelligence, that could be satellites, that could be a lot of different things. So we have been less focused on actual equipment and more focused on the services. So that has remained resilient. But it is something we look at, and that is why we always, throughout the portfolio, not just in government services, try to keep leverage low. That is why our new deals are 4 times, 4.5 times or less. That is why we always make sure there is substantial interest coverage so that if something bad were to happen, you still got cushion. By the way, that is why I think our healthcare. Healthcare is another big sector for us. We have outperformed our peers in healthcare.

Speaker #2: And that could be intelligence. That could be satellites. That could be a lot of different things. So we've been less focused on actual equipment and more focused on the services.

Speaker #2: So, that's remained resilient. But it's something we look at, and that's why we always, throughout the portfolio—not just in government services—try to keep leverage low.

Art Penn: That is why our new deals are 4 times, 4.5 times or less. That is why we always make sure there is substantial interest coverage so that if something bad were to happen, you still got cushion. By the way, that is why I think our healthcare. Healthcare is another big sector for us. We have outperformed our peers in healthcare. As I look at our peers, it crops up quite a bit with our peers and why do we have a much lower default rate in healthcare? It is because we just keep leverage lower.

Speaker #2: That's why our new deals are four times, four and a half times, or less. That's why we always make sure they have substantial interest coverage.

Speaker #2: So if something were to happen, we're not saying that's going to happen, but if a bear market were to occur, you still have some cushion. By the way, that's why I think healthcare is another big sector for us.

Speaker #2: We've outperformed our peers in healthcare, as I look at our peers—it comes up quite a bit with our peers—and why do we have a much lower default rate in healthcare?

Art Penn: As I look at our peers, it crops up quite a bit with our peers and why do we have a much lower default rate in healthcare? It is because we just keep leverage lower. If you keep leverage lower, you just build more cushion into the system, and as stuff happens, you can weather a storm a little bit better. We do the same in government services.

Speaker #2: It's because we just keep leverage lower. If you keep leverage lower, you just build more cushion into the system. And as stuff happens, you can weather a storm a little bit better.

Art Penn: If you keep leverage lower, you just build more cushion into the system, and as stuff happens, you can weather a storm a little bit better. We do the same in government services.

Speaker #2: So we do the same in government services.

Speaker #1: Yep. Got it. Got it.

Robert Dodd: Yeah. Got it. On the pipeline, you mentioned it looks pretty good in H2. Is that skewed in any direction? I imagine there is not a lot of software in your pipeline, but there might be obviously government services. You are also expecting a lot of, well, potentially a ramp-up in repayments and monetization. Is there, in the pipeline, any mix skew that is different from your overall portfolio and maybe on a net basis, right? If the repayments come in and the originations go out, are we going to see anything different in overall mix?

Speaker #6: On the pipeline, I mean, you mentioned it looks pretty good in the second half. Is there any—I mean, is that skewed in any direction?

Speaker #6: I imagine there's not a lot of software in your pipeline, but there might be, obviously, government services. But you're also expecting a lot of, or potentially you're ramping up in repayment, some monetization.

Speaker #6: So is there, kind of, in the pipeline, any mix skew that's different from your overall portfolio, and maybe on a net basis—right, if the repayments come in and the originations go out?

Speaker #6: Are we going to see anything different in the overall mix?

Art Penn: Not dramatically. Consumer is an area that when we do consumer, it usually means consumer services. We are okay with our exposure there. We are not necessarily looking to increase it, and we have got to be very careful around the consumer. If you think it is a K-shaped economy or a C-shaped economy or whatever economy you think it is, you just got to be careful around that. I would say it is still the same verticals. I think just one thing that is popping up a little bit more, and you see it elsewhere, the industrial-related companies, and we have some industrial distributors. A lot of that goes into the data centers and the AI build. That area is doing very well, of course. So you are probably just across all of our portfolios in the industry, including ours.

Speaker #2: Not dramatically. Consumer is an area that when we do consumer, it usually means consumer services. We are okay with our exposure there. We're not necessarily looking to increase it.

Speaker #2: And we've got to be very careful around the consumer. I think it's a K-shaped economy or a C-shaped economy or whatever economy you think it is.

Speaker #2: It's got to be careful around that. I'd say it's still the same verticals. I mean, I think just one thing that's popping up a little bit more and you see it elsewhere the industrial-related companies and we have some industrial distributors.

Speaker #2: And then a lot of that goes into the data centers and the AI build. That area is doing very well, of course. So you're probably just across all of our portfolios in the industry, including ours, as those companies have more needs in the industrial space.

Art Penn: A lot of that goes into the data centers and the AI build. That area is doing very well, of course. So you are probably just across all of our portfolios in the industry, including ours. As those companies have more needs in the industrial space, there is probably going to be more capital flowing in there. Again, you can talk about, is it going to get overdone or not overdone? We are exposed to that right now through, we like high free cash flow companies, so it is less CapEx heavy, but more like industrial distributors, things like that, where there is high free cash flow.

Art Penn: As those companies have more needs in the industrial space, there is probably going to be more capital flowing in there. Again, you can talk about, is it going to get overdone or not overdone? We are exposed to that right now through, we like high free cash flow companies, so it is less CapEx heavy, but more like industrial distributors, things like that, where there is high free cash flow. Any cyclical downturn in that or secular downturn in that just ends up being managed within the box because inventory just gets used. We are seeing more and more of that given what is going on elsewhere in the economy.

Speaker #2: There's probably going to be more capital flowing in there. Again, you can talk about is it going to get overdone or not overdone? We tend to we're exposed to that right now through we like high free cash flow companies.

Speaker #2: So, it's less capex-heavy but more like industrial distributors, things like that, where there's high free cash flow. And any cyclical downturn in that or secular downturn in that just ends up being managed within the box because inventory just gets used.

Art Penn: Any cyclical downturn in that or secular downturn in that just ends up being managed within the box because inventory just gets used. We are seeing more and more of that given what is going on elsewhere in the economy.

Speaker #2: So, but we are seeing more and more of that, given what's going on elsewhere in the economy.

Speaker #6: Got it. Got it. Thank you.

Robert Dodd: Got it. Thank you.

Speaker #2: Thank you.

Art Penn: Thank you.

Speaker #1: Thank you. And we'll next go to Christopher Nolan with Leadenbrook Thelman. Please go ahead.

Operator 2: Thank you. We will next go to Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Operator: Thank you. We will next go to Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Speaker #7: All right. Was the actual name of the company Realized Defense Tech, or is that just a reference to its phone?

Christopher Nolan: Art, was the actual name of the company Realized Defense Tech, or is that just a reference to its-

Speaker #2: Yeah, we covered it last time. It's called Echelon—E-C-H-E-L-O-N. It was sold to a company called Shield AI. Shield AI is one of these neo-prime type companies, along with Palantir.

Art Penn: Yeah. We covered it last time. It is called Echelon, E-S-C-H-E-L-O-N. It was sold to a company called Shield AI. Shield AI is one of these neo-prime type companies, along with Palantir and those folks.

Speaker #2: And those folks.

Speaker #7: And Rick, what were the drivers for the elevated unrealized appreciation? I assume beyond accounting true-ups.

Christopher Nolan: Rick, what were the drivers for the elevated unrealized appreciation? I assume beyond accounting true-ups.

Speaker #2: The primary driver, as mentioned in some of his earlier comments, was a write-down on one of the non-accrual names, K&S. And then additionally, there was a write-down in one of the equity positions, Athletico Holdings.

Richard Allorto: The primary driver, Art mentioned it in some of his earlier comments, was a write-down on one of the non-accrual names, KNS. Additionally, there was a write-down in one of the equity positions, Athletico Holdings. Those were the primary. KNS was also held within the joint venture, so there was some flow-through effect there.

Rick Allorto: The primary driver, Art mentioned it in some of his earlier comments, was a write-down on one of the non-accrual names, KNS. Additionally, there was a write-down in one of the equity positions, Athletico Holdings. Those were the primary. KNS was also held within the joint venture, so there was some flow-through effect there.

Speaker #2: Those were the primary. And K&S was also held within the joint venture. So there was some kind of flow-through effect there.

Speaker #7: Thank you. And then finally, on your comments in terms of the attractive characteristics of government defense-related companies, don't these companies have a better position to command for premium lower-cost capital or higher leverage or favorable terms and conditions?

Christopher Nolan: Thank you. Finally, Art, on your comments in terms of the attractive characteristics of government defense-related companies. Do not these companies have a are in a better position to command for premium lower cost capital or higher leverage or favorable terms and conditions? Can you comment a little bit on that, please?

Speaker #7: Can you comment a little bit on that, please?

Speaker #2: Yeah. It's a good question. So like much in our portfolio, these are companies where there's a private equity sponsor investing in the company and who wants to do a roll-up, wants to do add-on acquisitions.

Art Penn: Yeah, it's a good question. Like much in our portfolio, these are companies where there's a private equity sponsor investing in the company and who wants to do a roll-up, wants to do add-on acquisitions. Our cost to capital, typically first lien, S plus 500, 550. What's usually delayed draw term loans, we give them fuel to do add-on acquisitions. It's usually attractive for them as part of the package of financing of what they're trying to achieve. Again, typically it's 4 times levered. There's a delayed draw term loan. We give them the firepower to do add-on acquisitions. There's 50%, 60% equity underneath us. In many cases, we'll co-invest in the equity, which is this big defense tech one we had as an example. That's just the model that seems to work for them. For us, these are not unlevered companies.

Speaker #2: So our cost to capital typically first lean S plus 500, 550. And with usually delayed draw term loans, we give them fuel to do add-on acquisitions.

Speaker #2: It's usually attractive for them as part of the package of financing of what they're trying to achieve. So again, typically, it's four times leverage.

Speaker #2: There's a delayed draw term loan. We give them the firepower to do add-on acquisitions. There's 50, 60 percent equity underneath us. And in many cases, we'll co-invest in the equity, which is this big defense tech when we had as an example.

Art Penn: In many cases, we'll co-invest in the equity, which is this big defense tech one we had as an example. That's just the model that seems to work for them. For us, these are not unlevered companies. These are levered companies by definition. We think levered appropriately. Also with excess liquidity to go do add-on acquisitions.

Speaker #2: And it's just the model that seems to work for them and for us. These are not unleveraged companies; these are leveraged companies by definition.

Art Penn: These are levered companies by definition. We think levered appropriately. Also with excess liquidity to go do add-on acquisitions.

Speaker #2: We think leverage appropriately. And also, with excess liquidity to go do add-on acquisitions.

Speaker #7: Great. Thank you.

Christopher Nolan: Great. Thank you.

Speaker #1: Thank you. And I'd now like to turn the call back over to Art Penn for any closing or final remarks.

Operator 2: Thank you. I'd now like to turn the call back over to Art Penn for any closing or final remarks.

Operator: Thank you. I'd now like to turn the call back over to Art Penn for any closing or final remarks.

Speaker #2: Thank you. Thanks, everybody, for joining us today. Next time we speak, we'll be reporting our annual 10-K, and that will be in mid-November.

Art Penn: Thank you. Thanks, everybody, for joining us today. Next time we speak, we will be reporting our 10-K, our annual 10-K, and that will be in mid-November. We wish everybody a great rest of the summer, and we will speak with you then.

Speaker #2: So we wish everybody a great rest of the summer. And we'll speak with you then.

Operator 2: Thank you. This does conclude today's call. We thank you for your participation. You may now disconnect.

Operator: Thank you. This does conclude today's call. We thank you for your participation. You may now disconnect.

Q3 2026 PennantPark Floating Rate Capital Ltd Earnings Call

Request DemoDemo

PennantPark

Earnings