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PennantPark Investment Corporat Message Board

  • dontfightthetape1941 dontfightthetape1941 Feb 5, 2009 11:27 AM Flag

    Conference call

    I posted this on the valueformum this morning.

    I listed to the PNNT conference call. Another one of my few BDC's I bought in December (too soon it appears). I know most of you don't have this, but I thought I'd report as it gives a sense of what is to come with AINV and ACAS (which I don't own.) Although someone said the BDC market is a lottery ticket on the recovery (BD I think), I don't agree with that.
    For some of these, I think this is an enormous opportunity for a 7 or 8 fold increase. I remember in 1991 when everyone was saying the banks were going to collapse. I ended up buying some banks stocks at $2-3, which I sold a year later for $25-$30. Of course, you should only buy with money you can afford to speculate with. However, I think the risk/reward ration for companies like PNNT is worthwhile.

    Penn thinks they are in good shape, with only one company in non-accrual, and several on the watch list. The coverage ratio of all companies is about 2.5, with a range of 1.3 to 3.5 in a classical bell curve. So they have some wiggle room even if times continue to get worse. They made more than 70% of their investments after July, 2007, so they feel that they are in good shape. (I assume that 70% is the dollar value of all investments, but he didn't elaborate.)

    In October they switched to FSB 157 and 159, which is a mark to market evaluation. With this, they increased their NAV by $1.99 and their coverage to over 300%, which is well above the 200% required. So because of this their NAV actually went up $0.15 from last quarter, but without this it went down $1.85 or 17%. It also raised their hurdle rate to 9% from the previous 7%. Maybe the raising of the hurdle rate is why the other BDC's aren't doing this. I don't know.

    So I guess that one can expect a drop in NAV for ACAS and AINV of at least 20% this quarter.

    They have about $180M available in deploy able capital. However, they want to keep at least a 10-20% cushion for future problems with current portfolio companies. They didn't make any new investments last quarter, but only did 2 add on's. They were asked by Mason of S-N why they didn't make new investments last quarter, and they said want to be patient. They are looking at something called a DIP load to companies already in bankruptcy. They would be at the very top of the debt structure and would get mezzanine type rates. Interesting idea. He mentioned it twice, but I guess he was just throwing it out.

    Mason asked if they would consider paying dividend with common stock and they said they were not considering it. They are covering their dividend with NOI ($0.27 NOI versus $0.25 dividend last quarter.), so it wasn't necessary for them. They plan not to raise the dividend for the rest of the year, but they think will be able to cover it. So they are paying a $1 dividend on a stock which is at $3. If necessary, they'll pay a special dividend at the end of the year to maintain BDC status. He sounded really confident he could maintain in. (One hopes he was just blowing smoke, or smoking something :-)

    Sanjay asked about which companies are on the watch list. They said there were some (several?) with Realogy and Saint Acquisition being the worst. Their debt is now marked at 10-15% from 30% last quarter. Realogy proposed a re-structuring which they did not support and it has been withdrawn. They also mentioned a few more on the watch list, like Jacuzzi. However, Penn really thought that they could handle the risks of non-accrual with their capital. He emphasized that they were in on way in danger of their own covenants.

    Overall, Penn seemed very optimistic. He didn't growl about the low priced stock. I guess he's resigned to it.

    So I added some at $3 this morning. I guess I bought my lottery ticket.

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