PennantPark Floating Rate Capital Ltd. Completes CLO, Marking Continued Growth in PennantPark’s CLO Platform
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Insights
The completion of a $350.55 million term debt securitization by PennantPark Floating Rate Capital Ltd. represents a significant capital market transaction which could influence the company's financial structure and cost of capital. The structuring of debt into different tranches with varying ratings and coupons is indicative of a layered risk approach that can appeal to a diverse set of investors. The AAA rating for the top tranches suggests a high degree of confidence in the underlying assets and the company's creditworthiness.
The inclusion of a four-year reinvestment period provides PennantPark with flexibility in managing the portfolio of loans underlying the CLO. This can be beneficial for the company's long-term financial strategy, allowing for adjustments to the loan composition in response to market conditions. However, the twelve-year final maturity extends the debt obligations into the future, which could pose risks if the interest rate environment changes unfavorably or if the company's performance deteriorates.
Analyzing the credit structure of the CLO, the staggered coupons, which range from SOFR + 2.30% for the highest-rated tranches to SOFR + 5.90% for the lower-rated BBB- notes, reflect the credit risk premium demanded by investors. The pricing at 100% issuance price across all tranches indicates a market perception of fair value at the time of issuance. The credit ratings, from AAA to BBB-, suggest that the underlying collateral is diversified and of varying credit quality, which is typical in a CLO structure to spread the risk.
The use of the Secured Overnight Financing Rate (SOFR) as a benchmark for the floating rates is consistent with the broader market transition away from LIBOR. This transition is a critical aspect for investors to consider, as it impacts the interest rate risk profile of the CLO. A floating rate structure can be advantageous in a rising interest rate environment, as it allows the interest payments to investors to increase with market rates, potentially preserving the investment's value.
This transaction may be seen as a barometer for the current appetite for structured credit products in the financial markets. The successful placement of a sizable CLO could indicate investor confidence in corporate credit and the leveraged loan market. For stakeholders, the ability of PennantPark to secure such favorable terms could be seen as a positive signal of the company's market position and operational strength.
In the broader context, the demand for CLOs and the terms at which they are issued can provide insights into the health of the credit markets and the search for yield among fixed-income investors. An increase in such transactions could signify a robust investment environment, while any difficulty in placing the tranches or a requirement to offer higher coupons could suggest market stress or a shift in investor sentiment.
MIAMI, Feb. 22, 2024 (GLOBE NEWSWIRE) -- PennantPark Floating Rate Capital Ltd. (the “Company”) (NYSE: PFLT) today announced that it completed a
The debt issued in the CLO (the “ Debt”) is structured in the following manner:
Class | Par Amount ($ in millions) | % of Capital Structure | Coupon | Expected Rating (S&P) | Issuance Price | |||||
| A-1 Loans | 17.1 | % | 3 Mo SOFR + | AAA | 100.0 | % | ||||
| A-1 Notes | 139,500,000 | 39.8 | % | 3 Mo SOFR + | AAA | 100.0 | % | |||
| A-2 Notes | 14,000,000 | 4.0 | % | 3 Mo SOFR + | AAA | 100.0 | % | |||
| B Notes | 24,500,000 | 7.0 | % | 3 Mo SOFR + | AA | 100.0 | % | |||
| C Notes | 28,000,000 | 8.0 | % | 3 Mo SOFR + | A | 100.0 | % | |||
| D Notes | 21,000,000 | 6.0 | % | 3 Mo SOFR + | BBB- | 100.0 | % | |||
| Sub Notes | 63,550,000 | 18.1 | % | NR | NA | |||||
| Total | ||||||||||
“I am extremely pleased with the pricing and structure of our latest CLO, which speaks volumes about our track record and the strength of our investment platform,” said Arthur Penn, Chief Executive Officer. “The maturity, reinvestment period and pricing of this financing are attractive and are well matched to our asset base. With the closing of CLO VIII, PennantPark now manages approximately
PFLT will retain all the subordinated notes through a consolidated subsidiary. The reinvestment period for the term debt securitization ends no later than April 2028 and the Debt is scheduled to mature in April 2036. The term debt securitization is expected to be approximately
The notes offered as part of the term debt securitization have not been and will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state “blue sky” laws, and may not be offered or sold in the United States absent registration under Section 5 of the Securities Act or an applicable exemption from such registration requirements. The CLO is a form of secured financing incurred and consolidated by the Company. This press release shall not constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of the notes in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
ABOUT PENNANTPARK FLOATING RATE CAPITAL LTD.
PennantPark Floating Rate Capital Ltd. is a business development company which primarily invests in U.S. middle-market private companies in the form of floating rate senior secured loans, including first lien secured debt, second lien secured debt and subordinated debt. From time to time, the Company may also invest in equity investments. PennantPark Floating Rate Capital Ltd. is managed by PennantPark Investment Advisers, LLC.
ABOUT PENNANTPARK INVESTMENT ADVISERS, LLC
PennantPark Investment Advisers, LLC is a leading middle-market credit platform, managing approximately
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 and Section 21E(b)(2)(B) of the Securities Exchange Act of 1934, as amended (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 PennantPark Floating Rate Capital Ltd. files 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 Securities and Exchange Commission. PennantPark Floating Rate Capital Ltd. 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.
CONTACT:
Richard T. Allorto, Jr.
PennantPark Floating Rate Capital Ltd.
(212) 905-1000
www.pennantpark.com
Source: PennantPark Floating Rate Capital Ltd.
FAQ
What type of transaction did PennantPark Floating Rate Capital Ltd. complete?
What is the structure of the debt issued in the CLO?
What is the coupon rate for A-1 Loans?
What is the expected rating for A-2 Notes?
What is the total amount of the term debt securitization transaction?
