FLOATING RATE CAPITAL PENNANTPARK LTD. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

0

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 prospects and the prospects of our potential portfolio companies, including following 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 credit market liquidity on our business;

the impact of the investments we plan to make;

the impact of interest rate and currency exchange rate fluctuations on our business and portfolio companies;

our contractual arrangements and relationships with third parties;

the valuation of our investments in our portfolio companies, particularly those that do not have a liquid market;

the ability of our prospective portfolio companies to achieve their objectives;

our planned financings and investments and our ability to fund capital commitments to PSSL;

the adequacy of our liquidity and working capital;

the cash flow timing, if any, of the operations of our prospective portfolio companies;

the impact of price and volume fluctuations in the stock market;

the ability of our investment adviser to find suitable investments for us and to monitor and administer our investments;

the impact of future laws and regulations on our business and our portfolio companies; and

the impact of from the United Kingdom withdrawal of the European Union (commonly referred to as “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 the SEC, 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 to U.S.
middle-market companies.



We believe that Floating Rate Loans to U.S. middle-market companies offer
attractive risk-reward to investors due to a limited amount of capital available
for such companies. We use the term "middle-market" to refer to companies with
annual revenues between $50 million and $1 billion. Our investments are
typically rated below investment grade. Securities rated below investment grade
are often referred to as "leveraged loans," "high yield" securities or "junk
bonds" and are often higher risk compared to debt instruments that are rated
above investment grade and have speculative characteristics. However, when
compared to junk bonds and other non-investment

                                       38

--------------------------------------------------------------------------------


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
to U.S. and, to a limited extent, non-U.S. corporations, partnerships and other
business entities which operate in various industries and geographical regions.



Under normal market conditions, we generally expect that at least 80% of the
value of our managed assets will be invested in Floating Rate Loans and other
investments bearing a variable-rate of interest. We generally expect that first
lien secured debt will represent at least 65% of our overall portfolio. We also
generally expect to invest up to 35% of our overall portfolio opportunistically
in other types of investments, including second lien secured debt and
subordinated debt and, to a lesser extent, equity investments. We seek to create
a diversified portfolio by generally targeting an investment size between $5
million and $30 million, on average, although we expect that this investment
size will vary proportionately with the size of our capital base.



Our investment activity depends on many factors, including the amount of debt
and equity capital available to middle-market companies, the level of merger and
acquisition activity for such companies, the general economic environment and
the competitive environment for the types of investments we make. We have used,
and expect to continue to use, our debt capital, proceeds from the rotation of
our portfolio and proceeds from public and private offerings of securities to
finance our investment objectives.



Organization and Structure of PennantPark Floating Rate Capital Ltd.



PennantPark Floating Rate Capital Ltd., a Maryland corporation organized in
October 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 in December 2019 and has since been identified as a
global pandemic by the World 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 the U.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 in the United
States and globally and any impact to our business operations or the business
operations of our portfolio companies



Due to the nature of these governmental restrictions and their potentially
long-lasting duration, some portfolio companies, especially those in vulnerable
industries such as retail, food and beverage and travel, have experienced
significant financial distress and may default on their financial obligations to
us and their other capital providers. Moreover, certain of our portfolio
companies that remain subject to prolonged and severe financial distress, have
substantially curtailed their operations, deferred capital expenditures,
furloughed or laid off workers and/or terminated relationships with their
service providers. Depending on the length and magnitude of the disruption to
the operations of our portfolio companies, certain portfolio companies may
experience financial distress and possibly default on their financial
obligations to us and their other capital providers in the future. These
developments could impact the value of our investments in such portfolio
companies.



The COVID-19 pandemic, including any worsening thereof, may have an adverse
impact on certain sectors of the global economy. Particularly, COVID-19 presents
material uncertainty and risk with respect to our future performance and
financial results as well as the future performance and financial results of our
portfolio companies due to the risk of any sever adverse reactions to the
vaccine, politicization of the vaccination process or general public skepticism
of the safety and efficacy of the vaccine. While we are unable to predict the
ultimate adverse effect of COVID-19, or any worsening thereof, on our results of
operation, we have identified certain factors that are likely to affect market,
economic and geopolitical conditions, and thereby may adversely affect our
business, including:



•
U.S. and global economic recovery;
•
changes in interest rates, including LIBOR;
•
limited availability of credit, both in the 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 of December 31, 2021, we had three 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 of December 31, 2021 and September 30, 2021, our asset coverage
ratio, as computed in accordance with the 1940 Act, was 165% and 175%,
respectively. Our Credit Facility includes standard covenants and events of
default provisions. If we fail to make the required payments or breach the
covenants therein, it could result in a default under the Credit Facility.
Failure to cure such default or obtain a waiver from the appropriate party would
result in an event of default, and the lenders may accelerate the repayment of
our indebtedness under the Credit Facility, such that all amounts owed are due
immediately at the time of default. Such an action would negatively affect our
liquidity, business, financial condition, results of operations, cash flows and
ability to pay distributions to our stockholders.



                                       39

--------------------------------------------------------------------------------


We are also subject to financial risks, including changes in market interest
rates. As of December 31, 2021, our debt portfolio consisted of 99.9%
variable-rate investments. The variable-rate loans are usually based on a
floating interest rate index such as LIBOR and typically have durations of three
months after which they reset to current market interest rates. Variable-rate
investments subject to a floor generally reset by reference to the current
market index after one to nine months only if the index exceeds the floor. In
addition, the Credit Facility currently bears interest at LIBOR (or an
alternative risk-free floating interest rate index) plus 225 basis points and,
after the revolving period ends in August 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, the U.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 3.
Quantitative and Qualitative Disclosures About Market Risk" below.



In addition, we have continued to implement our business continuity planning
strategy. Our priority has been to safeguard the health of our employees and to
ensure continuity of business operations on behalf of our investors. We
implemented a heightened level of communication across senior management, our
investment team and our board of directors, and we have proactively engaged with
our vendors on a regular basis to ensure they continue to meet our criteria for
business continuity.



LIBOR Developments



In July 2017, the head of the United Kingdom Financial Conduct Authority
announced the desire to phase out the use of LIBOR by the end of 2021. As of
December 31, 2021, all non-U.S. dollar LIBOR publications have been phased out.
The phase out of a majority of the U.S. dollar publications is currently delayed
until June 30, 2023. The Alternative Reference Rates Committee, a steering
committee comprised of large U.S. financial institutions, has identified the
Secured Overnight Financing Rate ("SOFR") as its preferred alternative rate for
LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized
by the U.S. Treasury securities, and is based on directly observable U.S.
Treasury-backed repurchase transactions. Although SOFR appears to be the
preferred replacement rate for U.S. dollar LIBOR, it is not possible at this
time to predict the effect of any such changes, any establishment of alternative
reference rates, whether the COVID-19 pandemic will have further effect on LIBOR
transition timelines, or other reforms to LIBOR that may be enacted.



The effect of the establishment of alternative reference rates or other reforms
to LIBOR or other reference rates is complex and could have a material adverse
effect on our business, financial condition and results of operations. Given the
inherent differences between LIBOR and SOFR, or any other alternative benchmark
rate that may be established, there are continuing uncertainties regarding the
transition from LIBOR, including, but not limited to, the need to amend all
contracts with LIBOR as the referenced rate and how this will impact the cost of
variable rate debt and certain derivative financial instruments. In addition,
SOFR or other replacement rates may fail to gain market acceptance. Any failure
of SOFR or alternative reference rates to gain market acceptance could adversely
affect the return on, value of and market for securities linked to such rates.



Factors such as the pace of the transition to replacement or reformed rates, the
specific terms and parameters for and market acceptance of any alternative
reference rate, prices of and the liquidity of trading markets for products
based on alternative reference rates, and our ability to transition and develop
appropriate systems and analytics for one or more alternative reference rates
could also have a material adverse effect on our business, financial condition
and results of operations.



At-the-Market Offering



On August 20, 2021, the Company entered into Equity Distribution Agreements with
each of JMP Securities LLC and Raymond James & Associates, Inc., as the sales
agents (each, a "Sales Agent," and together, the "Sales Agents"), in connection
with the sale of shares of the Company's Common Stock, par value $0.001 per
share, with an aggregate offering price of up to $75 million. The Equity
Distribution Agreements provide that the Company may offer and sell shares of
the Common Stock from time to time through a Sales Agent in amounts and at times
to be determined by the Company. Actual sales will depend on a variety of
factors to be determined by the Company from time to time, including, market
conditions and the trading price of the Common Stock.



Revenues



We generate revenue in the form of interest income on the debt securities we
hold and capital gains and dividends, if any, on investment securities that we
may acquire in portfolio companies. Our debt investments, whether in the form of
first lien secured debt, second lien secured debt or subordinated debt,
typically have a term of three to ten years and bear interest at a floating or
fixed rate. Interest on debt securities is generally payable quarterly or
semiannually. In some cases, our investments provide for deferred interest
payments or PIK interest. The principal amount of the debt securities and any
accrued but unpaid interest generally becomes due at the maturity date. In
addition, we may generate revenue in the form of amendment, commitment,
origination, structuring or diligence fees, fees for providing significant
managerial assistance and possibly consulting fees. Loan origination fees, OID
and market discount or premium are capitalized and accreted or amortized using
the effective interest method as interest income or, in the case of deferred
financing costs, as interest expense. Dividend income, if any, is recognized on
an accrual basis on the ex-dividend date to the extent that we expect to collect
such amounts. From time to time, the Company receives certain fees from
portfolio companies, which are non-recurring in nature. Such fees include loan
prepayment penalties, structuring fees and amendment fees, and are recorded as
other investment income when earned. Litigation settlements are accounted for in
accordance with the gain contingency provisions of ASC Subtopic 450-30, Gain
Contingencies, or ASC 450-30.



Expenses



Our primary operating expenses include the payment of a management fee and the
payment of an incentive fee to our Investment Adviser, if any, our allocable
portion of overhead under our Administration Agreement and other operating costs
as detailed below. Our management fee compensates our Investment Adviser for its
work in identifying, evaluating, negotiating, consummating and monitoring our
investments. Additionally, we pay interest expense on the outstanding debt and
unused commitment fees on undrawn amounts under our various debt facilities. We
bear all other direct or indirect costs and expenses of our operations and
transactions, including:



•

the cost of calculating our net asset value, including the cost of any third-party valuation services;

the cost of share sales and redemptions of our common stock and other securities;

fees payable to third parties relating to or associated with making investments, including fees and expenses associated with carrying out due diligence and reviews of potential investments or complementary businesses;

the costs incurred by the investment adviser in carrying out due diligence and reviews of the investments;

transfer agent and custodial fees;

fees and expenses associated with marketing efforts;

federal and state filing fees and all stock exchange listing fees;

                                       40

--------------------------------------------------------------------------------

federal, state, local and foreign taxes;

independent directors’ fees and expenses;


•
brokerage commissions;



•

misappropriation of funds undertaking, directors and officers, errors and omissions liability insurance and other insurance premiums;

direct costs such as printing, postage, long distance calls and personnel;

fees and expenses associated with independent audits and external legal fees;

costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws; and

all other expenses incurred by either the Administrator or us in connection with
administering our business, including payments under our Administration
Agreement that will be based upon our allocable portion of overhead, and other
expenses incurred by the Administrator in performing its obligations under our
Administration Agreement, including rent and our allocable portion of the costs
of compensation and related expenses of our Chief Compliance Officer, Chief
Financial Officer and their respective staffs.



Generally, during periods of asset growth, we expect our general and
administrative expenses to be relatively stable or to decline as a percentage of
total assets and increase during periods of asset declines. Incentive fees,
interest expense and costs relating to future offerings of securities would be
additive to the expenses described above.



INVESTMENT PORTFOLIO AND ACTIVITY

As of December 31, 2021, our portfolio totaled $1,179.8 million, and consisted
of $1,024.8 million of first lien secured debt (including $153.1 million in
PSSL), $4.4 million of second lien secured debt and $150.5 million of preferred
and common equity (including $48.1 million in PSSL). Our debt portfolio
consisted of 99.9% variable-rate investments. As of December 31, 2021, we had
three portfolio companies on non-accrual, representing 2.9% and 2.5% of our
overall portfolio on a cost and fair value basis, respectively. Overall, the
portfolio had net unrealized appreciation of $7.9 million. Our overall portfolio
consisted of 115 companies with an average investment size of $10.3 million, had
a weighted average yield on debt investments of 7.5%, and was invested 87% in
first lien secured debt (including 13% in PSSL), less than 1% in second lien
secured debt and 13% in preferred and common equity (including 4% in PSSL). As
of December 31, 2021, 99.5% of the investments held by PSSL were first lien
secured debt.

As of September 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 of September 30, 2021, we had two portfolio
companies on non-accrual, representing 2.7% and 2.6% of our overall portfolio on
a cost and fair value basis, respectively. Overall, the portfolio had net
unrealized depreciation of $11.0 million. Our overall portfolio consisted of 110
companies with an average investment size of $9.8 million, had a weighted
average yield on debt investments of 7.4%, and was invested 86% in first lien
secured debt (including 13% in PSSL), 1% in second lien secured debt and 13% in
preferred and common equity (including 4% in PSSL). As of September 30, 2021,
99% of the investments held by PSSL were first lien secured debt.



For the three months ended December 31, 2021, we invested $335.1 million in 16
new and 36 existing portfolio companies with a weighted average yield on debt
investments of 7.8%. Sales and repayments of investments for the three months
ended December 31, 2021 totaled $238.4 million.



For the three months ended December 31, 2020, we invested $67.0 million in five
new and 17 existing portfolio companies with a weighted average yield on debt
investments of 7.6%. Sales and repayments of investments for the three months
ended December 31, 2020 totaled $109.6 million.



PennantPark Senior Secured Loan Fund I LLC



As of December 31, 2021, PSSL's portfolio totaled $641.7 million and consisted
of 80 companies with an average investment size of $8.0 million and had a
weighted average yield on debt investments of 7.3 %. As of September 30, 2021,
PSSL's portfolio totaled $564.8 million and consisted of 74 companies with an
average investment size of $7.6 million and had a weighted average yield on debt
investments of 7.1%.



For the three months ended December 31, 2021, PSSL invested $129.6 million
(including $122.7 million purchased from the Company) in 12 new and six existing
portfolio companies with a weighted average yield on debt investments of 8.0 %.
Sales and repayments of investments for the three months ended December 31, 2021
totaled $50.4 million.



For the three months ended December 31, 2020, PSSL invested $15.4 million (none
of which was purchased from the Company) in zero new and five existing portfolio
companies with a weighted average yield on debt investments of 7.8%. PSSL's
sales and repayments of investments for the three months ended December 31, 2020
totaled $30.6 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. We discuss our critical accounting
estimates in Management's Discussion and Analysis of Financial Condition and
Results of Operations in our 2021 Annual Report on Form 10-K. There have been no
significant changes in our critical accounting estimates during the three months
from those disclosed in our 2021 Annual Report on Form 10-K.

                                       41

--------------------------------------------------------------------------------


Investment Valuations



We expect that there may not be readily available market values for many of our
investments which are or will be in our portfolio, and we value such investments
at fair value as determined in good faith by or under the direction of our board
of directors using a documented valuation policy and a consistently applied
valuation process, as described in this Report. With respect to investments for
which there is no readily available market value, the factors that the board of
directors may take into account in pricing our investments at fair value
include, as relevant, the nature and realizable value of any collateral, the
portfolio company's ability to make payments and its earnings and discounted
cash flow, the markets in which the portfolio company does business, comparison
to publicly traded securities and other relevant factors. When an external event
such as a purchase transaction, public offering or subsequent equity sale
occurs, we consider the pricing indicated by the external event to corroborate
or revise our valuation. Due to the inherent uncertainty of determining the fair
value of investments that do not have a readily available market value, the
price used in an actual transaction may be different than our valuation and the
difference may be material.



Our portfolio generally consists of illiquid securities, including debt and
equity investments. With respect to investments for which market quotations are
not readily available, or for which market quotations are deemed not reflective
of the fair value, our board of directors undertakes a multi-step valuation
process each quarter, as described below:



(1)

Our quarterly valuation process begins with each portfolio company or investment
being initially valued by the investment professionals of our Investment Adviser
responsible for the portfolio investment;



(2)

Preliminary valuation findings are then documented and discussed with the management of our investment advisor;

(3)

Our board of directors also engages independent valuation firms to conduct
independent appraisals of our investments for which market quotations are not
readily available or are readily available but deemed not reflective of the fair
value of the investment. The independent valuation firms review management's
preliminary valuations in light of their own independent assessment and also in
light of any market quotations obtained from an independent pricing service,
broker, dealer or market maker;



(4)

The Audit Committee of our Board of Directors reviews the preliminary valuations of our investment advisor and those of the independent valuation companies on a quarterly basis, periodically evaluates the valuation methodologies of the independent valuation companies, and responds and complements the valuation recommendations of independent valuation companies. valuation firms to reflect any comments; and

(5)

Our board of directors discusses these valuations and determines the fair value
of each investment in our portfolio in good faith, based on the input of our
Investment Adviser, the respective independent valuation firms and the audit
committee.



Our board of directors generally uses market quotations to assess the value of
our investments for which market quotations are readily available. We obtain
these market values from independent pricing services or at the bid prices
obtained from at least two brokers or dealers, if available, or otherwise from a
principal market maker or a primary market dealer. The Investment Adviser
assesses the source and reliability of bids from brokers or dealers. If the
board of directors has a bona fide reason to believe any such market quote does
not reflect the fair value of an investment, it may independently value such
investments by using the valuation procedure that it uses with respect to assets
for which market quotations are not readily available.



Fair value, as defined under ASC 820, is the price that we would receive upon
selling an investment or pay to transfer a liability in an orderly transaction
to a market participant in the principal or most advantageous market for the
investment or liability. ASC 820 emphasizes that valuation techniques maximize
the use of observable market inputs and minimize the use of unobservable inputs.
Inputs refer broadly to the assumptions that market participants would use in
pricing an asset or liability, including assumptions about risk. Inputs may be
observable or unobservable. Observable inputs reflect the assumptions market
participants would use in pricing an asset or liability based on market data
obtained from sources independent of us. Unobservable inputs reflect the
assumptions market participants would use in pricing an asset or liability based
on the best information available to us on the reporting period date.



The ASC 820 classifies the data used to measure these fair values ​​into the following hierarchies:

Level 1: Inputs which are quoted prices (unadjusted) in active markets for identical assets or liabilities, available to us on the valuation date.



Level 2: Inputs that are quoted prices for similar assets or liabilities in
active markets, or that are quoted prices for identical or similar assets or
liabilities in markets that are not active and inputs that are observable for
the asset or liability, either directly or indirectly, for substantially the
full term, if applicable, of the financial instrument.



Level 3: Inputs that are unobservable for an asset or liability because they are
based on our own assumptions about how market participants would price the asset
or liability.



A financial instrument's categorization within the valuation hierarchy is based
upon the lowest level of input that is significant to the fair value
measurement. Generally, most of our investments, our 2031 Asset-Backed Debt and
our Credit Facility are classified as Level 3. Our 2026 Notes are classified as
Level 2 as they are financial instruments with readily observable market inputs.
Our 2023 Notes are classified as Level 1, as they were valued using the closing
price from the primary exchange. Due to the inherent uncertainty of determining
the fair value of investments that do not have a readily available market value,
the price used in an actual transaction may be different than our valuation and
those differences may be material.



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, our 2026 Notes, our 2031 Asset-Backed Debt and our Credit
Facility, we employ the valuation policy approved by our board of directors that
is consistent with ASC 820. Consistent with our valuation policy, we evaluate
the source of inputs, including any markets in which our investments are
trading, in determining fair value.



Generally, the carrying value of our consolidated financial liabilities
approximates fair value. We have adopted the principles under ASC Subtopic
825-10, Financial Instruments, or ASC 825-10, which provides companies with an
option to report selected financial assets and liabilities at fair value, and
made an irrevocable election to apply ASC 825-10 to our Credit Facility and the
2023 Notes. We elected to use the fair value option for our Credit Facility and
the 2023 Notes to align the measurement attributes of both our assets and
liabilities while mitigating volatility in earnings from using different
measurement attributes. Due to that election and in accordance with GAAP, we did
not incur any expenses relating to amendment costs on the Credit Facility and
debt issuance costs on the 2023 Notes during the three months ended December 31,
2021 and 2020, respectively. ASC 825-10 establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that

                                       42

--------------------------------------------------------------------------------


choose different measurement attributes for similar types of assets and
liabilities and to more easily understand the effect on earnings of a company's
choice to use fair value. ASC 825-10 also requires entities to display the fair
value of the selected assets and liabilities on the face of the Consolidated
Statements of Assets and Liabilities and changes in fair value of the Credit
Facility and the 2023 Notes are reported in our Consolidated Statements of
Operations. We elected not to apply ASC 825-10 to any other financial assets or
liabilities, including the 2026 Notes and the 2031 Asset-Backed Debt.



For the three months ended December 31, 2021 and 2020, the Credit Facility and
the 2023 Notes had a net change in unrealized depreciation (appreciation) of
$3.6 million and $(4.0) million, respectively. As of December 31, 2021 and
September 30, 2021, the net unrealized depreciation on the Credit Facility or
our Prior Credit Facility, as applicable, the 2023 Notes totaled $10.8 million
and $7.2 million, respectively. We use a nationally recognized independent
valuation service to measure the fair value of the Credit Facility in a manner
consistent with the valuation process that our board of directors uses to value
our investments. Our 2023 Notes trade on the TASE and we use the closing price
on the exchange to determine the fair value.



Revenue Recognition



We record interest income on an accrual basis to the extent that we expect to
collect such amounts. For loans and debt investments with contractual PIK
interest, which represents interest accrued and added to the loan balance that
generally becomes due at maturity, we will generally not accrue PIK interest
when the portfolio company valuation indicates that such PIK interest is not
collectable. We do not accrue as a receivable interest on loans and debt
investments if we have reason to doubt our ability to collect such interest.
Loan origination fees, OID, market discount or premium and deferred financing
costs on liabilities, which we do not fair value, are capitalized and then
accreted or amortized using the effective interest method as interest income or,
in the case of deferred financing costs, as interest expense. We record
prepayment penalties on loans and debt investments as income. Dividend income,
if any, is recognized on an accrual basis on the ex-dividend date to the extent
that we expect to collect such amounts. From time to time, the Company receives
certain fees from portfolio companies, which are non-recurring in nature. Such
fees include loan prepayment penalties, structuring fees and amendment fees, and
are recorded as other investment income when earned.



Net realized gain or loss and net change in unrealized appreciation or amortization



We measure realized gains or losses by the difference between the net proceeds
from the repayment or sale and the amortized cost basis of the investment, using
the specific identification method, without regard to unrealized appreciation or
depreciation previously recognized, but considering unamortized upfront fees and
prepayment penalties. Net change in unrealized appreciation or depreciation
reflects the change in the fair values of our portfolio investments, our Credit
Facility, the 2023 Notes during the reporting period, including any reversal of
previously recorded unrealized appreciation or depreciation, when gains or
losses are realized.



Foreign Currency Translation


Our books and records are kept in we dollars. All amounts in foreign currencies are converted into we dollars on the following basis:

1.

Fair value of marketable securities, other assets and liabilities – at exchange rates prevailing at the end of the applicable period; and

2.

Purchases and sales of investment securities, income and expenses – at the exchange rates prevailing on the respective dates of such transactions.



Although net assets and fair values are presented based on the applicable
foreign exchange rates described above, we do not isolate that portion of the
results of operations due to changes in foreign exchange rates on investments,
other assets and debt from the fluctuations arising from changes in fair value
of investments and liabilities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments and liabilities.



Payment in kind or interest PIK



We have investments in our portfolio which contain a PIK interest provision. PIK
interest is added to the principal balance of the investment and is recorded as
income. In order for us to maintain our ability to be subject to tax as a RIC,
substantially all of this income must be paid out to stockholders in the form of
dividends for federal income tax purposes, even though we may not have collected
any cash with respect to interest on PIK securities.



Federal Income Taxes



We have elected to be treated, and intend to qualify annually to maintain our
election to be treated, as a RIC under Subchapter M of the Code. To maintain our
RIC tax election, we must, among other requirements, meet certain annual
source-of-income and quarterly asset diversification requirements. We also must
annually distribute dividends for federal income tax purposes to our
stockholders out of the assets legally available for distribution of an amount
generally at least equal to 90% of the sum of our net ordinary income and
realized net short-term capital gains in excess of realized net long-term
capital losses, or investment company taxable income, determined without regard
to any deduction for dividends paid.



Although not required for us to maintain our RIC tax status, in order to
preclude the imposition of a 4% nondeductible federal excise tax imposed on
RICs, we must distribute dividends for U.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.



PFLT Investment Holdings, LLC, a wholly-owned subsidiary of the Company (the
"Taxable Subsidiary"), is subject to U.S. federal, state and local corporate
income taxes. The income tax expense and related tax liabilities of the Taxable
Subsidiary are reflected in the Company's consolidated financial statements. The
provision for taxes on unrealized appreciation of investments is the result of
netting (i) an expected tax liability on the gain from the sale of an investment
which is likely to be realized during fiscal year ending September 30, 2022 and
(ii) the expected tax benefit resulting from the use of loss carryforwards in
the current year.



For the three months ended December 31, 2021, the Company recognized a provision
for taxes of $(1.5) million on unrealized appreciation on investments related to
the Taxable Subsidiary. For the three months ended December 31, 2020, the
Company recognized a provision for taxes of zero on unrealized appreciation on
investments related to the Taxable Subsidiary. As of December 31, 2021 and
September 30, 2021, $1.5 million and zero, respectively, was included in
deferred tax liabilities on the Consolidated Statements of Assets and
Liabilities relating to unrealized gains on investments.



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.



                                       43
--------------------------------------------------------------------------------


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 for U.S. federal income tax purposes while
facilitating our ability to qualify as a RIC under the Code.



RESULTS OF OPERATIONS


Below are operating results for the three months ended
December 31, 2021 and 2020.


Investment Income



Investment income for the three months ended December 31, 2021 was $26.3
million, which was attributable to $23.0 million from first lien secured debt
and $3.3 million from other investments, respectively. This compares to
investment income for the three months ended December 31, 2020 of $20.7 million,
which was attributable to $18.7 million from first lien secured debt and $2.0
million from other investments, respectively. The increase in investment income
compared to the same periods in the prior year was primarily due to a increase
the size of our portfolio.



Expenses



Expenses for the three months ended December 31, 2021 totaled $13.6 million.
Base management fee for the same period totaled $2.9 million, incentive fee
totaled $3.2 million, debt-related interest and expenses totaled $6.6 million
and general and administrative expenses totaled $0.9 million. This compares to
expenses for the three months ended December 31, 2020 which totaled $10.6
million. Base management fee for the same period totaled $2.7 million, incentive
fee totaled $1.8 million, debt-related interest and expenses totaled $5.3
million and general and administrative expenses totaled $0.8 million. The
increase in expenses for the three months ended December 31, 2021 compared to
the same period in the prior year was primarily due to an increase in
performance-based incentive fees and debt-related interest and expenses.



Net Investment Income



Net investment income totaled $12.7 million or $0.33 per share, for the three
months ended December 31, 2021. Net investment income totaled $10.1 million or
$0.26 per share, for the three months ended December 31, 2020.



Net Realized Gains or Losses



Sales and repayments of investments for the three months ended December 31, 2021
totaled $238.4 million, and net realized gains totaled $3.1 million. Sales and
repayments of investments for the three months ended December 31, 2020 totaled
$109.6 million and net realized losses totaled $2.8 million. The change in
realized gains/losses was primarily due to changes in the market conditions of
our investments and the values at which they were realized.



Unrealized appreciation or depreciation on investments, credit facility and 2023 notes



For the three months ended December 31, 2021, we reported net change in
unrealized depreciation on investments of $3.5 million. For the three months
ended December 31, 2020, we reported net change in unrealized appreciation on
investments of $22.8 million. As of December 31, 2021and September 30, 2021, our
net unrealized appreciation on investments totaled $7.9 million and $11.0
million, respectively. The net change in unrealized appreciation on our
investments compared to the same period in the prior year was primarily due to
unrealized gains in our equity co-investment program.



For the December 31, 2021, the Credit Facility and the 2023 Notes had a net
change in unrealized depreciation of $3.6 million. For the three months ended
December 31, 2020, the Credit Facility and the 2023 Notes had a net change in
unrealized (appreciation) of $(4.0) million. As of December 31, 2021 and
September 30, 2021, the net unrealized depreciation on the Credit Facility and
the 2023 Notes totaled $10.8 million and $7.2 million, respectively. The net
change in net unrealized depreciation compared to the same period in the prior
year was primarily due to changes in the capital markets.



Net change in net assets resulting from operations



Net increase in net assets resulting from operations totaled $14.4 million or
$0.37 per share for the three months ended December 31, 2021. This compares to a
net change in net assets resulting from operations of $26.1 million or $0.67 for
the three months ended December 31, 2020. The increase in the net change in net
assets from operations for the three months ended December 31, 2021 compared to
the same period in the prior year was due to our positive net investment income
and net realized gains from investments.



CASH 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 of December 31, 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. This "Liquidity and Capital Resources" section should be read in
conjunction with the "COVID-19 Developments" section above.



On April 5, 2018, our board of directors approved the application of the
modified asset coverage requirements set forth in Section 61(a)(2) of the 1940
Act, as amended by the Consolidated Appropriations Act of 2018 (which includes
the SBCAA). As a result, the asset coverage requirement applicable to us for
senior securities was reduced from 200% (i.e., $1 of debt outstanding for each
$1 of equity) to 150% (i.e., $2 of debt outstanding for each $1 of equity),
effective as of April 5, 2019, subject to compliance with certain disclosure
requirements. As of December 31, 2021 and September 30, 2021, our asset coverage
ratio, as computed in accordance with the 1940 Act, was 165% and 175%,
respectively.



The annualized weighted average cost of debt for the three months ended December
31, 2021 and 2020, inclusive of the fee on the undrawn commitment on the Credit
Facility, amendment costs and debt issuance costs, was 3.6% and 3.3%,
respectively. As of December 31, 2021 and September 30, 2021, we had $43.3
million and $80.6 million of unused borrowing capacity under the Credit Facility
or our Prior Credit Facility, as applicable, respectively, subject to leverage
and borrowing base restrictions.



Funding I's multi-currency Credit Facility with the Lenders was $300 million as
of December 31, 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 of August 2026 and a revolving
period that ends in August 2024. As of December 31, 2021 and September 30, 2021,
Funding I borrowed $256.7 million and

                                       44

--------------------------------------------------------------------------------

$219.4 million under the Credit Facility, respectively. The credit facility had a weighted average interest rate of 2.4% and 2.3%, excluding commission on undrawn commitments December 31, 2021 and September 30, 2021respectively.



During the revolving period, the Credit Facility bears interest at LIBOR (or an
alternative risk-free floating interest rate index) plus 225 basis points and,
after the revolving period, the rate will reset to Base Rate (or an alternative
risk-free floating interest rate index) plus 250 basis points for the remaining
two years, maturing in August 2026. The Credit Facility is secured by all of the
assets of Funding I. Both PennantPark Floating Rate Capital Ltd. and Funding I
have made customary representations and warranties and are required to comply
with various covenants, reporting requirements and other customary requirements
for similar credit facilities.



The Credit Facility contains covenants, including but not limited to,
restrictions of loan size, currency types and amounts, industry requirements,
average life of loans, geographic and individual portfolio concentrations,
minimum portfolio yield and loan payment frequency. Additionally, the Credit
Facility requires the maintenance of a minimum equity investment in Funding I
and income ratio as well as restrictions on certain payments and issuance of
debt. The Credit Facility compliance reporting is prepared on a basis of
accounting other than GAAP. As of December 31, 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
all required payments of (1) cash interest and, if applicable, principal
payments to the Lenders, (2) required administrative expenses and (3) claims of
other unsecured creditors of Funding I. We cannot assure you that there will be
sufficient funds available to make any distributions to us or that such
distributions will meet our expectations from Funding I. The Investment Adviser
has irrevocably directed that the management fee owed with respect to such
services is to be paid to the Company so long as the Investment Adviser remains
the collateral manager.



In November 2017, we issued $138.6 million of our 2023 Notes. The 2023 Notes
were issued pursuant to a deed of trust between the Company and Mishmeret Trust
Company, Ltd., as trustee, of which $97.0 million and $117.8 million was
outstanding as of December 31, 2021 and September 30, 2021, respectively.



The 2023 Notes pay interest at a rate of 4.3% per year. As a result of the
downgrade of the 2023 Notes from "ilA+" to "ilA-" in March 2020, the interest
rate of the 2023 Notes was increased to 4.3% from 3.8%. Interest on the 2023
Notes is payable semi-annually in arrears on June 15 and December 15 of each
year, commencing June 15, 2018. The principal on the 2023 Notes will be payable
in four annual installments as follows: 15% of the original principal amount on
December 15, 2020, 15% of the original principal amount on December 15, 2021,
15% of the original principal amount on December 15, 2022 and 55% of the
original principal amount on December 15, 2023.



The 2023 Notes are general, unsecured obligations, rank equal in right of
payment with all of our existing and future senior unsecured indebtedness and
are generally redeemable at our option. The deed of trust governing the 2023
Notes includes certain customary covenants, including minimum equity
requirements, and events of default. Please refer to the deed of trust filed as
Exhibit (d)(8) to our post-effective amendment filed on December 13, 2017 for
more information. The 2023 Notes are rated ilA- by S&P Global Ratings Maalot
Ltd. and are listed on the TASE. In connection with this offering, we have dual
listed our common stock on the TASE.



The 2023 Notes have not been and will not be registered under the Securities Act
and may not be offered or sold in the United States absent registration under
the Securities Act or in transactions exempt from, or not subject to, such
registration requirements.



In March 2021 and in October 2021, we issued $100.0 million and $85.0 million,
respectively, in aggregate principal amount of $185 million of our 2026 Notes at
a public offering price per note of 99.4% and 101.5%, respectively. Interest on
the 2026 Notes is paid semi-annually on April 1 and October 1 of each year, at a
rate of 4.25% per year, commencing October 1, 2021. The 2026 Notes mature on
April 1, 2026 and may be redeemed in whole or in part at our option subject to a
make-whole premium if redeemed more than three months prior to maturity. The
2026 Notes are our general, unsecured obligations and rank equal in right of
payment with all of our existing and future senior unsecured indebtedness. The
2026 Notes are effectively subordinated to all of our existing and future
secured indebtedness to the extent of the value of the assets securing such
indebtedness and structurally subordinated to all existing and future
indebtedness and other obligations of any of our subsidiaries, financing
vehicles, or similar facilities. We do not intend to list the 2026 Notes on any
securities exchange or automated dealer quotation system.



In September 2019, the Securitization Issuers completed the Debt Securitization.
The 2031 Asset-Backed Debt is secured by the middle market loans, participation
interests in middle market loans and other assets of the Securitization Issuer.
The Debt Securitization was executed through (A) a private placement of: (i)
$78.5 million Class A-1 Senior Secured Floating Rate Notes maturing 2031, which
bear interest at the three-month LIBOR plus 1.8%, (ii) $15.0 million Class A-2
Senior Secured Fixed Rate Notes due 2031, which bear interest at 3.7%, (iii)
$14.0 million Class B-1 Senior Secured Floating Rate Notes due 2031, which bear
interest at the three-month LIBOR plus 2.9%, (iv) $16.0 million Class B-2 Senior
Secured Fixed Rate Notes due 2031, which bear interest at 4.3%, (v) $19.0
million Class C­1 Secured Deferrable Floating Rate Notes due 2031, which bear
interest at the three-month LIBOR plus 4.0%, (vi) $8.0 million Class C-2 Secured
Deferrable Fixed Rate Notes due 2031, which bear interest at 5.4%, and (vii)
$18.0 million Class D Secured Deferrable Floating Rate Notes due 2031, which
bear interest at the three-month LIBOR plus 4.8% and (B) the borrowing of $77.5
million Class A­1 Senior Secured Floating Rate Loans due 2031, which bear
interest at the three-month LIBOR plus 1.8%, under a credit agreement by and
among the Securitization Issuers, as borrowers, various financial institutions,
as lenders, and U.S. Bank National Association, as collateral agent and as loan
agent. The 2031 Asset-Backed Debt is scheduled to mature on October 15, 2031. As
of both December 31, 2021and September 30, 2021, the Company had $228.0 million
of 2031 Asset-Backed Debt outstanding with a weighted average interest rate of
2.6%.



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 in the United
States absent registration with the SEC 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.



On August 20, 2021, we entered into Equity Distribution Agreements with each of
JMP Securities LLC and Raymond James & Associates, Inc., as the Sales Agents, in
connection with the sale of shares of our Common Stock, par value $0.001 per
share , with an aggregate offering price of up to $75 million under the ATM
Program. The Equity Distribution Agreements provide that we may offer and sell
shares of our Common Stock from time to time through a Sales Agent in amounts
and at times to be determined by us. Actual sales will depend on a variety of
factors to be determined by us from time to time, including, market conditions
and the trading price of our Common Stock. .

                                       45

--------------------------------------------------------------------------------




During the three months ended December 31, 2021, we issued 270,066 shares of our
Common Stock under the ATM Program at a weighted-average price of $13.03 per
share, raising $3.5 million of gross proceeds. Net proceeds were $3.5 million
after commissions to the Sales Agents on shares sold. As of December 31, 20211,
we had $70.1 million available under the ATM Program.



Since inception of the ATM Program to December 31, 2021, we issued 378,720
shares of our Common Stock under the ATM Program at a weighted-average price of
$13.00 , raising $4.9 million of gross proceeds. Net proceeds were $4.8 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, the Credit Facility availability depends on various
covenants and restrictions as discussed in the preceding paragraphs. The primary
use of existing funds and any funds raised in the future is expected to be for
repayment of indebtedness, investments in portfolio companies, cash
distributions to our stockholders or for other general corporate purposes.



As of December 31, 2021 and September 30, 2021, we had cash equivalents of $61.3
million and $49.8 million, respectively, available for investing and general
corporate purposes. We believe our liquidity and capital resources are
sufficient to take advantage of market opportunities.



Our operating activities used cash of $82.4 million for the three months ended
December 31, 2021, and our financing activities provided cash of $93.2 million
for the same period. Our operating activities used cash primarily for our
investment activities and our financing activities provided cash primarily due
to the issuance of $85 million of our 2026 Add-on Notes and borrowings under our
Credit Facility.



Our operating activities provided cash of $55.5 million for the three months
ended December 31, 2020, and our financing activities used cash of $83.5 million
for the same period. Our operating activities provided cash primarily from our
investment activities and our financing activities used cash primarily to pay
down our Credit Facility and the 2023 Notes.



PennantPark Senior Secured Loan Fund I LLC



In May 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 a Delaware limited liability
company. As of December 31, 2021 and September 30, 2021, PSSL had total assets
of $683.0 million and $603.6 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 $28.0 and $48.0 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 of December 31, 2021 and September 30, 2021, we and Kemper owned
87.5% and 12.5%, respectively, of each of the outstanding first lien secured
debt and equity interests. As of the same dates, our investment in PSSL
consisted of first lien secured debt of $153.1 million (additional $17.2 million
unfunded) and $140.9 million (additional $29.4 million unfunded), respectively,
and equity interests of $65.6 million (additional $7.4 million unfunded) and
$60.4 million (additional $12.6 million unfunded), respectively.



We and Kemper each appointed two members to PSSL's four-person board of
directors and investment committee. All material decisions with respect to PSSL,
including those involving its investment portfolio, require unanimous approval
of a quorum of the board of directors or investment committee. Quorum is defined
as (i) the presence of two members of the board of directors or investment
committee, provided that at least one individual is present that was elected,
designated or appointed by each member; (ii) the presence of three members of
the board of directors or investment committee, provided that the individual
that was elected, designated or appointed by the member with only one individual
present shall be entitled to cast two votes on each matter; and (iii) the
presence of four members of the board of directors or investment committee shall
constitute a quorum, provided that two individuals are present that were
elected, designated or appointed by each member.



Additionally, PSSL has entered into a $225.0 million (increased from $155.0
million in October 2021) senior secured revolving credit facility which bears
interest at LIBOR (or an alternative risk-free floating interest rate index)
plus 250 basis points, or the PSSL Credit Facility 2, with Ally Bank through its
wholly-owned subsidiary, PennantPark Senior Secured Loan Facility LLC II, or
PSSL Subsidiary II, subject to leverage and borrowing base restrictions.



In January 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 of PennantPark 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 in January 2032. On the closing
date of the transaction, in consideration of PSSL's transfer to PennantPark 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 of
PennantPark CLO II, Ltd. and 100% of the Class E Notes issued by PennantPark CLO
II, Ltd.


Below is a summary of PSSL’s portfolio at fair value:


                                                                                September 30,
                                                         December 31, 2021           2021
Total investments                                       $       641,673,287     $  564,783,128
Weighted average cost yield on income producing
investments                                                             7.3 %              7.1 %
Number of portfolio companies in PSSL                                    80                 74
Largest portfolio company investment                    $        19,012,000     $   18,932,630
Total of five largest portfolio company investments     $        86,261,851     $   84,287,460






                                       46
--------------------------------------------------------------------------------


Below is a listing of PSSL's individual investments as of December 31, 2021:



                                                                                    Basis Point
                                                                     Current        Spread Above
Issuer Name                    Maturity           Industry            Coupon         Index (1)         Par              Cost          Fair Value (2)
First Lien Secured Debt -
1160.2%
Ad.net Acquisition, LLC        5/6/2026            Media                

7.00% 3M L+600 8,955,000 $8,836,837 $8,955,000
Altamira Technologies, LLC 07/24/2025 Business Services 9.00% 3M L+700 5,450,124 5,309,857

5,109,491

American Insulated Glass,
LLC                           12/21/2023     Building Products           6.50 %         3M L+550      4,927,427        4,875,528            

4,927,427

                                            Diversified Consumer
Apex Service Partners, LLC    7/31/2025           Services               6.25 %         3M L+525      1,018,039        1,018,039            

1,005,313

Apex Service Partners, LLC                  Diversified Consumer
Term Loan B                   7/31/2025           Services               6.50 %         1M L+550      2,217,197        2,217,197            

2,189,482

Apex Service Partners, LLC                  Diversified Consumer
Term Loan C                   7/31/2025           Services               6.25 %         3M L+525      4,163,478        4,097,520            

4,111,435

Applied Technical Services,                Commercial Services &
LLC                           12/29/2026          Supplies               6.75 %         3M L+575      4,500,000        4,411,562            4,443,750
By Light Professional IT
Services, LLC                 5/16/2024     High Tech Industries         7.25 %         1M L+625     15,536,977       15,481,065           15,226,237
Cadence Aerospace, LLC        11/14/2023   Aerospace and Defense         9.50 %         3M L+850     12,314,270       12,269,216           12,228,070
                                           Healthcare, Education
Cano Health                   11/23/2027        & Childcare              5.25 %         3M L+450      2,646,667        2,640,086            2,642,697
CF512, Inc.                   8/20/2026            Media                 7.00 %         3M L+600      4,987,500        4,889,449            4,937,625
                                              Construction and
CHA Holdings, Inc.            4/10/2025         Engineering              5.50 %         3M L+450      5,600,129        5,510,103            5,572,128
Challenger Performance
Optimization, Inc.            8/31/2023      Business Services           8.00 %         3M L+450      9,394,789        9,353,387            9,112,945
Connatix Buyer, Inc.          7/13/2027            Media                 6.25 %         1M L+675      3,990,000        3,914,189            4,009,949
                                           Commercial Services &
Crane 1 Services, Inc.        8/16/2027           Supplies               6.75 %         3M L+575      2,126,250        2,095,933            2,104,988
Crash Champions, LLC           8/5/2025         Automobiles              6.00 %         3M L+500     14,952,600       14,668,250           14,653,548
Douglas Products and                        Chemicals, Plastics
Packaging Company LLC         10/19/2022         and Rubber              6.75 %         1M L+550      8,723,392        8,682,987            8,723,392
Douglas Sewer Intermediate,                 Chemicals, Plastics
LLC                           10/19/2022         and Rubber              6.75 %         1M L+475      7,304,171        7,268,830            7,304,171
Dr. Squatch, LLC              8/27/2026      Personal Products           7.00 %         1M L+575      9,975,000        9,784,645            9,975,000
                                              Consumer Goods:
DRS Holdings III, Inc.        11/3/2025           Durable                6.75 %         3M L+500     15,636,090       15,548,787           15,542,275
                                               Containers and                           1M L+500
Duraco Specialty Tapes LLC    6/30/2024          Packaging               6.50 %                      10,368,010       10,190,306           10,202,122
ECL Entertainment, LLC        3/31/2028     Hotels, Restaurants          8.25 %         3M L+575      2,640,577        2,615,226            2,680,186
                                                and Leisure
ECM Industries, LLC           12/23/2025   Electronic Equipment,         5.75 %         3M L+575      4,994,355        4,994,355            4,869,496
                                              Instruments, and
                                                 Components
Fairbanks More Defense        6/17/2028    Aerospace and Defense         5.50 %         3M L+600      9,975,000        9,931,373            9,950,063
                                           Commercial Services &
FlexPrint, LLC                 1/2/2024           Supplies               5.67 %         1M L+625      4,769,595        4,735,907            4,769,595
Gantech Acquisition Corp.     5/14/2026         IT Services              

7.25% 3M L+800 14,863,034 14,598,362 14,714,404

                                           Diversified Financial
Global Holdings InterCo LLC   3/16/2026           Services               7.00 %         3M L+600      3,957,563        3,938,664            3,937,775
                                            Trading Companies &
Graffiti Buyer, Inc.          8/10/2027         Distributors             6.75 %         3M L+575      2,386,875        2,341,314            2,340,331
Hancock Roofing and
Construction L.L.C.           12/31/2026         Insurance               6.00 %         1M L+750      2,475,000        2,421,099            2,475,000
HW Holdco, LLC                12/10/2024           Media                 6.75 %         1M L+450      3,075,000        3,014,618            3,013,500
Imagine Acquisitionco, LLC    11/15/2027          Software               6.50 %         3M L+475      5,404,356        5,298,045            5,296,269
Inception Fertility                         Healthcare Providers
Ventures, LLC                 12/7/2023         and Services             6.50 %         1M L+590      4,694,908        4,579,487            4,577,536
                                            Diversified Consumer
Integrative Nutrition, LLC    9/29/2023           Services               

5.50% 3M L+625 11,529,369 11,495,522 11,529,369
K2 NoCal Pure Solutions,

                    Chemicals, Plastics
L.P.                          12/20/2023         and Rubber              

8.00% 3M L+600 19,400,000 19,169,616 19,012,000
Kinetic Buyer, LLC 10/11/2027 Personal products 7.00% 3M L+575 8,466,025 8,300,861

8,296,704

Lash OpCo, LLC                2/18/2027      Personal Products           

8.00% 3M L+500 14,463,750 14,144,208 14,319,113
LAV Gear Holdings, Inc. 10/31/2024 Capital goods 8.50% 3M L+600 10,544,899 10,491,412 10,049,289

                                            Healthcare Providers
Lightspeed Buyer Inc.          2/3/2026         and Services             

6.75% 3M L+575 10,679,529 10,487,737 10,385,842

                                             Hotel, Gaming and
Lucky Bucks, LLC              7/20/2027           Leisure                6.25 %         3M L+450      4,500,000        4,414,415            

4,415,625

Management Consulting &
Research, LLC                 8/16/2027    Aerospace and Defense         

7.00% 1M L+700 15,000,000 14,707,013 14,700,000
Market Events, LLC09/30/2025 Media: Diversified and 6.25% 3M L+750 627 350 627 350

627,350

Super Priority First Lien                        Production

Term loan (3)(4)
Market Events, LLC09/30/2025 Media: Diversified and 0.00%

                -        589,122                -                    -
Super Priority First Lien                        Production
Unfunded Term Loan
Marketplace Events,           9/30/2026    Media: Diversified and        0.00 %                -      4,688,685        3,441,474            4,688,685
LLC (3)(4)                                       Production
Mars Acquisition Holdings
Corp.                         5/14/2026            Media                 6.50 %         1M L+575      9,975,000        9,796,215            

9,925,124

                                           Internet Software and
MBS Holdings, Inc.            4/16/2027           Services               6.75 %         1M L+550      7,462,500        7,324,842            

7,387,875

                                            Media: Advertising,
MeritDirect, LLC              5/23/2024    Printing & Publishing         6.50 %         3M L+525      5,496,927        5,386,916            

5,441,957

Mission Critical
Electronics, Inc.             9/28/2022      Capital Equipment           6.00 %         3M L+500      5,874,418        5,864,975            

5,874,418

Municipal Emergency
Services, Inc.                9/28/2027         Distributors             6.00 %         3M L+500      3,491,250        3,423,253            3,435,390
                                           Healthcare, Education
NBH Group LLC                 8/19/2026         & Childcare              6.50 %                -     10,901,830       10,695,121           10,792,812
                                              Consumer Goods:                   (4)            -
New Milani Group LLC           6/6/2024         Non-Durable              7.50 %                      14,512,500       14,449,995           14,149,688
OIS Management Services,                    Healthcare Equipment
LLC                            7/9/2026         and Supplies             5.50 %         1M L+550      1,990,000        1,962,468            

1,970 100

                                              Air Freight and
One Stop Mailing, LLC          5/7/2027          Logistics               7.25 %         3M L+575     14,882,143       14,603,405           14,621,705
Output Services Group, Inc.   3/27/2024      Business Services           5.50 %         3M L+550      7,703,419        7,736,458            6,933,077
                                              Construction and
Ox Two, LLC                   5/18/2026           Building               7.00 %         3M L+500      4,962,500        4,893,094            4,863,250
PH Beauty Holdings III,
Inc.                          9/29/2025          Wholesale               5.18 %         3M L+550      9,667,689        9,508,551            8,894,274
                                           Textiles, Apparel and
PL Acquisitionco, LLC         11/9/2027         Luxury Goods             7.50 %         1M L+550      8,300,024        8,158,174            8,154,774
Plant Health Intermediate,                  Chemicals, Plastics
Inc.                          10/19/2022         and Rubber              6.75 %         1M L+475      1,573,750        1,566,163            1,573,750
                                              Consumer Goods:
PlayPower, Inc.                5/8/2026           Durable                5.72 %         1M L+625      2,601,243        2,527,483            2,540,556
Quantic Electronics, LLC      11/19/2026   Aerospace and Defense         7.25 %         1M L+450      3,952,053        3,875,185            3,873,013
Recteq, LLC                   1/29/2026       Leisure Products           7.00 %         3M L+600      4,962,500        4,879,117            4,888,063
Research Now Group, LLC and                 Diversified Consumer
Dynata, LLC                   12/20/2024          Services               

6.50% 1M L+500 10,651,962 10,570,256 10,498,893
LLC Sales Benchmark 03/01/2025 Professional Services 7.75% 3M L+575 5,310,941 5,237,218

5,231,277

Sargent & Greenleaf Inc.      12/20/2024         Wholesale               7.00 %         3M L+550      5,506,404        5,454,203            

5,506,404

Schlesinger Global, Inc.      7/14/2025      Business Services           8.00 %         3M L+600     11,814,827       11,843,002           11,430,845
Sigma Defense Systems, LLC    12/18/2025   Aerospace and Defense         9.50 %         3M L+550     15,000,000       14,630,464           14,625,000
                                               Healthcare and
Smile Brands Inc.             10/14/2025      Pharmaceuticals            5.25 %         3M L+600     12,535,172       12,433,898           12,065,103
                                             Beverage, Food and
Snak Club, LLC                7/19/2022           Tobacco                7.00 %         1M L+550      4,344,306        4,326,142            4,344,306
                                               Healthcare and
Solutionreach, Inc.           1/17/2024       Pharmaceuticals            6.75 %         3M L+700      5,875,772        5,841,539            5,875,772
                                              Construction and
STV Group Incorporated        12/11/2026          Building               5.35 %         3M L+450      9,075,412        9,006,665            9,030,035
TAC LifePort Purchaser, LLC    3/1/2026    Aerospace and Defense         7.00 %         1M L+600      4,654,618        4,575,450            4,654,618
TeleGuam Holdings, LLC        11/20/2025     Telecommunications          5.50 %         1M L+575     10,308,377       10,285,422           10,205,294








                                       47
--------------------------------------------------------------------------------
                                                                                          Basis Point
                                                                                             Spread
                                                                          Current            Above            Par /
Issuer Name                    Maturity              Industry              Coupon          Index (1)          Shares            Cost          Fair Value (2)
Teneo Holdings LLC            7/18/2025         Business Services               6.25 %        1M L+900        2,303,594     $   2,300,466     $     2,307,441
The Aegis Technologies
Group, LLC                    10/31/2025      Aerospace and Defense             7.00 %        1M L+525        5,702,340         5,625,763           5,645,316
The Bluebird Group LLC        7/27/2026       Professional Services             8.00 %        3M L+600        1,735,096         1,702,858           1,769,798
                                               Media: Broadcasting
The Infosoft Group, LLC       9/16/2024          and Subscription               6.75 %        1M L+450       13,292,785        13,286,182          13,292,785
                                                 Construction and
The Vertex Companies, LLC     8/30/2027            Engineering                  6.50 %        1M L+525        5,620,049         5,509,843           5,558,228
TPC Canada Parent, Inc.                          Consumer Goods:
and TPC US Parent, LLC        11/24/2025           Non-Durable                  6.25 %        3M L+550        8,811,566         8,641,641           8,547,219
                                               Diversified Consumer
TVC Enterprises, LLC          3/26/2026              Services                   6.75 %        3M L+700        8,536,695         8,568,268           8,536,695
TWS Acquisition                                Diversified Consumer
Corporation                   6/16/2025              Services                   7.25 %        6M L+575        6,636,062         6,601,382           6,636,062
Tyto Athene, LLC (New
Issue)                         4/1/2028            IT Services                  6.25 %        6M L+550       15,667,608        15,522,347          15,550,101
UBEO, LLC                      4/3/2024         Capital Equipment               5.50 %        3M L+525       17,526,068        17,421,250          17,438,438
Walker Edison Furniture
Company LLC                   3/31/2027             Wholesale                   9.75 %        1M L+575       12,492,395        12,206,891          12,305,009
Wildcat Buyerco, Inc.         2/27/2026       Electronic Equipment,             6.75 %        1M L+625        5,692,065         5,644,064           5,663,605
                                                 Instruments, and
                                                    Components
Zips Car Wash, LLC             3/1/2024            Automobiles                  7.75 %        1M L+550       17,000,000        16,676,420          16,660,000
Total First Lien Secured
Debt                                                                                                                          639,374,876         638,323,244
Second Lien Secured Debt -
5.3%
DBI Intermediate Holdco,
LLC, Term Loan B (4)          02/02/2026        Business Services              11.00 %               -        2,434,333         2,434,333                   -
                                                                         P(IK 9.00%)
                                                 Consumer Goods:                9.50 %
Inventus Power, Inc.          09/29/2024             Durable                                  3M L+850        3,000,000         2,951,246           2,925,000
Total Second Lien Secured
Debt                                                                                                                            5,385,579           2,925,000
Equity Securities - .8%
DBI Intermediate Holdco,                -
LLC, Series A-1 (4)                             Business Services              13.00 %               -            6,784         5,034,310                   -
DBI Intermediate Holdco,                -                                                                         7,007
LLC, Series AA (4)                              Business Services                  -                 -                          6,731,347                   -
DBI Intermediate Holdco,                -                                                                     1,065,021
LLC, Series B (4)                               Business Services                  -                 -                            236,521                   -
                                        -     Media: Diversified and                                                 47
New MPE Holdings, LLC                               Production                     -                 -                                  -             425,043
Total Equity Securities                                                                                                        12,002,178             425,043
Total Investments - 1166.3%                                                                                                   656,762,633         641,673,287
Cash and Cash Equivalents - 64.7%
BlackRock Federal FD                                                                                                                               35,582,572
Institutional 30                                                                                                               35,578,940
Total Cash and Cash
Equivalents                                                                                                                    35,578,940          35,582,572
Total Investments and Cash
Equivalents -1231.%                                                                                                         $ 692,341,573     $   677,255,859
Liabilities in Excess of
Other Assets - (1131.)%                                                                                                                          (622,238,626 )
Members' Equity-100.0%                                                                                                                        $    55,017,233






(1)
Represents floating rate instruments that accrue interest at a predetermined
spread relative to an index, typically the applicable LIBOR or "L" or Prime rate
or "P". The spread may change based on the type of rate used. The terms in the
Schedule of Investments disclose the actual interest rate in effect as of the
reporting period. LIBOR loans are typically indexed to a 30-day, 60-day, 90-day
or 180-day LIBOR rate (1M L, 2M L, 3M L, or 6M L, respectively), at the
borrower's option. All securities are subject to a LIBOR or Prime rate floor
where a spread is provided, unless noted. The spread provided includes PIK
interest and other fee rates, if any.
(2)
Valued based on PSSL's accounting policy.
(3)
Non-U.S. company or principal place of business outside the United States.
(4)
Non-income producing security.
(5)
Represents the purchase of a security with delayed settlement or a revolving
line of credit that is currently an unfunded investment. This security does not
earn a basis point spread above an index while it is unfunded.



                                       48

--------------------------------------------------------------------------------


Below is a listing of PSSL's individual investments as of September 30, 2021:

                                                                                    Basis
                                                                                    Point
                                                                                    Spread
                                                                                    Above
                                                                     Current        Index
Issuer Name                   Maturity          Industry              Coupon         (1)         Par              Cost          Fair Value (2)
First Lien Secured Debt -
1088.%
                                                                                        3M
Ad.net Acquisition, LLC      05/06/2026           Media                   

7.00% L+600 8,977,500 $8,851,554 $8,842,838

                                                                                        3M
Altamira Technologies, LLC   07/24/2025     Business Services              8.00 %    L+700      5,525,093        5,375,682            5,179,775
American Insulated Glass,                                                               3M
LLC                          12/21/2023     Building Products              6.50 %    L+550      5,720,691        5,653,291            5,663,484
                                          Diversified Consumer                          3M
Apex Service Partners, LLC   07/31/2025         Services                   6.25 %    L+525      1,020,636        1,020,636            1,010,430
Apex Service Partners, LLC                Diversified Consumer                          1M
Term Loan B                  07/31/2025         Services                   6.50 %    L+550      2,222,284        2,222,284            2,200,061
Apex Service Partners, LLC                Diversified Consumer                          3M
Term Loan C                  07/31/2025         Services                   6.25 %    L+525      4,173,913        4,103,292            4,132,174
Applied Technical                         Commercial Services &                         3M
Services, LLC                12/29/2026         Supplies                   6.75 %    L+575      4,511,364        4,419,019            4,421,136
By Light Professional IT                                                                1M
Services, LLC                05/16/2022   High Tech Industries             7.25 %    L+625     12,879,690       12,868,714           12,879,690
                                                                                        3M
Cadence Aerospace, LLC       11/14/2023   Aerospace and Defense            9.50 %    L+850     12,281,867       12,231,080           11,980,961
                                                                    P(IK 9.50%)
                                          Healthcare, Education                         3M
Cano Health                  11/23/2027        & Childcare                 5.25 %    L+450      2,653,333        2,646,700            2,654,448
                                            Construction and                            3M
CHA Holdings, Inc.           04/10/2025        Engineering                 5.50 %    L+450      5,614,627        5,518,856            5,530,408
Challenger Performance                                                                  1M
Optimization, Inc.           08/31/2023     Business Services              8.00 %    L+675      9,500,705        9,453,659            9,215,683
                                                                    P(IK 1.00%)
                                                                                        1M
Connatix Buyer, Inc          07/13/2027           Media                   
6.25 %    L+550      4,000,000        3,921,757            3,920,000
                                                                                        1M
CoolSys, Inc                 08/04/2028     Business Services              5.50 %    L+475      1,909,091        1,890,159            1,913,864
                                          Commercial Services &                         1M
Crane 1 Services Inc         08/16/2027         Supplies                   6.75 %    L+575      2,131,579        2,100,271            2,110,264
                                                                                        3M
Crash Champions, LLC         08/05/2025        Automobiles                 6.00 %    L+500      8,977,500        8,801,543            8,797,950
Digital Room Holdings,                    Commercial Services &                         1M
Inc.                         05/22/2026         Supplies                   5.08 %    L+500      3,228,001        3,111,026            3,186,037
Douglas Products and                       Chemicals, Plastics                          3M
Packaging Company LLC        10/19/2022        and Rubber                  6.75 %    L+575      8,746,050        8,694,764            8,746,050
Douglas Sewer                              Chemicals, Plastics                          3M
Intermediate, LLC            10/19/2022        and Rubber                  6.75 %    L+575      7,323,008        7,278,084            7,323,008
                                                                                        3M
Dr. Squatch, LLC             8/27/2026      Personal Products              7.00 %    L+600     10,000,000        9,803,125            9,800,000
                                             Consumer Goods:                            1M
DRS Holdings III, Inc.       11/03/2025          Durable                   7.25 %    L+625     15,675,682       15,584,366           15,565,952
East Valley Tourist                        Hotels, Restaurants                          3M
Development Authority        03/07/2022        and Leisure                 9.00 %    L+800      5,719,009        5,624,041            5,633,224
                                                                    P(IK 

3.50%)

ECL Entertainment, LLC       03/312028     Hotels, Restaurants             8.25 %       1M      2,647,212        2,621,341            2,706,774
                                               and Leisure                           L+750
ECM Industries, LLC          12/23/2025   Electronic Equipment,            5.50 %       1M      4,994,355        4,994,355            4,894,468
                                            Instruments, and                         L+450
                                               Components
                                                                                        3M
Fairbanks More Defense       06/17/2028   Aerospace and Defense            5.50 %    L+475     10,000,000        9,954,660           10,000,000
                                          Commercial Services &                         1M
FlexPrint, LLC               01/02/2024         Supplies                   6.02 %    L+590      4,769,595        4,732,000            4,745,747
                                                                                        3M
Gantech Acquisition Corp.    05/14/2026        IT Services                 7.25 %    L+625     14,925,000       14,648,015           14,626,500
Global Holdings InterCo                   Diversified Financial                         3M
LLC                          03/16/2026         Services                   7.00 %    L+600      3,967,531        3,947,994            3,947,694
                                           Trding Companies &                           3M
Graffiti Buyer, Inc          08/10/2027       Distributors                 6.75 %    L+575      2,392,857        2,345,748            2,356,964
Hancock Roofing and                                                                     3M
Construction L.L.C.          12/31/2026         Insurance                  6.00 %    L+500      2,481,250        2,424,925            2,456,438
Holdco Sands Intermediate,                                                              3M
LLC                          12/19/2025   Aerospace and Defense            7.50 %    L+600      6,473,725        6,407,142            6,441,356
                                                                                        3M
IMIA Holdings, Inc.          04/09/2027   Aerospace and Defense            6.75 %    L+575     13,589,144       13,338,397           13,317,361
                                          Diversified Consumer                          3M
Integrative Nutrition, LLC   09/29/2023         Services                   5.50 %    L+450     11,566,905       11,527,975           11,566,905
K2 Pure Solutions NoCal,                   Chemicals, Plastics                          1M
L.P.                         12/20/2023        and Rubber                  8.00 %    L+700     19,450,000       19,192,725           18,932,630
                                                                                        3M
LAV Gear Holdings, Inc.      10/31/2024     Capital Equipment              8.50 %    L+750     10,491,277       10,435,348            9,833,474
                                                                    P(IK 1.00%)
                                          Healthcare Providers                          1M
Lightspeed Buyer Inc.        02/3/2026        and Services                
6.75 %    L+575      5,706,549        5,605,574            5,706,549
                                            Hotel, Gaming and                           1M
Lucky Bucks, LLC             07/20/2027          Leisure                   6.25 %    L+550      4,500,000        4,411,012            4,424,085
Marketplace Events,                       Media: Diversified                            3M
LLC (3)(4)                   09/30/2025   and Production                   6.25 %    L+525        617,487          617,487              617,487
Super Priority First Lien                                           P(IK 6.25%)
Term Loan
Marketplace Events, LLC -
Super Priority First Lien                  Media: Diversified
Unfunded Term Loan (3)(4)    09/30/2025      and Production                   -          -        589,122                -                    -
                                           Media: Diversified                            -
Marketplace Events LLC (4)   09/30/2026      and Production                0.00 %               4,614,973        3,441,474            4,614,973
Mars Acquisition Holdings                                                               1M
Corp.                        05/14/2026           Media                    6.50 %    L+550     10,000,000        9,812,779            9,900,000
                                          Internet Software and                         3M
MBS Holdings, Inc.           04/16/2027         Services                   6.75 %    L+575      7,481,250        7,337,843            7,331,625
                                           Media: Advertising,                          3M
MeritDirect, LLC             05/23/2024   Printing & Publishing            6.50 %    L+550      5,531,856        5,411,520            5,476,537
Mission Critical                                                                        3M
Electronics, Inc.            09/28/2022     Capital Equipment              6.00 %    L+500      5,889,949        5,877,013            5,889,949
                                          Healthcare, Education                         3M
NBH Group LLC                08/19/2026         & Culture                  6.50 %    L+550     10,901,830       10,687,200           10,683,794
                                             Consumer Goods:                            1M
New Milani Group LLC         06/06/2024        Non-Durable                 6.50 %    L+550     14,550,000       14,481,129           13,895,250
OIS Management Services                   Healthcare Equipment                          1M
LLC                          07/09/2026       and Supplies                 5.75 %    L+475      1,995,000        1,965,911            1,965,075
                                             Air Freight and                            1M
One Stop Mailing, LLC        05/07/2027         Logistics                  7.25 %    L+625     14,919,643       14,631,178           14,658,549
Output Services Group,                                                                  1M
Inc.                         03/27/2024     Business Services              5.50 %    L+450      7,743,419        7,732,934            7,046,511
                                            Construction and                            3M
Ox Two, LLC                  05/18/2026         Building                   7.00 %    L+600      4,975,000        4,901,154            4,875,500
PH Beauty Holdings III,                                                                 1M
Inc.                         09/29/2025         Wholesale                  5.12 %    L+500      9,692,670        9,514,071            9,466,540
Plant Health Intermediate,                 Chemicals, Plastics                          3M
Inc.                         10/19/2022        and Rubber                  6.75 %    L+575      1,577,806        1,568,099            1,577,806
                                             Consumer Goods:                            3M
PlayPower, Inc.              05/8/2026           Durable                   5.63 %    L+550      3,805,440        3,719,648            3,735,687
                                                                                        3M
Recteq, LLC                  01/29/2026     Leisure Products               7.00 %    L+600      4,975,000        4,887,511            4,925,250
Research Now Group, Inc.
and Survey Sampling                       Diversified Consumer                          3M
International LLC            12/20/2024         Services                   6.50 %    L+550     10,679,701       10,591,506           10,543,962
                                                                                        3M
Sales Benchmark Index LLC    01/03/2025   Professional Services            7.75 %    L+600      5,578,331        5,495,801            5,438,872
                                                                                        1M
Sargent & Greenleaf Inc.     12/20/2024         Wholesale                  7.00 %    L+550      5,549,876        5,492,898            5,549,876
                                                                                        3M
Schlesinger Global, Inc.     07/14/2025     Business Services              8.00 %    L+700     11,784,634       11,760,259           11,254,326
                                             Healthcare and                             3M
Smile Brands Inc.            10/14/2024      Pharmaceuticals               5.32 %    L+450     12,576,323       12,458,672           12,450,560
                                           Beverage, Food and                           1M
Snak Club, LLC               07/19/2022          Tobacco                   7.00 %    L+600      4,388,056        4,361,678            4,388,056
                                             Healthcare and                             1M
Solutionreach, Inc.          01/17/2024      Pharmaceuticals               6.75 %    L+575      5,892,286        5,854,034            5,892,286






                                       49
--------------------------------------------------------------------------------
                                                                                            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
                                                  Construction and
STV Group Incorporated         12/11/2026             Building                    5.33 %        1M L+525        9,075,412         9,003,666           9,030,035
TAC LifePort Purchaser, LLC    03/01/2026       Aerospace and Defense             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           2,296,969
The 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                        Consumer Goods:
TPC 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                                 Healthcare and
Associates, 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 (4)           02/02/2026         Business Services              11.00 %               -        2,434,333         2,434,333           2,434,333
                                                                           P(IK 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 (4)                               Business Services              13.00 %               -            6,784         5,034,310                   -
DBI Intermediate Holdco,                 -                                                                          7,007
LLC, Series AA (4)                                Business Services                  -                 -                          6,731,347         1,314,706.0
DBI Intermediate Holdco,                 -                                                                      1,065,021
LLC, Series B (4)                                 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 -1157.1%                                                                                                          $ 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 floating rate instruments that accrue interest at a predetermined
spread relative to an index, typically the applicable LIBOR or "L" or Prime rate
or "P". The spread may change based on the type of rate used. The terms in the
Schedule of Investments disclose the actual interest rate in effect as of the
reporting period. LIBOR loans are typically indexed to a 30-day, 60-day, 90-day
or 180-day LIBOR rate (1M L, 2M L, 3M L, or 6M L, respectively), at the
borrower's option. All securities are subject to a LIBOR or Prime rate floor
where a spread is provided, unless noted. The spread provided includes PIK
interest and other fee rates, if any.
(2)
Valued based on PSSL's accounting policy.
(3)
Non-U.S. company or principal place of business outside the United States.
(4)
Non-income producing security.

Below is PSSL’s financial information:


                       Consolidated Statements of Assets and Liabilities

                                                  December 31, 2021
                                                     (Unaudited)            September 30, 2021
Assets
Investments at fair value (cost-$656,762,633
and $576,262,980, respectively)                $         641,673,287     $  

564 783 128

Cash and cash equivalents (cost-$35,578,940
and $28,386,681, respectively)                            35,582,572        

28,373,541

Interest receivable                                        1,880,980        

1,413,529

Receivable for investment sold                             1,918,636        

7,323,360

Prepaid expenses and other assets                          1,897,782        

1,665,633

Total assets                                             682,953,257        

603 559 191

Passives

Payable for investments purchased                          1,503,750        

31,963,307

Credit facility payable                                  203,500,000        

112,000,000

2032 Asset-backed debt, net (par-$246,000,000)           242,908,921        

242 756 901

Notes payable to members                                 175,000,000        

161,000,000

Interest payable on Credit Facility                        1,831,907        

1,740,807

Interest payable on notes to members                       2,621,117                  2,655,607
Accrued other expenses                                       570,329                    178,438
Total liabilities                                        627,936,024                552,295,060
Members' equity                                           55,017,233                 51,264,131

Total liabilities and members’ equity $682,953,257

        603,559,191




                                       50
--------------------------------------------------------------------------------

(1) From December 31, 2021 and September 30, 2021PSSL had unfunded commitments to finance investments of $0.6 million and $0.6respectively.

© Edgar Online, source Previews

Share.

Comments are closed.