Good day everyone, and welcome to the PennantPark Floating Rate Capital’s Second Quarter Fiscal 2015 Earnings Conference Call. Today’s conference is being recorded. At this time, all participants have been placed in a listen-only mode. The call will be open for your question-and-answer session following the speakers’ remarks. [Operator Instructions] It is now my pleasure to turn the call over to Mr. Art Penn, Chairman and Chief Executive Officer of PennantPark Floating Rate Capital. Mr. Penn, you may begin your conference.

Thank you and good morning everyone. I’d like to welcome you to PennantPark Floating Rate Capital’s second fiscal quarter 2015 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 included discussion about forward-looking statements.

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 Floating Rate Capital 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 www.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.

Thank you, Aviv. I’m going to spend a few minutes discussing current market conditions, followed by a discussion of investment activity, the portfolio, the financials, our overall strategy, and then open it up for Q&A. As you all know, the economic signals are moderately positive with many economists expecting a slowly growing economy going forward. With regard to the more liquid capital markets and in particular the leverage loan in our high yield markets, during the quarter ended March 31, those markets experienced strength due to cash coming from CLO formation and substantial repayment activity. Contributing to the stress with a modest rebound in oil prices, which to some extent calm the investor fears. Middle market M&A activity was muted in the quarter. We are seeing a more active environment since quarter end and are hopeful that activity and attractive supply will be realized for the remainder of year. As debt investors and lenders, a slow growth economy is fine, as long as we’ve underwritten capital structures prudently. A healthy current coupon with deleveraging from free cash flow over time is a favorable outcome. We remain primarily focuses on long-term value and making investments that will perform well over several years and can withstand different business cycles. Our focus continues to be on company’s restructures that are more defensive, have low leverage, strong covenants and high returns. As credit investors one of our primary goals is preservation of capital. If we preserve capital usually the upside takes care of itself. As a business one of our primary goals is building a long-term trust. Our focus is on building long term trust with our portfolio companies, management teams, financial sponsors, intermediaries, our credit providers, and of course our shareholders. We are a first call for middle market financial sponsors, management teams,…

Thank you, Art. For the quarter ended March 31, 2015, recurring net investment income totaled $0.29 per share and net other income after incentive fees was $0.03 per share. Additionally, we had $0.02 per share of capital gain incentive fees that were accrued but not payable. This resulted in GAAP net investment income of $0.30 per share. Looking at some of the expense categories, management fees totaled about $2.2 million after $300,000 reversal of incentive fees accrued, but not payable. Taxes and general and administrative expenses totaled about $550,000 and interest expenses totaled about $800,000. During the quarter ended March 31, realized gains were $600,000 or $0.04 per share. Net unrealized depreciation from investment and credit facility was approximately $1.1 million or $0.07 per share and income in excess of dividend was about $450,000, or $0.03 per share. Consequently, NAV was up $0.14 per share from $14.16 to $14.30 per share. Our entire portfolio and our credit facility are mark-to-market by our Board of Directors each quarter using the exit price provided by an independent valuation firm or independent broker dealer quotations 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 portfolio is relatively low risk. It is highly diversified with 71 companies across 21 different industries, 83% is invested in first lien senior secured debt, 14% in second lien secured debt, and 3% in subordinated debt and equity. Our debt-to-equity ratio was 55%. Our overall debt portfolio has a weighted average yield of 8.4%. 95% of the portfolio is floating rate including 91% with a floor and the average LIBOR floor is 1.2%. Now, let me turn the call back to Art.

Thank you, Aviv. Before we conclude, I want to address our recently announced transaction with MCG Capital. We are excited about the combination. With our greater scale, we can be more relevant to our sponsor and borrower clients. Our enhanced asset base will enable greater diversification and give us economies to scale. Our shareholders should have more liquidity as the market capitalization will almost double. To conclude, we want to reiterate our mission. Our goal is steady, stable and protected dividend stream coupled with the preservation of 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 first lien, senior secured floating rate 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 investment and confidence in us. That concludes our remarks. At this time, I would like to open up the call to questions.

Great, good morning everybody. Art, you may not be able to answer this, but I got to ask the obvious question. What does Phil Falcone and his firms did on MCGC potentially mean for – for your agreement with them?

You’re right, Greg, I cannot answer that question. We do – it is public information. We do have a break-up fee of $7 million if the deal does not go through. We obviously hope the deal does.

Okay, not surprising on that. Then could you also talk about you had some appreciation – your portfolio looks like $0.10 to $0.11 per share, any notable movements in any specific portfolio companies for the appreciation?

It wasn’t – it was just a number of small amounts from a lot of different companies. The market did rally over the course of the quarter as I said CLOs were active, there are lot of repayments – it was a lot of small elements coming together.

And then I believe you said the average debt-to-EBITDA on the portfolio was four times, first can you confirm that and it seems like that’s been creeping up a bit over the last few quarter. So any color with that moving average debt-to-EBITDA of our portfolio companies?

Yes, it has crept up, we’re still comfortable four times it’s maybe an indication of the market I mean we have very diversified portfolio here. When you have repayments of deals like Patriot which had a very low debt-to-EBITDA and then that’s what naturally happens is your low debt-to-EBITDA companies get refinanced were taken out and the portfolio goes through that effect. So we’re watching to closely – we still think we are okay at these levels by and large the economy as we saw in this mornings news it continues to be fairly long fairly nicely, our portfolio is broadly representative of the economy. But we are watching it. We – generally get a larger quint debt-to-EBITDA levels get elevated, and the market has been elevating those recently per Janet Yellen’s comment to the other day.So we are careful, we are not forcing it we’re only doing deals that we really feel good about. So far, our performance is being good but we were focused on it.

Great, and then with those comments at the backdrop, you mentioned you think 2015 is going to be a very active year. What do you think it’s going to be the driver of the activity for the reminder of the year?

We believe and we’re hearing and we’re starting to see some M&A activity picking up in the middle market as we talk to our sponsor clients and M&A intermediaries. We’re hearing that they’re starting to get more active. There is a seasonally typically in our business during the course of the year, the first quarter usually being slow, the last quarter usually being more active. We’re hearing charter, we’re seeing a little bit more deal flow, we don’t really know, you don’t know until you know you don’t know until you actually close deals because there is a lot that can go into between the time to look at the deal when the time it close, in some ways we are hoping for a little bit of market volatility that would be good for us, we hope there is a little bit more fear in the market, we’ve been very working that for two to three years, we were way early to saying we thought the market was getting – getting [indiscernible]. So as we said on our call last week, we don’t know whether we’re in the seventh inning, the ninth inning, the eleventh inning, or into the double head of our credit cycle, but we are kind of in the later innings at a minimum. And that’s why we always want to be very defensive about where we put our money into when always have proper liquidity and always be positioned to take advantage of market corrections when they arise.

All right, great, thanks Art.

Thank you very much.

And next, we’ll hear from [Indiscernible].

Thank you for taking the question this morning. Art, you mentioned the four times leverage, is that your attachment point or is that across the capital structure of the entire entity you’re involved with?

Good question, Ray. It is through our attachment point. So there are some deals on our portfolio where there is subordinated debt beneath us. So that’s through our piece of paper.

And second question was – some of the competitors have mentioned that they thought that yields, spreads were kind of more in their favor over the last quarter and they thought that that trend of declining rates for their portfolios were reversing. They did however say that it was happening more in the lower tranches than the senior tranches. And I am just wondering what you’re seeing our there?

Yes, it’s a great question. As we had our call last quarter, which is early February, certainly felt like a little bit more of a buyers market at that point in time than it does today. People were still more fearful about the energy exposure in the world, those fears have subsided. CLO formation has been relatively large as well as there has been a lot of repayment. So, the overall market is feeling a little bit more but like a sellers market since February. That said the comment about the lower tranches, the second lien of the subordinated. It’s probably accurate as BDCs have in some cases traded below book value. That’s made harder for some of these – some of these deals to get done there on a more second lead oriented. So there has been a little bit of backup, not a lot, but a little bit of the backup in that kind of that subordinator for second lien tranche.

Thanks very much for sharing.

Thanks, Ray.

[Operator Instructions] And it appears there are no further questions at this time. That does conclude the Q&A session as well as today’s conference. Thank you all for your participation.