PennantPark Fuels Growth With New JV and Strategic Acquisitions

MIAMI, FL – November 24, 2025 – PennantPark Floating Rate Capital Ltd. (NYSE: PFLT) today capped a year of significant expansion, announcing robust fiscal 2025 results alongside strategic moves designed to fuel future growth. The business development company (BDC) reported a substantial increase in total investment income and is actively deploying capital through a new joint venture and a major portfolio acquisition, positioning itself for continued performance in the competitive middle-market lending space.

For the fiscal year ending September 30, 2025, the company's investment portfolio swelled to $2.77 billion, a significant jump from $1.98 billion in the prior year. This growth helped drive net investment income (NII) to $107.2 million. While NII per share saw a slight dip to $1.16 from $1.18 in fiscal 2024, this was largely due to an increase in outstanding shares from capital-raising activities used to fund portfolio expansion. Critically for income-focused investors, PFLT maintained its dividend policy, declaring distributions of $1.23 per share for the fiscal year.

Strategic Expansion to Drive Income

The headline figures are underpinned by a series of deliberate strategic initiatives aimed at scaling the company's platform and enhancing shareholder returns. A key development is the formation of PennantPark Senior Secured Loan Fund II, LLC (PSSL II), a new joint venture with a fund managed by Hamilton Lane, a prominent private markets investment manager. PFLT and Hamilton Lane have committed a combined $200 million in equity and notes to the venture, which intends to leverage a new credit facility to build an initial portfolio of approximately $500 million. This follows the successful model of its predecessor, PSSL, which has grown to over $1 billion.

These joint ventures allow PFLT to expand its investment capacity, generate fee income, and optimize its return on equity. According to CEO Art Penn, the strategy is designed to support a growing net investment income stream. The ramp-up of PSSL II is expected to be accretive to the company's core NII by one to two cents per share quarterly once fully deployed.

Further fueling this growth trajectory, PennantPark announced in September the acquisition of a $250 million portfolio of high-quality assets. The company projects this acquisition will also be immediately accretive to core NII, adding an additional one to two cents per share each quarter. Together, these moves signal a clear intent to not only grow the asset base but also to enhance the company's core earnings power moving forward.

A Closer Look at Portfolio Quality

With aggressive growth comes heightened scrutiny of portfolio health. PennantPark's portfolio consists of investments in 164 companies, with approximately 99% of its debt investments being floating rate. This structure has served the company well in the recent rising-rate environment, contributing to a weighted average yield on debt investments of 10.2% at year-end.

In his statement, CEO Art Penn expressed confidence in the portfolio's resilience, attributing it to a "disciplined focus on the core middle market," which he noted typically involves lower leverage and stronger lender protections. The company's non-accrual rate remains low, representing just 0.2% of the portfolio's fair value as of September 30, 2025. This discipline is also reflected in its low PIK (Payment-In-Kind) interest of only 1.8%, indicating a strong preference for cash-paying loans.

However, the financial statements also reveal areas that warrant monitoring. The portfolio reported a net unrealized depreciation of $46.1 million as of year-end, a significant increase from $11.4 million the prior year, which the company attributes primarily to changes in capital market conditions. While year-end non-accruals were minimal, research indicates a temporary spike in non-performing loans mid-year, suggesting that certain segments of the middle market may be feeling the pressure of sustained higher borrowing costs. This highlights the importance of active credit management in the current economic climate.

Managing Leverage in a Growth Phase

A central challenge for any expanding BDC is managing its balance sheet leverage. PFLT ended the fiscal year with a regulatory debt-to-equity ratio of 1.66x, which is at the upper end of its target range of 1.4x to 1.6x. However, the company swiftly addressed this through a strategic post-quarter-end maneuver.

Subsequent to September 30, PFLT sold a combined $309 million of assets to its two joint ventures, PSSL and the newly formed PSSL II. The proceeds were used to pay down its primary credit facility, which effectively reduced its debt-to-equity ratio to 1.41x. This move not only brings leverage to the lower end of the target range but also demonstrates the strategic flexibility afforded by the joint venture structure, allowing PFLT to manage its own balance sheet while continuing to grow its overall investment footprint.

The company maintains a solid liquidity position, with $122.7 million in cash and equivalents at year-end and available borrowing capacity on its credit facilities to fund new investments and navigate market opportunities.

Navigating a Shifting Interest Rate Horizon

Looking ahead, the macroeconomic environment, particularly the path of interest rates, will be a critical factor for PFLT and the broader BDC sector. While the company's floating-rate portfolio has provided a tailwind to earnings, consensus among economists points toward potential Federal Reserve rate cuts beginning in late 2025 and continuing into 2026. A decline in base rates like SOFR would put downward pressure on the income generated from PFLT's loans.

Despite this, management has expressed confidence in its ability to maintain its dividend. In the earnings announcement, Mr. Penn stated that the dividend policy is expected to remain stable, supported by growing NII and, if needed, the company's "spillover income" of 25 cents per share—taxable income that has been earned but not yet distributed. This provides a significant cushion to absorb potential declines in interest income. The company’s ability to execute its growth strategy through its new ventures while actively managing its balance sheet will be crucial as it navigates this evolving economic landscape.