Good morning. And welcome to the PennantPark Investment Corporation's Fourth 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 opened 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 fourth 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 include a 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 a 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 provided in our earnings press release as well as on our Web site. 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 Web site 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, the 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 September 30th, so those markets experienced volatility due to cash outflows and leveraged loan and high-yield funds. Those outflows were a result of the global economic concerns, geopolitical risk and expectations that the Federal Reserve would tighten monetary policy. A less robust broadly syndicated loan and high-yield market helped the overall tone in the middle market. Risk reward in the middle market has generally remained attractive, as the overall supply of middle market companies’ unique financing exceeded 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 the leveraging 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 business 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…

Thank you, Art. For the quarter ended September 30, 2014, recurring net investment income totaled $0.29 per share. In addition, we had $0.05 per share of other income. As a result, core net investment income for the quarter was $0.34 per share. Additionally, we had $0.07 per share of upfront expenses due to the issuance of the 250 million bond and $0.02 a share of reversal of capital gains incentive fees that were accrued but not payable. As a result, GAAP net investment income was $0.29 per share. Looking at some of the expense categories, management fees totaled $9 million after 2 million of reversal of incentive fees accrued but not payable. General and administrative expenses totaled $600,000, interest expense totaled 5.6 million and one-time bond issuance costs were 4.5 million. During the quarter ended September 30th, net realized gain from investment was 1 million or $0.2 per share. Unrealized loss on investment was 25 million or $0.36 per share and unrealized gains from our notes was $2 million or $0.03 per share. Excess dividend over income was about $1 million or $0.01 per share. And the accretive effect of the issuance of new shares was $0.02 per share. Consequently, NAV per share went down $0.30 from $11.33 to $11.03 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 and exchanges 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 overall debt portfolio had a weighted average yield of 12.5%. On September 30th, our portfolio consisted of 67 companies across 30 different industries and was invested 35% in senior secured debt, 37% in second-lien secured debt, 19% in subordinated debt and 9% in preferred and common equity. 68% of the portfolio has a floating rate including 60% 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 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 conversion. 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.

and:

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

A question on the balance sheet, now you have those investment grade notes out there might have a little more scrutiny from bondholders and rating agencies, et cetera. Are there any hard caps on your total leverage now that you have those notes outstanding? I know that there was a -- one of your competitors had mentioned that they were limited to 0.7 and even including SBIC. I didn’t know if there are any similar constraints now that you have this debt outstanding? SunTrust Robinson Humphrey: A question on the balance sheet, now you have those investment grade notes out there might have a little more scrutiny from bondholders and rating agencies, et cetera. Are there any hard caps on your total leverage now that you have those notes outstanding? I know that there was a -- one of your competitors had mentioned that they were limited to 0.7 and even including SBIC. I didn’t know if there are any similar constraints now that you have this debt outstanding?

No, we live within the SEC asset coverage constraints as always. So there is nothing specifically in the notes but other than staying within the SEC guidance.

And remind me of your sort of comfort range with and without SBIC your debt-to-equity. It seems like you’re well within that -- you're pretty comfortable now. Could you remind me how high you generally get to that range before you think about issuing equity? SunTrust Robinson Humphrey: And remind me of your sort of comfort range with and without SBIC your debt-to-equity. It seems like you’re well within that -- you're pretty comfortable now. Could you remind me how high you generally get to that range before you think about issuing equity?

Yes so, our target range is 0.6 to 0.8 times inclusive of SBIC debt, that’s the way we think about it. It gives us plenty of cushion but defensively and offensively given the SBIC exempted relief we could theoretically take leverage above 1:1. Given the portfolio we have, we’re comfortable in the 0.6 to 0.8. And so that’s kind of where we generally would like to be.

And next we’ll move to Greg Mason of KBW.

First, could you talk about RAM Energy it’s a really big deal for your size. I believe 8% of the portfolio and just maybe a little broader discussion on how you’re viewing underwriting oil and gas given some of the volatilities here recently in oil? Keefe, Bruyette & Woods: First, could you talk about RAM Energy it’s a really big deal for your size. I believe 8% of the portfolio and just maybe a little broader discussion on how you’re viewing underwriting oil and gas given some of the volatilities here recently in oil?

First just as backdrop we’ve been involved in energy investing since the get-go it’s been a big part of what we’ve done. I think we’ve invested something like $500 million and have generated kind of mid-teens returns. So it’s the space we know and we like that we’ve been -- we have some good experience in. We like oil and gas particularly where we think there is good asset value, which is the case here in RAM where we’re lending against proven developed producing reserves where we’re at the top of the capital structure and where there are hedges in place. So all those elements happened to be in RAM which is one of the reasons we like it. And we’re comfortable with the position due to that. There is a piece of the position about 27 million that is a shorter term position. It’s a one year maturity that we think the company is going to de-risk and de-leverage through several different ways. They could de-leverage de-risk through several different ways over the course of the next year. So, you’re right it’s a big position. We didn’t take it lightly, we agonized however we do think a chunk of it will be short-term.

And then the marks down in the book in the quarter, can you talk about the potential drivers there, as well as the one year non-accrual Intermediate Transportation? Keefe, Bruyette & Woods: And then the marks down in the book in the quarter, can you talk about the potential drivers there, as well as the one year non-accrual Intermediate Transportation?

Sure. Just Intermediate Transportation that’s the official name of it, it goes by the name of Greatwide. It was a non-accrual we had early on, four-five years ago. It has underperformed. We have put it on non-accrual again. It’s a very small position as we said, 0.3% of the portfolio had cost but it has remained weak. In terms of the NAV reduction first as many of you know the liquid credit markets and as we said we’re down towards quarter end. A piece of our portfolio is broker/dealer quote and that certainly reflects that. The biggest driver of the markdown was our position in Affinion, which is a company we’ve been involved with almost six years. We’ve invested in it over a long period of time in different formats. We feel very good about the deal. There was an exchange that was done, it was six-nine months ago to really give the company three-four years of cushion. So we do not see this as a near-term non-accrual at all. Part of the mark was due to just weakness in the liquid markets. Part of it was -- there was a rumor that there was a large fore seller who was liquidating their portfolio. I think management towards the end of the -- after quarter end reiterated their guidance for the full year in the paper has traded better since then. So we’re comfortable with the position but we never like to see the market volatility like that.

And next we have Chris York with JMP Securities.

Just one question this morning, so outstanding SBA debentures have been flat throughout the year. Yet you’ve recently seen a couple BDCs issue debentures to maximize their licenses. Could you help me understand how you’re thinking about that capacity? And has recent deal flow not been SBA compliant? JMP Securities: Just one question this morning, so outstanding SBA debentures have been flat throughout the year. Yet you’ve recently seen a couple BDCs issue debentures to maximize their licenses. Could you help me understand how you’re thinking about that capacity? And has recent deal flow not been SBA compliant?

Yes, we love our SBA -- SBICs our first quarter call is when we have a deal to put it in those vehicles. Unfortunately for a number of reasons we haven’t found any recently there will be a deal this upcoming quarter ended December that will fit into the SBIC and we’re looking for more. There is very rigorous boxes that the SBA sets up, SBA does not like energy, unfortunately. So, we’re trying hard it is the first quarter call and we are hopeful that we will use the cash in SBIC 1 and then hopefully drawdown 75 million in SBIC 2 overtime.

And we have Mickey Schleien from Ladenburg with our next question.

Can you remind me what percentage of assets are in the non-qualified bucket as of September? Ladenburg Thalmann: Can you remind me what percentage of assets are in the non-qualified bucket as of September?

It’s very small, I don’t have the number.

It’s about 4%.

Aviv is saying it’s 4% or 5%, something like that, so we have got a big bucket.

And given that, how do you think about employing that bucket some of your peers have done things like the SSLP or they’ve done and acquired asset-based lenders, number of things to improve yield and synthetically increase leverage. Is that something PNNT would consider doing? And if so can you give us some color on what that might look like and when? Ladenburg Thalmann: And given that, how do you think about employing that bucket some of your peers have done things like the SSLP or they’ve done and acquired asset-based lenders, number of things to improve yield and synthetically increase leverage. Is that something PNNT would consider doing? And if so can you give us some color on what that might look like and when?

Sure. Look, we look at everything as our fiduciary responsibilities look at all of these different types of things. We had used it a little bit so far in Europe we did a deal in the UK trust-ins which was financing a pub, a stage in the UK. So, we’ve looked at all these things and we’ll continue to look at all these things. There is nothing near-term that we see other than potentially gradually looking at deals in Europe for that vehicle, but we’ll continue to look and see if any of these partnerships make sense.

And just a follow-up, if I am not mistaking. You’re carrying $0.21 of spillover taxable income. Ladenburg Thalmann: And just a follow-up, if I am not mistaking. You’re carrying $0.21 of spillover taxable income.

Yes.

I think in the past you’ve pretty much decided to retain that. Is that the expectation going forward or are you considering it special? Ladenburg Thalmann: I think in the past you’ve pretty much decided to retain that. Is that the expectation going forward or are you considering it special?

We like operating with some cushion. And so we’re going to retain it for now.

And lastly, there was a pretty meaningful increase in pick interest in the quarter. Was that idiosyncratic or was there a conscious decision to move toward pick deals or what was going on? Ladenburg Thalmann: And lastly, there was a pretty meaningful increase in pick interest in the quarter. Was that idiosyncratic or was there a conscious decision to move toward pick deals or what was going on?

Just be clear, there is never a conscious decision to move toward pick deals. It’s got to be idiosyncratic due to a particular deal or two. We prefer cash. We always prefer cash if there is a particularly good risk reward that’s more pick oriented we’ll look to do that. So, well let’s look into that and we could talk to you later on in the day as to what particular deal or two may have driven that. But we generally like cash.

And we’ll move next to Matthew Freedman of Credit Suisse.

It’s actually Doug Harter. Art just wondering if you could talk about the opportunity set you’re seeing today at the higher yields that you were able to achieve in the current quarter? Credit Suisse: It’s actually Doug Harter. Art just wondering if you could talk about the opportunity set you’re seeing today at the higher yields that you were able to achieve in the current quarter?

So, the opportunity set for us is always deal-by-deal-by-deal. We’re never once -- other than when there is a market correction they achieve, we got to be deploying a lot of capital. This is always deal-by-deal-by-deal. And we saw some good risk reward this past quarter. We highlighted some of the names RAM Energy, Novitex, Sotera. We highlighted those in the comments Z Wireless. You may remember the prior quarter, we actually shrunk in size. This quarter we grew in size. So it’s always idiosyncratic based on the deal. We’re seeing less attractive opportunities in the down and middle of the fairway LBO, middle market LBO. We’re seeing more attractive opportunities either as we said in the energy space or in, we’re doing some of these, all these buildups Z Wireless is essentially a buildup that we’re doing with the sponsor where they’re consolidating the wireless retailing industry. So we have some of these kind of consolidation plays we have some energy investments going on. So it’s looking -- it still fits out parameters which is low debt-to-EBITDA, attractive returns, good covenants. And if it fits we’ll do it and if it doesn’t we’ll shrink.

And acknowledging that you look at every deal on a individual basis, how would you think about what level of sort of sector concentration in the energy you would be comfortable with? Credit Suisse: And acknowledging that you look at every deal on a individual basis, how would you think about what level of sort of sector concentration in the energy you would be comfortable with?

We are focused on diversification everywhere we can diversified. So, look, we think we can do a little bit more energy, not a time I think what we hope is to get refinanced and taking out some of the existing energy deals. So we think we have a little bit more room in energy. But I would not expect the percentages in our portfolio to go dramatically higher from here.

And we’ll move next to Arren Cyganovich of Evercore.

Just looking at the origination activity over the past seven or five quarters or so, it’s been pretty strong. Do you expect to have a similar pace going into next year and were there any deals kind of pulled forward into the third quarter because it seemed a little bit heavier than normal? Evercore Partners: Just looking at the origination activity over the past seven or five quarters or so, it’s been pretty strong. Do you expect to have a similar pace going into next year and were there any deals kind of pulled forward into the third quarter because it seemed a little bit heavier than normal?

So it’s a good point. A lot of what we did in this past quarter was front-end loaded in the quarter. So, that’s true. In terms of pacing, look we’ve, our statement is we expect to see slow growth. So, we are seeing repayments and refinancing decline this quarter, quarter-to-date and then may just be because of the little bit of the bullion is off the market which is a positive thing in some ways. Of course we always like to get paid back when we say thank you and people pay us back. But if we like a company we like the risk reward we like being in it.

And then the interest income was a little bit elevated or higher than I was anticipating. Was there a certain amount of prepayment income or other kind of non-typical interest income in the quarter? Evercore Partners: And then the interest income was a little bit elevated or higher than I was anticipating. Was there a certain amount of prepayment income or other kind of non-typical interest income in the quarter?

Sure. So Arren if you look at our income statement, we have this line in there called other income and that’s where we put kind of one-time repayment penalties, fees, amendments, waiver fees and that was higher this quarter. There were two companies that got repaid, ones name was Vestcom the other is Arsloane Acquisition and the prepayment penalties in those two deals were pretty good.

And I was actually talking just about the interest income line itself. Evercore Partners: And I was actually talking just about the interest income line itself.

No, look I think the 13% yield that we generated this quarter and having it kind of earlier in the quarter probably helped that.

And next we have Rick Shane of JPMorgan for a question.

We’ve seen the group trade below NAV and you guys had a, what in hindsight turned out to be a very timely equity offering during the quarter. Are you seeing any evolution of the competitive landscape or people pulling back a little bit with the group trading below NAV and capital becoming a little bit more precious?

We’ve seen the group trade below NAV and you guys had a, what in hindsight turned out to be a very timely equity offering during the quarter. Are you seeing any evolution of the competitive landscape or people pulling back a little bit with the group trading below NAV and capital becoming a little bit more precious?

Great question, it’s certainly something to be tuned to going forward. You would think that overtime if BDCs trade below book value they would be more cautious with their capital well that’s certain our hope, not only other BDCs but the general markets including the liquid markets. It feels like the markets including the middle market are a little bit more cautious than they were right after Labor Day I think the market started to slight kind of mid-September. So it’s feeling a little bit more cautious and tell us that’s a good sign. Don’t know how much is directly linked to NAV and where NAVs are in the BDC industry.

(Operator Instructions) We’ll go next to Rob Brock of West Family Investments.

You had mentioned that the debt-to-EBITDA was 4.5 times. Could you talk a little bit about attachments points and how they changed and where they are in the capital structure at different levels? Thanks. West Family Investments: You had mentioned that the debt-to-EBITDA was 4.5 times. Could you talk a little bit about attachments points and how they changed and where they are in the capital structure at different levels? Thanks.

Sure. I mean we like being kind of mid-4s overall. You can see our book though year-to-year it is moving higher up in the capital stack, I think we’re in a about 35% first lien now which is higher than it’s been in a while. So, it’s kind of been steady stable in kind of mid-4s debt-to-EBITDA over the course of the last year. So, we think we’ve improved our position both higher in the capital stack as well as maintaining discipline around debt-to-EBITDA but that’s really how we manage our risk is by keeping the debt-to-EBITDA multiples low, the market certainly is well beyond 4.5 time as a general proposition we’re seeing deals clearly at 5.5, 6, 6.5 in certain cases in the liquid markets 7, 7.5 times debt-to-EBITDA very reminiscent of 2007 unfortunately. So, if you take kind of 4.5 times it’s kind of been steady for us over the course of the last year and you take kind of the percentages that we have in first lien, second lien sub and equity you can see that we’ve kind of improved, gradually improving our cash endpoint. We’re also pleased that we are now two-thirds of floating rate on the asset side and almost off fixed on the liability side. So we think we repositioned our fixed floating mix well as well. So we’re going to continue to try to stay as high in capital stack as we can try to keep debt-to-EBITDA as low as we can try to generate as much return as we can as well as get the company protection and that mean is that there might be quarters that we shrink as we did the prior quarter I don’t know if I am giving you what you wanted in that question but hopefully I did.

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

Alright, just want to thank everybody for participating today. We will talk to you next in early February. Thank you very much.

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