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PennantPark Investment (PNNT) Q2 2021 Earnings Call Transcript | The Motley Fool

PennantPark Investment (NASDAQ:PNNT)
Q2 2021 Earnings Call
May 06, 2021, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the PennantPark Investment Corporation’s second fiscal-quarter 2021 earnings conference call. Today’s conference is being recorded. [Operator instructions] It’s now my pleasure to turn the call over to Mr. Art Penn, chairman and chief executive officer of PennantPark Investment Corporation.

Mr. Penn, you may begin your conference.

Art PennChairman and Chief Executive Officer

Good morning, everyone. I’d like to welcome you to PennantPark Investment Corporation’s second fiscal-quarter 2021 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.

Aviv EfratChief Financial Officer

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 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.

Art PennChairman and Chief Executive Officer

Thanks, Aviv. I’m going to spend a few minutes discussing how we fared in the quarter ended March 31st, 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 are pleased with our performance this past quarter. We achieved a 5.8% increase in adjusted NAV.

Adjusted NAV went up $0.51 per share from $8.69 to $9.20 per share. We are particularly pleased that our NAV today is up over 5% from what it was pre-COVID, December 31st, 2019. We have several portfolio companies in which our equity co-investments have materially appreciated in value as they are benefiting from the recovery. This is solidifying and bolstering our NAV and we will highlight these companies in a few minutes.

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 a financial sponsor. Our returns on these equity co-investments have been excellent over time. Overall for our platform, from inception through March 31st, our $226 million of equity co-investments have generated an IRR of 28% and a multiple on invested capital of 2.9 times. 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 income generation, we have the opportunity to rotate out of our equity investments over time and into yield instruments. In addition, we have the ability to grow the PNNT balance sheet and that of our PSLF JV with Pantheon, which should also generate additional income for the company. We are also pleased that in April, we diversified our financing sources with the issuance of $150 million or 4.5% five-year senior notes to institutional investors. Although we never predicted a global pandemic, as you 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. The overall portfolio is constructed to withstand market and economic volatility. As of March 31st, average debt-to-EBITDA on the portfolio was 4.6 times, and the average interest coverage ratio, the amount by which cash income exceeds cash interest expense was 3.1 times. We have no nonaccruals on our book out of 93 different names in PNNT and PSLF.

We have largely avoided some of the sectors that have been hurt the most by the pandemic such as retail, restaurants, health clubs, apparel, and airlines, although PNNT does have exposure to oil and gas which we’ll discuss later. The portfolio is highly diversified with 83 companies in 29 different industries. Since inception, PNNT has invested $6 billion at an average yield of 12%. This compares to a loss ratio of about 19 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. Our performance through the global financial crisis and recession was excellent. During that recession, the weighted average EBITDA of the underlying portfolio companies declined by 7.2% at the bottom of the recession. This compares to the average EBITDA decline of the Bloomberg North American High Yield Index of 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. Many of our portfolio companies are in industries such as government services, defense, healthcare, technology, software, business services, and select consumer companies that are less impacted by COVID and where we have meaningful domain expertise. We believe that we are experiencing a strong recovery with some companies and industries being beneficiaries of the environment.

We are pleased that we have significant equity investments in five of these companies which can substantially move the needle of our NAV. I would like to highlight those five companies. They are Cano, Wheel Pros, Walker Edison, PT Network, and JF Petroleum. Cano Health is a national leader in primary healthcare, who’s 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 31st March of $2.5 million and $73 million, respectively. We believe that there’s a massive market opportunity for Cano to grow in the years ahead with the Medicare Advantage program. The merger with Jaws Acquisition is scheduled to close in June. At that time, we will receive another $6.7 million in cash and own 6,629,953 shares of Cano Health and limited partnership controlled by a financial sponsor where the sponsor will earn 20% of the exit proceeds.

The shares will be locked up for six months. From a valuation perspective, due to the lockup, the independent valuation firm valued the position with a 6% illiquidity discount to the traded value on March 31st. Wheel Pros is the largest national distributor of aftermarket custom wheels. Our equity position has a cost of $500,000 and a fair market value of $26.4 million as of March 31st.

At the end of March, the company announced a strategic transaction with a new sponsor investment vehicle which will result in the full exit of our investment in Wheel Pros. The transaction is expected to close in the next couple of weeks. This will result in our equity investment in Wheel Pros, generating an IRR of 104%, and a multiple on invested capital of 7 times. Walker Edison is a leading e-commerce platform focused on selling furniture exclusively online through top e-commerce companies.

Our equity position has a cost of $1.9 million and a fair market value of $16.7 million as of March 31st. Shortly after quarter end, the company executed a refinancing and dividend recap which resulted in shareholders receiving 2 times their cost while maintaining the same ownership in the company. This resulted in PNNT receiving a $3.8 million cash payment on its equity position. PT Network is the leading physical and occupational therapy provider in the mid-Atlantic states.

Our equity investment in PT came through a restructuring which came about after the company made several operational mistakes. We have always had a positive view of the industry and the outlook due to industry tailwinds and demographics which result in comparable companies trading at EBITDA multiples of 12 times to 15 times. Under our ownership, we brought in an excellent management team, who corrected those operational mistakes and has shepherded the company well through COVID. Our equity position has a cost of $23 million and a fair market value of $48 million as of March 31st.

Midocean JF Holdings or JF Petroleum, is a leader in the distribution, installation and servicing of vehicle fueling, and related equipment to retail fueling stations, retail fueling locations in the United States. As a result of a restructuring several years ago, PNNT owns approximately 30%, excuse me, 36% of the company’s equity. After the restructuring, a new management team was recruited who stabilized the business and returned it to growth. Additionally, several accretive acquisitions have been completed and a stable long-term senior financing package was put into place in 2019.

The company performed well through COVID and is continuing to grow organically and through acquisitions. As of March 31st, PNNT owned equity securities with a cost and fair market value of $40 million and $43 million, respectively. 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. Additionally, we are pleased with the liquidity events at Wheel Pros and Walker Edison which are a solid start to our equity rotation program.

PNNT has among its lowest percentage of energy investments since 2013. Energy investments represent only 6.7% of the overall portfolio. RAM completed its last two wells in January. The results were strong and among the best in the Austin Chalk.

RAM is now on stable operational and financial footing and has benefited from higher prices and production. The company is free cash flow positive after debt service and plans to use any cash flow to repay debt. As of March 31st, equity represented approximately 36% of the portfolio. Over 60% of this 36% has come from appreciation over the last 12 months, driven by many of the companies previously mentioned.

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 forward to investing the cash and to yielding debt investments to increase net investment income. The outlook for new loans is attractive. We are focused on the core middle market which we generally define as companies with between $10 million and $50 million of EBITDA.

We like the core middle market because it is below the threshold and does not compete with a 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 diligence and the timeframe for making an investment decision is compressed. On the other hand, where we focus, in the core middle market because we are not competing with a broadly syndicated loan or high-yield markets, generally, our capital is more important to the borrower. As such, leverage is lower, equity cushion higher, we have quarterly maintenance covenants which are real, we receive monthly financial statements to be on top of these companies.

If there are EBITDA adjustments, they are more diligent and achievable, and we typically have six to 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 higher recovery rate than those loans to companies with higher EBITDA. We also 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 which was the time period after the global financial crisis.

This vintage is characterized by leverage levels that are lower, equity cushion is higher, yields are higher, and the package of protections, including covenants are tighter. After enduring about five years of late cycle market for middle-market lending, it is refreshing to have attractive risk reward available to us. Let me now turn the call over to Aviv, our CFO, to take us through the financial results.

Aviv EfratChief Financial Officer

Thank you, Art. For the quarter ended March 31st, net investment income totaled $0.13 per share. Looking at some of the expense categories, base fees totaled $4.3 million. Taxes, general and administrative expenses totaled $1.3 million, and interest expense totaled $5 million.

Net unrealized gain on our investments was $33 million or $0.50 per share. Net unrealized depreciation on our credit facilities was $0.06 per share. Net realized gains on investments was $0.01 per share. Our net investment income exceeded our dividend by $0.01 per share.

Consequently, NAV per share went from $8.78 to $9.24 per share. Adjusted NAV, excluding the mark-to-market of our liabilities was $9.20 per share, up 5.8% from $8.69 per share. As a reminder, our entire portfolio, credit facility, and senior notes are mark-to-market by our board of directors each quarter using the exit price provided by independent valuation firms, security, and exchanges or independent broker-dealer quotes 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 spillover as of September 30th was $0.33 per share. Our GAAP debt-to-equity ratio, net of cash was 0.9 times. Regulatory debt-to-equity ratio, net of cash which excludes SBIC debt was 0.7 times. With regards to NAV, our GAAP NAV was $9.24 as of March 31st, up approximately 5% from the prior quarter which reflects both the markup of assets offset by the markup of certain liabilities.

Assuming liabilities were not mark-to-market, adjusted NAV is $9.20, up approximately 5.8% from the prior quarter. We have ample liquidity to fund revolver draws and we are in compliance with all of our facilities as of March 31st. We have readily available borrowing capacity and cash liquidity to support our commitments. We have a strong capital structure with a diversified funding source and no near-term maturities.

We have $435 million revolving credit facility maturing in 2024 with a syndicate of banks, $119 million of SBA debenture maturing in 2026, $86 million of unsecured notes maturing in 2024, and the newly issued $150 million of unsecured notes maturing in 2026. Our overall debt portfolio has a weighted average yield of 9.3%. On March 31st, our portfolio consisted of 83 companies across 29 different industries. The portfolio was invested 38% in first lien senior secured debt, 16% in second lien secured debt, 10% in subordinated debt, including 6% in PSLF, and 36% in preferred and common equity, including 3% in PSLF, 92% of the portfolio has a floating rate, all of which has a LIBOR floor.

The average LIBOR floor is 1%. We have concluded, in consultation with our board to extend the incentive fee waiver through June 30th, 2021. Now let me turn the call back to Art.

Art PennChairman and Chief Executive Officer

Thanks, Aviv. To conclude, we want to reiterate our mission. Our goal is to generate attractive risk-adjusted returns through income, coupled with long-term preservation and 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.

Questions & Answers:

Operator

[Operator instructions] And we’ll take our first question from Casey Alexander with Compass Point.

Casey AlexanderCompass Point — Analyst

Hi, good afternoon.

Art PennChairman and Chief Executive Officer

Good afternoon.

Casey AlexanderCompass Point — Analyst

I want — first wanted to just make sure that I heard that correctly, of the 36% that’s equity, only 3% of that is represented by the JV and the other 33% is straight equity. Is that the right number?

Art PennChairman and Chief Executive Officer

Just take a look here, Aviv, you may have it in front of you.

Aviv EfratChief Financial Officer

Yeah, that is the right number, about 3.4% is PSLF. That is correct.

Casey AlexanderCompass Point — Analyst

OK. So is there — I mean, PSLF is at 3% of the entire portfolio, is there room to grow that? You know, many BDCs have JVs that are twice that size in terms of their relative position in the portfolio? And could — and is there any room to increase the dividends that come from the JV?

Art PennChairman and Chief Executive Officer

Yeah. So that’s a good question and Aviv just referred to the equity. We also have subordinated debt in PSLF, too. So I’m going to say, our sub debt piece is roughly twice as big as our equity piece, so call it, Aviv, 9% in total.

Aviv EfratChief Financial Officer

Yeah, 6% or so.

Art PennChairman and Chief Executive Officer

Yeah. So 9% in total, but, yes, I mean our goal is, a, to fully extend the existing JV and we have a little bit of room to go there. And then subject to Pantheon’s approval, of course, in partnership, we’d be totally open to expanding that JV, optimizing it. If you look at what’s going on over PFLT, our sister company with Kemper, we’ve grown that JV, we’re growing it more.

We’ve optimized the financing by doing a CLO transaction to get a higher ROE. So we’re not there quite yet. You know, Pantheon is newer to the business, but — and that would be an aspirational goal, at least from kind of PennantPark’s standpoint is to grow and optimize it.

Casey AlexanderCompass Point — Analyst

OK. And then secondly, if you could just give us a flavor for how the outlook looks for originations over the next quarter or two? How your pipeline looks, how you would compare that pipeline to what your expected repayments are and potential ability to grow the interest-earning side of the portfolio?

Art PennChairman and Chief Executive Officer

We’re busy. Now busy is good and also busy also sometimes means repayments. So it’s an active market again, the market as thawed out, and it’s kind of very, very active now. We are getting some repayments and we’re also putting new money out.

We’ve never had a real challenge ramping our portfolio. Subject to our quality control constraints, we obviously only want to do deals that are very comfortable. So if you look at our history over 14 years, we’ve never had a problem originating assets that fit our box. These deals because they are more bespoke, they take time.

You know, we — they take a couple of months to work and you’re negotiating covenants and things like that. It’s not like you’re flipping a switch. But that said, we are active, we do hope and expect to grow, both the JV, PSLF, as well as, PNNT on balance sheet. And importantly, and we’re starting to see the green shoots with Wheel Pros and Walker Edison.

Taking those equity proceeds and converting them to yield is obviously a key part of the strategy and we’re looking forward to doing that.

Casey AlexanderCompass Point — Analyst

All right. Great. Thank you. I appreciate you taking my questions.

Art PennChairman and Chief Executive Officer

Thanks, Casey.

Operator

Our second question will come from Robert Dodd with Raymond James.

Robert DoddRaymond James — Analyst

Hi, guys. Some semi housekeeping ones. So on Walker Edison, I mean, you mentioned the $3.8 million cash payment. Would — should we expect, say, half of that to be recognized as dividend then maybe the other half to be return of capital and take your cost basis down to zero? Or would the whole thing the dividend income?

Art PennChairman and Chief Executive Officer

It’ll be based on what we could tell, it’ll be the first — obviously, the first part of it’s return to capital and the second part of it looks like it’s going to be accounted as a capital gain — capital gain. So it will not be in income, it’ll be a capital gain.

Robert DoddRaymond James — Analyst

OK. Got it. Then just on the debt side, I mean, obviously, the liability stack looks in good shape. Would you — is it currently anticipated that you’d call the $86 million when that becomes callable in October? Or are you going to let that stay?

Art PennChairman and Chief Executive Officer

The $86 million from —

Robert DoddRaymond James — Analyst

The baby bonds.

Art PennChairman and Chief Executive Officer

The baby bonds. Look, that’s a good question. I think we’ll have to see what our cost of capital is then and do the math and the fees. You know, obviously, we just did a deal that was much less expensive.

Robert DoddRaymond James — Analyst

Yeah.

Art PennChairman and Chief Executive Officer

So haven’t made any pre-decisions, but that is certainly an opportunity.

Robert DoddRaymond James — Analyst

OK. Great. And then last one, if I could. I mean the long-term goal to get equity, obviously, non-PSLF equity down to 10%.

What’s a realistic timeframe to achieve that goal? I mean, is that three years out? Is it going to take longer than that? I mean it certainly not going to happen 12 months, I wouldn’t think. So I mean, three, five shorter, maybe?

Art PennChairman and Chief Executive Officer

I mean, yes, you’re right. It’s a great question. It’s an imponderable question, right? It’s — you’re kind of guessing, certainly not a year and hopefully, not three years. You’re right.

I mean, I don’t know if that’s tight enough band for you. Some of these we control, some of these we don’t control. We control RAM to some extent, but we don’t control where the equity — oil and gas M&A market is. When the oil and gas M&A market starts to heat up, we will hopefully more action RAM.

We do control PT pivot and that is more in our control and that market is strong. So that may be sooner rather than later. Does that mean 12 months or 18 months, it’s kind of something in that zone. We don’t control Cano, we don’t control Walker Edison, etc.

So Cano is going through the de-SPAC process, hopefully, in the next month or six weeks. We still don’t control it after it does the de-SPAC, but at least it’s more on its way to a liquidity event, that will be a big milestone. So, yes, so a year to three years — a year to — yes, I’d say a year to three years just as a general, if you really want to say, let’s run the table, get it down to 10%. I think that’s probably right.

Robert DoddRaymond James — Analyst

OK. Fair enough. Thank you. Those are my questions and I really appreciate all the detail on the portfolio companies and the target market.

Thank you for that.

Art PennChairman and Chief Executive Officer

Thank you.

Operator

Our next question will come from Ryan Lynch with KBW.

Ryan LynchKBW — Analyst

Hey, good afternoon, guys, and thanks for taking my questions. First off congrats on a really nice quarter. I just had one today. Can you talk about — has there been any — so obviously, you guys historically making these equity co-investments has been a very successful part of your success story to generate some nice NAV through this COVID downturn.

It’s been a part of your long-term investment thesis of making some of these investments to offset some of the losses in your credit book, and hopefully, generate some gains longer-term. I’m just wondering now with such a large equity exposure and your desire to reduce that position in your portfolio somewhat. Does that change the way you guys are looking — when you guys are looking at new investments, is that making you more hesitant to make equity co-investments? Is that adding more equity to your books? Or is that just — are you keeping that investment philosophy unchanged as it’s worked so well for you in the past?

Art PennChairman and Chief Executive Officer

Yeah. It’s a good question. Most of these equity co-investments are $1 million to $3 million bites. Every once in a while, you know, we’ll do one that’s a $4 million bite.

So individually, they’re not that big and usually, they’re maybe 5% or maybe 10% of the amount of debt that we’re lending. So as individual bites, they’re relatively small. They can have a nice asymmetric upside when they work like some of the names we’ve talked about. So I think we’re going to continue to do that and as long as we continue to make progress on exits like Wheel Pros and like Walker Edison, to us, it’s kind of just like a reloading.

We’re reloading the next Walker Edison, we’re reloading the next Wheel Pros, we’re reloading the next Cano. So because kind of Wheel Pros was a seven-to-one and Cano has been whatever. It’s been twenty-to-one or whatever it is. So I think it’s important that we reload, actually, as we’re getting — as we’re exiting these bigger positions that have grown.

Ryan LynchKBW — Analyst

OK. I think that that makes sense. OK. That’s all for me today.

I appreciate the time.

Art PennChairman and Chief Executive Officer

Thank you.

Operator

We’ll take our next question from Mickey Schleien with Ladenburg.

Mickey SchleienLadenburg Thalmann — Analyst

Uh, yes. Good morning, Art and Aviv. Art, I want to follow-up on Ryan’s question about portfolio strategy. Given how strong the economy is and how much support the Federal government is providing to the economy, are you more interested in investing in second lien and subordinated debt in this environment, considering that the administration will for a while and I imagine you’re going to expect more support, if needed.

And if so, are you — are the terms that you can get in those markets acceptable to you from a risk adjusted basis?

Art PennChairman and Chief Executive Officer

Yeah. So, yeah, great question, Mickey, and we think about it a lot. So PNNT utilizes and it’s our across-to-capital structure strategy. So what’s our across-to-capital structure strategy, it’s exactly what it means.

It means first lien, some select second lien in mezz, and equity co-invest. So we have been doing a little second lien in mezz. We will continue to do some of it, the bar is high. We — you’re right, the economy and the tailwinds of the economy do — are a helpful fact.

And where we can see quick deleveraging and derisking, whether it be first lien or second lien mezz, that certainly helps us get comfortable with the debt security and also making that equity co-investment. So Wheel Pros was a second lien deal. That was the second lien deal we did a handful of years ago and we did a healthy co-invest, and that’s worked out well. Walker Edison on the other hand, was kind of a first lien more of a stretch, Senior Cano was a first lien, so it’s been a mixture.

So — but the point is, yeah, we’re open for business on the second lien mezz side. I’m not saying it’s a massive part of what we’re doing because it’s something where we’ve learned the hardware, you need to be really, really careful. But the risk-adjusted returns, when you find the right ones, like Wheel Pros where you could see a quick deleveraging and derisking, can be very, very profitable. So it will continue to be part of the mix.

Mickey SchleienLadenburg Thalmann — Analyst

I appreciate that and thanks for that, Art. You mentioned RAM a little bit in your comments and I don’t want to beat a dead horse. But the price of oil has remained in that sort of $60-plus level which I think in the past you’ve mentioned is where you expected M&A in the oil patch to start to develop. Are you seeing any green shoots at all vis-a-vis that segment and outlook for RAM will eventually be acquired by a strategic buyer?

Art PennChairman and Chief Executive Officer

Yeah. So a couple of responses, Mickey. First is, the $60, the company is generating good cash flow and paying off debt, so that’s always helpful. Great equity — when you create equity value and you pay off debt and that’s certainly what’s going on here, so that’s nice.

With regard to M&A, I — look, I don’t — we’ve seen green shoots or green shoot. I think we’re in the more green shoot as opposed to green shoots area, but inevitably and hopefully, as the market continues to be stable, we’ll see more shoots. And therefore, more M&A activity will come. And at some point, there’ll be a robust market, hopefully for RAM.

In the meantime, hunker down, generating cash flow and paying off debt. The acreage that RAM has now been proven out very nicely. It’s all a matter of public information. It’s on the RAM website.

So anybody who’s looking for acreage and productive acreage in that Austin Chalk area can see the numbers and they’re very attractive, some of the best wells in that area, so we’re doing everything we can. We can’t control that environment. The Main Street loan we got really extends that option out nicely. Again, we want to sell and find the right buyer at the right price at the right time, but we do have a long tail option at this point.

And we — in the last 12 months, we have done a really good job extending that option. That said, I do also want to say that I highlighted this, we’re at the lowest percentage of oil and gas in our portfolio in the last eight years and we hope RAM does well and we hope we can get great value for RAM over time. But in the meantime, we have some companies in industries that are kind of more of our forte, where we have domain expertise in healthcare and consumer, and etc., where we see real secular growth and real nice tailwinds. So whether RAM a year from now is out of our portfolio, still 6.7% of our portfolio or a smaller percentage of our portfolio because the portfolio has grown and some of these other companies are growing.

Time will tell, but we feel like we’ve got it and managed as best we can at this point.

Mickey SchleienLadenburg Thalmann — Analyst

Art as a follow-up, given the uncertainty as the timing of a potential exit on RAM. Is there any room in their financials, given the cash flow profile for them to eventually pay you a dividend?

Art PennChairman and Chief Executive Officer

Uh, as part of — it’s a good question and we have thought about that. You might imagine. As part of the loan with the Fed Main Street program which is a great loan, we are prohibited from paying dividends, so at this point. So, you know, let’s see what happens.

Let’s see the company’s results. Certainly, when we pay down debt, we, by definition, increase equity value and let’s keep that option alive. And at this point, we think keeping the option alive as long as possible is probably the best thing to do of any option we have here.

Mickey SchleienLadenburg Thalmann — Analyst

I understand. Just a couple of housekeeping questions maybe for Aviv. I apologize, but we’re just swamped with earnings. Could you give me the main drivers of the unrealized gains this quarter and also the undistributed taxable income per share figure?

Art PennChairman and Chief Executive Officer

Aviv, you want to go through the main driver share?

Aviv EfratChief Financial Officer

I know it’s certainly the same names that Art has mentioned before. Pt is like positive $0.09 unrealized gain quarter over quarter. RAM Energy, we just discussed about positive $0.07. Johnson Frank, about positive $0.12 quarter over quarter.

A bunch of Wheels Pro, positive $0.03. So, you know, these are the larger movers quarter to quarter.

Mickey SchleienLadenburg Thalmann — Analyst

And UTI per share?

Art PennChairman and Chief Executive Officer

It was, uh, I think we said it was $0.22. Is it $0.22 or $0.30? It was $0.30, $0.30.

Mickey SchleienLadenburg Thalmann — Analyst

$0.30, OK. Sorry for that. Um, I appreciate you taking my questions, Art. That’s it for me this morning.

Art PennChairman and Chief Executive Officer

Great. Thanks, Mickey.

Operator

We’ll take our next question from Kyle Joseph with Jefferies.

Kyle JosephJefferies — Analyst

Hey, good morning here, afternoon there. Thanks for taking my questions. Most have been asked and answered, but just wanted to follow-up for kind of your sense of where you’re thinking about portfolio yields, you know, as we think about the market recovering, rotation of equity assets, and then the potential for higher repayments. Give us a sense for how you see yields trending throughout the remainder of the year?

Art PennChairman and Chief Executive Officer

Yeah. It’s such a great question, Kyle. It kind of relates to the earlier question about mezz and second lien, right? So prototypical first lien deals today are L525 to L650, prototypical second lien and mezz, are L800 to L900, all of these I’m assuming are 1% floor. So it’s really a mix question in how much second lien mezz that we’re going to see that we like, you know, where our stringent standards fit.

I think last quarter, our yields on our new loans were a little higher because we had a little slightly higher mix of second lien or mezz. This quarter, we didn’t have quite as much, you know, so that’s kind of where we see the market today. It’s still probably going to be mostly first lien, probably still going to be most of what we’re doing in terms of new. But we will opportunistically in when the credits meet our threshold, do some second lien in mezz.

Kyle JosephJefferies — Analyst

Got it. Very helpful. Thanks for answering my questions.

Art PennChairman and Chief Executive Officer

Thank you.

Operator

We’ll take our next question from Melissa Wedel with J.P. Morgan.

Melissa WedelJ.P. Morgan — Analyst

Good morning, guys. Thanks for taking my questions. I really appreciate all the detail on the equity position, particularly, around timing and the ones that you control versus the ones that you don’t. Specifically, I just want to make sure I heard you guys right.

On Cano, that’s the only one I heard you guys talk about a lock up on. In terms of Wheel Pros and Walker Edison, those are things that are 2Q events with — that will be completed and done, no lockup. Is that right?

Art PennChairman and Chief Executive Officer

Yes. So Wheel Pros we’ll be out of entirely here in the next couple of weeks. Walker Edison, we’ve got 2 times our cost back already and we still own same percentage of the company that we owned prior. So will Walker Edison have an event in the next year or two? We hope so, we think so.

Again, we’re not in control of that, but the company is doing amazingly well, owned by a sponsor. So gravity should take hold and at some point, the sponsor should find a full exit. Cano is getting merged in with a SPAC, so that’s the one where you can look at a publicly traded stock price every day. It’s Jaws Acquisition, JWS is the ticker and we will — we are in a limited partnership controlled by sponsor that will end up owning a bunch of Jaw stock after the de-SPAC.

So that’s one you can look at every day and the independent valuation firm took a 6% illiquidity discount from the publicly traded price. And then also because we’re locked up with the sponsor, there’s a 20% exit — the sponsor is getting 20% of the exit proceeds. So that kind of works its way down with the 6% discount with a 20% exit payment to the sponsor to the value you see at 331 in the value you could ascertain today if you want to. A little bit less than what it was, 331.

So — and then once that de-SPAC happens, there’s a six-month lockup. Now because the sponsor, LPs, including us, will own the majority of the company. It’s not like you wave a magic wand and you’re totally liquid. In six months and one day, it’s something that, like any sponsor deal that goes public, it’s something that needs to happen over time.

The liquidity events, it’s got to be done judiciously. Certainly, the company itself will probably want to raise equity for growth, so it’s kind of — you probably think about it over a couple of year time period.

Melissa WedelJ.P. Morgan — Analyst

Art, that’s really helpful. Thanks so much.

Art PennChairman and Chief Executive Officer

Thank you.

Operator

And our final question today will be a follow-up from Casey Alexander with Compass Point.

Casey AlexanderCompass Point — Analyst

Yeah, hi. One of the things that we always try to track is industry concentration risk and looking at the portfolio. And looking at the 10-Q, I see 23% in healthcare, education, and child care. Normally, that would be a number that would bother me, but I think that’s such a broad category.

It’s probably capturing a lot of companies that really aren’t very comparable to each other. Does it make any sense to cut that into a couple of different baskets and better define it for investors?

Art PennChairman and Chief Executive Officer

That’s a great idea. You know, it is — we do quite a bit in healthcare and healthcare itself has a number of different verticals. They’re not all correlated. We’ve had the benefit of the Cano mark up, and yeah, we do some education deals as well, so — that are not correlated to healthcare.

So I think it’s a good suggestion and you know, maybe we’ll start doing that or figure out some way to disclose that in a more granular basis. Good idea.

Casey AlexanderCompass Point — Analyst

OK. All right. Great. Thanks for taking my question.

Art PennChairman and Chief Executive Officer

Thank you.

Operator

And that will conclude today’s question-and-answer session. I will now turn the call over to Mr. Art Penn for any additional closing remarks.

Art PennChairman and Chief Executive Officer

I just want to thank everybody for being on the call today. I know it’s a busy time in the BDC space. So thank you for your attention and focus. We appreciate it and we look forward to talking to you next in early August after next quarter.

Thank you so much.

Duration: 41 minutes

Call participants:

Art PennChairman and Chief Executive Officer

Aviv EfratChief Financial Officer

Casey AlexanderCompass Point — Analyst

Robert DoddRaymond James — Analyst

Ryan LynchKBW — Analyst

Mickey SchleienLadenburg Thalmann — Analyst

Kyle JosephJefferies — Analyst

Melissa WedelJ.P. Morgan — Analyst

More PNNT analysis

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.


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