PENNANTPARK FLOATING RATE CAPITAL LTD. FORWARD-LOOKING STATEMENTS
This Report, including Management's Discussion and Analysis of Financial Condition and Results of Operations, contains statements that constitute forward-looking statements, which relate to us and our consolidated subsidiaries regarding future events or our future performance or future financial condition. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our Company, our industry, our beliefs and our assumptions. The forward-looking statements contained in this Report involve risks and uncertainties, including statements as to:
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our future operating results;
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our business prospects and the prospects of our prospective portfolio companies, including as a result of the pandemic caused by COVID-19 or any future worsening there of;
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changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets that could result in changes to the value of our assets, including changes from the impact of the COVID-19 pandemic or any future worsening there of;
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the dependence of our future success on the general economy and its impact on the industries in which we invest;
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the impact of a protracted decline in the liquidity of credit markets on our business;
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the impact of investments that we expect to make;
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the impact of fluctuations in interest rates and foreign exchange rates on our business and our portfolio companies;
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our contractual arrangements and relationships with third parties;
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the valuation of our investments in portfolio companies, particularly those having no liquid trading market;
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the ability of our prospective portfolio companies to achieve their objectives;
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our expected financings and investments and ability to fund capital commitments to PSSL;
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the adequacy of our cash resources and working capital;
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the timing of cash flows, if any, from the operations of our prospective portfolio companies;
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the impact of price and volume fluctuations in the stock market;
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increasing levels of inflation, and its impact on us and our portfolio companies;
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the ability of our Investment Adviser to locate suitable investments for us and to monitor and administer our investments;
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the impact of future legislation and regulation on our business and our portfolio companies; and
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the impact of the ongoing invasion of
We use words such as "anticipates," "believes," "expects," "intends," "seeks," "plans," "estimates" and similar expressions to identify forward-looking statements. You should not place undue influence on the forward-looking statements as our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors in "Risk Factors" and elsewhere in this Report. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new loans and investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Report should not be regarded as a representation by us that our plans and objectives will be achieved. We have based the forward-looking statements included in this Report on information available to us on the date of this Report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements in this Report, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with theSEC , including reports on Form 10-Q/K and current reports on Form 8-K. You should understand that under Section 27A(b)(2)(B) of the Securities Act and Section 21E(b)(2)(B) of 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.
The following analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes thereto contained elsewhere in this Report.
Overview
PennantPark Floating Rate Capital Ltd. is a BDC whose objectives are to generate both current income and capital appreciation while seeking to preserve capital by investing primarily in floating rate loans and other investments made toU.S. middle-market companies. We believe that floating rate loans toU.S. middle-market companies offer attractive risk-reward to investors due to a limited amount of capital available for such companies. We use the term "middle-market" to refer to companies with annual revenues between$50 million and$1 billion . Our investments are typically rated below investment grade. Securities rated below investment grade are often referred to as "leveraged loans" or "high yield" securities or "junk bonds" and are often higher risk compared to debt instruments that are rated above investment grade and have speculative characteristics. However, when compared to junk bonds and other non-investment 41 -------------------------------------------------------------------------------- grade debt, senior secured floating rate loans typically have more robust capital-preserving qualities, such as historically lower default rates than junk bonds, represent the senior source of capital in a borrower's capital structure and often have certain of the borrower's assets pledged as collateral. Our debt investments may generally range in maturity from three to ten years and are made toU.S. and, to a limited extent, non-U.S. corporations, partnerships and other business entities which operate in various industries and geographical regions. Under normal market conditions, we generally expect that at least 80% of the value of our managed assets will be invested in floating rate loans and other investments bearing a variable-rate of interest. We generally expect that first lien secured debt will represent at least 65% of our overall portfolio. We also generally expect to invest up to 35% of our overall portfolio opportunistically in other types of investments, including second lien secured debt and subordinated debt and, to a lesser extent, equity investments. We seek to create a diversified portfolio by generally targeting an investment size between$5 million and$30 million , on average, although we expect that this investment size will vary proportionately with the size of our capital base. Our investment activity depends on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make. 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.
Organization and Structure of
PennantPark Floating Rate Capital Ltd. , aMaryland corporation organized inOctober 2010 , is a closed-end, externally managed, non-diversified investment company that has elected to be treated as a BDC under the 1940 Act. In addition, for federal income tax purposes we elected to be treated, and intend to qualify annually, as a RIC under the Code. Our investment activities are managed by the Investment Adviser. Under our Investment Management Agreement, we have agreed to pay our Investment Adviser an annual base management fee based on our average adjusted gross assets as well as an incentive fee based on our investment performance. We have also entered into an Administration Agreement with the Administrator. Under our Administration Agreement, we have agreed to reimburse the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under our Administration Agreement, including rent and our allocable portion of the costs of compensation and related expenses of our Chief Compliance Officer, Chief Financial Officer, Corporate Counsel and their respective staffs. Our board of directors, a majority of whom are independent of us, provides overall supervision of our activities, and the Investment Adviser supervises our day-to-day activities.
At-the-Market Offering
OnAugust 20, 2021 , the Company entered into equity distribution agreements (together, as amended from time to time, the "Equity Distribution Agreements") with each ofJMP Securities LLC andRaymond James & Associates, Inc. , as the sales agents (each, a "Sales Agent," and together, the "Sales Agents"), in connection with the sale of shares of our Common Stock with an aggregate offering price of up to$75 million under an at-the-market offering. OnMay 5, 2022 , we amended the Equity Distribution Agreements to update references from NASDAQ to NYSE and reflect that the agents are now represented byKirkland & Ellis LLP . The Equity Distribution Agreements, as amended, provide that we may offer and sell shares of our Common Stock from time to time through a Sales Agent in amounts and at times to be determined by us. Actual sales will depend on a variety of factors to be determined by us from time to time, including, market conditions and the trading price of our Common Stock.
Revenues
We generate revenue in the form of interest income on the debt securities we hold and capital gains and dividends, if any, on investment securities that we may acquire in portfolio companies. Our debt investments, whether in the form of first lien secured debt, second lien secured debt or subordinated debt, typically have a term of three to ten years and bear interest at a floating or fixed rate. Interest on debt securities is generally payable quarterly or semiannually. In some cases, our investments provide for deferred interest payments or PIK interest. The principal amount of the debt securities and any accrued but unpaid interest generally becomes due at the maturity date. In addition, we may generate revenue in the form of amendment, commitment, origination, structuring or diligence fees, fees for providing significant managerial assistance and possibly consulting fees. Loan origination fees, OID and market discount or premium are capitalized and accreted or amortized using the effective interest method as interest income or, in the case of deferred financing costs, as interest expense. Dividend income, if any, is recognized on an accrual basis on the ex-dividend date to the extent that we expect to collect such amounts. From time to time, the Company receives certain fees from portfolio companies, which are non-recurring in nature. Such fees include loan prepayment penalties, structuring fees and amendment fees, and are recorded as other investment income when earned. Litigation settlements are accounted for in accordance with the gain contingency provisions of ASC Subtopic 450-30, Gain Contingencies, or ASC 450-30.
Expenses
Our primary operating expenses include the payment of a management fee and the payment of an incentive fee to our Investment Adviser, if any, our allocable portion of overhead under our Administration Agreement and other operating costs as detailed below. Our management fee compensates our Investment Adviser for its work in identifying, evaluating, negotiating, consummating and monitoring our investments. Additionally, we pay interest expense on the outstanding debt and unused commitment fees on undrawn amounts, under our various debt facilities. We bear all other direct or indirect costs and expenses of our operations and transactions, including:
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the cost of calculating our NAV, including the cost of any third-party valuation services;
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the cost of effecting sales and repurchases of shares of our common stock and other securities;
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fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence and reviews of prospective investments or complementary businesses;
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expenses incurred by the Investment Adviser in performing due diligence and reviews of investments;
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transfer agent and custodial fees;
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fees and expenses associated with marketing efforts;
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federal and state registration fees and any exchange listing fees;
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federal, state, local and foreign taxes;
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independent directors' fees and expenses;
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brokerage commissions;
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fidelity bond, directors and officers, errors and omissions liability insurance and other insurance premiums;
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direct costs such as printing, mailing, long distance telephone and staff;
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fees and expenses associated with independent audits and outside legal costs;
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costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws; and
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all other expenses incurred by either the Administrator or us in connection with administering our business, including payments under our Administration Agreement that will be based upon our allocable portion of overhead, and other expenses incurred by the Administrator in performing its obligations under our Administration Agreement, including rent and our allocable portion of the costs of compensation and related expenses of our Chief Compliance Officer, Chief Financial Officer, Corporate Counsel and their respective staffs. Generally, during periods of asset growth, we expect our general and administrative expenses to be relatively stable or to decline as a percentage of total assets and increase during periods of asset declines. Incentive fees, interest expense and costs relating to future offerings of securities would be additive to the expenses described above.
PORTFOLIO AND INVESTMENT ACTIVITY
As ofSeptember 30, 2022 , our portfolio totaled$1,164.3 million and consisted of$1,009.6 million of first lien secured debt (including$190.2 million in PSSL),$0.1million of second lien secured debt and$154.5 million of preferred and common equity (including$49.4 million in PSSL). Our debt portfolio consisted of 100% variable-rate investments. As ofSeptember 30, 2022 , we had two portfolio companies on non-accrual, representing 0.9% and zero percent of our overall portfolio on a cost and fair value basis, respectively. Overall, the portfolio had net unrealized depreciation of$8.7 million . Our overall portfolio consisted of 125 companies with an average investment size of$9.3 million , had a weighted average yield on debt investments of 10.0%, and was invested 87% in first lien secured debt (including 16% in PSSL), less than 1% in second lien secured debt and 13% in preferred and common equity (including 4% in PSSL). As ofSeptember 30, 2022 , 99% of the investments held by PSSL were first lien secured debt. As ofSeptember 30, 2021 , our portfolio totaled$1,081.6 million and consisted of$934.4 million of first lien secured debt (including$140.9 million in PSSL),$8.9 million of second lien secured debt and$138.3 million of preferred and common equity (including$44.9 million in PSSL). Our debt portfolio consisted of 99% variable-rate investments. As ofSeptember 30, 2021 , we had two portfolio companies on non-accrual, representing 2.7% and 2.6% of our overall portfolio on a cost and fair value basis, respectively. Overall, the portfolio had net unrealized depreciation of$11.0 million . Our overall portfolio consisted of 110 companies with an average investment size of$9.8 million , had a weighted average yield on debt investments of 7.4%, and was invested 86% in first lien secured debt (including 13% in PSSL), 1% in second lien secured debt and 13% in preferred and common equity (including 4% in PSSL). As ofSeptember 30, 2021 , 99% of the investments held by PSSL were first lien secured debt. For the year endedSeptember 30, 2022 , we invested$607.8 million in 34 new and 129 existing portfolio companies with a weighted average yield on debt investments of 7.8%. Sales and repayments of investments for the same period totaled$495.2 million . For the year endedSeptember 30, 2021 , we invested$661.1 million in 35 new and 68 existing portfolio companies with a weighted average yield on debt investments of 7.4%. Sales and repayments of investments for the same period totaled$702.1 million .
As ofSeptember 30, 2022 , PSSL's portfolio totaled$754.7 million , consisted of 95 companies with an average investment size of$8.0 million and had a weighted average yield on debt investments of 9.6%. As ofSeptember 30, 2021 , PSSL's portfolio totaled$564.8 million , consisted of 74 companies with an average investment size of$7.6 million and had a weighted average yield on debt investments of 7.1%. For the year endedSeptember 30, 2022 , PSSL invested$278.8 million (of which$270.6 million was purchased from the Company) in 34 new and 20 existing portfolio companies with a weighted average yield on debt investments of 8.1 %. PSSL's sales and repayments of investments for the same period totaled$102.4 million . For the year endedSeptember 30, 2021 , PSSL invested$354.4 million (of which$285.7 million was purchased from the Company) in 42 new and 29 existing portfolio companies with a weighted average yield on debt investments of 7.2%. PSSL's sales and repayments of investments for the same period totaled$185.7 million .
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of our assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of income and expenses during the reported periods. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements have been included. Actual results could differ from these estimates due to changes in the economic and regulatory environment, financial markets and any other parameters used in determining such estimates and assumptions. We may reclassify certain prior period amounts to conform to the current period presentation. We have eliminated all intercompany balances and transactions. References to ASC serve as a single source of accounting literature. Subsequent events are evaluated and disclosed as appropriate for events occurring through the date the Consolidated Financial Statements are issued. In addition to the discussion below, we describe our critical accounting policies in the notes to our Consolidated Financial Statements.
Investment Valuations
We expect that there may not be readily available market values for many of our
investments which are or will be in our portfolio, and we value such investments
at fair value as determined in good faith by or under the direction of our board
of directors using a documented valuation policy and a consistently applied
valuation process, as described in this Report. With respect to investments for
which there is no readily available market value, the factors that the board of
directors may take into account in pricing our investments at fair value
include, as relevant, the nature and realizable value of any collateral, the
portfolio company's ability to make payments and its earnings and discounted
cash flow, the markets in which the portfolio company does business, comparison
to publicly traded securities and other relevant factors. When an external event
such as a purchase transaction, public offering or subsequent equity sale
occurs, we consider the pricing indicated by the external event to corroborate
or revise our valuation. Due to the inherent uncertainty of determining the fair
value of investments that do not have a readily available market value, the
price used in an actual transaction may be different than our valuation and the
difference may be material.
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Our portfolio generally consists of illiquid securities, including debt and
equity investments. With respect to investments for which market quotations are
not readily available, or for which market quotations are deemed not reflective
of the fair value, our board of directors undertakes a multi-step valuation
process each quarter, as described below:
(1)
Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our Investment Adviser responsible for the portfolio investment;
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Preliminary valuation conclusions are then documented and discussed with the management of our Investment Adviser;
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Our board of directors also engages independent valuation firms to conduct independent appraisals of our investments for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment. The independent valuation firms review management's preliminary valuations in light of their own independent assessment and also in light of any market quotations obtained from an independent pricing service, broker, dealer or market maker;
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The audit committee of our board of directors reviews the preliminary valuations of our Investment Adviser and those of the independent valuation firms on a quarterly basis, periodically assesses the valuation methodologies of the independent valuation firms, and responds to and supplements the valuation recommendations of the independent valuation firms to reflect any comments; and
(5)
Our board of directors discusses these valuations and determines the fair value of each investment in our portfolio in good faith, based on the input of our Investment Adviser, the respective independent valuation firms and the audit committee. Our board of directors generally uses market quotations to assess the value of our investments for which market quotations are readily available. We obtain these market values from independent pricing services or at the bid prices obtained from at least two brokers or dealers, if available, or otherwise from a principal market maker or a primary market dealer. The Investment Adviser assesses the source and reliability of bids from brokers or dealers. If the board of directors has a bona fide reason to believe any such market quote does not reflect the fair value of an investment, it may independently value such investments by using the valuation procedure that it uses with respect to assets for which market quotations are not readily available. Fair value, as defined under ASC 820, is the price that we would receive upon selling an investment or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment or liability. ASC 820 emphasizes that valuation techniques maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing an asset or liability based on market data obtained from sources independent of us. Unobservable inputs reflect the assumptions market participants would use in pricing an asset or liability based on the best information available to us on the reporting period date.
ASC 820 classifies the inputs used to measure these fair values into the following hierarchies:
Level 1: Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities, accessible by us at the measurement date.
Level 2: Inputs that are quoted prices for similar assets or liabilities in active markets, or that are quoted prices for identical or similar assets or liabilities in markets that are not active and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term, if applicable, of the financial instrument. Level 3: Inputs that are unobservable for an asset or liability because they are based on our own assumptions about how market participants would price the asset or liability. A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Generally, most of our investments, our 2031 Asset-Backed Debt and the Credit Facility are classified as Level 3. Our 2026 Notes are classified as Level 2 as they are financial instruments with readily observable market inputs. Our 2023 Notes are classified as Level 1, as they were valued using the closing price from the primary exchange. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the price used in an actual transaction may be different than our valuation and those differences may be material. OnDecember 3, 2020 , theSEC adopted Rule 2a-5 under the 1940 Act, which establishes an updated regulatory framework for determining fair value in good faith for purposes of the 1940 Act. The new rule clarifies how fund boards of directors can satisfy their valuation obligations and requires, among other things, the board of directors to periodically assess material valuation risks and take steps to manage those risks. The rule also permit boards of directors, subject to board oversight and certain other conditions, to designate the fund's investment adviser to perform fair value determinations. The new rule went into effect onMarch 8, 2021 and had a compliance date ofSeptember 8, 2022 . We came into compliance with Rule 2a-5 under the 1940 Act before the compliance date. While our board of directors has not elected to designate the Investment Adviser as the valuation designee at this time, we have adopted certain revisions to our valuation policies and procedures in order comply with the applicable requirements of Rule 2a-5 under the 1940 Act. In addition to using the above inputs to value cash equivalents, investments, our 2023 Notes, our 2026 Notes, our 2031 Asset-Backed Debt and the Credit Facility, we employ the valuation policy approved by our board of directors that is consistent with ASC 820. Consistent with our valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading, in determining fair value. Generally, the carrying value of our consolidated financial liabilities approximates fair value. We have adopted the principles ASC Subtopic 825-10, Financial Instruments, or ASC 825-10, which provides companies with an option to report selected financial assets and liabilities at fair value, and made an irrevocable election to apply ASC 825-10 to the Credit Facility and the 2023 Notes. We elected to use the fair value option for the Credit Facility and the 2023 Notes to align the measurement attributes of both our assets and liabilities while mitigating volatility in earnings from using different measurement attributes. Due to that election and in accordance with GAAP, we incurred expenses of zero and$2.9 million relating to amendment costs on the Credit Facility and debt issuance costs on the 2023 Notes during the years endedSeptember 30, 2022 and 2021, respectively. ASC 825-10 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and to more easily understand the effect on earnings of a company's choice to use fair value. ASC 825-10 also requires entities to display the fair value of the selected assets and liabilities on the face of the Consolidated Statements of Assets and Liabilities and changes in fair value of the Credit Facility and the 2023 Notes are reported in our Consolidated Statements of Operations. We elected not to apply ASC 825-10 to any other financial assets or liabilities, including the 2026 Notes and the 2031 Asset-Backed Debt. For the yearsSeptember 30, 2022 and 2021, the Credit Facility or our Prior Credit Facility, as applicable, the 2023 Notes had a net change in unrealized (appreciation) depreciation of$(4.9) million and$(11.6) million , respectively. As ofSeptember 30, 2022 and 2021, the net unrealized depreciation on the Credit Facility or Prior Credit Facility, as applicable, the 2023 Notes totaled$2.3 million and$7.2 million , respectively. We use a nationally recognized independent valuation service to 44 -------------------------------------------------------------------------------- measure the fair value of the Credit Facility in a manner consistent with the valuation process that our board of directors uses to value our investments. Our 2023 Notes trade on the TASE and we use the closing price on the exchange to determine the fair value. Revenue Recognition We record interest income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt investments with contractual PIK interest, which represents interest accrued and added to the loan balance that generally becomes due at maturity, we will generally not accrue PIK interest when the portfolio company valuation indicates that such PIK interest is not collectable. We do not accrue as a receivable interest on loans and debt investments if we have reason to doubt our ability to collect such interest. Loan origination fees, OID, market discount or premium and deferred financing costs on liabilities, which we do not fair value, are capitalized and then accreted or amortized using the effective interest method as interest income or, in the case of deferred financing costs, as interest expense. We record prepayment penalties on loans and debt investments as income. Dividend income, if any, is recognized on an accrual basis on the ex-dividend date to the extent that we expect to collect such amounts. From time to time, the Company receives certain fees from portfolio companies, which are non-recurring in nature. Such fees include loan prepayment penalties, structuring fees and amendment fees, and are recorded as other investment income when earned.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, using the specific identification method, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in the fair values of our portfolio investments, the Credit Facility, the 2023 Notes during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.
Foreign Currency Translation
Our books and records are maintained in
1.
Fair value of investment securities, other assets and liabilities - at the exchange rates prevailing at the end of the applicable period; and
2.
Purchases and sales of investment securities, income and expenses - at the exchange rates prevailing on the respective dates of such transactions.
Although net assets and fair values are presented based on the applicable foreign exchange rates described above, we do not isolate that portion of the results of operations due to changes in foreign exchange rates on investments, other assets and debt from the fluctuations arising from changes in fair value of investments and liabilities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments and liabilities.
Payment-in-kind, or PIK, Interest
We have investments in our portfolio which contain a PIK interest provision. PIK interest is added to the principal balance of the investment and is recorded as income. In order for us to maintain our ability to be subject to tax as a RIC, substantially all of this income must be paid out to stockholders in the form of dividends forU.S. federal income tax purposes, even though we may not have collected any cash with respect to interest on PIK securities.
Federal Income Taxes
We have elected to be treated, and intend to qualify annually to maintain our election to be treated, as a RIC under Subchapter M of the Code. To maintain our RIC tax election, we must, among other requirements, meet certain annual source-of-income and quarterly asset diversification requirements. We also must annually distribute dividends for federal income tax purposes to our stockholders out of the assets legally available for distribution of an amount generally at least equal to 90% of the sum of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, or investment company taxable income, determined without regard to any deduction for dividends paid. Although not required for us to maintain our RIC tax status, in order to preclude the imposition of a 4% nondeductible federal excise tax imposed on RICs, we must distribute dividends forU.S. federal income tax purposes to our stockholders in respect of each calendar year of an amount at least equal to the sum of (1) 98% of our net ordinary income (subject to certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gain net income (i.e., the excess, if any, of our capital gains over capital losses), adjusted for certain ordinary losses, generally for the one-year period ending onOctober 31 of the calendar year plus (3) any net ordinary income or capital gain net income for the preceding years that was not distributed during such years on which we did not incur any corporate income tax, or the Excise Tax Avoidance Requirement. In addition, although we may distribute realized net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually, out of the assets legally available for such distributions in the manner described above, we have retained and may continue to retain such net capital gains or investment company taxable income, subject to maintaining our ability to be taxed as a RIC, in order to provide us with additional liquidity. Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and net realized gain recognized for financial reporting purposes. Differences between tax regulations and GAAP may be permanent or temporary. Permanent differences are reclassified among capital accounts in the Consolidated Financial Statements to reflect their appropriate tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future.
For the years ended
The Taxable Subsidiary (PFLT Investment Holdings, LLC , a wholly-owned subsidiary of the Company) is subject toU.S. federal, state and local corporate income taxes. The income tax expense and related tax liabilities of the Taxable Subsidiary are reflected in the Company's consolidated financial statements. For the years endedSeptember 30, 2022 , 2021 and 2020, the Company recognized a provision for taxes of$4.6 million , zero and zero, respectively, on unrealized appreciation on investments by the Taxable Subsidiary. The provision for taxes on unrealized appreciation on investments is the result of netting (i) the expected tax liability on gains from sales of investments and (ii) the expected tax benefit from the use of losses in the current year. As ofSeptember 30, 2022 and 2021,$4.6 million and zero, respectively, was accrued as a deferred tax liability on the Consolidated Statements of Assets and Liabilities relating to unrealized gain on investments held by the Taxable Subsidiary. During the years endedSeptember 30, 2022 and 2021, the Company paid$1.2 million and zero, respectively, in taxes on realized gains on the sale of investments held by the Taxable Subsidiary which were offset by subsequently realized losses, resulting in a$1.2 million prepaid tax asset as ofSeptember 30, 2022 included under prepaid expenses and other assets in the consolidated statement of assets and liabilities. Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and net realized gain recognized for financial reporting purposes. Differences between tax regulations and GAAP may be permanent or temporary. Permanent differences are reclassified among capital accounts in the Consolidated Financial Statements to reflect their appropriate tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. 45 -------------------------------------------------------------------------------- We have formed and expect to continue to form certain taxable subsidiaries, including the Taxable Subsidiary, which are taxed as corporations. These taxable subsidiaries allow us to hold equity securities of certain portfolio companies treated as pass-through entities forU.S. federal income tax purposes while facilitating our ability to qualify as a RIC under the Code.
RESULTS OF OPERATIONS
Set forth below are the results of operations for the years endedSeptember 30, 2022 and 2021. For information regarding results of operations for the year endedSeptember 30, 2020 , see the Company's Form 10-K for the fiscal year endedSeptember 30, 2021 , as filed with theSEC onNovember 17, 2021 .
Investment Income
Investment income for the year endedSeptember 30, 2022 was$105.5 million and was attributable to$89.1 million from first lien secured debt and$16.4 million from other investments. The increase in investment income compared to the same periods in the prior year was primarily due to an increase in the size of our portfolio as well as the increase in LIBOR and SOFR indices. Investment income for the year endedSeptember 30, 2021 was$82.7 million and was attributable to$72.1 million from first lien secured debt and$10.6 million from other investments. Expenses Expenses for the year endedSeptember 30, 2022 totaled$56.9 million . Base management fee for the same period totaled$11.9 million , incentive fee totaled$11.6 million , debt related interest and expenses totaled$29.8 million (including$0.4 million attributable to fees associated with the upsizing of the credit facility), general and administrative expenses totaled$3.2 million and provision for taxes totaled$0.4 million . The increase in expenses compared to the prior year was primarily due to a decrease in management fees under our Investment Management Agreement with the Investment Advisor and debt related interest and expenses. Expenses for the year endedSeptember 30, 2021 totaled$43.1 million . Base management fee for the same period totaled$10.7 million , incentive fee totaled$5.3 million , debt related interest and expenses totaled$24.5 million (including$2.9 million attributable to fees associated with entering into the New Credit Facility amendment fees) general and administrative expenses totaled$2.1 million and provision for taxes totaled$0.4 million .
Net Investment Income
Net investment income totaled$48.6 million , or$1.18 per share, and$39.6 million , or$1.02 per share, for the years endedSeptember 30, 2022 and 2021, respectively. The increase in net investment income compared to the prior year was primarily due to an increase in the size of our portfolio as well as the increase in LIBOR and SOFR indices.
Net Realized Gains or Losses
Sales and repayments of investments for the years endedSeptember 30, 2022 and 2021 totaled$495.2 million and$702.1 million , respectively. Net realized losses totaled$(11.1) million and$12.8 million for the same periods, respectively. The change in realized gains (losses) was primarily due to changes in market conditions of our investments and the values at which they were realized, caused by the fluctuations in the market and in the economy, as discussed above under "Forward-Looking Statements".
Unrealized Appreciation or Depreciation on Investments, the Credit Facility and the 2023 Notes
For the years endedSeptember 30, 2022 and 2021, we reported net change in unrealized appreciation (depreciation) on investments of$(24.5) million and$41.3 million , respectively. As ofSeptember 30, 2022 and 2021, our net unrealized appreciation (depreciation) on investments totaled$(13.1) million and$11.0 million , respectively. The net change in unrealized appreciation/depreciation on our investments for the year endedSeptember 30, 2022 compared to the prior year was primarily due to changes in the capital market conditions of our investments and the values at which they were realized, caused by the fluctuations in the market and in the economy, as discussed above under the "Forward-Looking Statements" section above. For the year endedSeptember 30, 2022 and 2021, the Credit Facility or Prior Credit Facility, as applicable, and the 2023 Notes had a net change in unrealized (appreciation) depreciation of$(4.9) million and$(11.6) million and, respectively. As ofSeptember 30, 2022 and 2021, our net unrealized depreciation on the Credit Facility or our Prior Credit Facility, as applicable, and the 2023 Notes totaled$2.3 million and$7.2 million , respectively. The net change in unrealized depreciation for the year endedSeptember 30, 2022 compared to the prior year was primarily due to changes in the capital markets, with the economic instability negatively affecting the value, as further discussed above under "Forward-Looking Statements".
Net Change in Net Assets Resulting from Operations
Net change in net assets resulting from operations totaled$3.5 million , or$0.08 per share, and$56.5 million , or$1.46 per share, for the years endedSeptember 30, 2022 and 2021, respectively. The decrease in net assets from operations for the year endedSeptember 30, 2022 compared to the prior year was primarily due to depreciation of the portfolio primarily driven by changes in market conditions, as discussed above under "Forward-Looking Statements".
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. As ofSeptember 30, 2022 , in accordance with the 1940 Act, with certain limited exceptions, we are only allowed to borrow amounts such that we are in compliance with a 150% asset coverage ratio requirement after such borrowing. For information regarding liquidity and capital resources for the year endedSeptember 30, 2020 , see the Company's Form 10-K for the fiscal year endedSeptember 30, 2021 , as filed with theSEC onNovember 18, 2021 . OnApril 5, 2018 , our board of directors approved the application 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 SBCAA). As a result, the asset coverage requirement applicable to us for senior securities was reduced from 200% (i.e.,$1 of debt outstanding for each$1 of equity) to 150% (i.e.,$2 of debt outstanding for each$1 of equity), effective as ofApril 5, 2019 , subject to compliance with certain disclosure requirements. As ofSeptember 30, 2022 and 2021, our asset coverage ratio, as computed in accordance with the 1940 Act, was 178%% and 175%, respectively. The annualized weighted average cost of debt for the years endedSeptember 30, 2022 and 2021, inclusive of the fee on the undrawn commitment on the Credit Facility or Prior Credit Facility, as applicable, amendment costs and debt issuance costs, was 4.5% and 3.9%, respectively. As ofSeptember 30, 2022 and 2021, we had 46 --------------------------------------------------------------------------------$197.2 million and$80.6 million of unused borrowing capacity under the Credit Facility or our Prior Credit Facility, as applicable, respectively, subject to leverage and borrowing base restrictions. Funding I's multi-currency Credit Facility with the Lenders was$366 million as ofSeptember 30, 2022 , subject to satisfaction of certain conditions and regulatory restrictions that the 1940 Act imposes on us as a BDC, has an interest rate spread above SOFR (or an alternative risk-free floating interest rate index) of 225 basis points, a maturity date ofAugust 2026 and a revolving period that ends inAugust 2024 . As ofSeptember 30, 2022 and 2021, Funding I had$168.8 million and$219.4 million of outstanding borrowings under the Credit Facility or the Prior Credit Facility, as applicable, respectively. The Credit Facility or the Prior Credit Facility, as applicable, had a weighted average interest rate of 4.5% and 2.3%, exclusive of the fee on undrawn commitments, as ofSeptember 30, 2022 and 2021, respectively. During the revolving period, the Credit Facility bears interest at SOFR (or an alternative risk-free floating interest rate index) plus 225 basis points and, after the revolving period, the rate will reset to Base Rate (or an alternative risk-free floating interest rate index) plus 250 basis points for the remaining two years, maturing inAugust 2026 . The Credit Facility is secured by all of the assets ofFunding I. Both PennantPark Floating Rate Capital Ltd. and Funding I have made customary representations and warranties and are required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities. The Credit Facility contains covenants, including, but not limited to, restrictions of loan size, currency types and amounts, industry requirements, average life of loans, geographic and individual portfolio concentrations, minimum portfolio yield and loan payment frequency. Additionally, the Credit Facility requires the maintenance of a minimum equity investment in Funding I and income ratio as well as restrictions on certain payments and issuance of debt. The Credit Facility compliance reporting is prepared on a basis of accounting other than GAAP. As ofSeptember 30, 2022 , we were in compliance with the covenants relating to the Credit Facility. We own 100% of the equity interest in Funding I and treat the indebtedness of Funding I as our leverage. Our Investment Adviser serves as collateral manager to Funding I under the Credit Facility. Our interest in Funding I (other than the management fee) is subordinate in priority of payment to every other obligation of Funding I and is subject to certain payment restrictions set forth in the Credit Facility. We may receive cash distributions on our equity interests in Funding I only after it has made (1) all required cash interest and, if applicable, principal payments to the Lenders, (2) required administrative expenses and (3) claims of other unsecured creditors of Funding I. We cannot assure you that there will be sufficient funds available to make any distributions to us or that such distributions will meet our expectations from Funding I. The Investment Adviser has irrevocably directed that the management fee owed with respect to such services is to be paid to the Company so long as the Investment Adviser remains the collateral manager. InNovember 2017 , we issued$138.6 million of our 2023 Notes. The 2023 Notes were issued pursuant to a deed of trust between the Company andMishmeret Trust Company, Ltd. as trustee, of which$97.0 million and$117.8 million was outstanding as ofSeptember 30, 2022 andSeptember 30, 2021 , respectively. The 2023 Notes pay interest at a rate of 4.3% per year. Interest on the 2023 Notes is payable semi-annually in arrears onJune 15 andDecember 15 of each year, commencingJune 15, 2018 . The principal on the 2023 Notes will be payable in four annual installments as follows: 15% of the original principal amount onDecember 15, 2020 , 15% of the original principal amount onDecember 15, 2021 , 15% of the original principal amount onDecember 15, 2022 and 55% of the original principal amount onDecember 15, 2023 . The 2023 Notes are general, unsecured obligations, rank equal in right of payment with all of our existing and future senior unsecured indebtedness and are generally redeemable at our option. The deed of trust governing the 2023 Notes includes certain customary covenants, including minimum equity requirements, and events of default. Please refer to the deed of trust filed as Exhibit (d)(8) to our post-effective amendment filed onDecember 13, 2017 for more information. The 2023 Notes are rated ilA- byS&P Global Ratings Maalot Ltd. and are listed on the TASE. In connection with this offering, we have dual listed our common stock on the TASE. The 2023 Notes have not been and will not be registered under the Securities Act and may not be offered or sold inthe United States absent registration under the Securities Act or in transactions exempt from, or not subject to, such registration requirements. InMarch 2021 and inOctober 2021 , we issued$100.0 million and$85.0 million , respectively, in aggregate principal amount of our 2026 Notes at a public offering price per note of 99.4% and 101.5%, respectively. Interest on the 2026 Notes is paid semi-annually onApril 1 andOctober 1 of each year, at a rate of 4.25% per year, commencingOctober 1, 2021 . The 2026 Notes mature onApril 1, 2026 and may be redeemed in whole or in part at our option subject to a make-whole premium if redeemed more than three months prior to maturity. The 2026 Notes are our general, unsecured obligations and rank equal in right of payment with all of our existing and future senior unsecured indebtedness. The 2026 Notes are effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, financing vehicles, or similar facilities. We do not intend to list the 2026 Notes on any securities exchange or automated dealer quotation system. InSeptember 2019 , the Securitization Issuers completed the Debt Securitization. The 2031 Asset-Backed Debt is secured by the middle market loans, participation interests in middle market loans and other assets of the Securitization Issuer. The Debt Securitization was executed through (A) a private placement of: (i)$78.5 million Class A-1 Senior Secured Floating Rate Notes maturing 2031, which bear interest at the three-month LIBOR plus 1.8%, (ii)$15.0 million Class A-2 Senior Secured Fixed Rate Notes due 2031, which bear interest at 3.7%, (iii)$14.0 million Class B-1 Senior Secured Floating Rate Notes due 2031, which bear interest at the three-month LIBOR plus 2.9%, (iv)$16.0 million Class B-2 Senior Secured Fixed Rate Notes due 2031, which bear interest at 4.3%, (v)$19.0 million Class C1 Secured Deferrable Floating Rate Notes due 2031, which bear interest at the three-month LIBOR plus 4.0%, (vi)$8.0 million Class C-2 Secured Deferrable Fixed Rate Notes due 2031, which bear interest at 5.4%, and (vii)$18.0 million Class D Secured Deferrable Floating Rate Notes due 2031, which bear interest at the three-month LIBOR plus 4.8% and (B) the borrowing of$77.5 million Class A1 Senior Secured Floating Rate Loans due 2031, which bear interest at the three-month LIBOR plus 1.8%, under a credit agreement by and among the Securitization Issuers, as borrowers, various financial institutions, as lenders, andU.S. Bank National Association , as collateral agent and as loan agent. The 2031 Asset-Backed Debt is scheduled to mature onOctober 15, 2031 . As of bothSeptember 30, 2022 and 2021, the Company had$228.0 million , respectively, of 2031 Asset-Backed Debt outstanding with a weighted average interest rate of 4.6% and 2.6%, respectively. On the closing date of the Debt Securitization, in consideration of our transfer to the Securitization Issuer of the initial closing date loan portfolio, which included loans distributed to us by our wholly-owned subsidiary, the Securitization Issuer transferred to us 100% of the Preferred Shares of the Securitization Issuer, 100% of the Class D Secured Deferrable Floating Rate Notes issued by the Securitization Issuer, and a portion of the net cash proceeds received from the sale of the 2031 Asset-Backed Debt. The Preferred Shares of the Securitization Issuer do not bear interest and had a stated value of$55.4 million at the closing of the Debt Securitization. The 2031 Asset-Backed Debt constitutes secured obligations of the Securitization Issuers, and the indenture governing the 2031 Asset-Backed Debt includes customary covenants and events of default. The 2031 Asset-Backed Debt has not been, and will not be, registered under the Securities Act or any state securities or "blue sky" laws and may not be offered or sold inthe United States absent registration with theSEC or an applicable exemption from registration. Our Investment Adviser serves as collateral manager to the Securitization Issuer pursuant to a collateral management agreement between our Investment Adviser and the Securitization Issuer, or the Collateral Management Agreement. For so long as our Investment Adviser serves as collateral manager, it will elect to irrevocably waive any collateral management fee to which it may be entitled under the Collateral Management Agreement. OnAugust 20, 2021 , we entered into equity distribution agreements (together, as may be amended from time to time, the "Equity Distribution Agreements") with each ofJMP Securities LLC andRaymond James & Associates, Inc. , as the sales agents (each, a "Sales Agent," and together, the "Sales Agents"), in connection with the 47 -------------------------------------------------------------------------------- sale of shares of our common stock, par value$0.001 per share (the "Common Stock"), with an aggregate offering price of up to$75 million under an at-the-market offering (the "ATM Program"). OnMay 5, 2022 , we amended the Equity Distribution Agreements to update references from NASDAQ to NYSE and reflect that the agents are now represented byKirkland & Ellis LLP . The Equity Distribution Agreements provide that we may offer and sell shares of our Common Stock from time to time through a Sales Agent in amounts and at times to be determined by us. Actual sales will depend on a variety of factors to be determined by us from time to time, including, market conditions and the trading price of our Common Stock. During the years endedSeptember 30, 2022 , and 2021we issued 2,464,910 and 108,654 shares of our Common Stock, respectively, under the ATM Program at a weighted-average price of$13.12 and$12.91 per share, respectively, raising$32.3 million and$1.4 million of gross proceeds, respectively. For the same time period, net proceeds were$31.9 million and$1.4 million , respectively, after commissions to the Sales Agents on shares sold. We incurred$0.1 million and$0.4 million , respectively, of legal and other offering costs associated with establishing the ATM Program. As ofSeptember 30, 2022 , and 2021, we had$41.3 million and$73.6 million available under the ATM Program. Since inception of the ATM Program throughSeptember 30, 2022 , we issued 2,573,564 shares of our Common Stock under the ATM Program at a weighted-average price of$13.11 , raising$33.7 million of gross proceeds. Net proceeds were$33.2 million after commissions to the Sales Agents on shares sold. We incurred$0.5 million of legal and other offering costs associated with establishing the ATM Program. We may raise equity or debt capital through both registered offerings off our shelf registration statement and private offerings of securities, securitizing a portion of our investments among other considerations or mergers and acquisitions. Furthermore, the Credit Facility availability depends on various covenants and restrictions as discussed in the preceding paragraphs. The primary use of existing funds and any funds raised in the future is expected to be for repayment of indebtedness, investments in portfolio companies, cash distributions to our stockholders or for other general corporate purposes. We have entered into certain contracts under which we have material future commitments. Under our Investment Management Agreement, which was most recently reapproved by our board of directors, including a majority of our directors who are not interested persons of us or the Investment Adviser, inFebruary 2021 , PennantPark Investment Advisers serves as our investment adviser. Payments under our Investment Management Agreement in each reporting period are equal to (1) a management fee equal to a percentage of the value of our average adjusted gross assets and (2) an incentive fee based on our performance. Under our Administration Agreement, which was most recently reapproved by our board of directors, including a majority of our directors who are not interested persons of us, inFebruary 2022 , the Administrator furnishes us with office facilities and administrative services necessary to conduct our day-to-day operations. The Administration Agreement was amended onJuly 1, 2022 . If requested to provide significant managerial assistance to our portfolio companies, we or the Administrator will be paid an additional amount based on the services provided. Payment under our Administration Agreement is based upon our allocable portion of the Administrator's overhead in performing its obligations under our Administration Agreement, including rent and our allocable portion of the costs of our Chief Compliance Officer, Chief Financial Officer, Corporate Counsel and their respective staffs. If any of our contractual obligations discussed above are terminated, our costs under new agreements that we enter into may increase. In addition, we will likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under our Investment Management Agreement and our Administration Agreement. Any new investment management agreement would also be subject to approval by our stockholders. As ofSeptember 30, 2022 and 2021, we had cash equivalents of$47.9 million and$49.8 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$50.0 million for the year endedSeptember 30, 2022 , and our financing activities provided cash of$47.7 million for the same period. Our operating activities used cash primarily for our investment activities and our financing activities used cash primarily for paying down the Credit Facility and paying distributions to stockholders. Our operating activities provided cash of$49.6 million for the year endedSeptember 30, 2021 , and our financing activities used cash of$56.3 million for the same period. Our operating activities used cash primarily for our investment activities and our financing activities used cash primarily for paying down the Credit Facility and paying distributions to stockholders. 48
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Information about our senior securities is shown in the following table as ofSeptember 30, 2022 , 2021, 2020, 2019, 2018, 2017, 2016, 2015, 2014 and 2013. The report ofRSM US LLP , an independent registered public accounting firm, on theSenior Securities table as ofSeptember 30, 2022 , is attached as an exhibit to this Report. Average Total Amount Asset Coverage Market Value Class and Year Outstanding (1) Per Unit (2) Per Unit (3) Credit Facility Fiscal 2022 $ 168,830 $ 1,776 N/A Fiscal 2021 219,400 1,746 N/A Fiscal 2020 308,599 1,677 N/A Fiscal 2019 265,308 1,786 N/A Fiscal 2018 333,728 2,122 N/A Fiscal 2017 253,783 2,780 N/A Fiscal 2016 232,908 2,601 N/A Fiscal 2015 29,600 13,598 N/A Fiscal 2014 146,400 2,469 N/A Fiscal 2013 99,600 3,109 N/A 2023 Notes Fiscal 2022 $ 97,006 $ 1,776 Fiscal 2021 117,793 1,746 N/A Fiscal 2020 138,580 1,677 N/A Fiscal 2019 138,580 1,786 N/A Fiscal 2018 138,580 2,122 N/A 2026 Notes Fiscal 2022 $ 185,000 $ 1,776 N/A Fiscal 2021 100,000 1,746 N/A 2031 Asset-Backed Debt Fiscal 2022 $ 228,000 $ 1,776 N/A Fiscal 2021 228,000 1,746 N/A Fiscal 2020 228,000 1,677 N/A Fiscal 2019 228,000 1,786 N/A
(1) Total cost of each class of senior securities outstanding at the end of the
period presented in thousands (000s).
(2) The asset coverage ratio for a class of senior securities representing
indebtedness is calculated as our consolidated total assets, less all
liabilities and indebtedness not represented by senior securities, divided
by senior securities representing indebtedness at par. This asset coverage
ratio is multiplied by
(3) Not applicable, as senior securities are not registered for public trading
in
InMay 2017 , we and Kemper formed PSSL, an unconsolidated joint venture. PSSL invests primarily in middle-market and other corporate debt securities consistent with our strategy. PSSL was formed as aDelaware limited liability company. As ofSeptember 30, 2022 and 2021, PSSL had total assets of$796.8 million and$603.6 million , respectively. As ofSeptember 30, 2022 , at fair value, the largest investment in a single portfolio company in PSSL was$19.3 million and the five largest investments totaled$86.9 million . As ofSeptember 30, 2021 , at fair value, the largest investment in a single portfolio company in PSSL was$18.9 million and the five largest investments totaled$84.3 million . PSSL invests in portfolio companies in the same industries in which we may directly invest. We provide capital to PSSL in the form of first lien secured debt and equity interests. As ofSeptember 30, 2022 and 2021, we and Kemper owned 87.5% and 12.5%, respectively, of each of the outstanding first lien secured debt and equity interests. As of the same dates, our investment in PSSL consisted of first lien secured debt of$190.2 million (additional$19.9 million unfunded) and$140.9 million (additional$29.4 million unfunded), respectively, and equity interests of$81.5 million (additional$8.5 million unfunded) and$60.4 million (additional$12.6 million unfunded), respectively. We and Kemper each appointed two members to PSSL's four-person board of directors and investment committee. All material decisions with respect to PSSL, including those involving its investment portfolio, require unanimous approval of a quorum of the board of directors or investment committee. Quorum is defined as (i) the presence of two members of the board of directors or investment committee, provided that at least one individual is present that was elected, designated or appointed by each member; (ii) the presence of three members of the board of directors or investment committee, provided that the individual that was elected, designated or appointed by the member with only one individual present shall be entitled to cast two votes on each matter; and (iii) the presence of four members of the board of directors or investment committee shall constitute a quorum, provided that two individuals are present that were elected, designated or appointed by each member. InMay 2022 PSSL entered into a$325.0 million (increased from$225.0 million inMay 2022 ) senior secured revolving credit facility which bears interest at daily simple SOFR plus 260 basis points (including a spread adjustment) withAlly Bank through its wholly-owned subsidiary, PennantPark Senior Secured Loan Facility LLC II, or PSSL Subsidiary II, subject to leverage and borrowing base restrictions. InJanuary 2021 , PSSL completed a$300.7 million debt securitization in the form of a collateralized loan obligation, or the "2032 Asset-Backed Debt". The 2032 Asset-Backed Debt is secured by a diversified portfolio ofPennantPark CLO II, Ltd. , a wholly-owned and consolidated subsidiary of PSSL, consisting primarily of middle market loans and participation interests in middle market loans. The 2032 Asset-Backed Debt is scheduled to mature inJanuary 2032 . On the closing date of the transaction, in consideration of PSSL's transfer toPennantPark CLO II, Ltd. of the initial closing date loan portfolio, which included loans distributed to PSSL by certain of its wholly owned subsidiaries and us,PennantPark CLO II, Ltd. transferred to PSSL 100% of the Preferred Shares ofPennantPark CLO II, Ltd. and 100% of the ClassE Notes issued byPennantPark CLO II, Ltd. 49
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Below is a summary of PSSL's portfolio at fair value ($ in thousands):
September 30, September 30,
($ in thousands) 2022 2021
Total investments $ 754,722 $ 564,783
Weighted average cost yield on income producing
investments 9.6 % 7.1 %
Number of portfolio companies in PSSL 95 74
Largest portfolio company investment $ 19,250
50--------------------------------------------------------------------------------
Below is a listing of PSSL's individual investments as ofSeptember 30, 2022 (par and $ in thousands): Basis Point Current Spread Above Fair Issuer Name Maturity Coupon Index (1) Par Cost Value (2) First Lien Secured Debt - 1,330.4% Ad.net Acquisition, LLC 5/6/2026 Media 9.67 %
3M L+600 8,888
Containers and
Corp II 11/30/2026 Packaging 8.22 % SOFR+600 9,975 9,790 9,576
Altamira Technologies,
LLC 7/24/2025 Business Services 10.81 % 3M L+800 5,225 5,113 5,042
American Insulated
Glass, LLC 12/21/2023 Building Products 7.79 % 3M L+550 4,883 4,851 4,883
Media:
Advertising,
Anteriad, LLC (f/k/a Printing &
MeritDirect, LLC) 5/23/2024 Publishing 9.67 % 3M L+550 5,284 5,208 5,284
Professional
Any Hour Services 7/21/2027 Services 8.33 %
3M L+525 3,510 3,441 3,440
Diversified
LLC 7/31/2025 Consumer Services 6.72 %
1M L+525 1,010 1,010 1,005
Diversified
LLC Term Loan B 7/31/2025 Consumer Services 9.67 %
3M L+625 2,202 2,202 2,191
Diversified
LLC Term Loan C 7/31/2025 Consumer Services 7.86 % 3M L+525 11,115 11,050 11,059
Commercial
Applied Technical Services &
Services, LLC 12/29/2026 Supplies 8.76 % 3M L+575 8,421 8,317 8,211 Arcfield Acquisition
Aerospace and
Corp. 3/7/2028 Defense 8.99 % SOFR + 575 4,677 4,588 4,583
Beta Plus
Technologies, Inc. 7/1/2029 Business Services 7.76 %
SOFR + 525 5,000 4,903 4,900
8.62 %
SOFR + 500 15,293 15,102 14,956
7.39 % 3M L+600 2,417 2,417 2,417 By Light Professional
High Tech
IT Services, LLC 5/16/2024 Industries 9.20 % 1M L+662 14,822 14,771 14,674
Aerospace and
Cadence Aerospace, LLC 11/14/2023 Defense 11.31 % 3M L+325 12,412 12,385 12,288
(PIK 11.31%)
Cartessa Aesthetics,
LLC 5/13/2028 Distributors 9.55 % SOFR + 600 6,484 6,359 6,386
CF512, Inc. 8/20/2026 Media 9.08 % 3M L+600 4,950 4,866 4,876
Construction and
CHA Holdings, Inc. 4/10/2025 Engineering 8.17 %
3M L+450 5,557 5,487 5,557
9.27 % 1M L+575 9,271 9,247 8,993
(PIK 1.00%)
Connatix Buyer, Inc. 7/13/2027 Media 8.42 % 3M L+550 3,907 3,842 3,810
Commercial
Services &
Crane 1 Services, Inc. 8/16/2027 Supplies 9.39 % 3M L+575 2,110 2,084 2,089
Chemicals,
Douglas Products and Plastics and
Packaging Company LLC 10/19/2022 Rubber 8.87 % 3M L+575 8,655 8,653 8,655
Chemicals,
Douglas Sewer Plastics and
Intermediate, LLC 10/19/2022 Rubber 8.87 %
3M L+575 7,248 7,246 7,248
9.42 %
3M L+575 14,862 14,610 14,639
8.37 %
1M L+525 1,832 1,680 1,643
Consumer Goods:
11/3/2025 Durable 8.87 %
1M L+575 15,179 15,103 14,693
Containers and
LLC 6/30/2024 Packaging 8.62 % 1M L+550 10,278 10,151 10,031
Hotels,
Restaurants and
ECL Entertainment, LLC 5/1/2028 Leisure 10.62 % 3M L+750 2,621 2,598 2,581
Electronic
Equipment,
Instruments, and
ECM Industries, LLC 12/23/2025 Components 7.82 % 3M L+475 4,974 4,974 4,738
Exigo Intermediate II,
LLC 3/15/2027 Software 8.87 % 1M L+575 12,935 12,759 12,644
Fairbanks Morse Aerospace and
Defense 6/17/2028 Defense 8.39 % 3M L+475 10,300 10,238 9,528
Gantech Acquisition
Corp. 5/14/2026 IT Services 9.37 % 1M L+625 14,638 14,427 14,199
Diversified
Global Holdings Financial
InterCo LLC 3/16/2026 Services 8.74 % 3M L+600 3,904 3,888 3,728
Trading Companies
Graffiti Buyer, Inc. 8/10/2027 & Distributors 9.17 %
3M L+550 2,369 2,320 2,274
8.67 %
1M L+500 2,392 2,347 2,356
Aerospace and
Intermediate, LLC 11/23/2028 Defense 10.17 %
3M L+600 4,963 4,874 4,863
12/10/2024 Media 6.00 %
6M L+575 3,052 3,006 3,014
7.55 % 3M L+450 2,327 1,997 1,701
Healthcare
IDC Infusion Services, Equipment and
Inc. 12/30/2026 Supplies 10.20 %
SOFR+700 9,950 9,833 9,502
11/15/2027 Software 8.42 % 1M L+550 5,364 5,261 5,230
Healthcare
Inception Fertility Providers and
Ventures, LLC 12/7/2023 Services 8.55 % SOFR+700 16,620 16,309 16,454 Integrative Nutrition,
Diversified
LLC 9/29/2023 Consumer Services 8.42 %
3M L+475 11,187 11,168 10,963
7.58 %
1M L+550 5,966 5,885 5,906
8.67 %
SOFR + 550 3,980 3,917 3,900
Chemicals,
NoCal, L.P. Plastics and
12/20/2023 Rubber 11.12 %
1M L+800 19,250 19,103 19,250
9.67 %
3M L+600 16,830 16,451 16,494
2/18/2027 Personal Products 11.17 % 3M L+700 14,355 14,074 14,068
LAV Gear Holdings ,
Inc. 10/31/2024 Capital Equipment 9.70 % 3M L+550 10,578 10,539 10,335
(PIK 2.00%)
Healthcare
Providers and
Lightspeed Buyer Inc. 2/3/2026 Services 9.04 % 3M L+575 10,598 10,428 10,254
Hotel, Gaming and
Lucky Bucks, LLC 7/20/2027 Leisure 8.31 %
3M L+550 4,331 4,258 3,183
7.87 % 1M L+475 2,695 2,539 2,425
Marketplace Events, Media:
LLC - Super Priority Diversified and
First Lien Term Loan 9/30/2025 Production 8.19 % 1M L+525 647 647 647
Marketplace Events,
LLC - Super Priority Media:
First Lien Unfunded Diversified and
Term Loan 9/30/2025 Production 589 - -
Media:
Marketplace Events, Diversified and
LLC 9/30/2026 Production 8.19 % 1M L+525 4,837 3,527 4,837
Mars Acquisition
Holdings Corp. 5/14/2026 Media 8.62 % 1M L+550 9,900 9,782 9,851
Internet Software
MBS Holdings, Inc. 4/16/2027 and Services 8.56 % 3M L+575 7,406 7,296 7,332
Chemicals,
Plastics and
MDI Buyer, Inc. 7/25/2028 Rubber 8.98 % 3M L+500 5,000 4,902 4,900 Meadowlark Acquirer,
Professional
LLC 12/10/2027 Services 9.17 % 3M L+650 2,396 2,353 2,372
Mission Critical
Electronics, Inc. 3/28/2024 Capital Equipment 8.70 % SOFR+500 5,829 5,817 5,759
Municipal Emergency
Services, Inc. 9/28/2027 Distributors 8.67 % 3M L+500 3,465 3,405 3,264
Healthcare,
Education &
NBH Group LLC 8/19/2026 Childcare 7.80 % 1M L+550 10,820 10,641 10,820
Consumer Goods:
New Milani Group LLC 6/6/2024 Non-Durable 7.75 % 3M L+500 14,363 14,319 14,111
Healthcare
OIS Management Equipment and
Services, LLC 7/9/2026 Supplies 8.40 % SOFR+475 5,060 4,991 5,060
Air Freight and
One Stop Mailing, LLC 5/7/2027 Logistics 9.37 %
1M L+625 14,598 14,353 14,160
3/27/2024 Business Services 9.80 % 3M L+425 7,682 7,676 5,838
Professional
Owl Acquisition, LLC 2/4/2028 Services 8.41 % 3M L+575 3,990 3,918 3,890
Construction and
Ox Two, LLC 5/18/2026 Building 9.81 % 3M L+600 4,925 4,866 4,827
PH Beauty Holdings
III, Inc. 9/29/2025 Wholesale 8.07 % 1M L+500 9,593 9,234 7,674
Textiles, Apparel
PL Acquisitionco, LLC 11/9/2027 and Luxury Goods 9.62 % 1M L+650 8,238 8,111 8,032
Chemicals,
Plant Health Plastics and
Intermediate, Inc. 10/19/2022 Rubber 8.87 % 3M L+575 1,562 1,561 1,562
Consumer Goods:
PlayPower, Inc. 5/8/2026 Durable 9.17 %
3M L+550 2,580 2,500 2,309
7/6/2028 Education 9.30 %
SOFR+575 11,250 11,056 11,138
Aerospace and
LLC 11/19/2026 Defense 8.41 %
1M L+625 4,845 4,755 4,729
Aerospace and
Loan 11/19/2026 Defense 1M L+625 1,888 - -
Reception Purchaser, Air Freight and
LLC 2/28/2028 Logistics 9.13 %
SOFR+600 4,975 4,904 4,751
1/29/2026 Leisure Products 9.92 %
3M L+600 4,925 4,856 4,753
Diversified
LLC and Dynata, LLC 12/20/2024 Consumer Services 8.84 % 3M L+550 12,564 12,354 11,291
51--------------------------------------------------------------------------------
Below is a listing of PSSL's individual investments as ofSeptember 30, 2022 (continued): Basis Point Spread Current Above Par / Issuer Name Maturity Industry Coupon Index (1) Shares Cost Fair Value (2) Sales Benchmark Index Professional LLC 1/3/2025 Services 9.67 % 3M L+600 5,013$ 4,960 $ 4,963 Sargent & Greenleaf Inc. 12/20/2024 Wholesale 8.62 % 3M L+550 5,240 5,202 5,187 Schlesinger Global, Inc. 7/14/2025 Business Services 10.27 % SOFR+500 11,847 11,829 11,551 (PIK 0.50%) Sigma Defense Systems, Aerospace and LLC 12/18/2025 Defense 12.17 % 1M L+850 14,716 14,411 14,421 Healthcare and Smile Brands Inc. 10/14/2025 Pharmaceuticals 7.05 % 3M L+450 11,917 11,807 11,470 Healthcare and Solutionreach, Inc. 1/17/2024 Pharmaceuticals 8.87 % 1M L+575 5,647 5,625 5,511 Healthcare Spendmend Holdings LLC 3/1/2028 Technology 8.63 % SOFR+575 2,956 2,916 2,873 Construction and STV Group Incorporated 12/11/2026 Building 8.37 % 3M L+525 9,075 9,011 8,985 System Planning andAnalysis, Inc. (f/k/a Management Consulting & Aerospace and Research, LLC) 8/16/2027 Defense 8.73 % SOFR+600 14,888 14,623 14,649 Teneo Holdings LLC 7/18/2025 Business Services 8.38 % 3M L+625 2,786 2,757 2,623 The Aegis Technologies Aerospace and Group, LLC 10/31/2025 Defense 9.55 % 3M L+500 5,659 5,600 5,603 Professional The Bluebird Group LLC 7/27/2026 Services 10.67 % 1M L+700 1,707 1,679 1,724 Media: Broadcasting and The Infosoft Group, LLC 9/16/2024 Subscription 8.47 % 3M L+525 12,957 12,952 12,859 The Vertex Companies, Construction and LLC 8/30/2027 Engineering 8.62 % 1M L+550 5,578 5,479 5,550 TPC Canada Parent, Inc. Consumer Goods: and TPC US Parent, LLC 11/24/2025 Non-Durable 8.30 % 3M L+475 8,744 8,604 8,482 Diversified TVC Enterprises, LLC 3/26/2026 Consumer Services 8.87 % 3M L+550 14,952 14,871 14,578 TWS Acquisition Diversified Corporation 6/16/2025 Consumer Services 8.76 % 3M L+625 5,468 5,450 5,441Tyto Athene, LLC (New Issue) 4/1/2028 IT Services 7.76 % 3M L+550 15,550 15,421 14,446 UBEO, LLC 4/3/2024 Capital Equipment 8.17 % 3M L+450 17,390 17,305 17,129 Home and Office Unique Indoor Comfort, Furnishings, LLC 5/24/2027 Housewares 8.95 % SOFR+525 4,975 4,880 4,866Walker Edison Furniture Company LLC 3/31/2027 Wholesale 12.42 % 3M L+575 12,684 12,438 8,473 (PIK 3.0%) Electronic Equipment, Instruments, and Wildcat Buyerco, Inc. 2/27/2026 Components 9.45 % SOFR+550 8,546 8,506 8,261 Zips Car Wash, LLC 3/1/2024 Automobiles 10.35 % 3M L+725 16,957 16,711 16,533 Total First Lien Secured Debt 767,316 751,627 Second Lien Secured Debt - 5.0% Consumer Goods: Inventus Power, Inc. 9/29/2024 Durable 12.17 % 3M L+850 3,000 2,963 2,955 Total Second Lien Secured Debt 2,963 2,955 Equity Securities - 0.4% - Media: Diversified - New MPE Holdings, LLC and Production - - - 139Total Equity Securities - 139 Total Investments - 1,335.9% 770,280 754,722 Cash and Cash Equivalents - 59.7% BlackRock Federal FD 33,705 Institutional 30 33,725 Total Cash and Cash Equivalents 33,725 33,705 Total Investments and Cash Equivalents -1,329.0%$ 804,005 $ 788,427 Liabilities in Excess of Other Assets - (1,229.0)% (731,931 ) Members' Equity-100.0% $ 56,496 (1) Represents floating rate instruments that accrue interest at a predetermined spread relative to an index, typically the applicable LIBOR or "L" or Prime rate or "P". The spread may change based on the type of rate used. The terms in the Schedule of Investments disclose the actual interest rate in effect as of the reporting period. LIBOR loans are typically indexed to a 30-day, 60-day, 90-day or 180-day LIBOR rate (1M L, 2M L, 3M L, or 6M L, respectively), at the borrower's option. All securities are subject to a LIBOR or Prime rate floor where a spread is provided, unless noted. The spread provided includes PIK interest and other fee rates, if any.
(2)
Valued based on PSSL's accounting policy.
(3)
Non-income producing security.
52
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Below is a listing of PSSL's individual investments as of September 30, 2021
(Par and $ in thousands):
Basis
Point
Spread
Above
Current Index Fair
Issuer Name Maturity Industry Coupon (1) Par Cost Value (2)
First Lien Secured
Debt - 1,088.%
Ad.net Acquisition, 3M
LLC 05/06/2026 Media 7.00 % L+600 8,978 $ 8,852 $ 8,843
Altamira Technologies, 3M
LLC 07/24/2025 Business Services 8.00 % L+700 5,525 5,376 5,180
American Insulated 3M
Glass, LLC 12/21/2023 Building Products 6.50 % L+550 5,721 5,653 5,663
Apex Service Partners, Diversified 3M
LLC 07/31/2025 Consumer Services 6.25 % L+525 1,021 1,021 1,010 Apex Service Partners, Diversified
1M
LLC Term Loan B 07/31/2025 Consumer Services 6.50 % L+550 2,222 2,222 2,200
Apex Service Partners, Diversified 3M
LLC Term Loan C 07/31/2025 Consumer Services 6.25 % L+525 4,174 4,103 4,132
Commercial
Applied Technical Services & 3M
Services, LLC 12/29/2026 Supplies 6.75 % L+575 4,511 4,419 4,421
By Light Professional High Tech 1M
IT Services, LLC 05/16/2022 Industries 7.25 % L+625 12,880 12,869 12,880
Aerospace and 3M
Cadence Aerospace, LLC 11/14/2023 Defense 9.50 % L+850 12,282 12,231 11,981
P(IK 9.50%)
Healthcare,
Education & 3M
Cano Health 11/23/2027 Childcare 5.25 % L+450 2,653 2,647 2,654
Construction and 3M
CHA Holdings, Inc. 04/10/2025 Engineering 5.50 % L+450 5,615 5,519 5,530
Challenger Performance 1M
Optimization, Inc. 08/31/2023 Business Services 8.00 % L+675 9,501 9,454 9,216
P(IK 1.00%)
1M
Connatix Buyer, Inc 07/13/2027 Media 6.25 % L+550 4,000 3,922 3,920
1M
CoolSys, Inc 08/04/2028 Business Services 5.50 % L+475 1,909 1,890 1,914
Commercial
Services & 1M
Crane 1 Services Inc 08/16/2027 Supplies 6.75 % L+575 2,132 2,100 2,110
3M
Crash Champions, LLC 08/05/2025 Automobiles 6.00 % L+500 8,978 8,802 8,798
Digital Room Holdings, Commercial 1M
Inc. Services & L+500
05/22/2026 Supplies 5.08 % 3,228 3,111 3,186
Chemicals,
Douglas Products and Plastics and 3M
Packaging Company LLC 10/19/2022 Rubber 6.75 % L+575 8,746 8,695 8,746
Chemicals,
Douglas Sewer Plastics and 3M
Intermediate, LLC 10/19/2022 Rubber 6.75 % L+575 7,323 7,278 7,323
3M
Dr. Squatch, LLC 8/27/2026 Personal Products 7.00 % L+600 10,000 9,803 9,800
Consumer Goods: 1M
DRS Holdings III, Inc. 11/03/2025 Durable 7.25 % L+625 15,676 15,584 15,566
Hotels,
East Valley Tourist Restaurants and 3M
Development Authority 03/07/2022 Leisure 9.00 %
L+800 5,719 5,624 5,633
P(IK 3.50%)
ECL Entertainment, LLC 03/312028 Hotels, 8.25 % 1M 2,647 2,621 2,707
Restaurants and L+750
Leisure
ECM Industries, LLC 12/23/2025 Electronic 5.50 % 1M 4,994 4,994 4,894
Equipment, L+450
Instruments, and
Components
Aerospace and 3M
Fairbanks More Defense 06/17/2028 Defense 5.50 % L+475 10,000 9,955 10,000
Commercial
Services & 1M
FlexPrint, LLC 01/02/2024 Supplies 6.02 % L+590 4,770 4,732 4,746
Gantech Acquisition 3M
Corp. 05/14/2026 IT Services 7.25 % L+625 14,925 14,648 14,627
Global Holdings Diversified 3M
InterCo LLC 03/16/2026 Financial Services 7.00 % L+600 3,968 3,948 3,948
Trding Companies & 3M
Graffiti Buyer, Inc 08/10/2027 Distributors 6.75 % L+575 2,393 2,346 2,357
Hancock Roofing and 3M
Construction L.L.C. 12/31/2026 Insurance 6.00 % L+500 2,481 2,425 2,456
Holdco Sands Aerospace and 3M
Intermediate, LLC 12/19/2025 Defense 7.50 % L+600 6,474 6,407 6,441
Aerospace and 3M
IMIA Holdings, Inc. 04/09/2027 Defense 6.75 % L+575 13,589 13,338 13,317
Integrative Nutrition, Diversified 3M
LLC 09/29/2023 Consumer Services 5.50 % L+450 11,567 11,528 11,567
Chemicals,
K2 Pure Solutions Plastics and 1M
NoCal, L.P. 12/20/2023 Rubber 8.00 % L+700 19,450 19,193 18,933
LAV Gear Holdings, 3M
Inc. 10/31/2024 Capital Equipment 8.50 % L+750 10,491 10,435 9,833
P(IK 1.00%)
Healthcare
Providers and 1M
Lightspeed Buyer Inc. 02/3/2026 Services 6.75 % L+575 5,707 5,606 5,707
Hotel, Gaming and 1M
Lucky Bucks, LLC 07/20/2027 Leisure 6.25 % L+550 4,500 4,411 4,424 Marketplace Events, Media: Diversified
3M
LLC (3)(4) 09/30/2025 and Production 6.25 % L+525 617 617 617 Super Priority First P(IK 6.25%) Lien Term Loan Marketplace Events, LLC - Super Priority First Lien Unfunded Media: Diversified Term Loan (3)(4) 09/30/2025 and Production - - 589 - - Marketplace Events LLC Media: Diversified
-
(4) 09/30/2026 and Production 0.00 % 4,615 3,441 4,615 Mars Acquisition
1M
Holdings Corp. 05/14/2026 Media 6.50 %
L+550 10,000 9,813 9,900
Internet Software
3M
MBS Holdings, Inc. 04/16/2027 and Services 6.75 % L+575 7,481 7,338 7,332
Media:
Advertising,
Printing & 3M
MeritDirect, LLC 05/23/2024 Publishing 6.50 % L+550 5,532 5,412 5,477
Mission Critical 3M
Electronics, Inc. 09/28/2022 Capital Equipment 6.00 %
L+500 5,890 5,877 5,890
Healthcare,
Education & 3M
NBH Group LLC 08/19/2026 Culture 6.50 %
L+550 10,902 10,687 10,684
Consumer Goods: 1M
New Milani Group LLC 06/06/2024 Non-Durable 6.50 % L+550 14,550 14,481 13,895
Healthcare
OIS Management Equipment and 1M
Services LLC 07/09/2026 Supplies 5.75 % L+475 1,995 1,966 1,965
Air Freight and 1M
One Stop Mailing, LLC 05/07/2027 Logistics 7.25 % L+625 14,920 14,631 14,659
Output Services Group, 1M
Inc. 03/27/2024 Business Services 5.50 % L+450 7,743 7,733 7,047
Construction and 3M
Ox Two, LLC 05/18/2026 Building 7.00 % L+600 4,975 4,901 4,876
PH Beauty Holdings 1M
III, Inc. 09/29/2025 Wholesale 5.12 % L+500 9,693 9,514 9,467
Chemicals,
Plant Health Plastics and 3M
Intermediate, Inc. 10/19/2022 Rubber 6.75 % L+575 1,578 1,568 1,578
Consumer Goods: 3M
PlayPower, Inc. 05/8/2026 Durable 5.63 % L+550 3,805 3,720 3,736
3M
Recteq, LLC 01/29/2026 Leisure Products 7.00 % L+600 4,975 4,888 4,925
Research Now Group ,
Inc. and Survey
Sampling International Diversified 3M
LLC 12/20/2024 Consumer Services 6.50 % L+550 10,680 10,592 10,544
Sales Benchmark Index Professional 3M
LLC 01/03/2025 Services 7.75 % L+600 5,578 5,496 5,439
Sargent & Greenleaf 1M
Inc. 12/20/2024 Wholesale 7.00 % L+550 5,550 5,493 5,550
Schlesinger Global, 3M
Inc. 07/14/2025 Business Services 8.00 % L+700 11,785 11,760 11,254
Healthcare and 3M
Smile Brands Inc. 10/14/2024 Pharmaceuticals 5.32 % L+450 12,576 12,459 12,451
Beverage, Food and 1M
Snak Club, LLC 07/19/2022 Tobacco 7.00 % L+600 4,388 4,362 4,388
Healthcare and 1M
Solutionreach, Inc. 01/17/2024 Pharmaceuticals 6.75 % L+575 5,892 5,854 5,892
53
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54--------------------------------------------------------------------------------
Below is a listing of PSSL's individual investments as ofSeptember 30, 2021 (continued): Basis Point Spread Current Above Par / Issuer Name Maturity Industry Coupon Index (1) Shares Cost Fair Value (2) Spectacle Gary Holdings, Hotels, Restaurants LLC 12/23/2025 and Leisure 11.00 % 1M L+900 4,389$ 4,506 $ 4,765 Construction and STV Group Incorporated 12/11/2026 Building 5.33 % 1M L+525 9,075 9,004 9,030 TAC LifePort Purchaser, Aerospace and LLC 03/01/2026 Defense 7.00 % 3M L+600 4,950 4,860 4,948 TeleGuam Holdings, LLC 11/20/2025 Telecommunications 5.50 % 1M L+450 10,337 10,313 10,234 Teneo Holdings LLC 07/18/2025 Business Services 6.25 % 1M L+525 2,309 2,306 2,297 The Aegis Technologies Aerospace and Group, LLC 10/31/2025 Defense 6.77 % 3M L+550 5,713 5,634 5,656 Professional The Bluebird Group LLC 07/27/2026 Services 8.00 % 3M L+700 1,744 1,710 1,733 Media: Broadcasting The Infosoft Group, LLC 09/16/2024 and Subscription 6.75 % 6M L+575 13,383 13,376 13,383 The Vertex Companies, Construction and LLC 08/30/2027 Engineering 6.50 % 6M L+550 5,634 5,523 5,529 TPC Canada Parent, Inc. Consumer Goods: and TPC US Parent, LLC 11/24/2025 Non-Durable 6.25 % 3M L+525 8,834 8,655 8,569 Diversified TVC Enterprises, LLC 03/26/2026 Consumer Services 6.75 % 1M L+575 8,558 8,593 8,558 TWS Acquisition Diversified Corporation 06/16/2025 Consumer Services 7.25 % 1M L+625 6,636 6,599 6,636 Tyto Athene, LLC 08/27/2024 IT Services 6.25 % 1M L+550 11,443 11,334 11,443 UBEO, LLC 04/03/2024 Capital Equipment 5.50 % 1M L+450 17,571 17,457 17,483 Urology Management Healthcare and Associates, LLC 08/30/2024 Pharmaceuticals 5.50 % 1M L+450 11,030 10,849 10,975Walker Edison Furniture Company LLC 03/31/2027 Wholesale 6.75 % 1M L+575 12,438 12,142 11,971 Electronic Equipment, Instruments, and Wildcat Buyerco, Inc. 02/27/2026 Components 6.00 % 3M L+500 5,706 5,656 5,678 Total First Lien Secured Debt 558,880 557,732 Second Lien Secured Debt - 10.5% DBI Intermediate Holdco, LLC, Term Loan B (4) 02/02/2026 Business Services 11.00 % - 2,434 2,434 2,434 P(IK 9.00%) Consumer Goods: 9.50 % Inventus Power, Inc. 09/29/2024 Durable 3M L+850 3,000 2,947 2,940 Total Second Lien Secured Debt 5,381 5,374Equity Securities - 3.3% DBI Intermediate Holdco, - LLC, Series A-1 (4) Business Services 13.00 % - 7 5,034 - DBI Intermediate Holdco, - 7 LLC, Series AA (4) Business Services - - 6,731 1,315 DBI Intermediate Holdco, - 1,065 LLC, Series B (4) Business Services - - 237 - - Media: Diversified 0 New MPE Holdings, LLC and Production - - - 362Total Equity Securities 12,002 1,677 Total Investments - 1,101.7% 576,263 564,783 Cash and Cash Equivalents - 55.3% BlackRock Federal FD Institutional 30 28,191 28,191 US Bank Cash 196 183 Total Cash and Cash Equivalents 28,387 28,374 Total Investments and Cash Equivalents -1,157.1%$ 604,650 $ 593,157 Liabilities in Excess of Other Assets - (1,057.1)% (541,893 ) Members' Equity-100.0% $ 51,264 (1) Represents floating rate instruments that accrue interest at a predetermined spread relative to an index, typically the applicable LIBOR or "L" or EURIBOR or "E". All securities are subject to a LIBOR or Prime rate floor where a spread is provided, unless noted. The spread provided includes PIK interest and other fee rates, if any.
(2)
Valued based on PSSL's accounting policy.
(3)
Non-
(4)
Par amount is denominated in Australian Dollars (A$) or Canadian Dollars (C$) as denoted.
(5)
Represents the purchase of a security with delayed settlement or a revolving
line of credit that is currently an unfunded investment. This security does not
earn a basis point spread above an index while it is unfunded.
Below are the consolidated statements of assets and liabilities for PSSL ($ in
thousands):
September 30, 2022 September 30, 2021
Assets
Investments at fair value (cost-$770,280 and
$576,263 , respectively) $ 754,722 $ 564,783
Cash and cash equivalents (cost-$33,725 and
$28,387 , respectively) 33,705 28,374
Interest receivable 3,025 1,414
Receivable for investment sold 3,637 7,323
Prepaid expenses and other assets 1,722 1,665
Total assets 796,811 603,559
Liabilities
Credit facility payable 259,500 112,000
2032 Asset-backed debt, net (par-$246,000) 243,365 242,757
Notes payable to members 217,350 161,000
Payable for investments purchased 10,414 31,963
Interest payable on notes to members 4,719 2,656
Interest payable on Credit Facility and
asset backed debt 3,817 1,741
Accrued expenses 1,150 178
Total liabilities 740,315 552,295
Commitments and contingencies (See Note 11)
Members' equity 56,496 51,264
Total liabilities and members' equity $ 796,811 $ 603,559
(1)
As of both
Below are the consolidated statements of operations for PSSL ($ in thousands):
55
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Year Ended September 30,
2022 2021
Investment income:
Interest $ 53,006 $ 33,364
Other income 1,188 982
Total investment income 54,194 34,346
Expenses:
Interest and expense on credit facility and
asset-backed debt 18,410 9,649
Interest expense on notes to members 17,468
12,635
Administrative services expenses 1,835
1,200
General and administrative expenses 1,156 906 Total expenses 38,869 24,390 Net investment income 15,325 9,956 Realized and unrealized gain (loss) on investments and credit facility foreign currency translation: Net realized loss on investments (14,948 ) (4,732 ) Net change in unrealized appreciation (depreciation) on: Investments (3,695 )
3,377
Credit facility foreign currency translation - (489 ) Net change in unrealized appreciation (depreciation) on investments and credit facility foreign currency translations (3,695 )
2,888
Net realized and unrealized gain (loss) from investments and credit facility foreign currency translations (18,643 ) (1,844 ) Net increase (decrease) in members' equity resulting from operations $ (3,318 ) $ 8,112 (1)
No management or incentive fees are payable by PSSL. If any fees were to be charged, they would be separately disclosed in the Statements of Operations.
Distributions In order to be treated as a RIC for federal income tax purposes and to not be subject to corporate-level tax on undistributed income or gains, we are required, under Subchapter M of the Code, to annually distribute dividends forU.S. federal income tax purposes to our stockholders out of the assets legally available for distribution of an amount generally at least equal to 90% of investment company taxable income, determined without regard to any deduction for dividends paid. Although not required for us to maintain our RIC tax status, in order to preclude the imposition of a 4% nondeductible federal excise tax imposed on RICs, we must distribute dividends forU.S. federal income tax purposes to our stockholders in respect of each calendar year an amount at least equal to the Excise Tax Avoidance Requirement. In addition, although we may distribute realized net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually, out of the assets legally available for such distributions in the manner described above, we have retained and may continue to retain such net capital gains or investment company taxable income, subject to maintaining our ability to be taxed as a RIC, in order to provide us with additional liquidity. During both years endedSeptember 30, 2022 and 2021, we declared distributions of$1.14 per share for total distributions of$46.7 million and$44.2 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 theSEC .
We intend to continue to make monthly distributions to our stockholders. Our monthly distributions, if any, are determined by our board of directors quarterly.
On
We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage ratio for borrowings applicable to us as a BDC under the 1940 Act and due to provisions in future credit facilities. If we do not distribute at least a certain percentage of our income annually, we could suffer adverse tax consequences, including possible loss of our ability to be subject to tax as a RIC. We cannot assure stockholders that they will receive any distributions at a particular level.
Recent Accounting Pronouncements
InMarch 2020 , the FASB issued Accounting Standards Update No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The guidance provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued because of the reference rate reform. ASU 2020-04 is effective for all entities as ofMarch 12, 2020 throughDecember 31, 2022 . The Company utilized the optional expedients and exceptions provided by ASU 2020-04 during the year ended September30, 2022, the effect of which was not material to the consolidated financial statements and the notes thereto. InMarch 2022 , the FASB issued ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326)", which is intended to address issues identified during the post-implementation review of ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". The amendment, among other things, eliminates the accounting guidance for troubled debt restructurings by creditors in Subtopic 310-40, "Receivables - Troubled Debt Restructurings by Creditors", while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The new guidance is effective for interim and annual periods beginning afterDecember 15, 2022 . The Company is currently evaluating the impact of the adoption of ASU 2022-02 on its consolidated financial statement and disclosures. InJune 2022 , the FASB issued Accounting Standards Update No. 2022-03, or ASU, 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, or ASU 2022-03, which changed the fair value measurement disclosure requirements of ASC Topic 820, Fair Value Measurements and Disclosures, or ASC 820. The amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The new guidance is effective for fiscal years beginning afterDecember 15, 2023 , including interim periods therein. Early application is permitted. The Company is currently evaluating the impact the adoption of this new accounting standard will have on its consolidated financial statements, but the impact of the adoption is not expected to be material. 56
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