PennantPark Investment Corporation

Good afternoon and welcome to the Penn and Park Investment Corporation's first fiscal quarter 2021 earnings conference call. Today's conference is being recorded. At this time, all participants have been placed in a listen-only mode. The call will be open for a question-and-answer session following the speaker's remarks. If you would like to ask a question at that time, simply press star 1 on your telephone keypad. If you would like to withdraw your question... It is now my pleasure to turn the call over to Mr. Art Penn, Chairman and Chief Executive Officer of Penn & Park Investment Corporation. Mr. Penn, you may begin your conference.

Good morning, everyone. I'd like to welcome you to Penn & Park Investment Corporation's first fiscal quarter 2021 earnings conference call. I'm joined today by Aviva Efrat, our Chief Financial Officer. 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 Penn and Park Investment Corporation and that any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by using a cell phone number 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 or call us at 212-905-1000. That'd be fine. I'd like to turn the call back to Art Sherman and Chief Executive Officer Art Penn.

Thank you, Aviv. First, we hope that you, your families, and those you work with are staying healthy. I'm going to spend a few minutes discussing how we fared in the quarter ended December 31st, how the portfolio is positioned for the upcoming quarters, our capital structure and liquidity, the financials, and then open it up for Q&A. Despite the challenging economic conditions brought on by the pandemic, we are pleased with our performance this past quarter. We achieved a 14.5% increase in adjusted NAV. Adjusted NAV went up $1.10 from $7.59 to $8.69. We have several portfolio companies in which our equity co-investments have materially appreciated in value as they are benefiting from the K-shaped recovery. This is solidifying and bolstering our NAV. We will highlight those companies in a few minutes. As part of our business model, alongside the debt investments we make, we selectively choose to co-invest in the equity side-by-side with the financial sponsor. Our returns on these equity co-investments have been excellent over time. Overall for our platform, from inception through December 31st, our $217 million of equity co-investments have generated an IRR of 28% and a multiple on invested capital of 2.9 times. In a world where investors may want to understand differentiation among middle market lenders, our long-term returns on our equity co-investment program are a clear differentiator. With regard to income generation, we have the opportunity to rotate out of our equity investments over time and into yield instruments. In addition, we have the ability to grow the P&NT balance sheet and that of our PSLF JV with Pantheon, which should also generate additional income for the company. Although we never predicted a global pandemic, as you may know, we have been preparing for an eventual recession for some time. Prior to the COVID-19 crisis, we proactively positioned the portfolio as defensively as possible. The overall portfolio is constructed to withstand market and economic volatility. As of December 31st, the average debt to be dialed in the portfolio was 4.4 times, and the average interest coverage ratio, the amount by which cash income exceeds cash interest expense, was 3.3 times. We have no non-accruals on our book out of 89 different names in PNNT and PSLF. We have largely avoided some of the sectors that have been hurt the most by the pandemic, such as retail, restaurants, health clubs, apparel, and airlines. Although PNNT does have exposure to oil and gas, which we'll discuss later. The portfolio is highly diversified with 81 companies in 29 different industries. Since inception, PNNT has invested $6 billion at an average yield of 12%. Thank you for joining us. Thank you for joining us. Technology and Software, Business Services, and select consumer companies that are less impacted by COVID and where we have meaningful domain expertise. We believe that we are experiencing a K-shaped recovery with some companies and industries being large beneficiaries of the environment. We are pleased that we have significant equity investments in four of these companies, which can substantially move the needle of our NAV. I would like to highlight those four companies. The four companies are Cano, Wheel Pros, Walker Edison, and PT Network. Cano Health is the national leader in primary health care who is leading the way in transforming health care to provide high-quality care at a reasonable cost to a large population. Our equity position has a cost and fair market value on December 31st of $2.5 million and $72.9 million, respectively. Cano has been experiencing rapid growth with revenues nearly quintupling and EBITDA more than tripling over the last three years. We believe there is a massive market opportunity for Cano to grow in the years ahead with the Medicare Advantage Program. During the quarter ended December 31st, we received $1.9 million of cash as a return of capital. The merger with Jaws Acquisition is scheduled to close at the end of March or early April. At that time, we will receive another $6.7 million of cash and own 6,629,953 shares of Cano Health in a limited partnership controlled by a financial sponsor where the sponsor will earn 20% of the exit proceeds. The shares will be locked up for six months. from a valuation perspective, do the lockup, the independent valuation from value deposition with a 7% illiquidity discount to the traded value on December 31st. Wheel Pros is the largest national distributor of aftermarket custom wheels. The company has consistently grown since our initial investment with revenue doubling and EBITDA tripling over the last two and a half years. Our position has a cost of 1.1 million and a fair market value of 24.7 million as of December 31st. Walker Edison is a leading e-commerce platform focused on selling furniture exclusively online to top e-commerce companies. Since our investment was made in 2018, sales have more than tripled and EBITDA is up almost four times. Our position has a cost of $1.9 million and a fair market value of $15 million as of December 31st. PT Network is the leading physical and occupational therapy provider in the Mid-Atlantic states. Our equity investment in PT came through a restructuring which came about after the company made several operational mistakes. We've always had a positive view of the industry in the outlook to do the industry tailwinds and demographics which result in comparable companies trading at epitome multiples of 12 to 15 times. Under our ownership, we brought in an excellent management team who corrected those operational mistakes and has shepherded the company well through COVID. Our equity position has a cost of $23 million and a fair market value of $42 million as of December 31st. All four of these companies are gaining financial momentum in this environment, and our NAVs should be solidified and bolstered from these substantial equity investments as their momentum continues. PNNT has the lowest percentage of energy investments since 2013. Energy investments represent only 6.5% of the overall portfolio. With regard to Ram Energy, the new credit facility led by Death Bank under the Main Street Lending Program materially lowered Ram's cost of capital and provides a runaway to execute on its operating plan and time to wait for a recovery in prices. During Q4, RAM was impacted by lingering impacts from COVID and a difficult 2020, which included higher debt, continued lower prices, reduced production, and the impact of monetizing its hedge position at the time of the refinancing. Additionally, RAM began work on its last two uncompleted wells, which were finished recently. While still early, production of these wells is expected to be strong. Even though the December 31 quarter had several impacts, RAM is now on stable operational and financial footing and should benefit from higher prices and production. The company is free cash flow positive after debt service and will use any free cash flow to service and repay debt. We will have a more fulsome operating update on the company next quarter. As of December 31st, equity represented approximately 35% of the portfolio. Our long-term goal continues to target that percentage down to about 10% of the portfolio. The substantially higher valuation of CAMO increased that percentage by approximately 9% this past quarter. As we monetize the equity portfolio, we are looking forward to investing the cash into yielding debt instruments to increase net investment income. We were active this past quarter making new ones. I'll walk through some of the highlights. Applied Technical Services is a provider of non-destructive testing Calibration Lab and Consulting Engineering Services. We purchased 9.5 million of the first-ling term loan and co-invested about 504,000 in the common equity. Odyssey Investment Partners is the sponsor. Hancock Claims Consultants is a leading insurance claims services company focused on the residential roofing market. We purchased 6 million of the term loan and purchased 450,000 of equity. Century Equity Partners is the sponsor. Rancho Health is a primary care provider in Southern California. that is focused on offering value-based primary care. We purchased 3.7 million of first-lane term loan and co-invested 1.1 million of common equity. Light Bay Capital is the sponsor. We purchased 8.5 million of the first-lane term loan and purchased 730,000 of common equity in Sigma Defense Systems. The company is a leading IT services provider and systems integrator of satellite communication equipment for mission-critical airborne surveillance programs. Sagewind Capital is the sponsor. The outlook for new loans is attractive. We believe that middle market lending is a vintage business. This vintage of loans is likely to be the most attractive we've seen since the 2009 to 2012 time period. Leverage levels are lower, equity cushion is higher, yields are higher, and the package of protections, including covenants, are tighter. After enduring about five years of a late cycle market for middle market lending, it is refreshing to have attractive risk reward available to us. Let me now turn the call over to Aviv, our CFO, to take us through the financial results. Thank you, Art. The quarter ended December 31st.

Net investment income totaled $0.12 per share. Looking at some of the expense categories, bases totaled $4.1 million, taxes, general and administrative expenses totaled $1.3 million, and interest expense totaled $5 million. Net unrealized gain on our investments was $94 million, or $1.39 per share. Net unrealized depreciation on our credit facilities was 19 cents per share. Net realized loss on investments was 26 cents per share. Our dividend was equal to our net investment income. Consequently, NAD per share went from $7.84 per share to $8.78 per share. Adjusted NAD, excluding the market of our liabilities, was $8.69 per share, up 14.5% from $7.59 per share. The increase in NAD was primarily due to an 8.6% valuation increase of the investment portfolio, which is now valued at 101% of cost versus 93% have cost last quarter. As a reminder, our entire portfolio, credit facility, and senior notes are marked to market by our board of directors each quarter using the exit price provided by independent valuation firms, securities and exchanges, or independent broker dealer quotes when active markets are available under ASC 820 and 825. In cases where broker dealer quotes are inactive, We use independent valuation firms to value the investment. Our spillover as of September 30th was 33 cents per share. Our gap debt to equity ratio net of cash was 0.9 times down from 1.0 times last quarter. The regulatory debt to equity ratio net of cash which excludes SBIC debt was 0.7 times down from 0.9 times With regards to our NAV, our GAAP NAV was $8.78 as of December 31st, up approximately 12% from the prior quarter, which reflects both the market-to-market of our assets, offset by the market-to-market of certain liabilities. Assuming liabilities were not market-to-market, adjusted NAV was $8.69, up approximately 14.5% from the prior quarter. We have ample of liquidity to fund revolver drugs and we're in compliance with all of our credit facilities as of September 31st. We have readily available borrowing capacity and cash liquidity to support our commitments. We have a strong capital structure with diversified funding sources and no near-term maturities. We have $475 million revolving credit facility maturing in 2024. with a syndicate of banks, 119 million of SBA debentures maturing in 2026, and 86 million of unsecured notes maturing in 2024. We have been in consistent dialogue with our lenders and are thankful for their support. Our overall debt portfolio has a weighted average yield of 9.3%. On December 31st, our portfolio consisted of 81 companies across 29 different industries. The portfolio was invested 38% in first-linked secure debt, 17% in second-linked secure debt, 10% in subordinated debt, including 6% in PSLS, and 35% in preferred and common equity, including 3% in PSLS. 92% of the portfolio had a floating rate, all of which had a LIBOR floor. The average LIBOR floor is 1%. We have concluded in consultation with our board to extend the incentive fee waiver through March 31st, 2021. Now, let me turn the call back to Art. Thanks, Aviv.

To conclude, we want to reiterate our mission. Our goal is to generate attractive, risky, just returns through income, coupled with long-term preservation of capital. Everything we do is aligned to that goal. We try to find less risky middle-market companies that have high free cash flow conversions. Thank you all for your time today and for your continued investment and confidence in us. That concludes our remarks. At this time, I would like to open up the call to questions. Thank you.

If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach your equipment. Again, press star 1 to ask a question. We'll take our first question from Casey Alexander with CompassPoint. My apologies. Our first question is coming from Mickey Schleyen with Lidenberg. Please go ahead.

Yes, good afternoon, Art and Naviv. I have a similar question for PNNT that I have for PFLT, meaning that the fourth calendar quarter was a strong quarter for middle market M&A, but both the on-balance sheet and senior loan fund portfolio shrank and the fee income was not particularly strong. Could you just give us some background on what's going on with that trend and is it across the platform something proactive that you're doing in terms of underwriting or something else?

Thanks, Mickey. It's a good question. We had some refis earlier in the quarter and then we had very strong originations towards the end. We were very busy closing deals between Christmas and New Year's and we've been very busy since then. We're in the core middle market, which we define as 15 to 50 EBITDA. These deals have a longer gestation cycle. There's more due diligence. There's more negotiating of covenants. As a result, it's a more highly tailored bespoke business. We think it's got better risk-adjusted returns and more protections, and we get the added benefit of equity co-invest in many cases. It's a more labor-intensive model. We just had some early refinancings early in the quarter. We were very busy towards the tail end of the quarter, and we remain busy going forward. We've never had a problem ramping up over time. It just sometimes takes us a few quarters to ramp because we're so focused on capital preservation and being thoughtful. It may take us a little longer, but we've never had a challenge ramping up any of these portfolios.

Follow-up to that question. Typically, the fourth calendar quarter is very busy, and then when the winter gets going, the first calendar quarter tends to be slow. But we're not in the normal cycle right now. My sense is that there's a lot of pent-up demand and dry capital available. Do you think the first calendar quarter could be stronger than average just on a relative basis for the sector overall?

It's tough to say because I think typically, you're right, there's a December effect and then sometimes the first calendar quarter is a light. But then as things are going, you may have a bunch of deals at the end of March and going into April. So you're right in pointing out that the business has some seasonality to it.

Look, our teams are busy looking at deals and doing due diligence and negotiating things.

We remain busy. Our eyes are on the longer-term prize and finding really good risk-adjusted returns for our vehicles and getting them to Solid, appropriate leverage for the underlying risk. Hard for me really to give you any real strong guidance about calendar Q1 or Q2. We're pretty busy. We like this vintage. We think this post-COVID vintage will be really good. It is really good. Higher quality company than we saw pre-COVID and where we are focused, which is this core middle market, not the upper middle market. We're still getting better risk-adjusted returns than we were before COVID. We're getting lower leverage, higher equity underneath us, stronger covenants, fewer and more diligence, EBITDA adjustments, and attractive equity canvas. So this vintage for us in our core middle market zone feels very attractive, so we're very excited about it.

Thank you for that, Mark. Could you remind us on PSLF, what is the fund's target price? in terms of debt to equity and your target ROE on your PSLF investment excluding the member's sub-debt?

Yeah, so look, PSLF is ramping as well. We think that can be a $450 million vehicle over time. That's kind of one and a half times debt to equity, kind of a 12%-ish ROE. So that will help and, of course, we have this equity rotation that we've been talking about and that we're looking forward to and working hard where we can to action that.

And that 12% that you just mentioned, is that purely on your equity investment or is that a blend of your equity investment and the subordinates?

At some point, Mickey, it's the combination of the sub-debt and the equity.

Okay. My last question is just a housekeeping question. Can you just give us a sense of what the main drivers of the realized loss was this quarter?

Yeah, the main driver was a company called mSpark or MailSouth, which did a restructuring, and therefore upon the restructuring, there was a realization event. Our second lean became equity. We and others put a new second lien in place, and we and other lenders are the control players of the company. Thankfully, the company is bouncing back quite nicely, not quite back to where it was pre-COVID, but on its way back to where it was pre-COVID, and we're optimistic that as we get towards the tail end of 2021, it'll be back kind of where it was pre-COVID and Thank you for your time this afternoon. I appreciate it. Thank you. Thank you. We're now taking our next question from Casey Alexander with Compass Point.

Yeah, hi, good afternoon. It's kind of a tricky question, but I think it sort of gets to what I think your balance sheet strategy is going forward. Your leverage for the BDC has come down quite a bit with the transaction creating the JV. Effective leverage is still there if you look through to the JV. So on balance sheet with PNNT, you previously had a target leverage ratio that was, I don't know if the deck number is up around 1.5. Would you adjust that target leverage ratio to something lower simply because a lot of your first lien was transferred into the JV so you have a different composition and also Thank you for joining us.

Another amount of debt against, secondly, the mezzanine assets, and yet another amount of debt against equity assets. So, to some extent, you've got to look to the underlying assets that you have and try to figure out what you're comfortable putting on relative to the asset and what the leverage is. I think at this point, 1.5%, particularly given the complexion of the underlying assets, is too high. I think we probably, over time, could target something like 1.3%. Thank you for joining us.

even without selling down some of the equity if I understand that correctly. That's great. That's great.

That's my only question. Thank you. Thank you.

Thank you. And now we take our next question from Robert Dutt with Raymond James. Please go ahead.

Hi, everyone. On the equity, obviously, I mean, you know, roughly a third of the book, as you said, Target 10. I mean, timeline-wise, a very difficult question to answer. There's also kind of embedded in that question for me. How are you balancing? Obviously, you don't want to give up total return just to get coupon today. You don't want to exit equity too early. But at the same time, equity is very high as a percentage in the book. And I do think, as you have expressed, investors would prefer it to be down, but perhaps not at the expense of giving up total return just for income. So how are you balancing, you know, The view on that, I mean, obviously you don't control the exit of all these equity positions, but you do some. So how's that being, how's the view on that in terms of balance?

That is another tricky question, Robert Dodd. And, you know, there's a well-known research analyst I know who says it's all about NAV. It's all about NAV. And, you know, so like we have some of these big wins in equity, right? We could try to exit them earlier. and convert those to cash to generate NII earlier in some cases. But you might be giving up some NAV upside if you exit earlier. You know, some of these you could go to the sponsor and say, you know, buy us out. And some of them would be happy to buy us out because they still see the next 10, 20, 30, 40% upside if they do. And that is a challenge of running a vehicle that, you know, a lot of people want yield. So it's a tricky balancing act, and you're right, it's hard for me to answer your question, and maybe we can talk, you know, you've done some good research about kind of, you know, NED should take priority in certain cases, but that's how we've been playing it thus far. We've been saying, at this point, you know, this vehicle, you know, a lot of the ups are in the equity, let's ride that and squeeze that as much as possible, and we will monetize that in the most optimal way possible, and then take those proceeds and put it into yield instruments. But clearly there are some investors who say, you know, it's all about yield. You know, it kind of fell earlier, leave some money on the table, get out and start deploying into cash paying yield instruments. So today we've been playing it to the maximization hand, but we could pivot and start to take some of these gains earlier. We will probably by definition then be leading leaving some gains on the table. So that's the grapple that we have, to be quite honest. It's nice to have wins. It's nice to have victories. It's refreshing. It's nice to have energy be a relatively small manageable piece of this portfolio after so many years. So it's nice to be having these conversations. But it is something we grapple with.

and it's nice to see portfolio fair value above cost as well.

Just one more if I can.

You talked about you're still seeing, this looks like it's going to be a very good venture, you're still seeing lower leverage, stronger covenants, etc. How much more so if you could, that's more of a Robert Robert Robert Robert Robert I guess so. Maybe I'll follow up with this later. Thank you. Robert, I can hear you there one second while we might have technical difficulties.

So bear with us for 30 more seconds. I can hear you clearly.

We're trying to get Art back on the line here.

My apologies. I'll step away and connect Mr. Penn. One moment, please.

Give us a couple more, a few more seconds here. I know his line was dropped earlier, so I guess we're experiencing the same difficulty, technical difficulty here, Robert, but we do want to take your attention. No problem. Telephonic difficulties. Yeah. A lot of life. Yeah. Yeah.

Hello, hi, sorry, I'm back from technical difficulties. My apologies. Robert, you were asking a question.

Yeah, yeah, yeah. So, I mean, just talking about, you mentioned that you're still seeing low leverage, better terms and spreads currently in the middle market. If we look at the syndicated market, that all seems to pretty much be gone. Obviously, there's a lag between the two. Traditionally, typically, there's been a lag. Do you think that the better terms you're seeing now are, if everything stays competitive, are going to advance? Or do you think some of that benefit in better terms, coupons, etc., is just going to be sustained over the near term? I'm not asking that three years from now, obviously, but over a somewhat prolonged period.

It's a great question. Just to definitionally level set it for everyone, we're focused on what we call the core middle market, which is companies with $15 to $50 million of EBITDA versus the upper middle market, which is $50 million and above in our view. $50 million and above is the threshold where we think companies can also access the broadly syndicated loan market or the high-yield market in some cases where some of our larger peers traffic and they write big loans to bigger companies and that end of the market certainly has bounced back to where it was pre-COVID and really driven by the rebound of the broadly syndicated loan and high yield markets. You're right that we're kind of away from the fray and below that radar. Certainly the market is rebounded to some extent from where it was at the lows six months ago or so. But it's slow. It's slow. We like this end of the market. Even before COVID, there was a lot Thank you for joining us. but certainly over time as the economy recovers and as capital flows back, it's certainly going to be tightening for sure. But what's new? That's how we've been operating for a number of years. We came into COVID in our senior book at about four times deputy, which really positioned us well for COVID and kind of avoiding many of those sectors that got most impacted. So we were taking a more defensive posture going into this than many.

I appreciate that. Thank you. Great quarter. Thank you.

Thank you. We're taking our next question from Ryan Lynch with KBW. Please go ahead.

Hey, good morning, Art. Good morning. Good afternoon, I guess I should say. I have a couple questions. In your prepared comments, you mentioned four companies that you felt pretty good about the upside in, you know, that growth now this quarter as well as contributing to the upside in the future. One company you didn't mention was MidOcean. Just curious, that company has written up pretty significantly this quarter. Can you provide a background on what that business does and then what drove the markup in that investment?

Yeah, so it's a company that has been in the portfolio for a while. It was a restructured mezzanine investment where we, for a while, owned debt and equity. The debt got refinanced, and we own a residual equity position. The company distributes products to service stations, to gas stations. And it did get hurt by COVID early on as people drove less, but it's rebounded nicely. and they've been doing some very attractive add-on acquisitions and attractive multiples. So ever so gradually, the EBITDA of that company has been growing. It's not what we call kind of the top of the K-shaped recovery where we're seeing things like Walker Edison or Wheel Pros or Cano, but it's kind of been a steady Eddie grower. And at some point in the next year or two, there may be an exit and we'll be able again to convert that equity investment into cash. Uh, but yes, it was a, it was a nice, uh, nice valuation upside this quarter.

Okay. And then from, from a higher level question, um, when you mentioned the case ship recovery, obviously there's a lot of uncertainty of how, um, you know, the recovery or, or, or us opening is going to take place and how long we're going to be dealing with COVID. Um, How does the shape of the recovery or your outlook on the reopening process, how does that shape your guys' underwriting when you guys are looking at a new company or just even the type of company or the industry that you are looking in?

Yeah, so look, we've really honed it down and are focusing on five different sectors where we think we have really excellent domain expertise where Thank you for joining us. and most of these sectors, in fact all of them, they performed relatively well for COVID. So, you know, over time you develop certain domain expertise in your business, we certainly have, and we've certainly made mistakes elsewhere too, as you know. So, you know, we want to continuously improve and get better and better and kind of this is where our focus is going to be at this point and stick to that. It's a wide enough band that we can see, you know, substantial deal flow We can fill up our vehicles, you know, carefully and judiciously and do it very, you know, very smartly. So that's, I don't know if I answered your question yet, Ryan. Did I answer your question?

No, that's helpful contact. It's a, you know, an impossible question to defer now, but it's good call on where your guys' headspace is at at this point. So those are all my questions. I appreciate the time this afternoon and really nice call, guys. Thank you.

Thank you. And we'll take our next question from Kyle Joseph with Jefferies. Please go ahead.

Hey, good afternoon. Thanks for having me on. A lot of my questions have been addressed, but I just had two follow-ups on credit. On the non-accruals that were resolved during the quarter, was that driven more by recoveries or were those restructurings? I think you addressed one of those earlier, but just wanted to get your perspective there.

Thanks, Kyle. So, yes, we talked about MSPAR from the L-South earlier on sponsor over-structuring. And then the other one was PRA, PRA, which is an events-related business. The sponsor agreed to put in additional equity beneath us. So that is back on accrual due to that investment by the sponsor.

Got it. And then more broadly on credit, can you give us a sense for revenue and even dog growth trends in the fourth quarter, that calendar fourth quarter, and how those compare to The third quarter and any changes you've seen year to date?

Yeah, it's a great question because we're trying to really precisely with our own portfolio figure out when was the bottom. You know, was the bottom, you know, March? Was the bottom June? Was the bottom September? And it's challenging because in most cases we get monthly financial statements. In some cases we get quarterly. So we're trying to figure that out as we speak. My off-the-cuff, you know... The answer would be we think EBITDA on average was up 3% to 5% in the fourth quarter. That's me guesstimating at this point. But give it another few months and we'll have some precise data for you as we hopefully on the next call we can kind of more precisely identify for you when the bottom of COVID was for us and what the trends are. But that's kind of a guesstimate at this point.

Got it. Thanks for the time, and thanks for answering my questions. Thanks, Carl.

Thank you. We're taking the next question from Melissa Vedder with JP Morgan. Please go ahead. Good afternoon, guys.

Thanks for taking my question. First, I wanted to just touch on the case of portfolio leverage. If I heard you right earlier in the call, you aren't reliant on some of those turning, the elevated equity positions similar to deployment capital. You also noted it's tough to give guidance on the origination side, but I thought I'd follow up on the flip side of that, which is do you have much visibility into expected repayment activity in the near term?

Yeah, we don't see a lot of repayments in the near term. Although sometimes you never know, but we don't see a ton of repayment. So, I mean, our goal and our thought is the portfolio is going to gradually grow, you know, over the coming quarters in a careful, thoughtful manner, you know, while we're looking to monetize these equity positions.

Okay.

Okay, got it.

And then as a follow-up, this is sort of a broader strategic question. I think we're seeing across the BDC landscape some of the senior loan vehicles recombined or reabsorbed with the primary BDC. Just curious if that's something that you guys have thought about with regard to PFLT and PNNT and how you think about the puts and takes and something like that.

Thank you. So it's a good question. It's a good question and look, we're always trying to do anything we can to maximize shareholder value and Everything is always on the table and we will evaluate. I think for us at PNNT today, we've got a little bit of work cut out for us to get PNNT where it should be. And then where we get it where it should be, we will lift our head up and figure out an answer and ask questions like you just asked. At our firm, it's important for you to know that we've got two separate strategies that on both the public and the private side. We have an opportunity strategy, which looks a lot like PNNT without the energy. And in that strategy, for instance, we had a really excellent 2020, kind of a net 29% return to limited partners. And then we have a senior debt strategy that looks a lot like PFLT. And our private funds had like an 18% net return in 2020. So really excellent returns in our two separate strategies. But first things first, we really need to do with PNNT to get it in good shape before we can even begin asking those questions. But after we get that in the right shape, we're certainly open and we'll discuss all kinds of options.

Thanks, Art. Thank you. We're taking our next question from Jim Altschul from Aviation Advisory Service, Inc.

Good afternoon, gentlemen. Thanks for taking my call. A couple of things. In the fiscal year that ended September 30th, you repaid $31.5 million in SBA debentures. Why did you do that?

Well, that's because we were getting repayments in the SBIC and There is a maturity coming up in a few years, and we owe the money back.

So that's why we pay it back.

Makes sense. How do you decide, if you're looking at new opportunities, which assets to allocate to Penn and Park itself, which to PSLF, and which to the private funds? That's a good question.

So we have SEC exempt to relief, which is A similar box that we and all of our peers have, which says that when a deal comes in and it fits multiple, and the characteristics of the loan fit multiple boxes, you allocate amongst the vehicles based on available capital. So it's a mathematical calculation that gets done when a senior deal comes in or when a mid-deal comes in, where it gets allocated.

and I didn't look too closely in the news, but for the fiscal year that ended September 31st, there was a significant increase in PIC income, both in absolute terms and as a percentage of total revenues. Why was that and are those PIC instruments performing?

Yeah, so those are, yeah, it's a good question and those are probably two former non-accruals, which are PRA and now South Amspark.

Those are the drivers of that. So, since they're former non-accruals, that means it's now, you think it's now money good?

Well, we think they're money good. They may not be paying us cash interest. So, in certain cases, it's, you know, you're keeping the cash in the company for cushion and for it to be able to weather COVID.

Oh, so, in other words, it's part of the restructuring. Right. Thank you. Thank you.

It appears there are no further questions at this time. Mr. Penn, I'd like to turn the conference back to you for any additional or closing remarks.

Thanks everybody for participating today. We'll speak to you next in early May as we review our March This concludes today's call.

Thank you for your participation. You may now disconnect.