SOURCE: PennantPark Investment Corporation

PennantPark Investment Corporation

May 07, 2014 16:00 ET

PennantPark Investment Corporation Announces Financial Results for the Quarter Ended March 31, 2014

NEW YORK, NY--(Marketwired - May 7, 2014) -  PennantPark Investment Corporation (NASDAQ: PNNT) announced today financial results for the second fiscal quarter ended March 31, 2014.

HIGHLIGHTS

Quarter ended March 31, 2014      
($ in millions, except per share amounts)      
         
Assets and Liabilities:        
  Investment portfolio   $ 1,257.0  
  Net assets   $ 741.2  
  Net asset value per share   $ 11.13  
         
  Credit Facility (cost $313.8)   $ 313.7  
  2025 Notes (cost $71.3)   $ 70.6  
  SBA debentures   $ 150.0  
         
Yield on debt investments at quarter-end     12.7 %
         
Operating Results:        
  Net investment income   $ 20.0  
  Net investment income per share   $ 0.30  
  Distributions declared per share   $ 0.28  
         
Portfolio Activity:        
  Purchases of investments   $ 142.0  
  Sales and repayments of investments   $ 116.8  
           
  Number of new portfolio companies invested     4  
  Number of existing portfolio companies invested     6  
  Number of portfolio companies at quarter-end     68  
         

CONFERENCE CALL AT 10:00 A.M. ET ON MAY 8, 2014

PennantPark Investment Corporation ("we," "our," "us" or "Company") will host a conference call at 10:00 a.m. (Eastern Time) on Thursday, May 8, 2014 to discuss its financial results. All interested parties are welcome to participate. You can access the conference call by dialing (888) 339-3513 approximately 5-10 minutes prior to the call. International callers should dial (719) 325-2228. All callers should reference PennantPark Investment Corporation. An archived replay of the call will be available through May 22, 2014 by calling (888) 203-1112. International callers please dial (719) 457-0820. For all phone replays, please reference conference ID #9935995.

PORTFOLIO AND INVESTMENT ACTIVITY

As of March 31, 2014, our portfolio totaled $1,257.0 million and consisted of $322.2 million of senior secured loans, $407.0 million of second lien secured debt, $378.1 million of subordinated debt and $149.7 million of preferred and common equity investments. Our debt portfolio consisted of 44% fixed-rate and 56% variable-rate investments (including 48% with a London Interbank Offered Rate, or LIBOR, or prime floor). Our overall portfolio consisted of 68 companies with an average investment size of $18.5 million, had a weighted average yield on debt investments of 12.7% and was invested 26% in senior secured loans, 32% in second lien secured debt, 30% in subordinated debt and 12% in preferred and common equity investments.

As of September 30, 2013, our portfolio totaled $1,078.2 million and consisted of $299.5 million of senior secured loans, $357.5 million of second lien secured debt, $302.5 million of subordinated debt and $118.7 million of preferred and common equity investments. Our debt portfolio consisted of 52% fixed-rate and 48% variable-rate investments (including 44% with a LIBOR or prime floor). Our overall portfolio consisted of 61 companies with an average investment size of $17.7 million, had a weighted average yield on debt investments of 13.0% and was invested 28% in senior secured loans, 33% in second lien secured debt, 28% in subordinated debt and 11% in preferred and common equity investments.

For the three months ended March 31, 2014, we invested $142.0 million in four new and six existing portfolio companies with a weighted average yield on debt investments of 12.0%. Sales and repayments of investments for the three months ended March 31, 2014 totaled $116.8 million. For the six months ended March 31, 2014, we invested $370.0 million in 13 new and 13 existing portfolio companies with a weighted average yield on debt investments of 12.2%. Sales and repayments of investments for the six months ended March 31, 2014 totaled $260.8 million.

For the three months ended March 31, 2013, we invested $75.4 million in one new and seven existing portfolio companies with a weighted average yield on debt investments of 13.5%. Sales and repayments of investments for the three months ended March 31, 2013 totaled $42.5 million. During the three months ended March 31, 2013, we had one investment restructured after going on non-accrual status. For the six months ended March 31, 2013, we invested $243.8 million in six new and 14 existing portfolio companies with a weighted average yield on debt investments of 12.9%. Sales and repayments of investments for the six months ended March 31, 2013 totaled $153.4 million. 

RESULTS OF OPERATIONS
Set forth below are the results of operations for the three and six months ended March 31, 2014 and 2013.

Investment Income

Investment income for the three and six months ended March 31, 2014 was $37.9 million and $72.3 million, respectively, and was attributable to $10.6 million and $20.2 million from senior secured loans, $14.3 million and $26.6 million from second lien secured debt investments, $12.7 million and $24.1 million from subordinated debt investments, and $0.3 million and $1.4 million from equity investments, respectively. This compares to investment income for the three and six months ended March 31, 2013, which was $31.0 million and $64.0 million, respectively, and was attributable to $9.2 million and $18.0 million from senior secured loans, $8.6 million and $15.0 million from second lien secured debt investments, $13.2 million and $29.7 million from subordinated debt investments, and zero and $1.3 million from equity investments, respectively. The increase in investment income compared with the same period in the prior year was primarily due to the growth of our portfolio.

Expenses

Expenses for the three and six months ended March 31, 2014 totaled $17.8 million and $34.3 million, respectively. Base management fee for the same periods totaled $6.0 million and $11.8 million, incentive fees totaled $5.0 million and $9.5 million, debt related interest and expenses totaled $5.1 million and $9.7 million and general and administrative expenses totaled $1.7 million and $3.3 million, respectively. This compares to expenses for the three and six months ended March 31, 2013, which totaled $17.0 million and $31.8 million, respectively. Base management fee for the same periods totaled $5.3 million and $10.5 million, incentive fees totaled $3.6 million and $8.1 million, debt related interest and expenses (excluding the $2.4 million debt issuance expenses associated with our 2025 Notes) totaled $4.0 million and $7.1 million and general and administrative expenses and excise tax totaled $1.7 million and $3.7 million, respectively. The increase in expenses was primarily due to the higher financing costs.

Net Investment Income
Net investment income totaled $20.0 million and $38.0 million, or $0.30 and $0.57 per share, for the three and six months ended March 31, 2014, respectively. Net investment income totaled $14.1 million and $32.2 million, or $0.21 and $0.49 per share, for the three and six months ended March 31, 2013, respectively. The increase in net investment income over the prior year was due to the growth of our portfolio and the absence of debt issuance costs during the most recent periods, which savings were partially offset by higher financing costs.

Net Realized Gains or Losses

Sales and repayments of investments for the three and six months ended March 31, 2014 totaled $116.8 million and $260.8 million, respectively, and realized gains totaled $3.0 million and $5.7 million, respectively. Sales and repayments of investments for the three and six months ended March 31, 2013 totaled $42.5 million and $153.4 million, respectively, and realized losses totaled $1.8 million and $1.0 million, respectively. The increase in realized gains was driven by changes in market conditions of our investments.

Unrealized Appreciation or Depreciation on Investments, Credit Facility and 2025 Notes

For the three and six months ended March 31, 2014, we reported net unrealized appreciation on investments of $23.8 million and $38.5 million, respectively. For the three and six months ended March 31, 2013, we reported a net unrealized appreciation on investments of $15.2 million and $25.2 million, respectively. As of March 31, 2014 and September 30, 2013, our net unrealized appreciation (depreciation) on investments totaled $25.2 million and $(13.3) million, respectively. The increase over the prior year was the result of changes in the market values of our investments offset by reversals of unrealized appreciation upon exiting our investments.

For the three and six months ended March 31, 2014, we reported net unrealized appreciation on our multi-currency, senior secured revolving credit facility, or the Credit Facility, and our 6.25% senior notes due in 2025, or the 2025 Notes, of $6.1 million and $2.0 million, respectively. For the three and six months ended March 31, 2013, we reported a net unrealized appreciation on our Credit Facility and 2025 Notes of $0.4 million and $1.0 million, respectively. Net change in unrealized appreciation on the Credit Facility and 2025 Notes over the prior year was due to changes in the capital markets.

Net Increase in Net Assets Resulting from Operations

Net increase in net assets resulting from operations totaled $40.7 million and $80.1 million, or $0.61 and $1.20 per share, for the three and six months ended March 31, 2014, respectively. This compares to a net increase in net assets resulting from operations of $27.0 million and $55.5 million, or $0.41 and $0.84 per share, for the three and six months ended March 31, 2013, respectively. The increase compared to the prior periods was due to the continued growth of our portfolio and appreciation of our investments.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital resources are derived primarily from proceeds of securities offerings, debt 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 and proceeds from the rotation of our portfolio and proceeds from public and private offerings of securities to finance our investment objectives.

As of March 31, 2014 and September 30, 2013, there was $313.8 million (including a temporary draw of $10.0 million) and $145.5 million (including a temporary draw of $28.0 million), respectively, in outstanding borrowings under the Credit Facility, with a weighted average interest rate at the time of 3.07% and 3.33%, exclusive of the fee on undrawn commitments of 0.50%.

As of March 31, 2014 and September 30, 2013, we had $71.3 million of 2025 Notes outstanding with a fixed interest rate of 6.25%, per year.

As of March 31, 2014 and September 30, 2013, our consolidated subsidiaries, PennantPark SBIC LP and its general partner, PennantPark SBIC GP, LLC, and PennantPark SBIC II LP and its general partner, PennantPark SBIC GP II, LLC, had $225.0 million and $150.0 million was drawn for each period. The Small Business Administration, or SBA, debentures' upfront fees of 3.43% consist of a commitment fee of 1.00% and an issuance discount of 2.43%. Both fees will be amortized over the lives of the loans.

The annualized weighted average cost of debt for the six months ended March 31, 2014 and 2013, inclusive of the fee on the undrawn commitment on the Credit Facility and amortized upfront fees on SBA debentures, was 4.03% and 4.01%, respectively.

Our operating activities used cash of $133.2 million for the six months ended March 31, 2014, primarily for net purchases of investments. Our financing activities provided cash of $131.1 million for the same period, primarily from net borrowings under our Credit Facility.

Our operating activities used cash of $63.1 million for the six months ended March 31, 2013, primarily for net purchases of investments. Our financing activities provided cash of $72.9 million for the same period, primarily from the proceeds of the issuance of the 2025 Notes.

DISTRIBUTIONS

During the three and six months ended March 31, 2014, we declared to stockholders distributions of $0.28 and $0.56 per share, respectively, for total distributions of $18.6 million and $37.3 million, respectively. For the same periods in the prior year, we declared distributions of $0.28 and $0.56 per share, respectively, for total distributions of $18.6 million and $37.2 million, respectively. We monitor available net investment income to determine if a return of capital for taxation purposes may occur for the fiscal year. To the extent our taxable earnings fall below the total amount of our distributions for any given fiscal year, a portion of those distributions may be deemed to be a return of capital to our common stockholders. Tax characteristics of all distributions will be reported to stockholders on Form 1099-DIV after the end of the calendar year and in our periodic reports filed with the Securities and Exchange Commission, or the SEC.

AVAILABLE INFORMATION

The Company makes available on its website its report on Form 10-Q filed with the SEC and stockholders may find the report on our website at www.pennantpark.com.

   
PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES  
   
    March 31, 2014
(unaudited)
    September 30, 2013  
Assets                
Investments at fair value                
  Non-controlled, non-affiliated investments (cost-$1,021,017,312 and $928,078,589, respectively)   $ 1,091,405,997     $ 968,471,042  
  Non-controlled, affiliated investments (cost-$107,758,689 and $99,021,141, respectively)     81,022,008       76,735,800  
  Controlled, affiliated investments (cost-$103,035,435 and $64,418,155, respectively)     84,546,168       32,968,711  
  Total of investments (cost-$1,231,811,436 and $1,091,517,885, respectively)     1,256,974,173       1,078,175,553  
Cash and cash equivalents (cost-$56,300,349 and $58,440,829, respectively)     56,302,305       58,440,829  
Interest receivable     11,498,342       10,894,893  
Deferred financing costs and other assets     6,649,539       5,815,817  
    Total assets     1,331,424,359       1,153,327,092  
Liabilities                
Distributions payable     18,639,330       18,619,812  
Payable for investments purchased     -       52,544,704  
Unfunded investments     22,875,000       7,241,667  
Credit Facility payable (cost-$313,809,200 and $145,500,000, respectively)     313,686,977       145,500,000  
SBA debentures payable (cost-$150,000,000)     150,000,000       150,000,000  
2025 Notes payable (cost-$71,250,000)     70,566,000       68,400,000  
Management fee payable     6,027,293       5,419,557  
Performance-based incentive fee payable     5,007,264       4,274,881  
Interest payable on debt     1,687,100       1,810,466  
Accrued other expenses     1,772,583       2,009,806  
    Total liabilities     590,261,547       455,820,893  
Commitments and contingencies                
Net assets                
Common stock, 66,569,036 and 66,499,327 shares issued and outstanding, respectively.                
  Par value $0.001 per share and 100,000,000 shares authorized.      66,569        66,499  
Paid-in capital in excess of par value     756,809,951       756,017,096  
Distributions in excess of net investment income     (3,963,461 )     (4,675,217 )
Accumulated net realized loss on investments     (37,721,163 )     (43,409,847 )
Net unrealized appreciation (depreciation) on investments     25,164,693       (13,342,332 )
Net unrealized depreciation on debt     806,223       2,850,000  
    Total net assets   $ 741,162,812     $ 697,506,199  
    Total liabilities and net assets   $ 1,331,424,359     $ 1,153,327,092  
Net asset value per share   $ 11.13     $ 10.49  
                 
                 
                 
PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF OPERATIONS  
(Unaudited)  
   
  Three Months Ended March 31,     Six Months Ended March 31,  
  2014     2013     2014     2013  
Investment income from:                              
Non-controlled, non-affiliated investments:                              
  Interest $ 31,858,467     $ 28,058,570     $ 60,823,402     $ 53,827,187  
  Other income and dividends   2,336,170       876,680       4,851,027       5,242,954  
Non-controlled, affiliated investments:                              
  Interest   1,453,003       938,261       2,717,613       2,330,764  
  Other income   -       -       -       227,800  
Controlled, affiliated investments:                              
  Interest   2,231,179       1,183,750       3,624,633       2,386,457  
  Other income   -       -       300,833       -  
  Total investment income   37,878,819       31,057,261       72,317,508       64,015,162  
Expenses:                              
  Base management fee   6,027,293       5,328,100       11,774,353       10,456,711  
  Performance-based incentive fee   5,007,264       3,559,244       9,496,043       8,104,498  
  Interest and expenses on debt   5,099,113       3,984,909       9,672,746       7,079,774  
  Administrative services expenses   928,954       1,155,537       1,840,550       2,327,859  
  Other general and administrative expenses   778,592       719,423       1,541,096       1,479,955  
  Expenses before taxes and debt issuance costs   17,841,216       14,747,213       34,324,788       29,448,797  
  Tax expense (benefit)   8,548       (190,197 )     8,548       (114,896 )
  Debt issuance costs   -       2,437,500       -       2,437,500  
  Total expenses   17,849,764       16,994,516       34,333,336       31,771,401  
  Net investment income   20,029,055       14,062,745       37,984,172       32,243,761  
Realized and unrealized gain (loss) on investments and debt:                              
Net realized gain (loss) on investments   3,029,573       (1,830,764 )     5,688,684       (959,632 )
Net change in unrealized appreciation (depreciation) on:                              
  Non-controlled, non-affiliated investments   15,782,680       26,227,226       29,998,188       32,289,547  
  Controlled and non-controlled, affiliated investments   7,987,620       (11,059,378 )     8,508,837       (7,085,161 )
  Debt appreciation   (6,147,777 )     (427,500 )     (2,043,777 )     (975,000 )
  Net change in unrealized appreciation on investments and debt   17,622,523       14,740,348       36,463,248       24,229,386  
Net realized and unrealized gain from investments and debt   20,652,096       12,909,584       42,151,932       23,269,754  
Net increase in net assets resulting from operations $ 40,681,151     $ 26,972,329     $ 80,136,104     $ 55,513,515  
Net increase in net assets resulting from operations per common share $ 0.61     $ 0.41     $ 1.20     $ 0.84  
Net investment income per common share $ 0.30     $ 0.21     $ 0.57     $ 0.49  
                               

ABOUT PENNANTPARK INVESTMENT CORPORATION
PennantPark Investment Corporation is a business development company which principally invests in U.S. middle-market private companies in the form of senior secured loans, mezzanine debt and equity investments. PennantPark Investment Corporation is managed by PennantPark Investment Advisers, LLC.

FORWARD-LOOKING STATEMENTS

This press release may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You should understand that under Section 27A(b)(2)(B) of the Securities Act of 1933, as amended, and Section 21E(b)(2)(B) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 do not apply to forward-looking statements made in periodic reports we file under the Exchange Act. All statements other than statements of historical facts included in this press release are forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in filings with the SEC. The Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this press release.

We may use words such as "anticipates, " "believes, " "expects, " "intends, " "seeks, " "plans, " "estimates" and similar expressions to identify forward-looking statements. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations. You should not place undue influence on such forward-looking statements as such statements speak only as of the date on which they are made. We do not undertake to update our forward-looking statements unless required by law.

Contact Information

  • CONTACT:
    Aviv Efrat
    PennantPark Investment Corporation
    Reception: (212) 905-1000
    www.pennantpark.com