PennantPark Floating Rate Capital Ltd Completes the Reset and Upsize of its $351.0 Million CLO I

Rhea-AI Summary

PennantPark Floating Rate Capital (NYSE: PFLT) has successfully completed the reset and upsize of its CLO I, a $351.0 million debt securitization. The refinancing optimizes financing costs and enhances PFLT's return profile. Key features include:

- Four-year reinvestment period and twelve-year final maturity
- Reduced cost of capital and increased CLO size
- PFLT retains Class D-R Notes and Subordinated Notes
- Debt maturity extended to July 2036
- 100% funding at closing

PennantPark manages approximately $2.8 billion in middle market CLO assets and $7.7 billion of investable capital overall. The company aims to continue growth with investor support.

Positive

• Successfully completed reset and upsize of CLO I to $351.0 million
• Reduced cost of capital through refinancing
• Increased CLO size due to strong investor demand
• Extended debt maturity to July 2036
• 100% funding achieved at closing
• Manages $2.8 billion in middle market CLO assets

Negative

• None.

Insights

Financial Analyst

PennantPark Floating Rate Capital 's successful reset and upsize of its CLO I to $351.0 million is a significant development that could positively impact the company's financial performance. The refinancing allows PFLT to optimize financing costs and enhance its return profile in the current market environment.

Key points to consider:

• The new structure includes $287 million in investment-grade rated notes, representing 81.8% of the capital structure.
• PFLT retains the Class D-R Notes and Subordinated Notes, maintaining skin in the game and aligning interests with investors.
• The extended maturity to July 2036 provides long-term stability to the financing structure.
• The upsizing of the CLO indicates strong investor demand and potential for growth in PFLT's underlying assets.

This transaction demonstrates PFLT's ability to access capital markets effectively and optimize its balance sheet. The reduced cost of capital could potentially lead to improved net interest margins and returns for shareholders. However, investors should monitor how effectively PFLT deploys this additional capital in the middle market lending space, as execution will be important for realizing the benefits of this refinancing.

Market Research Analyst

The successful reset and upsize of PennantPark Floating Rate Capital's CLO I offers insights into the current state of the CLO market and middle market lending:

• Strong investor demand allowed for an increase in CLO size, suggesting continued appetite for structured credit products.
• The ability to reduce financing costs indicates a favorable pricing environment for high-quality CLO issuers.
• The 18.2% subordinated notes tranche, retained by PFLT, reflects a conservative approach to risk retention and alignment of interests.

PennantPark's growing CLO management business, now at $2.8 billion, positions the company as a significant player in the middle market CLO space. This growth trajectory could lead to increased fee income and diversification of revenue streams.

The transaction's success may encourage other BDCs and middle market lenders to explore similar refinancing opportunities, potentially leading to increased CLO issuance and competition in the space. Investors should watch for potential impacts on lending spreads and deal terms in the middle market as a result of optimized financing structures like this one.

MIAMI, July 26, 2024 (GLOBE NEWSWIRE) -- PennantPark Floating Rate Capital Ltd. (the “Company”) (NYSE: PFLT) today announced that PennantPark CLO I, Ltd (“CLO I”), a wholly-owned and consolidated subsidiary of the Company, has closed the refinancing and upsize of a four-year reinvestment period, twelve-year final maturity $351.0 million debt securitization in the form of a collateralized loan obligation (“CLO”).

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-R Notes	$	203,000,000		57.8	%	3 Mo SOFR + 1.75%	AAA	100.0	%
A-2-R Notes		10,500,000		3.0	%	3 Mo SOFR + 1.90%	AAA	100.0	%
B-R Notes		12,000,000		3.4	%	3 Mo SOFR + 2.05%	AA	100.0	%
B-R Loans		12,500,000		3.6	%	3 Mo SOFR + 2.05%	AA	100.0	%
C-R Notes		28,000,000		8.0	%	3 Mo SOFR + 2.75%	A	100.0	%
D-R Notes		21,000,000		6.0	%	3 Mo SOFR + 4.30%	BBB-	100.0	%
Subordinated Notes		64,000,000		18.2	%	N/A	NR	N/A
Total	$	351,000,000

“We are pleased to have completed this reset which enables us to optimize financing costs in the current market and enhance our return profile, reinforcing our commitment to deliver sustained value for our investors,” said Arthur Penn, Chief Executive Officer of the Company. “Not only were we able to reduce our cost of capital but we also were able to increase the size of the CLO due to strong investor demand to better match the underlying growth in PFLT. PennantPark currently manages approximately $2.8 billion in middle market CLO assets, and we look forward to continued growth with the support of our current and new investors.”

PFLT will continue to retain the Class D-R Notes and the Subordinated Notes through a consolidated subsidiary. The maturity of the replacement Debt is now extended to July 2036. The replacement Debt was 100% funded at closing. In addition, PFLT continues to act as retention holder in the transaction to retain exposure to the performance of the securitized assets. GreensLedge Capital Markets LLC acted as structurer and lead arranger, and NatWest Markets Securities Inc. acted as co-placement agent on the CLO refinancing transaction.

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 PFLT. 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 is a leading middle market credit platform, managing approximately $7.7 billion of investable capital, including available leverage. Since its inception in 2007, PennantPark has provided investors access to middle market credit by offering private equity firms and their portfolio companies as well as other middle market borrowers a comprehensive range of creative and flexible financing solutions. PennantPark is headquartered in Miami, and has offices in New York, Chicago, Houston, Los Angeles and Amsterdam.

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

FAQ

What is the new size of PennantPark Floating Rate Capital's CLO I after the reset?

PennantPark Floating Rate Capital's CLO I has been upsized to $351.0 million after the reset.

How long is the reinvestment period and final maturity of PFLT's refinanced CLO?

The refinanced CLO has a four-year reinvestment period and a twelve-year final maturity.

What is the new maturity date for the replacement Debt in PFLT's CLO I?

The maturity of the replacement Debt in PFLT's CLO I has been extended to July 2036.

How much does PennantPark manage in middle market CLO assets as of July 2024?

As of July 2024, PennantPark manages approximately $2.8 billion in middle market CLO assets.