PennantPark Investment Corporation Price & Performance (PNNT)

Over the last twelve months, PNNT earned an 18.4% return on invested capital in the JV. The JV has the capacity to increase its portfolio to $1,600,000,000 and we expect that with the continued growth in this portfolio the JV investment will enhance PNNT's earnings momentum in future quarters. The credit quality of our investment portfolio remains strong. Had two non accruals as of December 31, represented 4.3% of the portfolio of cost and 1.5% of market value. Now let me turn to the current market environment. We're well positioned as a lender focused on capital preservation in The United States We continue to believe that our focus on the core middle market provides the company with we provide important strategic capital to our borrowers. We have a long term track record of generating value by successfully financing growing middle market companies in five key sectors. These are sectors where we have substantial domain expertise, know the right questions to ask and have an excellent track record. They are business services, consumer, government services and defense, healthcare, and software technology. These sectors have been recession resilient and tend to generate strong free cash flow. In the core middle market, companies with $10,000,000 to $50,000,000 of EBITDA is below the threshold and does not compete with a broadly syndicated loan or high yield markets unlike our peers in the upper middle market.

In the core middle market because we are an important strategic lending partner, the process and package of terms we receive is attractive. We have many weeks to do our diligence with Care We thoughtfully structured transactions with sensible credit stats meaningful covenants, substantial equity cushions to protect our capital, attractive spreads and equity and call investments. Additionally, from a monitoring perspective, we received monthly financial statements help us stay on top of the companies. With regard to covenants, unlike the erosion in the upper middle market, virtually all of our originated first lien loans have meaningful covenants, which help protect our capital. This is a significant reason why we believe we are well positioned in this environment. Many of our peers who focus on the upper middle market state that those bigger companies are less risky That is a perception and may make some intuitive sense but the reality is different. According to S and P loans with companies with less than $50,000,000 of EBITDA have a lower default rate and a higher recovery rate than loans to companies with higher EBITDA. We believe that the meaningful covenant protections of the core middle market will there's more careful diligence and tighter monitoring have been an important part of this differentiated performance.

As a provider of strategic capital, he fuels the growth of our portfolio companies In many cases, we participate in the upside of the company by making an equity comm investment. Our returns on these equity call investments have been excellent over time. Overall for our platform from inception through December 31, [indiscernible] invested over $563,000,000 in equity co investments, and have generated an IRR of 26% and a multiple on invested capital of two Since inception nearly eighteen years ago, PNNT has invested $8,600,000,000 at an average yield of 11.3% has experienced a loss ratio on invested capital of approximately 20 basis points annually. This strong track record includes the investments of primarily subordinated debt that we made prior to the global financial crisis, legacy energy investments and recently the pandemic. With regard to the outlook, new loans in our target market are attractive. Our experienced and talented team and our wide origination funnels producing active deal flow. Our continued focus remains on capital preservation and being patient investors. We want to reiterate our goal to generate attractive risk adjusted returns through income coupled with long term preservation of capital. We seek to find out investment opportunities in growing middle market companies that have high free cash flow conversion.

We capture that free cash flow primarily through debt instruments and we pay out those cash flows in the form of dividends to our shareholders. Let me now turn the call over to Rick, our CFO to take us through the financial results. Thank you, Art. For the quarter ended December 31, GAAP and core net investment income was $0.2 per share. For the quarter, NII was negatively impacted by $0.012 per share As a result of placing our investment in Pragmatic Institute, on full non accrual. Operating expenses for the quarter were as follows: Interest and credit facility expenses were $11,700,000 base management and incentive fees were $7,000,000 General and administrative expenses were 1,750,000.00 and provision for excise taxes 700,000.0 net realized and unrealized change on investments and debt including provision for taxes, was a gain of $3,100,000 As of December 31, our GAAP and adjusted NAV was $7.57 per share which is up 0.1% from $7.56 per share in the prior quarter. As of December 31, our debt to equity ratio was 1.57x and our capital structure is diversified across multiple funding sources including both secured and unsecured debt. As of December 31, our key portfolio statistics were as follows: Our portfolio remains highly diversified with 158 companies across 35 different industries, The weighted average yield on our debt investments We had two non accruals which represent 4.3% of the portfolio at cost and 1.5% at market value.

The portfolio is comprised of fifty percent first lien secured debt four percent second lien secured debt 11% subordinated notes to PSLF 6% other subordinated debt 6% equity in PSLF and 23% other preferred and common equity. 94% of the debt portfolio is floating rate. Debt to EBITDA on the portfolio is 4.9 times and interest coverage is 1.9 times. Now let me turn the call back to Art.

Thanks, Rick. In closing, I'd like to thank our dedicated and talented team of professionals for their continued commitment to PNNT and its shareholders. 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.

We'll now take our first question from Mark Hughes with Truist.

Yes.

Thank you. Part of just sort of curious that any commentary about the level of capacity or competition in the core middle market? I think you Described spreads is relatively stable. So that's one meaningful indicator. So I'm just curious whether you've seen more folks in the market pursuing these type of loans?

Good question, Mark. We have not We have not seen new players The larger players have not chosen to come down into this kind of space. We've seen them exit and go up market. So there's really just a handful of players that we view as kind of peers in this market. And frankly, [indiscernible] have our game plan of being willing and able to finance a $10,000,000 EBITDA company, for instance, and then have a game plan to finance the growth of that company up to $30,000,000 $40,000,000 $50,000,000 of EBITDA. So we're one of the only couple players I think that can kind of are willing, able and would like to do that kind of growth financing. In many cases, [indiscernible] and we will structure a delayed draw term loan to fuel the growth of that company. So no new competitors of Meaning spreads have kind of stabilized at 500, five fifty.

In general and it's been a pretty good environment be a lender.

How about your appetite [indiscernible] companies or private equity, the appetite for the equity co investments is that something you're pursuing more or less? Is that going to be a stable part of the investment portfolio?

I don't think we do it more or less there each individual investment decisions. We first try to figure out if we can make a good and safe loan. And then separately, as a separate investment we evaluate the equity co invest in those prototypical deals where we're fueling the growth and we're helping these companies and private equity sponsors grow, we think it makes a lot of sense to be participating in that upside to some extent that we're helping to create with our loans. So in many of those cases, we will ask for and receive some form of upside equity co invest [indiscernible] to capture some of that growth. And we think it makes a lot of sense as a portfolio matter because even though we're highly diversified and we're very selective and and we try to keep leverage low. We like having something in our portfolio That's got a little bit of lift. And on those co invest over time, as we've said, we've had a 26% IRR and two times MOIC. So that's helped to to solidify NAV over time. [indiscernible] And then when we think about net investment activity for PNNT, obviously, the JV took down a lot of lot of the investments How do you think that will trend in kind of the first half of the year?

Would we expect P and N C to be a a net investor, net positive investment activity?

At this point, PNNT is optimized. I think still think we believe PNNT long term should be leveraged in the 1.25, 1.3 times that debt to equity range. So P and N T is a little bit higher than that right now really just as a as a holding pen for that are going to end up in that growing joint venture. So long term, we're still anticipating PNNT's leverage back down to that 1.25, 1.3 times its zone.

But a little bit more leverage than that for now temporarily as as it holds assets that will ultimately end up in that joint venture.

Thank you. Thank you.

We'll now take our next question from Robert Dodd with Raymond James.

Good morning.

How are you doing? On the spillover, income question up, I mean you've got to your point in the prepared remarks, it was helpful. I mean, dollars 0.99, I mean, that's basically your dividend run rate, which means functionally you can't cut the dividend until that's worked down.

Not without paying corporate tax at least.

So where would you like to work that spillover income down to in terms of like how many quarters of dividend or a dollar number? I mean, because that's it's to your point, it's going to take a long time at the rate it's getting eaten into. But just give us any color on what you target kind of level would be for that?

It's a great question and part of it is is what's the market opportunity, where is the yield in the market. What's our equity rotation looking like at this point, we're kind of steady as she goes. We think we should be earning more than $20,000,000 on a core basis. As we said, 2021, 2022, we should be. We're hoping that 2025 will give us an opportunity to to rotate equity and you see some of the names that have been marked up We would hope we can turn some of those into cash. So I don't necessarily know that we have a target. Know that our shareholders like a steady, stable dividend stream and we think we've got plenty of runway to do that under the current construct. We'll kind of grind through 2025 see where we end up and continuously speak speak to our Board about it and try to understand where the market is. And how the overall platform is doing in terms of kind of getting rotation on the equity and and I don't really have an exact answer for you. It's kind of like we take it as it goes. This year, the the game plan is clear for 2025.

Steady she goes, grind our way through it, try to rotate some equity. Come up for air in a year and and we are committed to keeping the dividend where it is.

Got it. Got it. Thank you. Moving on to the on Pragmatics, obviously, you're full on on a call now. What are the prospects for a restructuring there like maybe some of that equitization of some of the debt or something like that where the remainder of the debt comes back onto accrual? I mean, is that a likely or potential outcome in the near medium term for that asset?

Yes, it's a good question. And we're figuring out as we speak our current assumption is that during this quarter, the quarter ended March, there will be some form of restructuring there, some debt will be converted. There'll be a yield instrument coming out of that.

Got it. Got it. Thank you. And then just to kind of following on from from Mark's questions. In terms of the environment, I mean, you are very active. What areas do you and you've talked about some really attractive but I mean, what are there areas in particular that you'd like to ramp up exposure more in the portfolio. Obviously, there's there's within the JV as well, right? I mean, there's there's industry concentrations you're trying to manage and things like that. So I mean, are you are you seeing the right kind of industries that in terms of being attractive also to to manage your concentrations in that vehicle? And directly on balance sheet as well?

Yes. So as you know, we kind of respond to what's being shown us in the marketplace and where the middle market private equity community finds value. So Certainly, we can deemphasize certain areas and we can emphasize others. Healthcare is the biggest portion of the economy. It's the biggest portion of our portfolio. And we try to in healthcare, particularly with reimbursement try to find areas that are on the right side of cost containment try to find providers, service providers other types of companies that can provide healthcare at a lower cost and still maintain high quality. So that's something that probably just a big part of the portfolio. We've I think our performance in healthcare has probably been better than some of our peers. I think some of our peers have gotten caught in it, whether it's not picking the right credits that are on the right side of cost containment or just having higher leverage as you've heard our incoming debt to EBITDA for new loans is under four times. So when you are four times exactly here in this vehicle. So when you structure deals with more reasonable leverage, you can deal with a curve ball or two.

So healthcare will remain Government services, again, that's topical given what's going on with the government We believe we're on the right side of financing companies that are driving cost containment for the government and our aligned with government payment. Again, we're responding to what our sponsors are showing us. And there's a whole proliferation of other types of industries, business services, consumer and others that that were shown, but we do not we can kind of dial things up or dial things down For us, it always begins with, is it a steady, stable cash flow stream that is protected Is anyone really going to care if this company goes away or not? And trying to keep leverage as low as we possibly can. And then course alignment with the sponsors putting in a lot of equity beneath Got it. Thank you. Appreciate it.

Thank you.

We'll now take our next question from Brian McKenna with Citizens JMP, Great. Thanks. So just on the portfolio rotation opportunity, is there any way to think about the timing and magnitude of monetizing some of your equity investments and then redeploying this capital in into loans. And I guess ultimately, where does the percent of that longer term?

Yes. So I'll try to deal with the the last question first, which is what are we targeting? We're certainly targeting less equity. Certainly, you can look at the equity book and see where there's been markups and the goal would be that's kind of a leading indicator for where there might be some monetization opportunities. But in terms of the equity book, I mean, let's exclude the JV equity, which is about 6% of the portfolio and that's just part of this JV that's generating a very healthy 18% return.

In cash and there's over 20% in other equity. Some of it's co investing, about half of it's kind of [indiscernible] where we've co invested and the other half is restructured equity where we converted debt to equity. Some of that some of both of those has been marked up. So we hope that $25,000,000 is the year where we're going to see more M and A activity in core middle market where we can monetize some of those names and convert that that equity to cash and ultimately yield. Look, we'd like to get that 20% ish number down in half if we can. That's our goal. Try to cut that in half over time. We have not met that goal. It's taken us too long to be honest with you. And some of it we kind of control, some of it we don't.

But that's got to be our target and that's what we're what we're going to try to do.

Okay, great. That's helpful. And then, Art, I've asked you this in the past, but assuming you are successful kind of rotating out of the equity and into loans and that kind of ratio looks similar and the percent looks similar to PFLT. I mean, do you ultimately maybe potentially look to merge the two? So one publicly traded BDC. Yes, I just love to get your updated thoughts there.

Yes. Look, there's nothing more update than what we've talked, which is we got We've got a little bit of a cleanup scenario here. We've got a got to focus on it, then we'll lift our head up and kind of look at the options. There's certainly arguments to to do something and certainly arguments not to do something.

All options are always on the table. There has been historically differentiated portfolio, different difference in yields, difference in underlying portfolio. We got a little bit of a job to do first and then we'll come up and try to assess what's best for shareholders.

Okay, great. That's helpful. I'll leave it there.

Thank you. We'll now move to Paul Johnson with KBW. [indiscernible] On some of those investments that were marked higher, I noticed by light was marked higher again this quarter. That's the mark that's been moving up over the past few quarters. Is I mean, should we take that as an indication of interest that you might think the company's been receiving or has that just been more of a result of just performance Yes. Look, it's hard for me to I can't comment M and A and all that, I can comment that the company has performed well and Most of these companies are owned by private equity firms, who ultimately, ultimately try to sell. Can't comment on on a specific name, but the company has been performing well. Got it. Thanks, Art. And then last question was, I noticed that PNNT participated in the marketplace [indiscernible] loan that PennantPark reinvested with [indiscernible] following the sale of the business. Just given that I don't believe PNNT participated in the previous investment it's just a slightly lower yield. I was just curious as to as to why P and N T participated this time.

I'm going to defer to Rick. I don't think that PNNT was involved in marketplace. Rick, any color? You're correct in terms of the realization but PNNT did participate in the new loan and thought there, Paul, is again that that loan will will ultimately live at the joint venture. [indiscernible] Right. So there was a new buyer that came in and bought marketplace events PFLT and a group of other lenders were the were the shareholders and PFLT was the lead equity investor new private equity sponsor came in, bought the company in an attractive price. And as part of that, there was an attractive loan to be made in a company that we obviously knew very well. We did buy that loan across the platform PFLT, PNNT, and ultimately the joint ventures will own a piece of that marketplace events loan.

Got it. And when you made that loan, was that a loan that you chose to reinvest in the company or was that a loan that was essentially carried over to enact a deal.

Yes. And it was a separate transaction. So the the funds that were in the old marketplace events got cash and then we evaluated where the new loan and the new equity co invest would make sense. And then across the platform, [indiscernible] new senior debt and new equity co invest in the new marketplace events where another sponsor came in and bought the company and that's been allocated across the platform.

Okay. Thank you, Art. That's all for me. Thank you. We'll now move to Mickey Schleien with Ladenburg.

Yes. Art, just a couple of questions from me.

What did you assume in terms of the fund's balance sheet leverage and equity rotation in your core NII guidance Core NII was actual actual NII. There's no this kind of actual for the quarter ended December 31. In terms of the guidance going forward, questions about the guidance going forward, [indiscernible] We just that's kind of just assuming continued growth of the joint venture.

Okay. And the balance sheet leverage remaining where it is? Yes.

Yes. And over time, kind of getting back down to $1,300,000 after we fill up that joint venture. Could acquire that joint venture, we could do another joint venture. We hope to be able to to get some equity realizations here in in the next number of quarters, which will certainly be helpful.

For sure. And just a housekeeping question maybe for Rick, what were the main drivers of the realized loss and the unrealized gains? [indiscernible] Let's see. So the main drivers For the unrealized, there was a write up in JF Intermediate and write up in Federal Advisory Partners, those are the two larger larger write ups On the write downs that netted that down, the equity investment in Cascade Environmental and additional write down on Pragmatic where the the two main large large drivers on the right downside In terms of realized gain or sorry, realized loss for PNNT That was a restructuring for STG also goes by reception purchaser. That was the main driver the realized loss during the quarter.

I understand. That's it for me this afternoon. Thank you. Thanks, Becky. We'll now move to Melissa Weddell with JPMorgan.

Good afternoon. Thanks for taking my questions. Most of mine have been asked, but I thought I would follow-up and clarify a couple of things.

Firstly, on the growth of the JV, when we look at the dividend income to the BDC from that JV, it looks like that was pretty flat quarter over quarter.

Except that the portfolio assets at the JV had grown pretty decently, even since September 30. How should we think about the growth in the dividend to the BDC from PSLS. And like the cadence of that going forward?

Yes, it's a great question and the growth in the underlying JV portfolio should should match what comes over to PNNT. But we don't we don't book income unless it's actually distributed. So there's a bit of a reserve that we we create at the joint venture there's no particular reason we're creating reserve there. There's other than just to have excess cash so that we have a bit of a reserve. But you would imagine and it would certainly normalize over time where growth in the joint venture and growth in the in the investment in that joint venture will yield the dividends. Rick, I don't know if you have any particular explanation for why The phenomenon Melissa's talking about in this particular quarter.

Yes, sure. Melissa, last quarter, the JV did distribute some of that reserve I just mentioned. And I believe we detailed that out last quarter as kind of a core NII adjustment because That portion was I'll say less recurring. Additionally, We fund the JV through both debt and equity. So as we fund additional capital to fuel the growth of that JV portfolio, The economics back to us, a portion is is in that debt instrument, so you just don't see it in that dividend line item. On the income statement, Okay.

Right. So the somewhat one way to look at it is comprehensively between the debt instrument and the equity instrument.

Yes. And then just to clarify, I wasn't quite sure I fully followed your comments on the exposures to government services and defense companies. It's Do you how much exposure is there in the portfolio to this any potential sort of reimbursement risk?

Whether that's in the government segment and defense segment or even in the healthcare segment of the portfolio. Have you taken a more critical look at that?

Yes. No, we're looking at it. I can share a quick Sorry, any question for any sort of exposure as well?

Tariffs, yes. We have limited tariff exposure. Most of the Most of the companies that would be impacted by tariffs were not really involved in and the ones that we are kind of a dry run of tariff exposure during the last Trump administration. So the tariff exposure is very, very limited.

Biggest part of The U. S. Economy and biggest part of our portfolio is healthcare. So for sure, there is government reimbursement risk in healthcare, the way we comport ourselves in that is we try to focus on healthcare companies that are driving lower costs with reasonable quality So if we're on the right side of of that, which is lower cost reasonable quality, in any environment likely to be okay And then we layer on the fact that we keep leverage lower. The average new loan is four times debt to EBITDA in this portfolio with at least 50% equity beneath us. So where some of our peers may have stumbled occasionally in healthcare, to date, we're relatively clean because of those two facts.

So same applies on the government services and defense side When you look at that portfolio, we're not doing tanks, we're not doing missiles, we are focused typically on service companies where you have individuals, people walking into offices and sitting behind computers, doing things like cybersecurity, intelligence, maneuvering satellites, doing technology updates, those again typically are what we would call on the right side of cost, on the right side of being very efficient with taxpayer dollars going into government contracting and defense And then when you drill down one layer deeper, in those companies, they typically get paid in two ways. One is cost [indiscernible] where they provide the cost and they create a margin above that And on those companies, those companies by and large are in making single digit EBITDA margins. They're not making excess margins on cost plus. If they were making excess margins on cost plus, they would be more at risk. And then the other way companies get paid is through fixed price.

Where they they take risk, they essentially go long providing a service for a fixed price, in which case the government dishing the risk off to the provider, the provider is taking a risk. In those cases, those companies could earn higher margins depending on how they priced their service relative to their cost Again, if you look at that piece of that portfolio, we've seen that very good operators who are generating fair margins not exorbitant, but fair margins, and they're taking risk off the government and they're going long a service So we think we're relatively well insulated, but Every day is a new day, as you know. We don't know, but kind of we've comported ourselves in those two industries, which which have government exposure to be focused on the right side of cost containment and then add on the layer of keeping debt to EBITDA four times or below so that if there are curve balls, they could be they can be dealt with appropriately.

I appreciate all the detail there. Actually one final question for you. I take your point on looking hoping for some equity rotation and then coming quarters as you said.

Occurs to me though that you also have a pretty elevated balance in treasuries. Is that something that could be a source of funds to deploy into something higher yielding? Until you get that equity rotation? Thanks very much. Yes.

The treasury thank you. Good question. The treasuries are balance sheet management that we do at quarter end typically that's temporary to optimize our 30% bucket.

We want to optimize our 30% bucket. For the JV and for other 30% type assets. So that is a technique we use to optimize that bucket.

Thank you. We'll now move to Casey Alexander with Compass Point Hi, good afternoon. Art, I've got a few questions for you. First of all, We know that base rates have gone down 100 basis basis points, but there's a delay in the way in which they flow through your balance sheet. What percentage of that 100 basis points would you suggest is already flowed through?

That's a really good question. Don't know if you have an estimate Rick or off the cuff or we can certainly get back to you Casey. Later on. But any sense?

It isn't off the cuff. I would say the majority of of the borrowers are electing three month LIBOR contracts So they are flowing through on kind of a three month basis Quarter ends are there's a higher volume, a higher number of borrowers that kind of rolled their contracts towards the quarter end, but they do roll all throughout throughout the period Off the cuff, I would say, it's in that 50% to 75% is is already in the [indiscernible] [indiscernible] halfway through flowing through to maybe three quarters of the way flowing through. Yes. That would be your Yes. And we also have liabilities obviously that are floating as well.

So have some fixed and we have some floating liabilities. So There's some matching going on. [indiscernible] Based upon the amount that that you shipped down to the JV this quarter Another quarter like that and you're basically going to be at capacity. Do you think that you'll be at or near that capacity by the end of the first calendar quarter?

I'd say for the next I'd say probably takes us two to three quarters to get that JV more fully ramped and optimized. Gives us time to evaluate financing options, gives us time to evaluate equity rotation options And then once we're optimized, we're optimized. And we'll do everything we can to add value thereafter. But kind of we're expecting and hoping some for some for some kind of equity rotation between now and then?

So we should be thinking about a little bit slower pace going down to the JV over the next couple of quarters. If we compared it relative to this last quarter?

Yes. And then part of it is just the activity level. So We're seeing what I'll call normal quarterly flow. The December quarter was very busy as you saw the March quarter that we're in today is a little bit slower. That's a normal seasonal activity. We still think $25,000,000 can be a very active year, but the quarter that we're in right now is a little bit slower.

Right. Okay. So let's let's have a conversation about the dividend distribution. I'm just curious have you guys considered switching off to a year end special distribution to clear up some of the spillover and rightsizing the dividend because it's pretty common knowledge that your dividend, the market tends to impact your valuation in a negative way because you're doing that. And if you switch to a year end special distribution, you could right size the dividend relative to your current earnings power and perhaps the market would would treat your valuation better. Have you considered that as an option?

And we have and Casey, we're happy to consider it and happy to to you anytime you like about dividend policy and try to figure out the optimal way to get our stock trading even better.

So We can talk about that and talk about different things and what our shareholders would prefer. Is there I don't know, like what you have institutional shareholder you have retail shareholders, what's the preference, what do people want, what's the reaction going to be. So we can we don't have to have the call here, have that discussion in front of the community, but we're always happy to talk about it and about it with our Board as to what's going to help our stock trade better. And if there's other methodologies or other ways to do it, we are all ears.

I would be more than happy to have that conversation with you.

Great.

You mentioned that the JV when it reaches its capacity that you might enact another JV. I'm just is there any technical limitations given that when this JV has completed its capacity, it's going to be larger than the on balance sheet BDC itself. And so I'm just wondering if there's any practical limitations to how much you can take off balance sheet relative to the size of on balance sheet BDC itself.

It's a great question. And certainly, there's a couple of limitations. A, it's part of the 30% bucket, right? So No more than 30% of our overall balance sheet at PNNT can be one of these vehicles And you're correct that the BDC that the JV itself can get quite large but PNNT's ownership of it can be a different number, right? Where the PNNT is little bit more than 50% owners of it.

The JV can continue to grow and PNNT can own less than 50%. I mean there are some of our peers who have the BDC owning 10% or 12% or 15% or 20% of a JV that can be very large with third party investor capital. So the relevant thing is what's the 30% bucket and how much of that is in a JV type structure The JVs are have been very accretive For us here, it's been generating an 18%, which is accretive to to PNNT. And when you think about it, kind of our investment management companies managing all these assets and we're not charging our shareholders an incremental management fee for it. It's just showing up in the form of incremental ROE. So think it has some benefits. It's been a good thing for PNNT and we've seen it be a good thing for other BDCs.

So we'll continue to look at it. We'll continue to look at our 30% bucket and continue to figure out if we can add value through using the JV mechanism. To do so. Lastly, have there been any notable credit events that have taken place in the portfolio since the end of the quarter? There's a company called Zips Car Wash.

Which has filed a prepackaged bankruptcy It's not particularly big in our vehicle here, but it is out there. It's public information. It's not that material. It was appropriately marked. We believe as of twelvethirty one and is in the marks If you were to flow through the potential income impact, it might be $0.05 a share.

That includes the amount of zips that is located within the JV?

Yes. Yes, JV and on balance sheet.

All right, great. Thank you for taking my questions. I appreciate. Thank you.

We'll now take a follow-up from Robert Dodd with Raymond James.

Hi guys. Yes, just a quick follow-up from Melissa's question actually. I mean there is a visible gap to your point in terms of stocking the reserve, so to speak. And there was an extra couple of million of that paid out in June. So I mean, is there going to be a true distribution from the JV kind of is it going to be once a year or is it going to be once in a while? I mean, should we an annual distribution from that vehicle that kind of captures that? Or is it just a true up when whenever you and the partner decide it's appropriate?

More of the latter, kind of we try really to to distribute the vast majority of NII out on a quarterly basis. Every so often because the credit performance has been good there, just have a little bit of excess and we'll distribute it when appropriate.

Got it. Thank you.

And we'll now take a follow-up from Melissa Weddahl with JPMorgan. Thanks. One more follow-up actually to Brian's question about [indiscernible] [indiscernible] PFLT, whatever make more sense in a combined vehicle. You mentioned that there's a little bit of cleanup work to do. And I just wanted to better understand what that means to you. Is that a function of non accruals, equity exposure, something else And I asked that because in the past, I know you've probably gotten that question a number of times over the years. In the past, you had referenced The multiple and the disparity between multiples on the two vehicles and that seems to be less of an issue now. So appreciate any clarifying thoughts you have on that.

Yes. And that could be it's all kind of maybe the same thing, Melissa, which is I believe if we if we can get some reasonable equity rotation, which will de risk the portfolio derisk the NII That will be [indiscernible] Right? That will be the cleanup I'm referring to. And then we can take a look and evaluate different options.

Thank you. That does conclude today's question and answer session. I'd like to turn the conference back over to Mr. Penn for any additional or closing comments.

Just really want to thank everybody for their It's good that there's engagement and some interest. And we look forward to speaking with you all again next in early May as we discuss the March the March numbers. Thank you very much. Have a good rest of the winter.

And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.