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PennantPark Investment Corporation Announces Financial Results for the Quarter Ended June 30, 2015

NEW YORK, NY--(Marketwired - Aug 5, 2015) - PennantPark Investment Corporation (NASDAQ: PNNT) announced today financial results for the third fiscal quarter ended June 30, 2015.

HIGHLIGHTS

Quarter ended June 30, 2015

($ in millions, except per share amounts)

Assets and Liabilities:

Investment portfolio

$

1,294.0

Net assets

$

745.5

Net asset value per share

$

10.04

Credit Facility

$

98.6

2019 Notes

$

250.2

SBA debentures

$

150.0

2025 Notes

$

71.9

Yield on debt investments at quarter-end

12.4

%

Operating Results:

Net investment income

$

20.7

Net investment income per share

$

0.28

Distributions declared per share

$

0.28

Portfolio Activity:

Purchases of investments

$

113.3

Sales and repayments of investments

$

107.0

Number of new portfolio companies invested

3

Number of existing portfolio companies invested

9

Number of portfolio companies

64

CONFERENCE CALL AT 10:00 A.M. ET ON AUGUST 6, 2015

PennantPark Investment Corporation ("we," "our," "us" or "Company") will host a conference call at 10:00 a.m. (Eastern Time) on Thursday, August 6, 2015 to discuss its financial results. All interested parties are welcome to participate. You can access the conference call by dialing (888) 452-4005 approximately 5-10 minutes prior to the call. International callers should dial (719) 325-2474. All callers should reference PennantPark Investment Corporation. An archived replay of the call will be available through August 20, 2015 by calling (888) 203-1112. International callers please dial (719) 457-0820. For all phone replays, please reference conference ID #6223691.

PORTFOLIO AND INVESTMENT ACTIVITY

As of June 30, 2015, our portfolio totaled $1,294.0 million and consisted of $381.4 million of senior secured loans, $611.7 million of second lien secured debt, $191.4 million of subordinated debt and $109.5 million of preferred and common equity. Our debt portfolio consisted of 71% variable-rate investments (including 65% with a London Interbank Offered Rate, or LIBOR, or prime floor) and 29% fixed-rate investments. Overall, the portfolio had net unrealized depreciation of $109.0 million. As of June 30, 2015, we had two non-accrual debt investments, representing 1.2% of our overall portfolio on a cost basis. Our overall portfolio consisted of 64 companies with an average investment size of $20.2 million, had a weighted average yield on debt investments of 12.4% and was invested 30% in senior secured loans, 47% in second lien secured debt, 15% in subordinated debt and 8% in preferred and common equity.

As of September 30, 2014, our portfolio totaled $1,318.1 million and consisted of $465.6 million of senior secured loans, $493.4 million of second lien secured debt, $247.1 million of subordinated debt and $112.0 million of preferred and common equity. Our debt portfolio consisted of 67% variable-rate investments (including 61% with a LIBOR or prime floor) and 33% fixed-rate investments. Overall, the portfolio had net unrealized depreciation of $0.9 million. As of September 30, 2014, we had one non-accrual debt investment, representing 0.3% of our overall portfolio on a cost basis. Our overall portfolio consisted of 67 companies with an average investment size of $19.7 million, had a weighted average yield on debt investments of 12.5% and was invested 35% in senior secured loans, 37% in second lien secured debt, 19% in subordinated debt and 9% in preferred and common equity.

For the three months ended June 30, 2015, we invested $113.3 million in three new and nine existing portfolio companies with a weighted average yield on debt investments of 10.8%. Sales and repayments of investments for the three months ended June 30, 2015 totaled $107.0 million. For the nine months ended June 30, 2015, we invested $344.8 million in eight new and 22 existing portfolio companies with a weighted average yield on debt investments of 12.1%. Sales and repayments of investments for the nine months ended June 30, 2015 totaled $289.5 million.

For the three months ended June 30, 2014, we invested $191.8 million in three new and nine existing portfolio companies with a weighted average yield on debt investments of 11.7%. Sales and repayments of investments for the three months ended June 30, 2014 totaled $273.6 million. For the nine months ended June 30, 2014, we invested $561.8 million in 16 new and 22 existing portfolio companies with a weighted average yield on debt investments of 12.1%. Sales and repayments of investments for the nine months ended June 30, 2014 totaled $534.4 million.

RESULTS OF OPERATIONS

Set forth below are the results of operations for the three and nine months ended June 30, 2015 and 2014.

Investment Income

Investment income for the three and nine months ended June 30, 2015 was $40.6 million and $122.5 million, respectively, and was attributable to $12.3 million and $42.6 million from senior secured loans, $19.5 million and $54.1 million from second lien secured debt, $7.2 million and $23.5 million from subordinated debt, and $1.6 million and $2.3 million from preferred and common equity, respectively. This compares to investment income for the three and nine months ended June 30, 2014, which was $35.5 million and $107.8 million, respectively, and was attributable to $9.8 million and $30.0 million from senior secured loans, $13.3 million and $39.9 million from second lien secured debt, $11.6 million and $35.7 million from subordinated debt, and $0.8 million and $2.2 million from preferred and common equity, respectively. The increase in investment income compared with the same periods in the prior year was primarily due to the growth of our portfolio.

Expenses

Expenses for the three and nine months ended June 30, 2015 totaled $20.0 million and $60.3 million, respectively. Base management fee for the same periods totaled $6.5 million and $20.1 million, incentive fee totaled $5.2 million and $15.6 million, debt related interest and expenses totaled $6.6 million and $19.7 million and general and administrative expenses totaled $1.7 million and $4.9 million, respectively. This compares to expenses for the three and nine months ended June 30, 2014, which totaled $22.3 million and $56.6 million, respectively. Base management fee for the same periods totaled $6.1 million and $17.9 million, incentive fee totaled $5.4 million and $14.9 million (including $1.6 million on net realized gains accrued but not payable), debt related interest and expenses totaled $8.9 million and $18.6 million (including $3.9 million of debt issuance costs under our multi-currency, senior secured revolving credit facility, as amended and restated, or the Credit Facility) and general and administrative expenses totaled $1.9 million and $5.2 million, respectively. The decrease in expenses for the three months ended June 30, 2015 as compared to the same period in the prior year is due to the absence of debt issuance costs in the current period, whereas, the increase in expenses for the nine months ended June 30, 2015 as compared with the same period in the prior year was primarily due to increased borrowing costs and the growth of our portfolio.

Net Investment Income

Net investment income totaled $20.7 million and $62.2 million, or $0.28 and $0.83 per share, for the three and nine months ended June 30, 2015, respectively. Net investment income totaled $13.2 million and $51.2 million, or $0.20 and $0.77 per share, for the three and nine months ended June 30, 2014, respectively. The increase in net investment income compared to the same periods in the prior year was primarily due to the growth of our portfolio and lower amendment costs offset by higher financing costs.

Net Realized Gains or Losses

Sales and repayments of investments for the three and nine months ended June 30, 2015 totaled $107.0 million and $289.5 million, respectively, and realized gains totaled $13.8 million and $31.9 million, respectively. Sales and repayments of investments for the three and nine months ended June 30, 2014 totaled $273.6 million and $534.4 million, respectively, and realized gains totaled $23.3 million and $29.0 million, respectively. The decrease in realized gains for the three months ended June 30, 2015 as compared to the same period in the prior year was driven by fewer exits of our portfolio companies, whereas the increase in realized gains for the nine months ended June 30, 2015 as compared with the same period in the prior year was primarily due to the improved merger and acquisition environment and a higher volume of sales and repayments.

Unrealized Appreciation or Depreciation on Investments, Credit Facility, 2019 Notes and 2025 Notes

For the three and nine months ended June 30, 2015, we reported net unrealized depreciation on investments of $30.2 million and $108.1 million, respectively. For the three and nine months ended June 30, 2014, we reported a net unrealized (depreciation) appreciation on investments of $(1.1) million and $37.4 million, respectively. As of June 30, 2015 and September 30, 2014, our net unrealized depreciation on investments totaled $109.0 million and $0.9 million, respectively. The decrease in value compared with the same periods in the prior year was the result of the overall variation in the leveraged finance markets and specifically, for energy related companies.

For the three and nine months ended June 30, 2015, we reported net unrealized depreciation of $0.6 million and $2.3 million, respectively, on the Credit Facility, our 4.50% notes due 2019, or 2019 Notes, and our 6.25% senior notes due 2025, or 2025 Notes. For the three and nine months ended June 30, 2014, we reported a net unrealized (appreciation) on our Credit Facility and 2025 Notes of $(3.4) million and $(5.4) million, respectively. The change compared with the same periods in the prior year was primarily due to changes in the capital markets.

Net Change in Net Assets Resulting from Operations

Net change in net assets resulting from operations totaled $4.9 million and $(11.6) million, or $0.07 and $(0.16) per share, for the three and nine months ended June 30, 2015, respectively. This compares to a net change in net assets resulting from operations of $31.9 million and $112.1 million, or $0.48 and $1.68 per share, for the three and nine months ended June 30, 2014, respectively. The decrease in the net change in net assets from operations compared with the same periods in the prior year reflects the change in portfolio investment values during the reporting periods.

LIQUIDITY AND CAPITAL RESOURCES

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

As of June 30, 2015 and September 30, 2014, there was $101.5 million and $55.2 million, respectively, in outstanding borrowings under the Credit Facility, with a weighted average interest rate at the time of 3.17% and 2.80%, respectively, exclusive of the fee on undrawn commitments of 0.375%. The annualized weighted average cost of debt for the nine months ended June 30, 2015 and 2014, inclusive of the fee on the undrawn commitment on the Credit Facility and upfront fees on SBA debentures, was 4.55% and 3.94%, respectively. As of June 30, 2015 and September 30, 2014, we had $443.5 million and $489.8 million of unused borrowing capacity, respectively, subject to the regulatory restrictions that the 1940 Act imposes on us as a business development company.

As of June 30, 2015 and September 30, 2014, we had $250.0 million and $71.3 million in aggregate principal amount of 2019 Notes and 2025 Notes, respectively, with a fixed interest rate of 4.50% and 6.25% per year, respectively. As of June 30, 2015 and September 30, 2014, we had $225.0 million in SBA debt commitments through certain of our consolidated subsidiaries and $150.0 million was drawn for each period. As of June 30, 2014, we had $71.3 million in aggregate principal amount of 2025 Notes with a fixed interest rate of 6.25%.

At June 30, 2015 and September 30, 2014, we had cash and cash equivalents of $83.3 million and $66.5 million, respectively, available for investing and general corporate purposes. We believe our liquidity and capital resources are sufficient to take advantage of market opportunities.

Our operating activities provided cash of $41.4 million for the nine months ended June 30, 2015, primarily for net purchases of investments. Our financing activities used cash of $24.8 million for the same period, primarily to repay certain amounts under our Credit Facility.

Our operating activities used cash of $48.4 million for the nine months ended June 30, 2014, primarily for net purchases of investments. Our financing activities provided cash of $54.5 million for the same period, primarily from net borrowings under our Credit Facility.

STOCK REPURCHASE PROGRAM

On May 6, 2015, we announced a share repurchase plan which allows us to repurchase up to $35 million of our outstanding common stock in the open market at prices below our net asset value as reported in our then most recently published consolidated financial statements. The shares may be purchased from time to time at prevailing market prices, through open market transactions, including block transactions. Unless extended by our board of directors, the program, which may be implemented at the discretion of management, will expire on the earlier of May 6, 2016 and the repurchase of $35 million of common stock. During the three and nine months ended June 30, 2015, we repurchased 833,213 shares of common stock in open market transactions for an aggregate cost (including transaction costs) of $8.0 million. During the three and nine months ended June 30, 2014, we did not make any repurchases of our common stock.

DISTRIBUTIONS

During the three and nine months ended June 30, 2015, we declared to stockholders distributions of $0.28 and $0.84 per share, respectively, for total distributions of $20.8 million and $62.8 million, respectively. For the same periods in the prior year, we declared distributions of $0.28 and $0.84 per share, respectively, for total distributions of $18.6 million and $55.9 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

June 30, 2015
(unaudited)

September 30, 2014

Assets

Investments at fair value

Non-controlled, non-affiliated investments (cost--$1,097,132,390 and $1,171,573,359, respectively)

$

1,066,250,974

$

1,212,515,400

Non-controlled, affiliated investments (cost--$227,700,622 and $108,572,406, respectively)

177,468,538

67,847,521

Controlled, affiliated investments (cost--$78,155,160 and $38,708,555, respectively)

50,326,631

37,691,845

Total of investments (cost--$1,402,988,172 and $1,318,854,320, respectively)

1,294,046,143

1,318,054,766

Cash and cash equivalents (cost--$83,378,632 and $66,600,195, respectively)

83,328,972

66,518,682

Interest receivable

13,851,364

13,703,525

Deferred financing costs and other assets

13,658,761

13,550,224

Total assets

1,404,885,240

1,411,827,197

Liabilities

Distributions payable

20,792,715

21,026,015

Payable for investments purchased

47,623,030

4,432,500

Unfunded investments

--

15,607,059

Credit Facility payable (cost--$101,536,700 and $55,226,300, respectively)

98,565,960

53,497,620

2019 Notes payable (cost--$250,000,000)

250,160,000

251,350,250

SBA debentures payable (cost--$150,000,000)

150,000,000

150,000,000

2025 Notes payable (cost--$71,250,000)

71,934,000

71,820,000

Management fee payable

6,497,137

6,385,103

Performance-based incentive fee payable

5,163,582

4,622,754

Interest payable on debt

6,200,201

1,962,264

Accrued other expenses

2,405,438

3,113,683

Total liabilities

659,342,063

583,817,248

Commitments and contingencies

Net assets

Common stock, 74,259,698 and 75,092,911 shares issued and outstanding, respectively.

Par value $0.001 per share and 100,000,000 shares authorized.

74,260

75,093

Paid-in capital in excess of par value

844,475,225

852,465,375

Distributions in excess of net investment income

(12,420,260

)

(11,802,580

)

Accumulated net realized gain (loss) on investments

20,281,626

(11,655,302

)

Net unrealized depreciation on investments

(108,994,414

)

(881,067

)

Net unrealized depreciation (appreciation) on debt

2,126,740

(191,570

)

Total net assets

$

745,543,177

$

828,009,949

Total liabilities and net assets

$

1,404,885,240

$

1,411,827,197

Net asset value per share

$

10.04

$

11.03

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended
June 30,

Nine Months Ended
June 30,

2015

2014

2015

2014

Investment income:

From non-controlled, non-affiliated investments:

Interest

$

31,722,226

$

29,949,064

$

101,811,852

$

90,772,466

Other income

3,138,382

1,463,884

9,535,685

6,314,911

From non-controlled, affiliated investments:

Interest

4,263,709

1,456,621

7,000,896

4,174,234

Other income

159,437

--

159,437

--

From controlled, affiliated investments:

Interest

1,357,778

2,447,354

3,998,887

6,071,987

Other income

--

158,333

--

459,166

Total investment income

40,641,532

35,475,256

122,506,757

107,792,764

Expenses:

Base management fee

6,497,136

6,131,963

20,093,624

17,906,316

Performance-based incentive fee

5,163,582

5,370,391

15,556,767

14,866,434

Interest and expenses on debt

6,616,779

5,034,567

19,699,606

14,707,313

Administrative services expenses

855,313

930,809

2,562,033

2,771,359

Other general and administrative expenses

854,397

929,254

2,367,661

2,470,350

Expenses before taxes and debt issuance costs

19,987,207

18,396,984

60,279,691

52,721,772

Tax expense

--

32,000

--

40,548

Debt issuance costs

--

3,850,000

--

3,850,000

Total expenses

19,987,207

22,278,984

60,279,691

56,612,320

Net investment income

20,654,325

13,196,272

62,227,066

51,180,444

Realized and unrealized (loss) gain on investments and debt:

Net realized gain on investments

13,820,350

23,267,131

31,936,928

28,955,815

Net change in unrealized (depreciation) appreciation on:

Non-controlled, non-affiliated investments

(24,919,481

)

(8,997,766

)

(102,855,290

)

21,000,422

Controlled and non-controlled, affiliated investments

(5,260,674

)

7,860,989

(5,258,057

)

16,369,826

Debt depreciation (appreciation)

641,430

(3,377,315

)

2,318,310

(5,421,092

)

Net change in unrealized (depreciation) appreciation on investments and debt

(29,538,725

)

(4,514,092

)

(105,795,037

)

31,949,156

Net realized and unrealized (loss) gain from investments and debt

(15,718,375

)

18,753,039

(73,858,109

)

60,904,971

Net increase (decrease) in net assets resulting from operations

$

4,935,950

$

31,949,311

$

(11,631,043

)

$

112,085,415

Net increase (decrease) in net assets resulting from operations per common share

$

0.07

$

0.48

$

(0.16

)

$

1.68

Net investment income per common share

$

0.28

$

0.20

$

0.83

$

0.77

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. 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 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.