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 current pandemic caused by COVID-19;
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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 current COVID-19 pandemic;
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our ability to continue to effectively manage our business due to the significant disruptions caused by the current COVID-19 pandemic;
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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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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
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," "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 grade debt, 39 -------------------------------------------------------------------------------- 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.
COVID-19 Developments
COVID-19 was first detected inDecember 2019 and has since been identified as a global pandemic by theWorld Health Organization . The effect of the ongoing COVID-19 pandemic or any worsening thereof, uncertainty relating to more contagious strains of the virus, the length of recovery of certain economic sectors in theU.S. and globally and the speed and efficiency of the vaccination process, including the extent to which the available vaccines are ineffective against any new COVID_19 variants, may create stress on the market and may affect some of our portfolio companies. We cannot predict the full impact of the COVID-19 pandemic, including any worsening thereof or its duration inthe United States and globally and any impact to our business operations or the business operations of our portfolio companies Due to the nature of these governmental restrictions and their potentially long-lasting duration, some portfolio companies, especially those in vulnerable industries such as retail, food and beverage and travel, have experienced significant financial distress and may default on their financial obligations to us and their other capital providers. Moreover, certain of our portfolio companies that remain subject to prolonged and severe financial distress, have substantially curtailed their operations, deferred capital expenditures, furloughed or laid off workers and/or terminated relationships with their service providers. Depending on the length and magnitude of the disruption to the operations of our portfolio companies, certain portfolio companies may experience financial distress and possibly default on their financial obligations to us and their other capital providers in the future. These developments could impact the value of our investments in such portfolio companies. The COVID-19 pandemic, including any worsening thereof, may have an adverse impact on certain sectors of the global economy. Particularly, COVID-19 presents material uncertainty and risk with respect to our future performance and financial results as well as the future performance and financial results of our portfolio companies due to the risk of any sever adverse reactions to the vaccine, politicization of the vaccination process or general public skepticism of the safety and efficacy of the vaccine. While we are unable to predict the ultimate adverse effect of COVID-19, or any worsening thereof, on our results of operation, we have identified certain factors that are likely to affect market, economic and geopolitical conditions, and thereby may adversely affect our business, including:
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changes in interest rates, including LIBOR;
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limited availability of credit, both in
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disruptions to supply-chains and price volatility;
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changes to existing laws and regulations, or the imposition of new laws and regulations; and
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uncertainty regarding future governmental and regulatory policies.
The business disruption and financial harm resulting from the COVID-19 pandemic experienced by some of our portfolio companies may reduce, over time, the amount of interest and dividend income that we receive from such investments and may require us to provide an increase of capital to such companies in the form of follow on investments. In connection with the adverse effects of the COVID-19 pandemic, we may also need to restructure the capitalization of some of our portfolio companies, which could result in reduced interest payments, an increase in the amount of PIK interest we receive or a permanent reduction in the value of our investments. If our net investment income decreases, the percentage of our cash flows dedicated to debt servicing and distribution payments to stockholders would subsequently increase. If such cash flows cannot be sustained, we may be required to reduce the amount of our future distributions to stockholders. As ofJune 30, 2022 , we had two portfolio companies on non-accrual status, and the continuing impact of the COVID-19 pandemic, or any worsening thereof, may result in additional portfolio investments being placed on non-accrual status in the future. Additionally, as ofJune 30, 2022 andSeptember 30, 2021 , our asset coverage ratio, as computed in accordance with the 1940 Act, was 166% and 175%, respectively. Our Credit Facility includes standard covenants and events of default provisions. If we fail to make the required payments or breach the covenants therein, it could result in a default under the Credit Facility. Failure to cure such default or obtain a waiver from the appropriate party would result in an event of default, and the lenders may accelerate the repayment of our indebtedness under the Credit Facility, such that all amounts owed are due immediately at the time of default. Such an action would negatively affect our liquidity, business, financial condition, results of operations, cash flows and ability to pay distributions to our stockholders. 40 -------------------------------------------------------------------------------- We are also subject to financial risks, including changes in market interest rates. As ofJune 30, 2022 , our debt portfolio consisted of 99.9% variable-rate investments. The variable-rate loans are usually based on a floating interest rate index such as LIBOR and typically have durations of three months after which they reset to current market interest rates. Variable-rate investments subject to a floor generally reset by reference to the current market index after one to nine months only if the index exceeds the floor. In addition, the Credit Facility currently bears interest at LIBOR (or an alternative risk-free floating interest rate index) plus 225 basis points and, after the revolving period ends inAugust 2024 , the rate will reset to Base Rate (or an alternative risk-free floating interest rate index) plus 250 basis points. Due to such rates, our gross investment income has decreased, which could result in a decrease in our net investment income if such decreases in LIBOR are not offset by, among other things, a corresponding increase in the spread over LIBOR that we earn on such loans or a decrease in the interest rate of our floating interest rate liabilities tied to LIBOR. See "Item 3. Quantitative and Qualitative Disclosures About Market Risk" below. In addition, we have continued to implement our business continuity planning strategy. Our priority has been to safeguard the health of our employees and to ensure continuity of business operations on behalf of our investors. We implemented a heightened level of communication across senior management, our investment team and our board of directors, and we have proactively engaged with our vendors on a regular basis to ensure they continue to meet our criteria for business continuity. LIBOR Developments InJuly 2017 , the head of theUnited Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. As ofDecember 31, 2021 , all non-U.S. dollar LIBOR publications have been phased out. The phase out of a majority of theU.S. dollar publications is currently delayed untilJune 30, 2023 . The Alternative Reference Rates Committee, a steering committee comprised of largeU.S. financial institutions, has identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by theU.S. Treasury securities, and is based on directly observableU.S. Treasury -backed repurchase transactions. Although SOFR appears to be the preferred replacement rate forU.S. dollar LIBOR, it is not possible at this time to predict the effect of any such changes, any establishment of alternative reference rates, whether the COVID-19 pandemic will have further effect on LIBOR transition timelines, or other reforms to LIBOR that may be enacted. The effect of the establishment of alternative reference rates or other reforms to LIBOR or other reference rates is complex and could have a material adverse effect on our business, financial condition and results of operations. Given the inherent differences between LIBOR and SOFR, or any other alternative benchmark rate that may be established, there are continuing uncertainties regarding the transition from LIBOR, including, but not limited to, the need to amend all contracts with LIBOR as the referenced rate and how this will impact the cost of variable rate debt and certain derivative financial instruments. In addition, SOFR or other replacement rates may fail to gain market acceptance. Any failure of SOFR or alternative reference rates to gain market acceptance could adversely affect the return on, value of and market for securities linked to such rates. Factors such as the pace of the transition to replacement or reformed rates, the specific terms and parameters for and market acceptance of any alternative reference rate, prices of and the liquidity of trading markets for products based on alternative reference rates, and our ability to transition and develop appropriate systems and analytics for one or more alternative reference rates could also have a material adverse effect on our business, financial condition and results of operations. At-the-Market Offering OnAugust 20, 2021 , the Company entered into 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 the Company's Common Stock, par value$0.001 per share, with an aggregate offering price of up to$75 million . 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 the Company may offer and sell shares of the Common Stock from time to time through a Sales Agent in amounts and at times to be determined by the Company. Actual sales will depend on a variety of factors to be determined by the Company from time to time, including, market conditions and the trading price of the 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 ofJune 30, 2022 , our portfolio totaled$1,226.4 million , and consisted of$1,062.4 million of first lien secured debt (including$190.2 million in PSSL),$0.7 million of second lien secured debt and$163.4 million of preferred and common equity (including$58.8 million in PSSL). Our debt portfolio consisted of 100.0% variable-rate investments. As ofJune 30, 2022 , we had two portfolio companies on non-accrual, representing 0.9% and 0.1% of our overall portfolio on a cost and fair value basis, respectively. Overall, the portfolio had net unrealized appreciation of$7.7 million . Our overall portfolio consisted of 123 companies with an average investment size of$10.0 million , had a weighted average yield on debt investments of 8.5%, 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 5% in PSSL). As ofJune 30, 2022 , 100.0% 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 appreciation 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 three months endedJune 30, 2022 , we invested$104.8 million in six new and 39 existing portfolio companies with a weighted average yield on debt investments of 8.1 %. Sales and repayments of investments for the three months endedJune 30, 2022 totaled$55.0 million . For the nine months endedJune 30, 2022 , we invested$553.1 million in 29 new and 104 existing portfolio companies with a weighted average yield on debt investments of 7.7%. Sales and repayments of investments for the nine months endedJune 30, 2022 totaled$397.2 million . For the three months endedJune 30, 2021 , we invested$248.3 million in 10 new and 16 existing portfolio companies with a weighted average yield on debt investments of 7.5%. Sales and repayments of investments for the three months endedJune 30, 2021 totaled$283.3 million . For the nine months endedJune 30, 2021 , we invested$475.5 million in 19 new and 50 existing portfolio companies with a weighted average yield on debt investments of 7.5%. Sales and repayments of investments for the nine months endedJune 30, 2021 totaled$565 million .
As ofJune 30, 2022 , PSSL's portfolio totaled$746.8 million and consisted of 89 companies with an average investment size of$8.4 million and had a weighted average yield on debt investments of 8.2%. As ofSeptember 30, 2021 , PSSL's portfolio totaled$564.8 million and 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 three months endedJune 30, 2022 , PSSL invested$31.5 million (including$16.8 million purchased from the Company) in four new and seven existing portfolio companies with a weighted average yield on debt investments of 8.8%. Sales and repayments of investments for the three months endedJune 30, 2022 totaled$13.5 million . For the nine months endedJune 30, 2022 , PSSL invested$228.6 million (including$225.2 million purchased from the Company) in 25 new and 15 existing portfolio companies with a weighted average yield on debt investments of 7.9%. Sales and repayments of investments for the nine months endedJune 30, 2022 totaled$69.2 million . For the three months endedJune 30, 2021 , PSSL invested$133.7 million (including$98.9 million purchased from the Company) in six new and 15 existing portfolio companies with a weighted average yield on debt investments of 7.0%. Sales and repayments of investments for the three months endedJune 30, 2021 totaled$88.8 million . For the nine months endedJune 30, 2021 , PSSL invested$277.8 million (including$224.1 million purchased from the Company) in 30 new and 26 existing portfolio companies with a weighted average yield on debt investments of 7.2%. Sales and repayments of investments for the nine months endedJune 30, 2021 totaled$163.1 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. We discuss our critical accounting
estimates in Management's Discussion and Analysis of Financial Condition and
Results of Operations
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--------------------------------------------------------------------------------in our 2021 Annual Report on Form 10-K. There have been no significant changes in our critical accounting estimates during the three months from those disclosed in our 2021 Annual Report on Form 10-K.
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. 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;
(2)
Preliminary valuation conclusions are then documented and discussed with the management of our Investment Adviser;
(3)
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;
(4)
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 our 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. TheSEC recently adopted Rule 2a-5 under the 1940 Act which establishes requirements for determining fair value in good faith for purposes of the 1940 Act. We will comply with the requirements of the rule before the requirement date in 2022. In addition to using the above inputs to value cash equivalents, investments, our 2023 Notes, our 2026 Notes, our 2031 Asset-Backed Debt and our 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 under 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 our Credit Facility and the 2023 Notes. We elected to use the fair value option for our 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 43 -------------------------------------------------------------------------------- did not incur any expenses relating to amendment costs on the Credit Facility and debt issuance costs on the 2023 Notes during the three and nine months endedJune 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 three and nine months endedJune 30, 2022 , the Credit Facility and the 2023 Notes had a net change in unrealized depreciation of$0.1 million and$1.2 million , respectively. For the three and nine months endedJune 30, 2021 , the Credit Facility and the 2023 Notes had a net change in unrealized depreciation (appreciation) of$3.2 million and$(11.3) million , respectively. As ofJune 30, 2022 andSeptember 30, 2021 , the net unrealized depreciation on the Credit Facility as applicable, and the 2023 Notes totaled$8.5 million and$7.2 million , respectively. We use a nationally recognized independent valuation service to 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, our 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 for 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. For both the three and nine months endedJune 30, 2022 and 2021, we recorded a provision for taxes on net investment income of$0.1 million and$0.3 million , respectively, pertaining to federal excise tax.PFLT Investment Holdings, LLC , a wholly-owned subsidiary of the Company (the "Taxable Subsidiary"), 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 three and nine months endedJune 30, 2022 , the Company recognized a provision for taxes of zero and$5.3 million , respectively, on unrealized appreciation on investments by the Taxable Subsidiary. For the three and nine months endedJune 30, 2021 , the Company recognized a provision for taxes of zero 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 ofJune 30, 2022 andSeptember 30, 2021 ,$5.3 million and zero, respectively, 44 -------------------------------------------------------------------------------- was accrued as a deferred tax liability on the Consolidated Statements of Assets and Liabilities relating to unrealized gain on investments. During the three and nine months endedJune 30, 2022 , the Company paid zero and$1.2 million , respectively, in taxes on realized gains on the sale of investments held by the Taxable Subsidiary, resulting in a$1.2 million prepaid tax asset as ofJune 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. 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 three and nine months
ended
Investment Income
Investment income for the three and nine months endedJune 30, 2022 was$25.7 million and$76.7 million , respectively, which was attributable to$21.1 million and$64.0 million from first lien secured debt and$4.6 million and$12.7 million from other investments, respectively. This compares to investment income for the three and nine months endedJune 30, 2021 was$20.9 million and$61.1 million , respectively, which was attributable to$18.2 million and$53.5 million from first lien secured debt and$2.7 million and$7.6 million from other investments, respectively. The increase in investment income compared to the same periods in the prior year was primarily due to an increase the size of our portfolio. Expenses Expenses for the three and nine months endedJune 30, 2022 totaled$13.9 million and$40.8 million , respectively. Base management fee for the same periods totaled$3.1 million and$8.9 million , performance-based incentive fee totaled$2.6 million and$8.5 million , debt related interest and expenses totaled$7.4 million and$20.7 million and general and administrative expenses totaled$0.8 million and$2.4 million , respectively. This compares to expenses for the three and nine months endedJune 30, 2021 totaled$10.6 million and$30.8 million , respectively. Base management fee for the same periods totaled$2.6 million and$8.0 million , incentive fee totaled$1.7 million and$4.7 million , debt related interest and expenses totaled$5.9 million and$16.0 million and general and administrative expenses totaled$0.4 million and$1.8 million , respectively. The increase in expenses for the three and nine months endedJune 30, 2022 compared to the same period in the prior year was primarily due to an increase in performance-based incentive fees and debt-related interest and expenses.
Net Investment Income
Net investment income totaled$11.8 million and$35.9 million , or$0.29 and$0.90 per share, for the three and nine months endedJune 30, 2022 , respectively. Net investment income totaled$10.3 million and$30.3 million , or$0.27 and$0.78 per share, for the three and nine months endedJune 30, 2021 , respectively. The increase in net investment income compared to the same periods in the prior year was primarily due to an increase the size of our portfolio.
Net Realized Gains or Losses
Sales and repayments of investments for the three and nine months endedJune 30, 2022 totaled$55.0 million and$397.2 million , respectively, and net realized gains (losses) totaled$0.7 million and$(11.6) million , respectively. Sales and repayments of investments for the three and nine months endedJune 30, 2021 totaled$283.3 million and$565.5 million , respectively, and net realized losses totaled$13.0 million and$15.3 million , respectively. The change in realized gains/losses was primarily due to changes in the market conditions of our investments and the values at which they were realized.
Unrealized Appreciation or Depreciation on Investments, the Credit Facility and the 2023 Notes
For the three and nine months endedJune 30, 2022 , we reported net change in unrealized depreciation on investments of$17.7 million and$3.7 million , respectively. For the three and nine months endedJune 30, 2021 , we reported net change in unrealized appreciation on investments of$14.2 million and$48.8 million , respectively. As ofJune 30, 2022 andSeptember 30, 2021 , our net unrealized appreciation on investments totaled$7.7 million and$11.0 million , respectively. The net change in unrealized appreciation on our investments compared to the same period in the prior year was primarily due to changes in the market conditions of our investments and the values at which they were held. For the three and nine months endedJune 30, 2022 , the Credit Facility and the 2023 Notes had a net change in unrealized depreciation of less than$0.1 million and$1.3 million , respectively. For the three and nine months endedJune 30, 2021 , the Credit Facility and the 2023 Notes had a net change in unrealized depreciation (appreciation) of$3.2 million and$(11.3) million , respectively. As ofJune 30, 2022 andSeptember 30, 2021 , the net unrealized depreciation on the Credit Facility and the 2023 Notes totaled$8.5 million and$7.2 million , respectively. The net change in net unrealized depreciation compared to the same period in the prior year was primarily due to changes in the capital markets.
Net Change in Net Assets Resulting from Operations
Net (decrease) increase in net assets resulting from operations totaled$(5.1) million and$16.6 million , or$(0.12) and$0.42 per share, respectively, for the three and nine months endedJune 30, 2022 . Net increase in net assets resulting from operations totaled$14.7 million and$52.5 million , or$0.38 and$1.35 per share, respectively, for the three and nine months endedJune 30, 2021 . The decrease in the net change in net assets from operations for the three and nine months endedJune 30, 2022 compared to the same period in the prior year was primarily due to a lower realized and unrealized change in our investment and debt.
LIQUIDITY AND CAPITAL RESOURCES
45
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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 of June 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.
This "Liquidity and Capital Resources" section should be read in conjunction
with the "COVID-19 Developments" section above.
On April 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 of April 5, 2019 , subject to compliance with certain disclosure
requirements. As of June 30, 2022 and September 30, 2021 , our asset coverage
ratio, as computed in accordance with the 1940 Act, was 166% and 175%,
respectively.
The annualized weighted average cost of debt for the nine months ended June 30,
2022 and 2021, inclusive of the fee on the undrawn commitment on the Credit
Facility, amendment costs and debt issuance costs, was 3.7% and 3.4%,
respectively. As of June 30, 2022 and September 30, 2021 , we had $40.7 million
and $80.6 million of unused borrowing capacity under the Credit Facility, as
applicable, respectively, subject to leverage and borrowing base restrictions.
Funding I's multi-currency Credit Facility with the Lenders was $300 million as
of June 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 LIBOR (or an alternative risk-free floating interest rate index) of
225 basis points, a maturity date of August 2026 and a revolving period that
ends in August 2024 . As of June 30, 2022 and September 30, 2021 , Funding I
borrowed $259.3 million and $219.4 million under the Credit Facility,
respectively. The Credit Facility had a weighted average interest rate of 3.3%
and 2.3%, exclusive of the fee on undrawn commitments as of June 30, 2022 and
September 30, 2021 , respectively.
During the revolving period, the Credit Facility bears interest at LIBOR (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 in August 2026 . The Credit Facility is secured by all of the
assets of Funding 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 of June 30, 2022 , we were in compliance with the
covenants relating to our 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
all required payments of (1) 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.
In November 2017 , we issued $138.6 million of our 2023 Notes. The 2023 Notes
were issued pursuant to a deed of trust between the Company and Mishmeret Trust
Company, Ltd. , as trustee, of which $97.0 million and $117.8 million was
outstanding as of June 30, 2022 and September 30, 2021 , respectively.
The 2023 Notes pay interest at a rate of 4.3% per year. As a result of the
downgrade of the 2023 Notes from "ilA+" to "ilA-" in March 2020 , the interest
rate of the 2023 Notes was increased to 4.3% from 3.8%. Interest on the 2023
Notes is payable semi-annually in arrears on June 15 and December 15 of each
year, commencing June 15, 2018 . The principal on the 2023 Notes will be payable
in four annual installments as follows: 15% of the original principal amount on
December 15, 2020 , 15% of the original principal amount on December 15, 2021 ,
15% of the original principal amount on December 15, 2022 and 55% of the
original principal amount on December 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 on December 13, 2017 for
more information. The 2023 Notes are rated ilA- by S&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 in the United States absent registration under
the Securities Act or in transactions exempt from, or not subject to, such
registration requirements.
In March 2021 and in October 2021 , we issued $100.0 million and $85.0 million ,
respectively, in aggregate principal amount of $185 million 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 on April 1 and October 1 of each year, at a
rate of 4.25% per year, commencing October 1, 2021 . The 2026 Notes mature on
April 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.
In September 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, and U.S. Bank National Association , as collateral agent and as loan
agent. The 2031
46
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Asset-Backed Debt is scheduled to mature on
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 with each ofJMP Securities LLC andRaymond James & Associates, Inc. , as the Sales Agents, in connection with the sale of shares of our Common Stock, par value$0.001 per share , with an aggregate offering price of up to$75 million under the ATM Program. 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 three months endedJune 30, 2022 , we issued 136,072 shares of our Common Stock under the ATM Program at a weighted-average price of$13.38 per share, raising$1.8 million of gross proceeds. Net proceeds were$1.8 million after commissions to the Sales Agents on shares sold. During the nine months endedJune 30, 2022 , we issued 2,464,910 shares of our Common Stock under the ATM Program at a weighted-average price of$13.12 per share, raising$32.3 million of gross proceeds. Net proceeds were$31.9 million after commissions to the Sales Agents on shares sold. As ofJune 30, 2022 , we had$41.3 million available under the ATM Program.
Since inception of the ATM Program through
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. As ofJune 30, 2022 andSeptember 30, 2021 , we had cash equivalents of$40.6 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$111.6 million for the nine months endedJune 30, 2022 , and our financing activities provided cash of$101.7 million for the same period. Our operating activities used cash primarily for our investment activities and our financing activities provided cash primarily due to the issuance of$85 million of our 2026 Add-on Notes borrowings under our Credit Facility. Our operating activities provided cash of$124.4 million for the nine months endedJune 30, 2021 , and our financing activities used cash of$132.3 million for the same period. Our operating activities provided cash primarily from our investment activities and our financing activities used cash primarily to pay down our Credit Facility, partially offset by the 2026 Notes issuance.
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 ofJune 30, 2022 andSeptember 30, 2021 , PSSL had total assets of$790.3 million and$603.6 million , respectively. As ofJune 30, 2022 , at fair value, the largest investment in a single portfolio company in PSSL was$19.1 million and the five largest investments totaled$86.6 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 ofJune 30, 2022 andSeptember 30, 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.
In
InJanuary 2021 , PSSL completed a$300.7 million debt securitization in the form of a collateralized loan obligation, or the "2032 Asset-Backed Debt". The 2032 Asset-Backed Debt is secured by a diversified portfolio ofPennantPark CLO II, Ltd. , a wholly-owned and consolidated subsidiary of PSSL, consisting primarily of middle market loans and participation interests in middle market loans. The 2032 Asset-Backed Debt is scheduled to mature inJanuary 2032 . On the closing date of the transaction, in consideration of PSSL's transfer toPennantPark CLO II, Ltd. of the initial closing date loan portfolio, which included loans distributed to PSSL by certain of its wholly owned subsidiaries and us,PennantPark CLO II, Ltd. transferred to PSSL 100% of the Preferred Shares ofPennantPark CLO II, Ltd. and 100% of the ClassE Notes issued byPennantPark CLO II, Ltd. 47 --------------------------------------------------------------------------------
Below is a summary of PSSL's portfolio at fair value:
September 30,
($ in thousands) June 30, 2022 2021
Total investments $ 746,819 $ 564,783
Weighted average cost yield on income producing
investments 8.2 % 7.1 %
Number of portfolio companies in PSSL 89 74
Largest portfolio company investment $ 19,126
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Below is a listing of PSSL's individual investments as of June 30, 2022 ($ in
thousands):
Basis Point
Current Spread Above Fair
Issuer Name Maturity Industry Coupon Index (1) Par Cost Value (2)
First Lien Secured
Debt - 1,107.3%
Ad.net Acquisition,
LLC 5/6/2026 Media 8.25 % 3M L+600 8,910 $ 8,804 $ 8,910
Alpine Acquisition Containers and
Corp II 11/30/2026 Packaging 7.22 % 3M L+600 10,000 9,806 9,800
Altamira Technologies,
LLC 7/24/2025 Business Services 9.24 % 3M L+800 5,300 5,178 5,048
American Insulated
Glass, LLC 12/21/2023 Building Products 6.50 % 3M L+525 4,898 4,859 4,898
Apex Service Partners, Diversified
LLC 7/31/2025 Consumer Services 6.72 % 1M L+525 1,013 1,013 1,008
Apex Service Partners, Diversified
LLC Term Loan B 7/31/2025 Consumer Services 7.75 % 3M L+625 2,207 2,207 2,196
Apex Service Partners, Diversified
LLC Term Loan C 7/31/2025 Consumer Services 6.78 % 3M L+525 11,143 11,073 11,087
Commercial
Applied Technical Services &
Services, LLC 12/29/2026 Supplies 8.00 % 3M L+575 8,443 8,333 8,337
Arcfield Acquisition Aerospace and
Corp. 3/7/2028 Defense 7.44 % SOFR + 575 4,688 4,597 4,571
Blackhawk Industrial
Distribution, Inc. 9/17/2024 Distributors 7.20 % SOFR + 500 15,330 15,110 15,176
Broder Bros., Co. 12/2/2022 Consumer Products 7.39 % 3M L+850 2,432 2,432 2,432
By Light Professional High Tech
IT Services, LLC 5/16/2024 Industries 7.25 % 3M L+625 14,974 14,913 14,824
Aerospace and
Cadence Aerospace, LLC 11/14/2023 Defense 9.74 % 3M L+325 12,380 12,346 12,281
CF512, Inc. 8/20/2026 Media 7.58 % 3M L+600 4,963 4,875 4,888
Construction and
CHA Holdings, Inc. 4/10/2025 Engineering 6.75 % 3M L+450 5,571 5,495 5,571
Challenger Performance
Optimization, Inc. 8/31/2023 Business Services 8.00 % 1M L+575 9,377 9,347 9,049
Connatix Buyer, Inc. 7/13/2027 Media 6.91 % 3M L+550 3,970 3,901 3,901
Commercial
Services &
Crane 1 Services, Inc. 8/16/2027 Supplies 6.75 % 1M L+575 2,116 2,088 2,084
Crash Champions, LLC 8/5/2025 Automobiles 7.20 % 3M L+500 14,880 14,623 14,806
Chemicals, 3M L+575
Douglas Products and Plastics and
Packaging Company LLC 10/19/2022 Rubber 8.00 % 8,678 8,664 8,678
Chemicals, 3M L+575
Douglas Sewer Plastics and
Intermediate, LLC 10/19/2022 Rubber 8.00 % 7,267 7,255 7,267
Dr. Squatch, LLC 8/31/2027 Personal Products 8.00 % 3M L+600 14,900 14,634 14,900
DRS Holdings III, Inc. Consumer Goods: 7.42 % 1M L+575 15,218 15,138 14,777
11/3/2025 Durable
Duraco Specialty Tapes Containers and
LLC 6/30/2024 Packaging 7.15 % 1M L+550 10,316 10,173 10,099
Hotels,
Restaurants and
ECL Entertainment, LLC 5/1/2028 Leisure 9.75 % 3M L+750 2,627 2,603 2,560
Electronic
Equipment,
Instruments, and
ECM Industries, LLC 12/23/2025 Components 6.32 % 3M L+450 4,987 4,987 4,887
Exigo Intermediate II,
LLC 3/15/2027 Software 7.42 % 1M L+575 12,968 12,783 12,773
Aerospace and
Fairbanks More Defense 6/17/2028 Defense 7.63 % 3M L+475 9,925 9,884 9,528
Gantech Acquisition
Corp. 5/14/2026 IT Services 7.92 % 3M L+625 14,713 14,489 14,419
Global Holdings Diversified
InterCo LLC 3/16/2026 Financial Services 7.00 % 3M L+600 3,914 3,897 3,797
Trading Companies
Graffiti Buyer, Inc. 8/10/2027 & Distributors 8.00 % 3M L+575 2,375 2,321 2,310
Hancock Roofing and
Construction L.L.C. 12/31/2026 Insurance 7.25 % 1M L+525 2,392 2,345 2,368
Holdco Sands Aerospace and
Intermediate, LLC 11/23/2028 Defense 8.25 % 3M L+600 4,975 4,883 4,876
HW Holdco, LLC 12/10/2024 Media 6.00 % 6M L+575 3,060 3,009 2,998
Healthcare
IDC Infusion Services, Equipment and
Inc. 12/30/2026 Supplies 7.00 % 3M L+600 9,975 9,820 9,875
Imagine Acquisitionco,
LLC 11/15/2027 Software 6.91 % 1M L+550 5,377 5,270 5,216
Healthcare
Inception Fertility Providers and
Ventures, LLC 12/7/2023 Services 8.81 % 3M L+700 16,662 16,289 16,245
Integrative Nutrition, Diversified
LLC 9/29/2023 Consumer Services 7.00 % 3M L+575 11,225 11,201 11,225
Integrity Marketing
Acquisition, LLC 8/27/2025 Insurance 7.58 % SOFR + 575 6,000 5,913 5,942
ITI Holdings, Inc. 3/3/2028 IT Services 7.08 % SOFR + 550 3,990 3,924 3,910
K2 Pure Solutions Chemicals, 9.67 % 1M L+625 19,300 19,124 19,126
NoCal, L.P. Plastics and
12/20/2023 Rubber
Kinetic Purchaser, LLC 11/10/2027 Personal Products 7.75 % 3M L+600 11,872 11,685 11,635
Lash OpCo, LLC 2/18/2027 Personal Products 9.25 % 3M L+700 14,391 14,097 14,247
LAV Gear Holdings,
Inc. 10/31/2024 Capital Equipment 9.70 % 3M L+550 10,576 10,535 10,301
Healthcare
Providers and
Lightspeed Buyer Inc. 2/3/2026 Services 7.52 % 3M L+575 10,638 10,452 10,425
Hotel, Gaming and
Lucky Bucks, LLC 7/20/2027 Leisure 6.25 % 3M L+550 4,386 4,309 3,992
Marketplace Events,
LLC - Super Priority Media: Diversified
First Lien Term Loan 9/30/2025 and Production 6.69 % 1M L+525 647 647 647
Marketplace Events,
LLC - Super Priority
First Lien Unfunded Media: Diversified
Term Loan 9/30/2025 and Production - 589 - -
Marketplace Events, Media: Diversified
LLC 9/30/2026 and Production 6.69 % 1M L+525 4,837 3,469 4,837
Mars Acquisition 1M L+550
Holdings Corp. 5/14/2026 Media 7.17 % 9,925 9,800 9,826
Internet Software
MBS Holdings, Inc. 4/16/2027 and Services 6.75 % 3M L+575 7,425 7,309 7,351
Meadowlark Acquirer, Professional
LLC 12/10/2027 Services 7.75 % 3M L+650 2,402 2,357 2,342
Media:
Advertising,
Printing &
MeritDirect, LLC 5/23/2024 Publishing 7.75 % 3M L+550 5,355 5,267 5,328
Mission Critical
Electronics, Inc. 3/28/2024 Capital Equipment 7.20 % SOFR+500 5,844 5,842 5,774
Municipal Emergency
Services, Inc. 9/28/2027 Distributors 7.25 % 3M L+500 3,474 3,412 3,342
Healthcare,
Education &
NBH Group LLC 8/19/2026 Childcare 6.25 % 1M L+550 10,847 10,659 10,793
Consumer Goods:
New Milani Group LLC 6/6/2024 Non-Durable 7.50 % 3M L+500 14,513 14,462 14,259
Healthcare
OIS Management Equipment and
Services, LLC 7/9/2026 Supplies 6.95 % SOFR+475 5,073 5,017 4,996
Air Freight and
One Stop Mailing, LLC 5/7/2027 Logistics 7.92 % 1M L+625 14,807 14,548 14,511
Output Services Group ,
Inc. 3/27/2024 Business Services 6.01 % 3M L+425 7,663 7,784 6,284
Professional
Owl Acquisition, LLC 2/4/2028 Services 6.75 % 3M L+575 4,000 3,925 3,880
Construction and
Ox Two, LLC 5/18/2026 Building 9.32 % 3M L+600 4,938 4,875 4,839
PH Beauty Holdings
III, Inc. 9/29/2025 Wholesale 6.57 % 1M L+500 9,618 9,340 8,656
Textiles, Apparel
PL Acquisitionco, LLC 11/9/2027 and Luxury Goods 8.17 % 1M L+650 8,259 8,130 8,114
Chemicals,
Plant Health Plastics and
Intermediate, Inc. 10/19/2022 Rubber 8.00 % 3M L+575 1,566 1,563 1,566
Consumer Goods:
PlayPower, Inc. 5/8/2026 Durable 7.75 % 3M L+550 2,587 2,502 2,244
Quantic Electronics, Aerospace and
LLC 11/19/2026 Defense 8.50 % 1M L+625 3,932 3,854 3,854
Reception Purchaser, Air Freight and
LLC 2/28/2028 Logistics 8.20 % SOFR+600 4,988 4,914 4,788
Recteq, LLC 1/29/2026 Leisure Products 8.25 % 3M L+600 4,938 4,863 4,814
Research Now Group, Diversified
LLC and Dynata, LLC 12/20/2024 Consumer Services 6.50 % 3M L+550 10,596 10,528 9,961
Sales Benchmark Index Professional
LLC 1/3/2025 Services 8.25 % 3M L+600 5,281 5,218 5,281
49--------------------------------------------------------------------------------
Basis Point
Spread
Current Above Par /
Issuer Name Maturity Industry Coupon Index (1) Shares Cost Fair Value (2)
Sargent & Greenleaf Inc. 1/27/2021 Wholesale 7.15 % 3M L+550 5,390 $ 5,348 $ 5,337
Schlesinger Global, Inc. 2/13/2020 Business Services 8.70 % SOFR+500 11,832 11,976 11,654
Sigma Defense Systems, Aerospace and
LLC 12/29/2021 Defense 10.75 % 1M L+850 14,810 14,486 14,588
Healthcare and
Smile Brands Inc. 7/31/2022 Pharmaceuticals 5.62 % 3M L+450 12,480 12,356 12,137
Healthcare and
Solutionreach, Inc. 11/5/2019 Pharmaceuticals 7.42 % 1M L+575 5,663 5,638 5,448
Healthcare
Spendmend Holdings LLC 3/23/2022 Technology 7.38 % SOFR+575 2,964 2,922 2,887
Construction and
STV Group Incorporated 6/8/2021 Building 6.92 % 3M L+525 9,075 9,008 8,939
System Planning and
Analysis, Inc. (f/k/a
Management Consulting & Aerospace and
Research, LLC) 12/3/2021 Defense 8.83 % SOFR+600 14,925 14,645 14,686
TAC LifePort Purchaser, Aerospace and
LLC 3/17/2021 Defense 8.25 % 1M L+600 4,424 4,356 4,406
TeleGuam Holdings, LLC 6/8/2021 Telecommunications 8.25 % 3M L+450 10,248 10,228 10,248
Teneo Holdings LLC 1/27/2021 Business Services 6.85 % 3M L+625 2,292 2,289 2,246
The Aegis Technologies 1/27/2021 Aerospace and 8.06 % 3M L+500 5,606 5,617
Group, LLC Defense 5,674
Professional
The Bluebird Group LLC 8/26/2021 Services 8.75 % 1M L+700 1,715 1,686 1,732
Media: Broadcasting
The Infosoft Group, LLC 5/26/2021 and Subscription 7.19 % 3M L+525 13,030 13,025 12,900
The Vertex Companies, Construction and
LLC 12/20/2021 Engineering 7.17 % 1M L+550 5,592 5,489 5,491
TPC Canada Parent, Inc. Consumer Goods:
and TPC US Parent, LLC 2/7/2020 Non-Durable 6.97 % 3M L+475 8,767 8,618 8,504
Diversified
TVC Enterprises, LLC 5/6/2022 Consumer Services 7.67 % 3M L+550 14,990 14,887 14,690
TWS Acquisition Diversified
Corporation 7/17/2019 Consumer Services 8.76 % 3M L+625 5,468 5,448 5,441
Tyto Athene, LLC (New
Issue) 10/21/2021 IT Services 6.47 % 3M L+550 15,589 15,455 14,747
UBEO, LLC 11/6/2018 Capital Equipment 6.75 % 3M L+450 17,436 17,340 17,087
Walker Edison Furniture
Company LLC 6/9/2021 Wholesale 11.00 % 3M L+575 12,619 12,361 12,240
Electronic
Equipment,
Instruments, and
Wildcat Buyerco, Inc. 7/31/2022 Components 7.95 % SOFR+550 8,575 8,532 8,345
Zips Car Wash, LLC 12/29/2021 Automobiles 8.25 % 3M L+725 17,000 16,741 16,660
Total First Lien Secured
Debt 749,409 743,558
Second Lien Secured Debt
- 4.4%
P(IK 9.00%)
Consumer Goods: 10.75 %
Inventus Power, Inc. 09/29/2024 Durable 3M L+850 3,000 2,959 2,925
Total Second Lien
Secured Debt 2,959 2,925
Equity Securities - .9%
- Media: Diversified -
New MPE Holdings, LLC and Production - - - 336
Total Equity Securities - 336
Total Investments - 1,112.2% 752,368 746,819
Cash and Cash Equivalents - 58.4%
BlackRock Federal FD 39,190
Institutional 30 39,197
Total Cash and Cash
Equivalents 39,197 39,190
Total Investments and
Cash Equivalents
-1,170.5% $ 791,565 $ 786,009
Liabilities in Excess of
Other Assets -
(1,070.5)% (718,859 )
Members' Equity-100.0% $ 67,149
(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-U.S. company or principal place of business outside the United States .
(4)
Non-income producing security.
(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.
50
--------------------------------------------------------------------------------
Below is a listing of PSSL's individual investments as of September 30, 2021 ($
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
51--------------------------------------------------------------------------------
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 Consumer
TVC Enterprises, LLC 03/26/2026 Services 6.75 % 1M L+575 8,558 8,593 8,558
TWS Acquisition Diversified Consumer
Corporation 06/16/2025 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 10,975
Walker 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 5,374
Equity 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 1,314.7
DBI Intermediate Holdco, - 1,065
LLC, Series B (4) Business Services - - 237 -
- Media: Diversified 0
New MPE Holdings, LLC and Production - - - 362.2
Total Equity Securities 12,002 1,677
Total Investments - 1101.7% 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 - (1057.1)% (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 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-U.S. company or principal place of business outside the United States .
(4)
Non-income producing security.
Below are the consolidated statements of assets and liabilities for PSSL ($ in
thousands):
June 30, 2022
(Unaudited) September 30, 2021
Assets
Investments at fair value (cost-$752,368 and
$576,263 , respectively) $ 746,819 $ 564,783
Cash and cash equivalents (cost-$39,197 and$28,387 , respectively) 39,190
28,374
Interest receivable 2,282 1,414 Receivable for investment sold - 7,323 Prepaid expenses and other assets 2,038 1,665 Total assets 790,328
603,559
Liabilities
Payable for investments purchased 6,609
31,963
Credit facility payable 249,500
112,000
2032 Asset-backed debt, net (par-$246,000) 243,213
242,757
Notes payable to members 217,350
161,000
Interest payable on Credit Facility 2,662 1,741
Interest payable on notes to members 3,662 2,656
Accrued other expenses 183 178
Total liabilities 723,179 552,295
Members' equity 67,149 51,263
Total liabilities and members' equity $ 790,328 $ 603,559
52--------------------------------------------------------------------------------
(1) As of
Below are the consolidated statements of operations for PSSL ($ in thousands):
Three Months Ended June 30, Nine Months Ended June 30,
2022 2021 2022 2021
Investment income:
Interest $ 13,535 $ 8,688 $ 36,467 $ 23,741
Other income 65 506 1,084 757
Total investment income 13,600 9,194 37,551 24,498
Expenses:
Interest and expense on credit facility
and asset-backed debt 4,667 2,623 11,514 6,589
Interest expense on notes to members 4,510 3,289 11,704 9,283
Administrative services expenses 300 300 900 900
Other general and administrative
expenses 289 227 867 617
Total expenses 9,766 6,439 24,985 17,389
Net investment income 3,834 2,755 12,566 7,109
Realized and unrealized (loss) gain on
investments and credit facility foreign
currency translation currency
translations:
Net realized loss on investments (24 ) (3,403 ) (14,956 ) (4,679 )
Net change in unrealized appreciation
(depreciation) on:
Investments (5,232 ) 1,920 6,325 9,584
Credit facility foreign currency
translation - - - (489 )
Net change in unrealized appreciation
(depreciation) on investments and
credit facility foreign currency
translations (5,232 ) 1,920 6,325 9,095
Net realized and unrealized gain (loss)
from investments and credit facility
foreign currency translations (5,256 ) (1,483 ) (8,631 ) 4,416
Net increase (decrease) in members'
equity resulting from operations
(1)
Currently, 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.
Off-Balance Sheet Arrangements
We currently engage in no off-balance sheet arrangements other than our funding requirements for the unfunded investments described above.
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 our 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 for federal income tax purposes to our stockholders in respect of each calendar year of 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 the three and nine months endedJune 30, 2022 , we declared distributions of$0.285 and$0.855 per share, respectively, for total distributions of$11.8 and$34.1 million , respectively. During the three and nine months endedJune 30, 2021 , we declared distributions of$0.285 and$0.855 per share, respectively, for total distributions of$11.1 and$33.2 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.
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 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. InJune 2022 , the FASB issued Accounting Standards Update, or ASU, 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement ofEquity 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. 53
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