Pennantpark Investment Corp (PNNT) 2017 Q3 法說會逐字稿

Good morning, and welcome to the PennantPark Investment Corporation's Third Fiscal Quarter 2017 Earnings Conference Call. Today's conference is being recorded. (Operator Instructions) It is now my pleasure to turn over the call 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 2017 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 the 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 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.

Thanks, Aviv. I'm going to provide an update on the business starting with financial highlights, followed by discussion of the overall market, the overall portfolio, investment activity, the financials and then open it up for Q&A.

For the quarter ended June 30, 2017, we invested $89 million at an average yield of 10.6%. About 65% of our new investments were in first lien secured debt and 24% was in second lien secured debt, which is in line with our strategy of developing a lower risk, more secured portfolio. We believe that PNNT stock should be able to provide investors with an attractive dividend stream, along with potential upside as the energy market stabilizes and our equity co-invests mature. NAV increased to $9.18 per share, up from $9.09 per share last quarter.

With regard to the overall market, the economic signals have been moderately positive. With regard to the more liquid capital markets, and in particular the leverage loan and high-yield markets, during the quarter ended June 30, those markets experienced strength as high-yield and leveraged loan funds saw inflows due to the market's belief in a stronger economy and a benign interest rate environment. We remain focused on long-term value and making investments that will perform well over an extended period of time and can withstand different business cycles. Our focus continues to be on companies and structures 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 and intermediaries who want consistent, credible capital. As an independent provider, free of conflicts or affiliations, we've become a trusted financing partner for our clients.

Since inception, PennantPark entities have financed companies backed by 181 different financial sponsors. Our portfolio was constructed to withstand market and economic volatility. In general, our overall portfolio is performing well. We have cash interest coverage ratio of 2.6x and a debt-to-EBITDA ratio of 5.1x at cost on our cash flow loans.

During this past quarter, we continued to optimize our capital structure. We paid off $71 million of expensive 6.25% baby bonds, and we right-sized, amended and extended our low-cost, long-term credit facility. These steps will reduce our cost-of-debt capital. We are pleased that we have diversified funding sources with several features that reduce overall risk to the company. We have $250 million of long-term unsecured bonds, and have only utilized about 17% of our new long-term $445 million credit facility. Additionally, we're utilizing the expanded capacity under the new SBIC legislation. SBIC financing creates financial cushion and now we have exempted relief from the SEC to exclude SBIC debt in our BDC asset coverage test, and SBIC accounting is cost accounting, not mark-to-market accounting.

With asset yields coming down over the last several years, we're looking to create attractive risk-adjusted returns in our portfolio. We have a 3-point plan to do so. Number one, we are focused on lower risk, primarily secured investments, thereby reducing the volatility of our earnings stream. Investments secured by either a first or second lien are about 77% of the portfolio. Number two, we are focused on reducing risk from the standpoint of the diversification. As our portfolio rotates, we intend to have a more granular portfolio with modest bite sizes relative to our overall capital. Number three, we look forward to continuing to monetize the equity portion of our portfolio.

For example, we exited the second half of our position in the common equity of e.l.f. Cosmetics during the quarter as well as our equity investment in PAS. The sales of these equity positions generated $30 million in cash. Due to all these factors, we remain comfortable with our target regulatory debt-to-equity ratio of 0.6x to 0.8x. We are currently at 0.5x regulatory debt-to-equity. On an overall basis, we are targeting overall GAAP leverage of 0.8x. As of today, we are currently at 0.8x overall GAAP leverage. And our net leverage, debt minus cash, is 0.69x.

During the past year, we have had the opportunity to restructure most of our challenged energy names. Our 2 investments related to oilfield services, American Gilsonite and U.S. Well, have started performing better as drilling activity has picked up. Increased values on those 2 names helped our NAV this past quarter. With regard to our 2 E&P names, Ram and ETX, generally these companies are positioned to weather a period of prolonged lower-energy prices and should benefit from the gradually improving environment. Even if the 2 E&P investments were marked to 0, our NAV would have been $7.54 as of June 30. This indicates the potential upside value to our stock as we monetize those and other investments over time. We believe it will take more time for us to maximize the recovery of our overall energy portfolio.

Despite the Great Recession and credit crisis, PennantPark Investment Corporation has had only 12 companies go on nonaccrual out of 187 investments since inception over 10 years ago. Further, we are proud that even when we have had those nonaccruals, we've been able to preserve capital for our shareholders. Through hard work, patience and judicious additional investments in capital and personnel in those companies, we've been able to find ways to add value. We constantly monitor our deals and re-underwrite them in the face of new information in situations where the best long-term value for shareholders is created by taking control of the companies and providing capital and expertise we do.

Based on values as of June 30, to date we have recovered about 82% of capital invested on the 12 companies that have been on nonaccrual since inception of the firm. We currently have no investments on nonaccrual. To highlight our expertise in working through difficult situations to maximize value, this past quarter, we exited our investment in PAS. PAS was a subordinated debt investment we originally made in 2010 to back a sponsor in the acquisition of a provider of OEM and aftermarket aerospace and gas turbine engine components.

In 2011 and 2012, due to operational issues, EBITDA declined significantly and the company violated covenants. The company changed management and restructured its operations. In 2013, the company did a financial restructuring, where we converted our subordinated debt-to-equity and invested more equity. In 2016, we were also able to buy some first lien debt at a substantial discount from a lender. The financial results rebounded nicely, and the company was purchased by a strategic acquirer in May of 2017. As a result of the exit, we received all of our money back and more, recovering $1.12 on the $1 of our invested capital.

It might be helpful to highlight our long-term track record over 10 years, including the Great Recession. Since inception, PNNT has made 187 investments, totaling about $4.3 billion at an average yield of about 13%. Including both realized and unrealized losses, PNNT lost only about 40 basis points annually. In terms of exits, in addition to debt and equity of PAS, as discussed, we exited our remaining position in e.l.f. equity. 3.5 years ago, we invested $33 million in the second lien debt and $3.4 million of equity in e.l.f. Over that time frame, we exited the debt at an IRR of about 13%, and our $3.4 million of equity was cashed out at over $26 million, representing a multiple of invested capital of 7.7x and an IRR of 89%.

We had a solid quarter of additional attractive exits including Affinion debt, which generated IRRs of 17%; Alegeus subordinated debt, which generated IRR of about 14%; first lien debt of A2Z Wireless or Atlantis Holdings, at an IRR of over 14%, subordinated debt of Randall-Reilly at an IRR of over 12%; and first lien debt of Sotera at an IRR of about 12%. In terms of new investments, our focus is on senior-oriented cash paying secured assets. In virtually all of these investments, we've known these particular companies for a while, have studied the industries or have a strong relationship with the sponsor. Let's walk through some of the highlights.

We invested $17 million in the first lien term loan for ACC of Tamarac and Home Town Cable, which provide cable television, Internet, phone and alarm services to residential and commercial customers in Florida. Twin Point Capital is the sponsor. Cano Health operates primary specialty care health facilities in Florida. We purchased $9 million of an add-on first lien term loan. InTandem Capital is the sponsor. We invested $22 million in the first lien term loan of Hollander Sleep Products, which produces and sells bedding products. Sentinel Capital is the sponsor. Infogroup is a marketing services provider for enterprise-level customers. We invested $20 million in the second lien term loan and $2 million in the equity. Court Square Capital is the sponsor.

Turning to the outlook, we believe that the remainder of 2017 will be active, due to growth in M&A driven financings. Due to our strong sourcing network and client relationship, we're seeing active deal flow. Let me now turn the call over to Aviv, our CFO, to take us through the financial results.

Thank you, Art. For the quarter ended June 30, 2017, recurring net investment income totaled $0.17 per share. In addition, we had $0.04 per share of other income and $0.02 per share from the fee waiver. We also had a onetime $0.05 per share charge to amend and extend our low-cost credit facility, which resulted in GAAP net investment income of $0.18 per share.

Looking at some of the expense categories. Management fees totaled, after waiver, $6 million. General and administrative expenses totaled $1.6 million. Interest expense totaled $6.7 million. And the onetime credit facility amendment charge was $3.9 million.

During the quarter ended June 30, unrealized loss from investment was $1.7 million or $0.02 per share. We also had unrealized losses from our various debt instruments of $2.1 million or $0.03 per share. We had about $10 million or $0.14 per share of realized gains. Consequently, NAV per share went up $0.09 from $9.09 to $9.18 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 has a weighted average yield of 11.8%. On June 30, our portfolio consisted of 53 companies across 26 different industries. The portfolio was invested in 42% senior secured debt, 35% in second lien secured debt, 11% in subordinated debt and 12% in preferred and common equity. 85% of the portfolio has a floating rate.

Now let me turn the call back to Art.

Thanks, Aviv. To conclude, we want to reiterate our mission. Our goal is to generate attractive risk-adjusted returns through income, coupled with long-term 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 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 continued investment and confidence in us. That concludes our remarks. At this time, I'd like to open up the call to questions.

(Operator Instructions) We'll take our first question from Casey Alexander with Compass Point Research and Trading.

Thank you for the presentation. That answered a lot of my questions. But first of all, you took out the 6.25% baby bond. Can you sort of go over your credit costs going forward as your debt structure stands right now?

Certainly, and you should see that cost coming down. We estimate, if you -- obviously, it's a moving target going forward. But about 4% -- 4.1% perhaps, is the overall cost of financing that you can look at us going forward.

All right, great. That's very helpful. Secondly, net of cash, you are clearly below now your target leverage ratio, which leaves some room for investing. Can you share with us what you're kind of seeing in the current quarter, both from an opportunity and from a sales and repayments standpoint?

Yes. Look, Casey, we don't know. It's obviously the end of the quarter. We're pretty busy right now. And we do have some cash on the balance sheet, and we are getting some repayments along the way. So I guess, do you model a flat portfolio? Do you model a slightly up portfolio? I think you're kind of somewhere between flat and slightly up. We'll have to see where it all kind of comes out in the wash based on using the cash as well as based on the repayments that we're getting.

Okay, great. And certainly, we understand that you want to be patient and maximize the value of the energy investments that you have. Have you given any thoughts to potential extension of the fee waiver that ends at the end of the year?

Yes. Look, the board is always thinking about the fees, in general, as a general proposition. And I think, not giving anything away, of course, if that portfolio continues to underperform or that piece of the portfolio continues to underperform, it would make full sense to align everything with that.

Let me ask you a different question then. And again, I understand that PennantPark was formed a long time ago, and that the standard fee structure was established a long time ago when the fee structure was the norm for the market and yet overall market fee structures have changed. Has the board given any consideration to, as opposed to the fee waiver, just pushing some of the fee structure closer to what is the kind of the current norm?

Yes. As I said, the board is always considering it. And obviously, every year there's a formal framework, but it's a discussion all the time. And as we get to the formal annual review, they'll, I'm sure, consider something more permanent as well.

And we'll take our next question from Doug Mewhirter from SunTrust.

It looks like your -- the high exit activity generated some, I guess, call protection or OID. In your current portfolio, I assume you have a mix of old and new investments, what percentage of your portfolio is young enough where you still have sort of embedded call protection, which would create the possibility of additional fees on exits prior to maturity?

Doug, it's a good question. We don't have it at our fingertips. We can get back to you. If I had to cuff it and kind of estimate it, I think we still have I guess about half of the portfolio having reasonable call protection, if not more. And every time we do a new deal, of course, that resets. We typically buy deals at a discount to par. We typically have call protection. And every once in a while, we have these equity co-invests, which pay off like e.l.f. E.l.f. is unusual. We can't count on that, but we have nice equity co-invests. If you look at our equity co-invest portfolio over time, it's been a nice generator of gains. So I'd say at least -- as I'm talking about it, I'd say at least 50%, but we can get back to you with a more precise number.

But again, every time you do a new deal, you can reset it, you're buying at 98 or 99 or 97, and you are setting up a noncall period of some point or a call premium period of some point, and then also potentially having the co-invests. So it's something that we think -- look, I guess you're trying to model other income because we kind of have like recurring income, which we say is like the interest income from the portfolio. And then you have other income, which is the prepayment penalties, et cetera. It's usually between $0.02 is the low and $0.04 is reasonable. Sometimes we've had $0.06 or $0.07. Is other income recurring or not? We can all debate that, but we tend to at least have $0.02 a quarter of other income that seems to recur from prepayment penalties.

And we will take our next question from Ryan Lynch from KBW.

The first one goes to your comment about, with the current portfolio, debt-to-equity of about 8x or so. You guys have about $100 million of cash right now. So you guys certainly have some ability to deploy that cash, but it looks like, from a leverage standpoint, you guys are maybe going to be set for a little bit. But it does give you a little bit of room to grow the portfolio. But then if I look at the earnings this quarter, $0.18 of NII earnings now. If you add back the nonrecurring debt costs as well as add in some level of higher incentive fees, because obviously the lower -- the onetime debt costs, lower incentive fees, I get to core earnings of about $0.20 per share for the quarter. Which includes $0.02 of fee waivers, which are set to expire at the end of the year.

And so that's right on top of the dividend. So basically the earnings would equal the dividend, excluding any sort of fee waivers. So I'm just wondering about -- looking longer term, in 2018, if the fee waivers do expire, should we expect basically earnings to be just right in line with the dividend? Or are there any ways to drive earnings above the dividend? Because the dividend set right now is about a 7.8% dividend yield on your book value. And so I'm just wondering -- that's why I wonder are there any drivers to make dividends -- or make earnings go ahead of the dividends outside of fee waivers or -- just because the fee waivers right now seem to be a critical component of earnings.

I wouldn't overly obsess on the fee waivers going away in January. In my mind, they are going to probably continue until we get some major uplift in energy or until the board kind of comes in with a more permanent structure. So I think you're right at looking at it. It's $0.20 or maybe $0.21 of kind of run rate earnings versus an $0.18 dividend. We think that's a nice, solid way to run the portfolio at this point, thinking that NAV at some point is going to start growing again. And again, we think the stock is very cheap relative to outvaluing those energy names. As I said, if you wrote off the 2 E&P names to 0, your NAV would be like $7.50. And there is also downside protection on the dividend because of the way the incentive fee does work. Much below $0.18 dollar-for-dollar is coming out of the incentive fee. So that $0.18 dividend is very, very well protected. So as you think about the investment opportunity here, we think it's -- relative to NAV, you have a lot of upside. And we think your $0.18 is very well covered, both from income as well as having a nice downside protection element, in terms of how the catch up of the incentive fee works. So we think it's a nice asymmetrical downside protected, upside opportunity for shareholders.

Okay, that's good commentary. And then over the last several quarters, you guys have done a good job of exiting some of the equity investments, realizing some nice gains during those exits. If I look at your equity portfolio today, it looks like it's around 12% of your overall portfolio today. And you mentioned continuing to look to exit those equity investments going forward. Obviously, I know that those are hard to predict and very unpredictable when those can exit, but do you have any sort of target of where you'd like to get that 12 percentage of your equity portfolio down to?

Yes. Look, over time, we think it'd be great to get to a 5% to 7%. We think it's always smart a little -- and to some extent, have some equity co-invests, which have done well for us. Sometimes you get equity by way of debt conversion, which is the -- not the greatest way to get equity, but it happens in our business from time to time, like PAS was a good example of that. But look, it'd be great to get it down to 5% to 7% of the portfolio. And if you look at that, the equity portfolio, you can see some of the names where there's some nice markups on cost. And to the extent those names are owned by sponsors and a bunch of them are, it's just a matter of time before they are going to look to realize those gains. And those should provide some nice liquidity gains for us, and we would look forward to rotating those proceeds into cash-paying secured debt instruments.

And we will take our next question from Chris York with JMP Securities.

Staying on the topic of the equity portfolio and then maybe looking at the marks there. You talked a little bit about the potential to exit some of these investments. Are there also any of these companies moving in a direction where they could provide income to the common, if you do not exit them?

Yes. The way -- it's a great question. The way it typically works with these sponsor companies is, if they don't exit the equity -- if it's not an M&A sale, they'll do a refinancing and potentially dividend, which is prevalent in this market today, for good news or bad news. So in certain cases, we will get a dividend along the way, which will help income. So for instance, Prepaid Legal or LegalShield is a name where we've done several dividends along the way. I think the stock -- the equity's marked well above cost. So we've got an income along the way on that. And then it's a question of what's the next step with that company, as an example.

Got it. Okay, makes sense. And then I wanted to ask a question about the pipeline and/or maybe even broadly about the investment strategy or lending niches at PennantPark. So are you guys opposed to making new investments in energy companies today in light of your current industry exposure and then maybe your recent experience? Because we have seen some increased expenditures in the energy industry, and we've also seen a couple of BDCs dipping their toe back into this lending niche.

Yes. Look, we are not going to make any new investments in energy. We may invest in these existing companies that we already have to help them and to help them take advantage of opportunities. But we're going back to our core sponsor-driven nonenergy base, which has performed excellently over 10 years. The biggest mistake we've made over the last 10 years has been the foray into energy; lesson learned. We're going back to nonenergy, sponsored deals where our track record has been excellent, even through the Great Recession. We are going to play Gilsonite and U.S. Well through and maximize value there. Those are starting to percolate. Those are the 2 oilfield services related businesses.

And we're going to maximize value there for our shareholders and ride that. And then at some point we hope to ride our E&P names back, Ram and ETX. But just to be clear, we have enough energy exposure, thank you very much. And we're going back into what's worked well with us over a decade, including the Great Recession, which is nonenergy sponsor-driven by us where we're doing it with sponsors we know, where they're injecting a ton of equity beneath us, where we have very good free cash flow. and where our track record has been excellent over a decade.

Got it. That makes lot of sense. Just wanted to know where you guys stood on that one. And then maybe this is for Aviv, I didn't see a break out in the press release for the calculation of non-GAAP or your core net investment income per share. So how are you calculating this? Because the number appears to exclude the revolver amended costs, but doesn't adjust for the consequential increase in incentive comp.

That is correct. And if you do exclude the increase in incentive fee, core NII will be going from $0.23 down to $0.21 or so. That is the correct statement that you made.

The way to look at it is really run rate. Run rate is probably $0.20, $0.21.

And our next question comes from Rick Shane from JPMorgan.

Two things. One, given the tight spread environment and activity among private equity sponsors, just curious how much you're expecting as we move through the year, in terms of repayment activity? I'm assuming you think it's going to remain heightened.

Look, a lot of the easy wins, our refis have already worked their way through. We think it's subsiding. This is anecdotal and just kind of thinking about what we've seen in the last month or so since quarter end. We think it's subsiding. But look, our attitude -- and we've been public about this -- when people pay us back we say thank you. It's -- we've had some people not pay us back and we've paid the price. So we underwrite to get paid back. That's fine. There's always another deal that walks in the door. We have plenty of origination firepower. We've invested in our platform over the last few years. We have an L.A. office, we have a Chicago office, we have Houston office, we have a London office, we have a beefed up office here in New York.

We are seeing plenty of deal flow that fits our bucket. We are being selective, as you would imagine in this environment. We are moving up the capital structure. But we don't sit here. We're not -- we feel really good about where we stand and where our -- the hand we have at this point. We don't feel like we're on the hamster wheel where we have to originate to keep a certain level of AUM. We have a really nice deal flow. We're being picky and selective, and we're keeping our bucket full with, we think, attractive risk-adjusted returns, and we like where we are from a leverage standpoint. It gives us proper defense and proper offense. So we kind of like the hand that we're dealt right now.

As we've talked about before, handing out money is pretty easy, getting it back is a lot harder. Second question, just sort of -- actually, you know what? I'm all set for now.

And we will take our next question from Kyle Joseph from Jefferies.

Just to follow-up on Rick's, I think you talked about how you anticipated deal flow for the remainder of the year being strong. Would you also anticipate repayment levels being elevated as a result?

Look, as I said, we don't know how to -- we never have been good at predicting. We think we're going to get some reasonable repayments, and we think deal flow is good. So would you model a flat to slightly growing portfolio? That's the way we think about it. But it's a lumpy business, as you know. We had a really busy investment committee this past Monday and we had a light investment committee the prior Monday. So that gives you like from week-to-week, from day-to-day, it just depends on the deal flow. We're seeing an ample deal flow, and we think that's really due to the investments we have made in our team and our infrastructure to develop new relationships, to get new looks and more looks, while still trying to maintain our discipline.

As I went through the 4 deals I highlighted this past quarter, as I went through it in the prepared remarks, two of those sponsors are brand-new relationships for us, and 2 of the sponsors are long-term relationships we've had over many, many years. So we're seeing the benefits of more looks from more sponsors around the country, and we feel good about the flow that's coming in. We're just being really picky about what we put in the portfolio. Our sponsor-driven track record over a decade, including the recession, has been excellent, including where we do some equity co-invests, and that's where we're focused on. That's where we have the most value, that's where we can provide the most value to our shareholders and to our sponsors, and that's kind of what we're doing.

Got it. And then you laid out sort of the 3-pronged strategy, given the asset yield compression we've seen over the past few years. At the same time, your yield's been pretty stable year-over-year. Can you give us sort of an update on where you anticipate the overall portfolio yield trending?

Yes. Look, we -- and we said this before. As part of the strategy of moving up the capital structure, we expect that yields will -- the overall yield will come down. This past quarter ended June, the average yield of the new investments was 10.6%, whereas the average yield in the portfolio is still over 11%. So over time, we would anticipate -- we are happy to reduce risk and feel very comfortable about capital preservation and take a little less yield, if that's the trade-off. We have a reasonable sized equity portfolio to ride and to monetize over time, which should provide some lift and some ups while we're making the rest of the portfolio lower risk.

Got it. That's helpful. And then one last one from me. You guys, if anything, have been experiencing stable or better credit over the last few quarters. That doesn't -- that isn't necessarily the case for others in your industry. Can you give us an update on your outlook for credit in that (inaudible) metrics, whether it's revenue and EBITDA growth that you're seeing from your portfolio companies overall?

So our portfolio is broadly representative of the economy. And what we're seeing is representative of that, which is, it's a slow growth portfolio, which is just fine for us. EBITDA is up single digits -- low-single digits on probably a blended basis. That's fine. We like that kind of profile. And so we feel pretty good. We think the outlook is fairly positive for the economy over the next 2, 3 years. On the other hand, we always underwrite assuming a downside case, assuming a recession early on. So we think we're prepared for the worst and hoping for the best.

And we'll take our next question from Jonathan Bock from Wells Fargo Securities.

Art, I appreciate the 3-point strategy, and it makes complete sense, whether moving into first lien, diversifying your book, monetizing acquisitions, et cetera. Can you explain why there isn't a fourth point that's buy back stock, given that you're at 0.5 debt-to-equity and have a significant amount of cash on the balance sheet?

Yes. So great question. We are very focused at this point, and hopefully in the future, on maintaining our investment-grade credit rating. So the 0.8 -- number one, is something we're comfortable with. We think that's a good place to be right now from both a defensive and offensive standpoint. Rating agencies don't like stock buybacks. We've done stock buybacks in our history. We are totally focused on being shareholder friendly. For instance, in this quarter, we -- as you know, we -- the upfront fee on our credit facility gets deducted in terms of how we calculate income from the standpoint of our incentive fee. So this is just kind of in discussions with the agencies and maintaining our rating and trying to be very shareholder friendly. And understanding also that, as we move up capital structure and go to a lower risk capital structure, our yield's probably going to compress as well. So we're kind of balancing a number of different factors. We're always talking about buybacks with the board, it's something we talk about regularly, and it's something that's always on the table.

And just to your point about talking to the board, and I'll kind of maybe rehash Casey's question about permanence of fee structure and waivers in light of incentives and just discussions that you've seen us, as well as many others, talk about for a number of years, and the institutional sentiment has changed dramatically. Art, you are the Chair of the board. So can you explain what the hang-up is in having to bring it to the board when you yourself control the board's agenda, particularly on the item of management fees?

Me and every other member of the board's talking about it all the time. Every year there is a formal process. It's talked about more than once a year. And it's something we evaluate and they evaluate all the time. Last year was a valuation to -- it's because, if you look at our track record, the biggest chink in our track record, the biggest mistake we've made in 10 years, including the Great Recession, has been the investments in energy. We elected and the board elected to not earn a dime on our energy portfolio, which was 16% at the time. Today, it's little less than that, which has continued. And the idea behind it being, let's play through the energy program. And then when we come up from air, and there is a longer term -- when it's clear in terms of what's going on, a permanent structure can be put in place. But the board's going to evaluate it all the time. I evaluate it all the time. The board's going to evaluate all the time.

And we'll take our next question from Rick Shane from JPMorgan.

Clearly had a little bit of a senior moment on that last question. Wanted to follow-up on the comment about doing smaller, more granular deals within the portfolio. I'm curious if that suggests that you're going to be participating in syndications in any way, and more importantly, how we should think about that in terms of accretion of any origination fees or if those would be going away?

Yes. So it's a good question. You can see kind of in what we did this past quarter. We did a $17 million loan, we did a $9 million add-on, we did a $22 million loan, and we did a $20 million loan. So kind of the 20 to 30 to 35 bite size relative to the portfolio, seems to make sense right now. And most of this stuff is self-originated. I mean, occasionally, if there's a syndicated deal, lightly syndicated, where we have an edge either through the relationship or through knowledge, we may participate when we think it's accretive and fits our -- kind of where we're trying to be. But you can see both in this vehicle as well as PFLT, most of what we're doing right now is self-originated.

Okay, so no change in terms of accretion of fees going forward?

No change.

And that concludes today's question and answer session. Mr. Penn, at this time, I'd like to turn the conference back to you for any additional or closing remarks.

Thank you, everybody, for participating today. The September 30 quarter is our quarter for our 10-K. So a reminder that we usually do the call a little bit later than normal because we have to prepare our 10-K. So think about mid-November as kind of the next time we will be doing the quarterly conference call. Really appreciate everyone's participation today. Have a good rest of the summer.

This concludes today's call. Thank you for your participation. You may now disconnect.