Good morning, and welcome to the PennantPark Floating Rate Capital fourth fiscal quarter 2020 earnings conference call. Today's conference is being recorded. At this time, all participants have been placed in a listen-only mode. The call will be opened for a question-and-answer session following the speakers' remarks. If you would like to ask a question at that time, simply press star one on your telephone keypad. If you would like to withdraw your question, press star two on your telephone keypad. It is now my pleasure to turn the call over to Mr. Art Penn, Chairman and Chief Executive Officer of PennantPark Floating Rate Capital. Mr. Penn, you may begin your conference.
Thank you. Good morning, everyone. I'd like to welcome you to PennantPark Floating Rate Capital's fourth fiscal quarter 2020 earnings conference call. I'm joined today by Aviv Efrat, our Chief Financial Officer. Aviv, 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. Please note that this call is the property of PennantPark Floating Rate Capital, and that any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by using the telephone numbers and PIN provided in our earnings press release as well as on our website. I'd also like to call your attention to the customer safe harbor disclosure in our press release regarding forward-looking information. Today's conference call may also include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC 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 find copies of our latest SEC filings, please visit our website at pennantpark.com or call us at 212-95-1,000. At this time, I'd like to turn the call back to our Chairman and Chief Executive Officer, Art Penn.
Thanks, Aviv. First, we hope that you, your families, and those you work with are staying healthy. I'm going to spend a few minutes discussing how we fared in the quarter end of September 30th, how the portfolio is positioned for the upcoming quarters, our capital structure and liquidity, the financials, and then open it up for Q&A. Despite the challenging economic conditions brought on by the pandemic, we are pleased with our performance this past quarter. We achieved a 2.2% increase in adjusted NAV as our portfolios continued to improve during the quarter. We have several portfolio companies in which we have substantial equity positions who are benefiting from the K-shaped recovery. This is solidifying and bolstering NAV. Over time, rotation of that equity into debt instruments should help grow PFLT's income. We will highlight those companies in a few minutes.
Additionally, we have been pleased with the stable performance of our long-term securitization CLO financing through COVID. That financing has continued to perform well and is well matched to finance our senior debt positions, which we believe are among the lowest risk in the industry. As a result, we are exploring using the same type of financing.
Good morning, welcome to the PennantPark Floating Rate Capital fourth fiscal quarter 2020 earnings conference call. Today's conference is being recorded. At this time, all participants have been placed in a listen-only mode. The call will be opened for a question-and-answer session following the speakers' remarks. If you would like to ask a question at that time, simply press star one on your telephone keypad. If you would like to withdraw your question, press star two on your telephone keypad. It is now my pleasure to turn the call over to Mr. Art Penn, Chairman and Chief Executive Officer of PennantPark Floating Rate Capital. Mr. Penn, you may begin your conference.
Thank you. Good morning, everyone. I'd like to welcome you to PennantPark Floating Rate Capital's fourth fiscal quarter 2020 earnings conference call. I'm joined today by Aviv Efrat, our Chief Financial Officer. Aviv, 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. Please note that this call is the property of PennantPark Floating Rate Capital, and that any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by using the telephone numbers and PIN provided in our earnings press release as well as on our website. I'd also like to call your attention to the customer safe harbor disclosure in our press release regarding forward-looking information. Today's conference call may also include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC 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 find copies of our latest SEC filings, please visit our website at pennantpark.com or call us at 212-951-0000. At this time, I'd like to turn the call back to our Chairman and Chief Executive Officer, Art Penn.
Thanks, Aviv. First, we hope that you, your families, and those you work with are staying healthy. I'm going to spend a few minutes discussing how we fared in the quarter end of September 30th, how the portfolio is positioned for the upcoming quarters, our capital structure and liquidity, the financials, and then open it up for Q&A. Despite the challenging economic conditions brought on by the pandemic, we are pleased with our performance this past quarter. We achieved a 2.2% increase in adjusted NAV as our portfolios continued to improve during the quarter. We have several portfolio companies in which we have substantial equity positions who are benefiting from the K-shaped recovery. This is solidifying and bolstering NAV. Over time, rotation of that equity into debt instruments should help grow PFLT's income. We will highlight those companies in a few minutes.
Additionally, we have been pleased with the stable performance of our long-term securitization CLO financing through COVID. That financing has continued to perform well and is well matched to finance our senior debt positions, which we believe are among the lowest risk in the industry. As a result, we are exploring using the same type of financing to grow and efficiently finance our PSSL JV, which should generate additional income for PFLT. The combination of potential income growth from equity rotation and the larger, more efficiently financed PSSL should help grow PFLT's net investment income relative to the dividend over time. Those factors, combined with strong portfolio performance through COVID and our $0.22 spillover, have led us to conclude that we will be keeping our dividend steady at this point.
Although we never predicted a global pandemic, as you may know, we have been preparing for an eventual recession for some time. Prior to the COVID-19 crisis, we proactively positioned the portfolio as defensively as possible. Since inception, we have had a portfolio that was among the lowest risk in the direct lending industry. As of September 30th, average debt EBITDA in the portfolio was 4.2x , and average interest coverage ratio, the amount by which cash interest exceed cash interest expense, was 2.9 x. This provides a unique cushion to support stable investment income. These statistics are among the most conservative in our industry. We have only three non-accruals out of 105 different names in PFLT and PSSL. This represents only 2.1% of the portfolio at cost and 1.8% at market value.
We've largely avoided some of the sectors that have been hurt the most by the pandemic, such as retail, restaurants, health clubs, apparel, and airlines. PFLT also has no exposure to oil and gas. The portfolio is highly diversified with 102 companies in 44 different industries. Our credit quality since inception over nine years ago has been excellent. Out of 382 companies in which we have invested since inception, we have only experienced 12 non-accruals. Since inception, PFLT has invested over $3.7 billion at an average yield of 8.1%. This compares to an annualized realized loss ratio of only 10 basis points annually. If we include both realized and unrealized losses, the annualized loss ratio is only 19 basis points annually. We are one of the few middle-market direct lenders who was in business prior to the global financial crisis and have a strong underwriting track record during that time.
Although PFLT was not in existence back then, PennantPark as an organization was investing at that time. During that recession, the weighted average EBITDA of our underlying portfolio companies declined by 7.2% at the bottom of the recession. This compares to the average EBITDA decline of the Bloomberg US Corporate High Yield Bond Index of down 42%. We are proud of this downside case track record in the prior recession. Based on tracking EBITDA of our underlying companies through COVID so far, we believe that our EBITDA decline will be substantially less than it was during the global financial crisis. Now let's turn to the outlook ahead in the coming quarters and how our portfolio is positioned. As mentioned previously, we are gratified that our historical investment focus has protected us from some of the worst-hit areas of the economy, such as retail, restaurants, health clubs, apparel, airlines, and energy.
We've been pleased with the way our portfolio companies have moved to rapidly adjust costs and have focused upon shoring up liquidity. Looking forward to the quarter ended December 30th and beyond where things stand today, our analysis suggests that the vast majority of the companies in our portfolio are in a strong position to perform well in the coming quarters. Many of our portfolio companies are in businesses such as government services, healthcare, software, communications, and cybersecurity, which collectively comprise a substantial portion of our portfolio and are less impacted by COVID. Additionally, alongside the debt investments we make in many companies, we invest in the equity, usually as a co-investor with a financial sponsor. Our returns on these equity co-investments have been excellent over time.
Overall, for our platform from inception through September 30th, our $209 million of equity co-invests have generated an IRR of 25.3% and a multiple on invested capital of 2.3 x. We believe that we are experiencing a K-shaped recovery, with some companies and industries being large beneficiaries of the environment. We are pleased that we have attracted debt and significant equity investments in three of these companies, which can substantially move the needle in both NAV and over time, net investment income. I would like to highlight those three companies. The three companies are Cano, Walker Edison, and By Light. Cano Health is a national leader in primary healthcare who is leading the way in transforming healthcare to provide high-quality care at a reasonable cost to a large population. Our equity position has a cost and fair market value on September 30th of $766,000 and $2.3 million, respectively.
Cano has been experiencing rapid growth, with revenues quintupling and EBITDA more than tripling over the last three years. We believe there is a massive market opportunity for Cano to grow in the years ahead with the Medicare Advantage program. Based on the recently announced transaction with JAWS Acquisition and where JAWS is trading, that position would be valued at approximately $9 million. About 12% of that value is in cash, which we will receive before and at consummation of the deal in early 2021, and the rest is in shares of JAWS Acquisition. Our shares are locked up in a limited partnership controlled by the financial sponsor and will likely be valued by the independent valuation firm at a discount to the traded value. Walker Edison is a leading e-commerce platform focused on selling furniture exclusively online through top e-commerce companies.
Since our investment was made in 2018, sales have more than tripled and EBITDA is up almost 4x . Our position has a cost of $1.4 million and a fair market value of $8.7 million as of September 30th. By Light is a leading software, hardware, and engineering solutions company focused on national security challenges across modeling and simulation, cyber and global defense networks. Since our initial investment was made nearly four years ago, sales have gone up 1.5x and EBITDA has more than doubled. Our position has a cost of $2.2 million and a fair market value of $7.6 million as of September 30th. All three of these companies are gaining financial momentum in this environment, and our NAV should be solidified and bolstered from these substantial equity investments as their momentum continues.
Over time, we would expect to exit these positions and rotate those proceeds into debt instruments to increase income at PFLT. As we discussed earlier, our securitization financing has performed well during COVID-19. We think this type of financing is well-matched to our lower risk assets. As a result, we are exploring using the same type of financing at PSSL to help grow and efficiently finance the vehicle. We would hope that doing so would increase NII at PFLT. With regard to our gaming portfolio, it has proven to be extremely resilient and continues to perform well. With the repayment of Peninsula Pacific Colonial Downs since quarter end, our gaming exposure is now 4.2% of our portfolio, down from 5.1% as of September 30th. We exited Peninsula Pacific Colonial Downs with an 11% IRR.
Regional properties such as Fantasy Springs and Kentucky Downs have experienced strong performance since reopening after periods of closure due to COVID. We expect the strong performance to continue. The outlook for new financings is attractive. We believe that middle market lending is a vintage business. This upcoming vintage of loans is likely to be the most attractive we've seen since the 2009 to 2012 time period. Leverage levels are lower, equity cushion is higher, yields are higher, and the package of protections, including covenants, are tighter. After enjoying about five years of late cycle market for middle market lending, it's refreshing to have an attractive risk-reward available to us. Let me now turn the call over to Aviv, our CFO, to take us through the financial results in more detail.
Thank you, Art. For the quarter ended September 30th, net investment income was $0.27 per share. Looking at some other expense categories, management fees totaled about $4.8 million. Taxes, general and administrative expenses totaled about $1.1 million, and interest expense totaled about $5.5 million. During the quarter ended September 30th, net unrealized appreciation on investments was about $20 million, or $0.51 per share. Net realized losses were about $4.7 million or $0.12 per share. Unrealized appreciation on our credit facility and notes was $0.22 per share. Net investment income was lower than the dividend by $0.02 per share. Consequently, GAAP NAV went from $12.50 to $12.51 per share. Adjusted NAV, excluding the mark-to-market of our liabilities, was $11.81 per share, up 3.2% from $11.44 per share last quarter.
Our entire portfolio, our credit facility, and notes were marked to market by our board of directors each quarter using the equity price provided by an independent valuation firm, exchanges or independent book dealer quotations when active markets are available under ASC 820 and 825. In cases where book dealer quotes are inactive, we use independent valuation firms to value the investments. Our spill over as of September 30th was $0.22 per share. We have ample liquidity and are prudently leveraged. Our debt-to-equity ratio was 1.4x , down from 1.5x.
As we discussed earlier, our securitization financing has performed well during COVID. We think this type of financing is well matched to our lower-risk assets. As a result, we are exploring using the same type of financing at PSSL to help grow and efficiently finance the vehicle. We would hope that doing so would increase NII at PFLT. With regard to our gaming portfolio, it has proven to be extremely resilient and continues to perform well. With the repayment of Peninsula Pacific Colonial Downs since quarter end, our gaming exposure is now 4.2% of our portfolio, down from 5.1% as of September 30th. We exited Peninsula Pacific Colonial Downs with an 11% IRR. Regional properties such as Fantasy Springs and Kentucky Downs have experienced strong performance since reopening after periods of closure due to COVID. We expect a strong performance to continue. The outlook for new financings is attractive.
We believe that middle market lending is a vintage business. This upcoming vintage of loans is likely to be the most attractive we've seen since the 2009-2012 time period. Leverage levels are lower, equity cushion is higher, yields are higher, and the package of protections, including covenants, are tighter. After nearly about five years of late cycle market for middle market lending, it's refreshing to have an attractive risk reward available to us. Let me now turn the call over to Aviv, our CFO, to take us through the financial results in more detail.
Thank you, Art. For the quarter ended September 30th, net investment income was $0.27 per share. Looking at some other expense categories, management fees totaled about $4.8 million. Taxes, general and administrative expenses totaled about $1.1 million, and interest expense totaled about $5.5 million. During the quarter ended September 30th, net unrealized depreciation on investments was about $20 million, or $0.51 per share. Net realized losses were about $4.7 million, or $0.12 per share. Unrealized appreciation on our credit facility and notes was $0.22 per share. Net investment income was lower than the dividend by $0.02 per share. Consequently, GAAP NAV went from $12.60 to $12.31 per share. Adjusted NAV, excluding the mark-to-market of our liabilities, was $11.81 per share, up 3.2% from $11.44 per share last quarter.
Our entire portfolio, our credit facility, and notes are marked to market by our board of directors each quarter using the equity price provided by an independent valuation firm, exchanges or independent broker-dealer quotations when active markets are available under ASC 820 and 825. In cases where broker-dealer quotes are inactive, we use independent valuation firms to value the investments. Our spill over as of September 30th was $0.22 per share. We have ample liquidity and are prudently leveraged. Our GAAP debt-to-equity ratio was 1.4x , down from 1.5x last quarter. While GAAP net debt-to-equity after subtracting cash was 1.2x , down from 1.3x last quarter. Regulatory debt-to-equity ratio was 1.5 x, down from 1.6x last quarter, and our regulatory net debt-to-equity ratio after subtracting cash was 1.4x , down from 1.5x last quarter.
Looking down to our leverage, we have been targeting a debt-to-equity ratio of 1.4x-1.7 x. Our net of cash regulatory asset coverage ratio of 1.4x was at the low end of our range this past quarter. This was primarily due to payments from borrowers, selected asset sales, and an increase in the mark-to-market of our portfolio. We have ample liquidity to fund revolving draws and were in compliance with all of our facilities as of September 30th. We have readily available borrowing capacity and cash liquidity to support our commitments. We are looking to carefully manage our leverage over time with respect to staying compliance with both regulatory requirements and covenants under our credit facilities. We have a strong capital structure with diversified funding sources and no near-term maturities.
We have $570 million revolving credit facility maturing in 2023 with a syndicate of 11 banks with $309 million drawn as of September 30th. $139 million of unsecured senior notes maturing in 2023 and $228 million of preferred debt associated with PennantPark CLO I due 2031. We have been in consistent dialogue with our lenders and are thankful for their support. Our portfolio remains highly diversified with 102 companies across 44 different industries. 89% is invested in first lien senior secured debt, including 11% in PSSL, 3% in second lien debt, and 8% in equity, including 4% in PSSL. Our overall portfolio has a weighted average yield of 7.3%. 99% of the portfolio is floating rate and 86% of the portfolio has a LIBOR floor. The average LIBOR floor is 1%. Let me turn the call back to Art.
Thanks, Aviv. To conclude, we want to reiterate our mission. Our goal is a steady, stable, and protected dividend stream coupled with the preservation of capital. Everything we do is aligned to that goal. We try to find less risky middle market companies that have high free cash flow conversion. We capture that free cash flow primarily in first lien senior secured instruments, and we pay out those contractual cash flows in the form of dividends to our shareholders. In closing, I'd like to thank our extremely talented team of professionals for their commitment and dedication. Thank you all for your time today and for your investment and confidence in us. 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 one.
1.5x last quarter. While GAAP net debt-to-equity after subtracting cash was 1.2 x, down from 1.3x last quarter. The regulatory debt-to-equity ratio was 1.5x , down from 1.6x last quarter. Our regulatory net debt-to-equity ratio after subtracting cash was 1.4x , down from 1.5x last quarter. This was down to our level. We have been targeting a debt-to-equity ratio of 1.4x-1.7x . Our net of cash regulatory asset coverage ratio of 1.4x was at the low end of our range this past quarter. This was primarily due to payments from borrowers, selected asset sales, and an increase in the maturity of our portfolio. We have ample liquidity to fund revolving draws and we're in compliance with all of our facilities as of September 30th.
We have readily available borrowing capacity and cash liquidity to support our commitments. We are looking to carefully manage our leverage over time with respect to staying compliance with both regulatory requirements and covenants under our credit facilities. We have a strong capital structure with diversified funding sources and no near-term maturities. We have a $570 million revolving credit facility maturing in 2023 with a syndicate of 11 banks, with $309 million drawn as of September 30th. $139 million in unsecured senior notes maturing in 2023, and $228 million of preferred debt associated with PennantPark CLO I due 2031. We have been in consistent dialogue with our lenders and are thankful for their support. Our portfolio remains highly diversified with 102 companies across 44 different industries.
89% is invested in first lien senior secured debt, including 11% in PSSL, 3% in second lien debt, and 8% in equity, including 4% in PSSL. Our overall debt portfolio has a weighted average yield of 7.3%. 99% of the portfolio is floating rate, and 86% of the portfolio has a LIBOR floor. The average LIBOR floor is 1%. Now, let me turn the call back to Art.
Thanks, Aviv. To conclude, we want to reiterate our mission. Our goal is a steady, stable, and protected dividend stream coupled with the preservation of capital. Everything we do is aligned to that goal. We try to find less risky middle market companies that have high free cash flow conversion. We capture that free cash flow primarily in first lien senior secured instruments, and we pay out those contractual cash flows in the form of dividends to our shareholders. In closing, I'd like to thank our extremely talented team of professionals for their commitment and dedication. Thank you all for your time today and for your investment and confidence in us. 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 one on your telephone keypad. If you're using a speakerphone, please mute your mute function if turned off to allow you to signal through your equipment. Again, press star one to ask a question. We take our first question from Paul Johnson at KBW.
Good morning. Thanks for taking my questions. Congratulations on the [Pinnacle Health] acquisition. That is obviously very positive news yesterday. I just have a few questions for you today. I know over the last few quarters, investments have obviously been fairly new investments, originations have been fairly muted, understandably so. I was just curious, now you're back sort of within the leverage range target. What is sort of your outlook for new investments going forward? Can we expect to see maybe more active origination? Also on that, for any sort of new investments that you are looking at today, what is the environment that you're seeing? Are you still able to extract the same sort of covenants that you were and terms that you were before? Has that diminished? Any commentary on that would be very helpful.
Perfect. Thanks. Thanks, Paul. Look, for the last couple of quarters, we've been evaluating the economy and our portfolio, and we are indeed back actively originating deals for both PFLT and PSSL. We also are getting repayments, of course, as part of that. The wheels of commerce are starting to move again. We're out there actively looking and doing deals. Target leverage is still kind of in the 1.5x loan debt-to-equity. As we say, we think our portfolio is among the lowest risk in the industry. You can see it in the yields.
Our first lien typically is a lower yielding first lien, maybe more of a classic first lien than some of the others, which means we believe that we can comfortably be in that 1.5x leverage zone and feel very safe and feel like it's prudently capitalized and judicious in terms of the debt equity ratio because the risk we're taking is lower. The most and lower than the industry. In terms of the risk reward we're seeing, again, remember another definitional thing, we tend to focus on companies with between 15 and 50 in EBITDA. Average EBITDA is $20 million- $30 million in this portfolio. We like staying away from the fray of the broadly syndicated loan market, which has bounced back very dramatically, where it's all covenant light, where yields are low, where EBITDA adjustments are back, and where leverage is high.
Some of our bigger brethren who have to write bigger checks into bigger companies are competing against the broadly syndicated loan market and accepting lower covenants, lower yields, more EBITDA adjustments, et cetera. With us, we always got covenants even pre-COVID. We're getting tighter covenants now. We're getting fewer EBITDA adjustments. EBITDA adjustments, if we accept them, are thoroughly diligenced. We're seeing more equity from our sponsors. We're seeing more yield. The whole package of risk-adjusted return that we're seeing today versus pre-COVID is better, and much better, which is why we say we like this vintage. We think this vintage over the next year or two or three, where we play in the middle market, we think it's going to be similar to 2009-2012. I don't think it's going to be as good as 2009, where the average debt-to-EBITDA was 3.3x.
The fiscal parties made sure that we weren't going to repeat 2009 again. We think that this upcoming vintage will look a lot like 2009 to 2012. We're excited about what we're seeing, and we're active.
That's very good to hear. Do you ever see a time where, obviously, you guys can pull up a very high quality, more conservative, like you said, traditional first lien portfolio? In that environment that you described, do you see any opportunity, or do you have any thoughts around potentially getting slightly more aggressive to enhance the portfolio yield or top-line return? I'm talking about potentially doing maybe slightly more aggressive deals or more second lien. Do you have any thoughts on that?
Yeah. Look, I think we're going to stay away from second lien in this portfolio. I think we're going to be cautious about stretchier senior. For us, as you can see in PFLT itself, we would prefer to have a lower risk, lower reward portfolio and maybe have the leverage a little bit higher of 1.5x from some of our brethren. I think that's the way we think about it. Every once in a while, of course, if we think we have a real angle, a real edge to a special situation, we may be a little bit more of a stretch senior from time to time or unitranche. I think we're going to specifically stay away from second lien investing in this particular portfolio.
Okay. On the JV, I think quarter-over-quarter, I think you guys have been taking the leverage down actually for the past few quarters inside of the JV. I noticed the return this quarter, at least what was paid out to the BDC, is relatively stable from last quarter, maybe up slightly. Is that kind of the return we can expect going forward in terms of where the leverage is at in the JV and what return it's spitting out, or do you guys have any other plans as far as the JV goes?
Yeah. Again, I'm going to try to highlight this in script, so let me be clear. Again, same thing with PFLT. The last X number of quarters we've been wanting to see how the economy did, wanting to see how our portfolio did. One of the nice things out of all this is that securitization, CLO financing of PFLT has been terrific. It's been a great way to finance these lower risk assets. We're going to explore our PSSL using the same type of financing, and we're going to explore growing PSSL from where it is today of $400 million to something like $550 million, maybe $600 million of total portfolio utilizing the securitization CLO financing that-
We take the first question from Paul Johnson at KBW.
Good morning, and thanks for taking my questions. Congratulations on the Pennant Health acquisition. That's obviously very positive news yesterday. I just have a few questions for you today. I know over the last few quarters, investments have obviously been fairly new investments. Originations have been fairly muted, understandably so. I'm just kind of curious. Now you're back within the leverage range target. What is your outlook for new investments going forward? Can we expect to see maybe more active origination? Also on that, for any sort of new investments that you are looking at today, what is the environment that you're seeing? Are you still able to extract the same sort of covenants that you were and terms that you were before? Has that diminished? Any commentary on that would be very helpful.
Perfect. Thanks. Thanks, Paul. Yeah, look, for the last couple of quarters, we've been evaluating the economy and our portfolio, and we are indeed back actively originating deals for both PFLT and PSSL. We also are getting repayments, of course, as part of that. The wheels of commerce are starting to move again. We're out there actively looking and doing deals. Target leverage is still kind of in the 1.5x loan debt-to-equity. As we say, we think our portfolio is among the lowest risk in the industry. You can see it in the yields.
From our first lien typically is a lower yielding first lien, maybe more of a classic first lien than some of the others, which means we believe that we can comfortably be in that 1.5x leverage zone and feel very safe and feel like it's prudently capitalized and judicious in terms of the debt equity ratio, because the risk we're taking is lower than most and lower than the industry. In terms of the risk reward we're seeing, again, remember another definitional thing. We tend to focus on companies with between 15 and 50 in EBITDA. Average EBITDA is $20 million-$30 million in this portfolio. We like staying away from the fray of the broadly syndicated loan market, which has bounced back very dramatically, where it's all covenant light, where yields are low, where EBITDA adjustments are back, where leverage is high.
Some of our bigger brethren who have to write bigger checks into bigger companies are competing against the broadly syndicated loan market and accepting lower covenants, lower yields, more EBITDA adjustments, et cetera. With us, we always got covenants even pre-COVID. We're getting tighter covenants now. We're getting fewer EBITDA adjustments. EBITDA adjustments, if we accept them, are thoroughly diligenced. We're seeing more equity from our sponsors. We're seeing more yield. The whole package of risk-adjusted return that we're seeing today versus pre-COVID is better, and much better, which is why we say we like this vintage. We think this vintage, over the next year or two or three, where we play in the middle market, we think it's going to be similar to 2009 to 2012. I don't think it's going to be as good as 2009, where we had an debt-to- EBITDA of 3.3x .
The fiscal parties made sure that we weren't going to repeat 2009 again. We think that this upcoming vintage will look a lot like 2009 to 2012. We're excited about what we're seeing, and we're active.
That's very good to hear. Do you ever see a time, obviously, you guys can pull up in very high quality, more conservative, like you said, traditional first lien portfolio. In that environment that you sort of described, do you see any opportunity, or do you have any thoughts around potentially getting slightly more aggressive to enhance sort of the portfolio yield or top-line return? I'm talking about potentially doing maybe slightly more aggressive deals or more second lien. Do you have any thoughts on that?
Look, I think we're going to stay away from second lien in this portfolio. I think we're going to be cautious about stretchier senior. For us, as you can see in PFLT itself, we would prefer to have a lower risk, lower reward portfolio and maybe have the leverage a little bit higher above 1.5x from some of our brethren. I think that's the way we think about it. Every once in a while, of course, if we think we have a real angle, a real edge, if there's a special situation, we may be a little bit more of a stretch senior from time to time or unitranche. I think we're going to specifically stay away from second lien loans in this particular portfolio.
Okay. On the JV, I think quarter-over-quarter, I think you guys have been taking the leverage down actually for the past few quarters inside of the JV. I noticed the return this quarter, at least what was paid out to the BDC, was roughly the same as from last quarter, maybe slightly. Is that kind of the return that we can expect going forward in terms of where the leverage is at in the JV and what return it's spitting out, or do you guys have any other plans as far as the JV goes?
Yeah. Again, I'm going to highlight this. Tried to highlight this in the script, so let me be clear. Again, same thing with PFLT. The last X number of quarters, we've been wanting to see how the economy did, wanting to see how our portfolio did. One of the nice things out of all this is that securitization, CLO financing of PFLT has been terrific. It's been a great way to finance these lower-risk assets. We're going to explore our PSSL using the same type of financing, and we're going to explore growing PSSL from where it is today of $400 million to something like $550 million, maybe $600 million of total portfolio, utilizing the securitization financing that works so well for us, able to PFLT.
In terms of NII growth at PFLT itself, and at PSSL, we would hope that growing the portfolio using securitization financing could be a big part of that.
Got you. Finally, I'm actually very curious. I don't know if you have any commentary around the SPAC market. Obviously, that's become very popular this year, it's grown significantly. Do you see that as a potential anchor driver of more middle market acquisitions such as health or just more of being, I guess, in the middle market, maybe not as highly prized of an acquisition for a SPAC company. Any sort of thought you have on that acquisition and if it could potentially be a driver of some further exits in the portfolio.
Yeah. Look, I think how we deal with the SPAC market is it's really just another form of an IPO, and the SPACs and IPOs that do well, they would've done well anyway, or the SPACs or IPOs that wouldn't have done well, wouldn't have done well. In the case of Cano, it's been such a high growth business and the addressable market for what they do is so enormous that an IPO of some sort made a lot of sense for the company because of its growth trajectory and the white space that it has out there. There's also a comparable out there that Oak Street Health, which is a great company, trades at an $11 or $12 billion market cap.
If you line up Cano against Oak Street Health and you look at revenues, EBITDA, members, medical loss ratio, Cano lines up very favorably to Oak Street Health, which is a terrific company. It's quite possible that Cano could over time trade in line even better than Oak Street Health. To us, we're not experts in IPOs. You guys may be more experts, but it seems like it's an attractive deal from the get-go. As importantly, or maybe more importantly, there's a lot of runway on the upside for Cano, both in its markets as well as where it trades versus its comps.
Great. Actually, one more, if I may. I think you may have mentioned this in your prepared remarks that I didn't possibly catch. Do you know the percentage of your portfolio that has LIBOR floors?
Yes. It was in our prepared remarks. If you want to, it's 86% has LIBOR floor. 86%.
That is correct. That's covered in the prepared remarks. Yeah. LIBOR floor is 1%, but about 86. Yeah.
Gotcha. Thanks for that. That's all for me.
Thank you.
We'll take the next question from Mickey Schleien at Ladenburg.
Good morning, Art and Aviv. I just wanted to follow up quickly on the senior loan fund. I calculated when did ROI, taking into account the equity and the debt investments.
That works for us able to PFLT. In terms of NII growth at PFLT itself and at PSSL, we would hope that growing the portfolio using securitization financing could be a big part of that.
Gotcha. Finally, I'm actually very curious. I don't know if you have any commentary around the SPAC market. That's become very popular this year. It's grown significantly. Do you see that as a potential anchor driver of more middle market acquisitions such as Cano Health? Just more of being, I guess, in the middle market, maybe not as highly prized of an acquisition for a SPAC company. Any sort of thought you have on that acquisition and if it could potentially be a driver of some further exits in the portfolio.
Yeah. Look, I think how we deal with the SPAC market is it's really just another form of an IPO, and the SPACs and IPOs that do well, they would've done well anyway, or the SPACs or IPOs that wouldn't have done well, wouldn't have done well. In the case of Cano, it's been such a high growth business and the addressable market for what they do is so enormous that an IPO of some sort made a lot of sense for the company because of its growth trajectory and the white space that it has out there. There's also a comparable out there that Oak Street Health, which is a great company, trades at an $11 or $12 billion market cap.
If you line up Cano against Oak Street Health and you look at revenues, EBITDA, members, medical loss ratio, Cano lines up very favorably to Oak Street Health, which is a terrific company. It's quite possible that Cano could over time trade in line even better than Oak Street Health. To us, we're not experts in IPOs. You guys may be more experts, but it seems like it's an attractive deal from the get-go. As importantly, or maybe more importantly, there's a lot of runway on the upside for Cano, both in its markets as well as where it trades versus its comps.
Great. Actually one more, if I may. I think you may have mentioned this in your prepared remarks that I didn't possibly catch. Do you know the percentage of your portfolio that has LIBOR floors?
Yes. It was in our prepared remarks. If you want to, it's 86% has LIBOR floor. 86%.
That is correct. That's covered in the prepared remarks. Yeah. LIBOR floor is 1%, but about 86. Yeah.
Gotcha. Thanks for that. That's all for me.
Thank you.
We'll take the next question from Mickey Schleien at Ladenburg.
Good morning, Art and Aviv. I just wanted to follow up quickly on the senior loan fund. I calculated blended ROI taking into account the equity and the debt investments of a little north of 9%. Are you satisfied with that level of return, or are you looking for something higher than that with more leverage on that balance sheet?
Yes, it's a great question, Mickey. Obviously, over the last few quarters, we've specifically wanted, again, to see how our portfolio did, see how the economy went, which is why we are looking to grow PSSL back up again to a larger entity, and using the securitization financing potentially to finance that. I think over time, we're going to target 11%, 12% on that vehicle.
That's a blended sort of ROI?
Blended on the two pieces of paper, yeah.
Okay. Art, could you be a little more specific about the advantages of the securitization versus the credit facility in that fund? Because I'm no expert like you guys, but I'm curious, what are the features there that attract you to that?
It's just very efficient. It's low cost, and it's kind of permanent financing. It's not permanent, but it's long-term financing. There's a box, and there's no individuals you need to talk to. There's no credit guys who may have a sleepless night or two. It's just a box. If we're comfortable in our underwriting, which we are, we like that box. For what we're doing in this portfolio, the lower risk, lower reward deals. As we looked at the amount of CC Cs that we got through this time period, it was very low. Very low. I think if you looked at the equity return on that, granted the CLO in this case, technically run by PFLT, I think that's something like a 20% return on the equity because of the strength of the underwriting in the underlying box.
That's a very solid number relative to what you see elsewhere.
Yeah. The CC C basket in the economy, you have up to 17.5% in middle market. I think we're at, like, 8%, something like that. For us, because our underwriting works, it's a very good box.
Art, if I could paraphrase, are you suggesting that it's just perhaps an easier piece of capital to manage from your perspective?
As we look at PSSL, and we look to grow PSSL, it can be part of the overall mix of PSSL and of PFLT, along with credit facilities and along with bonds occasionally. We believe in diversifying our financing tools. We're just saying kind of here we are kind of eight or nine months into COVID, and we did our CLO over PFLT, I guess, last September. Then COVID hit in March. It's performed very, very well. We're taking that as a data point saying, "Huh, that's really interesting for us. Maybe we should use that technology over PSSL.
I understand. Just in terms of the mechanics, I haven't done the math, but I imagine most of the senior loan fund assets are the borrowing base for the credit facility, right? How do you extract those assets and form the CLO, and what is the timing of all of that? At 9%, are you satisfied with that level of return, or are you looking for something higher than that with more leverage on that balance sheet?
Yes, it's a great question, Mickey. Obviously, over the last few quarters, we've specifically wanted, again, to see how our portfolio did, see how the economy went, which is why we are looking to grow PSSL back up again to a larger entity, and using the securitization financing potentially to finance that. I think over time, we're going to target 11%-12% on that vehicle.
That's a blended sort of ROI?
Blended on the two pieces of paper, yeah.
Okay. Art, could you be a little more specific about the advantages of the securitization versus the credit facility in that fund? Because I'm no expert like you guys, but I'm curious, what are the features there that attract you to that?
It's just very efficient. It's low cost, and it's kind of permanent financing. It's not permanent, but it's long-term financing. There's a box, and there's no individuals you need to talk to. There's no credit guys who may have a sleepless night or two. It's just a box. If we're comfortable in our underwriting, which we are, we like that box. For what we're doing in this portfolio, the lower risk, lower reward deals. As we looked at the amount of CC Cs that we got through this time period, it was very low. Very low. I think if you looked at the equity return on that, granted the CLO in this case, technically run by PFLT, I think that's something like a 20% return on the equity because of the strength of the underwriting in the underlying box.
That's a very solid number relative to what you see elsewhere.
Yeah. The CCC basket in the economy, you have up to 17.5% in middle market. I think we're at, like, 8%, something like that. For us, because our underwriting works, it's a very good box.
Let me paraphrase. Are you suggesting that it's just a faster, easier piece of capital to manage from your perspective?
It's part of an overall mix, and as we look at PSSL, and we look to grow PSSL, it can be part of the overall mix of PSSL and of PFLT, along with credit facilities and along with bonds occasionally. We believe in diversified financing tools. We're just saying, here we are kind of eight or nine months into COVID, and we did our CLO over PFLT, I guess, last September. COVID hit in March. It's performed very well. We're taking that as a data point saying, "Huh, that's really interesting for us. Maybe we should use that technology over PSSL.
I understand. Just in terms of the mechanics. I haven't done the math, but I imagine most of the senior loan fund assets are the borrowing base for the credit facility, right? How do you extract those assets and form the CLO, and what is the timing of all of that?
Yeah, that's a great question. We're starting to explore it now. We don't have a firm answer. Obviously the banks who are involved with PSSL are our partners, and we'll be talking to them about partnering on growing PSSL, including the securitization, including a revised credit facility. All this is in play, and it's something over the next quarter or two we're going to hopefully finalize.
Okay. It sounds like it's mid-next year sort of timing to put it all together.
I'm hoping earlier, that's fine. For your expectations, it's mid-next year. Maybe we have a shot at doing better.
Just a couple more housekeeping questions. Your cash on your balance sheet has built up. Is that to make the principal payment on the CLO notes that are due next month?
We have an amortization payment on the Israeli bonds coming up in the next month.
It's not the CLO. Okay.
Yeah.
That will be paid out of cash?
Yeah.
Okay. If I'm not mistaken, last quarter, you said average EBITDA on the portfolio was 35-40, and I think you just said 20-30 this quarter. Maybe my previous number is wrong. Where the ballpark is of portfolio is that?
Mickey, we're being at each now. The mean is what I gave you last quarter in that 35%-40%. The median is more like 25%.
Okay. That's helpful. That's it for me this morning. Thank you for your time.
Thank you.
Once again, if you would like to ask a question, please press star one. We'll take the next question from Devin Ryan at JMP Securities.
Hi, great. Good morning, everyone.
Hi, Devin.
A few more questions before I ask, but let me just ask one here on non-accruals and credit. Just curious how you guys have been doing with the portfolio since you have another shutdown here or COVID-related disruption. Also can you just give context on the first lien loans for Marketplace Events? I know a little bit of pressure there in the quarter and just whether there's been any dialogue with the sponsor and whether you may be adding more support.
Yeah. Thank you. Thank you, Devin. Nice to meet you. I look forward to spending time with you as you take on the BDC industry. Welcome to the industry.
Thank you.
Marketplace Events is finalizing its restructuring as we speak. Hopefully by next quarter, I'm pretty sure by next quarter, the restructuring will be done, and that will move off the non-accrual. In that particular name, the lenders are going to be taking control of the company, injecting capital to be able to get the company through to the other side when events inevitably start coming back. Certainly it's a clear as mud today as events start coming back. Events will come back, and we think that's a really great company in the space and we're actually happy to make that equity. Yeah, that's a great question. We're starting to explore it now. We don't have a firm answer.
Obviously the banks who are involved with PSSL are our partners, and we'll be talking to them about partnering on growing PSSL, including the securitization, including a revised credit facility. All this is in play, and it's something over the next quarter or two we're going to hopefully finalize.
Okay. It sounds like it's mid-next year sort of timing to put it all together.
I'm hoping earlier, that's fine. For your expectations, it's mid-next year. Maybe we have a shot at doing better.
Just a couple more housekeeping questions. Your cash on your balance sheet has built up. Is that to make the principal payment on the CLO notes that are due next month?
We have an amortization payment on the Israeli bonds coming up in the next month.
It's not the CLO. Okay.
Yeah.
That will be paid out of cash?
Yeah.
Okay. If I'm not mistaken, last quarter, you said average EBITDA on the portfolio was 35-40, and I think you just said 20-30 this quarter. Maybe my previous number is wrong. Where is the ballpark as a portfolio at?
Okay. Mickey, we're being at each now. The mean is what I gave you last quarter in that 35-40. The median is more around 25.
Okay. That's helpful. That's it for me this morning. Thank you for your time.
Thank you.
Once again, if you would like to ask a question, please press star one. We'll take the next question from Devin Ryan at JMP Securities.
Hi, great to join everyone.
Yes, Devin.
A few quick questions were asked. Let me just ask one here on non-accruals and credit. I'm curious how you guys have been doing with the portfolio since we have another shutdown year or COVID-related disruption. Also, can you just give context on the first lien loans, Marketplace Events. I know a little pressure there in the quarter and just whether there's been any dialogue with the sponsor and whether you may be adding more support.
Yeah. Thank you. Thank you, Devin. Nice to meet you. I look forward to spending time with you as you take on the BDC industry, so welcome to the industry.
Thank you.
Marketplace Events is finalizing its restructuring as we speak. Hopefully, by next quarter, I'm pretty sure by next quarter, the restructuring will be done and that will move off the non-accrual. In that particular name, the lenders are going to be taking control of the company, injecting capital to be able to get the company through to the other side when events inevitably start coming back. Certainly, it's as clear as mud today as to when events start coming back. Events will come back, and we think that's a really great company in the space, and we're actually happy to make that equity investment in Marketplace Events. PRA is an event planning company, again, events related, that is in restructuring talks right now as we speak. Again, that probably comes off non-accrual next quarter. Looks like the sponsor's injecting equity in that one to develop that company.
That's two of the three non-accruals. Both of them are kind of in the event space. In terms of outlook, we think it's going to be relatively light. Of course, there's going to be non-accruals from time to time that hits this portfolio. We don't think there's anything particularly abnormal. We think that the COVID impacts, to the extent there were, have been identified, have been or are being dealt with, and are kind of already baked into the pie here.
Yep. Okay, terrific. I will leave it there. No other questions were asked, but thank you, and look forward to catching up soon.
Thanks, Devin.
It appears there are no further questions at this time. Mr. Penn, we'd like to turn the call back to you for any final or closing remarks.
I just want to thank everybody for being on the call today. We appreciate it. Because we had a late reporting period this quarter, it's only a relatively short time until we'll give you all our next earnings number. Looking forward to speaking to everybody again. Thank you very much.
This concludes today's call. Thank you for your participation. You may now disconnect.