Good morning, and welcome to the PennantPark Investment Corporation's fourth fiscal quarter 2021 earnings conference call. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode. The call will be opened for question-and-answer session following the speaker's remarks. If you would like to ask a question at that time, simply press star one on your telephone keypad. 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 Investment Corporation. Mr. Penn, please go ahead.
Good morning, everyone. I'd like to welcome you to PennantPark Investment Corporation's fourth fiscal quarter 2021 earnings conference call. I'm joined today by Richard Allorto, our Chief Financial Officer. Richard, please start off by disclosing some general conference call information and include a discussion about forward-looking statements.
Good morning. I'd like to remind everyone that today's call is being recorded. Please note that this call is the property of PennantPark Investment Corporation, 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 customary 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 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, Richard. I'm going to spend a few minutes discussing how we fared in the quarter ending 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. We're pleased with our performance this past quarter. We achieved a 2.6% increase in adjusted NAV. Adjusted NAV went up 0.25 per share from $9.58 to $9.83 per share. We are particularly pleased that our NAV today is up over 12% from what it was pre-COVID on December 31st, 2019. Net investment income was $0.17 per share, including $0.03 per share in other income, which includes one-time dividend payments on equity positions. These dividend payments highlight the value of our equity portfolio.
We have several portfolio companies in which our equity investments have materially appreciated in value as they are benefiting from the recovery. This is solidifying and bolstering our NAV. As part of our business model, alongside the debt investments we make, we selectively choose to co-invest in the equity side by side with the financial sponsor. Our returns on these equity co-investments have been excellent over time. Overall, for our platform, from inception through September 30th, our $246 million of equity co-investments have generated an IRR of 28% and a multiple on invested capital of 3x. In a world where investors may want to understand differentiation among middle market lenders, our long-term returns on our equity co-investment program are a clear differentiator.
With regard to net investment income, we have a three-pronged strategy, which includes, one, growing assets on balance sheet of PNNT as we move towards our target leverage ratio of 1.25x debt to equity from 0.9 x. Number two, growing our PSLF JV with Pantheon to about $550 million of assets from approximately $405 million of assets through balance sheet optimization, including a potential securitization. Three, the opportunity to rotate out of our equity investments over time and into cash paid yield instruments. We are well on our way to implementing the NII growth strategy. The September quarter was a busy period for us at PNNT as we originated $165 million in new loans, far outpacing the repayment activity.
As a result, the investment portfolio of PNNT increased by approximately $110 million to $1.26 billion from $1.15 billion. PSLF's investment portfolio also grew this quarter to $405 million from $386 million, an increase of $19 million. PNNT generated $9 million of cash proceeds from our equity portfolio in the September quarter. We continue to be active. Since September 30th, PNNT has had new funded investments, net of repayments and sales of $98 million. We are focused on the core middle market, which we generally define as companies with between $10 million and $50 million in EBITDA. We like the core middle market because it is below the threshold and does not compete with the broadly syndicated loan or high yield markets.
As such, we do not compete with markets where leverage is higher, equity cushion lower, covenants are light, wide or nonexistent, information rights are fewer, EBITDA adjustments are higher and less diligent, and the timeframe for making an investment decision is compressed. On the other hand, where we focus in the core middle market, generally our capital is more important to the borrower. As such, leverage is lower, equity cushion is higher. We have real quarterly maintenance covenants. We receive monthly financial statements to be on top of the companies. EBITDA adjustments are more diligent and achievable, and we typically have six-eight weeks to make thoughtful and careful investment decisions. According to S&P, loans to companies with less than $50 million of EBITDA have a lower default rate and a higher recovery rate than those loans to companies with higher EBITDA. Our portfolio performance remains strong.
As of September 30, the average debt/EBITDA on the portfolio was 4.9x, and the average interest coverage ratio, the amount by which cash interest income exceeds cash interest expense, was 3.2x. We have no non-accruals on our book in PNNT and PSLF. The company is highly diversified with 97 companies in 29 different industries. Since inception, PNNT has invested $6.4 billion at an average yield of 12%. This compares to a loss ratio of about 13 basis points annually. This strong track record includes our energy investments, our primarily subordinated debt investments made prior to the financial crisis, and now the pandemic. As we analyze our 14-year track record at PNNT, it is clear that our returns took a step function up starting in 2015.
The IRR of our investments made prior to 2015 was 9.8%. Since 2015, we have achieved a 13.9% IRR. We believe this is due to four key factors. Number one, better company selection within industry verticals where we have domain expertise. Two, avoidance of investments in the energy industry and other cyclicals. Three, excellent results from our equity co-investment program. Four, a substantially increased focus on core middle market companies where our capital can be more important to the underlying borrowers. Core middle market to us means below $50 million of EBITDA. Our performance through the global financial crisis and recession was good. During that recession, the weighted average EBITDA of our underlying portfolio companies declined by 7.2% at the bottom of that recession.
This compares to the average EBITDA decline in the Bloomberg North American High Yield Index of 42%. Based on the tracking of EBITDA of our underlying companies through COVID, our EBITDA decline was substantially less than what it was during the global financial crisis. Our median EBITDA decline at the bottom of COVID in June 2020 was 1.4%. This compares favorably to the 7% decline in EBITDA during COVID of the Credit Suisse High Yield Index. Many of our portfolio companies are in industries such as government services, healthcare, technology software and business services, and select consumer companies where we have meaningful domain expertise. We believe that we are experiencing a strong recovery, with some companies and industries being beneficiaries in the environment.
We are pleased that we have significant equity investments in several of these companies which can substantially move the needle of our NAV. PNNT has among its lowest percentage of energy investments since 2013. Energy investments represent only 6.5% of the overall portfolio. RAM is on stable, operational, and financial footing and has benefited from higher prices and production. While RAM analyzes its hedging weekly, today the majority of its oil and NGL liquid production is unhedged to the upside, which comprises the majority of revenues. Approximately two-thirds of its natural gas production is hedged at varying prices. As a result, RAM will continue to benefit from rising prices. As of September 30th, equity represented approximately 32% of the portfolio. Our long-term goal continues to target that percentage down to about 10% of the portfolio.
As we monetize the equity portfolio, we are looking to invest any cash into yielding debt instruments to increase net investment income. The outlook for new loans is attractive. We are as busy as we have ever been in 14 years in business, reviewing and doing new deals. With our experienced, talented, and growing team, our wide funnel is producing active deal flow that we can then carefully and thoughtfully analyze so that we can be selective as to what ends up in our portfolio. Let me now turn this over to Richard Allorto, our CFO, to take you through the financial results.
Thank you, Art. For the quarter ended September 30th, net investment income totaled $0.17 per share, which includes a one-time dividend payment from equity investments of $0.03 per share. Looking at some of the expense categories, base management fee and performance-based incentive fee totaled $5.2 million. G&A expenses totaled $1 million. Interest expense totaled $5.7 million. Net realized gains on investments was $5.6 million or $0.08 per share. Unrealized gains on our investments were $7.6 million or $0.11 per share. Change in the value of our credit facility increased our NAV by $0.01 per share. Our net investment income was net of our dividend by $0.05 per share.
Consequently, NAV per share went from $9.59 per share to $9.85 per share, up 2.7% from the prior quarter. Adjusted NAV, excluding the mark-to-market of our liabilities, was $9.83 per share, up 2.6% from $9.58 per share the prior quarter. As a reminder, our entire portfolio, credit facility, and senior notes are marked to market by our Board of Directors each quarter using the exit price provided by independent valuation firms. Securities [are valued] on independent broker-dealer quotes. When active markets are available under the ASC 820 and ASC 825. In cases where broker-dealer quotes are inactive, we use independent valuation firms to value the investments. Our GAAP debt to equity ratio, net of cash was 0.9x.
We have a strong capital structure with diversified funding sources and no near-term maturities. We have a $435 million revolving credit facility maturing in 2024 from a syndicate of banks. $64 million of SBA debentures maturing in 2027 and 2028. $86 million of unsecured notes maturing in 2024. One hundred and fifty million dollars of unsecured notes maturing in 2026. Subsequent to September 30th, PNNT issued $165 million of unsecured notes maturing in 2026 with an interest rate of 4%. We used $86.3 million of the proceeds to fully redeem the 2024 notes, which bear interest of 5.5%. This will reduce our annual interest expense by approximately $1.3 million and will accrete to our net investment income.
Our overall debt portfolio has a weighted average yield of 9%. On September 30th, our portfolio consisted of 97 companies across 29 different industries. The portfolio was invested 44% in first lien senior secured debt, 14% in second lien secured debt, 10% in subordinated debt, including 5% in PSLF, and 32% in preferred and common equity, including 3% in PSLF. 92% of the debt portfolio is a floating rate, all of which has a LIBOR floor. The average LIBOR floor is 6%. Now let me turn the call back to Art.
Thanks, Richard. To conclude, we want to reiterate our mission. Our goal is to generate attractive risk-adjusted returns through income, coupled with long-term 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 debt 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 continued 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'd like to ask a question, press star followed by the number one on your telephone keypad. If you're calling from a cellphone, please make sure your mute function is off to ensure your signal can reach our equipment. Again, star one to ask your question. First, we'll go to Casey Alexander from Compass Point. Your line is open.
Yeah. Hi, good morning. First is just kind of a maintenance question for Richard. Richard, in the redemption of the 2024 notes, what will the one-time charge be for the acceleration of debt offering expenses? Then secondly, where do you intend to enter that on the income statement? It used to be that those were charged off against NII. Now we've seen several BDCs that are charging that as a capital loss instead of a pre-NII loss.
Okay, Casey. This is Richard Allorto. The unamortized offering cost at September 30th was $1.75 million relating to those 2024 notes and that amount of debt on drawdowns for the first quarter of 2022. We do intend to put that through NII. There's the opportunity to recognize something that would maybe be capital as far as our long-term. At this point, you know, we're not going to run through.
Yeah. We've seen several companies recently that have charged that as a capital loss. So, you might wanna take a look at that. Secondly, I'd love to hear your thoughts on not changing in a material way the quarter-over-quarter mark on RAM. Simply because, you know, it was maybe the best quarter for price performance of the underlying energy benchmarks. We took a look at the balance sheet of RAM, and it's built up a nice amount of cash, much of which probably came in this last quarter. Not that we're necessarily unhappy about not marking it up, because if it's cheaper relative to the energy benchmarks and that attracts more buying interest, then we're all for it.
we'd love to hear your thoughts on not changing the mark on RAM.
Thank you, Casey. This is Art. The valuation firms do the valuations every quarter. They're primarily focused on the M&A market for assets like this. Unfortunately, there hasn't been a lot going on to date. We certainly hope that as oil and gas continues to perform well and have a healthy price like this, that there will be more M&A activity. Once we see M&A activity, A, it'll establish value better, and B, perhaps we can sell RAM into a bit of an M&A wave and get lifted on the name. You know, I think it's a good point. It's about the company doing well. It's generating cash flow. It's cash just building on the balance sheet.
You know, really the performance not shocking given the price of oil and gas. I think what's really driving the valuation for the valuation firms is kind of, you know, the M&A or lack thereof. You know, frankly, it's tough to really put a finger on it right now because there hasn't been much M&A.
Okay. Thank you for that. I'm curious if, Art, if you could share with me sort of the board's thoughts on the dividend. You've been out earning the dividend for a while now. Is it simply that the board's not comfortable bumping it up yet because of the still the amount of equity or, you know. What will it take to start that conversation?
It's a good question, and the board talks about it all the time. But first I think they're pleased, and I'm pleased that we are covering the dividend, you know, reasonably well, and we're not worried about covering the dividend. So that's point one, thankfully. This quarter, we have $0.04 of other income, so if you did away with that $0.04, you'd be at $0.13. Right. So-
This, you know, other income comes every quarter. When we back out the dividend from the equity company, that also eliminates the incentive fee. Really, it's not even $0.03 from that. It's more like $0.02. You know, other income comes in every quarter in some form or fashion. Really, I calculate the core run rate of this quarter as having been $0.15.
All right. Casey, what do you wanna raise the dividend to?
Just, you know.
Look, I mean, I think we you know other income it has been zero on occasion, it has been $0.04. This quarter was $0.04. So, you know, we know what we want, we know our dividend is recurring, and we don't wanna. I mean, it's a good question. I mean, where you say, "Why don't you have a variable dividend?" That's something we could talk about, you know, offline.
I think in our minds, we've been saying, "Gee, whatever our dividend is, we wanna sleep at night knowing that we're covering it and that there's some cushion and that our shareholders know and aren't worried about whatever our dividend is." We're just coming out of a time when, whether we're running at $0.13 or $0.14 or whatever run rate you think you're modeling. You're right. I think as we grow PNM three, as we grow the joint venture, and importantly, you know, as we allocate the equity positions, the chunk equity positions, we certainly would like to and would hope to raise the dividend. It is something that's on the quarterly discussion every quarter.
We'll see where we end up this upcoming quarter, both in terms of, you know, the balance sheet, our run rate, and importantly, you know, how we're feeling about the rotation. It's the right question. Thank you for asking it. We can certainly talk about all the different dividend formulations offline. In our minds, we've wanted to play conservative.
That's great. Thank you. Those are all my questions. I appreciate it.
Thank you.
Next, we'll go to Robert Dodd from Raymond James. Your line is open.
Hi, guys. Congrats on the quarter. Following up to Casey's question about RAM. I mean, if I look at year-over-year, obviously the enterprise value you're carrying is down. Reserve values are up. Cash balance is up. EBITDA is up. You know, and cash et cetera, year-over-year. The enterprise value implied in the market is down. I understand your comment about the valuation consultant got to that. Can you give us any idea what metrics they're actually looking at? I mean, clearly, it's not an enterprise value to EBITDA or anything like that, or even a enterprise value to reserves.
I mean, what's the framework that they're using to evaluate that, given all the metrics move one way and the fair value year-over-year has been stellar?
You know, and like Casey, it sounds like Raymond James has a bid for RAM, which we're always happy to entertain, Robert. Look, I mean, all these things are-
I do not have a bid for that.
All these elements are taken into account. Production is taken into account. Reserves are taken into account. The comparables are taken into account. Of course, the M&A activity are taken into account. All these things go into the bucket, and it's a question of which of these factors do the valuation firms prioritize? What do they lean on? You know, recently it's been, you know, kind of where. As we all know, we would be more than happy to entertain proposals on this company for people who wanna buy the company. Ultimately that becomes, okay, what are people willing to pay for the company as much as production and reserves and all these other things. Look, there just hasn't been the trade yet.
I mean, I think we're starting to see some action in E&P. You know, as this lasts longer, inevitably we hopefully will see more. You take all these factors into account. Luckily at this point it's kind of what is the... As we always say, what's the exit value to the market participants in an orderly market? That's, you know, that's the accountants and the valuation firms will always ask that question of themselves. We ask them that question as management. What's the exit value to market participants in an orderly market of this particular asset? That's what everyone's trying to get at.
Understood. One more more general question about obviously the equity folks overall. I mean, the market's really active generally. I mean, has your expectation may be too strong a word, but has your hopes gone on how quickly you can liquidate some of these equity positions? Has that changed over the course of say, the last six months as market activity has picked up, or is it still so you know, company specific that you know, high levels of market activity doesn't necessarily move your expectations about how fast equity can be you know, monetized.
Yeah. It's a good question. Look, you can see what's going on with PT Network and the valuation with PT Network. You can see the valuation's been up. That indicates something. It indicates value. You know, that's an indication that maybe on that one, it can be a little tighter than we thought in terms of timeframe, right? You know, RAM's really challenging to figure out. I think we just discussed RAM. Cano is a public stock and, you know, we're kind of part of it, we're riding that, and it's been a little volatile. So. Then you have the what I'll call the regular way equity co-invest, the one that generated the other income this quarter, Green Berets or Veritex.
Summit was a small equity co-invest that we got liquid on. You have the normal pitter-patter of the, what I'll call the regular size equity investments, which continue to every quarter, you know, generate some cash. On the big ones, you know, it's harder to project, but I think the markets can tell you something.
Yeah, I appreciate that. Thank you. Yeah, congrats on the quarter.
Thank you.
Next, we'll go to Ryan Lynch from KBW. Your line is open.
Hey, good afternoon, and thanks for taking my questions. Art, really nice quarter all around. I did wanna talk about the portfolio activity over the last several quarters. Gross funding has been accelerating as well as, you know, maybe more importantly, you know, net fundings have really accelerated the last several quarters, and it looks like that's continuing into Q1. Can you just talk about, you know, what's really driving that acceleration? And then as well as, you know, you talked earlier about focusing on kind of the core middle market. I would love to just hear, you know, what your competitive standpoint. There's been a lot of capital raised. A lot of capital has been raised through really big vehicles by, you know, very big shops that are, you know, focusing more on upper middle market lending.
I'm just curious, are you seeing those players that are focusing on upper middle market lending also continue to also invest in the core middle market as well so that, you know, competition is kind of really the same or even accelerating? Just any comments on that would be helpful.
Yeah. Thanks, Ryan. The first question is activity levels and volume. It has been an extremely active 2021, and I know you've heard the efforts from the other BDCs, driven by a lot of factors. A, there was no flow for a year and a half. B, there was the thought that taxes would increase, so that brought a lot of sellers to market. C, values are pretty high. If you're thinking about selling your company, you get a pretty good value. Those three factors really contributed to very healthy deal flow volumes in the middle market. The tax issue seems to have gone away for now, but the value has been set for 2021, where we're super active. We're gonna be active, you know, going into year-end. What's 2022 look like?
We think it will be active. We don't think it's gonna be as active as 2021. We currently think there might be a little pause in January, February, like there typically is seasonally in our business. We think we'll be active coming into the end of 2021. We think first quarter of 2022 will be a little light. We still think there's gonna be a lot of activity in 2022 because values are attractive for sellers because financing is plentiful. There's still a lot of, you know, companies that wanna do deals. Now, you know, where we focus is on the core middle market, which is kind of $50 million EBITDA and below. Our average median EBITDA is somewhere like at $25 million-$30 million.
You're right, with the giants in the direct lending industry raising so much money for their business model, it's challenging for them to focus on companies below 50 million EBITDA. Every once in a while, we'll see them come down to 40, but when you have the amount of capital they have to deploy, they're really after value and competing against the broadly syndicated loan market. That's why you see you know, these announcements you know, about record large, quote-unquote, direct loans that some of our larger peers are doing. They're really leaning into the BSL space, the broadly syndicated loan space, because they have so much money to deploy. What they can do is, I'm not getting into any of their business.
They can offer something which they think is of value to those sponsors and to those borrowers, that they think is accretive, and obviously the borrowers think are accretive. As we look at it, they are competing with the broadly syndicated loan space, where leverage is high, yields are low, equity cushion's low. There's your opportunity to build due diligence is short. You have to make quick decisions. It's covenant light. God bless. You know, God bless them. We hope they're making good credit decisions. We hope the borrowers are happy with the capital they're providing, and it is a large market for them to go after. Where we focus, below $50 million of EBITDA, our capital is more important to the borrowers. We can get much more reasonable leverage.
We can do our diligence in a comfortable time span of six-eight weeks. We get covenants that have meaning. We get real equity cushion. We can select where we co-invest, and I'll go into that in a minute, which can, you know, add some significant value to the portfolio. That whole kind of mixture of the importance of borrowers is important. Where we really have honed in, where we can add the most value, and it's shown up in our numbers, is when we're starting out with a sponsor who's identified an industry or a company that they think has good growth characteristics, either inorganic growth pieces, it's a fragmented industry that they can consolidate or good organic growth.
We can start out that company, and they've got a 10-20 million EBITDA, and there's a real game plan to take that 10-20 EBITDA up to 30, 40, 50 and higher. Where added debt capital is very important at inception, and then we can help drive growth with our debt capital. We can obviously, by definition, have a front row seat on financing those companies as they grow. Then we can also participate in the equity co-invest and participate in the upside that we're helping to drive with our debt. That's really the model that we try to kind of pursue today, where we think we can add the most value to both the borrowers on one side and our investors, of course, on the other side, where the track record has really gotten quite good over the last handful of years.
You know, post 2015, we've had like a 15.7% IRR as we've dove more and more and more into that core middle market as we've participated in some of those equity co-invest. Frankly, where there's the most value and we're kind of away from the fray. We're not really competing with the giants. We're not competing with the broad BSL loan market. We can do proper due diligence and really understand what we're lending to. Sorry for the rant, but I think I answered your questions.
You covered it, and you gave a lot of additional color and detail, so that's very helpful. I have another question I wanted to talk about, another control company outside of RAM, PT Networks, that had a significant write-up this quarter. You guys have some of the financial information in your 10-K. You seem to obviously be accelerating revenues, and it looks like this is the first year they've actually turned a profit. Obviously, the fundamentals are strong there. Can you just give an update on what is driving that improvement in fundamentals? I know that there was a management change a bit ago. I'd just like to get an update on that business.
Yeah. Look, first of all, industry-wide, and we like the industry. As people are aging, they need more physical therapy. Physical therapy is very cost efficient as a treatment versus other types of treatments. Physical therapy as an industry has a lot of tailwinds, and we've always liked that, even when we went to the company originally. There were some management issues a ways back. That's when we did the restructuring and were retaining the control equity. We have brought in a new management team who's excellent, and they've done great work, you know, getting the company's operations in line. It's a blocking and tackling business. When you do the blocking and tackling correctly, you can do very well. That's what's gone on.
We've done some small add-on acquisitions which are accretive to the equity value. You know, it's really working. Of course, COVID was, you know, a bump in the road. These COVID people, you know, didn't or couldn't or were reluctant to go into the physical therapy location. Now that we're kind of coming out of COVID, we're seeing very good numbers.
I appreciate that update. That's all for me.
Thank you.
Next we'll go to Mickey Schleien at Ladenburg Thalmann. Your line is open.
Yeah, good morning or good afternoon. Art, you know, a lot of good questions already asked. I don't want to beat a dead horse on RAM, but when you look at the cash and the free cash flow and the leverage and the nature of the debt, it looks like the company could afford to pay you a dividend. Is that something you're contemplating over, you know, the relative near term, or would you prefer to retain capital in the business?
Good question. I think the issue regarding that is around the. You remember when RAM got that SBA Main Street loan financing. You know, it's one of those draws of COVID for $40 million. It's a very low-yielding, long-term instrument, very flexible instrument. The one way it's not flexible is you're not allowed to take dividends. So that's the conundrum. You know, you want to keep that very attractive debt instrument in there because it does provide a lot of stability and permanency to the company. Of course, we'd like to pay dividends. So that's what we're grappling with. Today, unfortunately, lenders are still not. We should, if you say, "Hey, let's replace those guys with somebody else," it's certainly something we think about.
You know, some main lenders are still reluctant to lend to the oil patch for obvious reasons, including past performance, including ESG, you know, ESG issues. It's something we should consider and will consider as hopefully the industry thaws out. You know, perhaps if this continues and the prices remain strong, we could look to recapitalization or paying off that loan and give cash flow to shareholders. It's certainly something we'd like to do.
Okay. Art, can you partially pay down the debt? I realize it's cost effective, but, you know, nobody's earning much on cash these days. It'd probably still be accretive, or they don't allow that either.
You can. Again, it's just like it's the question, similar kind of stance around our dividend policy, which is. You know, we like being defensive and just having the extra, you know, safety of mind at this point. But at some point, if we continue to generate a ton of cash and we just have all this excess cash, we might just pay off the whole thing. And that's an option at some point. But right now, hopefully oil and gas prices stay high for a long time and then there's more cash on the balance sheet and, you know, then that's great. You know, that's great. You know, perhaps we'll do it sooner by then. I don't know. But
Yeah.
You know, see where it goes.
My last question, could you just touch on what issues are confronting Mspark, if any, given the decline in the equity valuation?
Mspark has been a challenge. It's the shared mail directly with the company. Many of their customers are retail and restaurants, who have been impacted by COVID, who are having labor shortages themselves. They don't want to advertise because they couldn't deal with the amount of customers that would come in even if they did advertise. We're working it hard. It was marked down appropriately this quarter. It's getting run. We're committed to it. We think it's good for development and it generates good cash flow. That's gonna take a little longer to work through.
It's not having problem servicing its debt, at least not now, right?
No. Even in this environment, it's still generating sufficient cash flow to service the debt.
Okay. That's it for me this afternoon. I appreciate your time. Thank you.
Thank you.
Next we'll go to Kyle Joseph from Jefferies. Your line is open.
Hey, good morning. Thanks for having me on. A lot of my questions have been addressed. Just, you know, outside of energy and equity investments, really want to get a sense for the outlook for credit performance and how portfolio companies are doing. Obviously, you know, no non-accruals so credit portfolio is doing strong. Just, you know, give us a sense for, you know, where their revenue growths are trending, EBITDA growth, and any sort of like macro concerns you have, whether inflation or supply chain issues.
Yeah. By and large, the portfolio is performing well. By and large, these companies are well positioned. If they need to raise pricing due to inflation or labor or supply chain, they can do so, because they're, you know, they are important providers to their customers. We have EBITDA margins of 25%-30%, which indicates very high value added. You know, EBITDA is up. Now, you know, it's kind of what are you comparing to? If you're comparing to the middle of COVID, they're up to 100%, 200%. You know, it's kind of not even relevant to even compare it to COVID. They're certainly back, in many cases, ahead of where they were in 2019. Some of these companies are different companies than they were in 2019.
They've done some add-on acquisitions. They've morphed themselves. The portfolio is generally performing really, really strongly from a revenue and EBITDA standpoint. You know, we share with you the credit stats, 3x interest coverage on average. You know, we feel by and large a very good portfolio. When you have like 70, 80, 100 names in the portfolio, by definition, there may be a name or two or three that may be getting hurt by labor or supply chain or inflation. By and large, it's a very strong book.
Got it. Appreciate the color. Thanks for answering my questions.
Thank you, Kyle.
Next we'll go to Melissa Wedel from J.P. Morgan. Your line is open.
Good afternoon. Thanks for taking my questions today. I'll say that most, a lot of the questions have already been asked and answered. So, I appreciate the color there. I was hoping that you could contextualize a comment you made earlier about the competitive landscape, certainly with, you know, some larger platforms going after sort of I think you said taking, essentially taking share from the BSL market. There's been some spread compression, particularly within that space. How are you thinking about spread compression in terms in the core middle market area that you're focused? Do you think that we should be seeing some stabilization going forward? Or do you think that there could be some continued compression?
I get a good question. I think it's kind of been stable for a while. You know, and I think that's, you know, once you get to kind of, you know, we're kind of in the zone of L 500-L 700. You know, that's our general zone for first lien. You know, we can't afford to go much below that, you know, unless we have some, you know, fantastic other way to make money, maybe a loan desk that we think is terrific. But, you know, I think that's kind of our zone and, you know, we need to, you know, remain disciplined about it.
We don't, we're not seeing pressure just because I think the competition is less. I mean, we don't have the kind of competition that you might see in the upper middle market.
Understood. Thanks. I think, you know, it would be helpful just to hear from you guys about your take on sort of the non-sponsor space. We've been seeing some other BDCs get a little bit of yield enhancement and going to sort of the non-sponsor origination sources. I just would love an update on how you think about that space and any value that you see there. Thank you.
Yeah. Yeah, look, it's a legitimate space. It's by definition a you know a different risk-adjusted return, different risk reward you should get for lending to a non-sponsor because if things don't go well, the lender becomes the sponsor as opposed to where there is a sponsor. If things don't go well, the sponsor will generally you know put more money in. If you look at our COVID experience, I think we had 15 situations where across the platform where we needed more equity and 14 x the sponsor put more money in, one time the sponsor didn't. It's a different risk-adjusted return and should be you know viewed that way. I think potentially as we look at PNNT in particular versus, let's say, PFLT, we might be doing more non-sponsor thoughtfully and carefully.
I mean, you can argue our gaming portfolio, you know, we've had a very nice track record financing casinos. That's essentially non-sponsor business for us and has had very attractive returns and continues our attractive returns. It's something we look at on a case-by-case basis, initiate, you know, carefully and thoughtfully, particularly in industries where we have real domain expertise. You know, our five key industries, we normally do a little bit more in those areas when we really think it's a stronger risk-adjusted return.
Go for it.
Thank you.
Next, we'll go to Jim Marshall from Aviation Advisory Service. Your line is open.
Good afternoon, gentlemen. I apologize if you've discussed this on prior calls or news releases, and I overlooked it. In the news release, today's news release or yesterday's news release, you announced that you have no companies on non-accrual as of September 20th- September 30th, 2020, you did have a few companies on non-accrual. What happened to those companies over the last fiscal year?
You can confirm there's no companies as of September 30th and there's no companies today on non-accrual. Are you talking about the companies last year that were on non-accrual?
Yes. What happened as of September 30th, 2020? Okay, let me get the business right. You had, and I don't have the news release in front of me. You did have at least a few companies on non-accrual. What happened in the last year with regards to companies that were on non-accrual as of September 30th, 2020?
No, I got to go back and refresh my memory on those two companies. I'm happy to talk to you offline as to what happened. I mean, by definition, they either went in one of three directions. They started paying us again. They were sold or there was a restructuring item. You know, a lot has gone on in the last year, and I'd have to refresh my memory as to what those two companies were and what the ultimate attachment situation was. I'm happy to talk.
Okay. A smaller question. I see that there's some decrease in total administrative expenses between quarters.
Yeah, no, we have grown the PennantPark platform both in the BDCs and outside of the BDCs. We have a very nice and growing non-BDC private fund business. You know, you saw we, for instance, priced it close to a middle market CLO last week. We're building, we built a very nice company in addition to the BDCs. Outside of the BDCs and the G&A gets allocated, you know, across a lot of the platform which helps all the vehicles.
Excellent. Thank you very much.
Thanks, Jim.
With no further questions in queue, I'll turn it back to Art Penn for closing remarks.
I just want to thank everybody for being on the call today and your interest in the company, and we look forward to speaking with you in early February. In the meantime, have a great Thanksgiving and a terrific, happy, and healthy holiday season.
That does conclude our call for today. Thank you for your participation. You may now disconnect.