Please stand by, we're about to begin. Good morning. And welcome to the PennantPark Investment Corporation's Third Fiscal Quarter 2014 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 a 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 Investment Corporation. Mr. Penn, you may begin your conference.

Thank you, and good morning, everyone. I'd like to welcome you to PennantPark Investment Corporation's third fiscal quarter 2014 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 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. 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 statements and projections, and we ask that you refer to our most recent filing 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 leveraged loan and high-yield markets, during the quarter ended June 30th, those markets generally remained strong due to substantial cash flows into high-yield funds, leveraged loan funds and CLOs. Since quarter end, there has been cash outflow from high-yield and leverage loan funds, resulting in a less robust broadly syndicated and liquid high-yield market, which helps the overall turn in the middle-market. Risk reward in the middle-market has generally remained attractive as the overall supply of middle-market companies who need financing exceeds the relative demand of applicable lending capacity. 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 overtime is a favorable outcome. We’ve continued to be selective about which investments we make in this environment. Given our strong origination network and the size of our company, we believe we can continue to prudently grow. We remain focused on long-term value and making investments that will perform well over several years and can withstand different economic cycles. We continue to set a high bar in terms of our investment parameters, and remain cautious and selective about which investments we add to our portfolio. Our focus continues to be on companies and structures that are more defensive, have low leverage, strong covenants and high returns, with plenty of dry powder we are well-positioned to…

Thank you, Art. For the quarter ended June 30, 2014, recurring net investment income totaled $0.26 per share. In addition, we had $0.02 per share of other income. As a result, core net investment income for the quarter was $0.28 per share. Additionally, we had $0.06 per share of upfront expenses due to the new credit facility and $0.02 a share of capital gain incentive fee that are accrued but not payable. As a result, GAAP net investment income was $0.20 per share. Looking at some of the expense categories, management fees totaled $12 million, including $2 million of incentive fees accrued but not payable. General and administrative expenses totaled $1.9 million and interest expense totaled $5 million. During the quarter ended June 30th, net realized gain from investment was $23 million or $0.35 per share. Unrealized loss from investments was $1 million or $0.02 per share and unrealized loss from our notes was $3 million or $0.05 per share. Excess net dividend over income was about $5.4 million or $0.08 per share. Consequently, NAV per share went up $0.20 from $11.13 to $11.33 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, securities exchanges or independent broker/dealer quotations when active markets are available under ASC 820 and ASC 825. In cases where broker/dealer quotes are inactive, we use independent valuation firms to value the investments. Our overall debt portfolio has a weighted average yield of 12.3%. On June 30th, our portfolio consisted of 66 companies across 28 different industries and was invested 26% in senior secured debt, 40% in second-lien secured debt, 24% in subordinated debt and 10% in preferred and common equity. 61% of the portfolio has a floating rate including 53% with the floor and the average LIBOR floor is 1.3%. Now, let me turn the call back to Art.

Thanks, Aviv. To conclude, we want to reiterate our mission. Our goal is a steady, stable and consistent 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 conversions. We capture that free cash flow primarily in debt instruments and we payout 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.

Thank you. (Operator Instructions) We will go first to Doug Mewhirter of SunTrust.

Hi. Good morning. And just talk a little bit about the industry activity and expected portfolio activity, you had indicated that the pipeline seems pretty robust in July, August maybe September, and that’s actually been repeated by a lot of your competitors? But would you also say that maybe you would expect a maybe above trend activity on exits because there also maybe seen to be a lot of companies who are maybe want to refinance while the rates are still low or maybe because M&A activities just generating a lot of churn in your portfolio. Could you just comment on the balance between originations and exits in couple months?

Doug, thank you. That’s a great question. Hard to say and it’s been made harder to answer that question given the activity in the last couple weeks with regard to the liquid markets and back up in the liquid markets the liquid high yield market, broadly syndicated loan market. As you know, the middle-market takes its tone from that to some extend even though we believe we are shielded from that. So if the liquid markets continued to experience choppiness, we would anticipate that the refinancings would abate substantially. Hard to say, exactly, what's going to happen, we are only couple weeks into this at this point. So you might have the -- you might have the scenario where activity is pretty high, M&A levels are pretty high and the refinancings are not as high. So that might be a scenario but it is hard to say, it’s early.

Okay. Thanks for that. And just to finish a related follow-up question. Are there any large transactions either originations or exits this quarter to-date that you're willing to disclose?

We don’t, thank you. We don’t disclose intra-quarter information. So regarding the tone that we have been giving which is we are active is the tone. We are giving, it’s hard to say, we are in August 6th, quarter ends September 30th, a lot of time between now and then. M&A activity has picked up. We don’t know how much if it’s going to close between now and 9/30 or year-end. Most of its get done in our last quarter of the calendar year and frankly, to the extent, these M&A deals are financed with very high leverage levels and low yields and lesser covenant impact. We will not be involved in some of those. To the extent they get financed with we think our rational leverage levels, good covenant packages and good yields. We would be happy and will be involved in some of those. So, again, given the markets, what’s going on the liquid markets, the M&A activity and a lot of it usually being back-ended to the last calendar quarter of the year. It’s really hard to give you much guidance at this point.

Great, thanks. That’s all my questions.

And next we will go to Greg Mason of KBW.

Greg, good morning

Good morning, gentlemen. As I look at some of the new investments that you’ve made, U.S. Well, the New Gulf, all those related to oil and gas. It seems like heightened exposure there this quarter. Anything particular you're seeing in the energy markets or is that just happened to be lumpy in the quarter?

It’s a great question. It is -- as you know, oil and gas and energy are big teams in the American economy today. This is one sector that’s growing and those have a lot of capital needs. So that’s a big positive. We have exceeded deals like Barrow and UP which also were energy related. So, on an overall portfolio standpoint, our overall exposure is kind of consistent with what it’s been. We had a very nice track record in energy over the last seven years. I think we invested something like $450 million in energy deals since inception to-date and has like a 14, 15% IRR. So it’s a space that we know well. We have had decent performance and it will continue to be a reasonably larger industry concentration for us.

Great. And just on the equity in the portfolio obviously that is source of real earnings drivers to the extent you can exit those. And you exited that UP this quarter, is there anything kind of on the horizon that you are seeing a potential exits from any of the meaningful equity positions?

Again that’s -- that’s also wrapped up into kind of the first question which is how much M&A is there going to be, how much exit first entries are there going to be. I mean there are some of those deals you can look at for the co-investor portfolio where you’re seeing fairly nice mark-ups. Those would be the ones obviously whether there is potentially some activity, for instance, LTI or LTI Boyd, you saw a mark up. We did get a dividend on that last quarter. We got it refinanced out of our mezz and we got a dividend. And that is one that continues to perform well. That’s just one example of some of the increases that we’ve seen in equity value. Vestcom is another one that had a nice quarter. Hard to say, hard to predict hard to guarantee any of this but where you’ve the seen the marks up would be where you’d either see some kind of recap opportunity or some kind of exit.

Great. Then one last question on the SBIC, you’ve been at $150 million drawn for quite a while. You’ve got the second license but haven’t utilized it, just thought process on utilizing the remaining $75 million of debentures in your SBIC program?

It’s -- we'd loved to use it. It would be the first capital that we love to use to the extent we can find deals that fit the SBI -- SBIC, SBA criteria. SBA doesn’t like oil and gas. As a general proposition, it doesn’t really fit. So we’re working hard to find deals that fit that to meet our rigorous risk adjusted return portfolio guidelines to the extent we do regular rate financings for non-oil and gas deals. We’re going to work hard to see if those do fit.

Is it just you’re not seeing the small deals or the small deals you’re seeing, you just don’t like the underwriting prospects of those small deals?

It’s more of the latter. We don’t have a problem with seeing deal flow. Thankfully, we see a lot of deal flow around here. It’s just a question of us meeting our risk adjusted return criteria. We’re happy we have a 4.6 times to average debt-to-EBITDA on the portfolio of PNNT. We get allergic once you get to the mid fives and up generally about some of these credits. Not to say that small companies are necessary levered that high but -- and we’re being awfully cautious in this environment making sure that we preserve shareholder capital and we’re not going to force investment that don’t feel right to us.

Great. Thanks Art. Appreciate it.

Thank you.

Next we’ll now move to Chris York of JMP Securities.

Good morning guys. Thanks for taking my questions. Greg asked two of mine, but wanted to ask one additional question. Could you give us an update on your view of the investment opportunities in Europe? How you plan to manage international investment allocations within the investment portfolio?

Thanks Chris. Yes, we did do some European deals last quarter. We did not do any European deals this quarter. To us, Europe is like the U.S., it's a deal-by-deal business. We think the term-loan in the banking sector over there does help alternative lenders such as ourselves. We have senior -- a senior colleague on the ground in London, who we’ve worked with for a long-long time as our feet on the ground at this point. Perhaps we grow our presence overtime. But it's going to be a very methodical thought for deal-by-deal approach like we do it here in the United States. We do to hedge our currency risk. We do use our multi currency credit facility to draw on any European deal. So we have a -- we have a British Pound deal, Sterling deal in the portfolio. We finance that with our multi-currency credit facility and financed accounts.

So you talked a little bit about boots on the ground there. Could you help me to understand the deal flow internationally? How does PennantPark source its international deals. And maybe give me an idea for the flavor of the borrowers in Europe that are seeking alternative lenders?

We sourced the same way we source here. It's based on our reputation, relationship, knowledge and trust. It's not a -- it's not a footprint where we have storage in the retail malls. It's a more of whole strategy one-on-one relationship, deal-by-deal approach. There’s all sorts of borrowers who need capital over there similar to the borrowers who need capital over here. They are not finding their banks helpful or constructive. Their banks are shrinking. In this particular case, the one of the two deals we did last quarter, it was bank who is downsizing their own book due to the regulatory issues. And they needed a solution and we were part of the solutions to provide capital to that company. They are very similar -- very similar characteristics to what's going on around here.

Great thanks for that color, Art. That’s it for me.

Thanks Chris.

And next we have Mickey Schleien of Ladenburg.

Good morning Art and Aviv. I just wanted to get your sense of whether you’re willing to run the company at somewhat higher leverage given that we’ve generally seen positive trends and the numbers. I do agree that it’s little choppy but the direction in terms of the strength of economy here seems to be upward. And as a result you might be in a position to run little bit higher leverage and generate some higher ROE?

That’s a great question, Mickey. And we think about it a lot. I mean in general from day one, we’ve consistently said 0.6 to 0.8 debt-to-equity in our minds including the SBIC financing, knowing that that SBIC financing and the exemptive relief gives us extra dry powder both for defensive and offensive purposes. I think in general, we’re still thinking that’s the right zone, particularly since we have a reasonable percentage of the portfolio and secondly the mezz securities. Even if, we always say this even if you could finance mezz higher than 1 to 1, we want to do it anyway. We don’t think it's prudent from a long run standpoint. So again we’re taking a day-by-day, deal-by-deal, month-by-month, 0.6 to 0.8 will still be the general zone of leverage we still look to be within.

Okay, I understand. And second question is a little bit more on the housekeeping issues, probably. And it's probably I got a straightforward answer. But I noticed that there is a second lien in transportation 100, that's marked at 45, but it's on accruals. So typically, when I see that it might be something where the credit has got some sort of a market quote, but I just wanted to get your explanation of how that can be?

That's the old Greatwide which is one of our non-accruals from the early days, that still a residual small position and not performing well, obviously given the market. So that’s one of our non-accruals that we’ve had for a long time.

So that is a non-accrual?

And that is we haven't been -- we have not been accruing that recently.

Okay, thank you. That’s all my questions.

And next we have Scott Valentin of FBR and Company. Scott Valentin - FBR & Company: Good morning gentlemen. Thanks for taking my question. Just with regard to -- Art, you mentioned the goal is strong, stable dividend going forward. Just trying to figure out, given the -- appears to still be some yield compression pressure on the portfolio, given, I think quarterly debt yields are 11.7% on originations and the current portfolio is at 12.3%. So I imagine that will come down over time. Just wondering as yields come down, is the response just to continue growing the portfolio, so it's going to offset that pressure?

Yeah, I mean I think we say we are in the slow growth. Assuming the environment is the environment we had a few weeks ago.

It’s a slow growth environment. We are being cautious. We are being careful. We think we can gradually grow. We had some big exit last quarter and we are happy we got out of UP. It was a big, big exit for us. It was a nice realized return but overtime we expect it to be in the slow growth environment. Assuming the environment stays away it was, couple of weeks ago, if the environment in the liquid market gets choppy, continues and that in turn seeps into the middle market, we would expect to be more active. Scott Valentin - FBR & Company: And then in terms of portfolio mix, I think second lien and sub debt is about 65%, 64% of the portfolio. Is that about where you want to be, is that the ideal mix between first, senior sub and then equity?

We don’t come to the office everyday and say we have an ideal mix or what’s the ideal mix or what kind of mix are we trying to achieve. We come to the office and say is there a good deal to do that make sense, would there be firstly and secondly mezz or whatever and wherever the deals are that make sense, we will do that. So subject to having good credit stats and then getting the right return for our shareholders, we’re very protective of the ROEs for our shareholders. So we’re balancing both credit as well as yield. Scott Valentin - FBR & Company: Okay. And one final question, and I don't if it's a specific number, but maybe a trend over time. You mentioned you guys are getting a lot of looks from sponsors on deals. Just wondering, maybe there's a ratio or a percentage that kind of looks to actual that get approved, the guys approve. Will they get funding or not it's up to the sponsor but just wondering if you have a trend there, maybe you're seeing more looks, but they're proving less, because of lesser covenants or higher debt ratios?

Yeah, for sure its, I don’t have to cover my head. I have a specific statistics to share with you. But we are turning down more because we are not comfortable -- recently we are not comfortable with the risk adjusted returns. We are not going to be doing six times levered LBO financings in our vehicles. Unless, there’s a really, really, really incredible reason why we should. So we like that we are sitting here with a 4.6 times debt-to-EBITDA portfolio. We would like that. Our yields overall today are still north of 12%. We think that’s an attractive risk-adjusted return for our shareholders. Scott Valentin - FBR & Company: Okay. Thanks for the color. I appreciate it.

And now we’ll move on to Greg Nelson of Wells Fargo Securities.

Hey, guys thanks so much for taking my questions. We saw during the quarter, we saw several large subordinated pieces coming back at you with yields 15%, 14%. Just trying to gauge repayment philosophy in the portfolio and then how you are thinking about reinvestment risk and getting those type yields without sacrificing on terms?

It’s a great question. And a lot of it will kind be answered with regard to the tone of the market here going forward. Clearly there has been yield compression. Clearly, we have participated in that. We have participated in some of it. We are letting a lot of it to go, lot of the new deals go. And we’re trying to have as high credit quality as possible. So the trend has been in what its’ been. We hope that, that stops and certainly in last few weeks has abated. And then we’ll see. We don’t mind shrinking every once in a while, we shrunk this past quarter and that’s the right answer. I mean we are not -- again we don’t come to office everyday to say we have to grow, we come to the office and try to find good deals for our shareholders. So this past quarter we shrunk a little bit and that may happen and that may happen from time to time. We are optimistic that between M&A volume increasing in the market backing up a little bit. I believe we’ll continue at a minimum to slowly grow overtime. Perhaps the market backs up more and the growth will be faster overtime.

Just kind of -- just following up on that. How do you -- obviously the M&A market picking up is a good thing. But when you're looking at kind of the things in the portfolio, the M&A environment can also result in those investments being taken off your balance sheet and coming to market with lower rate sponsors look to do some financial engineering. So how do you kind of think about that?

No, we haven’t -- again, we don’t have a problem seeing deals. It’s a question of which deals we end up choosing to do. Over seven years, we’ve been able to generally originate good risk adjusted return relative to our repayments. Quarter-to-quarter, there is going to be some variability. We’ve -- sometimes we’re going to industry verticals very deeply. Oil and gas energy is an industry vertical we’re going into. At one point, we did a lot in gaming. That was an interesting industry vertical. So we take it as it comes. We have not had a problem over seven years in different kinds of market environments, but good and bad markets are finding good risk adjusted return. But again, we’re into an investment business. We have to find good investments. If there is not good investments, we won't do it. So I don’t have answer to question. You see our seven year -- seven and half year track record now, which is out there for everyone to see. You’ve seen how we’ve invested. You’ve seen how we’ve grown. You’ve seen how our deals have performed. You’ve seen how our bad deals have recovered. You’ve seen how we have been able to deliver consistent dividend to our shareholders. That's our track record. In seven years -- seven and half years at this point, you guys can all evaluate what do you think of our ability to execute the business plan. There is no major change from what it was seven and half years ago.

Okay. Great. And then just a quick one on -- I think I saw that EnviroSolutions was marked down, it was previously carried in a higher premium on the equity position and then it was marked down about $5 million during the quarter. Was there something going on with the position?

Yeah. There is a landfill that they have been hoping to get an extension for, doesn't look like they are getting the extension at this point. So we and the independent valuation firms and the Board thought it prudent to market that equity down a little bit.

Good. Thanks so much for taking my questions.

Thank you.

And that does conclude today's question-and-answer session. I would like to turn the conference back over to Mr. Penn for any additional or closing comments.

Great. Thanks, everybody. I appreciate everybody’s attendance today. And we will be talking to you next quarter. Next quarter just to remind you is our 10-K -- our 10-K quarter. So our quarterly conference call will be a few days later than it normally is. We will be coming right before thanks giving. Thank you very much.

And with that, ladies and gentlemen, that does conclude today's conference call. We like to thank you again for your participation.