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PFLT on the 4 non-accruals + info added 5/11/19source - earnings call transcript It's been two years since we have a non-accrual of PFLT and that run had to end at some point. As of March 31, 2019, we had four non-accruals. These names represented by 3.2% of our overall portfolio at cost and 1.5% on the market value basis. The four non-accruals along with a mark-up of our credit facility and bonds contributed to most of the NAV decline in the quarter. Our credit quality since inception eight years ago has been excellent. Out of 349 companies in which we have invested since inception, we've experienced only nine non-accruals. Since inception, PFLT has made 349 investments totaling about $3 billion and an average yield of 8%. This compares to an annualized loss ratio, including both realized and unrealized losses of only about six basis points annually. (Later in the call) Mark Hughes with SunTrust. -- on the non-accrual, it seems that you've been marking for companies
down for the last few quarters or so. Have
you changed your criteria or potentially lower the bar for what
constitutes a non-accrual investment on your books? (Founder and CEO) Art Penn - No. Non-accrual is very simple, which is they stopped paying us interest. So, that's what happened. Look, we haven't had a non-accrual and over two years, it looks lumpy here and we're certainly disappointed, but non-accruals are part of this business. It's unfortunate that they all happened in this one quarter. But we normally, they'd be smoothed out overtime and we had, as you said, we already had already marked the down by and large. So, this should not have been a big surprise to people to know for them were exhibiting weakness in the past. So, as part of our business, again our track record over a long period of time PFLT now eight years is really only annualized loss of 6 basis points. That's very low, it's unfortunate all these happened in the same quarter -- but that's just kind of business we're in. (and later on)Ryan Lynch with Keefe, Bruyette & Woods -- Overall, I would agree you guys long-term track record is still very
good. It’s just the timing of these four was definitely unexpected of
these four new non-accruals. As far as your guys marked on them,
LifeCare Holdings and New Trident, the new health care investments are
marked down significantly more than the other two Holland and Quick Way.
Can you just give a comment on I guess what you guys are seeing with
maybe particularly Hollander Sleep Products worth on non-accrual but you
still have a pretty high fair value mark? (CFO) Aviv Efrat - The independent valuation firms and auditors look at every deal every
quarter. The independent valuation firms come up with these marks.
They’re based on a number of different factors including largely when a
company goes on non-accrual kind of enterprise value waterfall approach,
taking a look to comparables, taking a look at the Company where those
comparables are trading, what a waterfall will look like, evaluation of
the Company will look like in a restructuring scenario. Art Penn - What we’ve tried to do when we’ve
invested in healthcare companies - is to invest in companies that are driving
the change. That are helping bring higher quality at a lower
cost to patients. These two relatively small investments got
caught on the wrong side of it. My comments PFLT opened at $13.32 and closed at $12.00 - down 9.91% for the day. When roughly half (or 4 of the 9) non-accruals that the company has had in its life-time all happen in the same quarter, then the market's assessment of your competence can change. As I have said with consistency, the market's ability to correctly size problems is highly questionable. Low PWAY PFLT still merits selling at very close to NAV - and the NAV is $13.24. PFLT portfolio information: at the end of March 2019 Issuer ---------------------Industry ------- Par ---------- Cost ------- Fair Value Montreign Operating Co Gaming 27,327,904 27,560,841 23,866,278 Quick Weight Loss Cntrs Bev/Food 9,375,000 9,286,696 3,949,219 LifeCare Holdings Healthcare 4,667,648 4,599,788 933,529 New Trident Healthcare 7,057,310 6,988,207 282,292 Hollander Sleep Prdcts Consumer 10,952,132 10,785,997 9,418,834 Snak Club, LLC Bev/Food 483,333 483,333 410,834 Total First Lien Secured Debt 758,800,335 729,151,403 at the end of Dec 2018 Issuer --------------------- Industry-------Par---------- Cost -------Fair Value Montreign Operating Co Gaming 26,097,660 26,433,847 24,357,729 Quick Weight Loss Cntrs Bev/Food 9,375,000 9,296,186 7,781,250 LifeCare Holdings Healthcare 4,667,648 4,599,788 3,080,648 New Trident Healthcare 7,057,310 6,988,201 3,458,081 Snak Club, LLC Bev/Food 483,333 483,333 406,000 Hollander Sleep Prdcts Consumer 10,952,132 10,778,209 10,404,526 Total First Lien Secured Debt 789,260,258 774,269,800 at the end of Sept 2018 Issuer --------------------- Industry-------Par----------Cost-------Fair Value Montreign Operating Co Gaming 26,163,397 26,518,501 23,350,832 Quick Weight Loss Cntrs Bev/Food 9,375,000 9,288,885 7,921,875 LifeCare Holdings Healthcare 4,596,389 4,528,529 2,987,653 New Trident Healthcare 7,057,310 6,988,201 3,458,081 Snak Club, LLC Bev/Food 483,333 483,333 418,084 Hollander Sleep Prdcts consumer 10,952,132 10,785,997 9,418,834 Total First Lien Secured Debt -------- 817,243,688 812,235,476 From The BDC Reporter August 28, 2018: Moody's affirmed New Trident Holdcorp's caa3 rating, with a negative outlook. IIQ 2018: Based on valuations, the Company
appears to be performing worse. The Holdings second lien debt due in
2020 is marked as being on non accrual at Ares Capital (ARCC) and performing at Gladstone Capital (GLAD), even though the latter has written down the value to zero. The first lien debt - held by PennantPark Floating
(PFLT) is still performing - but has been discounted by 20% versus 12% at
the end of the IQ 2018. There are 5 BDCs with exposure. Besides the
BDCs listed above, Solar Senior (SUNS) and CM Finance (CMFN) also have exposure, but to the wholly owned subsidiary Trident USA. (OakTree Strategic Income (OCSI) sold off its position in the quarter). Values there dropped in the IIIQ 2018, too. (No date for this item) source - https://www.lifecarehealthpartners.com/restructuring-employees
Q: What is happening?
LifeCare Health Partners has filed for court approval to restructure debt related to its long-term acute care hospitals through the Chapter 11 bankruptcy process. Like many other providers in our space, we continue to be challenged by declining reimbursements, payor demands and expanding regulatory requirements. These factors – combined with the large debt we inherited years ago – led us to seek the court’s protection while we work toward the sale of our hospital operations. Ultimately, we believe this is the best way to reposition our hospitals for future growth and success. Q: What does this mean for employees and patients? Nothing will change. Our hospitals and home health agencies will continue to operate as normal and patient care will remain our highest priority. We will continue to operate in the ordinary course, and the filing does not change your ongoing wages and benefits. We will share more information as we move through this process. Q: Does filing for Chapter 11 mean that LifeCare is going out of business? Will any hospitals/agencies have close? Reorganization is a well-established process that will allow our company to continue normal operations while we find a longer-term solution to address our debt issues. No changes are planned at this time and your day-to-day job – including your pay and benefits – will continue as normal. Q: Is LifeCare being sold? We are actively working to find a buyer for our long-term acute care hospitals. We’re still in the early stages, but we believe this option provides our hospitals with the best path toward financial stability and future growth. Q: What will happen at our hospitals? Do you anticipate layoffs? No system-wide changes are planned. Normal operations continue and employees’ day-to-day responsibilities will not be impacted by this filing. We appreciate everyone’s continued focus on our patients and the need to operate efficiently. Q: What will happen at corporate? Could people lose their jobs? Support from our corporate office will continue as usual. Q: How will the bankruptcy impact me? Will my position, compensation or benefits be affected? The bankruptcy filing is not expected to impact our employees. Operations continue and employees will continue to be paid and receive benefits on our normal schedule. Q: When will we know more about our future? The reorganization process is expected to be complete later this year. In the meantime, we continue to have conversations with potential buyers who share our commitment to operating long-term acute care hospitals and serving patients. We will keep you updated as those conversations progress. |
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