PennantPark Investment Corporation (NASDAQ: PNNT) announced today
financial results for the first fiscal quarter ended December 31,
2018.
HIGHLIGHTSQuarter ended December 31, 2018($ in
millions, except per share amounts)
Assets and
Liabilities: |
|
|
|
Investment portfolio |
$ |
1,191.5 |
|
Net
assets |
$ |
615.9 |
|
Net asset
value per share |
$ |
9.05 |
|
|
|
|
Credit
Facility |
$ |
167.1 |
|
2019
Notes |
$ |
249.4 |
|
SBA
Debentures |
$ |
145.8 |
|
|
|
|
Yield on
debt investments at quarter-end |
|
10.9% |
|
Operating Results: |
|
|
|
Net
investment income |
$ |
12.6 |
|
Net
investment income per share |
$ |
0.18 |
|
Distributions declared per share |
$ |
0.18 |
|
|
|
|
|
Portfolio
Activity: |
|
|
|
Purchases
of investments |
$ |
194.5 |
|
Sales and
repayments of investments |
$ |
125.8 |
|
|
|
|
|
Number of
new portfolio companies invested |
|
6 |
|
Number of
existing portfolio companies invested |
|
13 |
|
Number of
ending portfolio companies |
|
56 |
|
CONFERENCE CALL AT 10:00 A.M. ET ON
FEBRUARY 8, 2019
PennantPark Investment Corporation (“we,” “our,”
“us” or the “Company”) will host a conference call at 10:00 a.m.
(Eastern Time) on Friday, February 8, 2019 to discuss its financial
results. All interested parties are welcome to participate. You can
access the conference call by dialing toll-free (866) 519-2796
approximately 5-10 minutes prior to the call. International callers
should dial (323) 794-2095. All callers should reference passcode
#5543349. An archived replay of the call will be available through
February 22, 2019 by calling toll-free (888) 203-1112.
International callers please dial (719) 457-0820. For all phone
replays, please reference passcode #5543349.
PORTFOLIO AND INVESTMENT
ACTIVITY
“We are pleased with the progress we are making
in several areas. Our activity and selectivity have resulted in a
more senior secured portfolio, which should result in even more
steady and stable coverage of our dividend,” said Art Penn,
Chairman and CEO. “Additionally, our earnings stream should improve
based on a gradual increase in our debt to equity ratio, while
still maintaining a prudent debt profile.”
As of December 31, 2018, our portfolio totaled
$1,191.5 million and consisted of $577.4 million of first lien
secured debt, $403.2 million of second lien secured debt, $48.1
million of subordinated debt and $162.8 million of preferred and
common equity. Our debt portfolio consisted of 90% variable-rate
investments and 10% fixed-rate investments. As of December 31,
2018, we had no companies on non-accrual. Overall, the portfolio
had net unrealized depreciation of $132.2 million as of December
31, 2018. Our overall portfolio consisted of 56 companies with an
average investment size of $21.3 million, had a weighted average
yield on interest bearing debt investments of 10.9% and was
invested 48% in first lien secured debt, 34% in second lien secured
debt, 4% in subordinated debt and 14% in preferred and common
equity.
As of September 30, 2018, our portfolio totaled
$1,132.1 million and consisted of $531.4 million of first lien
secured debt, $391.1 million of second lien secured debt, $48.1
million of subordinated debt and $161.5 million of preferred and
common equity. Our debt portfolio consisted of 90% variable-rate
investments and 10% fixed-rate investments. As of September 30,
2018, we had no portfolio companies on non-accrual. Overall, the
portfolio had net unrealized depreciation of $111.8 million as of
September 30, 2018. Our overall portfolio consisted of 53 companies
with an average investment size of $21.4 million, had a weighted
average yield on interest bearing debt investments of 11.2% and was
invested 47% in first lien secured debt, 35% in second lien secured
debt, 4% in subordinated debt and 14% in preferred and common
equity.
For the three months ended December 31, 2018, we
invested $194.5 million in six new and 13 existing portfolio
companies with a weighted average yield on debt investments of
9.5%. Sales and repayments of investments for the three months
ended December 31, 2018 totaled $125.8 million.
For the three months ended December 31, 2017, we
invested $138.4 million in five new and seven existing portfolio
companies with a weighted average yield on debt investments of
10.8%. Sales and repayments of investments for the three months
ended December 31, 2017 totaled $192.3 million.
RESULTS OF OPERATIONS
Set forth below are the results of operations
for the three months ended December 31, 2018 and 2017.
Investment Income
Investment income for the three months ended
December 31, 2018 was $27.4 million and was attributable to $13.2
million from first lien secured debt, $12.4 million from second
lien secured debt and $1.8 million from subordinated debt,
respectively. Investment income for the three months ended December
31, 2017 was $28.7 million and was attributable to $12.7 million
from first lien secured debt, $12.9 million from second lien
secured debt and $3.1 million from subordinated debt, respectively.
The decrease in investment income compared to the same period in
the prior year was primarily due to a decrease in other income.
Expenses
Expenses for the three months ended December 31,
2018 totaled $14.8 million. Base management fee for the same period
totaled $4.4 million, incentive fee totaled $2.7 million, debt
related interest and expenses totaled $6.3 million, general and
administrative expenses totaled $1.1 million and provision for
taxes totaled $0.3 million. Net expenses for the three months ended
December 31, 2017 totaled $14.5 million. Base management fee for
the same period totaled $4.8 million (after a base management fee
waiver of $0.9 million), incentive fee totaled $2.7 million (after
an incentive fee waiver of $0.5 million), debt related interest and
expenses totaled $5.9 million and general and administrative
expenses totaled $1.1 million. The increase in expenses compared to
the same period in the prior year was primarily due to an increase
in leverage, which resulted in an increased interest expense.
Net Investment Income
Net investment income totaled $12.6 million, or
$0.18 per share, for the three months ended December 31, 2018, and
$14.2 million, or $0.20 per share, for the three months ended
December 31, 2017. The decrease in net investment income compared
to the same period in the prior year was primarily due to a
decrease in other income and an increase in leverage, which
resulted in an increased interest expense.
Net Realized Gains or
Losses
Sales and repayments of investments for the
three months ended December 31, 2018 totaled $125.8 million and net
realized gains totaled $8.5 million. Sales and repayments of
investments for the three months ended December 31, 2017 totaled
$192.3 million and net realized gains totaled $3.8 million. The
change in realized gains/losses was primarily due to changes in the
market conditions of our investments and the values at which they
were realized.
Unrealized Appreciation or Depreciation
on Investments, the Credit Facility and the 2019 Notes
For the three months ended December 31, 2018 and
2017, we reported net change in unrealized depreciation on
investments of $20.4 million and $6.8 million, respectively. As of
December 31, 2018 and September 30, 2018, our net unrealized
depreciation on investments totaled $132.2 million and $111.8
million, respectively. The net change in unrealized
appreciation/depreciation on our investments compared to the same
period in the prior year was primarily due to changes in the
capital market conditions, the financial performance of certain
portfolio companies and the reversal of unrealized
appreciation/depreciation on investments that were realized.
For the three months ended December 31, 2018 and
2017, our multi-currency, senior secured revolving credit facility,
as amended and restated, or the Credit Facility, and the 4.50%
notes due 2019, or 2019 Notes, had a net change in unrealized
depreciation of $6.1 million and $1.1 million, respectively. As of
December 31, 2018 and September 30, 2018, the net unrealized
depreciation on the Credit Facility and the 2019 Notes totaled $7.6
million and $1.6 million, respectively. The net change in net
unrealized depreciation compared to the same period in the prior
year was primarily due to changes in the capital markets.
Net Change in Net Assets Resulting from
Operations
Net change in net assets resulting from
operations totaled $6.8 million, or $0.10 per share, for the three
months ended December 31, 2018. This compares to a net change in
net assets resulting from operations of $12.3 million, or $0.18 per
share, for the three months ended December 31, 2017. The decrease
in the net change in net assets from operations compared to the
same period in the prior year was primarily due to a lower yielding
portfolio and depreciation of our investments.
LIQUIDITY AND CAPITAL
RESOURCES
Our liquidity and capital resources are derived
primarily from proceeds of securities offerings, debt capital and
cash flows from operations, including investment sales and
repayments, and income earned. Our primary use of funds from
operations includes investments in portfolio companies and payments
of fees and other operating expenses we incur. We have used, and
expect to continue to use, our debt capital, proceeds from the
rotation of our portfolio and proceeds from public and private
offerings of securities to finance our investment objectives.
The annualized weighted average cost of debt for
the three months ended December 31, 2018 and 2017, inclusive of the
fee on the undrawn commitment and amendment costs on the Credit
Facility, amortized upfront fees on Small Business Administration,
or SBA, debentures and debt issuance costs, was 4.71% and 4.32%,
respectively.
As of December 31, 2018 and September 30, 2018,
we had $174.1 million and $80.5 million (including a $2.0 million
temporary draw), respectively, in outstanding borrowings under the
Credit Facility. The Credit Facility had a weighted average
interest rate of 4.39% and 3.79%, respectively, exclusive of the
fee on undrawn commitments of 0.375%, as of December 31, 2018 and
September 30, 2018. As of the same periods, we had $270.9 million
and $364.5 million of unused borrowing capacity under our Credit
Facility, respectively, subject to the regulatory restrictions.
As of December 31, 2018 and September 30, 2018,
we had $250.0 million in aggregate principal amount of 2019 Notes
outstanding with a fixed interest rate of 4.50% per year. As of
December 31, 2018 and September 30, 2018, we had $150.0 million and
$180.0 million in SBA debentures outstanding, respectively.
As of December 31, 2018 and September 30, 2018,
we had cash and cash equivalents of $24.7 million and $19.5
million, respectively, available for investing and general
corporate purposes. We believe our liquidity and capital resources
are sufficient to take advantage of market opportunities.
Our operating activities used cash of $38.6
million for the three months ended December 31, 2018, and our
financing activities provided cash of $43.7 million for the same
period. Our operating activities used cash primarily for our
investment activities and our financing activities provided cash
primarily from net borrowings under the Credit Facility.
Our operating activities provided cash of $62.4
million for the three months ended December 31, 2017, and our
financing activities used cash of $27.8 million for the same
period. Our operating activities provided cash from sales and
repayments on our investments and our financing activities used
cash primarily to pay distributions to stockholders and repay the
SBA debentures.
STOCK REPURCHASE PROGRAM
On May 9, 2018, we announced a share repurchase
program which allows us to repurchase up to $30 million of our
outstanding common stock in the open market at prices below our net
asset value as reported in our then most recently published
consolidated financial statements. The shares may be purchased from
time to time at prevailing market prices, through open market
transactions, including block transactions. Unless extended by our
board of directors, the program, which may be implemented at the
discretion of management, will expire on the earlier of May 9, 2019
and the repurchase of $30 million of common stock. For the three
months ended December 31, 2018 and 2017, we repurchased 1.0 million
and zero shares of common stock in open market transactions for an
aggregate cost (including transaction costs) of $7.5 million and
zero, respectively.
DISTRIBUTIONS
During both the three months ended December 31,
2018 and 2017, we declared distributions of $0.18 per share, for
total distributions of $12.2 million and $12.8 million,
respectively. We monitor available net investment income to
determine if a return of capital for tax purposes may occur for the
fiscal year. To the extent our taxable earnings fall below the
total amount of our distributions for any given fiscal year,
stockholders will be notified of the portion of those distributions
deemed to be a tax return of capital. Tax characteristics of all
distributions will be reported to stockholders subject to
information reporting on Form 1099-DIV after the end of each
calendar year and in our periodic reports filed with the Securities
and Exchange Commission, or the SEC.
RECENT DEVELOPMENTS
On February 5, 2019, our stockholders approved
the adoption of the modified asset coverage requirements set forth
in Section 61(a)(2) of the 1940 Act, as amended by the Consolidated
Appropriations Act of 2018 (which includes the Small Business
Credit Availability Act) as approved by our board of directors on
November 13, 2018. As a result, the minimum asset coverage
requirements applicable to us for senior securities has been
reduced from 200% to 150%, subject to compliance with certain
disclosure requirements. In connection with this reduction, our
annual base management fee has also been reduced from 1.50% to
1.00% on gross assets that exceed 200% of the Company’s total net
assets as of the immediately preceding quarter-end.
On January 31, 2019, the Company announced the
redemption of $250.0 million outstanding aggregate principal amount
of its 2019 Notes due October 1, 2019. The 2019 Notes will be
prepaid at 100% of the principal amount, plus accrued and unpaid
interest through the payment date of March 4, 2019, as well as a
make-whole premium.
AVAILABLE INFORMATION
The Company makes available on its website its
report on Form 10-Q filed with the SEC and stockholders may find
the report on our website at www.pennantpark.com.
PENNANTPARK INVESTMENT CORPORATION AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF ASSETS AND
LIABILITIES
|
|
December 31, 2018 |
|
|
September 30, 2018 |
|
|
|
(unaudited) |
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Investments at fair
value |
|
|
|
|
|
|
|
|
Non-controlled, non-affiliated investments (cost—$987,929,505 and
$896,720,950, respectively) |
|
$ |
989,515,879 |
|
|
$ |
905,271,258 |
|
Non-controlled, affiliated investments (cost—$74,369,962 and
$91,520,908, respectively) |
|
|
49,057,619 |
|
|
|
78,078,331 |
|
Controlled, affiliated investments (cost—$261,311,677 and
$255,574,317, respectively) |
|
|
152,880,313 |
|
|
|
148,735,885 |
|
Total of
investments (cost—$1,323,611,144 and $1,243,816,175,
respectively) |
|
|
1,191,453,811 |
|
|
|
1,132,085,474 |
|
Cash and cash
equivalents (cost—$24,657,870 and $19,543,625, respectively) |
|
|
24,653,889 |
|
|
|
19,506,154 |
|
Interest
receivable |
|
|
5,506,564 |
|
|
|
7,606,964 |
|
Prepaid expenses and
other assets |
|
|
152,544 |
|
|
|
920,235 |
|
Total assets |
|
|
1,221,766,808 |
|
|
|
1,160,118,827 |
|
Liabilities |
|
|
|
|
|
|
|
|
Distributions
payable |
|
|
12,244,957 |
|
|
|
12,429,712 |
|
Payable for investments
purchased |
|
|
18,172,125 |
|
|
|
— |
|
Credit Facility payable
(cost—$174,136,000 and $80,520,000, respectively) |
|
|
167,088,178 |
|
|
|
77,645,830 |
|
2019 Notes payable
(par—$250,000,000) |
|
|
249,430,000 |
|
|
|
251,322,500 |
|
SBA debentures payable,
net (par—$150,000,000 and $180,000,000, respectively) |
|
|
145,789,777 |
|
|
|
175,373,229 |
|
Base management fee
payable, net |
|
|
4,419,262 |
|
|
|
4,086,831 |
|
Performance-based
incentive fee payable, net |
|
|
2,667,270 |
|
|
|
2,964,265 |
|
Interest payable on
debt |
|
|
5,007,094 |
|
|
|
6,576,393 |
|
Accrued other
expenses |
|
|
1,007,040 |
|
|
|
818,172 |
|
Total liabilities |
|
|
605,825,703 |
|
|
|
531,216,932 |
|
Commitments and
contingencies |
|
|
— |
|
|
|
— |
|
Net
assets |
|
|
|
|
|
|
|
|
Common stock,
68,027,537 and 69,053,958 shares issued and outstanding,
respectively Par value $0.001 per share and 100,000,000
shares authorized |
|
|
68,028 |
|
|
|
69,054 |
|
Paid-in capital in
excess of par value |
|
|
796,236,224 |
|
|
|
803,729,220 |
|
Undistributed net
investment income |
|
|
6,333,033 |
|
|
|
6,003,360 |
|
Accumulated net
realized loss on investments |
|
|
(62,157,643 |
) |
|
|
(70,687,629 |
) |
Net unrealized
depreciation on investments |
|
|
(132,156,359 |
) |
|
|
(111,763,780 |
) |
Net unrealized
depreciation on debt |
|
|
7,617,822 |
|
|
|
1,551,670 |
|
Total net assets |
|
$ |
615,941,105 |
|
|
$ |
628,901,895 |
|
Total liabilities and net assets |
|
$ |
1,221,766,808 |
|
|
$ |
1,160,118,827 |
|
Net asset value
per share |
|
$ |
9.05 |
|
|
$ |
9.11 |
|
PENNANTPARK INVESTMENT CORPORATION AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF
OPERATIONS(Unaudited)
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2018 |
|
|
2017 |
|
Investment income: |
|
|
|
|
|
|
|
|
From
non-controlled, non-affiliated investments: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
23,508,581 |
|
|
$ |
21,383,219 |
|
Payment in kind |
|
|
1,246,016 |
|
|
|
1,284,909 |
|
Other income |
|
|
618,071 |
|
|
|
1,586,642 |
|
From
non-controlled, affiliated investments: |
|
|
|
|
|
|
|
|
Interest |
|
|
105,105 |
|
|
|
1,215,834 |
|
Payment in kind |
|
|
108,625 |
|
|
|
1,573,306 |
|
From
controlled, affiliated investments: |
|
|
|
|
|
|
|
|
Interest |
|
|
1,788,603 |
|
|
|
480,430 |
|
Payment in kind |
|
|
5,000 |
|
|
|
1,144,085 |
|
Total investment income |
|
|
27,380,001 |
|
|
|
28,668,425 |
|
Expenses: |
|
|
|
|
|
|
|
|
Base management fee |
|
|
4,419,262 |
|
|
|
5,735,137 |
|
Performance-based incentive fee |
|
|
2,667,270 |
|
|
|
3,185,204 |
|
Interest and expenses on debt |
|
|
6,278,847 |
|
|
|
5,857,378 |
|
Administrative services expenses |
|
|
521,625 |
|
|
|
521,625 |
|
Other general and administrative expenses |
|
|
618,367 |
|
|
|
628,290 |
|
Expenses before Management Fees waiver and provision
for taxes |
|
|
14,505,371 |
|
|
|
15,927,634 |
|
Management Fees waiver |
|
|
— |
|
|
|
(1,427,253 |
) |
Provision for taxes |
|
|
300,000 |
|
|
|
— |
|
Net expenses |
|
|
14,805,371 |
|
|
|
14,500,381 |
|
Net investment income |
|
|
12,574,630 |
|
|
|
14,168,044 |
|
Realized and unrealized loss on investments and
debt: |
|
|
|
|
|
|
|
|
Net
realized gain on investments on: |
|
|
|
|
|
|
|
|
Non-controlled, non-affiliated investments |
|
|
3,737,919 |
|
|
|
1,793,043 |
|
Non-controlled and controlled, affiliated investments |
|
|
4,792,067 |
|
|
|
1,980,440 |
|
Net realized gain on investments |
|
|
8,529,986 |
|
|
|
3,773,483 |
|
Net change
in unrealized depreciation on: |
|
|
|
|
|
|
|
|
Non-controlled, non-affiliated investments |
|
|
(6,929,882 |
) |
|
|
1,738,065 |
|
Non-controlled and controlled, affiliated investments |
|
|
(13,462,697 |
) |
|
|
(8,510,961 |
) |
Debt depreciation |
|
|
6,066,152 |
|
|
|
1,126,766 |
|
Net change in unrealized depreciation on investments
and debt |
|
|
(14,326,427 |
) |
|
|
(5,646,130 |
) |
Net
realized and unrealized loss from investments and
debt |
|
|
(5,796,441 |
) |
|
|
(1,872,647 |
) |
Net
increase in net assets resulting from operations |
|
$ |
6,778,189 |
|
|
$ |
12,295,397 |
|
Net
increase in net assets resulting from operations per common
share |
|
$ |
0.10 |
|
|
$ |
0.18 |
|
Net
investment income per common share |
|
$ |
0.18 |
|
|
$ |
0.20 |
|
ABOUT PENNANTPARK INVESTMENT CORPORATION
PennantPark Investment Corporation is a business
development company which invests primarily in U.S. middle-market
companies in the form of first lien secured debt, second lien
secured debt, subordinated debt and equity investments. PennantPark
Investment Corporation is managed by PennantPark Investment
Advisers, LLC.
FORWARD-LOOKING STATEMENTS
This press release may contain “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. You should understand that under Section
27A(b)(2)(B) of the Securities Act of 1933, as amended, and Section
21E(b)(2)(B) of the Securities Exchange Act of 1934, as amended, or
the Exchange Act, the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995 do not apply to
forward-looking statements made in periodic reports we file under
the Exchange Act. All statements other than statements of
historical facts included in this press release are forward-looking
statements and are not guarantees of future performance or results,
and involve a number of risks and uncertainties. Actual results may
differ materially from those in the forward-looking statements as a
result of a number of factors, including those described from time
to time in filings with the SEC. The Company undertakes no duty to
update any forward-looking statement made herein. You should not
place undue influence on such forward-looking statements as such
statements speak only as of the date on which they are made.
We may use words such as “anticipates,”
“believes,” “expects,” “intends,” “seeks,” “plans,” “estimates” and
similar expressions to identify forward-looking statements. Such
statements are based on currently available operating, financial
and competitive information and are subject to various risks and
uncertainties that could cause actual results to differ materially
from our historical experience and our present expectations.
CONTACT:
Aviv EfratPennantPark Investment Corporation(212)
905-1000www.pennantpark.com
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