PennantPark Floating Rate Capital announced that its unconsolidated joint venture, PennantPark Senior Secured Loan Fund I, has completed the reset of a $316.7 million debt securitization, substantially reducing its borrowing costs while extending the financing’s maturity.
The transaction was completed through PSSL’s wholly owned subsidiary, PennantPark CLO II, and includes a four-year reinvestment period and a twelve-year final maturity.
The most significant financial impact is a reduction in the securitization’s weighted average cost of capital from SOFR plus 2.31% to SOFR plus 1.82%, representing a 49-basis-point reduction in the spread over SOFR.
PennantPark attributed the improved pricing to strong investor demand and its track record in lending to core middle-market companies.
The largest tranche is $172.5 million of A-1-R2 notes, representing 54.5% of the capital structure and carrying an expected AAA rating from S&P with a coupon of three-month SOFR plus 1.51%.
The securitization also includes $13.5 million of A-2-R2 notes priced at SOFR plus 1.70%, $22.5 million of AA-rated B-R2 notes at SOFR plus 1.90%, $19.5 million of A-rated C-R2 notes at SOFR plus 2.45%, and $18 million of BBB-minus-rated D-R2 notes at SOFR plus 4.25%.
Another $18 million consists of BB-minus-rated E-R2 notes carrying a SOFR plus 7.50% coupon. The transaction also includes $47.7 million of preferred shares, representing 15% of the capital structure.
PSSL will continue retaining the preferred shares and Class E-R2 notes through a consolidated subsidiary, maintaining exposure to the performance of the underlying securitized assets.
The maturity of the replacement debt has been extended to April 2038, and PennantPark expects the replacement debt to be approximately 100% funded at closing. PSSL will also continue serving as the retention holder for the transaction.
The reset gives PennantPark a longer-duration funding structure while lowering financing costs, potentially improving the economics of the joint venture’s middle-market lending portfolio.
PennantPark Investment Advisers currently manages approximately $4 billion of middle-market securitization assets. Across its broader platform, PennantPark and its affiliates manage more than $10 billion of investable capital, including potential leverage.
PennantPark Senior Secured Loan Fund I is a joint venture between PennantPark Floating Rate Capital and Trinity Universal Insurance Company, a subsidiary of Kemper Corporation. It primarily invests in U.S. middle-market businesses with below-investment-grade debt.
Support: GreensLedge Capital Markets served as placement agent for the securitization reset.
KEY QUOTE:
“The reset is expected to result in a reduction in the weighted average cost of capital from SOFR + 2.31% to SOFR + 1.82%. We were able to reduce the spread on this financing due to strong investor demand which validated our excellent long term track record in lending to the core middle market.”
Arthur Penn, Chief Executive Officer Of PennantPark Floating Rate Capital
