PennantPark Floating Rate Capital Earnings 2020-12-31

PennantPark Floating Rate Capital Earnings 2020-12-31

PFLT 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 pflt-10q_20201231.htm 10-Q pflt-10q_20201231.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 DECEMBER 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 February 9, 2021 was 38,772,074.

PENNANTPARK FLOATING RATE CAPITAL LTD.

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

TABLE OF CONTENTS


PART I. CONSOLIDATED FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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

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

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

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

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

Notes to Consolidated Financial Statements (unaudited)		16

Report of Independent Registered Public Accounting Firm		32

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		33

Item 3. Quantitative and Qualitative Disclosures About Market Risk		46

Item 4. Controls and Procedures		46

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		47

Item 1A. Risk Factors		47

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

Item 3. Defaults Upon Senior Securities		47

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” refers 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” refers to PennantPark Investment Administration, LLC; “2023 Notes” refers 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 Loans 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

	December 31, 2020			September 30, 2020
	(unaudited)
Assets
Investments at fair value
Non-controlled, non-affiliated investments (cost—$848,575,368 and $915,874,757, respectively)	$	868,035,566		$	910,552,309
Non-controlled, affiliated investments (cost—$22,908,099 and $21,964,181, respectively)		7,356,141			11,086,834
Controlled, affiliated investments (cost—$202,994,878 and $179,112,500, respectively)		191,953,675			165,289,324
Total of investments (cost—$1,074,478,345 and $1,116,951,438, respectively)		1,067,345,382			1,086,928,467
Cash and cash equivalents (cost—$28,487,798 and $57,534,421, respectively)		28,488,111			57,511,928
Interest receivable		2,820,458			3,673,502
Prepaid expenses and other assets		186,656			173,318
Total assets		1,098,840,607			1,148,287,215
Liabilities
Distributions payable		3,683,347			3,683,347
Payable for investments purchased		9,578,076			3,800,000
Credit Facility payable, at fair value (cost—$256,900,000 and $308,598,500, respectively) (See Notes 5 and 10)		253,303,400			299,047,275
2023 Notes payable, at fair value (par—$117,792,879 and $138,579,858, respectively) (See Notes 5 and 10)		106,567,218			129,295,008
2031 Asset-Backed Debt, net (par—$228,000,000 and $228,000,000, respectively) (See Notes 5 and 10)		225,024,045			224,866,334
Interest payable on debt		1,891,525			3,601,479
Base management fee payable (See Note 3)		2,716,172			2,776,477
Performance-based incentive fee payable (See Note 3)		1,761,874			2,071,622
Accrued other expenses		1,964,011			1,875,281
Total liabilities		606,489,668			671,016,823
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		538,151,528			538,151,528
Accumulated distributable net loss		(45,839,361	)		(60,919,908	)
Total net assets	$	492,350,939		$	477,270,392
Total liabilities and net assets	$	1,098,840,607		$	1,148,287,215
Net asset value per share	$	12.70		$	12.31

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended December 31,
	2020			2019
Investment income:
From non-controlled, non-affiliated investments:
Interest	$	15,301,431		$	18,909,894
Other income		881,785			773,103
From non-controlled, affiliated investments:
Interest		96,462			225,353
Other income		20,307			—
From controlled, affiliated investments:
Interest		2,662,876			3,155,324
Dividend		1,575,000			1,575,000
Other income		195,630			—
Total investment income		20,733,491			24,638,674
Expenses:
Base management fee (See Note 3)		2,716,172			2,830,159
Performance-based incentive fee (See Note 3)		1,761,874			2,315,834
Interest and expenses on debt (See Note 10)		5,341,340			7,307,264
Administrative services expenses (See Note 3)		300,000			350,000
Other general and administrative expenses		400,000			616,077
Expenses before provision for taxes		10,519,386			13,419,334
Provision for taxes		100,000			100,000
Total expenses		10,619,386			13,519,334
Net investment income		10,114,105			11,119,340
Realized and unrealized gain (loss) on investments and debt:
Net realized (loss) gain on investments:
Non-controlled, non-affiliated investments		(1,707,698	)		1,012,313
Controlled and non-controlled, affiliated investments		(1,052,048	)		—
Net realized (loss) gain on investments		(2,759,746	)		1,012,313
Net change in unrealized appreciation (depreciation) on:
Non-controlled, non-affiliated investments		22,537,278			2,379,358
Controlled and non-controlled, affiliated investments		252,766			(5,899,705	)
Debt (appreciation) depreciation (See Notes 5 and 10)		(4,013,815	)		1,361,588
Net change in unrealized appreciation (depreciation) on investments and debt		18,776,229			(2,158,759	)
Net realized and unrealized gain (loss) from investments and debt		16,016,483			(1,146,446	)
Net increase in net assets resulting from operations	$	26,130,588		$	9,972,894
Net increase in net assets resulting from operations per common share (See Note 7)	$	0.67		$	0.26
Net investment income per common share	$	0.26		$	0.29

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

	Three Months Ended December 31,
	2020			2019
Net increase in net assets resulting from operations:
Net investment income	$	10,114,105		$	11,119,340
Net realized (loss) gain on investments		(2,759,746	)		1,012,313
Net change in unrealized appreciation (depreciation) on investments		22,790,044			(3,520,347	)
Net change in unrealized (appreciation) depreciation on debt		(4,013,815	)		1,361,588
Net increase in net assets resulting from operations		26,130,588			9,972,894
Distributions to stockholders		(11,050,041	)		(11,050,041	)
Net increase (decrease) in net assets		15,080,547			(1,077,147	)
Net assets:
Beginning of period		477,270,392			503,057,511
End of period	$	492,350,939		$	501,980,364

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended December 31,
	2020			2019
Cash flows from operating activities:
Net increase in net assets resulting from operations	$	26,130,588		$	9,972,894
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided (used) by operating activities:
Net change in unrealized (appreciation) depreciation on investments		(22,790,044	)		3,520,347
Net change in unrealized appreciation (depreciation) on debt		4,013,815			(1,361,588	)
Net realized loss (gain) on investments		2,759,746			(1,012,313	)
Net accretion of discount and amortization of premium		(557,400	)		(486,937	)
Purchases of investments		(66,964,523	)		(239,443,417	)
Payment-in-kind interest		(1,522,805	)		(822,850	)
Proceeds from dispositions of investments		109,603,991			143,743,301
Amortization of deferred financing costs		157,711			72,101
Decrease in interest receivable		853,044			747,597
Increase in receivable for investments sold		—			(55,428,416	)
(Increase) decrease in prepaid expenses and other assets		(13,338	)		38,577
Increase in payable for investments purchased		5,778,076			73,423,853
(Decrease) increase in interest payable on debt		(1,709,954	)		809,575
(Decrease) increase in base management fee payable		(60,305	)		102,140
Decrease in performance-based incentive fee payable		(309,748	)		(216,371	)
Increase in accrued other expenses		88,730			253,496
Net cash provided (used) by operating activities		55,457,584			(66,088,011	)
Cash flows from financing activities:
Distributions paid to stockholders		(11,050,041	)		(11,050,041	)
Repayments of 2023 Notes (See Notes 5 and 10)		(20,786,979	)		—
Borrowings under Credit Facility (See Notes 5 and 10)		27,500,000			86,000,000
Repayments under Credit Facility (See Notes 5 and 10)		(79,198,500	)		(16,000,000	)
Net cash (used) provided by financing activities		(83,535,520	)		58,949,959
Net decrease in cash and cash equivalents		(28,077,936	)		(7,138,052	)
Effect of exchange rate changes on cash		(945,881	)		92,865
Cash and cash equivalents, beginning of period		57,511,928			63,337,728
Cash and cash equivalents, end of period	$	28,488,111		$	56,292,541
Supplemental disclosure of cash flow information:
Interest paid	$	6,893,583		$	6,425,587
Taxes paid	$	3,682		$	37,086
Non-cash exchanges and conversions	$	20,334,379		$	—

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

DECEMBER 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—176.3% ^{(3), (4)}
First Lien Secured Debt—157.5%
18 Freemont Street Acquisition, LLC	08/11/2025	Hotels, Restaurants and Leisure		9.50	%	1M L+800			6,697,697	$	6,585,517	$	6,630,720
Altamira Technologies, LLC	07/24/2025	IT Services		7.00	%	3M L+600			6,231,751		6,156,590		5,951,323
Altamira Technologies, LLC (Revolver) ⁽⁷⁾	07/24/2025	IT Services		7.00	%	3M L+600			575,000		575,000		549,125
Altamira Technologies, LLC (Revolver) ^{(7), (9)}	07/24/2025	IT Services		—			—		1,581,250		—		(71,156	)
American Auto Auction Group, LLC	01/02/2024	Transportation: Consumer		6.00	%	3M L+500			7,366,113		7,303,354		7,145,129
American Insulated Glass, LLC	12/21/2023	Building Products		6.50	%	3M L+550			14,737,640		14,551,784		14,516,575
American Teleconferencing Services, Ltd.	06/08/2023	Telecommunications		7.50	%	3M L+650			9,646,899		9,551,068		8,103,395
Apex Service Partners, LLC	07/31/2025	Energy Equipment and Services		6.25	%	1M L+525			10,396,314		10,296,575		10,396,314
Apex Service Partners, LLC ^{(7), (9)}	07/31/2021	Energy Equipment and Services		—			—		1,866,535		—		—
API Technologies Corp.	05/11/2026	Electronic Equipment, Instruments, and Components		4.40	%	1M L+425			5,910,000		5,883,546		5,599,725
Applied Technical Services, LLC	12/29/2026	Commercial Services & Supplies		6.75	%	3M L+575			9,545,455		9,331,335		9,330,682
Applied Technical Services, LLC ^{(7), (9)}	06/29/2022	Commercial Services & Supplies		—			—		3,181,818		—		—
Applied Technical Services, LLC (Revolver) ^{(7), (9)}	12/29/2026	Commercial Services & Supplies		—			—		1,272,727		—		—
BEI Precision Systems & Space Company, Inc.	04/28/2023	Aerospace and Defense		6.50	%	3M L+550			11,580,000		11,506,491		11,522,100
By Light Professional IT Services, LLC	05/16/2022	High Tech Industries		7.25	%	3M L+625			28,618,332		28,489,487		28,618,332
By Light Professional IT Services, LLC (Revolver)⁽⁹⁾	05/16/2022	High Tech Industries		—			—		3,062,602		—		—
Cadence Aerospace, LLC ⁽⁷⁾	11/14/2023	Aerospace and Defense		9.50	%	3M L+650			2,922,677		2,900,655		2,834,412
				(PIK 9.50	%)
Cardenas Markets LLC	11/29/2023	Beverage, Food and Tobacco		6.75	%	1M L+575			3,785,592		3,788,605		3,690,952
CHA Holdings, Inc.	04/10/2025	Environmental Industries		5.50	%	3M L+450			7,273,133		7,249,615		7,127,670
Challenger Performance Optimization, Inc. (Revolver) ^(7), (9)	08/31/2023	Business Services		—			—		711,447		—		(39,130	)
Compex Legal Services, Inc.	02/09/2026	Professional Services		6.75	%	3M L+575			7,711,197		7,569,066		7,476,777
Compex Legal Services, Inc. (Revolver) ⁽⁷⁾	02/07/2025	Professional Services		6.75	%	3M L+575			983,962		983,962		954,050
Compex Legal Services, Inc. (Revolver)^(7), (9)	02/07/2025	Professional Services		—			—		421,698		—		(12,820	)
Confluent Health, LLC	06/24/2026	Health Providers and Services		5.15	%	1M L+500			3,940,000		3,905,138		3,871,050
Datalot Inc.	01/24/2025	Insurance		6.25	%	3M L+525			15,219,468		14,956,248		15,219,468
Datalot Inc. (Revolver) ⁽⁷⁾, ⁽⁹⁾	01/24/2025	Insurance		—			—		3,833,619		—		—
Digital Room Holdings, Inc.	05/22/2026	Media: Advertising, Printing and Publishing		5.27	%	1M L+500			9,850,000		9,716,191		9,234,375
Douglas Products and Packaging Company LLC	10/19/2022	Chemicals, Plastics and Rubber		6.75	%	3M L+575			6,595,960		6,543,215		6,530,000
Douglas Products and Packaging Company LLC	10/19/2022	Chemicals, Plastics and Rubber		8.00	%	P+475			1,463,725		1,463,725		1,449,088
(Revolver)
Douglas Products and Packaging Company LLC	10/19/2022	Chemicals, Plastics and Rubber		—			—		2,927,451		—		(29,274	)
(Revolver)⁽⁹⁾

10-Q	2020-12-31	Filed 2021-02-09
10-K	2020-09-30	Filed 2020-11-18
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	2020-11-18
8-K	2020-11-03
8-K	2020-10-07
8-K	2020-10-02
8-K	2020-09-02
8-K	2020-08-05
8-K	2020-08-04
8-K	2020-07-09
8-K	2020-07-02
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_6.htm
EX-31.2	pflt-ex312_7.htm
EX-32.1	pflt-ex321_8.htm
EX-32.2	pflt-ex322_9.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company