PennantPark Q4 2025: Contradictions Emerge in Dividend Coverage, Leverage, and Portfolio Performance Metrics

Date of Call: November 25, 2025

Financials Results

• EPS: $0.28 per share (GAAP net investment income and core net investment income were both $0.28 per share); NAV $10.83 per share, down 1.2% sequentially

Guidance:

• PSSL 2 JV has begun investing, closed a $150M revolver at SOFR +175bps with an accordion to $350M; target PSSL 2 to exceed $1B in assets.
• Portfolio acquisition is expected to add ~$0.01–$0.02 per share of NII on a full-quarter basis.
• Run-rate NII is projected to approximate the current dividend as PSSL 2 ramps; as JV scales (12–24 months) NII should be well in excess of the dividend.
• Expect increasing loan origination activity and opportunities to rotate equity co-investments into income-producing loans.

Business Commentary:

• Portfolio Growth and Acquisition:
• PennantPark Floating Rate Capital reported a portfolio increase to $2.8 billion, up from $2.4 billion in the prior quarter.
• The growth was driven by the acquisition of a $250 million portfolio and investments in 16 new companies, which are expected to enhance PFLT's earnings power through scale and diversification.

• Dividend and Capital Deployment:
• The company's core net investment income for the quarter was $0.28 per share.
• The dividend remains stable, with a run rate NII projected to approximate the current dividend as PSSL 2 ramps its portfolio.

• The new joint venture, PSSL 2, aims to scale to over $1 billion in assets, potentially exceeding the current dividend payout.

• Market Environment and Pipeline:

• The company is optimistic about the increasing transaction activity in private middle market lending, anticipating higher loan origination volumes in the coming quarters.

• PennantPark is well-positioned with a wide origination funnel and experienced team to capitalize on these opportunities.

• Credit Quality and Portfolio Structure:

• PennantPark maintains a conservatively structured portfolio, with a low PIK percentage of 1.8% and a median leverage ratio of 4.5x.

• The company's disciplined investment approach is evident in its low nonaccrual status, representing only 0.4% of the portfolio at cost and 0.2% at market value.

• Equity Co-investment Performance:

• The company has invested over $596 million in equity co-investments, generating an IRR of 25% and a multiple on invested capital of 2x.
• The strong performance in equity co-investments reflects the benefits of strategic capital deployment and equity upside participation in portfolio companies.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management repeatedly described optimism: 'we are encouraged by a steady increase in transaction activity,' projected NII to 'approximate our current dividend' while PSSL 2 ramps, and stated that 'as we achieve this game plan, our NII should be well in excess of our current dividend.' Portfolio growth from $2.4B to $2.8B and low nonaccruals (0.4% cost) were cited as supportive metrics.

Q&A:

• Question from Robert Dodd (Raymond James & Associates, Inc., Research Division): How did the portfolio acquisition come about, are there more opportunities, and what's the value of buying a lump portfolio vs deploying capital into individual investments?
  Response: It was a JV of self-originated assets we already knew and had originated years ago; spreads are high and the deal was essentially adding more of the same credit set we already hold.

• Question from Robert Dodd (Raymond James & Associates, Inc., Research Division): Are you seeing bifurcation in the market — e.g., logistics issues post-COVID or other sector-specific stresses?
  Response: Logistics remains choppier post-COVID and the consumer is somewhat soft, but PFLT has limited consumer-brand exposure and is focused on more resilient sectors like government services, defense and healthcare.

• Question from Robert Dodd (Raymond James & Associates, Inc., Research Division): Did the government shutdown materially impact portfolio companies?
  Response: No meaningful impact — our exposure is mainly defense/intelligence where the shutdown did not affect performance.

• Question from Brian Mckenna (Citizens JMP Securities, LLC, Research Division): When were the $310M of assets sold to the JVs originated and what's the NII contribution in 4Q and the starting point for 1Q given those sales and JV scaling?
  Response: The portfolio acquisition occurred mid-quarter so it didn't earn a full quarter; a full quarter of those assets should add ~$0.01–$0.02 per share of NII and the JV becomes meaningfully accretive as it scales over ~1–2 years.

• Question from Brian Mckenna (Citizens JMP Securities, LLC, Research Division): When you say NII will be 'well in excess of the dividend' as the JV scales, what assumptions (forward curve, credit) underlie that?
  Response: Using our models and market SOFR expectations, we believe the JV ramp will still allow NII to cover and exceed the dividend; we are willing to share model inputs with analysts.

• Question from Douglas Harter (UBS Investment Bank, Research Division): Where are new loan spreads and how do they compare to new financing costs?
  Response: Our comparable financing is the JV facility at SOFR+175bps; in our core middle market box new first‑lien pricing is roughly SOFR+4.75–5.25, with lower leverage and low PIK (1.8%) consistent with our conservative underwriting.

• Question from Arren Cyganovich (Truist Securities, Inc., Research Division): With leverage back to ~1.4x after JV sales, does that run rate cover the dividend and what if you exclude PSSL?
  Response: Target leverage is 1.4–1.6x; modeling a mid‑point (~1.5x) plus JV ramp and potential equity rotation indicates we should be able to easily cover the dividend.

• Question from Arren Cyganovich (Truist Securities, Inc., Research Division): Can you comment on portfolio company trends—revenues, EBITDA and overall credit strength?
  Response: Portfolio revenues are generally growing in the double digits with EBITDA in the mid‑single digits; overall credit quality is healthy with only a handful of choppier credits as expected.

• Question from Paul Johnson (Keefe, Bruyette, & Woods, Inc., Research Division): What happened with Bilight quarter‑over‑quarter — was there a payoff or realization?
  Response: Bilight had a dividend recap resulting in a realized gain of about $0.04 per share on our equity co‑investment.

• Question from Paul Johnson (Keefe, Bruyette, & Woods, Inc., Research Division): Is the $0.04 from Bilight dividend income or a realized gain?
  Response: It was a realized gain (NAV element), not NII; for context there were other realized items: Walker Edison was a $0.12 per share realized loss and LAV Gear a $0.05 per share realized loss.

• Question from Christopher Nolan (Ladenburg Thalmann & Co. Inc., Research Division): Is the debt/EBITDA coverage 4.4x (or 4.5x)?
  Response: Debt to EBITDA is 4.4x.

• Question from Christopher Nolan (Ladenburg Thalmann & Co. Inc., Research Division): Is leverage falling because EBITDA is rising or because paydowns are reducing leverage?
  Response: Both — EBITDA growth and debt paydowns are reducing leverage, and new deals are being originated at modest leverage in the low‑to‑mid 4x range.

• Question from Christopher Nolan (Ladenburg Thalmann & Co. Inc., Research Division): With the stock trading ~17% below book, is the board considering buybacks or does JV structure restrict that?
  Response: The board considers all options including buybacks; insiders and private/public funds are active buyers and management views current valuation as attractive.

Contradiction Point 1

Dividend Coverage Expectations

It involves differing expectations regarding when the dividend will be covered by net interest income, which is crucial for investor confidence and financial stability.

How is the calculation of Net Interest Income exceeding the dividend based on forward curves and credit quality changes as the second joint venture scales? - Brian Mckenna (Citizens JMP Securities, LLC, Research Division)

2025Q4: We anticipate mid- to upper-teens returns on invested capital for the JV. - Arthur Penn(CEO)

When do you expect NII to fully cover or exceed the dividend? - Arren Saul Cyganovich (Truist Securities)

2025Q3: We have three levers for NII growth: leveraging up to the target leverage ratio, filling out PSSL JV, and ramping up the Hamilton Lane JV. These actions are expected to result in covering the dividend, if not more. - Arthur Howard Penn(CEO)

Contradiction Point 2

Portfolio Performance Metrics

It involves different reported metrics regarding portfolio performance, specifically in terms of EBITDA growth, which impacts investors' assessment of the company's financial health.

Can you discuss the strength of portfolio companies and trends in EBITDA and revenue? - Arren Cyganovich (Truist Securities, Inc., Research Division)

2025Q4: We're seeing double-digit revenue growth and single-digit EBITDA growth. - Arthur Penn(CEO)

How is EBITDA growth performing at the portfolio company level? - Arren Saul Cyganovich (Truist Securities)

2025Q3: We're observing mid- to upper-single-digit EBITDA growth. - Arthur Howard Penn(CEO)

Contradiction Point 3

Portfolio Acquisition Strategy

It highlights a shift in PennantPark's approach to portfolio acquisitions, which could have implications for future growth and investment strategy.

What prompted the portfolio acquisition? Are additional opportunities available? What's the value proposition of acquisitions versus individual investments? - Robert Dodd (Raymond James & Associates, Inc., Research Division)

2025Q4: The acquisition involved a joint venture with third-party assets that we were familiar with. These assets provide a known and high-quality pool, allowing us to enhance PFLT's earnings through scale and diversification. Acquiring a portfolio of similar assets provides immediate benefits and reduces the need for individual due diligence. - Arthur Penn(CEO)

Was the equity raise during the quarter due to a long-term capital build or increased pipeline activity? - Robert Dodd (Raymond James)

2025Q2: On a run rate basis, approximately 60% of lost income will be recovered, adding $0.01 per share. Factoring in the ATM raise, this brings the adjusted core NII to $0.31 per share, comfortably covering the dividend and maintaining a conservative leverage ratio. - Art Penn(CEO)

Contradiction Point 4

Leverage Ratio and Dividend Coverage

It involves changes in financial projections and dividend coverage, which are critical indicators for investors.

Does the 1.4x leverage ratio cover the dividend? How much would it cover without PSSL? - Arren Cyganovich (Truist Securities, Inc., Research Division)

2025Q4: At the mid-range of 1.5x leverage, we believe we can comfortably cover the dividend. This assumes the PSSL JV scales over time and we achieve equity rotations. Modeling these scenarios, we can cover the dividend even at 1.5x leverage. - Arthur Penn(CEO)

When will you provide the additional equity to the senior loan fund? - Mickey Schleien (Ladenburg)

2025Q2: The Board is pleased to report that we have made significant progress in capitalizing on the opportunities we've created. We have achieved a healthy growth in our income production, effectively managing leverage at levels well within our target and comfortably covering our dividend. - Art Penn(CEO)

Contradiction Point 5

Dividend Coverage and Leverage

It involves the company's ability to cover its dividends with earnings, which is crucial for investor confidence, and the role of leverage in achieving this.

Does the 1.4x leverage ratio cover the dividend? How much would it cover without PSSL? - Arren Cyganovich(Truist Securities, Inc., Research Division)

2025Q4: At the mid-range of 1.5x leverage, we believe we can comfortably cover the dividend. This assumes the PSSL JV scales over time and we achieve equity rotations. Modeling these scenarios, we can cover the dividend even at 1.5x leverage. - Arthur Penn(CEO)

How are we considering the dividend in relation to the leverage ratio? - Robert Dodd(Raymond James & Associates, Inc., Research Division)

2025Q1: Our priority is to cover the dividend with cash earnings, which we believe are comfortable to do. - Arthur Penn(CEO)