PennantPark Floating Rate Capital Earnings 2020-03-31

PennantPark Floating Rate Capital Earnings 2020-03-31

PFLT 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 pflt-10q_20200331.htm 10-Q pflt-10q_20200331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 814-00891

PENNANTPARK FLOATING RATE CAPITAL LTD.

(Exact name of registrant as specified in its charter)

MARYLAND		27-3794690
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

590 Madison Avenue, 15^th Floor New York, N.Y.		10022
(Address of principal executive offices)		(Zip Code)

(212) 905-1000

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share	PFLT	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of May 11, 2020 was 38,772,074.

PENNANTPARK FLOATING RATE CAPITAL LTD.

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2020

TABLE OF CONTENTS


PART I. CONSOLIDATED FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Consolidated Statements of Assets and Liabilities as of March 31, 2020 (unaudited) and September 30, 2019		4

Consolidated Statements of Operations for the three and six months ended March 31, 2020 and 2019 (unaudited)		5

Consolidated Statements of Changes in Net Assets for the three and six months ended March 31, 2020 and 2019 (unaudited)		6

Consolidated Statements of Cash Flows for the six months ended March 31, 2020 and 2019 (unaudited)		7

Consolidated Schedules of Investments as of March 31, 2020 (unaudited) and September 30, 2019		8

Notes to Consolidated Financial Statements (unaudited)		16

Report of Independent Registered Public Accounting Firm		31

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		32

Item 3. Quantitative and Qualitative Disclosures About Market Risk		44

Item 4. Controls and Procedures		45

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		46

Item 1A. Risk Factors		46

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		47

Item 3. Defaults Upon Senior Securities		47

Item 4. Mine Safety Disclosures		47

Item 5. Other Information		47

Item 6. Exhibits		49

SIGNATURES		50

PART I—CONSOLIDATED FINANCIAL INFORMATION

We are filing this Quarterly Report on Form 10-Q, or the Report, in compliance with Rule 13a-13 as promulgated by the Securities and Exchange Commission, or the SEC, under the Securities Exchange Act of 1934, as amended, or the Exchange Act. In this Report, except where the context suggests otherwise, the terms “Company,” “we,” “our” or “us” refer to PennantPark Floating Rate Capital Ltd. and its wholly-owned consolidated subsidiaries; “Funding I” refers to PennantPark Floating Rate Funding I, LLC; “Taxable Subsidiary” refers to PFLT Investment Holdings, LLC; “PSSL” refers to PennantPark Senior Secured Loan Fund I LLC, an unconsolidated joint venture; “PennantPark Investment Advisers” or “Investment Adviser” refers to PennantPark Investment Advisers, LLC; “PennantPark Investment Administration” or “Administrator” refer to PennantPark Investment Administration, LLC; “2023 Notes” refer to our 4.3% Series A notes due 2023; “1940 Act” refers to the Investment Company Act of 1940, as amended; “SBCAA” refers to the Small Business Credit Availability Act; “Code” refers to the Internal Revenue Code of 1986, as amended; “RIC” refers to a regulated investment company under the Code; “BDC” refers to a business development company under the 1940 Act; “MCG” refers to MCG Capital Corporation; “Credit Facility” refers to our multi-currency senior secured revolving credit facility, as amended and restated with Truist Bank (formerly SunTrust Bank) and other lenders, or the Lenders; “Securitization Issuer” refers to PennantPark CLO I, Ltd.; “Securitization Issuers” refers to the Securitization Issuer and PennantPark CLO I, LLC; “Debt Securitization” refers to the $301.4 million term debt securitization completed by the Securitization Issuers; “2031 Asset-Backed Debt” refers to (i) the issuance of the Class A-1 Senior Secured Floating Rate Notes due 2031, the Class A-2 Senior Secured Fixed Rate Notes due 2031, the Class B-1 Senior Secured Floating Rate Notes due 2031, the Class B-2 Senior Secured Fixed Rate Notes due 2031, the Class C-1 Secured Deferrable Floating Rate Notes due 2031, the Class C-2 Notes Secured Deferrable Fixed Rate Notes due 2031, and the Class D Secured Deferrable Floating Notes due 2031 and (ii) the borrowing of the Class A‑1 Senior Secured Floating Rate Notes due 2031 by the Securitization Issuers in connection with the Debt Securitization; and “Depositor” refers to PennantPark CLO I Depositor, LLC. References to our portfolio, our investments, our multi-currency, senior secured revolving credit facility, as amended and restated, or the Credit Facility, and our business include investments we make through our subsidiaries.

Item 1.

Consolidated Financial Statements

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

	March 31, 2020			September 30, 2019
	(unaudited)
Assets
Investments at fair value
Non-controlled, non-affiliated investments (cost—$1,048,160,082 and $886,955,156, respectively)	$	1,012,983,114		$	889,113,264
Non-controlled, affiliated investments (cost—$25,970,270 and $23,645,693, respectively)		11,138,636			20,430,565
Controlled, affiliated investments (cost—$176,312,500 and $174,562,500, respectively)		154,838,109			172,163,080
Total of investments (cost—$1,250,442,852 and $1,085,172,349, respectively)		1,178,959,859			1,081,706,909
Cash and cash equivalents (cost—$30,223,951 and $63,367,237, respectively)		29,993,752			63,337,728
Interest receivable		4,146,825			3,892,292
Receivable for investments sold		9,050,000			2,997,546
Prepaid expenses and other assets		464,179			441,337
Total assets		1,222,614,615			1,152,375,812
Liabilities
Distributions payable		3,683,347			3,683,347
Payable for investments purchased		—			12,033,794
Credit Facility payable, at fair value (cost—$413,307,500 and $265,307,500, respectively) (See Notes 5 and 10)		400,592,492			263,988,583
2023 Notes payable, at fair value (par—$138,579,858) (See Notes 5 and 10)		111,736,940			135,240,084
2031 Asset-Backed Debt, net (par—$228,000,000) (See Notes 5 and 10)		224,550,913			224,321,845
Interest payable on debt		4,903,259			3,275,481
Base management fee payable (See Note 3)		2,948,941			2,728,019
Performance-based incentive fee payable (See Note 3)		2,937,024			2,532,205
Accrued other expenses		1,432,425			1,514,943
Total liabilities		752,785,341			649,318,301
Commitments and contingencies (See Note 11)
Net assets
Common stock, 38,772,074 shares issued and outstanding Par value $0.001 per share and 100,000,000 shares authorized		38,772			38,772
Paid-in capital in excess of par value		538,632,828			538,632,828
Distributable income		(68,842,326	)		(35,614,089	)
Total net assets	$	469,829,274		$	503,057,511
Total liabilities and net assets	$	1,222,614,615		$	1,152,375,812
Net asset value per share	$	12.12		$	12.97

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended March 31,						Six Months Ended March 31,
	2020			2019			2020			2019
Investment income:
From non-controlled, non-affiliated investments:
Interest	$	20,307,380		$	16,825,167		$	39,217,274		$	34,995,165
Other income		1,140,500			1,390,690			1,913,603			2,011,879
From non-controlled, affiliated investments:
Interest		233,772			—			459,125			—
From controlled, affiliated investments:
Interest		3,069,785			3,214,482			6,225,109			6,032,527
Dividend		1,575,000			1,575,000			3,150,000			3,150,000
Total investment income		26,326,437			23,005,339			50,965,111			46,189,571
Expenses:
Base management fee (See Note 3)		2,948,941			2,418,706			5,779,100			4,917,472
Performance-based incentive fee (See Note 3)		2,937,024			2,514,047			5,252,859			1,321,638
Interest and expenses on debt (See Note 10)		7,626,550			5,316,180			14,933,814			10,621,658
Administrative services expenses (See Note 3)		350,000			350,000			700,000			850,000
Other general and administrative expenses		616,077			616,077			1,232,153			1,232,152
Expenses before amendment costs, debt issuance costs and provision for taxes		14,478,592			11,215,010			27,897,926			18,942,920
Credit Facility amendment costs and debt issuance costs (See Notes 5 and 10)		—			5,013			—			4,517,292
Provision for taxes		100,000			—			200,000			—
Total expenses		14,578,592			11,220,023			28,097,926			23,460,212
Net investment income		11,747,845			11,785,316			22,867,185			22,729,359
Realized and unrealized loss on investments and debt:
Net realized (loss) gain on investments:
Non-controlled, non-affiliated investments		(1,599,285	)		1,079,348			(586,972	)		2,002,814
Net realized (loss) gain on investments		(1,599,285	)		1,079,348			(586,972	)		2,002,814
Net change in unrealized depreciation on:
Non-controlled, non-affiliated investments		(40,004,484	)		(13,288,572	)		(37,625,126	)		(23,330,111	)
Controlled and non-controlled, affiliated investments		(24,782,772	)		573,851			(30,682,477	)		(1,790,617	)
Debt depreciation (appreciation) (See Notes 5 and 10)		33,537,647			(5,621,668	)		34,899,235			(87,975	)
Net change in unrealized depreciation on investments and debt		(31,249,609	)		(18,336,389	)		(33,408,368	)		(25,208,703	)
Net realized and unrealized loss from investments and debt		(32,848,894	)		(17,257,041	)		(33,995,340	)		(23,205,889	)
Net decrease in net assets resulting from operations	$	(21,101,049	)	$	(5,471,725	)	$	(11,128,155	)	$	(476,530	)
Net decrease in net assets resulting from operations per common share (See Note 7)	$	(0.54	)	$	(0.14	)	$	(0.29	)	$	(0.01	)
Net investment income per common share	$	0.30		$	0.30		$	0.59		$	0.59

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

	Three Months Ended March 31,						Six Months Ended March 31,
	2020			2019			2020			2019
Net decrease in net assets resulting from operations:
Net investment income	$	11,747,845		$	11,785,316		$	22,867,185		$	22,729,359
Net realized (loss) gain on investments		(1,599,285	)		1,079,348			(586,972	)		2,002,814
Net change in unrealized depreciation on investments		(64,787,256	)		(12,714,721	)		(68,307,603	)		(25,120,728	)
Net change in unrealized depreciation (appreciation) on debt		33,537,647			(5,621,668	)		34,899,235			(87,975	)
Net decrease in net assets resulting from operations		(21,101,049	)		(5,471,725	)		(11,128,155	)		(476,530	)
Distributions to stockholders		(11,050,041	)		(11,050,041	)		(22,100,082	)		(22,100,082	)
Net decrease in net assets		(32,151,090	)		(16,521,766	)		(33,228,237	)		(22,576,612	)
Net assets:
Beginning of period		501,980,364			529,786,722			503,057,511			535,841,568
End of period	$	469,829,274		$	513,264,956		$	469,829,274		$	513,264,956

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended March 31,
	2020			2019
Cash flows from operating activities:
Net decrease in net assets resulting from operations	$	(11,128,155	)	$	(476,530	)
Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities:
Net change in unrealized depreciation on investments		68,307,603			25,120,728
Net change in unrealized (depreciation) appreciation on debt		(34,899,235	)		87,975
Net realized loss (gain) on investments		586,972			(2,002,814	)
Net accretion of discount and amortization of premium		(887,519	)		(760,733	)
Purchases of investments		(406,983,072	)		(316,812,305	)
Payment-in-kind interest		(1,089,736	)		(524,049	)
Proceeds from dispositions of investments		243,107,247			333,519,118
Amortization of deferred financing costs		229,072			—
Increase in interest receivable		(254,533	)		(4,404	)
Increase in receivable for investments sold		(6,052,454	)		(13,945,000	)
(Increase) decrease in prepaid expenses and other assets		(22,842	)		685,972
Decrease in payable for investments purchased		(12,033,794	)		(59,587,222	)
Increase in interest payable on debt		1,627,778			323,459
Increase (decrease) in base management fee payable		220,921			(923	)
Increase (decrease) in performance-based incentive fee payable		404,820			(784,357	)
Decrease in accrued other expenses		(82,519	)		(412,701	)
Net cash used in operating activities		(158,949,446	)		(35,573,786	)
Cash flows from financing activities:
Distributions paid to stockholders		(22,100,082	)		(22,100,082	)
Borrowings under Credit Facility (See Notes 5 and 10)		245,000,000			190,700,000
Repayments under Credit Facility (See Notes 5 and 10)		(97,000,000	)		(172,120,020	)
Net cash provided by (used in) financing activities		125,899,918			(3,520,102	)
Net decrease in cash and cash equivalents		(33,049,528	)		(39,093,888	)
Effect of exchange rate changes on cash		(294,448	)		611,740
Cash and cash equivalents, beginning of period		63,337,728			72,224,183
Cash and cash equivalents, end of period	$	29,993,752		$	33,742,035
Supplemental disclosure of cash flow information:
Interest paid	$	13,076,964		$	10,298,199
Taxes paid	$	501,633		$	273,941
Non-cash exchanges and conversions	$	8,025,882		$	18,032,254

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

MARCH 31, 2020

(Unaudited)

Issuer Name	Maturity	Industry	Current Coupon			Basis Point Spread Above Index ⁽¹⁾		Par / Shares		Cost		Fair Value ⁽²⁾
Investments in Non-Controlled, Non-Affiliated Portfolio Companies—215.6% ^{(3), (4)}
First Lien Secured Debt—201.7%
18 Freemont Street Acquisition, LLC	08/11/2025	Hotels, Restaurants and Leisure		9.50	%	1M L+800			6,697,697	$	6,572,409	$	6,228,858
Advantage Sales & Marketing	07/23/2021	Food and Staples Retailing		4.70	%	1M L+325			1,279,281		1,231,422		1,228,110
Altamira Technologies, LLC	07/24/2025	IT Services		7.78	%	3M L+600			6,418,750		6,329,916		6,290,375
Altamira Technologies, LLC (Revolver) ^{(7), (9)}	07/24/2025	IT Services	—				—		2,156,250		—		(43,125	)
American Auto Auction Group, LLC	01/02/2024	Transportation: Consumer		5.75	%	3M L+475			7,423,069		7,346,860		7,348,838
American Insulated Glass, LLC	12/21/2023	Building Products		7.40	%	3M L+550			14,850,035		14,621,881		14,256,034
American Teleconferencing Services, Ltd.	06/08/2023	Telecommunications		8.24	%	3M L+650			9,659,927		9,547,066		7,341,544
Apex Service Partners, LLC	07/31/2025	Energy Equipment and Services		6.25	%	1M L+500			6,367,833		6,304,948		6,320,075
Apex Service Partners, LLC ^{(7), (9)}	07/31/2021	Energy Equipment and Services		—			—		1,844,019		—		(13,830	)
API Holdings III Corp.	05/11/2026	Electronic Equipment, Instruments, and Components		5.24	%	1M L+425			5,955,000		5,926,012		5,776,350
BEI Precision Systems & Space Company, Inc.	04/28/2023	Aerospace and Defense		6.58	%	3M L+550			11,670,000		11,600,897		11,436,600
By Light Professional IT Services, LLC	05/16/2022	High Tech Industries		7.52	%	3M L+625			29,352,996		29,160,577		28,472,406
By Light Professional IT Services, LLC (Revolver)⁽⁷⁾	05/16/2022	High Tech Industries		7.67	%	3M L+625			3,166,448		3,166,448		3,071,455
By Light Professional IT Services, LLC (Revolver) ^{(7), (9)}	05/16/2022	High Tech Industries	—				—		1,013,175		—		(30,395	)
Cadence Aerospace, LLC	11/14/2023	Aerospace and Defense		8.28	%	3M L+650			2,853,510		2,826,599		2,754,779
Cano Health, LLC	12/23/2021	Healthcare and Pharmaceuticals		7.84	%	1M L+625			33,684,743		33,424,149		33,684,743
Cardenas Markets LLC	11/29/2023	Beverage, Food and Tobacco		6.75	%	1M L+575			3,815,167		3,819,235		3,777,015
Centauri Group Holdings, LLC	02/12/2024	Aerospace and Defense		6.71	%	3M L+525			3,265,353		3,260,122

10-Q	2020-03-31	Filed 2020-05-11
10-Q	2019-12-31	Filed 2020-02-05
10-K	2019-09-30	Filed 2019-11-20
10-Q	2019-06-30	Filed 2019-08-07
10-Q	2019-03-31	Filed 2019-05-08
10-Q	2018-12-31	Filed 2019-02-06
10-K	2018-09-30	Filed 2018-11-14
10-Q	2018-06-30	Filed 2018-08-08
10-Q	2018-03-31	Filed 2018-05-10
10-Q	2017-12-31	Filed 2018-02-08
10-K	2017-09-30	Filed 2017-11-30
10-Q	2017-06-30	Filed 2017-08-08
10-Q	2017-03-31	Filed 2017-05-09
10-Q	2016-12-31	Filed 2017-02-09
10-K	2016-09-30	Filed 2016-11-22
10-Q	2016-06-30	Filed 2016-08-09
10-Q	2016-03-31	Filed 2016-05-05
10-Q	2015-12-31	Filed 2016-02-04
10-K	2015-09-30	Filed 2015-11-12
10-Q	2015-06-30	Filed 2015-08-06
10-Q	2015-03-31	Filed 2015-05-07
10-Q	2014-12-31	Filed 2015-02-05
10-K	2014-09-30	Filed 2014-11-13
10-Q	2014-06-30	Filed 2014-08-06
10-Q	2014-03-31	Filed 2014-05-08
10-Q	2013-12-31	Filed 2014-02-06
10-K	2013-09-30	Filed 2013-11-14
10-Q	2013-06-30	Filed 2013-08-08
10-Q	2013-03-31	Filed 2013-05-09
10-Q	2012-12-31	Filed 2013-02-07
10-K	2012-09-30	Filed 2012-11-14
10-Q	2012-06-30	Filed 2012-08-09
10-Q	2012-03-31	Filed 2012-05-03
10-Q	2011-12-31	Filed 2012-02-09
10-K	2011-09-30	Filed 2011-11-17
10-Q	2011-06-30	Filed 2011-08-04
10-Q	2011-03-31	Filed 2011-05-12

8-K	2020-06-02
8-K	2020-05-11
8-K	2020-05-04
8-K	2020-04-09
8-K	2020-04-06
8-K	2020-04-02
8-K	2020-04-01
8-K	2020-03-26
8-K	2020-03-03
8-K	2020-02-05
8-K	2020-02-04
8-K	2020-02-04
8-K	2020-01-10
8-K	2020-01-03
8-K	2019-12-03
8-K	2019-11-20
8-K	2019-11-04
8-K	2019-10-10
8-K	2019-10-04
8-K	2019-09-19
8-K	2019-09-05
8-K	2019-08-23
8-K	2019-08-07
8-K	2019-08-05
8-K	2019-07-10
8-K	2019-07-02
8-K	2019-06-04
8-K	2019-05-08
8-K	2019-05-06
8-K	2019-04-08
8-K	2019-04-04
8-K	2019-03-06
8-K	2019-02-07
8-K	2019-02-06
8-K	2019-02-05
8-K	2019-01-09
8-K	2019-01-07
8-K	2018-12-05
8-K	2018-11-14
8-K	2018-11-06
8-K	2018-10-30
8-K	2018-10-10
8-K	2018-10-04
8-K	2018-09-07
8-K	2018-08-08
8-K	2018-08-07
8-K	2018-07-09
8-K	2018-07-06
8-K	2018-06-26
8-K	2018-06-06
8-K	2018-05-10
8-K	2018-05-04
8-K	2018-04-09
8-K	2018-04-05
8-K	2018-04-05
8-K	2018-03-05
8-K	2018-02-08
8-K	2018-02-06
8-K	2018-02-06
8-K	2018-01-12
8-K	2018-01-10
8-K	2018-01-05

EX-3.2	pflt-ex32_144.htm
EX-31.1	pflt-ex311_8.htm
EX-31.2	pflt-ex312_9.htm
EX-32.1	pflt-ex321_7.htm
EX-32.2	pflt-ex322_6.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company