PennantPark Floating Rate Capital (NYSE:PFLT) reported fiscal first-quarter 2026 core net investment income (NII) of $0.27 per share, matching GAAP NII for the period ended Dec. 31. Management highlighted early progress in ramping its newly launched joint venture, PSSL II, and pointed to improving private middle-market M&A activity as a potential tailwind for originations and portfolio repayments.
Quarterly results and NAV movement
Chief Executive Officer Art Penn said core NII was $0.27 per share for the quarter. Chief Financial Officer Rick Allorto added that operating expenses included $27.2 million of interest and expenses on debt, $13.5 million of base management and performance-based incentive fees, $2.1 million of general and administrative expenses, $0.2 million of tax provision, and $0.5 million of credit facility amendment costs.
PSSL II joint venture ramp and dividend coverage framework
A central theme of the call was the launch and initial deployment of the company’s new joint venture, PSSL II, which began investing during the quarter. Penn said PSSL II invested $197 million during the quarter and an additional $133 million after quarter end, bringing its total portfolio to $326 million.
Management also noted that PSSL II recently closed on an additional $100 million commitment to its credit facility, bringing total commitments to $250 million. The facility includes an accordion feature that can increase commitments to $350 million. Penn said the objective is to scale PSSL II to over $1 billion in assets, consistent with the firm’s existing joint ventures.
In response to analyst questions about dividend coverage, Penn said the company expects a pathway to cover the current dividend as the PSSL II portfolio ramps, and suggested that at around $1 billion of assets—given PFLT’s 75% ownership—the joint venture should help support dividend coverage. He added that the timeline will be driven largely by M&A activity and offered a broad estimate of roughly 18 months, while emphasizing that the pace could vary.
Market environment: M&A, spreads, and underwriting posture
Penn said the firm is seeing an increase in M&A transaction activity across the private middle market, which he described as expanding the pipeline for new investments. He also said higher M&A activity could drive repayments in the existing portfolio, including opportunities to exit equity co-investments and rotate capital into new income-producing investments. Penn noted that expectations around dividend coverage did not assume equity rotation, but that management expects it could be helpful if M&A accelerates.
In the core middle market, Penn described pricing on high-quality first-lien term loans as “attractive,” typically in the range of SOFR plus 475–525 basis points, with leverage of approximately 4.5x EBITDA. He emphasized that the firm continues to obtain “meaningful covenant protections,” in contrast to covenant-lite structures common in the upper middle market.
Portfolio quality, sector positioning, and marks
Management emphasized conservative portfolio construction. As of Dec. 31, PIK interest represented 2.5% of total interest income, which Penn described as among the lowest levels in the industry. The firm also reported median portfolio leverage of 4.5x and median interest coverage of 2.1x. The company ended the quarter with four non-accrual investments, representing 0.5% of the portfolio at cost and 0.1% at fair value, according to Penn.
During the quarter, PFLT originated four new platform investments, which Penn said had a median debt-to-EBITDA ratio of 4x, interest coverage of 2.9x, and a loan-to-value ratio of 43%. Overall, he said the company invested $301 million at a weighted average yield of 10%, including $95 million in new portfolio companies and $206 million in existing portfolio companies.
On sector exposure, Penn addressed investor focus on software risk, stating that software represents only 4.4% of the overall portfolio. He said those investments are primarily cash-pay loans with covenants, leverage of 5.3x, and an average maturity of 3.4 years. Penn contrasted that approach with peers that he said may have larger software concentrations (20%–30%) and higher leverage, including loans underwritten to revenue and featuring more PIK, covenant-lite terms, and longer maturities. In Q&A, he added that the firm avoided higher-leverage “ARR-style” structures and “stuck to its knitting” by focusing on cash-flow lending with covenants and cash interest.
Discussing the quarter’s valuation pressure, Penn said most markdowns related to what he characterized as parts of the 2021 vintage—post-COVID themes where certain consumer and logistics-related assumptions proved less durable. He cited examples including PL Acquisition (Pink Lily), Research Now/Dynata, and, within a joint venture, Wash and Wax (Zips). He said management did not “really see much more” in terms of incremental markdowns from that theme, and expressed hope that improving M&A could support equity upside and rotation over time.
Leverage and post-quarter actions
Allorto said the company’s debt-to-equity ratio was 1.57x at Dec. 31. After quarter end, PFLT sold $27 million of assets to the PSSL I joint venture and $133 million to PSSL II, and used the proceeds to pay down its revolving credit facility. Those actions reduced debt-to-equity to 1.5x, which management said is within its target range of 1.4x to 1.6x.
As of Dec. 31, the portfolio comprised 160 companies across 50 industries. The weighted average yield on debt investments was 9.9%, and about 99% of the debt portfolio was floating rate. The portfolio mix included 89% first-lien senior secured debt, less than 1% in second-lien and subordinated debt, 4% in equity of PSSL I and PSSL II, and 7% in equity co-investments.
About PennantPark Floating Rate Capital (NYSE:PFLT)
PennantPark Floating Rate Capital Ltd. is a business development company. It seeks to make secondary direct, debt, equity, and loan investments. The fund seeks to invest through floating rate loans in private or thinly traded or small market-cap, public middle market companies. It primarily invests in the United States and to a limited extent non-U.S. companies. The fund typically invests between $2 million and $20 million. The fund also invests in equity securities, such as preferred stock, common stock, warrants or options received in connection with debt investments or through direct investments.
