Good morning and welcome to the Penn at Park Floating Rate Capital's third fiscal quarter 2026 earnings conference call. Today's conference is being recorded. At this time, all participants have been placed in the listen-only mode. The call will be open for a question-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, press star 2 on your telephone keypad. It is now my pleasure to turn the call over to Mr. Art Penn, Chairman and Chief Executive Officer of Pennant Park Floating Rate Capital. Mr. Penn, you may begin your conference.

Thank you and good morning everyone. Welcome to Pennant Park Floating Rate Capital's third fiscal quarter 2026 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 and is the property of Penn and Park Floating Rate Capital. Any unauthorized broadcast of this call in any form is strictly prohibited. An audio replay of the call will be available 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. Our remarks today may also include forward-looking statements and projections. Please refer to our most recent SEC filing 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 pennantpark.com or 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. I'll begin with an overview of our third quarter results, including the continued expansion of our PSSL2 joint venture. I will then discuss the current market environment and how we believe PFLT is positioned going forward. Rick will follow up with a detailed review of our financial results, after which we will open up the call for questions. For the quarter ended June 30, our core net investment income per share was $0.26. This exceeded our current base dividend of $0.08 per share per month or $0.24 per share for the quarter. In accordance with our revised dividend policy, PFLT will pay a supplemental dividend of $0.33 per share over the next three months for an aggregate supplemental dividend of $0.01 per share. A supplemental dividend represents 50% of the excess of net investment income above the base dividend. As of June 30th, our NAV per share was $10.26, which is down approximately 2% from the prior quarter. The portfolio continues to perform well. The decline in NAV was primarily attributable to a write-down in one of our non-accrual investments. Our portfolio remains highly diversified and conservatively positioned. Median debt to EBITDA was 4.6 times, median interest coverage of 2.1 times, and a loan-to-value was 44%. Pick income equaled just 2.4% of total investment income among the lowest levels in the industry. We ended the quarter with four non-accrual investments representing just 1% of the portfolio cost and 0.4% at market value. These portfolio metrics reflect the consistency of our underwriting process and our disciplined approach to credit selection. During the quarter, we invested $212 million in both new and existing investments at a weighted average yield of 9%. We invested $106 million into five new platform portfolio companies with a median debt to EBITDA ratio of 2.3 times, interest coverage of 4.2 times, and the loan-to-value of 30%. Our existing portfolio continues to generate attractive deal flow. During the quarter, we invested an additional $106 million across 18 existing platform companies with credit metrics that were similarly attractive to our new investments. We remain focused on scaling PSSL2 in a measured and disciplined manner. As of today, the portfolio totaled $390 million. Over time, we expect to grow the joint venture to more than $1 billion of assets consistent with our existing joint venture. Based upon the current conditions, we expect this expansion to occur over the next 12 to 18 months while maintaining our disciplined underwriting standards. For the quarter ended June 30th, PSSL 2 has generated a cash yield on invested capital of 12.7%. During the quarter, we generated a meaningful realization from the equity co-investment in the leading defense technology company. We received approximately $45 million in proceeds on our original $3.2 million investment, representing nearly a 14 times multiple on invested capital. Government services and defense continues to be one of our highest conviction investment sectors and has consistently been among our best performing verticals. Since inception, we've invested approximately $3 billion across this sector, including roughly $1.3 billion through PFLT. These investments are 92% first lien senior secured and generated an overall IRR of 12.2%, demonstrating our ability to identify businesses operating in strategically important markets. We remain highly constructive on the long-term outlook for government services and defense, because the sector possesses several characteristics that align well with our investment philosophy. Demand has historically been supported by durable federal funding priorities and long-term contracts that provide meaningful revenue visibility and stability. Many of these businesses exhibit resilient cash flow profiles, variable cost structures, and are generally less sensitive to broader economic cycles than many commercial industries. In addition, the sector continues to benefit from active M&A markets and strong valuation support, thereby providing multiple avenues for value creation. Our portfolio is concentrated in businesses supporting the Department of War and other mission critical government agencies. We focus on companies addressing high priority national security initiatives, including modernization of defense systems and digital infrastructure, Cyber and Electronic Warfare Capabilities, Modeling and Simulation, Counter Drone Technologies, and Next Generation Autonomous Systems. We believe these priorities will remain central to U.S. defense spending for years to come, creating a favorable backdrop for continued investment opportunities. Today, government services and defense represents approximately 18% of PFLT's portfolio, and given our experience, sourcing capabilities and the attractive opportunity set, we intend to maintain or increase that exposure over time. Software remains an area of focus for market participants. Our exposure is limited to approximately 4.3% of the portfolio and is structured consistently with our core middle market strategy. These investments are primarily cash pay, covenant protected loans with moderate leverage, relatively short durations as well. They are concentrated on mission-critical enterprise software businesses serving regulated end markets including defense, healthcare, and financial services. Now let me turn to the broader market environment. M&A activities increased over the last six to nine months, although overall conditions remain uneven. Private equity sponsors remain active, and we are seeing a growing pipeline of attractive opportunities across both new originations and add-on investments. We are optimistic that activity levels will remain elevated throughout the back half of this year. We expect increased transaction activity to drive repayments across the portfolio, including opportunities to monetize equity co-investments and redeploy that capital into income-generating investments. In the core middle market, the pricing for high-quality first-lead term loans remains attractive, typically ranging from SOFR plus 500 to 550 basis points with leverage of approximately 4.5 times EBITDA. Importantly, these structures continue to include meaningful covenant protections in contrast to the covenant-like structures prevalent in the upper middle market. We believe the current market environment favors lenders with established private equity sponsor relationships, consistent access to deal flow, and disciplined underwriting, and these are long-standing strengths of our platform We continue to believe that the quarter middle market offers attractive risk adjusted opportunities. Companies in this segment generally have EBITDA of 10 to 50 million and often operate below the practical threshold of the broadly syndicated loan and high yield markets. As a result, lenders can typically conduct extensive diligence, negotiate meaningful financial covenants, structure transactions with appropriate leverage and equity cushions, and maintain regular access to company financial information. Our credit quality since our inception over 14 years ago has been excellent. PFLT has invested $9.2 billion in 556 companies, and we've experienced only 27 non-accruals. Since inception, our loss ratio on invested capital is only 13 basis points annually. As a provider of strategic capital, it fuels the growth of our portfolio companies. In many cases, we participate in the upside of the company by making an equity co-investment. Our returns on these equity co-investments have been excellent over time. Overall for our platform from inception through June 30th, we've invested over $629 million in equity co-investments, have generated an IRR of 25%, and have generated a multiple on invested capital of two times. Looking ahead, our experienced team and broad origination platform position us well to generate attractive deal flow. Our mission remains consistent to deliver a stable and well-covered dividend while preserving capital. Everything we do is aligned to that objective. We continue to focus on investing in high quality middle market companies with strong free cash flow generation. We capture that value through first lien senior secured loans and we pay out those contractual cash flows in the form of dividends to our shareholders. With that overview, I'll turn it over to Rick for a more detailed review of our financial results.

Thank you, Art. For the quarter ending June 30th, GAAP and Core Net Investment Income was $0.26 per share. Investment income was comprised of $59 million in interest income, $6.2 million in dividends from our joint ventures, and $0.8 million in other income. Our operating expenses for the quarter were as follows. Interest and expenses on debt were $25 million. Base management and performance-based incentive fees were $12.9 million. General and administrative expenses were $2.3 million, and provision for taxes was less than $0.1 million. Net realized and generalized change on investments, including provision for taxes, was a loss of $18.3 million for the quarter. As of June 30th, NAV was $10.26 per share compared to $10.47 per share last quarter. At quarter end, our debt-to-equity ratio was 1.56 times, and our capital structure is diversified across multiple funding sources, including both secured and unsecured debt. Subsequent to quarter end, we reduced borrowings under our revolving credit facility, bringing our debt-to-equity ratio to 1.5 times within our target range of 1.4 to 1.6 times. As of June 30th, our key portfolio statistics were as follows. The portfolio remains well diversified, comprising 159 companies across 51 industries. The weighted average yield on our debt investments was 9.8% and approximately 99% of the debt portfolio is floating rate. LTM PIC income equals only 2.3% of total interest income. The portfolio is comprised of 89% first lien senior secured debt, 1% in second lien and subordinated debt, 3% in equity of PSSL and PSSL2, and 7% in equity co-investments. With that, I'll turn the call back to Art for closing remarks.

Thanks, Rick. In conclusion, I'd like to thank our exceptional team for their continued dedication and our shareholders for their trust and partnership. We remain focused on delivering durable earnings, preserving capital, and creating long-term value for all stakeholders. 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 our equipment. and again press star one to ask a question. We'll pause for a moment to allow everyone an opportunity to signal for questions. While we wait, we will take our first question from Chris Mueller with Citizens Capital Markets. Please go ahead.

Hey guys, thanks for taking the questions and nice to be on with you this morning. So I wanted to ask about the government services part of your portfolio. So it looks like rates are poised to move higher into 2027, which tends to precede an uptick in credit issues. I guess, how does that government services sector perform in times of stress compared to other sectors you guys have in the portfolio?

Thanks, Chris, and welcome. Look, government services has been extraordinarily resilient. A lot of it goes into the defense and intelligent uses. We don't need to worry about the bills getting paid. It's through different presidential administrations. It's been very solid. Our track record of 3 billion over 65 deals or so is from inception 19 years ago. So it's been a really great space. Not a lot of people traffic in it. It's a differentiator for us. And given the geopolitical winds and given what's going on in the United States, we think it'll continue to be a resilient space. We just had that big win with that defense tech We're at 18% now. I think it's probably in this zone. We still want to maintain proper diversification. It's been a great space. We've had a great track record. But kind of at 18%, it's kind of plus or minus. Obviously, the equity co-invest, if they're marked up, can move that a little bit. But kind of in this zone, it's probably appropriate because we do want to maintain proper diversification.

Got it. Very helpful. Appreciate you guys taking the questions this morning.

Thank you.

Thank you. And we'll next go to Paul Johnson with KBW. Please go ahead.

Yeah, thanks. Thanks. Good morning. Thanks for taking my questions.

So I'm just curious, you know, you mentioned higher, potentially higher repayments here if activity picks up, which could be beneficial for the portfolio and rotation there. But if I'm looking at your guys' dividend yield just based on where you trade today, almost a 16% dividend yield and a cost of that that's, you know, stepping up here, you know, there was a recent Bond issuance that was a little north of 7%. So incrementally higher cost of capital would also say that you would need a relatively high yield on the asset side or relatively accretive environment to offset the higher cost of capital today. So how, I guess, in terms of what you're looking at, you seem to have a favorable outlook on the investment, favorable investment outlook, I'll say. How are you balancing all of that with where the stock trades today and balancing that with potential leverage reduction or return of capital? How do you kind of balance that out?

It's a great question, Paul, and thank you. It is a balance act. We do have the two JVs. One is fully mature. One is growing and ramping, and those JVs you know as as we know can generate teens you know returns so in some sense if we you know if we do bonds at seven percent or so and we're generating a teens that that's a creative that's kind of how we how we think about you know the the ROE uh and then of course we want to make sure we're appropriately leveraged and also prudently leveraged at the PFLT level so we have this kind of 1.5 times kind of a zone that we're We think it's the appropriate leverage for the underlying portfolio, which is among the lowest risk portfolios in the space. You can see it in our pick percentage. You can see it in the leverage ratios of our underlying portfolio. So we think we're appropriately balanced. It's not going to surprise you if I say I think the stock is cheap. Most management teams say that, but it is cheap relative to the underlying risk in the portfolio, we believe, as well as the The levers we have to be prudently leveraged and also optimize NII. So that's what we're trying to modulate.

Okay, got it. And then one just on maybe credit overall. I mean, what are you guys doing in terms of amendment activity? You mentioned you guys have low PIC. But if amendments are coming up in the portfolio, Are you typically able to extract tighter terms and documentations where they're occurring? Are they requiring you to be a little bit more flexible with the sponsor at this point? Didn't look like there was an increase in PIC or anything, but what are you seeing there in terms of amendments in the portfolio?

Yeah, it's a good question. You know, the portfolio is relatively clean. The one area we have, and we saw, you know, why is the NAV down a little bit this quarter? It's from that post-COVID vintage, you know, in the zero interest rate environment when, you know, consumer strength was through the roof. So, you know, the one or two non-accruals we have are really from that post-COVID vintage now going on five years. So the rest of the portfolio is pretty clean. We're always going to have a handful of amendments You have about 159 companies in this portfolio, so there's always something going on, but it's been relatively light, and we're just churning through whatever remains of that post-COVID vintage and getting beyond that and kind of leaning into the government services and defense and resilient healthcare companies and other areas where we think there's solid risk-adjusted return. I mean, the new loans were... As you can see with the credit stats are really, you know, on the lower end of the risk spectrum of the industry. And we think that mixes well with how we capitalize the company, how we manage the risk. But the amendments itself are relatively light.

That's helpful. And what percent, I guess, would you say the portfolio today is kind of, you know, in this post COVID vintage?

I actually have a chart here. I think it's probably on the order of 10-15%. Most of them have performed well. There's just a few that the world reverted to the mean. The one issue we had this quarter was a consumer company that was doing very well for a long period of time. So you had the reversion to the mean and then you had tariffs. So kind of a series of Thank you very much. It's very helpful. Thank you. We'll next go to Robert Dodd with Raymond James. Please go ahead. Hi, guys, and congrats on the progress.

Kind of smushing two things together. To your point, you know, the post-COVID vintage, there was a big swell during COVID of, you know, consumers being cash rich, et cetera. So certain underlying metrics looked better when things were underwriting. It caught a lot of people out. Is there any risk of that in the government services side? To your point, it seems really, really great right now. You know, is there, you know, an excess Are there any risks of spend in that sector right now that has any chance? I mean, I guess budgets never seem to go down, but is there any risk that there's some inflated cash flows within that sector that could turn around three, four years from now?

Yeah, so it's a great question. And just to give you some historical context, during the Obama administration, there was that period of sequestration, you may remember. where military expenditures were tightened. And we did have quite a bit of exposure then. The companies made it through okay. It wasn't a happy, happy time, but they did what they needed to do. We didn't really have any big issues with government services and defense at that point in time. But it's a good question. We always kind of, when we were underwriting a new loan, always kind of hark back to the sequestration time and We've historically been most focused on services, government services where you have people walking into an office building somewhere and sitting behind a computer doing something. And that could be intelligence, that could be satellites, that could be a lot of different things. So we've been less focused on actual equipment and more focused on the services. So that's remained resilient. But it's something we look at and that's why we always, you know, throughout the portfolio, not just in government services, try to keep leverage low. You know, that's why our new deals are four times, four and a half times or less. That's why we always make sure there's substantial interest coverage so that, you know, kind of if something were not something bad were to happen, you still got cushion. By the way, that's why I think that's why I think our health care health care is another big sector for us. We've outperformed our peers in health care. Look at our peers as, you know, crops up. I mean, is that...

skewed in any direction? I imagine there's not a lot of software in your pipeline, but there might be obviously government services, but you're also expecting a lot of, or potentially a ramp up in repayments and monetization. So is there kind of in the pipeline any mix skew that's different from your overall portfolio and maybe on a net basis, right, if the repayments come in and the originations go out? Are we going to see anything different in overall mix?

Not dramatically. Consumer is an area that, you know, when we do consumer, it usually means consumer services. We're okay with our exposure there. We're not necessarily looking to increase it, and we've got to be very careful around the consumer these days. Whether you think it's a K-shaped economy or a C-shaped economy, whatever economy you think it is, just got to be careful around that. I'd say it's still the same verticals. I mean, I think just one thing that's popping up a little bit more and you see it elsewhere, the industrial-related companies, and we have some industrial distributors, and then a lot of that goes into the data centers and the AI build. That area is doing very well, of course. So you're probably just across all of our portfolios in the industry, including ours, as those companies have more needs in the industrial space. There's probably going to be more capital flowing in there. Again, you can talk about is it going to get overdone or not overdone. We're exposed to that right now. We like high free cash flow companies, so it's less CapEx heavy, but more like industrial distributors, things like that where there's high free cash flow. and any cyclical downturn in that or secular downturn in that just ends up being managed within the box because inventory just gets used. But we are seeing more and more of that given what's going on elsewhere in the economy.

Got it. Got it. Thank you.

Thank you.

Thank you. And we'll next go to Christopher Nolan with Leidenberg Thalmann. Please go ahead.

Art, was the actual name of the company Realize Defense Tech, or is that just a reference to its folks?

Yeah, we covered it last time. It's called Echelon, A-E-S-C-H-L-O-N. It was sold to a company called Shield AI. Shield AI is one of these neoprime-type companies, a little more palantir than those folks.

And Rick, what was the drivers for the elevated unrealized depreciation, I assume beyond accounting true-ups?

The primary driver, Art mentioned it in some of his earlier comments, was a write-down on one of the non-accrual names, K&S. And then additionally, there was a write-down in one of the equity... Equity Positions, Athletico Holdings. Those are the primary. And KNS was also held within the joint venture, so there was some kind of flow-through effect there.

Thank you. And then finally, on your comments in terms of the attractive characteristics of government defense-related companies, don't these companies have a are in a better position to command for premium, lower cost capital or hard leverage or favorable terms and conditions. Can you comment a little bit on that, please?

Yeah, it's a good question. So like much in our portfolio, these are companies where there's a private equity sponsor investing in the company and who wants to do a roll-up, wants to do add-on acquisitions, So our cost of capital, typically first lien, S plus 500, 550. And with usually delayed draw term loans, we give them fuel to do add-on acquisitions. It's usually attractive for them as part of the package of financing of what they're trying to achieve. So again, typically, it's four times levered. There's a delayed draw term loan. We give them the firepower to do add-on acquisitions. 50-60% equity underneath us. And in many cases, we'll co-invest in the equity, which is this big defense tech when we had as an example. And that's just the model that seems to work for them. And for us, these are not unlevered companies. These are levered companies by definition. We think levered appropriately and also with excess liquidity to go do add-on acquisitions.

Great. Thank you.

Thank you, and I'd now like to turn the call back over to Art Penn for any closing or final remarks.

Thank you. Thanks, everybody, for joining us today. Next time we speak, we'll be reporting our 10K, our annual 10K, and that will be kind of in mid-November. So we wish everybody a great rest of the summer, and we'll speak with you then.

Thank you, and this does conclude today's call. We thank you for your participation. You may now disconnect.