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: • our future operating results;
• our business outlook and the outlook for our prospective portfolio
businesses, including due to the current pandemic caused by COVID-19;
• 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;
• our ability to continue to effectively manage our business due to the
significant disruptions caused by the current COVID-19 pandemic;
• the dependence of our future success on the general economy and its impact
on the industries in which we invest;
• the impact of a prolonged decline in the liquidity of the credit markets on our
business; • the impact of investments that we expect to make;
• the impact of fluctuations in interest rates and exchange rates on
our business and our portfolio companies; • our contractual arrangements and relationships with third parties;
• the valuation of our investments in portfolio companies, in particular those
having no liquid trading market;
• the ability of our prospective portfolio companies to achieve their
objectives;
• our expected financings and investments and ability to fund capital
commitments to PSSL;
• the adequacy of our cash resources and working capital;
• the schedule of cash flows, if any, from the operations of our
portfolio companies; • the impact of price and volume fluctuations in the stock market;
• the ability of our investment advisor to find suitable investments for us
and to monitor and administer our investments; • the impact of future legislation and regulation on our business and our
portfolio companies; and
• the impact of Brexit and other global economic and political issues.
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 discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes contained elsewhere in this report.
Overview
PennantPark Floating Rate Capital Ltd. is a BDC whose objectives are to generate both current income and capital appreciation while seeking to preserve capital by investing primarily in Floating Rate Loans and other investments made toU.S. middle-market companies. We believe that Floating Rate Loans toU.S. middle-market companies offer attractive risk-reward to investors due to a limited amount of capital available for such companies. We use the term "middle-market" to refer to companies with annual revenues between$50 million and$1 billion . Our investments are typically rated below investment grade. Securities rated below investment grade are often referred to as "leveraged loans" or "high yield" securities or "junk bonds" and are often higher risk compared to debt instruments that are rated above investment grade and have speculative characteristics. However, when compared to junk bonds and other non-investment grade debt, senior secured Floating Rate Loans typically have more robust capital-preserving qualities, such as historically lower default rates than junk bonds, represent the senior source of capital in a borrower's capital structure and often have certain of the borrower's assets pledged as collateral. Our debt investments may generally range in maturity from three to ten years and are made toU.S. and, to a limited extent, non-U.S. corporations, partnerships and other business entities which operate in various industries and geographical regions. 41 -------------------------------------------------------------------------------- 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 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 vacine. 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: •U.S. and global economic recovery; • changes in interest rates, including LIBOR; • limited availability of credit, both inthe United States and internationally; • disruptions to supply-chains and price volatility;
• changes to existing laws and regulations, or the imposition of new laws and
regulations; and • 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 ofSeptember 30, 2021 , 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 ofSeptember 30, 2021 and 2020, our asset coverage ratio, as computed in accordance with the 1940 Act, was 175% and 168%, 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. We are also subject to financial risks, including changes in market interest rates. As ofSeptember 30, 2021 , our debt portfolio consisted of 99% 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. In connection with the COVID-19 pandemic, theU.S. Federal Reserve and other central banks have reduced interest rates, which has caused LIBOR to decrease. 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 7A. Quantitative and Qualitative Disclosures About Market Risk" below. 42 -------------------------------------------------------------------------------- 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. At-the-Market Offering OnAugust 20, 2021 , the Company entered into equity distribution agreements (together, the "Equity Distribution Agreements") with each ofJMP Securities LLC andRaymond James & Associates, Inc. , as the sales agents (each, a "Sales Agent," and together, the "Sales Agents"), in connection with the sale of shares of the Company's common stock, par value$0.001 per share (the "Common Stock"), with an aggregate offering price of up to$75 million . 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.
Income
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:
• the cost of calculating our NAV, including the cost of any third party
assessment services;
• the cost of realizing the sales and repurchases of shares of our ordinary shares
and other titles;
• costs payable to third parties relating to, or associated with, the realization
investments, including fees and expenses associated with performing due
diligence and reviews of prospective investments or complementary
businesses;
• the expenses incurred by the Investment Adviser within the framework of the due diligence and
reviews of investments; • transfer agent and custodial fees; • fees and expenses associated with marketing efforts; • federal and state registration fees and any exchange listing fees; • federal, state, local and foreign taxes; • independent directors' fees and expenses; • brokerage commissions;
• loyalty bond, directors ‘and officers’ liability, errors and omissions
insurance premiums and other insurance premiums;
• direct costs such as printing, mailing, long distance calls and personnel;
• fees and expenses associated with independent audits and external legal costs;
• the costs associated with our reporting and compliance obligations under the
the 1940 Act and applicable federal and state securities laws; and
• all other expenses incurred by the Administrator or by us in connection with
with the administration of our business, including payments under our
Administration agreement which will be based on our attributable share of
overheads and other expenses incurred by the Administrator to carry out
its obligations under our administration agreement, including rent and our
attributable share of compensation costs and related expenses of our
Chief Compliance Officer, Chief Financial Officer and their
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.
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PORTFOLIO AND INVESTMENT ACTIVITY
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. As ofSeptember 30, 2020 , our portfolio totaled$1,086.9 million and consisted of$968.6 million of first lien secured debt (including$125.4 million in PSSL),$29.9 million of second lien secured debt and$88.4 million of preferred and common equity (including$39.9 million in PSSL). Our debt portfolio consisted of 99% variable-rate investments. As ofSeptember 30, 2020 , we had three portfolio companies on non-accrual, representing 2.1% and 1.8% of our overall portfolio on a cost and fair value basis, respectively. Overall, the portfolio had net unrealized depreciation of$29.9 million . Our overall portfolio consisted of 102 companies with an average investment size of$10.7 million , had a weighted average yield on debt investments of 7.3%, and was invested 89% in first lien secured debt (including 12% in PSSL), 3% in second lien secured debt and 8% in preferred and common equity (including 4% in PSSL). As ofSeptember 30, 2020 , 97% of the investments held by PSSL were first lien secured debt. For the year endedSeptember 30, 2021 , we invested$661.1 million in 35 new and 68 existing portfolio companies with a weighted average yield on debt investments of 7.4%. Sales and repayments of investments for the same period totaled$702.1 million . For the year endedSeptember 30, 2020 , we invested$436.7 million in 19 new and 95 existing portfolio companies with a weighted average yield on debt investments of 8.0%. Sales and repayments of investments for the same period totaled$396.9 million .
As ofSeptember 30, 2021 , PSSL's portfolio totaled$564.8 million , consisted of 74 companies with an average investment size of$7.6 million and had a weighted average yield on debt investments of 7.1%. As ofSeptember 30, 2020 , PSSL's portfolio totaled$393.0 million , consisted of 45 companies with an average investment size of$7.6 million and had a weighted average yield on debt investments of 6.8%. For the year endedSeptember 30, 2021 , PSSL invested$354.4 million (of which$285.7 million was purchased from the Company) in 42 new and 29 existing portfolio companies with a weighted average yield on debt investments of 7.2%. PSSL's sales and repayments of investments for the same period totaled$185.7 million . For the year endedSeptember 30, 2020 , PSSL invested$87.1 million (of which$86.7 million was purchased from the Company) in 11 new and two existing portfolio companies with a weighted average yield on debt investments of 7.4%. PSSL's sales and repayments of investments for the same period totaled$172.6 million .
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of our assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of income and expenses during the reported periods. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements have been included. Actual results could differ from these estimates due to changes in the economic and regulatory environment, financial markets and any other parameters used in determining such estimates and assumptions. We may reclassify certain prior period amounts to conform to the current period presentation. We have eliminated all intercompany balances and transactions. References to ASC serve as a single source of accounting literature. Subsequent events are evaluated and disclosed as appropriate for events occurring through the date the Consolidated Financial Statements are issued. In addition to the discussion below, we describe our critical accounting policies in the notes to our Consolidated Financial Statements.
Investment assessments
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 advisor responsible for the portfolio investment;
(2) The preliminary conclusions of the assessment are then documented and discussed with
the management of our investment advisor;
(3) Our board of directors also engages independent valuation companies to
independent valuations of our investments for which market quotes are
not readily available or are readily available but considered non-reflective
the fair value of the investment. Independent expertise firms
review management’s preliminary assessments in light of their own
independent valuation and also in the light of market quotations obtained
an independent pricing service, broker, reseller or market maker;
(4) The audit committee of our board of directors reviews the
valuations of our Investment Advisor and those of the independent
assessment companies on a quarterly basis, periodically assesses the assessment
methodologies of independent valuation firms, and responds to and
complements the evaluation recommendations of the independent evaluation
companies to take into account 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
contribution of our investment advisor, the respective independent valuation
firms and the audit committee.
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-------------------------------------------------------------------------------- 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
the measure
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
entries which
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.
The SEC 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 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 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 incurred expenses of $2.9 million and zero relating
to amendment costs on the Credit Facility and debt issuance costs on the 2023
Notes during the years ended September 30, 2021 and 2020, 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 years September 30, 2021 and 2020, our Credit Facility or our Prior
Credit Facility, as applicable, the 2023 Notes had a net change in unrealized
(appreciation) depreciation of $(11.6) million and $14.2 million , respectively.
As of September 30, 2021 and 2020, the net unrealized depreciation on our Credit
Facility or Prior Credit Facility, as applicable, the 2023 Notes totaled $7.2
million and $18.8 million , respectively. We use a nationally recognized
independent valuation service to measure the fair value of our Credit Facility
in a manner consistent with the valuation process that the 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 capital gains 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 value of our portfolio investments, our Credit Facility, the 2023 during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.
Foreign currency conversion
Our books and records are kept in
1. Fair value of marketable securities, other assets and liabilities – at
exchange rate in effect at the end of the applicable period; and
2. Purchases and sales of marketable securities, income and expenses – as of
exchange rate in effect on the respective dates of these transactions.
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Although net assets and fair values are presented based on the applicable
foreign exchange rates described above, we do not isolate that portion of the
results of operations due to changes in foreign exchange rates on investments,
other assets and debt from the fluctuations arising from changes in fair value
of investments and liabilities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments and liabilities.
Payment in kind, or PIK, interest
We have investments in our portfolio which contain a PIK interest provision. PIK interest is added to the principal balance of the investment and is recorded as income. In order for us to maintain our ability to be subject to tax as a RIC, substantially all of this income must be paid out to stockholders in the form of dividends forU.S. federal income tax purposes, even though we may not have collected any cash with respect to interest on PIK securities.
Federal income taxes
We have elected to be treated, and intend to qualify annually to maintain our election to be treated, as a RIC under Subchapter M of the Code. To maintain our RIC tax election, we must, among other requirements, meet certain annual source-of-income and quarterly asset diversification requirements. We also must annually distribute dividends 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 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 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. 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 years endedSeptember 30, 2021 and 2020. For information regarding results of operations for the year endedSeptember 30, 2019 , see the Company's Form 10-K for the fiscal year endedSeptember 30, 2020 , as filed with theSEC onNovember 18, 2020 .
Investment income
Investment income for the year endedSeptember 30, 2021 was$82.7 million and was attributable to$72.1 million from first lien secured debt and$10.6 million from other investments. The decrease in investment income compared to the same periods in the prior year was primarily due to a decrease in the size of our portfolio and in LIBOR. Investment income for the year endedSeptember 30, 2020 was$95.5 million and was attributable to$86.8 million from first lien secured debt and$8.7 million from other investments. Expenses Expenses for the year endedSeptember 30, 2021 totaled$43.1 million . Base management fee for the same period totaled$10.7 million , incentive fee totaled$5.3 million , debt related interest and expenses totaled$24.5 million (including$2.9 million attributable to fees associated with entering into the New Credit Facility amendment fees), general and administrative expenses totaled$2.1 million and provision for taxes totaled$0.4 million . The decrease in expenses compared to the prior year was primarily due to a decrease in management fees under our Investment Management Agreement with the Investment Advisor and debt related interest and expenses. Expenses for the year endedSeptember 30, 2020 totaled$52.1 million . Base management fee for the same period totaled$11.4 million , incentive fee totaled$9.3 million , debt related interest and expenses totaled$27.1 million , general and administrative expenses totaled$3.9 million and provision for taxes totaled$0.4 million . Net Investment Income Net investment income totaled$39.6 million , or$1.02 per share, and$43.4 million , or$1.12 per share, for the years endedSeptember 30, 2021 and 2020, respectively. The decrease in net investment income compared to the prior year was primarily due to a decrease in the size of our portfolio and in LIBOR.
Net realized gains or losses
Sales and repayments of investments for the years endedSeptember 30, 2021 and 2020 totaled$702.1 million and$396.9 million , respectively. Net realized losses totaled$12.8 million and$12.7 million for the same periods, respectively. The change in realized losses was primarily due to changes in the market conditions of our investments and the values at which they were realized, caused by the fluctuations in the market and in the economy, as discussed above under "COVID-19 Developments".
Unrealized Gains or Impairments on Investments, Credit Facility and 2023 Notes
For the years endedSeptember 30, 2021 and 2020, we reported net change in unrealized appreciation (depreciation) on investments of$41.3 million and$(26.5) million , respectively. As ofSeptember 30, 2021 and 2020, our net unrealized appreciation (depreciation) on investments totaled$11.0 million and$(29.9) million , respectively. The net change in unrealized appreciation/depreciation on our investments for the year endedSeptember 30, 2021 compared to the prior year was primarily due to changes in the capital market conditions as well as the financial performance of certain portfolio companies primarily driven by the market disruption caused by the COVID-19 pandemic and the uncertainty surrounding its continued adverse economic impact, as discussed above under "COVID-19 Developments." For the year endedSeptember 30, 2021 and 2020, our Credit Facility or Prior Credit Facility, as applicable, and the 2023 Notes had a net change in unrealized (appreciation) depreciation of$(11.6) million and$14.2 million and, respectively. As ofSeptember 30, 2021 and 2020, our net unrealized depreciation on our Credit Facility or our Prior Credit Facility, as applicable, and the 2023 Notes totaled$7.2 million and$18.8 million , respectively. The net change in unrealized depreciation for the year endedSeptember 30, 2021 compared to the prior year was primarily due to changes in the capital markets, with the economic instability negatively affecting the value, as further discussed above under "COVID-19 Developments." 46
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Net change in net assets resulting from operations
Net change in net assets resulting from operations totaled$56.5 million , or$1.46 per share, and$18.4 million , or$0.47 per share, for the years endedSeptember 30, 2021 and 2020, respectively. The increase in net assets from operations for the year endedSeptember 30, 2021 compared to the prior year was primarily due to appreciation of the portfolio primarily driven by the recovery from the market disruption caused by the COVID-19 pandemic and the uncertainty surrounding its continued adverse economic impact, as discussed above under "COVID-19 Developments".
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity and capital resources are derived primarily from proceeds of securities offerings, debt capital and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies and payments of fees and other operating expenses we incur. We have used, and expect to continue to use, our debt capital, proceeds from the rotation of our portfolio and proceeds from public and private offerings of securities to finance our investment objectives. As ofSeptember 30, 2021 , in accordance with the 1940 Act, with certain limited exceptions, we are only allowed to borrow amounts such that we are in compliance with a 150% asset coverage ratio requirement after such borrowing. For information regarding liquidity and capital resources for the year endedSeptember 30, 2019 , see the Company's Form 10-K for the fiscal year endedSeptember 30, 2020 , as filed with theSEC onNovember 18, 2020 . OnApril 5, 2018 , our board of directors approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the Consolidated Appropriations Act of 2018 (which includes the SBCAA). As a result, the asset coverage requirements applicable to us for senior securities was reduced from 200% (i.e.,$1 of debt outstanding for each$1 of equity) to 150% (i.e.,$2 of debt outstanding for each$1 of equity), effective as ofApril 5, 2019 , subject to compliance with certain disclosure requirements. As ofSeptember 30, 2021 and 2020, our asset coverage ratio, as computed in accordance with the 1940 Act, was 175% and 168%, respectively. The annualized weighted average cost of debt for the years endedSeptember 30, 2021 and 2020, inclusive of the fee on the undrawn commitment on the Credit Facility or Prior Credit Facility, as applicable, amendment costs and debt issuance costs, was 3.9% and 3.7%, respectively (excluding amendment and debt issuance costs, such amounts are 3.5% and 3.7%, respectively). As ofSeptember 30, 2021 and 2020, we had$80.6 million and$211.4 million of unused borrowing capacity under our Credit Facility or our Prior Credit Facility, as applicable, respectively, subject to leverage and borrowing base restrictions. Funding I's multi-currency Credit Facility with the Lenders was$300.0 million as ofSeptember 30, 2021 , 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 ofAugust 2026 and a revolving period that ends inAugust 2024 . As ofSeptember 30, 2021 and 2020, Funding I had$219.4 million and$308.6 million of outstanding borrowings under the Credit Facility or the Prior Credit Facility, as applicable, respectively. The Credit Facility or the Prior Credit Facility, as applicable, had a weighted average interest rate of 2.3% and 2.2%, exclusive of the fee on undrawn commitments, as ofSeptember 30, 2021 and 2020, 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 inAugust 2026 . The Credit Facility is secured by all of the assets ofFunding I. Both PennantPark Floating Rate Capital Ltd. and Funding I have made customary representations and warranties and are required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities. The Credit Facility contains covenants, including, but not limited to, restrictions of loan size, currency types and amounts, industry requirements, average life of loans, geographic and individual portfolio concentrations, minimum portfolio yield and loan payment frequency. Additionally, the Credit Facility requires the maintenance of a minimum equity investment in Funding I and income ratio as well as restrictions on certain payments and issuance of debt. The Credit Facility compliance reporting is prepared on a basis of accounting other than GAAP. As ofSeptember 30, 2021 , 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 (1) all required cash interest and, if applicable, principal payments to the Lenders, (2) required administrative expenses and (3) claims of other unsecured creditors of Funding I. We cannot assure you that there will be sufficient funds available to make any distributions to us or that such distributions will meet our expectations from Funding I. The Investment Adviser has irrevocably directed that the management fee owed with respect to such services is to be paid to the Company so long as the Investment Adviser remains the collateral manager. InNovember 2017 , we issued$138.6 million of our 2023 Notes. The 2023 Notes were issued pursuant to a deed of trust between the Company andMishmeret Trust Company, Ltd. as trustee. 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-" inMarch 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 onJune 15 andDecember 15 of each year, commencingJune 15, 2018 . The principal on the 2023 Notes will be payable in four annual installments as follows: 15% of the original principal amount onDecember 15, 2020 , 15% of the original principal amount onDecember 15, 2021 , 15% of the original principal amount onDecember 15, 2022 and 55% of the original principal amount onDecember 15, 2023 . The 2023 Notes are general, unsecured obligations, rank equal in right of payment with all of our existing and future senior unsecured indebtedness and are generally redeemable at our option. The deed of trust governing the 2023 Notes includes certain customary covenants, including minimum equity requirements, and events of default. Please refer to the deed of trust filed as Exhibit (d)(8) to our post-effective amendment filed onDecember 13, 2017 for more information. The 2023 Notes are rated ilA- byS&P Global Ratings Maalot Ltd. and are listed on the TASE. In connection with this offering, we have dual listed our common stock on the TASE. The 2023 Notes have not been and will not be registered under the Securities Act and may not be offered or sold inthe United States absent registration under the Securities Act or in transactions exempt from, or not subject to, such registration requirements. InMarch 2021 , we issued$100.0 million in aggregate principal amount of 2026 Notes at a public offering price per note of 99.4%. Interest on the 2026 Notes is paid semi-annually onApril 1 andOctober 1 of each year, at a rate of 4.25% per year, commencingOctober 1, 2021 . The 2026 Notes mature onApril 1, 2026 and may be redeemed in whole or in part at our option subject to a make-whole premium if redeemed more than three months prior to maturity. The 2026 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future senior unsecured indebtedness. The 2026 Notes are effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, financing vehicles, or similar facilities. We do not intend to list the 2026 Notes on any securities exchange or automated dealer quotation system. InSeptember 2019 , the Securitization Issuers completed the Debt Securitization. The 2031 Asset-Backed Debt is secured by the middle market loans, participation interests in middle market loans and other assets of the Securitization Issuer. The Debt Securitization was executed through (A) a private placement of: (i)$78.5 million Class A-1 Senior Secured Floating Rate Notes maturing 2031, which bear interest at the three-month LIBOR plus 1.8%, (ii)$15.0 million Class A-2 Senior Secured Fixed Rate Notes due 2031, which bear interest at 3.7%, (iii)$14.0 million Class B-1 Senior Secured Floating Rate Notes due 2031, which bear interest at the three-month LIBOR 47 -------------------------------------------------------------------------------- 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 ClassD Secured Deferrable Floating Rate Notes due 2031, which bear interest at the three-month LIBOR plus 4.8% and (B) the borrowing of$77.5 million Class A1 Senior Secured Floating Rate Loans due 2031, which bear interest at the three-month LIBOR plus 1.8%, under a credit agreement by and among the Securitization Issuers, as borrowers, various financial institutions, as lenders, andU.S. Bank National Association , as collateral agent and as loan agent. The 2031 Asset-Backed Debt is scheduled to mature onOctober 15, 2031 . As of bothSeptember 30, 2021 and 2020, the Company had$228.0 million of 2031 Asset-Backed Debt outstanding with a weighted average interest rate of 2.6% and 2.7%, respectively. On the closing date of the Debt Securitization, in consideration of our transfer to the Securitization Issuer of the initial closing date loan portfolio, which included loans distributed to us by our wholly-owned subsidiary, the Securitization Issuer transferred to us 100% of the Preferred Shares of the Securitization Issuer, 100% of the Class D Secured Deferrable Floating Rate Notes issued by the Securitization Issuer, and a portion of the net cash proceeds received from the sale of the 2031 Asset-Backed Debt. The Preferred Shares of the Securitization Issuer do not bear interest and had a stated value of$55.4 million at the closing of the Debt Securitization. The 2031 Asset-Backed Debt constitutes secured obligations of the Securitization Issuers, and the indenture governing the 2031 Asset-Backed Debt includes customary covenants and events of default. The 2031 Asset-Backed Debt has not been, and will not be, registered under the Securities Act or any state securities or "blue sky" laws and may not be offered or sold inthe United States absent registration with theSEC or an applicable exemption from registration. Our Investment Adviser serves as collateral manager to the Securitization Issuer pursuant to a collateral management agreement between our Investment Adviser and the Securitization Issuer, or the Collateral Management Agreement. For so long as our Investment Adviser serves as collateral manager, it will elect to irrevocably waive any collateral management fee to which it may be entitled under the Collateral Management Agreement. OnAugust 20, 2021 , we entered into equity distribution agreements (together, the "Equity Distribution Agreements") with each ofJMP Securities LLC andRaymond James & Associates, Inc. , as the sales agents (each, a "Sales Agent," and together, the "Sales Agents"), in connection with the sale of shares of our common stock, par value$0.001 per share (the "Common Stock"), with an aggregate offering price of up to$75 million under an at-the-market offering (the "ATM Program"). 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 endedSeptember 30, 2021 , we issued 108,654 shares of our Common Stock under the ATM Program at a weighted-average price of$12.91 per share, raising$1.4 million of gross proceeds. Net proceeds were$1.4 million after commissions to the Sales Agents on shares sold. We incurred$0.4 million of legal and other offering costs associated with establishing the ATM Program. As ofSeptember 30, 2021 , we had$73.6 million available under the ATM Program. ThroughSeptember 30, 2021 , we issued 108,654 shares of our Common Stock under the ATM Program at a weighted-average price of$12.91 , raising$1.4 million of gross proceeds. Net proceeds were$1.4 million after commissions to the Sales Agents on shares sold. We incurred$0.4 million of legal and other offering costs associated with establishing the ATM Program. We may raise equity or debt capital through both registered offerings off our shelf registration statement and private offerings of securities, securitizing a portion of our investments among other considerations or mergers and acquisitions. Furthermore, our 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. For the year endedSeptember 30, 2020 we did not issue any shares. We have entered into certain contracts under which we have material future commitments. Under our Investment Management Agreement, which was most recently reapproved by our board of directors, including a majority of our directorswho are not interested persons of us or the Investment Adviser, inFebruary 2021 , PennantPark Investment Advisers serves as our investment adviser. Payments under our Investment Management Agreement in each reporting period are equal to (1) a management fee equal to a percentage of the value of our average adjusted gross assets and (2) an incentive fee based on our performance. Under our Administration Agreement, which was most recently reapproved by our board of directors, including a majority of our directorswho are not interested persons of us, inFebruary 2021 , the Administrator furnishes us with office facilities and administrative services necessary to conduct our day-to-day operations. If requested to provide significant managerial assistance to our portfolio companies, we or the Administrator will be paid an additional amount based on the services provided. Payment under our Administration Agreement is based upon our allocable portion of the Administrator's overhead in performing its obligations under our Administration Agreement, including rent and our allocable portion of the costs of our Chief Compliance Officer, Chief Financial Officer and their respective staffs. If any of our contractual obligations discussed above are terminated, our costs under new agreements that we enter into may increase. In addition, we will likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under our Investment Management Agreement and our Administration Agreement. Any new investment management agreement would also be subject to approval by our stockholders. As ofSeptember 30, 2021 and 2020, we had cash equivalents of$49.8 million and$57.5 million , respectively, available for investing and general corporate purposes. We believe our liquidity and capital resources are sufficient to take advantage of market opportunities. Our operating activities provided cash of$49.6 million for the year endedSeptember 30, 2021 , and our financing activities used cash of$56.3 million for the same period. Our operating activities used cash primarily for our investment activities and our financing activities used cash primarily for paying down our Credit Facility and paying distributions to stockholders. Our operating activities used cash of$4.9 million for the year endedSeptember 30, 2020 , and our financing activities used cash of$0.9 million for the same period. Our operating activities used cash primarily for our investment activities and our financing activities used cash primarily for paying down our Credit Facility and paying distributions to stockholders. 48
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Senior Securities Information about our senior securities is shown in the following table as ofSeptember 30, 2021 , 2020, 2019, 2018, 2017, 2016, 2015, 2014, 2013 and 2012. The report ofRSM US LLP , an independent registered public accounting firm, on theSenior Securities table as ofSeptember 30, 2021 , is attached as an exhibit to this Report. Average Total Amount Asset Coverage Market Value Class and Year Outstanding (1) Per Unit (2) Per Unit (3) Credit Facility Fiscal 2021 $ 219,400 $ 1,746 N/A Fiscal 2020 308,599 1,677 N/A Fiscal 2019 265,308 1,786 N/A Fiscal 2018 333,728 2,122 N/A Fiscal 2017 253,783 2,780 N/A Fiscal 2016 232,908 2,601 N/A Fiscal 2015 29,600 13,598 N/A Fiscal 2014 146,400 2,469 N/A Fiscal 2013 99,600 3,109 N/A Fiscal 2012 75,500 2,263 N/A 2023 Notes Fiscal 2021 117,793 1,746 N/A Fiscal 2020 138,580 1,677 N/A Fiscal 2019 138,580 1,786 N/A Fiscal 2018 138,580 2,122 N/A 2026 Notes Fiscal 2021 100,000 1,746 N/A 2031 Asset-Backed Debt Fiscal 2021 228,000 1,746 N/A Fiscal 2020 228,000 1,677 N/A Fiscal 2019 $ 228,000 $ 1,786 N/A
(1) Total cost of each category of senior securities outstanding at the end of
period presented in thousands (000s).
(2) The asset coverage ratio of a class of senior securities representing
debt is calculated as our total consolidated assets, less all
liabilities and debt not represented by senior securities, divided by
senior securities representing debt at par. This asset coverage ratio
is multiplied by$1,000 to determine the Asset Coverage Per Unit.
(3) Not applicable, as senior securities are not listed for trading
the United States of America .
InMay 2017 , we and Kemper formed PSSL, an unconsolidated joint venture. PSSL invests primarily in middle-market and other corporate debt securities consistent with our strategy. PSSL was formed as aDelaware limited liability company. As ofSeptember 30, 2021 and 2020, PSSL had total assets of$603.6 million and$406.4 million , respectively. As of the same dates, we and Kemper had remaining commitments to fund first lien secured debt and equity interests in PSSL in an aggregate amount of$48.0 million and$25.3 million , respectively. PSSL invests in portfolio companies in the same industries in which we may directly invest. We provide capital to PSSL in the form of first lien secured debt and equity interests. As ofSeptember 30, 2021 and 2020, 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 made in PSSL consisted of first lien secured debt of$140.9 million (additional$29.4 million unfunded) and$125.4 million (additional$15.5 million unfunded), respectively, and equity interests of$60.4 million (additional$12.6 million unfunded) and$53.7 million (additional$6.6 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. Additionally, PSSL entered into a$155.0 million senior secured revolving credit facility which bears interest at LIBOR (or an alternative risk-free floating interest rate index) plus 260 basis points, or the PSSL Credit Facility, withAlly Bank . through its wholly-owned subsidiary,PennantPark Senior Secured Loan Facility LLC , or PSSL Subsidiary, subject to leverage and borrowing base restrictions. InJanuary 2021 , PSSL completed a$300.7 million debt securitization in the form of a collateralized loan obligation, or the "2032 Asset-Backed Debt". The 2032 Asset-Backed Debt is secured by a diversified portfolio ofPennantPark CLO II, Ltd. , a wholly-owned and consolidated subsidiary of PSSL, consisting primarily of middle market loans and participation interests in middle market loans. The 2032 Asset-Backed Debt is scheduled to mature inJanuary 2032 . On the closing date of the transaction, in consideration of PSSL's transfer toPennantPark CLO II, Ltd. of the initial closing date loan portfolio, which included loans distributed to PSSL by certain of its wholly owned subsidiaries and us,PennantPark CLO II, Ltd. transferred to PSSL 100% of the Preferred Shares ofPennantPark CLO II, Ltd. and 100% of the ClassE Notes issued byPennantPark CLO II, Ltd.
Here is a summary of PSSL’s portfolio at fair value:
September 30, September 30,
2021 2020
Total investments $ 564,783,128 $ 392,986,090
Weighted average cost yield on income producing
investments 7.1 % 6.8 %
Number of portfolio companies in PSSL 74 45
Largest portfolio company investment $ 18,932,630
Total of the top five investments in portfolio companies
49
-------------------------------------------------------------------------------- Below is a listing of PSSL's individual investments as ofSeptember 30, 2021 : Basis Point Current Spread Above Issuer Name Maturity Industry Coupon Index (1) Par Cost Fair Value (2) First Lien Secured Debt - 1,088.% Ad.net Acquisition, LLC 05/06/2026 Media 7.00 % 3M L+600 8,977,500$ 8,851,554 $ 8,842,838 Altamira Technologies, LLC 07/24/2025 Business Services 8.00 % 3M L+700 5,525,093 5,375,682 5,179,775 American Insulated Glass, LLC 12/21/2023 Building Products 6.50 % 3M L+550 5,720,691 5,653,291 5,663,484 Diversified Consumer Apex Service Partners, LLC 07/31/2025 Services 6.25 % 3M L+525 1,020,636 1,020,636 1,010,430 Apex Service Partners, LLC Diversified Consumer Term Loan B 07/31/2025 Services 6.50 % 1M L+550 2,222,284 2,222,284 2,200,061 Apex Service Partners, LLC Diversified Consumer Term Loan C 07/31/2025 Services 6.25 % 3M L+525 4,173,913 4,103,292 4,132,174 Applied Technical Services, Commercial Services & LLC 12/29/2026 Supplies 6.75 % 3M L+575 4,511,364 4,419,019 4,421,136 By Light Professional IT Services, LLC 05/16/2022 High Tech Industries 7.25 % 1M L+625 12,879,690 12,868,714 12,879,690 Cadence Aerospace, LLC 11/14/2023 Aerospace and Defense 9.50 % 3M L+850 12,281,867 12,231,080 11,980,961 (PIK 9.50 %) Healthcare, Education & Cano Health 11/23/2027 Childcare 5.25 % 3M L+450 2,653,333 2,646,700 2,654,448 Construction and CHA Holdings, Inc. 04/10/2025 Engineering 5.50 % 3M L+450 5,614,627 5,518,856 5,530,408 Challenger Performance Optimization, Inc. 08/31/2023 Business Services 8.00 % 1M L+675 9,500,705 9,453,659 9,215,683 (PIK 1.00 %) Connatix Buyer, Inc 07/13/2027 Media 6.25 % 1M L+550 4,000,000 3,921,757 3,920,000 CoolSys, Inc 08/04/2028 Business Services 5.50 % 1M L+475 1,909,091 1,890,159 1,913,864 Commercial Services & Crane 1 Services Inc 08/16/2027 Supplies 6.75 % 1M L+575 2,131,579 2,100,271 2,110,264 Crash Champions, LLC 08/05/2025 Automobiles 6.00 % 3M L+500 8,977,500 8,801,543 8,797,950 Digital Room Holdings, Inc. Commercial Services & 1M L+500 05/22/2026 Supplies 5.08 % 3,228,001 3,111,026 3,186,037 Douglas Products and Chemicals, Plastics and Packaging Company LLC 10/19/2022 Rubber 6.75 % 3M L+575 8,746,050 8,694,764 8,746,050 Douglas Sewer Intermediate, Chemicals, Plastics and LLC 10/19/2022 Rubber 6.75 % 3M L+575 7,323,008 7,278,084 7,323,008 Dr. Squatch, LLC 8/27/2026 Personal Products 7.00 % 3M L+600 10,000,000 9,803,125 9,800,000 DRS Holdings III, Inc. 11/03/2025 Consumer Goods: Durable 7.25 % 1M L+625 15,675,682 15,584,366 15,565,952 East Valley Tourist Hotels, Restaurants and Development Authority 03/07/2022 Leisure 9.00 % 3M L+800 5,719,009 5,624,041 5,633,224 (PIK 3.50 %) Hotels, Restaurants and ECL Entertainment, LLC 03/312028 Leisure 8.25 % 1M L+750 2,647,212 2,621,341 2,706,774 Electronic Equipment, Instruments, and ECM Industries, LLC 12/23/2025 Components 5.50 % 1M L+450 4,994,355 4,994,355 4,894,468 Fairbanks More Defense 06/17/2028 Aerospace and Defense 5.50 % 3M L+475 10,000,000 9,954,660 10,000,000 Commercial Services & FlexPrint, LLC 01/02/2024 Supplies 6.02 % 1M L+590 4,769,595 4,732,000 4,745,747 Gantech Acquisition Corp. 05/14/2026 IT Services 7.25 % 3M L+625 14,925,000 14,648,015 14,626,500 Diversified Financial Global Holdings InterCo LLC 03/16/2026 Services 7.00 % 3M L+600 3,967,531 3,947,994 3,947,694 Trding Companies & Graffiti Buyer, Inc 08/10/2027 Distributors 6.75 % 3M L+575 2,392,857 2,345,748 2,356,964 Hancock Roofing and Construction L.L.C. 12/31/2026 Insurance 6.00 % 3M L+500 2,481,250 2,424,925 2,456,438 Holdco Sands Intermediate, LLC 12/19/2025 Aerospace and Defense 7.50 % 3M L+600 6,473,725 6,407,142 6,441,356 IMIA Holdings, Inc. 04/09/2027 Aerospace and Defense 6.75 % 3M L+575 13,589,144 13,338,397 13,317,361 Diversified Consumer Integrative Nutrition, LLC 09/29/2023 Services 5.50 % 3M L+450 11,566,905 11,527,975 11,566,905 Chemicals, Plastics and K2 Pure Solutions NoCal, L.P. 12/20/2023 Rubber 8.00 % 1M L+700 19,450,000 19,192,725 18,932,630 LAV Gear Holdings, Inc. 10/31/2024 Capital Equipment 8.50 % 3M L+750 10,491,277 10,435,348 9,833,474 (PIK 1.00 %) Healthcare Providers and Lightspeed Buyer Inc. 02/3/2026 Services 6.75 % 1M L+575 5,706,549 5,605,574 5,706,549 Hotel, Gaming and Lucky Bucks, LLC 07/20/2027 Leisure 6.25 % 1M L+550 4,500,000 4,411,012 4,424,085 Media: Diversified and Marketplace Events, LLC 09/30/2025 Production 6.25 % 3M L+525 617,487 617,487 617,487 Super Priority First Lien (PIK 6.25 %) Term LoanMarketplace Events, LLC - Super Priority First Lien Media: Diversified and Unfunded Term Loan 09/30/2025 Production - - 589,122 - - Media: Diversified and (3) - Marketplace Events LLC 09/30/2026 Production 0.00 % 4,614,973 3,441,474 4,614,973Mars Acquisition Holdings Corp. 05/14/2026 Media 6.50 % 1M L+550 10,000,000 9,812,779 9,900,000 Internet Software and MBS Holdings, Inc. 04/16/2027 Services 6.75 % 3M L+575 7,481,250 7,337,843 7,331,625 Media: Advertising, MeritDirect, LLC 05/23/2024 Printing & Publishing 6.50 % 3M L+550 5,531,856 5,411,520 5,476,537Mission Critical Electronics , Inc. 09/28/2022 Capital Equipment 6.00 % 3M L+500 5,889,949 5,877,013 5,889,949 Healthcare, Education & NBH Group LLC 08/19/2026 Culture 6.50 % 3M L+550 10,901,830 10,687,200 10,683,794 Consumer Goods: New Milani Group LLC 06/06/2024 Non-Durable 6.50 % 1M L+550 14,550,000 14,481,129 13,895,250 Healthcare Equipment and OIS Management Services LLC 07/09/2026 Supplies 5.75 % 1M L+475 1,995,000 1,965,911 1,965,075 Air Freight and One Stop Mailing, LLC 05/07/2027 Logistics 7.25 % 1M L+625 14,919,643 14,631,178 14,658,549 Output Services Group, Inc. 03/27/2024 Business Services 5.50 % 1M L+450 7,743,419 7,732,934 7,046,511 Construction and Ox Two, LLC 05/18/2026 Building 7.00 % 3M L+600 4,975,000 4,901,154 4,875,500 PH Beauty Holdings III, Inc. 09/29/2025 Wholesale 5.12 % 1M L+500 9,692,670 9,514,071 9,466,540 Plant Health Intermediate, Chemicals, Plastics and Inc. 10/19/2022 Rubber 6.75 % 3M L+575 1,577,806 1,568,099 1,577,806 PlayPower, Inc. 05/8/2026 Consumer Goods: Durable 5.63 % 3M L+550 3,805,440 3,719,648 3,735,687 Recteq, LLC 01/29/2026 Leisure Products 7.00 % 3M L+600 4,975,000 4,887,511 4,925,250Research Now Group, Inc. and Survey Sampling International Diversified Consumer LLC 12/20/2024 Services 6.50 % 3M L+550 10,679,701 10,591,506 10,543,962 Sales Benchmark Index LLC 01/03/2025 Professional Services 7.75 % 3M L+600 5,578,331 5,495,801 5,438,872 Sargent & Greenleaf Inc. 12/20/2024 Wholesale 7.00 % 1M L+550 5,549,876 5,492,898 5,549,876 Schlesinger Global, Inc. 07/14/2025 Business Services 8.00 % 3M L+700 11,784,634 11,760,259 11,254,326 Healthcare and Smile Brands Inc. 10/14/2024 Pharmaceuticals 5.32 % 3M L+450 12,576,323 12,458,672 12,450,560 Beverage, Food and Snak Club, LLC 07/19/2022 Tobacco 7.00 % 1M L+600 4,388,056 4,361,678 4,388,056 Healthcare and Solutionreach, Inc. 01/17/2024 Pharmaceuticals 6.75 % 1M L+575 5,892,286 5,854,034 5,892,286 50
-------------------------------------------------------------------------------- Below is a listing of PSSL's individual investments as ofSeptember 30, 2021 (continued): Basis Point Spread Current Above Par / Issuer Name Maturity Industry Coupon Index (1) Shares Cost Fair Value (2) Hotels, Restaurants and Spectacle Gary Holdings, LLC 12/23/2025 Leisure
11.00% 1M L + 900 4 389 000 4 505 648
4 764 830
STV Group Incorporated 12/11/2026 Construction and Building
5.33% 1M L + 525 9 075 412 9 003 666
9,030,035
7.00% 3M L + 600 4,950,000 4,860,463
4,948,403
TeleGuam Holdings, LLC 11/20/2025 Telecommunications 5.50 % 1M L+450 10,337,380 10,312,931 10,234,006 Teneo Holdings LLC 07/18/2025 Business Services 6.25 % 1M L+525 2,309,486 2,306,149 2,296,969The Aegis Technologies Group , LLC 10/31/2025 Aerospace and Defense
6.77% 3M L + 550 5 713 461 5 633 702
5 656 327
The Bluebird Group LLC 07/27/2026 Professional Services
8.00% 3M L + 700 1 743 846 1 709 872
1,732,860
Media: Broadcasting and The Infosoft Group, LLC 09/16/2024 Subscription
6.75% 6M L + 575 13 383 253 13 375 955
13 383 253
Construction and The Vertex Companies, LLC 08/30/2027 Engineering
6.50% 6M L + 550 5 634 134 5 523 212
5,528,647
TPC Canada Parent, Inc. and TPC Consumer Goods:
US Parent, LLC 11/24/2025 Non-Durable 6.25 % 3M L+525 8,834,066 8,654,973 8,569,044
Diversified Consumer
TVC Enterprises, LLC 03/26/2026 Services 6.75 % 1M L+575 8,558,226 8,593,467 8,558,226
Diversified Consumer
TWS Acquisition Corporation 06/16/2025 Services 7.25 % 1M L+625 6,636,062 6,598,947 6,636,062
Tyto Athene, LLC 08/27/2024 IT Services 6.25 % 1M L+550 11,442,500 11,334,186 11,442,500
UBEO, LLC 04/03/2024 Capital Equipment 5.50 % 1M L+450 17,571,320 17,457,179 17,483,464
Urology Management Associates, Healthcare and
LLC 08/30/2024 Pharmaceuticals
5.50% 1M L + 450 11 030 410 10 848 799
10 975 256
Walker Edison Furniture Company LLC 03/31/2027 Wholesale 6.75 % 1M L+575 12,437,500 12,141,939 11,971,094 Electronic Equipment, Instruments, and Wildcat Buyerco, Inc. 02/27/2026 Components 6.00 % 3M L+500 5,705,549 5,655,884 5,678,016 Total First Lien Secured Debt 558,879,885 557,731,845 Second Lien Secured Debt - 10.5%DBI Intermediate Holdco, LLC , Term Loan B 02/02/2026 Business Services 11.00 % - 2,434,333 2,434,333 2,434,333 (PIK 9.00 %) Inventus Power, Inc. 09/29/2024 Consumer Goods: Durable 9.50 % 3M L+850 3,000,000 2,946,584
2,940,000
Total Second Lien Secured Debt 5,380,917
5 374 333
Equity Securities - 3.3% DBI Intermediate Holdco, LLC, - Series A-1 Business Services 13.00 % - 6,784 5,034,310
–
DBI Intermediate Holdco, LLC, - 7,007 Series AA Business Services - - 6,731,347
1,314,706.0
DBI Intermediate Holdco, LLC, - 1,065,021
Series B Business Services - - 236,521 -
- Media: Diversified and 47
New MPE Holdings, LLC Production - - - 362,244.0
Total Equity Securities 12,002,178 1,676,950
Total Investments - 1101.7% 576,262,980
564 783 128
Cash and Cash Equivalents - 55.3% BlackRock Federal FD Institutional 30 28,190,894 28,190,894 US Bank Cash 195,787 182,647 Total Cash and Cash Equivalents 28,386,681 28,373,541 Total Investments and Cash Equivalents -1,157.1%$ 604,649,661 $ 593,156,669 Liabilities in Excess of Other Assets - (1057.1)% (541,892,538 ) Members' Equity-100.0%$ 51,264,131
(1) Represents variable rate instruments that bear interest at a
spread against an index, usually the LIBOR or “L” or the applicable Prime
rate or “P”. The spread can change depending on the type of rate used. Terms
in the Table of investments disclose the real interest rate in force 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) Evaluated in accordance with PSSL’s accounting policy.
(3) Security not producing income.
51
-------------------------------------------------------------------------------- Below is a listing of PSSL's individual investments as ofSeptember 30, 2020 : Basis Point Current Spread Above Issuer Name Maturity Industry Coupon Index (1) Par Cost Fair Value (2) First Lien Secured Debt-838.2% Altamira Technologies, LLC 07/24/2025 High Tech Industries 7.00 % 3M L+600 4,856,155$ 4,795,251 $
4,686,189
American Auto Auction Group , LLC 01/02/2024 Transportation: Consumer 6.00 % 3M L+500 7,670,399 7,596,860 7,440,287 By Light Professional IT Services, LLC 05/16/2022 High Tech Industries 7.25 % 1M L+625 10,901,843 10,774,172 10,792,825 Cadence Aerospace, LLC 11/14/2023 Aerospace and Defense 9.50 % 3M L+850 11,802,082 11,730,187 11,322,915 Cardenas Markets LLC 11/29/2023 Beverage, Food and Tobacco 6.75 % 1M L+575 4,779,776 4,759,527 4,779,776
6.25 % 1M L+525 5,330,847 5,330,847 5,304,193 Challenger Performance Optimization, Inc. 08/31/2023 Business Services 7.00 % 1M L+575 9,663,392 9,595,826 8,986,954 Country Fresh Holdings, LLC 05/01/2023 Beverage, Food and Tobacco 6.00 % 1M L+500 182,403 179,976 182,403Country Fresh Holdings, LLC (Revolver) 05/01/2023 Beverage, Food and Tobacco 6.00 % 1M L+500 450,110 450,111 450,110 Douglas Products and Packaging Chemicals, Plastics and Company LLC 10/19/2022 Rubber 6.75 % 3M L+575 8,836,683 8,756,358
8,704,133
Chemicals, Plastics and
Douglas Sewer Intermediate, LLC 10/19/2022 Rubber 6.75 % 3M L+575 7,403,183 7,370,405 7,292,135
DRS Holdings III, Inc. 11/03/2025 Consumer Goods: Durable 6.75 % 1M L+575 8,022,149 7,950,609 7,875,344
Banking, Finance, Insurance
Findex Group Limited (3), (4) 05/31/2024 and Real Estate 5.46 % 3M L+525 A $ 10,000,000 7,411,600 6,809,125
GCOM Software LLC 11/14/2022 High Tech Industries 7.75 % 1M L+625 16,646,228 16,562,972 16,646,228
Good2Grow LLC 11/18/2024 Beverages 5.25 % 3M L+425 9,499,183 9,429,133 9,427,938
GSM Holdings, Inc. 06/03/2024 Consumer Goods: Durable 5.50 % 3M L+450 19,470,523 19,354,235 19,275,817
IMIA Holdings, Inc. 10/26/2025 Aerospace and Defense 5.50 % 3M L+450 12,143,568 12,097,717 12,022,132
Impact Group, LLC 06/27/2023 Wholesale 8.37 % 1M L+737 9,290,185 9,216,206 9,336,636
Diversified Consumer
Integrative Nutrition, LLC 09/29/2023 Services 5.75 % 1M L+475 8,587,606 8,587,606
8 458 792
Chemicals, Plastics and K2 Pure Solutions NoCal, L.P. 12/20/2023 Rubber 8.00 % 1M L+700 19,650,000 19,436,214 19,217,700 LAV Gear Holdings, Inc. 10/31/2024 Capital Equipment 8.50 % 3M L+750 9,975,861 9,902,990 9,188,766 LSF9 Atlantis Holdings, LLC 05/01/2023 Retail 7.00 % 1M L+600 6,843,750 6,872,048
6 631 320
Manna Pro Products, LLC 12/08/2023 Consumer Goods:
Non Durable 7.00% 1M L + 600 4 313 910 4 273 019
4,197,866
Media: Diversified and (5) -
Marketplace Events LLC (4) 01/27/2023 Production 0.00 % C $ 5,730,254 4,449,786 3,623,691
Media: Advertising,
MeritDirect, LLC 05/23/2024 Printing & Publishing 6.50 % 3M L+550 4,812,500 4,771,073
4,583,906
Mission Critical Electronics , Inc. 09/28/2022 Capital Equipment 6.00 % 3M L+500 5,949,731 5,927,114
5 877 737
New Milani Group LLC 06/06/2024 Consumer Goods:
Non Durable 6.50% 1M L + 550 14 662 500 14 568 019 13 379 531
Business Services 5.50 % 1M L+450 7,803,419 7,825,029
7 101 111
PH Beauty Holdings III, Inc. 09/29/2025 Wholesale 5.19 % 1M L+500 9,792,594 9,717,936
9,156,076
Chemicals, Plastics and Plant Health Intermediate, Inc. 10/19/2022 Rubber 6.75 % 3M L+575 1,594,030 1,579,915 1,570,120 PlayPower, Inc. 05/8/2026 Leisure Products 5.72 % 3M L+550 4,025,520 3,990,707 3,824,244 Sargent & Greenleaf Inc. 12/20/2024 Wholesale 7.00 % 1M L+550 4,925,000 4,860,858
4 836 350
Schlesinger Global, Inc. 07/14/2025 Business Services 7.00 % 1M L+600 11,904,617 11,904,617 11,041,532
Healthcare and
Smile Brands Inc. 10/14/2024 Pharmaceuticals 4.93 % 3M L+450 11,175,938 11,090,654 10,840,659
Snak Club, LLC 07/19/2021 Beverage, Food and Tobacco 6.50 % 1M L+550 4,561,971 4,561,971 4,493,542
Healthcare and
Solutionreach, Inc. 01/17/2024 Pharmaceuticals 6.75 % 3M L+575 6,214,305 6,149,172 6,145,948
STV Group Incorporated 12/11/2026 Construction and Building 5.40 % 1M L+525 7,762,222 7,692,023 7,684,600
TeleGuam Holdings, LLC 11/20/2025 Telecommunications 5.50 % 1M L+450 8,309,797 8,272,104 8,060,503
Teneo Holdings LLC 07/18/2025 Business Services 6.25 % 1M L+525 4,950,000 4,783,595 4,764,375
Media: Broadcasting and
The Infosoft Group, LLC 09/16/2024 Subscription 6.75 % 6M L+575 8,602,807 8,584,634 8,602,807
TPC Canada Parent, Inc. and TPC
US Parent, LLC 11/24/2025 Consumer Goods:
Non Durable 6.25% 3M L + 525 8 924 066 8 837 614
8,656,344
Diversified Consumer
TVC Enterprises, LLC 01/18/2024 Services 6.50 % 1M L+550 9,747,335 9,747,335 9,674,230
Diversified Consumer
TWS Acquisition Corporation 06/16/2025 Services 7.25 % 1M L+625 6,910,465 6,797,117 6,772,256
UBEO, LLC 04/03/2024 Capital Equipment 5.50 % 3M L+450 21,930,702 21,762,065 20,614,860
Urology Management Associates, Healthcare and
LLC 08/30/2024 Pharmaceuticals 6.00 % 3M L+500 11,463,443 11,311,325
11,119,540
Walker Edison Furniture Company LLC 09/26/2024 Wholesale 7.25 % 3M L+625 10,594,047 10,440,520
10,594,047
8.50 % 1M L+750 254,095 250,910
251,557
Total First Lien Secured Debt 392,309,962
382 299 150
Secured Debt-19.5%
9.50 % 1M L+850 964,045 964,045 889,813
(PIK 9.50 %)
DBI Holding, LLC, Term Loan B 03/26/2021 Business Services 9.00 % - 15,946 15,946
15 946
(PIK 9.00 %) DBI Holding, LLC, Term Loan C 02/02/2026 Business Services 9.00 % - 7,977,513 7,977,513
7 977 513
(PIK 9.00 %) Total Second Lien Secured Debt 8,957,504
8 883 272
Equity Securities -4.0% Country Fresh Holding Company - Inc. Beverage, Food and Tobacco 1,317 1,713,105 - DBI Holding, LLC, Series A-1 - Business Services - - 5,034 5,034,310 1,803,668 DBI Holding, LLC, Series B - Business Services - - 1,065,021 236,521 -Total Equity Securities 6,983,936 1,803,668 Total Investments-861.6% 408,251,402 392,986,090 Cash and Cash Equivalents-24.4% BlackRock Federal FD Institutional 30 6,005,963 6,005,963 US Bank Cash 5,109,410 5,115,516 Total Cash and Cash Equivalents 11,115,373 11,121,479 Total Investments and Cash Equivalents-886.0%$ 419,366,775 $ 404,107,569 Liabilities in Excess of Other Assets-(786.0)% (358,495,484 ) Members' Equity-100.0%$ 45,612,085
(1) Represents variable rate instruments that bear interest at a
spread against an index, usually the applicable LIBOR or “L” or EURIBOR
or “E”. All securities are subject to a floor LIBOR or preferential rate when
propagation is provided, unless otherwise noted. Spread provided includes PIK interest
and other fee rates, if applicable.
(2) Evaluated according to PSSL’s accounting policy.
(3) No-
(4) The nominal amount is denominated in Australian dollars (A $) or Canadian dollars (C $)
as indicated.
(5) Represents the purchase of a deferred settlement security or
line of credit that is currently an unfunded investment. This security makes
not earn a basis point spread above an index while it is unfunded.
52
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You will find below the financial information of PSSL:
Statements of Assets and Liabilities
September 30, September 30,
2021 2020
Assets
Investments at fair value (cost-$576,262,980 and
$408,251,402 , respectively) $ 564,783,128 $ 392,986,090
Cash and cash equivalents (cost-$28,386,681 and
$11,115,373 , respectively) 28,373,541
11,121,479
Interest receivable 1,413,529
2,235,595
Receivable for investment sold 7,323,360 - Prepaid expenses and other assets 1,665,633
62 812
Total assets 603,559,191
406 405 976
Liabilities
Payable for investments purchased 31,963,307 - PSSL Credit facility payable 112,000,000 - Capital One, NA credit facility payable -
216,969,469
2032 Asset-backed debt, net (par-$246,000,000) 242,756,901 - Notes payable to members 161,000,000
143,290,000
Interest payable on PSSL Credit Facility 1,740,807
490,858
Interest payable on notes to members 2,655,607 32,719 Accrued other expenses 178,438 10,845 Total liabilities 552,295,060 360,793,891 Commitments and contingencies (1) - - Members' equity 51,264,131
45 612 085
Total liabilities and members' equity$ 603,559,191 $ 406,405,976
(1) From the two
unfunded commitments to fund investments, respectively.
Statements of Operations
Year Ended Year Ended Year Ended
September 30,
2021 2020 2019 Investment income: Interest$ 33,364,275 $ 33,260,154 $ 39,288,981 Other income 982,118 138,795 785,111 Total investment income 34,346,393 33,398,949 40,074,092 Expenses: Interest and expenses on PSSL Credit Facility and 2032 Asset-Backed Debt 9,648,602 11,865,971 16,487,783 Interest expense on notes to members 12,635,490 13,531,037 14,247,817 Administrative services expenses 1,200,000 1,200,000 1,150,000 Other general and administrative expenses (1) 906,134 485,660 454,600 Total expenses 24,390,226 27,082,668 32,340,200 Net investment income 9,956,167 6,316,281 7,733,892 Realized and unrealized (loss) gain on investments and credit facility foreign currency translations: Net realized (loss) gain on investments (4,732,408 ) (992,974 ) (885,069 ) Net change in unrealized (depreciation) appreciation on: Investments 3,377,322 (9,368,121 ) (5,976,299 ) Credit facility foreign currency translation (489,034 ) (2,210,907 ) 1,887,878 Net change in unrealized (depreciation) appreciation on investments and credit facility foreign currency translations 2,888,288 (11,579,028 ) (4,088,421 ) Net realized and unrealized (loss) gain from investments and credit facility foreign currency translations (1,844,120 ) (12,572,002 ) (4,973,490 ) Net increase (decrease) in members' equity resulting from operations$ 8,112,047 $ (6,255,721 ) $ 2,760,402
(1) No management or incentive fees are payable by PSSL. If fees were to be
invoiced, they would be disclosed separately in the income statements.
53
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Recent developments
OnOctober 6, 2021 , we issued an additional$85 million aggregate principal amount of our 4.25% Notes due 2026 (the "Add-On Notes") in an add-on offering (the "Add-On Offering") pursuant to the Base Indenture, datedMarch 23, 2021 (the "Base Indenture"), between the Company andAmerican Stock Transfer & Trust Company, LLC (the "Trustee"), as supplemented by the First Supplemental Indenture, datedMarch 23, 2021 , between the Company and the Trustee (together with the Base Indenture, the "Indenture"). In connection with the Add-On Offering, the Company entered into an underwriting agreement (the "Underwriting Agreement"), by and among the Company,PennantPark Investment Advisers, LLC (the "Investment Adviser") andGoldman Sachs & Co. LLC ,Keefe, Bruyette & Woods, Inc. andTruist Securities, Inc. , as representatives of the several underwriters named on Schedule A to the Underwriting Agreement. The Add-On Notes constitute a further issuance of the$100 million aggregate principal amount of the 2026 Notes issued by the Company onMarch 23, 2021 (the "Existing Notes") under the Indenture. The Add-On Notes are treated as a single series with the Existing Notes and have the same terms as the Existing Notes, other than the issue date and the offering price. The Add-On Notes have the same CUSIP number and are fungible and rank equally with the Existing Notes. Upon issuance of the Add-On Notes, the outstanding aggregate principal amount of the Company's 4.25% notes due 2026 is$185 million . Subsequent to quarter end, PFLT had new funded investments of$82.3 million , net of sales and repayments. PSSL had new funded investments of$23.3 million , net of sales and repayments.
Division
In order to be treated as a RIC for federal income tax purposes and to not be subject to corporate-level tax on undistributed income or gains, we are required, under Subchapter M of the Code, to annually distribute dividends forU.S. federal income tax purposes to our stockholders out of the assets legally available for distribution of an amount generally at least equal to 90% of investment company taxable income, determined without regard to any deduction for dividends paid. Although not required for us to maintain our RIC tax status, in order to preclude the imposition of a 4% nondeductible federal excise tax imposed on RICs, we must distribute dividends forU.S. federal income tax purposes to our stockholders in respect of each calendar year an amount at least equal to the Excise Tax Avoidance Requirement. In addition, although we may distribute realized net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually, out of the assets legally available for such distributions in the manner described above, we have retained and may continue to retain such net capital gains or investment company taxable income, subject to maintaining our ability to be taxed as a RIC, in order to provide us with additional liquidity. During both years endedSeptember 30, 2021 and 2020, we declared distributions of$1.14 per share for total distributions of$44.2 million . 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 making monthly distributions to our shareholders. Our monthly distributions, if any, are determined quarterly by our board of directors.
At
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 positions
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 evaluating the potential impact that the adoption of this guidance will have on the Company's financial statements. 54
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