PennantPark Floating Rate Capital Earnings 2020-06-30

PennantPark Floating Rate Capital Earnings 2020-06-30

PFLT 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 pflt-10q_20200630.htm 10-Q pflt-10q_20200630.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 JUNE 30, 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 August 5, 2020 was 38,772,074.

PENNANTPARK FLOATING RATE CAPITAL LTD.

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2020

TABLE OF CONTENTS


PART I. CONSOLIDATED FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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

Consolidated Statements of Operations for the three and nine months ended June 30, 2020 and 2019 (unaudited)		5

Consolidated Statements of Changes in Net Assets for the three and nine months ended June 30, 2020 and 2019 (unaudited)		6

Consolidated Statements of Cash Flows for the nine months ended June 30, 2020 and 2019 (unaudited)		7

Consolidated Schedules of Investments as of June 30, 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		48

Item 3. Defaults Upon Senior Securities		48

Item 4. Mine Safety Disclosures		48

Item 5. Other Information		48

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” refer 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 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

	June 30, 2020			September 30, 2019
	(unaudited)
Assets
Investments at fair value
Non-controlled, non-affiliated investments (cost—$956,767,973 and $886,955,156, respectively)	$	935,279,231		$	889,113,264
Non-controlled, affiliated investments (cost—$21,136,074 and $23,645,693, respectively)		9,677,605			20,430,565
Controlled, affiliated investments (cost—$176,312,500 and $174,562,500, respectively)		159,396,415			172,163,080
Total of investments (cost—$1,154,216,547 and $1,085,172,349, respectively)		1,104,353,251			1,081,706,909
Cash and cash equivalents (cost—$53,473,103 and $63,367,237, respectively)		53,405,925			63,337,728
Receivable for investments sold		8,441,713			2,997,546
Interest receivable		3,626,998			3,892,292
Distribution receivable from controlled, affiliated investment		1,225,000			—
Prepaid expenses and other assets		614,370			441,337
Total assets		1,171,667,257			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—$351,598,500 and $265,307,500, respectively) (See Notes 5 and 10)		340,926,080			263,988,583
2023 Notes payable, at fair value (par—$138,579,858) (See Notes 5 and 10)		121,853,269			135,240,084
2031 Asset-Backed Debt, net (par—$228,000,000) (See Notes 5 and 10)		224,708,624			224,321,845
Interest payable on debt		2,644,746			3,275,481
Base management fee payable (See Note 3)		2,872,725			2,728,019
Performance-based incentive fee payable (See Note 3)		1,975,831			2,532,205
Accrued other expenses		1,668,257			1,514,943
Total liabilities		700,332,879			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		(67,337,222	)		(35,614,089	)
Total net assets	$	471,334,378		$	503,057,511
Total liabilities and net assets	$	1,171,667,257		$	1,152,375,812
Net asset value per share	$	12.16		$	12.97

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Nine Months Ended June 30,
	2020			2019			2020			2019
Investment income:
From non-controlled, non-affiliated investments:
Interest	$	17,543,157		$	16,670,408		$	56,760,434		$	50,888,582
Other income		820,997			974,760			2,734,600			2,971,768
From non-controlled, affiliated investments:
Interest		195,904			305,217			655,029			1,082,208
Other income		36,170			109,863			36,170			124,734
From controlled, affiliated investments:
Interest		2,944,290			3,240,760			9,169,399			9,273,287
Dividend		1,225,000			1,575,000			4,375,000			4,725,000
Total investment income		22,765,518			22,876,008			73,730,632			69,065,579
Expenses:
Base management fee (See Note 3)		2,872,725			2,564,074			8,651,825			7,481,546
Performance-based incentive fee (See Note 3)		1,975,831			2,350,270			7,228,690			3,671,908
Interest and expenses on debt (See Note 10)		6,653,045			5,663,183			21,586,859			16,284,841
Administrative services expenses (See Note 3)		350,000			350,000			1,050,000			1,200,000
Other general and administrative expenses		616,077			616,077			1,848,230			1,848,229
Expenses before amendment costs, debt issuance costs and provision for taxes:		12,467,678			11,543,604			40,365,604			30,486,524
Credit Facility amendment costs and debt issuance costs (See Notes 5 and 10)		—			—			—			4,517,292
Provision for taxes		100,000			—			300,000			—
Total expenses		12,567,678			11,543,604			40,665,604			35,003,816
Net investment income		10,197,840			11,332,404			33,065,028			34,061,763
Realized and unrealized gain (loss) on investments and debt:
Net realized loss on investments:
Non-controlled, non-affiliated investments		(1,694,710	)		(11,230,236	)		(2,281,683	)		(9,227,422	)
Non-controlled and controlled, affiliated investments		(5,683,145	)		(7,164,304	)		(5,683,145	)		(7,164,304	)
Net realized loss on investments		(7,377,855	)		(18,394,540	)		(7,964,828	)		(16,391,726	)
Net change in unrealized appreciation (depreciation) on:
Non-controlled, non-affiliated investments		13,962,606			8,492,044			(23,662,521	)		(9,292,141	)
Controlled and non-controlled, affiliated investments		7,931,471			3,444,481			(22,751,006	)		(3,892,061	)
Debt (appreciation) depreciation (See Notes 5 and 10)		(12,158,917	)		(355,573	)		22,740,317			(443,549	)
Net change in unrealized appreciation (depreciation) on investments and debt		9,735,160			11,580,952			(23,673,210	)		(13,627,751	)
Net realized and unrealized gain (loss) from investments and debt		2,357,305			(6,813,588	)		(31,638,038	)		(30,019,477	)
Net increase in net assets resulting from operations	$	12,555,145		$	4,518,816		$	1,426,990		$	4,042,286
Net increase in net assets resulting from operations per common share (See Note 7)	$	0.32		$	0.12		$	0.04		$	0.10
Net investment income per common share	$	0.26		$	0.29		$	0.85		$	0.88

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

	Three Months Ended June 30,						Nine Months Ended June 30,
	2020			2019			2020			2019
Net increase in net assets resulting from operations:
Net investment income	$	10,197,840		$	11,332,404		$	33,065,028		$	34,061,763
Net realized loss on investments		(7,377,855	)		(18,394,540	)		(7,964,828	)		(16,391,726	)
Net change in unrealized appreciation (depreciation) on investments		21,894,077			11,936,525			(46,413,527	)		(13,184,202	)
Net change in unrealized (appreciation) depreciation on debt		(12,158,917	)		(355,573	)		22,740,317			(443,549	)
Net increase in net assets resulting from operations		12,555,145			4,518,816			1,426,990			4,042,286
Distributions to stockholders		(11,050,041	)		(11,050,041	)		(33,150,123	)		(33,150,123	)
Net increase (decrease) in net assets		1,505,104			(6,531,225	)		(31,723,133	)		(29,107,837	)
Net assets:
Beginning of period		469,829,274			513,264,956			503,057,511			535,841,568
End of period	$	471,334,378		$	506,733,731		$	471,334,378		$	506,733,731

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended June 30,
	2020			2019
Cash flows from operating activities:
Net increase in net assets resulting from operations	$	1,426,990		$	4,042,286
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
Net change in unrealized depreciation on investments		46,413,527			13,184,202
Net change in unrealized depreciation (appreciation) on debt		(22,740,317	)		443,549
Net realized loss on investments		7,964,828			16,391,726
Net accretion of discount and amortization of premium		(1,094,712	)		(1,000,912	)
Purchases of investments		(421,374,980	)		(499,505,698	)
Payment-in-kind interest		(1,666,533	)		(1,512,612	)
Proceeds from dispositions of investments		347,191,798			400,143,184
Amortization of deferred financing costs		386,773			—
Decrease (increase) in interest receivable		265,294			(552,360	)
Increase in receivable for investments sold		(5,444,167	)		(2,977,500	)
Increase in distribution receivable from controlled, affiliated investment		(1,225,000	)		—
(Increase) decrease in prepaid expenses and other assets		(173,033	)		714,146
Decrease in payable for investments purchased		(12,033,794	)		(23,107,222	)
Decrease in interest payable on debt		(630,735	)		(861,738	)
Increase in base management fee payable		144,706			144,445
Decrease in performance-based incentive fee payable		(556,374	)		(948,135	)
Increase (decrease) in accrued other expenses		153,314			(647,005	)
Net cash used in operating activities		(62,992,415	)		(96,049,644	)
Cash flows from financing activities:
Distributions paid to stockholders		(33,150,123	)		(33,150,123	)
Borrowings under Credit Facility (See Notes 5 and 10)		265,000,000			283,700,000
Repayments under Credit Facility (See Notes 5 and 10)		(178,709,000	)		(202,120,020	)
Net cash provided by financing activities		53,140,877			48,429,857
Net decrease in cash and cash equivalents		(9,851,538	)		(47,619,787	)
Effect of exchange rate changes on cash		(80,265	)		759,638
Cash and cash equivalents, beginning of period		63,337,728			72,224,183
Cash and cash equivalents, end of period	$	53,405,925		$	25,364,034
Supplemental disclosure of cash flow information:
Interest paid	$	21,747,764		$	17,146,578
Taxes paid	$	501,633		$	276,657
Non-cash exchanges and conversions	$	8,025,882		$	33,587,726

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

JUNE 30, 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—198.4% ^{(3), (4)}
First Lien Secured Debt—183.6%
18 Freemont Street Acquisition, LLC	08/11/2025	Hotels, Restaurants and Leisure		9.50	%	1M L+800			6,697,697	$	6,576,571	$	6,295,835
Advantage Sales & Marketing	07/23/2021	Food and Staples Retailing		4.25	%	1M L+325			3,166,536		3,070,883		2,883,131
Altamira Technologies, LLC	07/24/2025	IT Services		7.00	%	3M L+600			6,353,626		6,269,444		6,067,713
Altamira Technologies, LLC (Revolver) ⁽⁷⁾	07/24/2025	IT Services		7.00	%	3M L+600			1,437,500		1,437,500		1,372,813
Altamira Technologies, LLC (Revolver) ^{(7), (9)}	07/24/2025	IT Services	—				—		718,750		—		(32,344	)
American Auto Auction Group, LLC	01/02/2024	Transportation: Consumer		6.00	%	3M L+500			7,404,083		7,332,038		7,181,961
American Insulated Glass, LLC	12/21/2023	Building Products		6.87	%	3M L+550			14,812,570		14,598,114		14,220,067
American Teleconferencing Services, Ltd.	06/08/2023	Telecommunications		7.50	%	3M L+650			9,655,594		9,547,918		7,917,587
Apex Service Partners, LLC	07/31/2025	Energy Equipment and Services		6.25	%	1M L+525			6,811,686		6,751,278		6,624,365
Apex Service Partners, LLC ^{(7), (9)}	07/31/2021	Energy Equipment and Services		—			—		1,383,015		—		(38,033	)
API Holdings III Corp.	05/11/2026	Electronic Equipment, Instruments, and Components		4.43	%	1M L+425			5,940,000		5,911,669		5,761,800
BEI Precision Systems & Space Company, Inc.	04/28/2023	Aerospace and Defense		6.58	%	3M L+550			11,640,000		11,547,732		11,465,400
By Light Professional IT Services, LLC	05/16/2022	High Tech Industries		7.25	%	3M L+625			29,108,108		28,937,552		28,234,865
By Light Professional IT Services, LLC (Revolver)	05/16/2022	High Tech Industries		7.25	%	3M L+625			3,062,602		3,062,602		2,970,724
Cadence Aerospace, LLC	11/14/2023	Aerospace and Defense		7.50	%	3M L+650			2,846,212		2,821,125		2,738,910
Cano Health, LLC	12/23/2021	Healthcare and Pharmaceuticals		8.00	%

10-Q	2020-06-30	Filed 2020-08-05
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	2020-09-02	Regulation FD, Exhibits
8-K	2020-08-05	Earnings, Exhibits
8-K	2020-08-04	Regulation FD, Exhibits
8-K	2020-07-09	Regulation FD, Exhibits
8-K	2020-07-02	Regulation FD, Exhibits
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-31.1	pflt-ex311_8.htm
EX-31.2	pflt-ex312_9.htm
EX-32.1	pflt-ex321_6.htm
EX-32.2	pflt-ex322_7.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company