Good morning. And welcome to the PennantPark Floating Rate Capital's Third Fiscal Quarter 2022 Earnings Conference Call. Today's conference is being recorded. It is now my pleasure to turn the call over to Mr. Art Penn, Chairman and Chief Executive Officer of PennantPark Floating Rate Capital. Mr. Penn, you may begin your conference.

Thank you and good morning, everyone. I'd like to welcome you to PennantPark Floating Rate Capital's third fiscal quarter 2022 earnings conference call. I'm joined today by Rick Allorto, our Chief Financial Officer. Rick, please start off by disclosing some general conference call information and include a discussion about forward-looking statements.

Thank you, Art. I'd like to remind everyone that today's call is being recorded. Please note that this call is a property of PennantPark Floating Rate Capital and that any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by using telephone numbers and pin provided in our earnings press release, as well as on our website. I'd also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking information. Today's conference call may also include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these projections. We do not undertake to update our forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.pennantpark.com call us at 212-905-1000. At this time, I'd like to turn the call back to our Chairman and Chief executive Officer, Art Penn.

Thanks, Rick. First, I'd like to welcome you as the new CFO of our BDCs. We're going to spend a few minutes discussing how we fared in the quarter ended June 30. How the portfolio is positioned for the upcoming quarters, our capital structure and liquidity, a detailed review of the financials, then open it up for Q&A. For the quarter ended June 30th, our net investment income was $0.29 per share, which includes $0.01 of other non-recurring income, the credit quality of the portfolio remained solid and the largest non-accrual investment marketplace events has returned to full accrual status. Our GAAP NAV decreased by 3.2%, driven primarily by decrease in investment valuations. The decrease was largely attributed to mark-to-market adjustments resulting from the overall choppy market as opposed to specific credit driven items within the portfolio. During the quarter, we continue to originate attractive investment opportunities and grow both the PFLT portfolio as well as the JV portfolio. At quarter end, the JV portfolio was $747 million. And we remain confident that we will execute on our plan to grow the JV portfolio to $1 billion of assets over time. We believe that the increase in scale and the JV’s ROE will enhance PFLT’s earnings momentum. From our overall perspective, in this era of inflation, rising interest rates and geopolitical risk, we believe we are well positioned as a senior secured first lien lender focused on the United States where the floating rates on our loans can protect against rising inflation. The portfolio of assets that is 100% floating rate, we're well positioned to substantially grow our net investment income as base rates rise, holding everything else constant in the portfolio, every 100 basis point increase in base rates translates into about $0.04 per quarter of net interest income.…

Thank you, Art. For the quarter ended June 30th, net investment income was $0.29 cents per share, including $0.01 per share of other income. Operating expenses for the quarter were as follows. Management fees and performance based incentive fees were $5.6 million. Interest expense was $7.4 million. General and administrative expenses were $800,000 and provision for taxes were $100,000. For the quarter ended June 30th, net realized and unrealized change on investments was a loss of $16.9 million or $0.41 per share. There were no changes in the value of our credit facility and notes for the quarter. We sold 136,000 shares this quarter through the aftermarket program above our NAV, which resulted in $0.01 per share of accretion to NAV. As of June 30th, our GAAP NAV was $12.21 which is down 3.2% from $12.62 per share. Adjusted NAV excluding the mark- to-market of our liabilities was $12.02 per share, down from $12.41 per share last quarter. Our debt-to-equity ratio was 1.5x and our net debt-to-equity after subtracting cash was also 1.5x. Our capital structure is diversified across multiple funding sources, and we do not have any near term maturities. As of June 30th, our key portfolio statistics were as follows. Our portfolio remains highly diversified, with 123 companies across 45 different industries. Portfolio was invested, 87% invested in first lien senior secured debt, including 16% in PSSL, less than 1% in second lien debt, and 13% in equity, including 5% in PSSL. Our overall debt portfolio has a weighted average yield of 8.5%. 100% of the debt portfolio is floating rate, and 82% has a LIBOR floor, the average LIBOR floor is 1%. As Art previously commented, as base rates rise, we are well positioned to participate on the upside. Holding everything else constant in the portfolio, a 1% increase in base rates translates into $0.17 per share annually of net interest income upside, and a 2% increase translates into $0.32 per share annually of net interest income. I'll now turn the call back over to Art.

Thanks Rick. In closing, I'd like to thank our extremely talented team of professionals for their commitment and dedication. Thank you all for your time today and for your investment and confidence in us. That concludes our remarks. At this time, I'd like to open up the call to questions.

And we'll take our first question from Ryan Lynch with KBW.

Hey, good morning Art and welcome, Rick. The first question I had was, if I kind of look at your overall unrealized losses recorded in the quarter of around is a little over $17 million. Is there a way to break that down? Can you give us a ballpark estimate of what percentage of that was driven by widening spreads and lower equity valuation? So more kind of technical mark-to-market versus specific credit events that were marked down?

Thanks Ryan. As I'm looking at kind of the big movers over the quarter, there were really very little big movers. I think Walker Edison equity was the biggest mover and that was down $2 million dollars, as an example. But other than that, it's all kind of the market and credit spreads, and not idiosyncratic name spreads.

Okay. And then, congratulations on marketplace events coming back on accrual status. Can you just talk about usually talk about, negative events, and what went on with portfolio companies? Is this a positive event? Can you talk about what drove this change and this company's ability to pay its interest in status?

Yes, so there's a company is a home goods tradeshow business, which is obviously impacted by COVID. And as the world is normalizing, as you know, and the company's doing much, much better. So we believe that will be a temporary thing as the world normalizes, they're the leading company in their space. It's an excellent company, very strong management team. They just were directly impacted by COVID.

Got that. It’s kind of COVID recovery story. Then just my final question that I had, the PSSL has grown significantly, over the last several quarters. You mentioned kind of you hope to get that to $1 billion at some point. Obviously, this is very dependent on market opportunities, just as you kind of sit here today, do you have any sort of rough estimate of a target year that you would like it to get to that size.

I mean probably the next 18 months to two years. We have the ability today to ramp it to about $850 million, $875 million. We will look at some point to bring in another middle market CLO into that vehicle, we already have one. And that CLO financing, as you know, is low cost efficient long term and really optimized as ROE. So it probably could get us to $850 million sometime in the next, six to 12 months. Assuming we get a middle market CLOs done which the markets been a little in turmoil, as you may know, it presumably we'll come back at some point. That's when we could optimize it even further and take it let's say from $850 million, $875 million to about $1 billion.

And we'll take our next question from Kevin Fultz with JMP Securities.

Hi, good morning. And thank you for taking my questions. You touched on this a bit in your prepared remarks. Clearly, rising rates will boost core earnings in the back half of the year, given the rate increases in the second quarter that will flow through in the third quarter earnings. Have you run the numbers on the incremental NII per share impact the rising base, which we'll have in the third quarter? A – Richard Allorto: Hi, good morning, Kevin. We've been thinking and working on this one quite a bit. There are, unfortunately a lot of variables, in that count, so I can't communicate a simple straightforward, easy answer for you. But let me give you a couple of statistics to help you with your own modeling. So 100% of the portfolio as you know is floating rate and at 630, 11% of that was still subject to floor and net average floor was 1% that compares to 59% at 331 of the portfolio it was still subject to an average 1% floor. So, obviously, during the 630 quarter we captured already, some of the rising rate environment, at 630, some additional statistics at 630, our average base rate was 1.9%. And that compares to one month LIBOR today of approximately 2.35%. One month, so, for 2.3. So, as the portfolio companies continue to roll their LIBOR contracts, and they have the option between, one, three and six months, we'll continue to see some increase in interest income NII coming from the rising rates. And again, we'd expect that small portion of the portfolio that's currently subject to the floor to exceed that for and again, add incrementally to top and bottom line with the rising rate.

Okay, that's really helpful, Richard, and welcome. Just one more, if I may. In regards to portfolio positioning, just curious if there are any pockets or industries that you find particularly attractive in the current environment?

Yes, we as you know, we have a big expertise and a focus on government services and defense. Not a lot of our peers are very focused on industry. We've had a really good experience over many years, I think it's about 15% of this portfolio. And given geopolitical events, there's really a tailwind against that industry right now. So we'll continue to lean into that industry. Obviously, we like the credit worthiness of the customers in that industry. We like the trends, we like the stability. So we probably lean into that sector, even a little bit more so than we have in the past. Healthcare, also big expertise, big sector for us. The demographic trends there continue to be very, very strong. Obviously, there's things you got to be careful in healthcare, but we've had an excellent track record in healthcare, that some of our biggest wins in healthcare. So I think those are probably the, they are two largest sectors, I think we keep leaning into those sectors. I think consumer, which is a sector for us, we've gone out of our way to be conservative and cautious in that sector. And only leverage those companies, a small amount so we think we're well protected. I think we're going to be a little bit more careful around consumer, at this point in time until we see where this economy heads.

Pleasure to have you Kevin covered the stuff. So with that, I think doesn't look like we have any more questions. I really just want to thank everybody for being on the call today. The next quarter is the quarter ended September 30th. That's our 10-K quarter. So reminder that due to the 10-K, We usually report a little bit later. I think we're kind of targeting mid-November for the next earnings release and the next call. So in the meantime, we really appreciate everyone's support and wishing everybody a great rest of the summer.

This concludes today's call. Thank you for your participation. You may now disconnect.