2024-06-02 21:18:00 ET
Summary
- PennantPark Investment Corporation has outperformed the BDC market despite my concerns about its risk exposure and dividend coverage.
- Even though PNNT has surged higher, the Q2 earnings report showed a decline in cash generation and a dividend increase that may not be sustainable.
- In this article, I explain the reasons why the market has sent PNNT higher and why I am still reluctant to go long.
I have assumed a conservative stance on PennantPark Investment Corporation ( PNNT ) since early January this year, when I published my first article on this BDC. The key reasons for my skepticism against PNNT were the following:
- Excessive exposure to non-first lien investments, which renders the BDC riskier than the average peer in this space.
- Thin margin of safety when it comes to the coverage of a base dividend.
- High concentration in equity-type instruments, which makes the dividend coverage less predictable as the distributions from the equity investments are inherently more volatile than from, say, first lien investments.
Read the full article on Seeking Alpha
For further details see:
PennantPark Investment: Still Too Speculative To Go Long