PennantPark Investment Corporation (NASDAQ:PNNT) Q2 2019 Earnings Conference Call - Final Transcript
May 10, 2019 • 12:00 am ET
of the asset coverage test from 200% to 150%. In connection with this reduction, we reduced our base fee from 1.5% to 1% on gross assets that exceed 200% of PNNT's NAV at the beginning of each quarter.
Over time, we are targeting a regulatory debt to equity ratio of 1.1 times to 1.5 times. We will not reach this target overnight. We will continue to carefully invest and it may take us several quarters to reach the new target. We prepaid $250 million of our notes. In connection with that, we closed on a new $250 million credit facility with BNP to complement our existing $445 million credit facility and $150 million SBIC II financing. Our primary business of financing middle markets sponsors has remained robust. We manage relationships with about 400 private equity sponsors across the country from our offices in New York, Los Angeles, Chicago, Houston and London. And we have done business with about 180 sponsors. Due to the wide funnel of deal flow that we receive, relative to the size of our vehicles, we can be extremely selective with our investments. In this environment, we have not only been extremely selective, but we have generally moved up the capital structure to more secure investments.
A reminder about our long-term track record. PNNT was in business since 2007, then as now, focused on financing middle-market financial sponsors. Our performance through the global financial crisis and recession was solid. Prior to the onset of the global financial crisis in September 2008, we initiated investments which ultimately aggregated $480 million. Average EBITDA of the underlying portfolio companies was down about 7% to the bottom of the recession. According to the Bloomberg North American High Yield Index, the average high yield company EBITDA was down about 40% during that same timeframe. As a result, we had few defaults in the track to recoveries on the portfolio. The IRR of those underlying investments was 8% even though they were done prior to the global financial crisis and recession. We are proud of this downside case track record. We've had only 13 companies going non-accrual out of 223 investments since inception 12 years ago.
Further, we are proud that even when we have had those non-accruals, we've been able to preserve capital for our shareholders. It's been two-and-a-half years since we've had a non-accrual at PNNT and now we're on high to end at some point. As of March 31, 2019, we had one non-accrual, which represents 1.4% of our overall portfolio of cost and market value.
Since inception, PNNT has made 223 investments totaling about $5.3 billion out of the average yield of about 12.2%. This compares to an annualized loss ratio including both realized and unrealized losses of about 32 basis points annually. This strong track record includes both our energy investments as well as our primarily subordinated debt investments made prior to the financial crisis. At this point in time, our underlying portfolio indicates a strong U.S. economy