pnnt-10k_20200930.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

The aggregate market value of common stock held by non-affiliates of the Registrant on March 31, 2020 based on the closing price on that date of $2.59 on The Nasdaq Global Select Market was approximately $169 million. For the purposes of calculating the aggregate market value of common stock held by non-affiliates, all directors and executive officers of the Registrant have been treated as affiliates. There were 67,045,105 shares of the Registrant’s common stock outstanding as of November 19, 2020.

Documents Incorporated by Reference: Portions of the Registrant’s Proxy Statement relating to the Registrant’s 2021 Annual Meeting of Stockholders to be filed not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K are incorporated by reference into Part III of this Report.

In this annual report on Form 10-K, or the Report, except where context suggest otherwise, the terms “Company,” “we,” “our” or “us” refer to PennantPark Investment Corporation and its consolidated subsidiaries; “PennantPark Investment” refers to only PennantPark Investment Corporation; “our SBIC Funds” refers collectively to our consolidated subsidiaries, PennantPark SBIC LP, or SBIC I, and its general partner, PennantPark SBIC GP, LLC, prior to dissolution and PennantPark SBIC II LP, or SBIC II, and its general partner, PennantPark SBIC GP II, LLC; “Funding I” refers to PennantPark Investment Funding I, LLC, a wholly-owned subsidiary prior to deconsolidation on July 31, 2020; “Taxable Subsidiaries” refers to PNNT Cascade Environmental Holdings, LLC, PNNT CI (Galls) Prime Investment Holdings, LLC, PNNT ecoserve, LLC, PNNT Investment Holdings, LLC and PNNT New Gulf Resources, LLC; “PSLF” refers to PennantPark Senior Loan Fund, LLC, an unconsolidated joint venture; “PennantPark Investment Advisers” or “Investment Adviser” refers to PennantPark Investment Advisers, LLC; “PennantPark Investment Administration” or “Administrator” refers to PennantPark Investment Administration, LLC; “SBA” refers to the Small Business Administration; “SBIC” refers to a small business investment company under the Small Business Investment Act of 1958, as amended, or the “1958 Act”; “BNP Credit Facility” refers to our revolving credit facility with BNP Paribas prior to deconsolidation of Funding I; “Truist Credit Facility” or “Credit Facility” refers to our multi-currency, senior secured revolving credit facility with Truist Bank (formerly SunTrust Bank), as amended and restated; “Credit Facilities” refers to the BNP Credit Facility and Truist Credit Facility collectively; “2019 Notes” refers to our 4.5% notes due 2019, which we redeemed in March 2019; “2024 Notes” refers to our 5.5% Notes due 2024; “2025 Notes” refers to our 6.25% senior notes due 2025, which we redeemed on June 29, 2017; “BDC” refers to a business development company under the Investment Company Act of 1940, as amended, or the “1940 Act”; “SBCAA” refers to the Small Business Credit Availability Act; “Code” refers to the Internal Revenue Code of 1986, as amended; and “RIC” refers to a regulated investment company under the Code. References to our portfolio, our investments and our business include investments we make through our SBIC Funds and other consolidated subsidiaries. Some of the statements in this annual report constitute forward-looking statements, which apply to us and relate to future events, future performance or future financial condition. The forward-looking statements involve risks and uncertainties for us and actual results could differ materially from those projected in the forward-looking statements for any reason, including those factors discussed in “Risk Factors” and elsewhere in this Report.

Investing in our common stock involves a high degree of risk. Some, but not all, of the risks and uncertainties that we face are related to:

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also have a material adverse effect on our business, financial condition and/or operating results. For a more detailed discussion of the risks that you should consider prior to investing in our securities, see Item “1A. Risk Factors” below.

PennantPark Investment Corporation is a BDC whose objectives are to generate both current income and capital appreciation while seeking to preserve capital through debt and equity investments primarily made to U.S. middle-market companies in the form of first lien secured debt, second lien secured debt, subordinated debt and equity investments.

We believe U.S. middle-market companies offer attractive risk-reward to investors due to a limited amount of capital available for such companies. We seek to create a diversified portfolio that includes first lien secured debt, second lien secured debt, subordinated debt and equity investments by investing approximately $10 million to $50 million of capital, on average, in the securities of middle-market companies. We expect this investment size to vary proportionately with the size of our capital base. We use the term “middle-market” to refer to companies with annual revenues between $50 million and $1 billion. The companies in which we invest are typically highly leveraged, and, in most cases, are not rated by national rating agencies. If such companies were rated, we believe that they would typically receive a rating below investment grade (between BB and CCC under the Standard & Poor’s system) from the national rating agencies. Securities rated below investment grade are often referred to as “leveraged loans,” “high yield” securities or “junk bonds” and are often higher risk compared to debt instruments that are rated above investment grade and have speculative characteristics. Our debt investments may generally range in maturity from three to ten years and are made to U.S. and, to a limited extent, non-U.S. corporations, partnerships and other business entities which operate in various industries and geographical regions.

Our investment activity depends on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make. We have used, and expect to continue to use, our debt capital, proceeds from the rotation of our portfolio and proceeds from public and private offerings of securities to finance our investment objectives.

PennantPark Investment Corporation, a Maryland corporation organized in January 2007, is a closed-end, externally managed, non-diversified investment company that has elected to be treated as a BDC under the 1940 Act. In addition, for federal income tax purposes we have elected to be treated, and intend to qualify annually, as a RIC under the Code.

SBIC II, our wholly-owned subsidiary, was organized in Delaware as a limited partnership in July 2012. SBIC II received a license from the SBA to operate as a SBIC under Section 301(c) of the 1958 Act in 2013. SBIC II’s objectives are to generate both current income and capital appreciation through debt and equity investments generally by investing with us in SBA-eligible businesses that meet the investment selection criteria used by PennantPark Investment. During the year ended September 30, 2019, we liquidated and dissolved SBIC I.

Funding I, a wholly-owned subsidiary and a special purpose entity of the Company prior to July 31, 2020, was organized in Delaware as a limited liability company in February 2019. We formed Funding I in order to establish the BNP Credit Facility. The Investment Adviser serves as the servicer to Funding I and has irrevocably directed that the management fee owed to it with respect to such services be paid to us so long as the Investment Adviser remains the servicer. This arrangement did not increase our consolidated management fee. The BNP Credit Facility allows Funding I to borrow up to $250 million at LIBOR (or an alternative risk-free floating interest rate index) plus 260 basis points during the reinvestment period. The BNP Credit Facility is secured by all of the assets held by Funding I. Funding I is no longer a subsidiary of PennantPark Investment as result of the joint venture described below.

On July 31, 2020, we and certain entities and managed accounts of the private credit investment manager of Pantheon Ventures (UK) LLP (“Pantheon”) entered into a limited liability company agreement to co-manage PSLF, a newly-formed unconsolidated joint venture. In connection with this transaction, we contributed in-kind our formerly wholly-owned subsidiary, Funding I. As a result of this transaction, Funding I became a wholly-owned subsidiary of PSLF and has been deconsolidated from our financial statements. PSLF invests primarily in middle-market and other corporate debt securities consistent with our strategy. PSLF was formed as a Delaware limited liability company.

We utilize the investing experience and contacts of PennantPark Investment Advisers in developing what we believe is an attractive and diversified portfolio. The senior investment professionals of the Investment Adviser have worked together for many years and average over 25 years of experience in the senior lending, mezzanine lending, leveraged finance, distressed debt and private equity businesses. In addition, our senior investment professionals have been involved in originating, structuring, negotiating, managing and monitoring investments in each of these businesses across changing economic and market cycles. We believe this experience and history have resulted in a strong reputation with financial sponsors, management teams, investment bankers, attorneys and accountants, which provides us with access to substantial investment opportunities across the capital markets. Our Investment Adviser has a rigorous investment approach, which is based upon intensive financial analysis with a focus on capital preservation, diversification and active management. Since our Investment Adviser’s inception in 2007, it has invested through its managed funds $11.5 billion in 547 companies with more than 190 different financial sponsors.

Our Administrator has experienced professionals with substantial backgrounds in finance and administration of registered investment companies. In addition to furnishing us with clerical, bookkeeping and record keeping services, the Administrator also oversees our financial records as well as the preparation of our reports to stockholders and reports filed with the Securities and Exchange Commission, or the SEC, and the SBA. The Administrator assists in the determination and publication of our

net asset value, or NAV, oversees the preparation and filing of our tax returns, and monitors the payment of our expenses as well as the performance of administrative and professional services rendered to us by others. Furthermore, our Administrator offers, on our behalf, significant managerial assistance to those portfolio companies to which we are required to offer such assistance. See “Risk Factors—Risks Relating to our Business and Structure—There are significant potential conflicts of interest which could impact our investment returns” for more information.

We believe that the limited amount of capital available to middle-market companies, coupled with the desire of these companies for flexible sources of capital, creates an attractive investment environment for us.

We believe that we have the following competitive advantages over other capital providers to middle-market companies:

The senior investment professionals of our Investment Adviser have worked together for many years and average over 25 years of experience in senior lending, mezzanine lending, leveraged finance, distressed debt and private equity businesses. These senior investment professionals have been involved in originating, structuring, negotiating, managing and monitoring investments in each of these businesses across changing economic and market cycles. We believe this extensive experience and history have resulted in a strong reputation across the capital markets.

Lending to middle-market companies requires in-depth diligence, credit expertise, restructuring experience and active portfolio management. For example, lending to middle-market companies in the United States is generally more labor intensive than lending to larger companies due to the smaller size of each investment and the fragmented nature of the information available with respect to such companies. We are able to provide value-added customized financial solutions to middle-market companies as a result of specialized due diligence, underwriting capabilities and more extensive ongoing monitoring required as lenders.

We employ a disciplined approach in selecting investments that meet the long-standing, consistent value-oriented investment selection criteria employed by our Investment Adviser. Our value-oriented investment philosophy focuses on preserving capital and ensuring that our investments have an appropriate return profile in relation to risk. When market conditions make it difficult for us to invest according to our criteria, we are highly selective in deploying our capital. We believe this approach continues to enable us to build an attractive investment portfolio that meets our return and value criteria over the long-term.

We believe it is critical to conduct extensive due diligence on investment targets. In evaluating new investments we, through our Investment Adviser, conduct a rigorous due diligence process that draws from our Investment Adviser’s experience, industry expertise and network of contacts. Among other things, our due diligence is designed to ensure that each prospective portfolio company will be able to meet its debt service obligations. See “Investment Selection Criteria” for more information.

In addition to engaging in extensive due diligence, our Investment Adviser seeks to reduce risk by focusing on businesses with:

The management team of our Investment Adviser has long-term relationships with financial sponsors, management consultants and management teams that we believe enable us to evaluate investment opportunities effectively in numerous industries, as well as provide us access to substantial information concerning those industries. We identify potential investments both through active origination and through dialogue with numerous financial sponsors, management teams, members of the financial community and corporate partners with whom the professionals of our Investment Adviser have long-term relationships.

We are flexible in structuring investments and tailor investments to meet the needs of a portfolio company while also generating attractive risk-adjusted returns. We can invest in all parts of a capital structure and our Investment Adviser has extensive experience in a wide variety of securities for leveraged companies throughout economic and market cycles.

Our Investment Adviser seeks to minimize the risk of capital loss without foregoing potential for capital appreciation. In making investment decisions, we seek to invest in companies that we believe can generate consistent positive risk-adjusted returns.

We believe that the in-depth experience of our Investment Adviser will enable us to invest throughout various stages of the economic and market cycles and to provide us with ongoing market insights in addition to a significant investment opportunity.

Our primary competitors provide financing to middle-market companies and include other BDCs, commercial and investment banks, commercial finance companies, CLO funds, private direct lending funds, and, to the extent they provide an alternative form of financing, private equity funds. Additionally, alternative investment vehicles, such as hedge funds, frequently invest in middle-market companies. As a result, competition for investment opportunities in middle-market companies can be intense. However, we believe that from time to time there has been a reduction in the amount of debt capital available to middle-market companies, which we believe has resulted in a less competitive environment for making new investments.

Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, we believe some competitors have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC. See “Risk Factors—Risks Relating to our Business and Structure—We operate in a highly competitive market for investment opportunities” for more information.

As of September 30, 2020, we had the multi-currency Truist Credit Facility for up to $475.0 million in borrowings with certain lenders and Truist Bank (formerly SunTrust Bank), acting as administrative agent, and JPMorgan Chase Bank, N.A., acting as syndication agent for the lenders. As of September 30, 2020 and 2019, we had $388.3 million and $301.6 million, respectively, in outstanding borrowings under the Truist Credit Facility. The Truist Credit Facility had a weighted average interest rate of 2.5% and 4.2%, respectively, exclusive of the fee on undrawn commitment, as of September 30, 2020 and 2019. The Truist Credit Facility is a revolving facility with a stated maturity date of September 4, 2024 ($40.0 million of the $475 million commitment will mature May 25, 2022), a one-year term-out period on September 4, 2023 ($40.0 million of the $475 million commitment has a one year term-out period on May 25, 2021) and pricing set at 225 basis points over LIBOR. As of September 30, 2020 and 2019, we had $86.7 million and $173.4 million of unused borrowing capacity under the Truist Credit Facility, respectively, subject to leverage and borrowing base restrictions. The Truist Credit Facility is secured by substantially all of our assets excluding assets held by SBIC II. As of September 30, 2020, we were in compliance with the terms of the Truist Credit Facility.

As of September 30, 2020 and 2019, our SBIC II had $118.5 million and $150.0 million in debt commitments, respectively, all of which was drawn, with a weighted average interest rate of 3.2% and 3.1%, respectively, exclusive of 3.4% of upfront fees. As of September 30, 2020 and 2019, our SBA debentures mature between March 2026 to March 2028, respectively. SBA debentures offer competitive terms such as being non-recourse to us, a 10-year maturity, semi-annual interest payments, not requiring principal payments prior to maturity and may be prepaid at any time without penalty. The SBA debentures are secured by all the investment portfolio assets of SBIC II and have a priority claim over such assets relative to all other creditors. See “Regulation” for more information.

As of September 30, 2020 and 2019, we had $86.3 and $75.0 million in aggregate principal amount of 2024 Notes outstanding, respectively. Interest on the 2024 Notes is paid quarterly on January 15, April 15, July 15 and October 15, at a rate of 5.5% per year, commencing January 15, 2020. The 2024 Notes mature on October 15, 2024. The 2024 Notes are direct unsecured obligations and rank pari passu in right of payment with future unsecured unsubordinated indebtedness. The 2024 Notes are structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, financing vehicles, or similar facilities. The 2024 Notes may be redeemed in whole or in part at our option on or after October 15, 2021 at a redemption price of 100% of the outstanding principal amount of the 2024 Notes plus accrued and unpaid interest.

On February 5, 2019, our stockholders approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the Consolidated Appropriations Act of 2018 (which includes the SBCAA) as approved by our board of directors on November 13, 2018. As a result, the asset coverage requirement applicable to us for senior securities was reduced from 200% (i.e., $1 of debt outstanding for each $1 of equity) to 150% (i.e., $2 of debt outstanding for each $1 of equity), subject to compliance with certain disclosure requirements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information.

We seek to create a diversified portfolio that includes first lien secured debt, second lien secured debt, subordinated debt and, to a lesser extent, equity by targeting an investment size of $10 million to $50 million in securities, on average, of middle-market companies. We expect this investment size to vary proportionately with the size of our capital base. The companies in which we invest are typically highly leveraged, and, in most cases, are not rated by national rating agencies. If such unrated companies were rated, we believe that they would typically receive a rating below investment grade (between BB and CCC under the Standard & Poor’s system) from the national rating agencies. Securities rated below investment grade are often referred to as “leveraged loans,” “high yield” securities or “junk bonds” and are often higher risk compared to debt instruments that are rated above investment grade and have speculative characteristics. In addition, we expect our debt investments to range in maturity from three to ten years.

Over time, we expect that our portfolio will continue to consist primarily of first lien secured debt, second lien secured debt, subordinated debt and, to a lesser extent, equity investments in qualifying assets such as private, or thinly traded or small market-capitalization, U.S. middle-market public companies. In addition, we may invest up to 30% of our portfolio in non-qualifying assets. These non-qualifying assets may include investments in public companies whose securities are not thinly traded or have a market capitalization of greater than $250 million, securities of middle-market companies located outside of the United States and investment companies as defined in the 1940 Act. We may acquire investments in the secondary markets. See “Regulation—Qualifying Assets” and “Investment Selection Criteria” for more information.

Our board of directors has the authority to modify or waive certain of our operating policies and strategies without prior notice and without stockholder approval (except as required by the 1940 Act). However, absent stockholder approval, under the 1940 Act we may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results and value of our common stock. Nevertheless, the effects of changes to our operating policies and strategies may adversely affect our business, our ability to make distributions and the value of our common stock.

Structurally, first lien secured debt ranks senior in priority of payment to second lien secured debt, subordinated debt and equity, and benefits from a senior security interest in the assets of the borrower. As such, other creditors rank junior to our investments in these securities in the event of insolvency. Due to its lower risk profile and often more restrictive covenants as compared to second lien secured debt and subordinated debt, first lien secured debt generally earns a lower return than second lien secured debt and subordinated debt. In some cases first lien secured debt lenders receive opportunities to invest directly in the equity securities of borrowers and from time to time may also receive warrants to purchase equity securities. We evaluate these investment opportunities on a case-by-case basis.

Second lien secured debt usually ranks junior in priority of payment to first lien secured debt. Second lien secured debt holds a second priority with regard to right of payment in the event of insolvency. Second lien secured debt ranks senior to subordinated debt and common and preferred equity in borrowers’ capital structures. Due to its higher risk profile and often less restrictive covenants as compared to first lien secured debt, second lien secured debt generally earns a higher return than first lien secured debt. In many cases, second lien secured debt investors receive opportunities to invest directly in the equity securities of borrowers and from time to time may also receive warrants to purchase equity securities. We evaluate these investment opportunities on a case-by-case basis.

Structurally, subordinated debt usually ranks junior in priority of payment to first lien secured debt and second lien secured debt, and is often unsecured. As such, other creditors may rank senior to us in the event of insolvency. Subordinated debt ranks senior to common and preferred equity in borrowers’ capital structures. Due to its higher risk profile and often less restrictive covenants as compared to first lien secured debt and second lien secured debt, subordinated debt generally earns a higher return than first lien secured debt and second lien secured debt. In many cases, subordinated debt investors receive opportunities to invest directly in the equity securities of borrowers, and from time to time, may also receive warrants to purchase equity securities. We evaluate these investment opportunities on a case-by-case basis.

We are committed to a value-oriented philosophy used by the senior investment professionals of our Investment Adviser who manage our portfolio and seek to minimize the risk of capital loss without foregoing potential for capital appreciation.

We have identified several criteria, discussed below, that we believe are important in identifying and investing in prospective portfolio companies. These criteria provide general guidelines for our investment decisions. However, we caution that not all of these criteria will be met by each prospective portfolio company in which we choose to invest. Generally, we seek to use our experience and access to market information to identify investment opportunities and to structure investments efficiently and effectively.

The Investment Adviser invests in portfolio companies that it believes have developed strong positions within their markets. The Investment Adviser also seeks to invest in portfolio companies that it believes possess competitive advantages, for example, in scale, scope, customer loyalty, product pricing or product quality as compared to their competitors to protect their market position.

Our investment philosophy places a premium on fundamental analysis and has a distinct value-orientation. The Investment Adviser invests in portfolio companies it believes to be stable and well-established, with strong cash flows and profitability. The Investment Adviser believes these attributes indicate portfolio companies that may be well-positioned to maintain consistent cash flow to service and repay their liabilities and maintain growth in their businesses or their relative market share. The Investment Adviser currently does not expect to invest significantly in start-up companies, companies in turnaround situations or companies with speculative business plans, although we are permitted to do so.

The Investment Adviser focuses on investments in which the portfolio company has an experienced management team with an established track record of success. The Investment Adviser typically requires that portfolio companies have in place proper incentives to align management’s goals with our goals, including having equity interests.

The Investment Adviser may seek to cause us to participate in transactions sponsored by what it believes to be trusted financial sponsors. The Investment Adviser believes that a financial sponsor’s willingness to invest significant equity capital in a portfolio company is an implicit endorsement of the quality of that portfolio company. Further, financial sponsors of portfolio companies with significant investments at risk may have the ability, and a strong incentive, to contribute additional capital in difficult economic times should financial or operational issues arise so as to maintain their ownership position.

The Investment Adviser seeks to invest our assets broadly among portfolio companies, across industries and geographical regions. The Investment Adviser believes that this approach may reduce the risk that a downturn in any one portfolio company, industry or geographical region will have a disproportionate impact on the value of our portfolio, although we are permitted to be non-diversified under the 1940 Act.

The Investment Adviser seeks to invest in portfolio companies that it believes will provide a steady stream of cash flow to repay our loans while also reinvesting in their respective businesses. The Investment Adviser expects that such internally generated cash flow, leading to the payment of interest on, and the repayment of the principal of, our investments in portfolio companies to be a key means by which we will exit from our investments over time. In addition, the Investment Adviser also seeks to invest in portfolio companies whose business models and expected future cash flows offer attractive exit possibilities. These companies include candidates for strategic acquisition by other industry participants and companies that may repay our investments through an initial public offering of common stock, refinancing or other capital markets transaction.

We believe it is critical to conduct extensive due diligence in evaluating new investment targets. Our Investment Adviser conducts a rigorous due diligence process that is applied to prospective portfolio companies and draws from our Investment Adviser’s experience, industry expertise and network of contacts. In conducting due diligence, our Investment Adviser uses information provided by companies, financial sponsors and publicly available information as well as information from relationships with former and current management teams, consultants, competitors and investment bankers.

Additional due diligence with respect to any investment may be conducted on our behalf by attorneys and accountants prior to the closing of the investment, as well as other outside advisers, as appropriate.

Upon the completion of due diligence on a portfolio company, the team leading the investment presents the investment opportunity to our Investment Adviser’s investment committee. This committee determines whether to pursue the potential investment. All new investments are required to be reviewed by the investment committee of our Investment Adviser. The members of the investment committee receive no compensation from us. Rather, they are employees of and receive compensation from our Investment Adviser.

Once we determine that a prospective portfolio company is suitable for investment, we work with the management of that portfolio company and its other capital providers, including senior, junior and equity capital providers, to structure an investment. We negotiate with these parties to agree on how our investment is structured relative to the other capital in the portfolio company’s capital structure.

We expect our first lien secured debt to have terms of three to ten years. We generally obtain security interests in the assets of our portfolio companies that will serve as collateral in support of the repayment of these loans. This collateral may take the form of first priority liens on the assets of a portfolio company.

Typically, our second lien secured debt and subordinated debt investments have maturities of three to ten years. Second lien secured debt and subordinated debt may take the form of a second priority lien on the assets of a portfolio company and have interest-only payments in the early years with cash or payment-in-kind, or PIK, payments with amortization of principal deferred to the later years. In some cases, we may invest in debt securities that, by their terms, convert into equity or additional debt securities or defer payments of interest for the first few years after our investment. Also, in some cases, our second lien secured debt and subordinated debt may be collateralized by a subordinated lien on some or all of the assets of the borrower.

We seek to tailor the terms of the investment to the facts and circumstances of the transaction and the prospective portfolio company, negotiating a structure that protects our rights and manages our risk while creating incentives for the portfolio company to achieve its business plan and improve its profitability. For example, in addition to seeking a senior position in the capital structure of our portfolio companies, we seek to limit the downside potential of our investments by:

Our investments may include equity features, such as direct investments in the equity securities of borrowers or warrants or options to buy a minority interest in a portfolio company. Any warrants we may receive with our debt securities generally require only a nominal cost to exercise, so as a portfolio company appreciates in value, we may achieve additional investment return from these equity investments. We may structure the warrants to provide provisions protecting our rights as a minority-interest holder, as well as puts, or rights to sell such securities back to the portfolio company, upon the occurrence of specified events. In many cases, we may also obtain registration rights in connection with these equity investments, which may include demand and “piggyback” registration rights.

We expect to hold most of our investments to maturity or repayment, but we may exit certain investments earlier when a liquidity event, such as the sale or refinancing of a portfolio company, takes place. We also may turn over investments to better position the portfolio in light of market conditions.

The Investment Adviser monitors our portfolio companies on an ongoing basis. The Investment Adviser also monitors the financial trends of each portfolio company to determine if it is meeting its respective business plans and to assess the appropriate course of action for each portfolio company.

The Investment Adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:

The Investment Adviser monitors credit risk of each portfolio company regularly with a goal toward identifying early, and when able and appropriate, exiting investments with potential credit problems. This monitoring process may include reviewing: (1) a portfolio company’s financial resources and operating history; (2) comparing a portfolio company’s current operating results with the Investment Adviser’s initial thesis for the investment and its expectations for the performance of the investment; (3) a portfolio company’s sensitivity to economic conditions; (4) the performance of a portfolio company’s management; (5) a portfolio company’s debt maturities and capital requirements; (6) a portfolio company’s interest and asset coverage; and (7) the relative value of an investment based on a portfolio company’s anticipated cash flow.

We offer significant managerial assistance to our portfolio companies. As a BDC, we are required to make available such significant managerial assistance within the meaning of Section 2(a)(47) of the 1940 Act. See “Regulation” for more information.

We do not currently have any employees. Our Investment Adviser and Administrator have hired and expect to continue to hire professionals with skills applicable to our business plan, including experience in middle-market investing, senior lending, mezzanine lending, leveraged finance, distressed debt and private equity businesses.

Our administrative and principal executive offices are located at 590 Madison Avenue, 15th Floor, New York, NY 10022. Our common stock and 2024 Notes are quoted on The Nasdaq Global Select Market under the symbols “PNNT” and “PNNTG”, respectively. Our phone number is (212) 905-1000, and our Internet website address is www.pennantpark.com. Information contained on our website is not incorporated by reference into this Report and you should not consider information contained on our website to be part of this Report. We file periodic reports, proxy statements and other information with the SEC and make such reports available on our website free of charge as soon as reasonably practicable. In addition, the SEC maintains an Internet website at www.sec.gov that contains material that we file with the SEC on the Electronic Data Gathering, Analysis and Retrieval, or EDGAR, Database.

Our principal investment focus is to provide first lien secured debt, second lien secured debt and subordinated debt to U.S. middle-market companies in a variety of industries. We generally seek to target companies that generate positive cash flows from the broad variety of industries in which our Investment Adviser has direct expertise. The following is an illustrative list of the industries in which the Investment Adviser has invested:

Listed below are our top ten portfolio companies and industries represented as a percentage of our consolidated portfolio assets (excluding cash and cash equivalents) as of September 30:

Our executive officers and directors, as well as the senior investment professionals of the Investment Adviser and Administrator, may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do. Currently, the executive officers and directors, as well as certain of the current senior investment professionals of the Investment Adviser and Administrator, serve as officers and directors of PennantPark Floating Rate Capital Ltd., a publicly traded BDC, and other managed funds, as applicable. Accordingly, they may have obligations to investors in those entities, the fulfillment of which obligations might not be in the best interest of us or our stockholders. In addition, we note that any affiliated investment vehicle currently existing, or formed in the future, and managed by the Investment Adviser and/or its affiliates may, notwithstanding different stated investment objectives, have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. As a result, the Investment Adviser may face conflicts in allocating investment opportunities among us and such other entities. The Investment Adviser will allocate investment opportunities in a fair and equitable manner consistent with our allocation policy, and we have received exemptive relief with respect to certain co-investment transactions. Where co-investment is unavailable or inappropriate, the Investment Adviser will choose which investment fund should receive the allocation. See “Risk Factors—Risks Relating to our Business and Structure—There are significant potential conflicts of interest which could impact our investment returns” for more information.

We have entered into an agreement with the Investment Adviser, or the Investment Management Agreement, under which the Investment Adviser, subject to the overall supervision of our board of directors, manages the day-to-day operations of, and provides investment advisory services to, us. Mr. Penn, our Chairman and Chief Executive Officer, is the managing member and a senior investment professional of, and has a financial and controlling interest in, PennantPark Investment Advisers. PennantPark Investment, through the Investment Adviser, provides similar services to SBIC II under its respective investment management agreement. Such investment management agreement does not affect the management or incentive fees that we pay to the Investment Adviser on a consolidated basis. Under the terms of our Investment Management Agreement, the Investment Adviser:

PennantPark Investment Advisers’ services under our Investment Management Agreement are not exclusive, and it is free to furnish similar services, without the prior approval of our stockholders or our board of directors, to other entities so long as its services to us are not impaired. Our board of directors monitors for any potential conflicts that may arise upon such a development. For providing these services, the Investment Adviser receives a fee from us, consisting of two components—a base management fee and an incentive fee or, collectively, Management Fees.

Effective January 1, 2018, the base management fee is calculated at an annual rate of 1.50% of our “average adjusted gross assets,” which equals our gross assets (exclusive of U.S. Treasury Bills, temporary draws under any credit facility, cash and cash equivalents, repurchase agreements or other balance sheet transactions undertaken at the end of a fiscal quarter for purposes of preserving investment flexibility for the next quarter and unfunded commitments, if any) and is payable quarterly in arrears. In addition, on November 13, 2018, in connection with our board of directors’ approval of the application of the modified asset coverage requirement under the 1940 Act to the Company, our board of directors also approved an amendment to the Investment Advisory Agreement reducing the Investment Adviser’s annual base management fee from 1.50% to 1.00% on gross assets that exceed 200% of the Company’s total net assets as of the immediately preceding quarter-end. This amendment became effective on February 5, 2019 with the amendment and restatement of the Investment Management Agreement on April 12, 2019. The base management fee is calculated based on the average adjusted gross assets at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter. For example, if we sold shares on the 45th day of a quarter and did not use the proceeds from the sale to repay outstanding indebtedness, our gross assets for such quarter would give effect to the net proceeds of the issuance for only 45 days of the quarter during which the additional shares were outstanding. For periods prior to January 1, 2018, the base management fee was calculated at an annual rate of 2.00% of our “average adjusted gross assets”. From December 31, 2015 through December 31, 2017, the Investment Adviser voluntarily agreed, in consultation with the board of directors, to irrevocably waive 16% of base management fees, correlated to our 16% energy exposure (oil & gas and energy & utilities industries) at cost as of December 31, 2015. For the years ended September 30, 2020, 2019 and 2018, the Investment Adviser earned base management fees of $18.6 million, $18.2 million and $16.5 million (after a waiver of $0.9 million), respectively, from us.

The following is a hypothetical example of the calculation of average adjusted gross assets:

U.S. Treasury bills and temporary draws on credit facilities as of December 31, 20XX = $10 million

U.S. Treasury bills and temporary draws on credit facilities as of March 31, 20XX = $20 million

Average value of adjusted gross assets as of March 31, 20XX and December 31, 20XX, which are the two immediately preceding calendar quarters, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter equals ($150 million + $180 million) / 2 = $165 million.

One part is calculated and payable quarterly in arrears based on our Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter. For this purpose, Pre-Incentive Fee Net Investment Income means interest income, dividend income and any other income, including any other fees (other than fees for providing managerial assistance), such as amendment, commitment, origination, prepayment penalties, structuring, diligence and consulting fees or other fees received from portfolio companies, accrued during the calendar quarter, minus our operating expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement (as defined below), and any interest expense or amendment fees under any credit facilities and distribution paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, or OID, debt instruments with PIK interest and zero coupon securities), accrued income not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, computed net of all realized capital losses or unrealized capital appreciation or depreciation. Pre-Incentive Fee Net Investment Income, expressed as a percentage of the value of our net assets at the end of the immediately preceding calendar quarter, is compared to the hurdle rate of 1.75% per quarter (7.00% annualized). Effective January 1, 2018, we pay the Investment Adviser an incentive fee with respect to our Pre-Incentive Fee Net Investment Income in each calendar quarter as follows: (1) no incentive fee in any calendar quarter in which our Pre-Incentive Fee Net Investment Income does not exceed the hurdle rate of 1.75%, (2) 100% of our Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.1212% in any calendar quarter (8.4848% annualized), and (3) 17.5% of the amount of our Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.1212% in any calendar quarter. These calculations are pro-rated for any share issuances or repurchases during the relevant quarter, if applicable. For periods prior to January 1, 2018, we paid the Investment Adviser an incentive fee with respect to our Pre-Incentive Fee Net Investment Income in each calendar quarter as follows: (1) no incentive fee in any calendar quarter in which our Pre-Incentive Fee Net Investment Income did not exceed the hurdle rate of 1.75%, (2) 100% of our Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeded the hurdle rate but was less than 2.1875% in any calendar quarter (8.75% annualized), and (3) 20% of the amount of our Pre-Incentive Fee Net Investment Income, if any, that exceeded 2.1875% in any calendar quarter. From December 31, 2015 through December 31, 2017, the Investment Adviser voluntarily agreed, in consultation with the board of directors, to irrevocably waive 16% of incentive fees, correlated to our 16% energy cost exposure (oil & gas and energy & utilities industries) at cost as of December 31, 2015. Additionally, beginning April 1, 2020 and through September 30, 2020, the Investment Adviser has voluntarily agreed, in consultation with our board of directors, to irrevocably waive the performance-based incentive fees. For the years ended September 30, 2020, 2019 and 2018, the Investment Adviser earned $2.7 million (after a waiver of $1.9 million), $5.1 million and $11.0 million (after a waiver of $0.5 million), respectively, in incentive fees on net investment income from us.

The following is a graphical representation of the calculation of quarterly incentive fee based on Pre-Incentive Fee Net Investment Income:

The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Management Agreement, as of the termination date) and, effective January 1, 2018, equals 17.5% of our realized capital gains (20.0% for periods prior to January 1, 2018), if any, on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. For the years ended September 30, 2020, 2019 and 2018, the Investment Adviser did not accrue an incentive fee on capital gains as calculated under the Investment Management Agreement (as described above).

Under U.S. generally accepted accounting principles, or GAAP, we are required to accrue a capital gains incentive fee based upon net realized capital gains and net unrealized capital appreciation and depreciation on investments held at the end of each period. In calculating the capital gains incentive fee accrual, we considered the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains incentive fee would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Management Agreement. This accrual is calculated using the aggregate cumulative realized capital gains and losses and cumulative unrealized capital appreciation or depreciation. If such amount is positive at the end of a period, then we record a capital gains incentive fee equal to 17.5% of such amount (20.0% for periods prior to January 1, 2018), less the aggregate amount of actual capital gains related to incentive fees paid in all prior years. If such amount is negative, then there is no accrual for such year. There can be no assurance that such unrealized capital appreciation will be realized in the future. For the years ended September 30, 2020, 2019 and 2018, the Investment Adviser did not accrue an incentive fee on capital gains as calculated under GAAP.

Pre-Incentive Fee Net Investment Income does not exceed the hurdle; therefore, there is no incentive fee.

Year 2 = 6% realized capital gains and 1% realized capital losses and unrealized capital depreciation, capital gain incentive fee = 17.5% x (realized capital gains for year computed net of all realized capital losses and unrealized capital depreciation at year end)

PennantPark Investment Advisers is a registered investment adviser under the Investment Advisers Act of 1940, as amended, or the Advisers Act. The principal executive office of PennantPark Investment Advisers is located at 590 Madison Avenue, 15th Floor, New York, NY 10022.

The Investment Management Agreement was reapproved by our board of directors, including a majority of our directors who are not interested persons of us or the Investment Adviser in February 2020. Unless terminated earlier as described below, the Investment Management Agreement will continue in effect for a period of one year through February 2021. It will remain in effect if approved annually by our board of directors, or by the affirmative vote of the holders of a majority of our outstanding voting securities, including, in either case, approval by a majority of our directors who are not interested persons of us or the Investment Adviser. In determining to reapprove the Investment Management Agreement, our board of directors requested information from the Investment Adviser that enabled it to evaluate a number of factors relevant to its determination. These factors included the nature, quality and extent of services performed by the Investment Adviser, the Investment Adviser’s ability to manage conflicts of interest effectively, our short and long-term performance, our costs, including as compared to comparable externally and internally managed publicly traded BDCs that engage in similar investing activities, the Investment Adviser’s profitability, any economies of scale, and any other benefits of the relationship for the Investment Adviser. Based on the information reviewed and the considerations detailed above, our board of directors, including all of our directors who are not interested persons of us or the Investment Adviser, concluded that the investment advisory fee rates and terms are fair and reasonable in relation to the services provided and reapproved the Investment Management Agreement as being in the best interests of our stockholders.

The Investment Management Agreement will automatically terminate in the event of its assignment. The Investment Management Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other. See “Risk Factors—Risks Relating to our Business and Structure—We are dependent upon our Investment Adviser’s key personnel for our future success, and if our Investment Adviser is unable to hire and retain qualified personnel or if our Investment Adviser loses any member of its management team, our ability to achieve our investment objectives could be significantly harmed” for more information.

We have entered into an agreement, or the Administration Agreement, with the Administrator, under which the Administrator furnishes us with office facilities, equipment and clerical, bookkeeping and record keeping services. Under our Administration Agreement, the Administrator performs, or oversees the performance of, our required administrative services, which include, among other activities, being responsible for the financial records we are required to maintain and preparing reports to our stockholders and reports filed with the SEC. In addition, the Administrator assists us in determining and publishing our NAV, oversees the preparation and filing of our tax returns and generally oversees the payment of our expenses and the performance of administrative and professional services rendered to us by others. PennantPark Investment, through the Administrator, provides similar services to SBIC II under its administration agreement with us. For providing these services, facilities and personnel, we have agreed to reimburse the Administrator for its allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including rent, technology systems, insurance and our allocable portion of the cost of compensation and related expenses of our Chief Compliance Officer, Chief Financial Officer and their respective staffs. The Administrator also offers on our behalf, significant managerial assistance to portfolio companies to which we are required to offer such assistance. To the extent that our Administrator outsources any of its functions, we will pay the fees associated with such functions on a direct basis without profit to the Administrator. Reimbursement for certain of these costs is included in administrative services expenses in the Consolidated Statements of Operations. For the years ended September 30, 2020, 2019 and 2018, we reimbursed the Investment Adviser approximately $1.4 million, $1.8 million and $2.0 million, respectively, including expenses the Investment Adviser incurred on behalf of the Administrator for services described above.

The Administration Agreement was reapproved by our board of directors, including a majority of our directors who are not interested persons of us, in February 2020. Unless terminated earlier as described below, our Administration Agreement will continue in effect for a period of one year through February 2021. It will remain in effect if approved annually by our board of directors, or by the affirmative vote of the holders of a majority of our outstanding voting securities, including, in either case, approval by a majority of our directors who are not interested persons of us. The Administration Agreement may not be assigned by either party without the consent of the other party. The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other.

Our Investment Management Agreement and Administration Agreement provide that, absent willful misfeasance, bad faith or gross negligence in the performance of their duties or by reason of the reckless disregard of their duties and obligations, PennantPark Investment Advisers and PennantPark Investment Administration and their officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with them are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of PennantPark Investment Advisers’ and PennantPark Investment Administration’s services under our Investment Management Agreement or Administration Agreement or otherwise as Investment Adviser or Administrator for us.

We have entered into a license agreement, or the License Agreement, with PennantPark Investment Advisers pursuant to which PennantPark Investment Advisers has granted us a royalty-free, non-exclusive license to use the name “PennantPark.” Under this agreement, we have a right to use the PennantPark name, for so long as PennantPark Investment Advisers or one of its affiliates remains our Investment Adviser. Other than with respect to this limited license, we have no legal right to the “PennantPark” name.

On July 31, 2020, we and Pantheon formed PSLF, an unconsolidated joint venture. PSLF invests primarily in middle-market and other corporate debt securities consistent with our strategy. PSLF was formed as a Delaware limited liability company. As of September 30, 2020, PSLF had total assets of $361.8 million, and its portfolio consisted of debt investments in 37 portfolio companies. As of September 30, 2020, at fair value, the largest investment in a single portfolio company in PSLF was $18.4 million and the five largest investments totaled $77.9 million. PSLF invests in portfolio companies in the same industries in which we may directly invest.

We provide capital to PSLF in the form of subordinated notes and equity interests. As of September 30, 2020, we and Pantheon owned 72% and 28%, respectively, of each of the outstanding subordinated notes and equity interests of PSLF. As of the same date, our investment in PSLF consisted of subordinated notes of $63.0 million and equity interests of $36.3 million.

Business Development Company, Regulated Investment Company Regulations and Small Business Investment Company Regulations

We are a BDC under the 1940 Act, which has qualified and intends to continue to qualify to maintain an election to be treated as a RIC under Subchapter M of the Code. The 1940 Act contains prohibitions and restrictions relating to transactions between a BDC and its affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than “interested persons,” as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by holders of a majority of our outstanding voting securities.

We may invest up to 100% of our assets in securities acquired directly from issuers in privately negotiated transactions. With respect to such securities, we may, for the purpose of public resale, be deemed an “underwriter” as that term is defined in the Securities Act of 1933, as amended, or the Securities Act. We may purchase or otherwise receive warrants to purchase the common stock of our portfolio companies in connection with acquisition financing or other investments. Similarly, in connection with an acquisition, we may acquire rights to require the issuers of securities we own or their affiliates to repurchase them under certain circumstances. We do not intend to acquire securities issued by any registered investment company that exceed the limits imposed by the 1940 Act. Under these limits, we generally cannot acquire more than 3% of the voting stock of any registered investment company, invest more than 5% of the value of our total assets in the securities of one registered investment company or invest more than 10% of the value of our total assets in the securities of more than one registered investment company. With regard to that portion of our portfolio invested in securities issued by investment companies, it should be noted that such investments might subject our stockholders to additional expenses. We may enter into hedging transactions to manage the risks associated with interest rate and currency fluctuations. None of these policies are fundamental and they may be changed without stockholder approval.

Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the BDC’s total assets. The principal categories of qualifying assets relevant to our business are the following:

In addition, a BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above.

As a BDC, we are required to make available significant managerial assistance to our portfolio companies that constitute a qualifying asset within the meaning of Section 2(a)(47) of the 1940 Act. However, if a BDC purchases securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such significant managerial assistance. Making available significant managerial assistance means any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company. Our Administrator may provide such assistance on our behalf to portfolio companies that request such assistance. Officers of our Investment Adviser and Administrator may provide assistance to controlled affiliates.

Pending investments in other types of qualifying assets, as described above, may consist of cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets. We may invest in U.S. Treasury bills or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the U.S. government or its agencies. A repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements. However, if more than 25% of our total assets constitute repurchase agreements from a single counterparty, we would not meet the Diversification Tests, as defined below under “Regulation—Election to be Treated as a RIC,” in order to qualify as a RIC for federal income tax purposes. Thus, we do not intend to enter into repurchase agreements with a single counterparty in excess of this limit. Our Investment Adviser will monitor the creditworthiness of the counterparties with which we may enter into repurchase agreement transactions.

We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act and referred to as the asset coverage ratio, is compliant with the 1940 Act, immediately after each such issuance. In addition, while any senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage requirement at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to our asset coverage ratio. We received exemptive relief from the SEC allowing us to modify the asset coverage requirement to exclude the SBA debentures from the calculation. For a discussion of the risks associated with leverage, see “Risk Factors—Risks Relating to our Business and Structure—Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital” for more information.

We and PennantPark Investment Advisers have adopted a joint code of ethics pursuant to Rule 17j-1 under the 1940 Act and a code of conduct that establish procedures for personal investments and restricts certain personal securities transactions. Personnel subject to each code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the codes’ requirements. Our joint code of ethics and code of conduct are available, free of charge, on our website at www.pennantpark.com. In addition, the joint code of ethics is attached as an exhibit to this Report and is available on the EDGAR Database on the SEC’s Internet site at www.sec.gov. You may also obtain a copy of our joint code of ethics, after paying a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov.

We have delegated our proxy voting responsibility to our Investment Adviser. The Proxy Voting Policies and Procedures of our Investment Adviser are set forth below. The guidelines are reviewed periodically by our Investment Adviser and our non-interested directors, and, accordingly, are subject to change. For purposes of these Proxy Voting Policies and Procedures described below, “we,” “our” and “us” refer to our Investment Adviser.

As an investment adviser registered under the Advisers Act, we have a fiduciary duty to act solely in the best interests of our clients. As part of this duty, we recognize that we must vote client securities in a timely manner free of conflicts of interest and in the best interests of our clients.

These policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.

We vote proxies relating to our portfolio securities in what we perceive to be the best interests of our stockholders. We review on a case-by-case basis each proposal submitted to a stockholder vote to determine its impact on the portfolio securities held by our clients. Although we will generally vote against proposals that may have a negative impact on our clients’ portfolio securities, we may vote for such a proposal if there exists compelling long-term reasons to do so.

Our proxy voting decisions are made by the senior investment professionals who are responsible for monitoring each of our clients’ investments. To ensure that our vote is not the product of a conflict of interest, we require that: (1) anyone involved in the decision making process disclose to our Chief Compliance Officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (2) employees involved in the decision making process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to reduce any attempted influence from interested parties.

You may obtain information about how we voted proxies, free of charge, by calling us collect at (212) 905-1000 or by making a written request for proxy voting information to: Aviv Efrat, Chief Financial Officer and Treasurer, 590 Madison Avenue, 15th Floor, New York, New York 10022.

We are committed to maintaining the privacy of our stockholders and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.

Generally, we do not receive any non-public personal information relating to our stockholders, although certain non-public personal information of our stockholders may become available to us. We do not disclose any non-public personal information about our stockholders or former stockholders to anyone, except as permitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third party administrator).

We restrict access to non-public personal information about our stockholders to employees of our Investment Adviser and its affiliates with a legitimate business need for the information. We maintain physical, electronic and procedural safeguards designed to protect the non-public personal information of our stockholders.

Our privacy protection policies are available, free of charge, on our website at www.pennantpark.com. In addition, the privacy policy is available on the EDGAR Database on the SEC’s Internet website at www.sec.gov, filed as an exhibit to our annual report on Form 10-K (File No. 814-00736), filed on November 16, 2011.

We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our board of directors, including a majority of our directors who are not interested persons of us, and, in some cases, prior approval by the SEC.

We will be periodically examined by the SEC and SBA for compliance with the 1940 Act and 1958 Act, respectively.

We are required by law to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.

We and PennantPark Investment Advisers have each adopted and implemented written policies and procedures reasonably designed to prevent violation of the federal securities laws. We review these policies and procedures annually for their adequacy and the effectiveness of their implementation, and we designate a Chief Compliance Officer to be responsible for administering the policies and procedures.

The Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, imposes several regulatory requirements on publicly held companies and their insiders. Many of these requirements affect us.

The Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated there-under. We continue to monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act and continue to take actions necessary to ensure that we are in compliance with that act.

We have elected to be treated, and intend to qualify annually to maintain our election to be treated, as a RIC under Subchapter M of the Code. To maintain our RIC tax election, we must, among other requirements, meet certain annual source-of-income and quarterly asset diversification requirements (as described below). We also must annually distribute dividends for U.S. federal income tax purposes to our stockholders of an amount generally at least equal to 90% of the sum of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, or investment company taxable income, and determined without regard to any deduction for dividends paid out of the assets legally available for distribution, or the Annual Distribution Requirement.

Although not required for us to maintain our RIC tax status, in order to preclude the imposition of a 4% nondeductible federal excise tax imposed on RICs, we must distribute in respect of each calendar year dividends to our stockholders of an amount at least equal to the sum of (1) 98% of our net ordinary income (subject to certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gain net income (i.e., the excess, if any, of our capital gains over capital losses), adjusted for certain ordinary losses, generally for the one-year period ending on October 31 of the calendar year plus (3) any net ordinary income or capital gain net income for the preceding years that was not distributed during such years on which we did not incur any corporate income tax, or the Excise Tax Avoidance Requirement. Although we may distribute realized net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually, out of the assets legally available for such distributions in the manner described above, we may retain and incur tax on such net capital gains or investment company taxable income, subject to maintaining our ability to be treated as a RIC for federal income tax purposes, in order to provide us with additional liquidity.

While we intend to make sufficient distributions each taxable year to avoid incurring any material U.S. federal excise tax on our earnings, we may not be able to, or may choose not to, distribute amounts sufficient to avoid the imposition of the tax entirely. In that event, we generally will be liable for the excise tax only on the amount by which we do not meet the Excise Tax Avoidance Requirement. Under certain circumstances, however, we may, in our sole discretion, determine that it is in our best interests to retain a portion of our income or capital gains rather than distribute such amount as dividends and accordingly cause us to bear the excise tax burden associated therewith.

We may invest in partnerships which may result in our being subject to additional state, local or foreign income, franchise or other tax liabilities. In addition, some of the income and fees that we may recognize will not satisfy the 90% Income Test. In order to mitigate the risk that such income and fees would disqualify us as a RIC as a result of a failure to satisfy the 90% Income Test, we may be required to recognize such income and fees indirectly through the Taxable Subsidiaries, which are classified as corporations for U.S. federal income tax purposes. The Taxable Subsidiaries generally will be subject to corporate income taxes on their earnings, which ultimately will reduce our return on such income and fees.

If we qualify as a RIC, and satisfy the Annual Distribution Requirement, then we will not be subject to federal income tax on the portion of our investment company taxable income and net capital gains, determined without regard to any deduction for dividends paid, we distribute (or are deemed to distribute) as dividends for U.S. federal income tax purposes to stockholders. Additionally, upon satisfying these requirements, we will be subject to U.S. federal income tax at the regular corporate rates on any investment company taxable income or net capital gains, determined without regard to any deduction for dividends paid, that is not distributed (or not deemed to have been distributed) as dividends for U.S. federal income tax purposes to our stockholders.

We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold a debt instrument that is treated under applicable tax rules as having OID (such as debt instruments with PIK interest or, in certain cases, increasing interest rates or issued with warrants), we must include in income each taxable year a portion of the OID that accrues over the life of the debt instrument, regardless of whether cash representing such income is received by us in the same taxable year. Because any OID accrued will be included in our investment company taxable income in the taxable year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.

We invest in below investment grade instruments. Investments in these types of instruments may present special tax issues for us. U.S. federal income tax rules are not entirely clear about issues such as when we may cease to accrue interest, OID or market discount, when and to what extent deductions may be taken for bad debts or worthless debt instruments, how payments received on obligations in default should be allocated between principal and income and whether exchanges of debt instruments in a bankruptcy or workout context are taxable. We will address these and other issues to the extent necessary in order to continue to maintain our qualification to be subject to tax as a RIC.

Gain or loss realized by us from equity securities and warrants acquired by us, as well as any loss attributable to the lapse of such warrants, generally will be treated as capital gain or loss. Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant.

We are authorized to borrow funds and to sell assets in order to satisfy our Annual Distribution Requirement or the Excise Tax Avoidance Requirement. However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt instruments and other senior securities are outstanding unless certain asset coverage requirements are met. Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.

We may distribute our common stock as a dividend from our taxable income and a stockholder could receive a portion of such distributions declared and distributed by us in shares of our common stock with the remaining amount in cash. A stockholder will be considered to have recognized dividend income generally equal to the fair market value of the stock paid by us plus cash received with respect to such dividend. The total dividend declared and distributed by us would be taxable income to a stockholder even though only a small portion of the dividend was paid in cash to pay any taxes due on the total dividend. We have not yet elected to distribute stock as a dividend but reserve the right to do so.

If we fail to satisfy the Annual Distribution Requirement or fail to qualify as a RIC in any taxable year, unless certain cure provisions of the Code apply, we will be subject to tax in that taxable year on all of our taxable income at regular corporate rates, regardless of whether we make any dividend distributions to our stockholders. In that case, all of our income will be subject to corporate-level federal income tax, reducing the amount available to be distributed to our stockholders. In contrast, assuming we qualify as a RIC, our corporate-level federal income tax should be substantially reduced or eliminated. See “Election to be Treated as a RIC” above for more information.

If we are unable to maintain our status as a RIC, we also would not be able to deduct distributions to stockholders, nor would distributions be required to be made. Distributions would generally be taxable as dividends to our stockholders as ordinary dividend income to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code, U.S. non-corporate stockholders generally would be eligible to treat such dividends as “qualified dividend income,” which generally would be subject to reduced rates of U.S. federal income tax, and dividends paid by us to certain U.S. corporate stockholders would be eligible for the dividends received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis in our common stock, and any remaining distributions would be treated as a capital gain. Moreover, if we fail to qualify as a RIC in any taxable year, to qualify again to be treated as a RIC for federal income tax purposes in a subsequent taxable year, we would be required to distribute our earnings and profits attributable to any of our non-RIC taxable years as dividends to our stockholders. In addition, if we fail to qualify as a RIC for a period greater than two consecutive taxable years, to qualify as a RIC in a subsequent taxable year we may be subject to regular corporate tax on any net built-in gains with respect to certain of our assets (that is, the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if we had sold the property at fair market value at the end of the taxable year) that we elect to recognize on requalification or when recognized over the next five taxable years.

SBIC II is licensed under the SBA as a SBIC under Section 301(c) of the 1958 Act and received its license in 2013. During the year ended September 30, 2019, we liquidated and dissolved SBIC I.

SBICs are designed to stimulate the flow of capital to businesses that meet specified eligibility requirements discussed below. Under SBA regulations, SBIC II is subject to regulatory requirements including making investments in SBA eligible businesses, investing at least 25% of regulatory capital in eligible smaller businesses, placing certain limitations on the financing terms of investments, prohibiting investing in certain industries, and required capitalization thresholds among other regulations. Furthermore, SBIC II is subject to periodic audits and examinations of their financial statements that are prepared on a basis of accounting other than GAAP pursuant to SBA accounting standards and financial reporting requirements for SBICs. For example, SBIC II does not use fair value accounting on its assets or liabilities under SBA valuation guidelines. If SBIC II fails to comply with applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit use of debentures, declare outstanding debentures immediately due and payable, and/or limit SBIC II from making new investments. In addition, the SBA can revoke or suspend a license for willful or repeated violation of, or willful or repeated failure to observe, any provision of the 1958 Act or any rule or regulation promulgated thereunder. These actions by the SBA would, in turn, negatively affect us.

Under present SBA regulations, eligible small business include businesses that (together with their affiliates) have tangible net worth not exceeding $19.5 million and have average annual net income of $6.5 million for the two most recent fiscal years. In addition, SBIC II must invest at least 25% of investments in “smaller” concerns. A smaller concern is a business that has tangible net worth not exceeding $6.0 million and has average annual net income not exceeding $2.0 million for the two most recent fiscal years or, as an alternative to the aforementioned requirement, meet the size requirements based on either the number of employees or gross revenue, which is based on the industry in which the smaller concern operates. Once an SBIC has invested in a company, it may continue to make follow-on investments in the company, regardless of the size of the business, up and until the time a business offers its securities in a public market.

The SBA prohibits an SBIC from financing small businesses in certain industries such as relending, gambling, oil and gas exploration and other passive businesses. Additional SBA prohibitions include investing outside the United States, investing more than 30% of regulatory capital in one company and lending money to any officer, director or employee or to invest in any affiliate thereof. The SBA places certain limits on the financing terms of investments by SBIC II in portfolio companies such as limiting the interest rate on debt securities and loans provided to portfolio companies. The SBA also limits fees, prepayment terms and other economic arrangements that are typically charged in lending arrangements.

The SBA also prohibits, without prior written approval, a “change in control” of SBIC II or transfers that would result in any person or group owning 10% or more of a class of capital stock (or its equivalent in the case of a partnership) of a licensed SBIC. A “change of control” is any event which would result in the transfer of power, direct or indirect, to direct management and policies of an SBIC, whether through ownership, contractual arrangements or otherwise.

The SBA limits an SBIC to investing idle funds in the following types of securities:

SBA-guaranteed debentures are non-recourse to us, have a 10-year maturity, and may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed at the time of issuance at a market-driven spread over 10-year U.S. Treasury Notes. Leverage through SBA-guaranteed debentures is subject to required capitalization thresholds. SBA current regulations limit the amount that an SBIC may borrow to a maximum of $175.0 million, which is up to twice its regulatory capital, and a maximum of $350.0 million as part of a group of SBICs under common control.

Before you invest in our securities, you should be aware of various risks, including those described below. You should carefully consider these risk factors, together with all of the other information included in this Report, before you decide whether to make an investment in our securities. The risks set out below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may have a material adverse effect on our business, financial condition and/or operating results. If any of the following events occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our NAV, the trading price of our common stock, our 2024 Notes, or any securities we may issue, may decline, and you may lose all or part of your investment.

We are subject to various covenants under our Credit Facility which, if not complied with, could result in reduced availability and/or mandatory prepayments under our Credit Facility and SBA debentures.

In addition to the asset coverage ratio requirements, our Credit Facility contains various covenants which, if not complied with, could accelerate repayment under the Credit Facility. This could have a material adverse effect on our business, financial condition and results of operations. Our borrowings under our Credit Facility are collateralized by the assets in our investment portfolio, excluding those portfolio investments held by SBIC II. The agreements governing the Credit Facility require us to comply with certain financial and operational covenants. These covenants include:

In addition to the Credit Facility, SBIC II has issued SBA debentures that require us and SBIC II to generate sufficient cash flow to make required interest payments. Further, SBIC II must maintain a minimum capitalization that, if impaired, could materially and adversely affect our liquidity, financial condition and results of operations by accelerating repayment under the SBA debentures. Our borrowings under the SBA debentures are secured by the assets of SBIC II.

Our continued compliance with these covenants depends on many factors, some of which are beyond our control. A material decrease in our NAV in connection with additional borrowings could result in an inability to comply with our obligation to restrict the level of indebtedness that we are able to incur in relation to the value of our assets or to maintain a minimum level of stockholders’ equity. This could have a material adverse effect on our operations, as it would reduce availability under the Credit Facility and could trigger mandatory prepayment obligations under the terms of the Credit Facility.

A number of entities compete with us to make the types of investments that we make in middle-market companies. We compete with public and private funds, including other BDCs, commercial and investment banks, commercial financing companies, CLO funds and, to the extent they provide an alternative form of financing, private equity funds. Additionally, alternative investment vehicles, such as hedge funds, also invest in middle-market companies. As a result, competition for investment opportunities at middle-market companies can be intense. Many of our potential competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, we believe some competitors have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify and make investments that are consistent with our investment objectives.

Participants in our industry compete on several factors, including price, flexibility in transaction structuring, customer service, reputation, market knowledge and speed in decision-making. We do not seek to compete primarily based on the interest rates we offer, and we believe that some of our competitors may make loans with interest rates that are lower than the rates we offer. We may lose investment opportunities if we do not match our competitors’ pricing, terms and structure. However, if we match our competitors’ pricing, terms and structure, we may experience decreased net interest income and increased risk of credit loss.

Our borrowers may default on their payments, which may have a materially negative effect on our financial performance.

Our primary business exposes us to credit risk, and the quality of our portfolio has a significant impact on our earnings. Credit risk is a component of our fair valuation of our portfolio companies. Negative credit events will lead to a decrease in the fair value of our portfolio companies.

In addition, market conditions have affected consumer confidence levels, which may harm the business of our portfolio companies and result in adverse changes in payment patterns. Increased delinquencies and default rates would negatively impact our results of operations. Deterioration in the credit quality of our portfolio could have a material adverse effect on our business, financial condition and results of operations. If interest rates rise, some of our portfolio companies may not be able to pay the escalating interest on our loans and may default.

We make long-term loans and debt investments, which may involve a high degree of repayment risk. Our investments with a deferred interest feature, such as OID income and PIK interest, could represent a higher credit risk than investments that must pay interest in full in cash on a regular basis. We invest in companies that may have limited financial resources, typically are highly leveraged and may be unable to obtain financing from traditional sources. Accordingly, a general economic downturn or severe tightening in the credit markets could materially impact the ability of our borrowers to repay their loans, which could significantly damage our business. Numerous other factors may affect a borrower’s ability to repay its loan, including the failure to meet its business plan or a downturn in its industry. A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans or foreclosure on the secured assets. This could trigger cross-defaults under other agreements and jeopardize our portfolio company’s ability to meet its obligations under the loans or debt securities that we hold. In addition, our portfolio companies may have, or may be permitted to incur, other debt that ranks senior to or equally with our securities. This means that payments on such senior-ranking securities may have to be made before we receive any payments on our subordinated loans or debt securities. Deterioration in a borrower’s financial condition and prospects may be accompanied by deterioration in any related collateral and may adversely affect our financial condition and results of operations.

Any unrealized losses we experience on our investment portfolio may be an indication of future realized losses, which could reduce our income available for distribution.

As a BDC, we are required to carry our investments at fair value, which is derived from a market value or, if no market value is ascertainable or if market value does not reflect the fair value of such investment in the bona fide determination of our board of directors, then we would carry our investments at fair value, as determined in good faith by or under the direction of our board of directors. Decreases in the market values or fair values of our investments are recorded as unrealized depreciation or loss. Unrealized losses of any given portfolio company could be an indication of such company’s inability in the future to meet its repayment obligations to us.

If the fair value of our portfolio companies reflects unrealized losses that are subsequently realized, we could experience reductions of our income available for distribution in future periods that could materially harm our results of operations and cause a material decline in the value of our publicly traded common stock.

We are dependent upon our Investment Adviser’s key personnel for our future success, and if our Investment Adviser is unable to hire and retain qualified personnel or if our Investment Adviser loses any member of its management team, our ability to achieve our investment objectives could be significantly harmed.

We depend on the diligence, skill and network of business contacts of the senior investment professionals of our Investment Adviser for our future success. We also depend, to a significant extent, on PennantPark Investment Advisers’ access to the investment information and deal flow generated by these senior investment professionals and any others that may be hired by PennantPark Investment Advisers. Subject to the overall supervision of our board of directors, the managers of our Investment Adviser evaluate, negotiate, structure, close and monitor our investments. Our future success depends on the continued service of management personnel of our Investment Adviser. The departure of managers of PennantPark Investment Advisers could have a material adverse effect on our ability to achieve our investment objectives. In addition, we can offer no assurance that PennantPark Investment Advisers will remain our Investment Adviser. The Investment Adviser has the right, under the Investment Management Agreement, to resign at any time upon 60 days’ written notice, whether we have found a replacement or not.

If our Investment Management Agreement is terminated, our costs under new agreements that we enter into may increase. In addition, we will likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under our Investment Management Agreement. Any new investment management agreement would also be subject to approval by our stockholders.

We are exposed to risks associated with changes in interest rates that may affect our cost of capital and net investment income.

Since we borrow money to make investments, our net investment income depends, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds will increase and the interest rate on investments with an interest rate floor will not increase until interest rates exceed the applicable floor, which will reduce our net investment income. We may use interest rate risk management techniques, such as total return swaps and interest rate swaps, in an effort to limit our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act and applicable commodities laws. These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. Also, we have limited experience in entering into hedging transactions and we will initially have to purchase or develop such expertise, which may diminish the

actual benefits of any hedging strategy we employ. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures about Market Risk” for more information.

A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments once the interest rate exceeds the applicable floor. Accordingly, an increase in interest rates would make it easier for us to meet or exceed the incentive fee hurdle and may result in a substantial increase of the amount of incentive fees payable to our Investment Adviser with respect to Pre-Incentive Fee Net Investment Income.

General interest rate fluctuations may have a substantial negative impact on our investments, the value of our common stock and our rate of return on invested capital. A reduction in interest rates may result in both lower interest rates on new investments and higher repayments on current investments with higher interest rates, which may have an adverse impact on our net investment income. An increase in interest rates could decrease the value of any investments we hold which earn fixed interest rates or are subject to interest rate floors and also could increase our interest expense on our Credit Facility, thereby decreasing our net investment income. Also, an increase in interest rates available to investors could make an investment in our common stock less attractive if we are not able to increase our dividend rate, which could reduce the value of our common stock.

If general interest rates rise, there is a risk that the portfolio companies in which we hold floating rate securities will be unable to pay escalating interest amounts, which could result in a default under their loan documents with us. Rising interest rates could also cause portfolio companies to shift cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and operations and could, over time, lead to increased defaults. In addition, rising interest rates may increase pressure on us to provide fixed rate loans to our portfolio companies, which could adversely affect our net investment income, as increases in our cost of borrowed funds would not be accompanied by increased interest income from such fixed-rate investments.

Changes relating to the LIBOR calculation process may adversely affect the value of the LIBOR-indexed, floating-rate debt securities in our portfolio or issued by us.

In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. At this time, no consensus exists as to what rate or rates will become accepted alternatives to LIBOR, although the U.S. Federal Reserve, in connection with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with the Secured Overnight Financing Rate (“SOFR”). Given the inherent differences between LIBOR and SOFR, or any other alternative benchmark rate that may be established, there are many uncertainties regarding a transition from LIBOR, including, but not limited to, the need to amend all contracts with LIBOR as the referenced rate and how this will impact the cost of variable rate debt and certain derivative financial instruments. In addition, SOFR or other replacement rates may fail to gain market acceptance. Any failure of SOFR or alternative reference rates to gain market acceptance could adversely affect the return on, value of and market for securities linked to such rates.

The effect of the establishment of alternative reference rates or any other reforms to LIBOR or other reference rates (including whether LIBOR will continue to be an acceptable market benchmark) cannot be predicted at this time, and the transition away from LIBOR and other current reference rates to alternative reference rates is complex and could have a material adverse effect on our business, financial condition and results of operations. Factors such as the pace of the transition to replacement or reformed rates, the specific terms and parameters for and market acceptance of any alternative reference rate, prices of and the liquidity of trading markets for products based on alternative reference rates, and our ability to transition and develop appropriate systems and analytics for one or more alternative reference rates could also have a material adverse effect on our business, financial condition and results of operations. We may also need to renegotiate any credit or similar agreements extending beyond 2021 with our portfolio companies that utilize LIBOR as a factor in determining the interest rate and our Credit Facility to replace LIBOR with the new standard that is established. If the agreements with our portfolio companies are unable to be renegotiated, our investments may bear interest at a lower rate, which would decrease investment income and potentially the value of such investments. If we are unable to renegotiate our Credit Facility, amounts drawn under our Credit Facility may bear interest at a higher rate, which would increase the cost of our borrowings and, in turn, affect our results of operations.

Our financial condition and results of operation depend on our ability to manage future growth effectively.

Our ability to achieve our investment objectives depends on our ability to grow, which depends, in turn, on our Investment Adviser’s ability to identify, invest in and monitor companies that meet our investment selection criteria. Accomplishing this result on a cost-effective basis is largely a function of our Investment Adviser’s structuring of the investment process, its ability to provide competent, attentive and efficient services to us and our access to financing on acceptable terms. The management team of PennantPark Investment Advisers has substantial responsibilities under our Investment Management Agreement. In order for us to grow, our Investment Adviser will need to hire, train, supervise and manage new employees. However, we can offer no assurance that any current or future employees will contribute effectively to the work of, or remain associated with, the Investment Adviser. We caution you that the principals of our Investment Adviser or Administrator may also be called upon to provide and currently do provide significant managerial assistance to portfolio companies and other investment vehicles, including other BDCs, which are managed by the Investment Adviser. Such demands on their time may distract them or slow our rate of investment. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of operations.

We are highly dependent on information systems and systems failures could have a material adverse effect on our business, financial condition and results of operations.

Our business depends on the communications and information systems, including financial and accounting systems, of the Investment Adviser, the Administrator and our sub-administrator. Any failure or interruption of such systems could cause delays or other problems in our activities. This, in turn, could have a material adverse effect on our business, financial condition and results of operations.

We may not replicate the historical performance of other investment companies and funds with which our senior and other investment professionals have been affiliated.

The 1940 Act imposes numerous constraints on the investment activities of BDCs. For example, BDCs are required to invest at least 70% of their total assets primarily in securities of U.S. private companies or thinly traded public companies (i.e., public companies with a market capitalization of less than $250 million), cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. These constraints may hinder the Investment Adviser’s ability to take advantage of attractive investment opportunities and to achieve our investment objectives. In addition, the investment philosophy and techniques used by the Investment Adviser may differ from those used by other investment companies and funds advised by the Investment Adviser. Accordingly, we can offer no assurance that we will replicate the historical performance of other investment companies and funds with which our senior and other investment professionals have been affiliated, and we caution that our investment returns could be substantially lower than the returns achieved by such other companies.

Any failure on our part to maintain our status as a BDC would reduce our operating flexibility.

If we do not remain a BDC, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially more regulatory restrictions under the 1940 Act and correspondingly decrease our operating flexibility, which could have a material adverse effect on our business, financial condition and results of operations.

Loss of RIC tax status would substantially reduce our net assets and income available for debt service and distributions.

We have operated and continue to operate so as to maintain our election to be treated as a RIC under Subchapter M of the Code. If we meet the 90% Income Test, the Diversification Tests, and the Annual Distribution Requirement, we generally will not be subject to corporate-level income taxation on income we timely distribute, or deem to

distribute, as dividends for U.S. federal income tax purposes to our stockholders. We would cease to qualify for such tax treatment if we were unable to comply with these requirements. In addition, we may have difficulty meeting our Annual Distribution Requirement to our stockholders because, in certain cases, we may recognize income before or without receiving cash representing such income. If we fail to qualify as a RIC, we will have to pay corporate-level taxes on all of our income whether or not we distribute it, which would substantially reduce the amount of income available for debt service as well as reduce and/or affect the character and amount of our distributions to our stockholders. Even if we qualify as a RIC, we generally will be subject to a 4% nondeductible excise tax if we do not distribute to our stockholders in respect of each calendar year of an amount at least equal to the Excise Tax Avoidance Requirement.

We may have difficulty paying our Annual Distribution Requirement if we recognize income before or without receiving cash representing such income.

For federal income tax purposes, we include in income certain amounts that we have not yet received in cash, such as OID and PIK interest, which represents interest added to the loan balance and due at the end of the loan term. OID, which could be significant relative to our overall investment assets, and increases in loan balances as a result of PIK interest will be included in income before we receive any corresponding cash payments. We also may be required to include in income certain other amounts that we will not receive in cash, such as amounts attributable to foreign currency transactions. Our investments with a deferred interest feature, such as PIK interest, may represent a higher credit risk than loans for which interest must be paid in full in cash on a regular basis. For example, even if the accounting conditions for income accrual are met, the borrower could still default when our actual collection is scheduled to occur upon maturity of the obligation.

The part of the incentive fee payable by us that relates to our net investment income is computed and paid on income that may include interest that has been accrued but not yet received in cash. If a portfolio company defaults on a loan that is structured to provide PIK or OID interest, it is possible that accrued interest previously used in the calculation of the incentive fee will become uncollectible.

If we are unable to satisfy the Annual Distribution Requirement, we may have to sell some of our investments at times or prices we would not consider advantageous, or raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements, which could have a material adverse effect on our business, financial condition and results of operations. If we are not able to obtain cash from other sources, we may lose our ability to be subject to tax as a RIC and thus be subject to corporate-level income tax.

A BDC has historically been able to issue “senior securities,” including borrowing money from banks or other financial institutions, only in amounts such that its asset coverage, as defined in Section 61(a)(2) of the 1940 Act, equals at least 200% after such incurrence or issuance. In March 2018, the Consolidated Appropriations Act of 2018 (which includes the SBCAA) was enacted which amended the 1940 Act to decrease this percentage from 200% (i.e., $1 of debt outstanding for each $1 of equity) to 150% (i.e., $2 of debt outstanding for each $1 of equity) for a BDC that has received either stockholder approval or approval of a “required majority” (as defined in Section 57(o) of the 1940 Act) of its board of directors of the application of such lower asset coverage ratio to the BDC. On February 5, 2019, our stockholders approved such reduction, as approved by our board of directors on November 13, 2018. As of February 5, 2019, we are able to incur additional indebtedness so long as we comply with the applicable disclosure requirements, which may increase the risk of investing in us. Under the 200% minimum asset coverage ratio, we were permitted to borrow up to one dollar for investment purposes for every one dollar of investor equity and, under the 150% minimum asset coverage ratio, we are permitted to borrow up to two dollars for investment purposes for every one dollar of investor equity. In other words, Section 61(a)(2) of the 1940 Act permits BDCs to potentially increase their debt-to-equity ratio from a maximum of 1-to-1 to a maximum of 2-to-1. In addition, since our base management fee is determined and payable based upon our average adjusted gross assets, which includes any borrowings for investment purposes, our base management fee expense may increase if we incur additional leverage. Effective February 5, 2019, base management fees were reduced from 1.50% to 1.00% on gross assets that exceed 200% of our total net assets as of the immediately preceding quarter-end.

Because we intend to distribute substantially all of our income to our stockholders to maintain our ability to be subject to tax as a RIC, we may need to raise additional capital to finance our growth. If funds are not available to us, we may need to curtail new investments, and our common stock value could decline.

In connection with satisfying the requirements to be subject to tax as a RIC, we intend to distribute to our stockholders substantially all of our investment company taxable income and net capital gains each taxable year. However, we may retain all or a portion of our net capital gains and incur applicable income taxes with respect thereto and elect to treat such retained net capital gains as deemed dividend distributions to our stockholders.

As noted above, on November 13, 2018 and February 5, 2019, our board of directors, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act), and our stockholders, respectively, approved a reduction of our asset coverage ratio from 200% to 150%. As a result, as of February 6, 2019, the asset coverage requirement applicable to us for senior securities was reduced from 200% (i.e., $1 of debt outstanding for each $1 of equity) to 150% (i.e., $2 of debt outstanding for each $1 of equity). If we incur additional indebtedness under this provision, the risk of investing in us will increase. If the value of our assets declines, we may be unable to satisfy this asset coverage test. If that happens, we may be required to sell a portion of our investments or sell additional common stock and, depending on the nature of our leverage, to repay a portion of our indebtedness at a time when such sales and repayments may be disadvantageous. In addition, the issuance of additional securities could dilute the percentage ownership of our current stockholders in us.

We depend in part on SBIC II for cash distributions to enable us to meet the distribution requirements to be subject to tax as a RIC. In this regard, SBIC II is limited by the SBA regulations governing SBICs from making certain distributions to us that may be necessary to satisfy the requirements to be subject to tax as a RIC. In such a case, we would need to request a waiver of the SBA’s restrictions for SBIC II to make certain distributions to enable us to be subject to tax as a RIC. We cannot assure you that the SBA will grant such waiver, and if SBIC II is unable to obtain a waiver, compliance with the SBA regulations may cause us to incur a corporate-level income tax.

Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital.

Our business requires a substantial amount of capital. We may acquire additional capital from the issuance of additional senior securities or other indebtedness, the issuance of additional shares of our common stock, the issuance of warrants or subscription rights to purchase certain of our securities, or from securitization transactions or through SBA debentures. However, we may not be able to raise additional capital in the future on favorable terms or at all. We may issue debt securities or preferred securities, which we refer to collectively as “senior securities,” and we may borrow money from banks, through the SBA debenture program or other financial institutions, up to the maximum amount permitted by the 1940 Act. Under the 1940 Act, the asset coverage ratio requirements permit us to issue senior securities or incur indebtedness subject to certain limitations, exclusive of the SBA debentures pursuant to our SEC exemptive relief. Our ability to pay distributions or issue additional senior securities would be restricted if our asset coverage ratio was not met. If the value of our assets declines, we may be unable to satisfy the asset coverage ratio. If that happens, we may be required to liquidate a portion of our investments and repay a portion of our indebtedness at a time when such sales may be disadvantageous, which could materially harm our business, financial condition and results of operations.

SBIC II may be unable to make distributions to us that will enable us to meet or maintain RIC tax status.

In order for us to continue to qualify for RIC tax treatment and to minimize corporate-level income taxes, we will be required to distribute substantially all of our consolidated investment company taxable income and capital gains net income, including income from SBIC II, each taxable year as dividends to our stockholders. As noted above, we depend in part on SBIC II for cash distributions to enable us to meet the RIC distribution requirements. SBIC II may be limited by SBA regulations governing SBICs from making certain distributions to us that may be necessary to maintain our status as a RIC. We may have to request a waiver of the SBA’s restrictions for SBIC II to make certain distributions to maintain our RIC tax status. We cannot assure you that the SBA will grant such waiver and if SBIC II is unable to obtain a waiver, compliance with the SBA regulations may result in corporate level income tax on us.

SBIC II, our wholly-owned subsidiary, received a license to operate as a SBIC under the 1958 Act and is regulated by the SBA. The SBA places certain limitations on the financing terms of investments by SBICs in portfolio companies and regulates the types of financings and prohibits investing in certain industries. Compliance with SBIC requirements may cause SBIC II to make investments at lower rates in order to qualify investments under the SBA regulations.

Further, SBA regulations require that a licensed SBIC be periodically examined and audited by the SBA to determine its compliance with the relevant regulations. If SBIC II fails to comply with applicable regulations, the SBA could, depending on the severity of the violation, limit or prohibit its use of debentures, declare outstanding debentures immediately due and payable, and/or limit it from making new investments. In addition, the SBA could revoke or suspend SBIC II’s license for willful or repeated violation of, or willful or repeated failure to observe, any provision of the 1958 Act or any rule or regulation promulgated thereunder. These actions by the SBA would, in turn, negatively affect us because SBIC II is our wholly-owned subsidiary.

SBA-guaranteed debentures are non-recourse to us, have a 10-year maturity, and may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed at the time of issuance at a market-driven spread over 10-year U.S. Treasury Notes. Leverage through SBA-guaranteed debentures is subject to required capitalization thresholds. Current SBA regulations limit the amount that any single SBIC may borrow to a maximum of $175.0 million, which is up to twice its regulatory capital, and a maximum of $350.0 million as part of a group of SBICs under common control.

We currently use borrowed funds to make investments and are exposed to the typical risks associated with leverage.

Because we borrow funds to make investments, we are exposed to increased risk of loss due to our use of debt to make investments. A decrease in the value of our investments will have a greater negative impact on the NAV attributable to our common stock than it would if we did not use debt. Our ability to pay distributions may be restricted when our asset coverage ratio is not met, exclusive of the SBA debentures pursuant to SEC exemptive relief, and any cash that we use to service our indebtedness is not available for distribution to our common stockholders.

Our current debt is governed by the terms of our Credit Facility, 2024 Notes and SBA debentures and future debt may be governed by an indenture or other instrument containing covenants restricting our operating flexibility. We, and indirectly our stockholders, bear the cost of issuing and servicing debt. Any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock and may also carry leverage related risks. Leverage magnifies the potential risks for loss and the risks of investing in us, both as detailed below.

Additionally, SBIC II has received borrowed funds and may in the future receive funds from the SBA through its debenture program. In connection with the filing of its initial SBA license application, PennantPark Investment received exemptive relief, in 2011, from the SEC to permit us to exclude the debt of our SBICs from our consolidated asset coverage ratio. Our ratio of total assets on a consolidated basis to outstanding indebtedness may be less than the applicable asset coverage ratio, which while providing increased investment flexibility, would also increase our exposure to risks associated with leverage.

If we incur additional debt, it could increase the risk of investing in our shares.

We have indebtedness outstanding pursuant to our Credit Facility, 2024 Notes and SBA debentures and expect in the future to borrow additional amounts under our Credit Facility or other debt securities, subject to market availability, and, may increase the size of our Credit Facility. We cannot assure you that our leverage will remain at current levels. The amount of leverage that we employ will depend upon our assessment of the market and other factors at the time of any proposed borrowing. Lenders have fixed dollar claims on our assets that are superior to the claims of our common stockholders or preferred stockholders, if any, and we have granted a security interest in our assets, excluding those of SBIC II, in connection with borrowings under our Credit Facility. In the case of a liquidation event, those lenders would receive proceeds before our stockholders. Additionally, the SBA, as a lender and an administrative agent, has a superior claim over the assets of SBIC II in relation to our other creditors. Any future debt issuance will increase our leverage and may be subordinate to our Credit Facility and SBA debentures. In addition, borrowings or debt issuances and SBA debentures, also known as leverage, magnify the potential for loss or gain on amounts invested and, therefore, increase the risks associated with investing in our securities. Leverage is generally considered a speculative investment technique. If the value of our assets decreases, then the use of leverage would cause the NAV attributable to our common stock to decline more than it otherwise would have had we not utilized leverage. Similarly, any decrease in our revenue would cause our net income to decline more than it would have had we not borrowed funds and could negatively affect our ability to make distributions on our common or preferred stock. Our ability to service any debt that we incur depends largely on our financial performance and is subject to prevailing economic conditions and competitive pressures.

As of September 30, 2020 and 2019, our asset coverage ratio, as computed in accordance with the 1940 Act, was 208% and 207%, respectively. Since our leverage, including SBA debentures outstanding, was 116% and 120% of our net assets as of September 30, 2020 and 2019, respectively, we would have to receive an annual return of at least 1.6% and 2.3%, respectively, to cover annual interest payments.

As of September 30, 2020, we had outstanding borrowings of $388.3 million under our Credit Facility, $118.5 million outstanding under the SBA debentures and $86.3 million of 2024 Notes outstanding. Our consolidated debt outstanding was $593.0 million and had a weighted average annual interest rate at the time of 3.0%, exclusive of the fee on undrawn commitment on our Credit Facility and upfront fees on the SBA debentures. This example is for illustrative purposes only, and actual interest rates on our Credit Facility or any future borrowings are likely to fluctuate. The costs associated with our borrowings, including any increase in the management fee or incentive fee payable to our Investment Adviser, are and will be borne by our common stockholders.

The following table is designed to illustrate the effect on the return to a holder of our common stock of the leverage created by our use of borrowing as of September 30, 2020 of 51% of total assets (including such borrowed funds), at the current interest rate at the time of 3.0%, and assumes hypothetical annual returns on our portfolio of minus 10 to plus 10 percent. The table also assumes that we will maintain a constant level of leverage and weighted average interest rate. The amount of leverage and cost of borrowing that we use will vary from time to time. As can be seen, leverage generally increases the return to stockholders when the portfolio return is positive and decreases return when the portfolio return is negative. Actual returns may be greater or less than those appearing in the table.

We may in the future determine to fund a portion of our investments with preferred stock, which is another form of leverage and would magnify the potential for loss and the risks of investing in us.

Preferred stock, which is another form of leverage, has the same risks to our common stockholders as borrowings because the distributions on any preferred stock we issue must be cumulative. If we issue preferred securities they would rank “senior” to common stock in our capital structure. Payment of distributions on, and repayment of the liquidation preference of, such preferred stock would typically take preference over any distributions or other payments to our common stockholders. Also, preferred stockholders are not typically subject to any of our expenses or losses and are not entitled to participate in any income or appreciation in excess of their stated preference. Furthermore, preferred stockholders would have separate voting rights and may have rights, preferences or privileges more favorable than those of our common stockholders. Also, the issuance of preferred securities could have the adverse effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for our common stockholders or otherwise be in the best interest of stockholders.

We may in the future determine to fund a portion of our investments with debt securities, which would magnify the potential for loss and the risks of investing in us.

As a result of the issuance of our SBA debentures and borrowings under our Credit Facility, we are exposed to typical risks associated with leverage, including an increased risk of loss and an increase in expenses, which are ultimately borne by our common stockholders. Payment of interest on such debt securities must take preference over any other distributions or other payments to our common stockholders. If we issue additional debt securities in the future, it is likely that such securities will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. In addition, such securities may be rated by rating agencies, and in obtaining a rating for such securities, we may be required to abide by operating and investment guidelines that could further restrict our operating flexibility. Furthermore, any cash that we use to service our indebtedness would not be available for the payment of distributions to our common stockholders.

Our credit ratings may not reflect all risks of an investment in our debt securities.

Our credit ratings, if any, are an assessment of our ability to pay our obligations. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of any publicly issued debt securities. Our credit ratings may not reflect the potential impact of risks related to market conditions or other factors discussed above on the market value of, or trading market for, any publicly issued debt securities. Rating agencies have reviewed, and may continue to review, our credit ratings and those of other business development companies in light of the SBCAA as well as any corresponding changes to asset coverage ratios and, in certain cases, downgrade such ratings. Such a downgrade in our credit ratings may adversely affect our securities.

A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or our 2024 Notes, if any, or change in the debt markets could cause the liquidity or market value of our 2024 Notes to decline significantly.

Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated changes in our credit ratings will generally affect the market value of our 2024 Notes. Our credit ratings may not reflect the potential impact of risks relating to the structure or marketing of our 2024 Notes. Credit ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization in its sole discretion. Neither we nor any underwriter undertakes any obligation to maintain our credit ratings or to advise holders of our 2024 Notes of any changes in our credit ratings. There can be no assurance that our credit ratings will remain for any given period of time or that such credit ratings will not be lowered or withdrawn entirely by any of the rating agencies if in

their respective judgments future circumstances relating to the basis of the credit rating, such as adverse changes in our Company, so warrant. The conditions of the financial markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future.

Market conditions may make it difficult to extend the maturity of or refinance our existing indebtedness and any failure to do so could have a material adverse effect on our business.

Our Credit Facility matures in September 2024 and our 2024 Notes mature in October 2024. Additionally, our SBA debentures mature between March 2026 and March 2028. We utilize proceeds from the Credit Facility, our 2024 Notes and our SBA debentures to make investments in our portfolio companies. The duration of many of our investments exceeds the duration of our indebtedness under our Credit Facility, our 2024 Notes and certain of our SBA debentures. This means that we will have to extend the maturity of our Credit Facility or refinance our indebtedness in order to avoid selling investments at maturity of any of our debt investments, at which time such sales may be at prices that are disadvantageous to us, which could materially damage our business. In addition, future market conditions may affect our ability to renew or refinance our Credit Facility, our 2024 Notes and our SBA debentures on terms as favorable as those in our existing indebtedness. If we fail to extend or refinance the indebtedness by the time it becomes due and payable, holders of the debt and/or the administrative agent may elect to exercise various remedies, including the sale of all or a portion of the collateral securing such indebtedness, subject to certain restrictions, any of which could have a material adverse effect on our business, financial condition and results of operations. The illiquidity of our investments may make it difficult for us to sell such investments. If we are required to sell our investments on short-term notice, we may not receive the value that we have recorded for such investments, and this could materially affect our results of operations.

There are significant potential conflicts of interest which could impact our investment returns.

The professionals of the Investment Adviser and Administrator may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do or of investment funds managed by affiliates of us that currently exist or may be formed in the future. The Investment Adviser and Administrator may be engaged by such funds at any time and without the prior approval of our stockholders or our board of directors. Our board of directors monitors any potential conflict that may arise upon such a development. Accordingly, if this occurs, they may have obligations to investors in those entities, the fulfillment of which might not be in the best interests of us or our stockholders. Currently, the executive officers and directors, as well as the current senior investment professionals of the Investment Adviser, may serve as officers and directors of our controlled affiliates and affiliated funds. In addition, we note that any affiliated investment vehicles currently formed or formed in the future and managed by the Investment Adviser or its affiliates may have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. As a result, the Investment Adviser may face conflicts in allocating investment opportunities between us and such other entities. Although the Investment Adviser will endeavor to allocate investment opportunities in a fair and equitable manner, it is possible that, in the future, we may not be given the opportunity to participate in investments made by investment funds managed by the Investment Adviser or an investment manager affiliated with the Investment Adviser. In any such case, when the Investment Adviser identifies an investment, it is forced to choose which investment fund should make the investment. We may co-invest on a concurrent basis with any other affiliates that the Investment Adviser currently has or forms in the future, subject to compliance with applicable regulations and regulatory guidance, our exemptive relief and our allocation procedures.

In the ordinary course of our investing activities, we pay investment advisory and incentive fees to the Investment Adviser, and reimburse the Investment Adviser for certain expenses it incurs. As a result, investors in our common stock invest on a “gross” basis and receive distributions on a “net” basis after expenses, resulting in a lower rate of return than an investor might achieve through direct investments. Accordingly, there may be times when the management team of the Investment Adviser has interests that differ from those of our stockholders, giving rise to a conflict. For example, the Investment Adviser may seek to invest in more speculative investments in order to increase its incentive fee, which practice could result in higher investment losses, particularly during economic downturns.

We have entered into the License Agreement with PennantPark Investment Advisers, pursuant to which the Investment Adviser has agreed to grant us a royalty-free non-exclusive license to use the name “PennantPark.” The License Agreement will expire (i) upon expiration or termination of the Investment Management Agreement, (ii) if the Investment Adviser ceases to serve as our investment adviser, (iii) by either party upon 60 days’ written notice or (iv) by the Investment Adviser at any time in the event we assign or attempt to assign or sublicense the License Agreement or any of our rights or duties thereunder without the prior written consent of the Investment Adviser. Other than with respect to this limited license, we have no legal right to the “PennantPark” name.

In addition, we pay PennantPark Investment Administration, an affiliate of the Investment Adviser, our allocable portion of overhead and other expenses incurred by PennantPark Investment Administration in performing its obligations under the Administration Agreement, including rent and our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs. These arrangements may create conflicts of interest that our board of directors must monitor.

Our business relies on secure information technology systems. These systems are subject to potential attacks, including through adverse events that threaten the confidentiality, integrity or availability of our information resources (i.e., cyber incidents). These attacks could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption and result in disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our business relationships, any of which could have a material adverse effect on our business, financial condition and results of operations. As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those provided by the Investment Adviser and third-party service providers. We, along with our Investment Adviser, have implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as our increased awareness of the nature and extent of the risk of a cyber incident, may be ineffective and do not guarantee that a cyber incident will not occur or that our financial results, operations or confidential information will not be negatively impacted by such an incident. In addition, the costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means. Furthermore, cybersecurity has become a top priority for regulators around the world, and some jurisdictions have enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal data. If we fail to comply with the relevant laws and regulations, we could suffer financial losses, a disruption of our businesses, liability to investors, regulatory intervention or reputational damage.

We could experience fluctuations in our quarterly operating results due to a number of factors, including the interest rate payable on the debt securities we acquire, the default rate on such securities, the level of our expenses, variations in, and the timing of the recognition of, realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. However, as a result of our irrevocable election to apply the fair value option to our Credit Facility, future decreases of fair value of our debt is expected to have a corresponding increase to our NAV. Similarly, future increases in the fair value of our debt may have a corresponding decrease to our NAV. Any future indebtedness that we elect the fair value option for may have similar effects on our NAV as our Credit Facility. This is expected to mitigate volatility in our earnings and NAV. As a result, results for any period should not be relied upon as being indicative of future performance.

Holders of any preferred stock that we may issue will have the right to elect members of the board of directors and have class voting rights on certain matters.

The 1940 Act requires that holders of shares of preferred stock must be entitled as a class to elect two directors at all times and to elect a majority of the directors if distributions on such preferred stock are in arrears by two years or more, until such arrearage is eliminated. In addition, certain matters under the 1940 Act require the separate vote of the holders of any issued and outstanding preferred stock, including conversion to open-end status and, accordingly, preferred stockholders could veto any such changes in addition to any ability of common and preferred stockholders, voting together as a single class, to veto such matters. Restrictions imposed on the declarations and payment of distributions to the holders of our common stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies, might impair our ability to maintain our qualification as a RIC for U.S. federal income tax purposes, which could have a material adverse effect on our business, financial condition and results of operations.

If we issue preferred stock, debt securities or convertible debt securities, the NAV and market value of our common stock may become more volatile.

We cannot assure you that the issuance of preferred stock and/or debt securities would result in a higher yield or return to the holders of our common stock. The issuance of preferred stock, debt securities and/or convertible debt would likely cause the NAV and market value of our common stock to become more volatile. If the dividend rate on the preferred stock, or the interest rate on the debt securities, were to approach the net rate of return on our investment portfolio, the benefit of leverage to the holders of our common stock would be reduced or entirely eliminated. If the dividend rate on the preferred stock, or the interest rate on the debt securities, were to exceed the net rate of return on our portfolio, the use of leverage would result in a lower rate of return to the holders of common stock than if we had not issued the preferred stock or debt securities. Any decline in the NAV of our investment would be borne entirely by the holders of our common stock. Therefore, if the market value of our portfolio were to decline, the leverage would result in a greater decrease in NAV to the holders of our common stock than if we were not leveraged through the issuance of preferred stock, debt securities or convertible debt. This decline in NAV would also tend to cause a greater decline in the market price for our common stock.

There is also a risk that, in the event of a sharp decline in the value of our net assets, we would be in danger of failing to maintain required asset coverage ratios or other covenants which may be required by the preferred stock, debt securities and/or convertible debt or risk a downgrade in the ratings of the preferred stock, debt securities and/or convertible debt or our current investment income might not be sufficient to meet the dividend requirements on the preferred stock or the interest payments on the debt securities. In order to counteract such an event, we might need to liquidate investments in order to fund redemption of some or all of the preferred stock, debt securities or convertible debt. In addition, we would pay (and the holders of our common stock would bear) all costs and expenses relating to the issuance and ongoing maintenance of the preferred stock, debt securities, convertible debt or any combination of these securities. Holders of preferred stock, debt securities, convertible debt or any combination of these securities may have different interests than holders of common stock and may at times have disproportionate influence over our business.

The trading market or market value of any publicly issued debt or convertible debt securities may be volatile.

If we publicly issue debt or convertible debt securities, they initially will not have an established trading market. We cannot assure investors that a trading market for our publicly issued debt or convertible debt securities would develop or be maintained if developed. In addition to our creditworthiness, many factors may have a material adverse effect on the trading market for, and market value of, our publicly issued debt or convertible debt securities.

There also may be a limited number of buyers for our debt securities. This too may have a material adverse effect on the market value of the debt securities or the trading market for the debt securities. Our debt securities may include convertible features that cause them to more closely bear risks associated with an investment in our common stock.

Terms relating to debt redemption may have a material adverse effect on the return on any debt securities.

If we issue debt securities that are redeemable at our option, we may choose to redeem the debt securities at times when prevailing interest rates are lower than the interest rate paid on the debt securities. In addition, if the debt securities are subject to mandatory redemption, we may be required to redeem the debt securities at times when prevailing interest rates are lower than the interest rate paid on the debt securities. In this circumstance, a holder of our debt securities may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the debt securities being redeemed.

If we issue subscription rights or warrants for our common stock, your interest in us may be diluted as a result of such rights or warrants offering.

Stockholders who do not fully exercise rights or warrants issued to them in an offering of subscription rights or warrants to purchase our common stock should expect that they will, at the completion of an offering, own a smaller proportional interest in us than would otherwise be the case if they fully exercised their rights or warrants. We cannot state precisely the amount of any such dilution in share ownership because we do not know what proportion of the common stock would be purchased as a result of any such offering.

In addition, if the subscription price or warrant exercise price is less than our NAV per share of common stock at the time of an offering, then our stockholders would experience an immediate dilution of the aggregate NAV of their shares as a result of the offering. The amount of any such decrease in NAV is not predictable because it is not known at this time what the subscription price, warrant exercise price or NAV per share will be on the expiration date of such rights offering or what proportion of our common stock will be purchased as a result of any such offering.

In light of current conditions in the U.S. and global financial markets and the U.S. and global economy, legislators, the presidential administration and regulators have increased their focus on the regulation of the financial services industry. The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, institutes a wide range of reforms that will have an impact on financial institutions. However, the current presidential administration has announced its intention to repeal, amend or replace certain portions of the Dodd-Frank Act and the regulations implemented thereunder, and has implemented certain appeals. Given the uncertainty associated with the manner in which and whether the provisions of the Dodd-Frank Act might be implemented, repealed, amended or replaced, the full impact such requirements will have on our business, results of operations or financial condition is unclear. While we cannot predict what effect any changes in the laws or regulations or their interpretations would have on us as a result of recent financial reform legislation, these changes could be materially adverse to us and our stockholders. Accordingly, we are continuing to evaluate the effect the Dodd-Frank Act or implementing its regulations or any repeal or revision thereto will have on our business, financial condition and results of operations.

Changes in laws or regulations governing our operations or those of our portfolio companies may adversely affect our business.

We and our portfolio companies are subject to laws and regulation at the local, state and federal levels. These laws and regulations, as well as their interpretation, may be changed from time to time. Accordingly, any change in these laws or regulations that govern our operations or those of our portfolio companies could have a material adverse effect on our business, financial condition and results of operations. See “Business—Regulation” for more information.

Uncertainty about presidential administration initiatives could negatively impact our business, financial condition and results of operations.

The current administration has called for significant changes to U.S. trade, healthcare, immigration, foreign and government regulatory policy. In this regard, there is significant uncertainty with respect to legislation, regulation and government policy at the federal level, as well as the state and local levels. Recent events have created a climate of heightened uncertainty and introduced new and difficult-to-quantify macroeconomic and political risks with potentially far-reaching implications. There has been a corresponding meaningful increase in the uncertainty surrounding interest rates, inflation, foreign exchange rates, trade volumes and fiscal and monetary policy. To the extent the U.S. Congress or the current administration implements changes to U.S. policy, those changes may impact, among other things, the U.S. and global economy, international trade and relations, unemployment, immigration, corporate taxes, healthcare, the U.S. regulatory environment, inflation and other areas. Although we cannot predict the impact, if any, of these changes to our business, they could adversely affect our business, financial condition, operating results and cash flows. Until we know what policy changes are made and how those changes impact our business and the business of our competitors over the long term, we will not know if, overall, we will benefit from them or be negatively affected by them.

Our board of directors may change our investment objectives, operating policies and strategies without prior notice or stockholder approval.

Our board of directors has the authority to modify or waive certain of our operating policies and strategies without prior notice and without stockholder approval (except as required by the 1940 Act). However, absent stockholder approval, under the 1940 Act, we may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results and value of our common stock. Nevertheless, the effects may adversely affect our business and impact our ability to make distributions.

Our business and operations could be negatively affected if we become subject to stockholder activism, which could cause us to incur significant expense, hinder the execution of our investment strategy or impact our stock price.

Stockholder activism, which could take many forms, including making public demands that we consider certain strategic alternatives, engaging in public campaigns to attempt to influence our corporate governance and/or our management, and commencing proxy contests to attempt to elect the activists’ representatives or others to our board of directors, or arise in a variety of situations, has been increasing in the BDC space recently. While we are currently not subject to any stockholder activism, due to the potential volatility of our stock price and for a variety of other reasons, we may in the future become the target of stockholder activism. Stockholder activism could result in substantial costs and divert management’s and our board of directors’ attention and resources from our business. Additionally, such stockholder activism could give rise to perceived uncertainties as to our future and adversely affect our relationships with service providers and our portfolio companies. Also, we may be required to incur significant legal and other expenses related to any activist stockholder matters. Further, our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any stockholder activism.

We invest in illiquid assets, and our valuation procedures with respect to such assets may result in recording values that are materially different than the values we ultimately receive upon disposition of such assets.

All of our investments are recorded using broker or dealer quotes, if available, or at fair value as determined in good faith by our board of directors. We expect that most, if not all, of our investments (other than cash and cash equivalents) and the fair value of the Credit Facility will be classified as Level 3 under the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 820, Fair Value Measurements and Disclosures, or ASC 820. This means that the portfolio valuations will be based on unobservable inputs and our own assumptions about how market participants would price the asset or liability. We expect that inputs into the determination of fair values of our portfolio investments and borrowings under our Credit Facility will require significant management judgment or estimation. Even if observable market data are available, such information may be the result of consensus pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by such a disclaimer materially reduces the reliability of such information. As a result, there will be uncertainty as to the value of our portfolio investments.

Determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. In determining fair value in good faith, we generally obtain financial and other information from portfolio companies, which may represent unaudited, projected or pro forma financial information. Unlike banks, we are not permitted to provide a general reserve for anticipated loan losses; we are instead required by the 1940 Act to specifically fair value each individual investment on a quarterly basis. We record unrealized appreciation if we believe that our investment has appreciated in value. Likewise, we record unrealized depreciation if we believe that our investment has depreciated in value. We adjust quarterly the valuation of our portfolio to reflect our board of directors’ determination of the fair value of each investment in our portfolio. Any changes in fair value are recorded on our Consolidated Statements of Operations as net change in unrealized appreciation or depreciation.

All of our investments are recorded at fair value as determined in good faith by our board of directors. Our board of directors uses the services of nationally recognized independent valuation firms to aid it in determining the fair value of our investments. The factors that may be considered in fair value pricing of our investments include the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and cash flows, the markets in which the portfolio company does business, comparison to publicly traded companies and other relevant factors. Because valuations may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the value received in an actual transaction. Additionally, valuations of private securities and private companies are inherently uncertain. Our NAV could be adversely affected if our determinations regarding the fair value of our investments were materially lower than the values that we ultimately realize upon the disposal of such investments.

We may acquire our investments directly from the issuer in privately negotiated transactions. Substantially all of these securities are subject to legal and other restrictions on resale or are otherwise less liquid than publicly traded securities. We typically exit our investments when the portfolio company has a liquidity event such as a sale, refinancing, or initial public offering of the company, but we are generally not required to do so.

The illiquidity of our investments may make it difficult or impossible for us to sell such investments if the need arises, particularly at times when the market for illiquid securities is substantially diminished. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments, which could have a material adverse effect on our business, financial condition and results of operations. In addition, we may face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we have material non-public information regarding such portfolio company.

Investments purchased by us that are liquid at the time of purchase may subsequently become illiquid due to events relating to the issuer of the investments, market events, economic conditions or investor perceptions. Domestic and foreign markets are complex and interrelated, so that events in one sector of the world markets or economy, or in one geographical region, can reverberate and have materially negative consequences for other market, economic or regional sectors in a manner that may not be foreseen and which may materially harm our business.

A general disruption in the credit markets could materially damage our business.

We are susceptible to the risk of significant loss if we are forced to discount the value of our investments in order to provide liquidity to meet our debt maturities. Our borrowings under our Credit Facility are collateralized by the assets in our investment portfolio (excluding assets held by SBIC II). A general disruption in the credit markets could result in diminished demand for our securities. In addition, with respect to over-the-counter traded securities, the continued viability of any over-the-counter secondary market depends on the continued willingness of dealers and other participants to purchase the securities.

If the fair value of our assets declines substantially, we may fail to maintain the asset coverage ratio stipulated by the 1940 Act, which could, in turn, cause us to lose our status as a BDC and materially impair our business operations. Our liquidity could be impaired further by an inability to access the capital markets or to draw down our Credit Facility. These situations may arise due to circumstances that we may be unable to control, such as a general disruption in the credit markets, a severe decline in the value of the U.S. dollar, a sharp economic downturn or an operational problem that affects our counterparties or us, and could materially damage our business.

We may invest in over-the-counter securities, which have and may continue to face liquidity constraints, to provide us with liquidity.

The market for over-the-counter traded securities has and may continue to experience limited liquidity and other weakness as the viability of any over-the-counter secondary market depends on the continued willingness of dealers and other participants to purchase the securities.

Our investments in prospective portfolio companies may be risky, and you could lose all or part of your investment.

We intend to invest primarily in first lien secured debt, second lien secured debt, subordinated debt and selected equity investments issued by U.S. and foreign middle-market companies.

In addition, investing in middle-market companies involves a number of significant risks, including:

Under the 1940 Act, we may invest up to 30% of our assets in investments that are not qualifying assets for BDCs. If we do not invest a sufficient portion of our assets in qualifying assets, we could be precluded from investing in assets that we deem to be attractive.

As a BDC, we may not acquire any asset other than qualifying assets, as defined under the 1940 Act, unless at the time the acquisition is made such qualifying assets represent at least 70% of the value of our total assets. Qualifying assets include investments in U.S. operating companies whose securities are not listed on a national securities exchange and companies listed on a national securities exchange subject to a maximum market capitalization of $250 million. Qualifying assets also include cash, cash equivalents, government securities and high quality debt securities maturing in one year or less from the time of investment.

We believe that most of our debt and equity investments do and will constitute qualifying assets. However, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we have not invested a sufficient portion of our assets in qualifying assets at the time of a proposed investment, we will be prohibited from making any additional investment that is not a qualifying asset and could be forced to forgo attractive investment opportunities. Similarly, these rules could prevent us from making follow-on investments in existing portfolio companies (which could result in the dilution of our position) or could require us to dispose of investments at inappropriate times in order to comply with the 1940 Act. If we need to dispose of such investments quickly, it would be difficult to dispose of such investments on favorable terms. For example, we may have difficulty in finding a buyer and, even if we do find a buyer, we may have to sell the investments at a substantial loss.

We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we generally are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer.

We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer, excluding limitations on investments in other investment companies and compliance with the RIC tax regulations. To the extent that we assume large positions in the securities of a small number of issuers, our NAV may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. Beyond the Diversification Requirements, we do not have fixed guidelines for portfolio diversification, and our investments could be concentrated in relatively few portfolio companies or industries. Although we are classified as a non-diversified investment company within the meaning of the 1940 Act, we maintain the flexibility to operate as a diversified investment company and have done so for an extended period of time. To the extent that we operate as a non-diversified investment company in the future, we may be subject to greater risk.

Economic recessions or downturns could impair our portfolio companies and harm our operating results.

Many of our portfolio companies are susceptible to economic or industry centric slowdowns or recessions and may be unable to repay debt from us during these periods. Therefore, our non-performing assets are likely to increase, and the value of our portfolio is likely to decrease during these periods. Adverse economic conditions also may decrease the value of collateral securing some of our debt investments and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a material decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing investments and materially harm our operating results.

A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and potential termination of its debt and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize our portfolio company’s ability to meet its obligations under the debt securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company, and any restructuring could further cause adverse effects on our business. Depending on the facts and circumstances of our investments and the extent of our involvement in the management of a portfolio company, upon the bankruptcy of a portfolio company, a bankruptcy court may recharacterize our debt investments as equity investments and subordinate all or a portion of our claim to that of other creditors. This could occur regardless of how we may have structured our investment. In addition, we cannot assure you that a bankruptcy court would not take actions contrary to our interests.

If we fail to make follow-on investments in our portfolio companies, this could materially impair the value of our portfolio.

Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as “follow-on” investments, in order to:

We have the discretion to make any follow-on investments, subject to the availability of capital resources and regulatory considerations. We may elect not to make follow-on investments or otherwise lack sufficient funds to make those investments. Any failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful transaction or business. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our concentration of risk, either because we prefer other opportunities, or because we are inhibited by compliance with BDC requirements or the desire to maintain our RIC tax status.

Because we do not generally hold controlling equity interests in our portfolio companies, we are not in a position to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments.

Because we do not generally have controlling equity positions in our portfolio companies, we are subject to the risk that a portfolio company may make business decisions with which we disagree, and the stockholders and management of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity for the debt and equity investments that we typically hold in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company, and may therefore suffer a decrease in the market value of our investments.

An investment strategy focused primarily on privately held companies, including controlling equity interests, presents certain challenges, including the lack of available or comparable information about these companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns.

We have invested and intend to continue to invest primarily in privately held companies. Generally, little public information exists about these companies, and we rely on the ability of our Investment Adviser’s investment professionals to obtain adequate information to evaluate the potential returns from investing in these companies. If they are unable to uncover all material information about these companies, we may not make a fully informed investment decision, and we may lose value on our investments. Also, privately held companies frequently have less diverse product lines and smaller market presence than larger competitors. These factors could have a material adverse impact on our investment returns as compared to companies investing primarily in the securities of public companies.

Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies and our portfolio companies may be highly leveraged.

We invest primarily in first lien secured debt, second lien secured debt, subordinated debt and equity investments issued by our portfolio companies. The portfolio companies usually will have, or may be permitted to incur, other debt that ranks equally with, or senior to, our investments, and they may be highly leveraged. By their terms, such debt instruments may provide that the holders are entitled to receive payment of interest or principal on or before the dates on which we are entitled to receive payments with respect to our debt investments. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment. After repaying such senior creditors, the portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt securities in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

Our incentive fee may induce the Investment Adviser to make speculative investments.

The incentive fee payable by us to PennantPark Investment Advisers may create an incentive for PennantPark Investment Advisers to make investments on our behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement. The incentive fee payable to our Investment Adviser is calculated based on a percentage of our NAV. This may encourage our Investment Adviser to use leverage to increase the return on our investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would disfavor the holders of our common stock. In addition, our Investment Adviser will receive the incentive fee based, in part, upon net capital gains realized on our investments. Unlike that portion of the incentive fee based on income, there is no hurdle applicable to the portion of the incentive fee based on net capital gains. As a result, the Investment Adviser may have a tendency to invest more capital in investments that are likely to result in capital gains as compared to income producing securities. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during economic downturns.

The part of our incentive fee payable by us to PennantPark Investment Advisers that relates to net investment income is computed and paid on income that has been accrued but that has not been received in cash. PennantPark Investment Advisers is not obligated to reimburse us for any such incentive fees even if we subsequently incur losses or never receive in cash the deferred income that was previously accrued. As a result, there is a risk that we will pay incentive fees with respect to income that we never receive in cash.

Any investments in distressed debt may not produce income and may require us to bear large expenses in order to protect and recover our investment.

Distressed debt investments may not produce income and may require us to bear certain additional expenses in order to protect and recover our investment. Therefore, to the extent we invest in distressed debt, our ability to achieve current income for our stockholders may be diminished. We also will be subject to significant uncertainty as to when, in what manner and for what value the distressed debt in which we invest will eventually be satisfied (e.g., through liquidation of the obligor’s assets, an exchange offer or plan of reorganization involving the distressed debt securities or a payment of some amount in satisfaction of the obligation). In addition, even if an exchange offer is made or plan of reorganization is adopted with respect to distressed debt we hold, there can be no assurance that the securities or other assets received by us in connection with such exchange offer or plan of reorganization will not have a lower value or income potential than may have been anticipated when the investment was made. Moreover, any securities received by us upon completion of an exchange offer or plan of reorganization may be restricted as to resale. If we participate in negotiations with respect to any exchange offer or plan of reorganization with respect to an issuer of distressed debt, we may be restricted from disposing of such securities.

Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.

Our investment strategy contemplates potential investments in securities of companies located outside of the United States. Investments in securities of companies located outside of the United States would not be qualifying assets under Section 55(a) of the 1940 Act. Investing in companies located outside of the United States may expose us to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political, economic and social instability, expropriation, imposition of foreign taxes, less liquid markets and less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility.

Although most of our investments will be U.S. dollar-denominated, any investments denominated in a foreign currency will be subject to the risk that the value of a particular currency will change in relation to one or more other currencies. Among the factors that may affect currency values are trade balances, the level of interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation, and economic and political developments. We may employ hedging techniques such as using our Credit Facility’s multicurrency capability to minimize these risks, but we can offer no assurance that we will, in fact, hedge currency risk or, that if we do, such strategies will be effective.

We may make investments that cause our stockholders to bear investment advisory fees and other expenses on such investments in addition to our management fees and expenses.

We may invest, to the extent permitted by law, in the securities and instruments of other investment companies and companies that would be investment companies but are excluded from the definition of an investment company provided in Section 3(c) of the 1940 Act. To the extent we so invest, we will bear our ratable share of any such investment company’s expenses, including management and performance fees. We will also remain obligated to pay investment advisory fees, consisting of a base management fee and an incentive fee, to PennantPark Investment Advisers with respect to investments in the securities and instruments of other investment companies under our Investment Management Agreement. With respect to any such investments, each of our stockholders will bear his or her share of the investment advisory fees of PennantPark Investment Advisers as well as indirectly bearing the investment advisory fees and other expenses of any investment companies in which we invest.

We may be obligated to pay our Investment Adviser incentive compensation even if we incur a loss.

Our Investment Adviser is entitled to incentive compensation for each fiscal quarter in an amount equal to a percentage of the excess of our investment income for that quarter (before deducting incentive compensation, net operating losses and certain other items) above a threshold return for that quarter. Our Pre-Incentive Fee Net Investment Income for incentive compensation purposes excludes realized and unrealized capital losses that we may incur in the fiscal quarter, even if such capital losses result in a net loss on our Consolidated Statements of Operations for that quarter. Thus, we may be required to pay the Investment Adviser incentive compensation for a fiscal quarter even if there is a decline in the value of our portfolio, NAV or we incur a net loss for that quarter. In addition, increases in interest rates may increase the amount of incentive fees we pay to the Investment Adviser even though our performance relative to the market has not increased.

If we engage in hedging transactions, we may expose ourselves to risks associated with such transactions. We may borrow under a multi-currency credit facility in currencies selected to minimize our foreign currency exposure or, to the extent permitted by the 1940 Act and applicable commodities laws, use instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates. Hedging against a decline in the values of our interest rate or currency positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging designed to gain from those changes in interest rates or foreign currency exposures, for instance, may also limit the opportunity for gain if the changes in the underlying positions should move against such hedges. Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that we are not able to enter into a hedging transaction at an acceptable price.

While we may enter into such transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates may result in worse overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations. Our ability to engage in hedging transactions may also be adversely affected by the rules of the Commodity Futures Trading Commission.

We may obtain the approval of our stockholders to issue shares of our common stock at prices below the then current NAV per share of our common stock. If we receive such approval from stockholders in the future, we may issue shares of our common stock at a price below the then current NAV per share of common stock. Any such issuance could materially dilute your interest in our common stock and reduce our NAV per share.

We may seek to obtain from our stockholders and they may approve a proposal that authorizes us to issue shares of our common stock at prices below the then current NAV per share of our common stock in one or more offerings for a 12-month period. Such approval would allow us to access the capital markets in a way that we were previously unable to do as a result of restrictions that, absent stockholder approval, apply to BDCs under the 1940 Act.

Any sale or other issuance of shares of our common stock at a price below NAV per share will result in an immediate dilution to your interest in our common stock and a reduction of our NAV per share. This dilution would occur as a result of a proportionately greater decrease in a stockholder’s interest in our earnings and assets and voting interest in us than the increase in our assets resulting from such issuance. Because the number of future shares of common stock that may be issued below our NAV per share and the price and timing of such issuances are not currently known, we cannot predict the actual dilutive effect of any such issuance. We also cannot determine the resulting reduction in our NAV per share of any such issuance at this time. We caution you that such effects may be material, and we undertake to describe all the material risks and dilutive effects of any offerings we make at a price below our then current NAV in the future in a prospectus supplement issued in connection with any such offering.

The determination of NAV in connection with an offering of shares of common stock will involve the determination by our board of directors or a committee thereof that we are not selling shares of our common stock at a price below the then current NAV of our common stock at the time at which the sale is made or otherwise in violation of the 1940 Act, unless we have previously received the consent of the majority of our common stockholders to do so and the board of directors decides such an offering is in the best interests of our common stockholders. Whenever we do not have current stockholder approval to issue shares of our common stock at a price per share below our then current NAV per share, the offering price per share (after any distributing commission or discount) will equal or exceed our then current NAV per share, based on the value of our portfolio securities and other assets determined in good faith by our board of directors as of a time within 48 hours (excluding Sundays and holidays) of the sale.

There is a risk that our stockholders may not receive distributions or that our distributions may not grow over time.

We intend to make distributions on a quarterly basis to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. In addition, due to the asset coverage ratio requirements applicable to us as a BDC, we may be limited in our ability to make distributions. Further, if more stockholders opt to receive cash distributions rather than participate in our dividend reinvestment plan, we may be forced to liquidate some of our investments and raise cash in order to make distribution payments, which could materially harm our business. Finally, to the extent we make distributions to stockholders which include a return of capital, that portion of the distribution essentially constitutes a return of the stockholders’ investment. Although such return of capital may not be taxable, such distributions may increase an investor’s tax liability for capital gains upon the future sale of our common stock.

The investments we make in accordance with our investment objectives may result in a higher amount of risk and volatility than alternative investment options or loss of principal. Our investments in portfolio companies may be highly speculative and aggressive and, therefore, an investment in our shares may not be suitable for someone with lower risk tolerance.

Sales of substantial amounts of our securities may have an adverse effect on the market price of our securities.

Sales of substantial amounts of our securities, or the availability of such securities for sale, could adversely affect the prevailing market prices for our securities. If this occurs and continues it could impair our ability to raise additional capital through the sale of securities should we desire to do so.

We may allocate the net proceeds from any offering of our securities in ways with which you may not agree.

We have significant flexibility in investing the net proceeds of any offering of our securities and may use the net proceeds from an offering in ways with which you may not agree or for purposes other than those contemplated at the time of the offering.

Our shares may trade at discounts from NAV or at premiums that are unsustainable over the long term.

Shares of BDCs may trade at a market price that is less than the NAV that is attributable to those shares. Our shares have traded above and below our NAV. Our shares closed on The Nasdaq Global Select Market at $3.19 and $6.27 on September 30, 2020 and 2019, respectively. Our NAV per share was $7.84 and $8.68, respectively, as of the same dates. The possibility that our shares of common stock will trade at a discount from NAV or at a premium that is unsustainable over the long term is separate and distinct from the risk that our NAV will decrease. It is not possible to predict whether our shares will trade at, above or below NAV in the future.

The market price and liquidity of the market for shares of our common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:

Since our initial listing on The Nasdaq Global Select Market, our shares of common stock have traded at a wide range of prices. We can offer no assurance that our shares of common stock will not display similar volatility in future periods.

We may be unable to invest the net proceeds raised from offerings on acceptable terms, which would harm our financial condition and operating results.

Until we identify new investment opportunities, we intend to either invest the net proceeds of future offerings in cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less or use the net proceeds from such offerings to reduce then-outstanding obligations under our Credit Facility or any future credit facility. We cannot assure you that we will be able to find enough appropriate investments that meet our investment selection criteria or that any investment we complete using the proceeds from an offering will produce a sufficient return.

The SBA also limits an SBIC’s choices to invest idle funds to the following types of securities:

You may have current tax liabilities on distributions you reinvest in our common stock.

Under the dividend reinvestment plan, if you own shares of our common stock registered in your own name, you will have all cash distributions automatically reinvested in additional shares of our common stock unless you opt out of the dividend reinvestment plan by delivering a written notice to the plan administrator prior to the record date of the next dividend or distribution. If you have not “opted out” of the dividend reinvestment plan, you will be deemed to have received, and for federal income tax purposes will be taxed on, the amount reinvested in our common stock to the extent the amount reinvested was not a tax-free return of capital. As a result, you may have to use funds from other sources to pay your income tax liabilities on the value of the common stock received. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Distributions” for more information.

There is a risk that our common stockholders may receive our stock as distributions in which case they may be required to pay taxes in excess of the cash they receive.

We may distribute our common stock as a dividend of our taxable income and a stockholder could receive a portion of the dividends declared and distributed by us in shares of our common stock with the remaining amount in cash. Revenue Procedures issued by the IRS allow a publicly offered regulated investment company (including a BDC) to distribute its own stock as a dividend for the purpose of fulfilling its distribution requirements, if certain conditions are satisfied. As long as a portion of such dividend is paid in cash (which portion may be as low as 10% of such dividend, for dividends declared on or before December 31, 2020, and 20% of such dividend, for dividends declared on or after January 1, 2021) and certain requirements are met, the entire distribution will be treated as a dividend for U.S. federal income tax purposes. As a result, a stockholder will be considered to have recognized dividend income generally equal to the fair market value of the stock paid by us plus cash received with respect to such dividend. The total dividend declared would be taxable income to a stockholder even though he or she may only receive a relatively small portion of the dividend in cash to pay any taxes due on the dividend. We have not elected to distribute stock as a dividend but reserve the right to do so.

Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.

The Maryland General Corporation Law, our charter and our bylaws contain provisions that may discourage, delay or make more difficult a change in control of us or the removal of our directors. We are subject to the Maryland Business Combination Act, or the Business Combination Act, the application of which is subject to any applicable requirements of the 1940 Act. Our board of directors has adopted a resolution exempting from the Business Combination Act any business combination between us and any other person, subject to prior approval of such business combination by our board, including approval by a majority of our disinterested directors. If the resolution exempting business combinations is repealed or our board does not approve a business combination, the Business Combination Act may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer.

In addition, our bylaws exempt from the Maryland Control Share Acquisition Act acquisitions of our common stock by any person. If we amend our bylaws to repeal the exemption from such act, it may make it more difficult for a third party to obtain control of us and increase the difficulty of consummating such an offer. Our bylaws require us to consult with the SEC staff before we repeal such exemption. Also, our charter provides for classifying our board of directors in three classes serving staggered three-year terms, and provisions of our charter authorize our board of directors to classify or reclassify shares of our stock in one or more classes or series, to cause the issuance of additional shares of our stock, and to amend our charter, without stockholder approval, to increase or decrease the number of shares of stock that we have authority to issue.

These anti-takeover provisions may inhibit a change of control in circumstances that could give our stockholders the opportunity to realize a premium over the market price for our common stock.

The 2024 Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future.

The 2024 Notes are not secured by any of our assets or any of the assets of our subsidiaries. As a result, the 2024 Notes are effectively subordinated to any secured indebtedness we or our subsidiaries have currently incurred and may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors, including the holders of the 2024 Notes. As of September 30, 2020, we had $388.3 million (including a $8.0 million temporary draw) in outstanding borrowings under the Truist Credit Facility. The Truist Credit Facility is secured by substantially all of our assets excluding assets held by SBIC II. The indebtedness under the Credit Facility is therefore effectively senior in right of payment to our 2024 Notes to the extent of the value of such assets.

The 2024 Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

The 2024 Notes are obligations exclusively of PennantPark Investment Corporation and not of any of our subsidiaries. None of our subsidiaries is or acts as a guarantor of the 2024 Notes and the 2024 Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future. Our secured indebtedness with respect to the SBA debentures is held through SBIC II. The assets of any such subsidiaries are not directly available to satisfy the claims of our creditors, including holders of our 2024 Notes.

Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of creditors (including holders of preferred stock, if any, of our subsidiaries) will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the 2024 Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the 2024 Notes are structurally subordinated to all indebtedness and other liabilities (including trade payables) of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise. As of September 30, 2020 and 2019, our SBIC Funds had $118.5 million and $150.0 million in debt commitments, respectively, all of which was drawn. All of such indebtedness is structurally senior to the 2024 Notes. In addition, our subsidiaries may incur substantial additional indebtedness in the future, all of which would be structurally senior to the 2024 Notes.

The indenture under which the 2024 Notes were issued contains limited protection for their respective holders.

The indenture under which the 2024 Notes were issued offers limited protection to holders. The terms of the indenture and the 2024 Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on each holder’s investment in the 2024 Notes. In particular, the terms of the indenture and the 2024 Notes will not place any restrictions on our or our subsidiaries’ ability to:

In addition, the indenture will not require us to offer to purchase the Notes in connection with a change of control or any other event.

Furthermore, the terms of the indenture and the 2024 Notes do not protect their respective holders in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow or liquidity, except as required under the 1940 Act.

Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the 2024 Notes may have important consequences for their holders, including making it more difficult for us to satisfy our obligations with respect to the 2024 Notes or negatively affecting their trading value.

Certain of our current debt instruments include more protections for their respective holders than the indenture and the 2024 Notes. In addition, other debt we issue or incur in the future could contain more protections for its holders than the indenture and the 2024 Notes, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the 2024 Notes.

The optional redemption provision may materially adversely affect your return on the 2024 Notes.

The 2024 Notes will be redeemable in whole or in part upon certain conditions at any time, or from time to time, at our option on or after October 15, 2021. We may choose to redeem the 2024 Notes at times when prevailing interest rates are lower than the interest rate paid on the Notes. In this circumstance, you may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the 2024 Notes being redeemed.

An active trading market for the 2024 Notes may not develop or be maintained, which could limit their market price or the ability of their respective holders to sell them. If a rating agency assigns the 2024 Notes a non-investment grade rating, they may be subject to greater price volatility than similar securities without such a rating.

Although the 2024 Notes are listed on The Nasdaq Global Select Market under the symbol “PNNTG,” we cannot provide any assurances that an active trading market will develop for the 2024 Notes or that their holders will be able to sell them. The 2024 Notes may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, performance and prospects and other factors. If a rating agency assigns the 2024 Notes a non-investment grade rating, they may be subject to greater price volatility than securities of similar maturity without such a non-investment grade rating. We cannot assure holders of the 2024 Notes that a liquid trading market will develop for them, that holders will be able to sell their 2024 Notes at a particular time or that the price holders receive upon such sale will be favorable. To the extent an active trading market does not develop, the liquidity and trading price for our 2024 Notes may be harmed. Accordingly, holders of the 2024 Notes may be required to bear the financial risk for an indefinite period of time.

If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the 2024 Notes.

Any default under the agreements governing our indebtedness, including a default under our Credit Facility or under other indebtedness to which we may be a party that is not waived by the required lenders or holders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal, premium, if any, and interest on the 2024 Notes and substantially decrease the market value of the 2024 Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under our Credit Facility or other debt we may incur in the future could elect to terminate their commitments, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to seek to obtain waivers from the required lenders under the agreements relating to our Credit Facility or other debt that we may incur in the future to avoid being in default. If we breach our covenants under our Credit Facility or other debt and seek a waiver, we may not be able to obtain a waiver from the required lenders or holders. If this occurs, we would be in default and our lenders or debt holders could exercise their rights as described above, and we could be forced into bankruptcy or liquidation. If we are unable to repay debt, lenders having secured obligations, including the lenders under our Credit Facility, could proceed against the collateral securing the debt. Because our Credit Facility have, and any future debt will likely have, customary cross-default provisions, if the indebtedness thereunder or under any future credit facility is accelerated, we may be unable to repay or finance the amounts due.

Payments made under the 2024 Notes to a foreign financial institution or non-financial foreign entity (including such an institution or entity acting as an intermediary) may be subject to a U.S. withholding tax of 30% under the Foreign Account Tax Compliance Act (commonly known as “FATCA”) provisions of the Code. This U.S. withholding tax may apply to certain payments of interest on the 2024 Notes as well as scheduled payments of principal, early redemption, or sale of the 2024 Notes, unless the foreign financial institution or non-financial foreign entity complies with certain information reporting, withholding, identification, certification and related requirements imposed by FATCA. Depending upon the status of a holder and the status of an intermediary through which any notes are held, the holder could be subject to this 30% U.S. withholding tax in respect of any interest paid on the notes as well as any proceeds from the sale or other disposition of the notes. Holders of the 2024 Notes should consult their own tax advisors regarding FATCA and how it may affect their investment in the notes.

Global capital markets could enter a period of severe disruption and instability due to future recessions, disease pandemics and other serious health events, political instability, geopolitical turmoil and foreign hostilities. These market conditions have historically had and could again have a materially adverse effect on debt and equity capital markets in the United States, which could have a materially negative impact on our business, financial condition and results of operations.

The U.S. and global capital markets have, from time to time, experienced periods of disruption characterized by the freezing of available credit, a lack of liquidity in the debt capital markets, significant losses in the principal value of investments, the re-pricing of credit risk in the broadly syndicated credit market, the failure of major financial institutions and general volatility in the financial markets. During these periods of disruption, general economic conditions deteriorated with material and adverse consequences for the broader financial and credit markets, and the availability of debt and equity capital for the market as a whole, and financial services firms in particular, was reduced significantly. These conditions may reoccur for a prolonged period of time or materially worsen in the future. In addition, uncertainty between the United States and other countries with respect to trade policies, treaties and tariffs, among other factors, have caused disruptions in the global markets, including markets in which we participate, and we cannot assure you that these market conditions will not continue or worsen in the future. We may in the future have difficulty accessing debt and equity capital markets, and a severe disruption in the global financial markets, deterioration in credit and financing conditions or uncertainty regarding U.S. government spending and deficit levels or other global economic and political conditions, including future recessions, political instability, geopolitical turmoil and foreign hostilities, and disease, pandemics and other serious health events, could have a material adverse effect on our business, financial condition and results of operations.

In December 2019, COVID-19 was first detected in the city of Wuhan in the Hubei province of China. The spread of COVID-19 has resulted in governmental orders imposing travel restrictions and prolonged closures of many corporate offices, retail stores, manufacturing facilities, factories and other common places of public congregation around the world, which has materially disrupted the demand for our portfolio companies’ products and services and is making it more difficult for our portfolio companies to conduct their businesses. In addition, supply chains worldwide have been interrupted, slowed, or rendered inoperable as a result of the COVID-19 pandemic, and an increasing number of individuals are becoming ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions. Governmental mandates to control the outbreak have resulted in forced shutdowns of our portfolio companies’ facilities for extended periods. While many states have begun to ease such governmental restrictions, these prolonged disruptions in the business of our portfolio companies, including disruptions in their supply chains, have adversely affected their ability to obtain the necessary raw materials or components to make their products and caused a decline in the demand for their products or services. This may require, or in some cases already has required, our portfolio companies to furlough or lay off employees, terminate relationships with service providers or otherwise significantly curtail their standard business operations, which would likely cause, or already has caused, a negative impact on their operating results.

The global impact of the COVID-19 outbreak continues to evolve and is adversely affecting our operations and the operations of our portfolio companies. The COVID-19 pandemic has resulted in, and will continue to result in, among other things, the following: (i) increased draws by borrowers on revolving lines of credit; (ii) increased requests by borrowers for amendments and waivers of their credit agreements to avoid default, increased defaults by such borrowers and/or increased difficulty in obtaining refinancing at the maturity dates of their loans; (iii) volatility and disruption of markets including greater volatility in pricing and spreads, difficulty in valuing loans during periods of increased volatility, and liquidity issues; (iv) reduction in certain interest rates by the U.S. Federal Reserve and other central banks and decreased LIBOR; and (v) unfavorable economic conditions that would be expected to increase borrowers’ funding costs, limit borrowers’ access to the capital markets or result in a decision by lenders not to extend credit to borrowers. These factors are limiting our portfolio companies’ access to capital in a time of great economic distress. While government authorities have introduced creative proposals to address the needs of businesses, such actions may not be sufficient to address the problems facing our portfolio companies.

The outbreak has led to a continued adverse impact on economic and market conditions and may trigger a prolonged period of global economic slowdown. The full impact on global markets from COVID-19 is difficult to predict, and the degree to which COVID-19 will continue to negatively affect our operating results or the duration of any potential business disruption remains uncertain. The full negative impact of COVID-19 on our business and results of operations will depend to a large extent on future developments and new information that may emerge regarding the duration and severity of COVID-19, the possibility of a resurgence and the actions taken by authorities and other entities to lift restrictions on business operations and open the economy, all of which are beyond our control. These future events, while unpredictable, will likely adversely affect our operating results and the operating results of our portfolio companies.

In addition, on January 31, 2020, the United Kingdom withdrew from the European Union (“Brexit”), entering into a negotiated transition period during which the United Kingdom remains in the European Union single market and customs union and remains subject to European Union laws and regulations. The transition period is scheduled to end at midnight (CET) on December 31, 2020. During the transition period, the parties are to negotiate agreements addressing a range of aspects of the future relationship, foremost among them a free trade agreement. It remains unclear which aspects of the future relationship between the United Kingdom and the European Union will, in fact, be agreed by the deadline, or whether certain aspects (for example, trade in goods, but not services) will be addressed and others deferred, or alternatively whether the parties will fail to reach agreement in time on fundamental trade matters, causing the United Kingdom to default to World Trade Organization rules. The United Kingdom and the European Union are therefore in a period of legal, regulatory and political uncertainty. As a consequence of continued uncertainty surrounding Brexit, the financial markets have experienced high levels of volatility. While such uncertainty most directly affects the United Kingdom and the European Union, global markets have suffered immediate and significant disruption. It is likely that, in the near term, uncertainty over Brexit will continue to bring about higher levels of uncertainty and volatility. During this period of uncertainty, the negative impact on not only the United Kingdom and European economies, but also the broader global economy, could be significant. This would potentially result in increased market and currency volatility (including volatility of the value of the British pound sterling relative to the U.S. dollar and other currencies and volatility in global currency markets generally), and illiquidity and lower economic growth for companies that rely significantly on Europe for their business activities and revenues. Once there is clarity, however, the outcomes following the transition period are likely to affect, among others, trade in goods and services (including the regime that will replace the existing passporting regimes for financial and other services); immigration rules and the ability to move employees across borders; legal and regulatory regimes; and market access rules.

Additional risks associated with the outcome of Brexit include macroeconomic risk to the United Kingdom and European economies, impetus for further disintegration of the European Union and related political stresses (including those related to sentiment against cross border capital movements and activities of investors like us), prejudice to financial services business that are conducting business in the European Union and which are based in the United Kingdom, legal uncertainty regarding achievement of compliance with applicable financial and commercial laws and regulations in view of the expected steps to be taken pursuant to the United Kingdom’s exit from the European Union or in contemplation of negotiations undertaken under Article 218 of the Treaty on the Functioning of the European Union, and the unavailability of timely information as to expected legal, tax and other regimes. We will continue to monitor the potential impact of Brexit on our results of operations and financial condition.

We are currently operating in a period of capital markets disruption and economic uncertainty.

The U.S. capital markets have experienced extreme volatility and disruption following the global outbreak of COVID-19. Some economists and major investment banks have expressed concern that the continued spread of the virus globally could lead to a prolonged period of world-wide economic downturn. Disruptions in the capital markets have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. Such disruptions are adversely affecting our business, financial condition, results of operations and cash flows, and future market disruptions and/or illiquidity will continue to negatively impact us. These unfavorable economic conditions are also increasing our funding costs and limiting our access to the capital markets, and may result in a decision by lenders not to extend credit to us in the future. These events have limited and will continue to limit our investment originations, limit our ability to grow and negatively impact our operating results and the fair values of our debt and equity investments. We also face an increased risk of investor, creditor or portfolio company disputes, litigation and governmental and regulatory scrutiny as a result of the effects of COVID-19 on economic and market conditions.

Volatility or a prolonged disruption in the credit markets could materially damage our business.

We are required to record our assets at fair value, as determined in good faith by our board of directors, in accordance with our valuation policy. As a result, volatility in the capital markets may have a material adverse effect on our valuations and our NAV, even if we hold investments to maturity. Volatility or dislocation in the capital markets may depress our stock price below our NAV per share and create a challenging environment in which to raise equity and debt capital. As a BDC, we are generally not able to issue additional shares of our common stock at a price less than our NAV without first obtaining approval for such issuance from our stockholders and our independent directors. Additionally, our ability to incur indebtedness is limited by the asset coverage ratio requirements for a BDC, as defined under the 1940 Act, exclusive of the SBA debentures pursuant to our SEC exemptive relief. Declining portfolio values negatively impact our ability to borrow additional funds under our Credit Facility because our NAV is reduced for purposes of the asset coverage ratio. If the fair value of our assets declines substantially, we may fail to maintain the asset coverage ratio stipulated by the 1940 Act, which could, in turn, cause us to lose our status as a BDC and materially impair our business operations. A lengthy disruption in the credit markets could also materially decrease demand for our investments and could materially damage our business, financial condition and results of operations.

The significant disruptions in the capital markets experienced in the past has had, and may in the future have, a negative effect on the valuations of our investments and on the potential for liquidity events involving our investments. The debt capital that may be available to us in the future may be at a higher cost and have less favorable terms and conditions than those currently in effect. If our financing costs increase and we have no increase in interest income, then our net investment income will decrease. A prolonged inability to raise capital may require us to reduce the volume of investments we originate and could have a material adverse impact on our business, financial condition and results of operations. This may also increase the probability that other structural risks negatively impact us. These situations may arise due to circumstances that we may be unable to control, such as a lengthy disruption in the credit markets, a severe decline in the value of the U.S. dollar, a sharp economic downturn or recession or an operational problem that affects third parties or us, and could materially damage our business, financial condition and results of operations.

Economic sanction laws in the United States and other jurisdictions may prohibit us and our affiliates from transacting with certain countries, individuals and companies.

Economic sanction laws in the United States and other jurisdictions may prohibit us or our affiliates from transacting with certain countries, individuals and companies. In the United States, the U.S. Department of the Treasury’s Office of Foreign Assets Control administers and enforces laws, executive orders and regulations establishing U.S. economic and trade sanctions, which prohibit, among other things, transactions with, and the provision of services to, certain non-U.S. countries, territories, entities and individuals. These types of sanctions may significantly restrict or completely prohibit investment activities in certain jurisdictions, and if we, our portfolio companies or other issuers in which we invest were to violate any such laws or regulations, we may face significant legal and monetary penalties.

The Foreign Corrupt Practices Act, or FCPA, and other anti-corruption laws and regulations, as well as anti-boycott regulations, may also apply to and restrict our activities, our portfolio companies and other issuers of our investments. If an issuer or we were to violate any such laws or regulations, such issuer or we may face significant legal and monetary penalties. The U.S. government has indicated that it is particularly focused on FCPA enforcement, which may increase the risk that an issuer or us becomes the subject of such actual or threatened enforcement. In addition, certain commentators have suggested that private investment firms and the funds that they manage may face increased scrutiny and/or liability with respect to the activities of their underlying portfolio companies. As such, a violation of the FCPA or other applicable regulations by us or an issuer of our portfolio investments could have a material adverse effect on us. We are committed to complying with the FCPA and other anti-corruption laws and regulations, as well as anti-boycott regulations, to which it is subject. As a result, we may be adversely affected because of our unwillingness to enter into transactions that violate any such laws or regulations.

We may be the target of securities litigation in the future, particularly if the trading price of our common stock and our 2024 Notes fluctuates significantly. We could also generally be subject to litigation, including derivative actions by our stockholders. Any litigation could result in substantial costs and divert management’s attention and resources from our business and cause a material adverse effect on our business, financial condition and results of operations.

The effect of global climate change may impact the operations of our portfolio companies.

There may be evidence of global climate change. Climate change creates physical and financial risk and some of our portfolio companies may be adversely affected by climate change. For example, the needs of customers of energy companies vary with weather conditions, primarily temperature and humidity. To the extent weather conditions are affected by climate change, energy use could increase or decrease depending on the duration and magnitude of any changes. Increases in the cost of energy could adversely affect the cost of operations of our portfolio companies if the use of energy products or services is material to their business. A decrease in energy use due to weather changes may affect some of our portfolio companies’ financial condition through, for example, decreased revenues. Extreme weather conditions in general require more system backup, adding to costs, and can contribute to increased system stresses, including service interruptions.

As of September 30, 2020, we did not own any real estate or other physical properties materially important to our operation. We believe that the office facilities of the Investment Adviser and Administrator are suitable and adequate for our business as it is contemplated to be conducted.

None of us, our Investment Adviser or our Administrator, is currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us, or against our Investment Adviser or Administrator. From time to time, we, our Investment Adviser or Administrator may be a party to certain legal proceedings, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.

Our common stock is traded on The Nasdaq Global Select Market under the symbol “PNNT.” The following table lists the high and low closing sale prices for our common stock, the closing sale prices as a premium or (discount) to our NAV per share and distributions per share on The Nasdaq Global Select Market for each full quarterly period within the fiscal years ended September 30, 2020 and 2019.

Shares of BDCs may trade at a market price both above and below the NAV that is attributable to those shares. Our shares have traded above and below our NAV. Our shares closed on The Nasdaq Global Select Market at $3.19 and $6.27 as of September 30, 2020 and 2019, respectively. Our NAV per share was $7.84 and $8.68 as of the same dates. The possibility that our shares of common stock will trade at a discount from NAV or at a premium that is unsustainable over the long term is separate and distinct from the risk that our NAV will decrease. It is not possible to predict whether our shares will trade at, above or below our NAV in the future. As of September 30, 2020, we had 8 stockholders of record.

We did not engage in any sales of unregistered securities during the year ended September 30, 2020.

We did not repurchase any of our common stock during the year ended September 30, 2020.

We intend to continue making quarterly distributions to our stockholders. The timing and amount of our quarterly distributions, if any, is determined by our board of directors. Any distributions to our stockholders are declared out of assets legally available for distribution. We monitor available net investment income to determine if a tax return of capital may occur for the fiscal year. To the extent our taxable earnings fall below the total amount of our distributions for any given fiscal year, a portion of those distributions may be deemed to be a tax return of capital to our common stockholders.

In January 2021, a Form 1099-DIV will be sent to stockholders subject to information reporting that will state the amount and composition of distributions and provide information with respect to appropriate tax treatment of our distributions.

The tax characteristics of distributions declared, in accordance with Section 19(a) of the 1940 Act, during the years ended September 30, 2020 and 2019 from ordinary income (including short-term gains), if any, totaled $40.2 million and $48.4 million, or $0.60 and $0.72 per share, respectively, based on the weighted average shares outstanding for the respective periods.

We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend or other distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions.

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage ratio for borrowings when applicable to us as a BDC under the 1940 Act and due to provisions in future credit facilities. If we do not distribute a certain minimum percentage of our income annually, we will suffer adverse tax consequences, including possible loss of our ability to be subject to tax as a RIC. We cannot assure stockholders that they will receive any distributions or distributions at a particular level.

This graph compares the return on our common stock with that of the Standard & Poor’s 500 Stock Index and the Russell 2000 Financial Services Index, for the last five fiscal years. The graph assumes that, on September 30, 2015, a person invested $100 in each of our common stock, the S&P 500 Index, and the Russell 2000 Financial Services Index. The graph measures total stockholder return, which takes into account both changes in stock price and distributions. It assumes that distributions paid are invested in like securities.

The graph and other information furnished under this Part II Item 5 of this Report shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act. The stock price performance included in the above graph is not necessarily indicative of future stock price performance.

The following table is being provided to update, as of September 30, 2020, certain information in our registration statement on Form N-2 (File No. 333-230014), most recently declared effective by the SEC on January 30, 2020. The following table will assist you in understanding the various costs and expenses that an investor in shares of our common stock will bear directly or indirectly. However, we caution you that some of the percentages indicated in the table below are estimates and may vary from actual results. The following table should not be considered a representation of our future expenses. Actual expenses may be greater or less than shown. Except where the context suggests otherwise, whenever reference is made to fees or expenses paid by “you” or “us” or that “we” will pay, stockholders will indirectly bear such fees or expenses as investors in us.

The following example illustrates the projected dollar amount of total cumulative expenses that you would pay on a $1,000 hypothetical investment in common shares, assuming (1) a 3.00% sales load (underwriting discounts and commissions) and offering expenses totaling 0.51%, (2) total net annual expenses of 12.60% of average net assets attributable to common shares as set forth in the table above (other than performance-based incentive fees) and (3) a 5% annual return.

This example and the expenses in the table above should not be considered a representation of our future expenses. Actual expenses may be greater or less than those assumed. The table above is provided to assist you in understanding the various costs and expenses that an investor in our common stock will bear directly or indirectly. While the example assumes, as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%. If we were to earn an annual return equal to or less than 5% from net investment income, the incentive fee under our Investment Management Agreement would not be earned or payable. If returns on our investments, including realized capital gains, result in an incentive fee, our expenses, and returns to investors, would be higher. The example assumes that all distributions are reinvested at NAV. Reinvestment of distributions under our dividend reinvestment plan may occur at a price per share that differs from NAV. See “Distributions” for more information.

We have derived the data below from our audited and unaudited financial data. The Consolidated Statements of Operations data, per share data and Consolidated Statements of Assets and Liabilities data presented are derived from our audited Consolidated Financial Statements. These selected financial data should be read in conjunction with our Consolidated Financial Statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

	For the years ended September 30,
	2020				2019			2018				2017				2016
(Dollar amounts in thousands, except per share data)
Consolidated Statements of Operations data:
Total investment income	$	100,225			$	112,107		$	108,278			$	124,534			$	142,071
Total expenses		61,495		⁽¹⁾		67,510			54,944		⁽¹⁾		68,096		⁽¹⁾		71,456
Net investment income		38,730				44,597			53,334				56,438				70,615
Net realized and change in unrealized (loss) gain		(54,700	)			(28,672	)		(5,621	)			5,273				(51,878	)
Net increase (decrease) in net assets resulting from operations		(15,970	)			15,925			47,713				61,712				18,737
Per share data:
Net asset value		7.84				8.68			9.11				9.10				9.05
Net investment income ⁽²⁾		0.58				0.66			0.75				0.79				0.99
Net realized and unrealized (loss) gain ⁽²⁾		(0.82	)			(0.42	)		(0.07	)			0.08				(0.73	)
Net increase (decrease) in net assets resulting from operations ⁽²⁾		(0.24	)			0.24			0.68				0.87				0.26
Distributions declared ^{(2), (3)}		0.60				0.72			0.72				0.82				1.11
Consolidated Statements of Assets and Liabilities data:
Total assets		1,114,353				1,285,838			1,160,119				1,202,196				1,238,936
Total investment portfolio		1,081,771				1,219,433			1,132,085				1,153,578				1,153,680
Borrowings outstanding ⁽⁴⁾		568,312				683,758			504,342				526,067				559,589
Total net asset value		525,709				581,906			628,902				646,808				643,367
Other data:
Total return ⁽⁵⁾		(39.62	)%			(6.28	)%		9.70	%			10.80	%			36.64	%
Number of portfolio companies ⁽⁶⁾		80				67			53				55				56
Yield on debt portfolio ⁽⁶⁾		8.9	%			9.8	%		11.2	%			11.5	%			11.9	%

This Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements that constitute forward-looking statements, which relate to us and our consolidated subsidiaries regarding future events or our future performance or future financial condition. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our Company, our industry, our beliefs and our assumptions. The forward-looking statements contained in this Report involve risks and uncertainties, including statements as to:

We use words such as “anticipates,” “believes,” “expects,” “intends,” “seeks,” “plans,” “estimates” and similar expressions to identify forward-looking statements. You should not place undue influence on the forward-looking statements as our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors in “Risk Factors” and elsewhere in this Report.

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new loans and investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward- looking statement in this Report should not be regarded as a representation by us that our plans and objectives will be achieved.

We have based the forward-looking statements included in this Report on information available to us on the date of this Report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements in this Report, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including reports on Form 10-Q/K and current reports on Form 8-K.

You should understand that under Section 27A(b)(2)(B) of the Securities Act and Section 21E(b)(2)(B) of the Exchange Act, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to forward-looking statements made in periodic reports we file under the Exchange Act.

The following analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes thereto contained elsewhere in this Report.

We believe middle-market companies offer attractive risk-reward to investors due to a limited amount of capital available for such companies. We seek to create a diversified portfolio that includes first lien secured debt, second lien secured debt, subordinated debt and equity investments by investing approximately $10 million to $50 million of capital, on average, in the securities of middle-market companies. We expect this investment size to vary proportionately with the size of our capital base. We use the term “middle-market” to refer to companies with annual revenues between $50 million and $1 billion. The companies in which we invest are typically highly leveraged, and, in most cases, are not rated by national rating agencies. If such companies were rated, we believe that they would typically receive a rating below investment grade (between BB and CCC under the Standard & Poor’s system) from the national rating agencies. Securities rated below investment grade are often referred to as “leveraged loans” or “high yield” securities or “junk bonds” and are often higher risk compared to debt instruments that are rated above investment grade and have speculative characteristics. Our debt investments may generally range in maturity from three to ten years and are made to U.S. and, to a limited extent, non-U.S. corporations, partnerships and other business entities which operate in various industries and geographical regions.

SBIC II, our wholly-owned subsidiary, was organized as a Delaware limited partnership in 2012. SBIC II received a license from the SBA to operate as a SBIC under Section 301(c) of the 1958 Act. SBIC II’s objectives are to generate both current income and capital appreciation through debt and equity investments generally by investing with us in SBA eligible businesses that meet the investment selection criteria used by PennantPark Investment.

Our investment activities are managed by the Investment Adviser. Under our Investment Management Agreement, we have agreed to pay our Investment Adviser an annual base management fee based on our average adjusted gross assets as well as an incentive fee based on our investment performance. PennantPark Investment, through the Investment Adviser, provides similar services to SBIC II under its investment management agreement. SBIC II’s investment management agreement does not affect the management and incentive fees on a consolidated basis. We have also entered into an Administration Agreement with the Administrator. Under our Administration Agreement, we have agreed to reimburse the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under our Administration Agreement, including rent and our allocable portion of the costs of compensation and related expenses of our Chief Compliance Officer, Chief Financial Officer and their respective staffs. PennantPark Investment, through the Administrator, provides similar services to SBIC II under its administration agreement with us. Our board of directors, a majority of whom are independent of us, provides overall supervision of our activities, and the Investment Adviser supervises our day-to-day activities.

COVID-19 was first detected in December 2019 in the city of Wuhan in China and has since been identified as a global pandemic by the World Health Organization. In response, governmental authorities of affected jurisdictions, including those in the United States, have imposed travel restrictions and required the temporary closures of many corporate offices, retail stores, manufacturing facilities, factories and other common places of public congregation. These restrictions and “stay-at-home” orders have essentially resulted in the shutdown of all non-essential businesses, as defined by each governmental authority imposing the respective orders. The economic impact resulting from such restrictions has adversely affected the business operations of some, if not all, of our portfolio companies, as well as our own operations and the operations of our Adviser. While some jurisdictions have either lifted or started to ease certain restrictions on businesses, it is possible that a resurgence of COVID-19 will require additional closures in the future. We cannot predict with any level of certainty the magnitude of the ongoing impact to our business operations or the business operations of our portfolio companies due to the business and supply-chain disruptions caused by the COVID-19 pandemic and the resulting governmental responses. However, we expect such adverse effects to continue for the duration of the pandemic, and potentially for some time thereafter.

Due to the nature of these governmental restrictions and their potentially long-lasting duration, some portfolio companies, especially those in vulnerable industries such as retail, food and beverage and travel, have experienced significant financial distress and may default on their financial obligations to us and their other capital providers. Moreover, certain of our portfolio companies that remain subject to prolonged and severe financial distress, have substantially curtailed their operations, deferred capital expenditures, furloughed or laid off workers and/or terminated relationships with their service providers. These developments will likely continue to impact the value of our investments in such portfolio companies.

The COVID-19 pandemic will likely continue to have an adverse impact on the global economy and result in a period, however long, of global economic slowdown. Particularly, COVID-19 presents material uncertainty and risk with respect to our future performance and financial results as well as the future performance and financial results of our portfolio companies. While we are unable to predict the ultimate adverse effect of COVID-19 on our results of operation, we have identified certain factors that are likely to affect market, economic and geopolitical conditions, and thereby may adversely affect our business, including:

The business disruption and financial harm resulting from COVID-19 experienced by our portfolio companies are likely to reduce, over time, the amount of interest and dividend income that we receive from such investments and may require us to provide an increase of capital to such companies in the form of follow on investments. In connection with the adverse effects of the COVID-19 pandemic, we may also need to restructure the capitalization of some of our portfolio companies, which could result in reduced interest payments, an increase in the amount of PIK interest we receive or a permanent reduction in the value of our investments. If our net investment income decreases, the percentage of our cash flows dedicated to debt servicing and distribution payments to stockholders would subsequently increase. This has required us to reduce the amount of our distributions to stockholders as compared to distributions in the same quarter of the prior year. The continuing impact of the COVID-19 pandemic may result in additional portfolio investments being placed on non-accrual status in the future.

We have had a significant reduction in our NAV as of September 30, 2020 as compared to our NAV as of September 30, 2019, which was partly due to the immediate adverse economic effects of the COVID-19 pandemic, the continuing uncertainty surrounding its long-term impact as well as the re-pricing of credit risk in the broadly syndicated credit market. The decrease in NAV as of September 30, 2020 as compared to September 30, 2019 primarily resulted from a decrease in the fair value of some of our portfolio company investments, which led to an increase in unrealized depreciation in respect of our portfolio company investments. In addition, our investment valuations are inherently less certain than they would be absent the impact of the COVID-19 pandemic and related market volatility and the values assigned as of this date may materially differ from the values that may ultimately be realized.

Additionally, as of September 30, 2020 and September 30, 2019, our asset coverage ratio, as computed in accordance with the 1940 Act, was 208% and 207%, respectively. Our Credit Facilities include standard covenants and events of default provisions. If we fail to make payments required under such facilities or breach the covenants therein, it could result in a default under the Credit Facilities. Failure to cure such default or obtain a waiver from the appropriate party would result in an event of default, and the applicable lender may accelerate the repayment of our indebtedness under the respective credit facility, such that all amounts owed are due immediately at the time of default. Such an action would negatively affect our liquidity, business, financial condition, results of operations, cash flows and ability to pay distributions to our stockholders.

We are also subject to financial risks, including changes in market interest rates. As of September 30, 2020, our debt portfolio consisted of 93% variable-rate investments. The variable-rate loans are usually based on a floating interest rate index such as LIBOR and typically have durations of three months after which they reset to current market interest rates. Variable-rate investments subject to a floor generally reset by reference to the current market index after one to nine months only if the index exceeds the floor. In addition, the BNP Credit Facility and the Truist Credit Facility also have floating rate interest provisions, with pricing set at 260 basis points over LIBOR (or an alternative risk-free floating interest rate index) and 225 basis points over LIBOR (or an alternative risk-free floating interest rate index), respectively. In connection with the COVID-19 pandemic, the U.S. Federal Reserve and other central banks have reduced interest rates, which has caused LIBOR to decrease. Due to such rates, our gross investment income has decreased, which

could result in a decrease in our net investment income if such decreases in LIBOR are not offset by, among other things, a corresponding increase in the spread over LIBOR that we earn on such loans or a decrease in the interest rate of our floating interest rate liabilities tied to LIBOR. See “Item 3. Quantitative and Qualitative Disclosures About Market Risk” below.

In addition, we activated our business continuity planning strategy. Our priority has been to safeguard the health of our employees and to ensure continuity of business operations on behalf of our investors. As a result of the execution of our business continuity planning strategy, nearly all of our employees are working remotely. Our systems and infrastructure have continued to support our business operations. We implemented a heightened level of communication across senior management, our investment team and our board of directors, and we have proactively engaged with our vendors on a regular basis to ensure they continue to meet our criteria for business continuity.

We generate revenue in the form of interest income on the debt securities we hold and capital gains and dividends, if any, on investment securities that we may acquire in portfolio companies. Our debt investments, whether in the form of first lien secured debt, second lien secured debt or subordinated debt, typically have a term of three to ten years and bear interest at a fixed or a floating rate. Interest on debt securities is generally payable quarterly or semiannually. In some cases, our investments provide for deferred interest payments and PIK interest. The principal amount of the debt securities and any accrued but unpaid interest generally becomes due at the maturity date. In addition, we may generate revenue in the form of amendment, commitment, origination, structuring or diligence fees, fees for providing significant managerial assistance and possibly consulting fees. Loan origination fees, OID and market discount or premium and deferred financing costs on liabilities, which we do not fair value, are capitalized and accreted or amortized using the effective interest method as interest income or, in the case of deferred financing costs, as interest expense. Dividend income, if any, is recognized on an accrual basis on the ex-dividend date to the extent that we expect to collect such amounts. From time to time, the Company receives certain fees from portfolio companies, which are non-recurring in nature. Such fees include loan prepayment penalties, structuring fees and amendment fees, and are recorded as other investment income when earned.

Our primary operating expenses include the payment of a management fee and the payment of an incentive fee to our Investment Adviser, if any, our allocable portion of overhead under our Administration Agreement and other operating costs as detailed below. Our management fee compensates our Investment Adviser for its work in identifying, evaluating, negotiating, consummating and monitoring our investments. Additionally, we pay interest expense on the outstanding debt and unused commitment fees on undrawn amounts, under our various debt facilities. We bear all other direct or indirect costs and expenses of our operations and transactions, including:

Generally, during periods of asset growth, we expect our general and administrative expenses to be relatively stable or to decline as a percentage of total assets and increase during periods of asset declines. Incentive fees, interest expense and costs relating to future offerings of securities would be additive to the expenses described above.

As of September 30, 2020, our portfolio totaled $1,081.8 million and consisted of $439.0 million of first lien secured debt, $220.8 million of second lien secured debt, $113.6 million of subordinated debt (including $63.0 million in PSLF) and $308.3 million of preferred and common equity (including $36.3 million in PSLF). Our debt portfolio consisted of 93% variable-rate investments and 7% fixed-rate investments. As of September 30, 2020, we had two portfolio companies on non-accrual, representing 4.9% and 3.4% of our overall portfolio on a cost and fair value basis, respectively. Overall, the portfolio had net unrealized depreciation of $83.8 million as of September 30, 2020. Our overall portfolio consisted of 80 companies with an average investment size of $13.5 million, had a weighted average yield on interest bearing debt investments of 8.9% and was invested 41% in first lien secured debt, 20% in second lien secured debt, 10% in subordinated debt (including 6% in PSLF) and 29% in preferred and common equity (including 3% in PSLF). As of September 30, 2020, all of the investments held by PSLF were first lien secured debt.

As of September 30, 2019, our portfolio totaled $1,219.4 million and consisted of $695.3 million of first lien secured debt, $269.3 million of second lien secured debt, $61.2 million of subordinated debt and $193.7 million of preferred and common equity. Our debt portfolio consisted of 87% variable-rate investments and 13% fixed-rate investments. As of September 30, 2019, we had no portfolio companies on non-accrual. Overall, the portfolio had net unrealized depreciation of $37.6 million as of September 30, 2019. Our overall portfolio consisted of 67 companies with an average investment size of $18.2 million, had a weighted average yield on interest bearing debt investments of 9.8% and was invested 57% in first lien secured debt, 22% in second lien secured debt, 5% in subordinated debt and 16% in preferred and common equity.

For the year ended September 30, 2020, we invested $319.3 million of investments in 25 new and 58 existing portfolio companies with a weighted average yield on debt investments of 8.4%. Sales and repayments of investments for the same period totaled $162.7 million.

For the year ended September 30, 2019, we invested $533.6 million of investments in 24 new and 49 existing portfolio companies with a weighted average yield on debt investments of 9.4%. Sales and repayments of investments for the same period totaled $426.5 million.

As of September 30, 2020, PSLF’s portfolio totaled $353.4 million, consisted of 37 companies with an average investment size of $9.6 million and had a weighted average yield on debt investments of 7.3%.

For the period ended July 31, 2020 through September 30, 2020, PSLF invested $5.7 million in one new portfolio company with a weighted average yield on debt investments of 7.5%. PSLF’s sales and repayments of investments for the same period totaled $11.1 million.

The preparation of our Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of our assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of income and expenses during the reported periods. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements have been included. Actual results could differ from these estimates due to changes in the economic and regulatory environment, financial markets and any other parameters used in determining such estimates and assumptions. We may reclassify certain prior period amounts to conform to the current period presentation. We have eliminated all intercompany balances and transactions. References to ASC serve as a single source of accounting literature. Subsequent events are evaluated and disclosed as appropriate for events occurring through the date the Consolidated Financial Statements are issued. In addition to the discussion below, we describe our critical accounting policies in the notes to our Consolidated Financial Statements.

We expect that there may not be readily available market values for many of the investments which are or will be in our portfolio, and we value such investments at fair value as determined in good faith by or under the direction of our board of directors using a documented valuation policy and a consistently applied valuation process, as described in this Report. With respect to investments for which there is no readily available market value, the factors that the board of directors may take into account in pricing our investments at fair value include, as relevant, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we consider the pricing indicated by the external event to corroborate or revise our valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the price used in an actual transaction may be different than our valuation and the difference may be material.

Our portfolio generally consists of illiquid securities, including debt and equity investments. With respect to investments for which market quotations are not readily available, or for which market quotations are deemed not reflective of the fair value, our board of directors undertakes a multi-step valuation process each quarter, as described below:

Our board of directors generally uses market quotations to assess the value of our investments for which market quotations are readily available. We obtain these market values from independent pricing services or at the bid prices obtained from at least two brokers or dealers, if available, or otherwise from a principal market maker or a primary market dealer. The Investment Adviser assesses the source and reliability of bids from brokers or dealers. If the board of directors has a bona fide reason to believe any such market quote does not reflect the fair value of an investment, it may independently value such investments by using the valuation procedure that it uses with respect to assets for which market quotations are not readily available.

Fair value, as defined under ASC 820, is the price that we would receive upon selling an investment or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment or liability. ASC 820 emphasizes that valuation techniques maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing an asset or liability based on market data obtained from sources independent of us. Unobservable inputs reflect the assumptions market participants would use in pricing an asset or liability based on the best information available to us on the reporting period date.

ASC 820 classifies the inputs used to measure these fair values into the following hierarchies:

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Generally, most of our investments, our Credit Facilities and our SBA debentures are classified as Level 3. Our 2019 Notes were, and our 2024 Notes are, classified as Level 2 as they are financial instruments with readily observable market inputs. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the price used in an actual transaction may be different than our valuation and those differences may be material.

In addition to using the above inputs to value cash equivalents, investments, our 2019 Notes, our SBA debentures, our 2024 Notes and our Credit Facilities valuations, we employ the valuation policy approved by our board of directors that is consistent with ASC 820. Consistent with our valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading, in determining fair value.

Generally, the carrying value of our consolidated financial liabilities approximates fair value. We have adopted the principles under ASC Subtopic 825-10, Financial Instruments, or ASC 825-10, which provides companies with an option to report selected financial assets and liabilities at fair value, and made an irrevocable election to apply ASC 825-10 to our Credit Facilities and, prior to their redemption, the 2019 Notes. We elected to use the fair value option for the Credit Facilities and, prior to their redemption, the 2019 Notes to align the measurement attributes of both our assets and liabilities while mitigating volatility in earnings from using different measurement attributes. Due to that election and in accordance with GAAP, we incurred expenses of zero, $7.1 million and zero relating to amendment costs on the Credit Facilities during the years ended September 30, 2020, 2019 and 2018, respectively. ASC 825-10 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and to more easily understand the effect on earnings of a company’s choice to use fair value. ASC 825-10 also requires entities to display the fair value of the selected assets and liabilities on the face of the Consolidated Statements of Assets and Liabilities and changes in fair value of the Credit Facilities and, prior to their redemption, the 2019 Notes are reported in our Consolidated Statements of Operations. We did not elect to apply ASC 825-10 to any other financial assets or liabilities, including the 2024 Notes and SBA debentures.

For the years ended September 30, 2020, the Credit Facilities had a net change in unrealized depreciation of $12.3 million. For the years ended September 30, 2019 and 2018, the Credit Facilities and the 2019 Notes had a net change in unrealized depreciation of $5.7 million and $3.9 million, respectively. As of September 30, 2020, the net unrealized depreciation on Truist Credit Facility totaled $19.6 million. As of September 30, 2019, the net unrealized depreciation on our Credit Facilities totaled $7.2 million. We use a nationally recognized independent valuation service to measure the fair value of our Credit Facilities and, prior to their redemption, the 2019 Notes in a manner consistent with the valuation process that the board of directors uses to value our investments.

We record interest income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt investments with contractual PIK interest, which represents interest accrued and added to the loan balance that generally becomes due at maturity, we will generally not accrue PIK interest when the portfolio company valuation indicates that such PIK interest is not collectable. We do not accrue as a receivable interest on loans and debt investments if we have reason to doubt our ability to collect such interest. Loan origination fees, OID, market discount or premium and deferred financing costs on liabilities, which we do not fair value, are capitalized and then accreted or amortized using the effective interest method as interest income or, in the case of deferred financing costs, as interest expense. We record prepayment penalties on loans and debt investments as income. Dividend income, if any, is recognized on an accrual basis on the ex-dividend date to the extent that we expect to collect such amounts. From time to time, the Company receives certain fees from portfolio companies, which are non-recurring in nature. Such fees include loan prepayment penalties, structuring fees and amendment fees, and are recorded as other investment income when earned.

Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation

We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, using the specific identification method, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in the fair value of our portfolio investments, our Credit Facilities and, prior to their redemption, the 2019 Notes during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Our books and records are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:

Although net assets and fair values are presented based on the applicable foreign exchange rates described above, we do not isolate that portion of the results of operations due to changes in foreign exchange rates on investments, other assets and debt from the fluctuations arising from changes in fair value of investments and liabilities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments and liabilities.

We have investments in our portfolio which contain a PIK interest provision. PIK interest is added to the principal balance of the investment and is recorded as income. In order for us to maintain our ability to be subject to tax as a RIC, substantially all of this income must be paid out to stockholders in the form of dividends for U.S. federal income tax purposes, even though we may not have collected any cash with respect to interest on PIK securities.

We have elected to be treated, and intend to qualify annually to maintain our election to be treated, as a RIC under Subchapter M of the Code. To maintain our RIC tax election, we must, among other requirements, meet certain annual source-of-income and quarterly asset diversification requirements. We also must annually distribute dividends for U.S. federal income tax purposes to our stockholders out of the assets legally available for distribution of an amount generally at least equal to 90% of the sum of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, or investment company taxable income, determined without regard to any deduction for dividends paid.

Although not required for us to maintain our RIC tax status, in order to preclude the imposition of a 4% nondeductible federal excise tax imposed on RICs, we must distribute dividends for U.S. federal income tax purposes to our stockholders in respect of each calendar year of an amount at least equal to the Excise Tax Avoidance Requirement. In addition, although we may distribute realized net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually, out of the assets legally available for such distributions in the manner described above, we have retained and may continue to retain such net capital gains or investment company taxable income, subject to maintaining our ability to be taxed as a RIC, in order to provide us with additional liquidity.

Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and net realized gain recognized for financial reporting purposes. Differences between tax regulations and GAAP may be permanent or temporary. Permanent differences are reclassified among capital accounts in the Consolidated Financial Statements to reflect their appropriate tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future.

We have formed and expect to continue to form certain taxable subsidiaries, including the Taxable Subsidiaries, which are taxed as corporations. These taxable subsidiaries allow us to hold equity securities of certain portfolio companies treated as pass-through entities for U.S. federal income tax purposes while facilitating our ability to qualify as a RIC under the Code.

Set forth below are the results of operations for the years ended September 30, 2020 and 2019. For information regarding results of operations for the year ended September 30, 2018, see the Company's Form 10-K for the fiscal year ended September 30, 2019, as filed with the SEC on November 21, 2019.

Investment income for the year ended September 30, 2020 was $100.2 million and was attributable to $63.4 million from first lien secured debt, $25.9 million from second lien secured debt and $8.7 million from subordinated debt and $2.2 from preferred and common equity. The decrease in investment income over the prior year was primarily due to a decrease in LIBOR as well as an increase in our equity portfolio.

Investment income for the year ended September 30, 2019 was $112.1 million and was attributable to $62.6 million from first lien secured debt, $41.4 million from second lien secured debt and $8.1 million from subordinated debt.

Net expenses for the year ended September 30, 2020 totaled $61.5 million. Base management fee for the same period totaled $18.6 million, incentive fee totaled $2.7 million (after a waiver of $1.9 million), debt related interest and other financing expenses totaled $34.4 million (including one-time costs of $2.2 million associated with the PSLF transaction) and general and administrative expenses totaled $4.7 million. The decrease in expenses over the prior year was primarily due to a decrease in debt related expenses as well as the incentive fee waiver.

Net expenses for the year ended September 30, 2019 totaled $67.5 million. Base management fee for the same period totaled $18.2 million, incentive fee totaled $5.1 million, debt related interest and expenses totaled $38.2 million (including one-time debt related costs of $9.2 million) and general and administrative expenses totaled $4.7 million.

Net investment income totaled $38.7 million, or $0.58 per share, and $44.6 million, or $0.66 per share, for the years ended September 30, 2020 and 2019, respectively. The decrease in net investment income per share compared to the prior year was primarily due to a decrease in LIBOR.

Sales and repayments of investments for the years ended September 30, 2020 and 2019 totaled $162.7 million and $426.5 million, respectively, and net realized losses totaled $20.8 million and $108.5 million, respectively. The change in realized gains/losses was primarily due to changes in the market conditions of our investments and the values at which they were realized, including the net realized loss on Superior Digital Displays, LLC during the year ended September 30, 2019.

Unrealized Appreciation or Depreciation on Investments, Credit Facilities and the 2019 Notes

For the years ended September 30, 2020 and 2019, we reported net change in unrealized (depreciation) appreciation on investments of ($46.2) million and $74.1 million, respectively. As of September 30, 2020 and 2019, our net unrealized depreciation on investments totaled $83.8 million and $37.6 million, respectively. The net change in unrealized appreciation/depreciation on our investments for the year ended September 30, 2020 compared to the prior year was primarily due to changes in the capital market conditions as well as the financial performance of certain portfolio companies primarily driven by the market disruption caused by the COVID-19 pandemic and the uncertainty surrounding its continued adverse economic impact, as discussed above under “COVID-19 Developments.”

For the years ended September 30, 2020 and 2019, our Credit Facilities and the 2019 Notes had a net change in unrealized depreciation of $12.3 million and $5.7 million, respectively. As of September 30, 2020 and 2019, our net unrealized depreciation on our Credit Facilities and, prior to their redemption, the 2019 Notes totaled $19.6 million and $7.2 million, respectively. The net change in unrealized depreciation for the year ended September 30, 2020 compared to the prior year was primarily due to changes in the capital markets.

Net change in net assets resulting from operations totaled ($16.0) million, or ($0.24) per share, and $15.9 million, or $0.24 per share, for the years ended September 30, 2020 and 2019, respectively. The decrease in net assets from operations for the year ended September 30, 2020 compared to the prior year was primarily due to depreciation of the portfolio primarily driven by the market disruption caused by the COVID-19 pandemic and the uncertainty surrounding its continued adverse economic impact, as discussed above under “COVID-19 Developments.”

Our liquidity and capital resources are derived primarily from proceeds of securities offerings, debt capital and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies and payments of fees and other operating expenses we incur. We have used, and expect to continue to use, our debt capital, proceeds from the rotation of our portfolio and proceeds from public and private offerings of securities to finance our investment objectives. As of September 30, 2020, in accordance with the 1940 Act, with certain limited exceptions, we are only allowed to borrow amounts such that we are in compliance with a 150% asset coverage ratio requirement after such borrowing, excluding SBA debentures pursuant to exemptive relief from the SEC received in June 2011. For information regarding liquidity and capital resources for the year ended September 30, 2018, see the Company's Form 10-K for the fiscal year ended September 30, 2019, as filed with the SEC on November 21, 2019.

As of September 30, 2020 and 2019, our asset coverage ratio, as computed in accordance with the 1940 Act, was 208% and 207%, respectively.

The annualized weighted average cost of debt for the years ended September 30, 2020 and 2019, inclusive of the fee on the undrawn commitment and amendment costs on the Credit Facilities, amortized upfront fees on SBA debentures and debt retirement and issuance costs, was 4.0% and 6.0%, respectively.

As of September 30, 2020, we had the multi-currency Truist Credit Facility for up to $475.0 million in borrowings with certain lenders and Truist Bank (formerly SunTrust Bank), acting as administrative agent, and JPMorgan Chase Bank, N.A., acting as syndication agent for the lenders. As of September 30, 2020 and 2019, we had $388.3 million and $301.6 million, respectively, in outstanding borrowings under the Truist Credit Facility. The Truist Credit Facility had a weighted average interest rate of 2.5% and 4.2%, respectively, exclusive of the fee on undrawn commitment, as of September 30, 2020 and 2019. The Truist Credit Facility is a revolving facility with a stated maturity date of September 4, 2024 ($40.0 million of the $475 million commitment will mature May 25, 2022), a one-year term-out period on September 4, 2023 ($40.0 million of the $475 million commitment has a one year term-out period on May 25, 2021) and pricing set at 225 basis points over LIBOR (or an alternative risk-free floating interest rate index). As of September 30, 2020 and 2019, we had $86.7 million and $173.4 million of unused borrowing capacity under the Truist Credit Facility, respectively, subject to leverage and borrowing base restrictions. The Truist Credit Facility is secured by substantially all of our assets excluding assets held by SBIC II. As of September 30, 2020, we were in compliance with the terms of the Truist Credit Facility.

As of September 30, 2020, we had $86.3 million in aggregate principal amount of 2024 Notes outstanding. Interest on the 2024 Notes is paid quarterly on January 15, April 15, July 15 and October 15, at a rate of 5.5% per year, commencing January 15, 2020. The 2024 Notes mature on October 15, 2024. The 2024 Notes are direct unsecured obligations and rank pari passu in right of payment with our existing and future unsecured unsubordinated indebtedness. The 2024 Notes are structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, financing vehicles, or similar facilities. The 2024 Notes may be redeemed in whole or in part at our option on or after October 15, 2021 at a redemption price of 100% of the outstanding principal amount of the 2024 Notes plus accrued and unpaid interest.

In September 2014, we issued $250.0 million in aggregate principal amount of 2019 Notes, for net proceeds of $245.5 million after underwriting discounts and offering costs. Interest on the 2019 Notes was paid semi-annually on April 1 and October 1, at a rate of 4.5% per year. On March 4, 2019 the 2019 Notes were redeemed in full and no amounts were outstanding as of September 30, 2020. The 2019 Notes were redeemed on March 4, 2019 at a redemption price equal to $1,008.65 for each $1,000.00 of principal of notes outstanding, plus accrued and unpaid interest to March 4, 2019, pursuant to the indenture governing the 2019 Notes. Please refer to our indenture agreement filed as Exhibit (d)(8) to our post-effective amendment filed on January 22, 2013 and the supplemental indenture agreement filed as Exhibit (d)(11) to our post-effective amendment filed on September 23, 2014 for more information.

We may raise additional equity or debt capital through both registered offerings off our shelf registration statement and private offerings of securities, by securitizing a portion of our investments or borrowing from the SBA, among other sources. Any future additional debt capital we incur, to the extent it is available, may be issued at a higher cost and on less favorable terms and conditions than our current Credit Facility or SBA debentures. Furthermore, our Credit Facility availability depends on various covenants and restrictions. The primary use of existing funds and any funds raised in the future is expected to be for repayment of indebtedness, investments in portfolio companies, cash distributions to our stockholders or for other general corporate or strategic purposes such as our stock repurchase program.

On May 9, 2018, we announced a share repurchase program which allowed us to repurchase up to $30 million of our outstanding common stock in the open market at prices below our NAV as reported in our then most recently published consolidated financial statements. The program expired on May 9, 2019. During the year ended September 30, 2019, we repurchased 2.0 million shares of common stock, respectively, in open market transactions for an aggregate cost (including transaction costs) of $14.5 million. From May 9, 2018 through the program’s expiration, we purchased 4.0 million shares of common stock in open market transactions for an aggregate cost (including transaction costs) of $29.5 million.

SBIC II is able to borrow funds from the SBA against regulatory capital (which approximates equity capital) that is paid-in and is subject to customary regulatory requirements including an examination by the SBA. We have funded SBIC II with $75.0 million of equity capital and it had SBA debentures outstanding of $118.5 million as of September 30, 2020. SBA debentures are non-recourse to us and may be prepaid at any time without penalty. The interest rate of SBA debentures is fixed at the time of issuance, often referred to as pooling, at a market-driven spread over 10-year U.S. Treasury Notes. Under current SBA regulations, a SBIC may individually borrow to a maximum of $175.0 million, which is up to twice its potential regulatory capital, and as part of a group of SBICs under common control may borrow a maximum of $350.0 million in the aggregate.

As of both September 30, 2020 and 2019, SBIC II had an initial $150.0 million in debt commitments, all of which were drawn. During the years ended September 30, 2020 and 2019, $31.5 million and zero in SBA debentures were repaid, respectively. As of September 30, 2020 and 2019, the unamortized fees on the SBA debentures were $2.7 million and $3.9 million, respectively. The SBA debentures’ upfront fees of 3.4% consist of a commitment fee of 1.0% and an issuance discount of 2.4%, which are being amortized.

The SBIC program is designed to stimulate the flow of capital into eligible businesses. Under SBA regulations, SBIC II is subject to regulatory requirements, including making investments in SBA eligible businesses, investing at least 25% of regulatory capital in eligible smaller businesses, as defined under the 1958 Act, placing certain limitations on the financing terms of investments, prohibiting investment in certain industries and requiring capitalization thresholds that limit distributions to us, and are subject to periodic audits and examinations of their financial statements that are prepared on a basis of accounting other than GAAP (for example, fair value, as defined under ASC 820, is not required to be used for assets or liabilities for such compliance reporting). As of September 30, 2020, SBIC II was in compliance with their regulatory requirements.

In accordance with the 1940 Act, with certain limited exceptions, PennantPark Investment is only allowed to borrow amounts such that our required 150% asset coverage ratio is met after such borrowing. As of September 30, 2020 and 2019, we excluded the principal amounts of our SBA debentures from our asset coverage ratio pursuant to SEC exemptive relief. In 2011, we received exemptive relief from the SEC allowing us to modify the asset coverage ratio requirement to exclude the SBA debentures from the calculation. Accordingly, our ratio of total assets on a consolidated basis to outstanding indebtedness may be less than 150% which, while providing increased investment flexibility, also increases our exposure to risks associated with leverage.

As of September 30, 2020 and 2019, we had cash and cash equivalents of $25.8 million and $59.5 million, respectively, available for investing and general corporate purposes. We believe our liquidity and capital resources are sufficient to take advantage of market opportunities.

Our operating activities used cash of $129.6 million for the year ended September 30, 2020, and our financing activities provided cash of $95.8 million for the same period. Our operating activities used cash primarily for our investment activities and our financing activities provided cash primarily for net borrowings under our Credit Facilities.

Our operating activities provided cash of $81.1 million for the year ended September 30, 2019, and our financing activities provided cash of $121.1 million for the same period. Our operating activities provided cash from sales and repayments on our investments and our financing activities provided cash primarily for net borrowings under our credit facilities as well as the issuance of the 2024 Notes, partially offset by cash used by our stock repurchase program.

For more information regarding our borrowing arrangements, see “Business—Leverage” above.

Information about our senior securities is shown in the following table as of September 30, 2020, 2019, 2018, 2017, 2016, 2015, 2014, 2013, 2012 and 2011. The report of RSM US LLP, an independent registered public accounting firm, on the Senior Securities table as of September 30, 2020, is attached as an exhibit to this Report.

In July 2020, we and Pantheon formed PSLF, an unconsolidated joint venture. PSLF invests primarily in middle-market and other corporate debt securities consistent with our strategy. PSLF was formed as a Delaware limited liability company. As of September 30, 2020, PSLF had total assets of $361.8 million. PSLF’s portfolio consisted of debt investments in 37 portfolio companies as of September 30, 2020. As of September 30, 2020, at fair value, the largest investment in a single portfolio company in PSLF was $18.4 million and the five largest investments totaled $77.9 million. PSLF invests in portfolio companies in the same industries in which we may directly invest.

We and Pantheon each appointed two members to PSLF’s four-person Member Designees’ Committee (the “Member Designees’ Committee”). All material decisions with respect to PSLF, including those involving its investment portfolio, require unanimous approval of a quorum of the Member Designees’ Committee. Quorum is defined as (i) the presence of two members of the Member Designees’ Committee; provided that at least one individual is present that was elected, designated or appointed by each of us and Pantheon; (ii) the presence of three members of Member Designees’ Committee, provided that the individual that was elected, designated or appointed us or Pantheon, as the case may be, with only one individual present shall be entitled to cast two votes on each matter; and (iii) the presence of four members of the Member Designees’ Committee shall constitute a quorum, provided that two individuals are present that were elected, designated or appointed by each of us and Pantheon.

Additionally, PSLF has entered into a $250.0 million senior secured revolving credit facility which bears interest at LIBOR (or an alternative risk-free interest rate index) plus 260 basis points, or the PSLF Credit Facility, with BNP Paribas through its wholly-owned subsidiary, PennantPark Investment Funding I, LLC, or PSLF Subsidiary, subject to leverage and borrowing base restrictions.

Issuer Name	Maturity	Industry	Current Coupon			Basis Point Spread Above Index ⁽¹⁾	Par		Cost		Fair Value ⁽²⁾
First Lien Secured Debt—701.6%
Advantage Sales & Marketing	07/23/2021	Grocery		4.25	%	1M L+325		8,627,315	$	8,418,699	$	8,456,926
Altamira Technologies, LLC	07/24/2025	Aerospace and Defense		7.00	%	3M L+600		971,231		958,950		937,238
American Insulated Glass, LLC	12/21/2023	Building Materials		6.50	%	3M L+550		14,775,105		14,571,097		14,479,603
Apex Service Partners, LLC	07/31/2025	Personal, Food and Miscellaneous Services		6.25	%	1M L+525		6,607,449		6,546,594		6,409,225
Bazaarvoice, Inc.	02/01/2024	Printing and Publishing		6.75	%	1M L+575		14,628,085		14,509,210		14,408,664
Bottom Line Systems, LLC	02/13/2023	Healthcare, Education and Childcare		6.25	%	1M L+550		15,000,000		14,895,515		14,683,499
Cano Health, LLC	06/02/2025	Healthcare, Education and Childcare		8.50	%	1M L+750		18,274,854		18,174,687		18,411,916
Datalot Inc.	01/24/2025	Insurance		6.25	%	3M L+525		7,116,895		6,991,975		7,125,435
DRS Holdings III, Inc.	11/03/2025	Consumer Products		6.75	%	1M L+575		13,564,726		13,448,313		13,316,490
ECM Industries, LLC	12/23/2025	Electronics		5.50	%	1M L+450		2,873,184		2,846,226		2,858,818
Holdco Sands Intermediate, LLC	12/19/2025	Aerospace and Defense		7.50	%	3M L+600		12,193,571		12,028,384		11,888,732
HW Holdco, LLC	12/10/2024	Media		5.50	%	3M L+450		14,737,500		14,619,623		14,295,375
Integrity Marketing Acquisition, LLC	08/27/2025	Insurance		6.50	%	3M L+550		447,833		444,755		443,354
K2 Pure Solutions NoCal, L.P.	12/20/2023	Chemicals, Plastics and Rubber		8.00	%	1M L+700		14,737,500		14,583,983		14,413,275
Kentucky Downs, LLC	03/07/2025	Hotels, Motels, Inns and Gaming		9.50	%	1M L+850		10,153,350		9,978,792		10,001,050
LAV Gear Holdings, Inc.	10/31/2024	Leisure, Amusement, Motion Pictures, Entertainment		8.50	%	3M L+750		2,015,428		1,998,623		1,856,411
Lightspeed Buyer Inc.	02/03/2026	Healthcare, Education and Childcare		6.25	%	1M L+525		12,598,209		12,365,207		12,440,731
Lombart Brothers, Inc.	04/13/2023	Healthcare, Education and Childcare		7.25	%	1M L+625		16,914,403		16,770,520		15,882,625
MAG DS Corp.	04/01/2027	Aerospace and Defense		6.50	%	1M L+550		6,000,000		5,700,000		5,707,500
MeritDirect, LLC	05/23/2024	Media		6.50	%	3M L+550		14,076,563		13,914,921		13,407,926
PlayPower, Inc.	05/08/2026	Consumer Products		5.72	%	3M L+550		4,025,520		3,990,631		3,824,244
Radius Aerospace, Inc.	03/31/2025	Aerospace and Defense		6.75	%	3M L+575		13,779,429		13,608,176		13,503,840
Research Now Group, Inc. and Survey Sampling International LLC	12/20/2024	Business Services		6.50	%	3M L+550		14,847,328		14,728,854		14,023,302
Riverpoint Medical, LLC	06/20/2025	Healthcare, Education and Childcare		5.50	%	3M L+450		1,975,000		1,958,417		1,905,678
Sales Benchmark Index LLC	01/03/2025	Business Services		7.75	%	3M L+600		7,887,195		7,748,712		7,697,903
Sargent & Greenleaf Inc.	12/20/2024	Electronics		7.00	%	1M L+550		5,448,483		5,378,893		5,350,411
Signature Systems Holding Company	05/03/2024	Chemicals, Plastics and Rubber		7.50	%	3M L+650		14,250,000		14,096,623		13,786,875
Solutionreach, Inc.	01/17/2024	Communications		6.75	%	3M L+575		12,531,123		12,351,398		12,393,282
STV Group Incorporated	12/11/2026	Transportation		5.40	%	1M L+525		12,351,980		12,238,771		12,228,460
TeleGuam Holdings, LLC	11/20/2025	Telecommunications		5.50	%	1M L+450		5,080,832		5,034,725		4,928,407
Teneo Holdings LLC	07/18/2025	Financial Services		6.25	%	1M L+525		1,980,000		1,874,970		1,905,750
TPC Canada Parent, Inc. and TPC US Parent, LLC	11/24/2025	Food		6.25	%	3M L+525		5,650,076		5,593,575		5,480,573
TVC Enterprises, LLC	01/18/2024	Transportation		6.50	%	1M L+550		14,547,897		14,343,185		14,438,788
TWS Acquisition Corporation	06/16/2025	Education		7.25	%	1M L+625		8,644,186		8,469,082		8,471,302
UBEO, LLC	04/03/2024	Printing and Publishing		5.50	%	3M L+450		4,738,102		4,700,032		4,453,816
Vision Purchaser Corporation	06/10/2025	Media		7.25	%	1M L+625		14,358,203		14,112,113		13,496,711
Whitney, Bradley & Brown, Inc.	10/18/2022	Aerospace and Defense		8.50	%	1M L+750		14,194,162		14,029,177		14,052,223
Total First Lien Secured Debt										358,023,408		353,366,358
Cash and Cash Equivalents—26.9%
BlackRock Federal FD Institutional 30										7,353,307		7,353,307
US Bank Cash										183,412		183,412
Total Cash and Cash Equivalents										7,536,719		7,536,719
Total Investments and Cash Equivalents—1,141.9%									$	365,560,127	$	360,903,077
Liabilities in Excess of Other Assets—(1,041.9)%												(310,538,386	)
Members' Equity—100.0%											$	50,364,691

A summary of our significant contractual payment obligations at cost as of September 30, 2020, including borrowings under our various debt facilities and other contractual obligations, is as follows:

We have entered into certain contracts under which we have material future commitments. Under our Investment Management Agreement, which was reapproved by our board of directors (including a majority of our directors who are not interested persons of us or the Investment Adviser) in February 2020, PennantPark Investment Advisers serves as our investment adviser. PennantPark Investment, through the Investment Adviser, provides similar services to SBIC II under its investment management agreement with us. SBIC II’s investment management agreement does not affect the management or incentive fees that we pay to the Investment Adviser on a consolidated basis. Payments under our Investment Management Agreement in each reporting period are equal to (1) a management fee equal to a percentage of the value of our average adjusted gross assets and (2) an incentive fee based on our performance.

Under our Administration Agreement, which was most recently reapproved by our board of directors, including a majority of our directors who are not interested persons of us, in February 2020, the Administrator furnishes us with office facilities and administrative services necessary to conduct our day-to-day operations. PennantPark Investment, through the Administrator, provides similar services to SBIC II under its administration agreements, which are intended to have no effect on the consolidated administration fee. If requested to provide significant managerial assistance to our portfolio companies, we or the Administrator will be paid an additional amount based on the services provided. Payment under our Administration Agreement is based upon our allocable portion of the Administrator’s overhead in performing its obligations under our Administration Agreement, including rent and our allocable portion of the costs of our Chief Compliance Officer, Chief Financial Officer and their respective staffs.

If any of our contractual obligations discussed above are terminated, our costs under new agreements that we enter into may increase. In addition, we will likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under our Investment Management Agreement and our Administration Agreement. Any new investment management agreement would also be subject to approval by our stockholders.

Effective October 31, 2020, certain entities and managed accounts of the private credit investment manager of Pantheon Ventures (UK) LLP, or Pantheon, our joint-venture partner, contributed an additional $27.5 million to PSLF, bringing their total contribution to $62.5 million. Pantheon’s additional investment came in at the then current net asset value. At the same time, the Company has also invested an additional $1.8 million in PSLF. As a result, the Company currently owns 60.5% of the joint venture. Additionally, in connection with this transaction, BNP Paribas has increased the size of PSLF’s credit facility from $250.0 million to $275.0 million.

Subsequent to September 30, 2020, our portfolio company, Cano Health, LLC (ITC Rumba, LLC), entered into a business combination agreement with Jaws Acquisition Corp (“JWS”), a special purpose acquisition vehicle, and other parties, subject to certain closing conditions, with an expected closing late first quarter or early second quarter 2021. Based on the closing stock price of JWS on November 13, 2020, our $18.8 million common stock fair valuation as of September 30, 2020 would increase to an estimated $72.3 million, which includes a combination of cash and stock, assuming the transaction closes based on the agreed terms. This would represent a net asset value increase of $0.80 per share, as of November 13, 2020. Our shares are owned by a limited partnership controlled by the financial sponsor and are subject to customary lock up restrictions. As a result, the fair value on December 31, 2020, may likely include an illiquidity discount not in the public trading values indicated above. There can be no assurance that the implied value of our equity interest will be representative of the value ultimately realized on our equity investment.

We currently engage in no off-balance sheet arrangements other than our funding requirements for the unfunded investments described above.

In order to be treated as a RIC for federal income tax purposes and to not be subject to corporate-level tax on undistributed income or gains, we are required, under Subchapter M of the Code, to annually distribute dividends for U.S. federal income tax purposes to our stockholders out of the assets legally available for distribution of an amount generally at least equal to 90% of our investment company taxable income, determined without regard to any deduction for dividends paid.

Although not required for us to maintain our RIC tax status, in order to preclude the imposition of a 4% nondeductible federal excise tax imposed on RICs, we must distribute dividends for U.S. federal income tax purposes to our stockholders in respect of each calendar year of an amount at least equal to the Excise Tax Avoidance Requirement. In addition, although we may distribute realized net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually, out of the assets legally available for such distributions in the manner described above, we have retained and may continue to retain such net capital gains or investment company taxable income, contingent on our ability to be subject to tax as a RIC, in order to provide us with additional liquidity.

During the years ended September 30, 2020 and 2019, we declared distributions of $0.60 per share and $0.72 per share, respectively, for total distributions of $40.2 million and $48.4 million. We monitor available net investment income to determine if a return of capital for tax purposes may occur for the fiscal year. To the extent our taxable earnings fall below the total amount of our distributions for any given fiscal year, stockholders will be notified of the portion of those distributions deemed to be a tax return of capital. Tax characteristics of all distributions will be reported to stockholders subject to information reporting on Form 1099-DIV after the end of each calendar year and in our periodic reports filed with the SEC.

We intend to continue to make quarterly distributions to our stockholders. Our quarterly distributions, if any, are determined by our board of directors.

We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions.

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage ratio for borrowings applicable to us as a BDC under the 1940 Act and/or due to provisions in future credit facilities. If we do not distribute at least a certain percentage of our income annually, we could suffer adverse tax consequences, including possible loss of our ability to be subject to tax as a RIC. We cannot assure stockholders that they will receive any distributions at a particular level.

In May 2020, the SEC adopted rule amendments that will impact the requirement of investment companies, including BDCs, to disclose the financial statements of certain of their portfolio companies or certain acquired funds (the “Final Rules”). The Final Rules adopted a new definition of “significant subsidiary” set forth in Rule 1-02(w)(2) of Regulation S-X under the Securities Act. Rules 3-09 and 4-08(g) of Regulation S-X require investment companies to include separate financial statements or summary financial information, respectively, in such investment company’s periodic reports for any portfolio company that meets the definition of “significant subsidiary.” The new definition of “significant subsidiary” under Rule 1-02(w)(2) of Regulation S-X, which is tailored to investment companies, (i) modifies the investment test and the income test, and (ii) eliminates the asset test currently in the definition of “significant subsidiary.” The new Rule 1-02(w)(2) of Regulation S-X is intended to more accurately capture those portfolio companies that are more likely to materially impact the financial condition of an investment company. The Final Rules will be effective on January 1, 2021, but voluntary compliance is permitted in advance of the effective date. We evaluated the impact of adopting the Final Rules on our consolidated financial statements and because the new definition of “significant subsidiary” contained therein is specific to investment companies, we elected to early adopt the Final Rules for our year ended September 30, 2020. The adoption of the Final Rules did not have a material impact on our financial statements.

We are subject to financial market risks, including changes in interest rates. As of September 30, 2020, our debt portfolio consisted of 93% variable-rate investments and 13% fixed-rate investments. The variable-rate loans are usually based on a LIBOR (or an alternative risk-free floating interest rate index) rate and typically have durations of three months after which they reset to current market interest rates. Variable-rate investments subject to a floor generally reset by reference to the current market index after one to nine months only if the index exceeds the floor. In regards to variable-rate instruments with a floor, we do not benefit from increases in interest rates until such rates exceed the floor and thereafter benefit from market rates above any such floor. In contrast, our cost of funds, to the extent it is not fixed, will fluctuate with changes in interest rates since it has no floor.

Assuming that the most recent Consolidated Statements of Assets and Liabilities was to remain constant, and no actions were taken to alter the interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates:

Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in the credit market, credit quality, size and composition of the assets on the Consolidated Statements of Assets and Liabilities and other business developments that could affect net increase in net assets resulting from operations, or net investment income. Accordingly, no assurances can be given that actual results would not differ materially from those shown above.

Because we borrow money to make investments, our net investment income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds as well as our level of leverage. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income or net assets.

We may hedge against interest rate and foreign currency fluctuations by using standard hedging instruments such as futures, options and forward contracts or our Credit Facility subject to the requirements of the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in interest rates and foreign currencies, they may also limit our ability to participate in benefits of lower interest rates or higher exchange rates with respect to our portfolio of investments with fixed interest rates or investments denominated in foreign currencies. During the periods covered by this Report, we did not engage in interest rate hedging activities or foreign currency derivatives hedging activities.

The management of PennantPark Investment Corporation (except where the context suggests otherwise, the terms “we,” “us,” “our” and “PennantPark Investment” refer to PennantPark Investment Corporation and its Subsidiaries) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f), and for performing an assessment of the effectiveness of internal control over financial reporting as of September 30, 2020. Our internal control system is a process designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements.

PennantPark Investment’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions recorded necessary to permit the preparation of financial statements in accordance with U.S. generally accepted accounting principles. Our policies and procedures also provide reasonable assurance that receipts and expenditures are being made only in accordance with authorizations of management and the directors of PennantPark Investment, and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of PennantPark Investment’s internal control over financial reporting as of September 30, 2020. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 Internal Control—Integrated Framework. Based on the assessment management believes that, as of September 30, 2020, our internal control over financial reporting is effective based on those criteria.

PennantPark Investment’s independent registered public accounting firm has issued an audit report on the effectiveness of our internal control over financial reporting as of September 30, 2020. This report appears on page 57.

We have audited the accompanying consolidated statements of assets and liabilities, including the consolidated schedules of investments, of PennantPark Investment Corporation and its Subsidiaries (collectively referred to as the Company) as of September 30, 2020 and 2019, and the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended September 30, 2020, and the related notes to the consolidated financial statements of the Company (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2020, in conformity with accounting principles generally accepted in the United States of America, and in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), PennantPark Investment Corporation and its Subsidiaries’ internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated November 19, 2020, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of investments owned as of September 30, 2020, by correspondence with the custodians and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.

We have audited PennantPark Investment Corporation and its Subsidiaries' (collectively referred to as the “Company”) internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of assets and liabilities, including the consolidated schedules of investments as of September 30, 2020 and 2019, the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended September 30, 2020, and the related notes to the consolidated financial statements (collectively, the financial statements) of the Company and our report dated November 19, 2020 expressed an unqualified opinion.

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

	Years Ended September 30,
	2020			2019			2018
Investment income:
From non-controlled, non-affiliated investments:
Interest	$	77,453,276		$	88,060,418		$	83,255,593
Payment in kind		7,233,317			6,445,122			5,645,535
Other income		4,821,510			3,122,988			6,981,507
From non-controlled, affiliated investments:
Interest		—			—			3,013,976
Payment in kind		—			—			2,031,589
From controlled, affiliated investments:
Interest		3,387,858			9,381,881			4,499,350
Payment in kind		7,328,846			4,319,300			2,850,498
Other income		—			776,945			—
Total investment income		100,224,807			112,106,654			108,278,048
Expenses:
Base management fee (See Note 3)		18,636,039			18,225,229			17,468,376
Performance-based incentive fee (See Note 3)		4,579,660			5,146,696			11,492,928
Interest and expenses on debt (See Note 11)		32,167,755			28,943,312			22,818,492
Administrative services expenses (See Note 3)		2,075,080			2,113,895			2,086,500
Other general and administrative expenses		2,573,920			2,637,820			2,504,853
Expenses before Management Fees waiver, provision for taxes and financing costs		60,032,454			57,066,952			56,371,149
Management Fees waiver (See Note 3)		(1,921,987	)		—			(1,427,253	)
Provision for taxes		1,200,000			1,200,000			—
Make-whole premium (See Notes 5 and 11)		—			2,162,526			—
PSLF transaction costs (Note 4)		2,184,128			—			—
Credit facility amendment and debt issuance costs (See Notes 5 and 11)		—			7,080,205			—
Net expenses		61,494,595			67,509,683			54,943,896
Net investment income		38,730,212			44,596,971			53,334,152
Realized and change in unrealized (loss) gain on investments and debt:
Net realized (loss) gain on:
Non-controlled, non-affiliated investments		(11,577,419	)		(51,940,526	)		34,813,876
Non-controlled and controlled, affiliated investments		—			(56,575,132	)		11,042,330
Deconsolidation loss (Note 4)		(9,249,833	)		—			—
Net realized (loss) gain on investments		(20,827,252	)		(108,515,658	)		45,856,206
Net change in change in unrealized (depreciation) appreciation on:
Non-controlled, non-affiliated investments		7,686,665			22,788,117			(16,751,386	)
Non-controlled and controlled, affiliated investments		(53,863,620	)		51,361,260			(38,586,621	)
Debt depreciation (See Notes 5 and 11)		12,304,242			5,694,116			3,861,111
Net change in unrealized (depreciation) appreciation on investments and debt		(33,872,713	)		79,843,493			(51,476,896	)
Net realized and change in unrealized loss from investments and debt		(54,699,965	)		(28,672,165	)		(5,620,690	)
Net (decrease) increase in net assets resulting from operations	$	(15,969,753	)	$	15,924,806		$	47,713,462
Net (decrease) increase in net assets resulting from operations per common share (See Note 7)	$	(0.24	)	$	0.24		$	0.68
Net investment income per common share	$	0.58		$	0.66		$	0.75

	Years Ended September 30,
	2020			2019			2018
Cash flows from operating activities:
Net (decrease) increase in net assets resulting from operations	$	(15,969,753	)	$	15,924,806		$	47,713,462
Adjustments to reconcile net (decrease) increase in net assets resulting from operations to net cash (used in) provided by operating activities:
Net change in net unrealized depreciation (appreciation) on investments		46,176,955			(74,149,377	)		55,338,007
Net change in unrealized depreciation on debt		(12,304,242	)		(5,694,116	)		(3,861,111	)
Net realized loss (gain) on investments		11,577,419			108,515,658			(45,856,206	)
Deconsolidation realized loss		9,249,833			—			—
Net accretion of discount and amortization of premium		(2,592,265	)		(2,631,213	)		(2,285,720	)
Purchases of investments		(319,307,932	)		(533,619,983	)		(604,740,676	)
Payment-in-kind income		(14,549,188	)		(12,011,137	)		(11,404,966	)
Proceeds from dispositions of investments		162,693,343			426,498,436			630,502,386
Amortization of deferred financing costs		1,857,349			744,433			1,730,326
Decrease (increase) in interest receivable		1,220,824			1,380,425			(1,699,988	)
Increase in distribution receivable		(1,393,716	)		—			—
(Increase) decrease in prepaid expenses and other assets		(437,144	)		257,593			3,589,054
Increase (decrease) in payable for investments purchased		5,461,508			—			(1,014,000	)
Decrease in interest payable on debt		(873,081	)		(3,680,698	)		(300,363	)
(Decrease) increase in base management fee payable, net		(271,843	)		554,649			(758,406	)
(Decrease) increase in performance-based incentive fee payable, net		—			(2,964,265	)		694,257
Decrease in accrued other expenses		(136,527	)		(248,997	)		(705,253	)
Net cash (used in) provided by operating activities		(129,598,460	)		(81,123,786	)		66,940,803
Cash flows from financing activities:
Repurchase of common stock		—			(14,471,720	)		(15,010,571	)
Distributions paid to stockholders		(44,249,769	)		(48,810,906	)		(50,970,704	)
Borrowings under SBA debentures		—			—			69,278,250
Repayments of SBA debentures		(31,500,000	)		(30,000,000	)		(90,000,000	)
Net proceeds from 2024 Notes issuance		10,912,500			72,250,000			—
Repayments of 2019 Notes		—			(250,000,000	)		—
Borrowings under BNP Credit Facility		90,000,000			194,000,000			—
Repayments under BNP Credit Facility		(16,000,000	)		(23,000,000	)		—
Borrowings under Truist Credit Facility		331,000,000			697,000,000			235,520,000
Repayments under Truist Credit Facility		(244,384,000	)		(475,884,000	)		(234,392,900	)
Net cash provided by (used in) financing activities		95,778,731			121,083,374			(85,575,925	)
Net (decrease) increase in cash and cash equivalents		(33,819,729	)		39,959,588			(18,635,122	)
Effect of exchange rate changes on cash		109,495			50,494			(60,792	)
Cash and cash equivalents, beginning of year		59,516,236			19,506,154			38,202,068
Cash and cash equivalents, end of year	$	25,806,002		$	59,516,236		$	19,506,154
Supplemental disclosures:
Interest paid	$	31,183,487		$	31,879,577		$	21,388,530
Taxes paid	$	1,049,381		$	1,143,380		$	327,253
Non-cash exchanges and conversions ⁽¹⁾	$	108,812,276		$	14,823,909		$	31,942,605

Issuer Name	Maturity / Expiration	Industry	Current Coupon				Basis Point Spread Above Index ⁽⁴⁾			Par / Shares		Cost		Fair Value ⁽³⁾
Investments in Non-Controlled, Non-Affiliated Portfolio Companies—139.9 ^{(1), (2)}
First Lien Secured Debt—76.5%
18 Freemont Street Acquisition, LLC	08/11/2025	Hotels, Motels, Inns and Gaming		9.50	%		1M L+800				8,302,303	$	7,543,090	$	7,887,188
Altamira Technologies, LLC (Revolver)	07/24/2025	Aerospace and Defense		7.00	%		3M L+600				125,000		125,000		120,625
Altamira Technologies, LLC (Revolver) ⁽⁷⁾	07/24/2025	Aerospace and Defense		—				—			62,500		—		(2,188	)
American Insulated Glass, LLC	12/21/2023	Building Materials		6.50	%		3M L+550				15,957,113		15,736,757		15,637,971
Apex Service Partners, LLC	07/31/2025	Personal, Food and Miscellaneous Services		6.25	%		1M L+525				178,844		178,844		173,479
Apex Service Partners, LLC ⁽⁷⁾	07/31/2021	Personal, Food and Miscellaneous Services		—				—			1,165,420		—		(34,963	)
Bottom Line Systems, LLC	02/13/2023	Healthcare, Education and Childcare		6.25	%		1M L+550				6,722,525		6,674,529		6,580,680
Broder Bros., Co.	12/02/2022	Consumer Products		9.75	%		3M L+850				25,907,420		25,907,420		23,510,984
Compex Legal Services, Inc.	02/09/2026	Business Services		6.75	%		3M L+575				3,605,894		3,539,582		3,539,906
Compex Legal Services, Inc. ⁽⁷⁾	02/08/2021	Business Services		—				—			1,549,743		—		(12,863	)
Compex Legal Services, Inc. (Revolver)	02/07/2025	Business Services		6.75	%		3M L+575				458,962		458,962		450,563
Compex Legal Services, Inc. (Revolver) ⁽⁷⁾	02/07/2025	Business Services		—				—			196,698		—		(3,600	)
Datalot Inc. (Revolver)	01/24/2025	Insurance		6.25	%		3M L+525				1,788,165		1,788,165		1,790,310
DermaRite Industries LLC	03/03/2022	Manufacturing / Basic Industries		8.00	%		1M L+700				8,975,884		8,924,948		8,975,884
DRS Holdings III, Inc. (Revolver) ⁽⁷⁾	11/03/2025	Consumer Products		—				—			1,528,102		—		(27,964	)
ECM Industries, LLC (Revolver)	12/23/2025	Electronics		5.50	%		1M L+450				517,594		517,594		510,761
HW Holdco, LLC	12/10/2024	Media		5.50	%		3M L+450				2,567,177		2,547,350		2,490,162
HW Holdco, LLC (Revolver) ⁽⁷⁾	12/10/2024	Media		—				—			3,387,097		—		(101,613	)
IMIA Holdings, Inc.	10/26/2025	Aerospace and Defense		7.00	%		3M L+600				5,572,968		5,461,508		5,517,238
Impact Group, LLC	06/27/2023	Personal, Food and Miscellaneous Services		8.37	%		1M L+737				19,888,478		19,811,644		19,987,920
Integrity Marketing Acquisition, LLC	08/27/2025	Insurance		6.50	%		3M L+550				23,574,241		23,403,071		23,338,498
Integrity Marketing Acquisition, LLC ⁽⁷⁾	07/15/2021	Insurance		—				—			592,800		—		(1,482	)
Juniper Landscaping of Florida, LLC	12/22/2021	Personal, Food and Miscellaneous Services		9.50	%		1M L+850				13,516,275		13,430,024		13,516,275
K2 Pure Solutions NoCal, L.P.	12/20/2023	Chemicals, Plastics and Rubber		8.00	%		1M L+700				11,921,000		11,797,407		11,658,738
K2 Pure Solutions NoCal, L.P. (Revolver)	12/20/2023	Chemicals, Plastics and Rubber		8.00	%		1M L+700				1,453,571		1,453,571		1,421,593
K2 Pure Solutions NoCal, L.P. (Revolver) ⁽⁷⁾	12/20/2023	Chemicals, Plastics and Rubber		—				—			484,524		—		(10,660	)
Kentucky Downs, LLC ⁽⁷⁾	03/07/2025	Hotels, Motels, Inns and Gaming		—				—			827,586		—		(12,414	)
LAV Gear Holdings, Inc.	10/31/2024	Leisure, Amusement, Motion Pictures, Entertainment		8.50	%		1M L+750				751,480		744,986		692,188
								(PIK 5.00	%)
Lightspeed Buyer Inc.	02/03/2026	Healthcare, Education and Childcare		6.25	%		1M L+525				1,564,213		1,548,989		1,544,661
Lightspeed Buyer Inc. ⁽⁷⁾	08/03/2021	Healthcare, Education and Childcare		—				—			882,075		—		(2,205	)
Lightspeed Buyer Inc. (Revolver)	02/03/2026	Healthcare, Education and Childcare		6.75	%		1M L+575				1,165,780		1,165,780		1,151,208
Lombart Brothers, Inc. (Revolver)	04/13/2023	Healthcare, Education and Childcare		7.25	%		1M L+625				1,769,912		1,769,912		1,661,947
MeritDirect, LLC	05/23/2024	Media		6.50	%		3M L+550				2,901,820		2,868,498		2,763,983
MeritDirect, LLC (Revolver) ⁽⁷⁾	05/23/2024	Media		—				—			2,518,345		—		(119,621	)
Ox Two, LLC	02/27/2023	Building Materials		7.25	%		1M L+625				21,352,147		21,112,545		21,245,386
Ox Two, LLC (Revolver)	02/27/2023	Building Materials		7.25	%		1M L+625				488,000		488,000		485,560
Ox Two, LLC (Revolver) ⁽⁷⁾	02/27/2023	Building Materials		—				—			2,012,000		—		(10,060	)
Peninsula Pacific Entertainment LLC	11/13/2024	Hotels, Motels, Inns and Gaming		7.40	%		3M L+725				11,437,714		11,219,222		10,637,074
PRA Events, Inc.	08/08/2022	Business Services		—		⁽⁶⁾		—			19,180,820		18,839,885		16,150,251
PRA Events, Inc. (Revolver)	08/08/2022	Business Services		—		⁽⁶⁾		—			2,000,000		2,000,000		1,684,000
Provation Medical, Inc.	03/11/2024	Electronics		7.15	%		3M L+700				26,527,500		26,094,813		26,179,990
Questex, LLC	09/09/2024	Media		6.75	%		3M L+575				22,050,000		21,733,659		20,286,000
Questex, LLC (Revolver)	09/09/2024	Media		6.75	%		3M L+575				1,795,213		1,795,213		1,651,596
Questex, LLC (Revolver) ⁽⁷⁾	09/09/2024	Media		—				—			1,795,213		—		(143,617	)
Radius Aerospace, Inc. (Revolver)	03/31/2025	Aerospace and Defense		6.75	%		3M L+575				1,336,285		1,336,285		1,298,602
Radius Aerospace, Inc. (Revolver) ⁽⁷⁾	03/31/2025	Aerospace and Defense		—				—			890,857		—		(25,122	)
Research Horizons, LLC	06/28/2022	Media		7.25	%		1M L+625				29,546,453		29,334,375		28,364,595
Research Now Group, Inc. and Survey Sampling International LLC	12/20/2024	Business Services		6.50	%		3M L+550				2,913,731		2,913,731		2,752,019
Riverpoint Medical, LLC (Revolver) ⁽⁷⁾	06/20/2025	Healthcare, Education and Childcare		—				—			363,636		—		(12,764	)
Riverside Assessments, LLC	03/10/2025	Education		6.75	%		3M L+575				15,671,250		15,389,332		14,848,509
Sargent & Greenleaf Inc. (Revolver) ⁽⁷⁾	12/20/2024	Electronics		—				—			597,943		—		(10,763	)
Sales Benchmark Index LLC ⁽⁷⁾	07/07/2021	Business Services		—				—			1,829,268		—		(43,902	)
Sales Benchmark Index LLC (Revolver) ⁽⁷⁾	01/03/2025	Business Services		—				—			731,707		—		(17,561	)
Schlesinger Global, Inc.	07/14/2025	Business Services		7.00	%		3M L+600				516,273		510,389		478,844
Schlesinger Global, Inc. (Revolver)	07/14/2025	Business Services		7.00	%		3M L+600				15,759		15,759		14,617
Schlesinger Global, Inc. (Revolver) ⁽⁷⁾	07/14/2025	Business Services		—				—			22,281		—		(1,615	)
Signature Systems Holding Company (Revolver)	05/03/2024	Chemicals, Plastics and Rubber		7.50	%		3M L+650				1,129,032		1,129,032		1,092,339
Signature Systems Holding Company (Revolver)⁽⁷⁾	05/03/2024	Chemicals, Plastics and Rubber		—				—			887,097		—		(28,831	)
Solutionreach, Inc. (Revolver)	01/17/2024	Communications		6.75	%		3M L+575				1,248,750		1,248,750		1,235,014
Solutionreach, Inc. (Revolver) ⁽⁷⁾	01/17/2024	Communications		—				—			416,250		—		(4,579	)
Spear Education, LLC	02/26/2025	Education		6.50	%		3M L+500				15,049,375		14,906,170		14,673,140
Spear Education, LLC ⁽⁷⁾	02/26/2022	Education		—				—			6,875,000		—		(171,875	)

Issuer Name	Maturity / Expiration		Industry	Current Coupon				Basis Point Spread Above Index ⁽⁴⁾		Par / Shares		Cost		Fair Value ⁽³⁾
Spectacle Gary Holdings, LLC	12/23/2025		Hotels, Motels, Inns and Gaming		11.00	%		1M L+900			20,478,378	$	19,804,843		19,864,027
Spectacle Gary Holdings, LLC ⁽⁷⁾	12/23/2025		Hotels, Motels, Inns and Gaming		—				—		1,121,622		—		(33,649	)
TPC Canada Parent, Inc. and TPC US Parent, LLC ^(8),(11)	11/24/2025		Food		6.25	%		3M L+525			1,789,156		1,789,156		1,735,482
TVC Enterprises, LLC	01/18/2024		Transportation		6.50	%		1M L+550			17,660,607		17,410,805		17,528,153
TVC Enterprises, LLC (Revolver) ⁽⁷⁾	01/18/2024		Transportation		—				—		2,702,151		—		(20,267	)
TWS Acquisition Corporation (Revolver)	06/16/2025		Education		7.25	%		1M L+625			1,137,857		1,137,857		1,115,100
TWS Acquisition Corporation (Revolver) ⁽⁷⁾	06/16/2025		Education		—				—		505,714		—		(10,114	)
Tyto Athene, LLC	08/27/2024		Aerospace and Defense		6.25	%		1M L+525			6,027,680		5,998,741		6,008,392
US Med Acquisition, Inc.	08/13/2021		Healthcare, Education and Childcare		9.00	%		1M L+800			8,301,563		8,301,563		8,218,547
Walker Edison Furniture Company LLC	09/26/2024		Home and Office Furnishings		7.25	%		3M L+625			21,515,625		21,203,376		21,515,625
Wildcat Buyerco, Inc.	02/27/2026		Electronics		6.50	%		3M L+550			9,145,221		8,970,259		9,053,770
Wildcat Buyerco, Inc. ⁽⁷⁾	02/27/2022		Electronics		—				—		2,573,529		—		3,217
Wildcat Buyerco, Inc. (Revolver) ⁽⁷⁾	02/27/2026		Electronics		—				—		551,471		—		(10,037	)
Total First Lien Secured Debt													412,081,391		402,168,282
Second Lien Secured Debt—32.0%
Confie Seguros Holding Co.	10/31/2025		Insurance		8.66	%		3M L+850			14,500,000		14,281,633		13,920,000
DecoPac, Inc.	03/31/2025		Beverage, Food and Tobacco		9.25	%		3M L+825			19,627,143		19,382,758		19,627,143
Halo Buyer, Inc.	07/06/2026		Consumer Products		9.25	%		1M L+825			32,500,000		32,062,567		31,460,000
Infogroup, Inc.	04/03/2024		Other Media		10.25	%		3M L+925			20,400,000		20,157,649		20,145,000
MailSouth, Inc.	10/23/2024		Printing and Publishing		—		⁽⁶⁾		—		36,828,975		36,224,201		18,782,777
MBS Holdings, Inc.	01/02/2024		Telecommunications		9.59	%		1M L+850			19,623,649		19,359,314		19,329,294
VT Topco, Inc.	08/24/2026		Business Services		7.15	%		3M L+700			10,000,000		9,956,408		9,800,000
Winter Park Intermediate, Inc.	04/06/2026		Auto Sector		8.65	%		1M L+850			35,300,000		34,816,687		35,300,000
Total Second Lien Secured Debt													186,241,217		168,364,214
Subordinated Debt/Corporate Notes—9.6%
Blackhawk Industrial Distribution, Inc.	03/17/2025		Distribution		12.00	%			—		14,051,843		13,842,572		13,665,417
					(PIK 2.00	%)
Cascade Environmental LLC	12/30/2023		Environmental Services		13.00	%			—		37,371,131		36,938,019		36,903,992
					(PIK 13.00	%)
Total Subordinated Debt/Corporate Notes													50,780,591		50,569,409
Preferred Equity/Partnership Interests—4.1% ⁽⁶⁾
AH Holdings, Inc.		—	Healthcare, Education and Childcare		6.00	%			—		211		500,000		167,083
Cascade Environmental LLC		—	Environmental Services		16.00	%					178,304		17,607,478		17,652,053
Condor Holdings Limited ^{(8), (11)}		—	Business Services		—				—		556,000		64,277		71,233
Condor Top Holdco Limited ^{(8), (11)}		—	Business Services		—				—		556,000		491,723		1,308,363
MeritDirect Holdings, LP ⁽⁹⁾		—	Media		—				—		540		540,000		357,199
NXOF Holdings, Inc. (Tyto Athene, LLC)		—	Aerospace and Defense		—				—		107		106,823		129,098
Signature CR Intermediate Holdco, Inc.		—	Chemicals, Plastics and Rubber		12.00	%			—		1,347		1,346,530		1,409,711
TPC Holding Company, LP ^(8),(11)		—	Food		—				—		219		219,010		237,288
Total Preferred Equity/Partnership Interests													20,875,841		21,332,028
Common Equity/Partnership Interests/Warrants—17.7% ⁽⁶⁾
Affinion Group Holdings, Inc. (Warrants)	04/10/2024		Consumer Products		—				—		77,190		2,126,399		—
AG Investco LP ⁽⁹⁾		—	Business Services		—				—		805,164		805,164		1,002,599
AG Investco LP ^{(7), (9)}		—	Business Services		—				—		194,836		—		—
AH Holdings, Inc. (Warrants)	03/23/2021		Healthcare, Education and Childcare		—				—		753		—		—
Altamira Intermediate Company II, Inc.		—	Aerospace and Defense		—				—		125,000		125,000		81,148
ASP LCG Holdings, Inc. (Warrants)	05/05/2026		Education		—				—		933		586,975		2,236,540
Cascade Environmental LLC ⁽⁹⁾		—	Environmental Services		—				—		33,901		2,852,080		696,346
CI (Allied) Investment Holdings, LLC		—	Business Services		—				—		120,962		1,243,217		—
(PRA Events, Inc.) ⁽⁹⁾
CI (Summit) Investment Holdings LLC		—	Buildings and Real Estate		—				—		122,870		1,270,646		1,647,095
(SFP Holdings, Inc.)
Cowboy Parent LLC		—	Distribution		—				—		22,500		2,250,000		1,165,785
(Blackhawk Industrial Distribution, Inc.)
DecoPac Holdings Inc.		—	Beverage, Food and Tobacco		—				—		3,449		3,448,658		5,072,041
ECM Investors, LLC ⁽⁹⁾		—	Electronics								167,537		167,537		254,307
eCommission Holding Corporation ⁽¹¹⁾		—	Financial Services		—				—		80		1,004,625		1,029,685
Faraday Holdings, LLC		—	Building Materials		—				—		4,277		217,635		1,408,259
Gauge Lash Coinvest LLC		—	Consumer Products		—				—		889,376		1,053,800		1,565,301
Gauge Schlesinger Coinvest, LLC		—	Business Services		—				—		9		8,896		8,662
Gauge TVC Coinvest, LLC		—	Transportation		—				—		810,645		810,645		999,520
(TVC Enterprises, LLC)
GCOM InvestCo LP ⁽⁷⁾		—	Business Services		—				—		111,574		—		—
Go Dawgs Capital III, LP		—	Building Materials		—				—		675,325		675,325		675,325
(American Insulated Glass, LLC) ⁽⁹⁾
Green Veracity Holdings, LP - Class A		—	Business Services		—				—		15,000		1,500,000		2,886,104
(VT Topco, Inc.)
Infogroup Parent Holdings, Inc.		—	Other Media		—				—		181,495		2,040,000		2,522,594
ITC Rumba, LLC (Cano Health, LLC) ⁽⁹⁾		—	Healthcare, Education and Childcare		—				—		375,675		4,317,307		18,761,506
JWC-WE Holdings, L.P.		—	Home and Office Furnishings		—				—		1,906,433		1,906,433		12,010,531
(Walker Edison Furniture Company LLC) ⁽⁹⁾
Kadmon Holdings, Inc. ⁽⁵⁾		—	Healthcare, Education and Childcare		—				—		252,014		2,265,639		987,895

Issuer Name	Maturity / Expiration		Industry	Current Coupon			Basis Point Spread Above Index ⁽⁴⁾		Par / Shares		Cost		Fair Value ⁽³⁾
Kentucky Racing Holdco, LLC (Warrants)		—	Hotels, Motels, Inns and Gaming		—			—		161,252	$	—	$	417,910
Lariat ecoserv Co-Invest Holdings, LLC ⁽⁹⁾		—	Environmental Services		—			—		363,656		363,656		593,924
Lightspeed Investment Holdco LLC		—	Healthcare, Education and Childcare		—			—		273,143		273,143		313,596
MeritDirect Holdings, LP ⁽⁹⁾		—	Media		—			—		540		—		—
NXOF Holdings, Inc.		—	Aerospace and Defense		—			—		2,180		2,180		5,432
(Tyto Athene, LLC)
OceanSound Discovery Equity, LP		—	Aerospace and Defense		—			—		98,286		982,857		987,611
(Holdco Sands Intermediate, LLC) ⁽⁹⁾
QuantiTech InvestCo LP ⁽⁹⁾		—	Aerospace and Defense		—			—		70,000		70,000		103,995
QuantiTech InvestCo LP ^{(7), (9)}		—	Aerospace and Defense		—			—		96,667		—		—
SBI Holdings Investments LLC		—	Business Services		—			—		36,585		365,854		259,298
(Sales Benchmark Index LLC)
Signature CR Intermediate Holdco, Inc.		—	Chemicals, Plastics and Rubber		—			—		71		70,870		—
SSC Dominion Holdings, LLC		—	Electronics		—			—		1,500		1,500,000		1,749,600
Class A (US Dominion, Inc.)
SSC Dominion Holdings, LLC		—	Electronics		—			—		1,500		—		4,756,165
Class B (US Dominion, Inc.)
TPC Holding Company, LP^{(8). (11)}		—	Food		—			—		11,527		11,527		56,482
U.S. Well Services, Inc. - Class A ^{(5), (11)}		—	Oil and Gas		—			—		1,261,201		3,021,880		341,029
WBB Equity, LLC		—	Aerospace and Defense		—			—		628,571		628,571		2,753,143
(Whitney, Bradley & Brown, Inc.) ⁽⁹⁾
Wheel Pros Holdings, L.P.		—	Auto Sector		—			—		3,778,704		4,450,000		23,022,380
(Winter Park Intermediate, Inc.)
Wildcat Parent, LP (Wildcat Buyerco, Inc.)		—	Electronics		—			—		2,314		231,400		254,847
ZS Juniper L.P.		—	Personal, Food and Miscellaneous Services		—			—		1,056		1,056,250		2,614,078
(Juniper Landscaping of Florida, LLC) ⁽⁹⁾
Total Common Equity/Partnership Interests/Warrants												43,704,169		93,240,733
Total Investments in Non-Controlled, Non-Affiliated Portfolio Companies												713,683,209		735,674,666
Investments in Non-Controlled, Affiliated Portfolio Companies—5.3% ^{(1), (2)}
Preferred Equity/Partnership Interests—5.1% ⁽⁶⁾
ETX Energy, LLC⁽⁹⁾		—	Oil and Gas		—			—		61,732		6,173,200		5,055,851
MidOcean JF Holdings Corp.		—	Distribution		—			—		153,922		15,392,189		21,795,244
Total Preferred Equity/Partnership Interests												21,565,389		26,851,095
Common Equity/Partnership Interests/Warrants—0.2% ⁽⁶⁾
ETX Energy, LLC ⁽⁹⁾		—	Oil and Gas		—			—		1,658,389		29,711,576		—
ETX Energy Management Company, LLC		—	Oil and Gas		—			—		1,754,104		1,562,020		—
MidOcean JF Holdings Corp.		—	Distribution		—			—		65,933		24,789,935		902,798
Total Common Equity/Partnership Interests/Warrants												56,063,531		902,798
Total Investments in Non-Controlled, Affiliated Portfolio Companies												77,628,920		27,753,893
Investments in Controlled, Affiliated Portfolio Companies—60.6% ^(1), (2)
First Lien Secured Debt—7.0%
AKW Holdings Limited ^{(8), (10), (11)}	03/13/2024		Healthcare, Education and Childcare		6.50	%	3M L+600		£	28,500,000		39,682,375		36,844,800
Total First Lien Secured Debt												39,682,375		36,844,800
Second Lien Secured Debt—10.0%
PT Network Intermediate Holdings, LLC	11/30/2024		Healthcare, Education and Childcare		11.00	%	3M L+1,000			52,479,266		52,094,291		52,479,266
					(PIK 11.00	%)
Total Second Lien Secured Debt												52,094,291		52,479,266
Subordinated Debt—12.0%
PennantPark Senior Loan Fund, LLC ⁽¹¹⁾	07/31/2027		Financial Services		9.00	%	3M L+800			63,000,000		63,000,000		63,000,000
Total Subordinated Debt												63,000,000		63,000,000
Preferred Equity—2.3% ⁽⁶⁾
CI (PTN) Investment Holdings II, LLC		—	Healthcare, Education and Childcare		—			—		36,450		546,750		—
(PT Network, LLC) ⁽⁹⁾
PT Network Intermediate Holdings, LLC ⁽⁹⁾			Healthcare, Education and Childcare		11.00	%	3M L+1,000			833		10,725,000		12,215,888
Total Preferred Equity												11,271,750		12,215,888
Common Equity—29.3% ⁽⁶⁾
AKW Holdings Limited ^{(8), (10), (11)}		—	Healthcare, Education and Childcare		—			—	£	950		132,497		927,315
CI (PTN) Investment Holdings II, LLC		—	Healthcare, Education and Childcare		—			—		333,333		5,000,000		—
(PT Network, LLC) ⁽⁹⁾
PennantPark Senior Loan Fund, LLC ⁽¹¹⁾		—	Financial Services		—			—		33,221,176		33,221,176		36,262,577
PT Network Intermediate Holdings, LLC ⁽⁹⁾			Healthcare, Education and Childcare		—			—		621		7,150,000		26,689,495
RAM Energy Holdings LLC		—	Energy and Utilities		—			—		180,805		162,708,073		89,923,518
Total Common Equity												208,211,746		153,802,905
Total Investments in Controlled, Affiliated Portfolio Companies												374,260,162		318,342,859
Total Investments—205.8%												1,165,572,291		1,081,771,418
Cash and Cash Equivalents—4.9%
BlackRock Federal FD Institutional 30												2,277,244		2,277,244
BNY Mellon Cash Reserve and Cash												23,523,843		23,528,758
Total Cash and Cash Equivalents												25,801,087		25,806,002
Total Investments and Cash Equivalents—210.7%											$	1,191,373,378	$	1,107,577,420
Liabilities in Excess of Other Assets—(110.7%)														(581,868,568	)
Net Assets—100.0%													$	525,708,852

Issuer Name	Maturity / Expiration	Industry	Current Coupon			Basis Point Spread Above Index ⁽⁴⁾		Par / Shares		Cost		Fair Value ⁽³⁾
Investments in Non-Controlled, Non-Affiliated Portfolio Companies—161.0 ^{(1), (2)}
First Lien Secured Debt—100.7%
Altamira Technologies, LLC ⁽⁵⁾	07/24/2025	Aerospace and Defense		8.28	%	3M L+600			1,000,000	$	985,250	$	1,000,000
Altamira Technologies, LLC (Revolver) ⁽⁷⁾	07/24/2025	Aerospace and Defense		—			—		187,500		—		—
American Insulated Glass, LLC ⁽⁵⁾	12/21/2023	Building Materials		8.10	%	3M L+550			31,044,000		30,504,462		30,578,340
American Insulated Glass, LLC⁽⁷⁾	12/21/2023	Building Materials		—			—		1,350,649		—		(20,260	)
Bazaarvoice, Inc. ⁽⁵⁾	02/01/2024	Printing and Publishing		7.79	%	1M L+575			14,775,844		14,652,557		14,628,085
Bottom Line Systems, LLC ⁽⁵⁾	02/13/2023	Healthcare, Education and Childcare		8.04	%	1M L+600			21,722,525		21,510,208		21,718,181
Broder Bros., Co.	12/02/2022	Consumer Products		10.60	%	3M L+850			27,218,672		27,219,280		27,218,672
Cano Health, LLC ⁽⁵⁾	12/23/2021	Healthcare, Education and Childcare		8.36	%	1M L+625			29,073,557		28,790,688		29,073,557
DermaRite Industries LLC	03/03/2022	Manufacturing / Basic Industries		9.04	%	1M L+700			9,750,000		9,663,494		9,255,675
Deva Holdings, Inc. ⁽⁵⁾	10/31/2023	Consumer Products		7.54	%	3M L+550			4,486,071		4,421,743		4,486,071
Deva Holdings, Inc. ⁽⁷⁾	10/31/2022	Consumer Products		—			—		385,000		—		—
HW Holdco, LLC ⁽⁵⁾	12/10/2024	Media		8.39	%	3M L+625			17,480,806		17,317,655		17,480,806
HW Holdco, LLC (Revolver)	12/10/2024	Media		8.39	%	3M L+625			487,742		487,742		487,742
HW Holdco, LLC (Revolver) ⁽⁷⁾	12/10/2024	Media		—			—		2,899,355		—		—
Impact Group, LLC ⁽⁵⁾	06/27/2023	Personal, Food and Miscellaneous Services		8.72	%	1M L+650			20,101,907		20,001,084		19,900,888
Juniper Landscaping of Florida, LLC	12/22/2021	Personal, Food and Miscellaneous Services		10.61	%	1M L+850			14,627,202		14,463,765		14,627,202
K2 Pure Solutions NoCal, L.P. ⁽⁵⁾	12/20/2023	Chemicals, Plastics and Rubber		7.33	%	1M L+475			26,929,833		26,577,555		26,603,982
K2 Pure Solutions NoCal, L.P. (Revolver)	12/20/2023	Chemicals, Plastics and Rubber		7.30	%	1M L+525			678,333		678,333		670,125
K2 Pure Solutions NoCal, L.P. (Revolver) ⁽⁷⁾	12/20/2023	Chemicals, Plastics and Rubber		—			—		1,259,762		—		(15,243	)
Kentucky Downs, LLC ⁽⁵⁾	03/07/2025	Hotels, Motels, Inns and Gaming		10.60	%	1M L+850			10,024,046		9,831,274		10,024,046
Kentucky Downs, LLC ⁽⁷⁾	03/07/2025	Hotels, Motels, Inns and Gaming		—			—		2,482,759		—		—
Lombart Brothers, Inc. ⁽⁵⁾	04/13/2023	Healthcare, Education and Childcare		8.35	%	3M L+625			17,093,818		16,900,562		16,922,880
Lombart Brothers, Inc. (Revolver)	04/13/2023	Healthcare, Education and Childcare		10.00	%	P+500			624,675		624,675		621,551
Lombart Brothers, Inc. (Revolver) ⁽⁷⁾	04/13/2023	Healthcare, Education and Childcare		—			—		1,145,237		—		(5,726	)
MeritDirect, LLC ⁽⁵⁾	05/23/2024	Media		8.06	%	3M L + 550			19,539,663		19,263,565		19,246,568
MeritDirect, LLC (Revolver) ⁽⁷⁾	05/23/2024	Media		—			—		2,518,345		—		(37,775	)
Ox Two, LLC	02/27/2023	Building Materials		8.29	%	1M L+625			21,785,448		21,461,501		21,785,448
Ox Two, LLC (Revolver)	02/27/2023	Building Materials		12.25	%	P+725			2,288,000		2,288,000		2,288,000
Ox Two, LLC (Revolver) ⁽⁷⁾	02/27/2023	Building Materials		—			—		212,000		—		—
Peninsula Pacific Entertainment LLC	11/13/2024	Hotels, Motels, Inns and Gaming		9.35	%	3M L+725			8,495,190		8,480,683		8,495,190
Pestell Minerals and Ingredients Inc. ^{(5), (8), (11)}	06/01/2023	Beverage, Food and Tobacco		7.57	%	3M L+525			5,458,750		5,411,313		5,404,163
PlayPower, Inc.⁽⁵⁾	05/08/2026	Consumer Products		7.60	%	3M L+550			4,189,500		4,148,451		4,184,263
PRA Events, Inc.	08/08/2022	Business Services		9.11	%	3M L+700			19,380,021		19,137,807		19,380,021
PRA Events, Inc. (Revolver) ⁽⁷⁾	08/08/2022	Business Services		—			—		2,000,000		—		—
Provation Medical, Inc.	03/11/2024	Electronics		9.34	%	3M L+700			26,797,500		26,265,386		26,422,335
Quantum Spatial, Inc.⁽⁵⁾	09/04/2024	Aerospace and Defense		7.32	%	1M L+525			15,000,000		14,777,156		14,775,000
Questex, LLC	09/09/2024	Media		7.11	%	3M L+500			22,275,000		21,892,186		22,052,250
Questex, LLC (Revolver) ⁽⁷⁾	09/09/2024	Media		—			—		3,590,426		—		(35,904	)
Radius Aerospace, Inc. ⁽⁵⁾	03/31/2025	Aerospace and Defense		7.85	%	3M L+575			8,528,572		8,408,418		8,464,608
Radius Aerospace, Inc. (Revolver)	03/31/2025	Aerospace and Defense		8.61	%	3M L+575			428,571		428,571		425,358
Radius Aerospace, Inc. (Revolver) ⁽⁷⁾	03/31/2025	Aerospace and Defense		—			—		1,000,000		—		(7,498	)
Research Horizons, LLC	06/28/2022	Media		8.36	%	1M L+625			31,036,318		30,707,239		30,415,591
Research Now Group, Inc. and Survey Sampling International LLC (5)	12/20/2024	Business Services		7.75	%	3M L+550			9,924,242		9,782,674		9,939,724
Riverpoint Medical, LLC⁽⁵⁾	06/20/2025	Healthcare, Education and Childcare		7.39	%	3M L+500			1,995,000		1,975,739		1,984,626
Riverpoint Medical, LLC (Revolver) ⁽⁷⁾	06/20/2025	Healthcare, Education and Childcare		—			—		363,636		—		(1,891	)
Schlesinger Global, Inc.	07/14/2025	Business Services		7.10	%	3M L+500			371,318		365,869		371,318
Schlesinger Global, Inc. ⁽⁷⁾	07/14/2025	Business Services		—			—		81,514		—		—
Schlesinger Global, Inc. (Revolver)	07/14/2025	Business Services		7.82	%	3M L+500			13,586		13,586		13,586
Schlesinger Global, Inc. (Revolver) ⁽⁷⁾	07/14/2025	Business Services		—			—		24,454		—		—
Signature Systems Holding Company ⁽⁵⁾	05/03/2024	Chemicals, Plastics and Rubber		8.60	%	P+650			14,906,271		14,699,927		14,906,271
Signature Systems Holding Company (Revolver)⁽⁷⁾	05/03/2024	Chemicals, Plastics and Rubber		—			—		2,016,129		—		—
Solutionreach, Inc. ⁽⁵⁾	01/17/2024	Communications		7.79	%	3M L+575			13,253,400		13,015,745		13,082,432
Solutionreach, Inc. (Revolver) ⁽⁷⁾	01/17/2024	Communications		—			—		1,665,000		—		(21,478	)
Triad Manufacturing, Inc.	12/28/2020	Manufacturing / Basic Industries		13.29	%	3M L+1,125			21,589,610		21,447,963		21,373,714
TVC Enterprises, LLC ⁽⁵⁾	01/18/2024	Transportation		7.55	%	1M L+550			32,960,373		32,378,623		32,960,373
TVC Enterprises, LLC ⁽⁷⁾	01/18/2024	Transportation		—			—		4,053,227		—		—
TVC Enterprises, LLC (Revolver)	01/18/2024	Transportation		7.61	%	1M L+550			967,902		967,902		967,902
TVC Enterprises, LLC (Revolver) ⁽⁷⁾	01/18/2024	Transportation		—			—		1,734,249		—		—
TWS Acquisition Corporation ⁽⁵⁾	06/16/2025	Education		8.28	%	1M L+625			8,850,000		8,640,294		8,673,000
TWS Acquisition Corporation (Revolver)	06/16/2025	Education		8.28	%	1M L+625			505,714		505,714		495,600
TWS Acquisition Corporation (Revolver) ⁽⁷⁾	06/16/2025	Education		—			—		1,137,857		—		(22,757	)
Tyto Athene, LLC	08/27/2024	Aerospace and Defense		7.80	%	1M L+575			6,203,031		6,175,004		6,018,180
UBEO, LLC ⁽⁵⁾	04/03/2024	Printing and Publishing		6.78	%	3M L+450			2,300,400		2,279,160		2,277,396
US Med Acquisition, Inc.	08/13/2021	Healthcare, Education and Childcare		11.10	%	1M L+900			8,389,063		8,389,063		8,389,063
Vision Purchaser Corporation ⁽⁵⁾	06/10/2025	Media		8.30	%	1M L+625			3,440,998		3,374,373		3,406,588
Walker Edison Furniture Company LLC	09/26/2024	Home and Office Furnishings		8.83	%	3M L+650			22,078,125		21,695,009		22,243,711
Whitney, Bradley & Brown, Inc. ⁽⁵⁾	10/18/2022	Aerospace and Defense		9.55	%	1M L+750			10,204,866		10,061,266		10,204,866
Total First Lien Secured Debt											583,068,514		585,776,415

Issuer Name	Maturity / Expiration		Industry	Current Coupon			Basis Point Spread Above Index ⁽⁴⁾		Par / Shares		Cost		Fair Value ⁽³⁾
Second Lien Secured Debt—38.4%
Condor Borrower, LLC	04/25/2025		Business Services		11.01	%	3M L+875			10,344,828	$	10,176,236	$	10,241,379
Confie Seguros Holding Co.	10/31/2025		Insurance		11.02	%	3M L+850			14,500,000		14,244,005		13,593,750
DecoPac, Inc.	03/31/2025		Beverage, Food and Tobacco		10.35	%	3M L+825			19,627,143		19,345,304		19,627,143
Halo Buyer, Inc.	07/06/2026		Consumer Products		10.29	%	1M L+825			32,500,000		32,034,317		32,012,500
Infogroup, Inc.	04/03/2024		Other Media		11.35	%	3M L+925			20,400,000		20,103,563		20,094,000
MailSouth, Inc.	10/23/2024		Printing and Publishing		12.00	%	12M L+925			36,828,975		36,207,203		35,724,106
MBS Holdings, Inc.	01/02/2024		Telecommunications		10.60	%	1M L+850			19,623,649		19,288,817		19,623,649
Shift4 Payments, LLC	11/28/2025		Financial Services		10.76	%	3M L+850			27,000,000		26,945,207		27,000,000
VT Topco, Inc.	08/24/2026		Business Services		9.10	%	3M L+700			10,000,000		9,953,252		9,950,000
Winter Park Intermediate, Inc.	04/06/2026		Auto Sector		10.54	%	1M L+850			35,300,000		34,742,373		35,300,000
Total Second Lien Secured Debt												223,040,278		223,166,527
Subordinated Debt/Corporate Notes—10.5%
Blackhawk Industrial Distribution, Inc.	03/17/2025		Distribution		12.00	%		—		13,773,533		13,529,203		13,773,533
					(PIK 2.00	%)
Cascade Environmental LLC	08/20/2021		Environmental Services		15.00	%		—		48,381,773		47,992,863		47,414,137
					(PIK 15.00	%)
Total Subordinated Debt/Corporate Notes												61,522,066		61,187,670
Preferred Equity/Partnership Interests—0.5% ⁽⁶⁾
AH Holdings, Inc.		—	Healthcare, Education and Childcare		6.00	%		—		211		500,000		322,850
Condor Holdings Limited ^{(8), (11)}		—	Business Services		—			—		556,000		64,277		71,556
Condor Top Holdco Limited ^{(8), (11)}		—	Business Services		—			—		556,000		491,723		547,406
MeritDirect Holdings, LP		—	Media		—			—		540		540,000		563,657
NXOF Holdings, Inc. (Tyto Athene, LLC)		—	Aerospace and Defense		—			—		107		106,823		79,190
Signature CR Intermediate Holdco, Inc.		—	Chemicals, Plastics and Rubber		12.00	%		—		1,347		1,346,530		1,413,300
Total Preferred Equity/Partnership Interests												3,049,353		2,997,959
Common Equity/Partnership Interests/Warrants—10.9% ⁽⁶⁾
Affinion Group Holdings, Inc. (Warrants)	04/10/2024		Consumer Products		—			—		77,190		2,126,399		817,028
AG Investco LP ⁽⁹⁾		—	Business Services		—			—		714,652		714,652		714,652
AG Investco LP ^{(7), (9)}		—	Business Services		—			—		285,348		—		—
AH Holdings, Inc. (Warrants)	03/23/2021		Healthcare, Education and Childcare		—			—		753		—		—
Altamira Intermediate Company II, Inc.		—	Aerospace and Defense		—			—		125,000		125,000		125,000
ASP LCG Holdings, Inc. (Warrants)	05/05/2026		Education		—			—		933		586,975		2,260,044
Autumn Games, LLC		—	Broadcasting and Entertainment		—			—		1,333,330		3,000,000		—
Cascade Environmental LLC ⁽⁹⁾		—	Environmental Services		—			—		33,901		2,852,080		469,430
CI (Allied) Investment Holdings, LLC		—	Business Services		—			—		120,962		1,243,217		1,260,269
(PRA Events, Inc.) ⁽⁹⁾
CI (Summit) Investment Holdings LLC		—	Buildings and Real Estate		—			—		114,646		1,171,206		1,504,587
(SFP Holdings, Inc.)
Cowboy Parent LLC		—	Distribution		—			—		22,500		2,250,000		2,278,089
(Blackhawk Industrial Distribution, Inc.)
DecoPac Holdings Inc.		—	Beverage, Food and Tobacco		—			—		3,449		3,448,658		6,651,822
eCommission Holding Corporation ⁽¹¹⁾		—	Financial Services		—			—		80		1,004,625		1,481,743
Faraday Holdings, LLC		—	Building Materials		—			—		4,277		217,635		1,243,208
Gauge Schlesinger Coinvest, LLC		—	Business Services		—			—		8		8,197		8,197
Gauge TVC Coinvest, LLC		—	Transportation		—			—		810,645		810,645		828,333
(TVC Enterprises, LLC)
Go Dawgs Capital III, LP		—	Building Materials		—			—		675,325		675,325		688,831
(American Insulated Glass, LLC) ⁽⁹⁾
Green Veracity Holdings, LP - Class A		—	Business Services		—			—		15,000		1,500,000		2,367,746
(VT Topco, Inc.)
Infogroup Parent Holdings, Inc.		—	Other Media		—			—		181,495		2,040,000		2,119,257
ITC Rumba, LLC (Cano Health, LLC) ⁽⁹⁾		—	Healthcare, Education and Childcare		—			—		252,176		2,993,665		7,110,734
JWC-WE Holdings, L.P.		—	Home and Office Furnishings		—			—		1,906,433		1,906,433		4,961,006
(Walker Edison Furniture Company LLC)
Kadmon Holdings, Inc. ⁽¹²⁾		—	Healthcare, Education and Childcare		—			—		252,014		2,265,639		635,075
Kentucky Racing Holdco, LLC (Warrants) ⁽⁹⁾			Hotels, Motels, Inns and Gaming		—			—		161,252		—		307,888
Lariat ecoserv Co-Invest Holdings, LLC ⁽⁹⁾		—	Environmental Services		—			—		363,656		363,656		451,341
MeritDirect Holdings, LP		—	Media		—			—		540		—		55,482
NXOF Holdings, Inc.		—	Aerospace and Defense		—			—		2,180		2,180		—
(Tyto Athene, LLC)
Signature CR Intermediate Holdco, Inc.		—	Chemicals, Plastics and Rubber		—			—		71		70,870		34,484
SSC Dominion Holdings, LLC		—	Electronics		—			—		1,500		1,500,000		1,620,000
Class A (US Dominion, Inc.)
SSC Dominion Holdings, LLC		—	Electronics		—			—		1,500		—		2,185,803
Class B (US Dominion, Inc.)
U.S. Well Services, Inc. - Class A ^{(11), (12)}		—	Oil and Gas		—			—		72,833		728,330		159,504
USWS Holdings, LLC ^{(9), (11)}		—	Oil and Gas		—			—		1,188,368		11,883,680		2,472,400
WBB Equity, LLC		—	Aerospace and Defense		—			—		628,571		628,571		2,193,714
(Whitney, Bradley & Brown, Inc.) ⁽⁹⁾
Wheel Pros Holdings, L.P.		—	Auto Sector		—			—		3,778,704		4,450,000		14,655,027
(Winter Park Intermediate, Inc.)
ZS Juniper L.P.		—	Personal, Food and Miscellaneous Services		—			—		1,056		1,056,250		1,842,833
(Juniper Landscaping of Florida, LLC) ⁽⁹⁾
Total Common Equity/Partnership Interests/Warrants												51,623,889		63,503,528
Total Investments in Non-Controlled, Non-Affiliated Portfolio Companies												922,304,099		936,632,099

Issuer Name	Maturity / Expiration		Industry	Current Coupon			Basis Point Spread Above Index ⁽⁴⁾		Par / Shares		Cost		Fair Value ⁽³⁾
Investments in Non-Controlled, Affiliated Portfolio Companies—8.5% ^{(1), (2)}
Preferred Equity/Partnership Interests—8.1% ⁽⁶⁾
ETX Energy, LLC		—	Oil and Gas		—			—		61,732		6,173,200		22,717,376
MidOcean JF Holdings Corp.		—	Distribution		—			—		153,922		15,392,188		24,549,408
Total Preferred Equity/Partnership Interests												21,565,388		47,266,784
Common Equity/Partnership Interests/Warrants—0.4% ⁽⁶⁾
ETX Energy, LLC ⁽⁹⁾		—	Oil and Gas		—			—		1,658,389		29,711,576		—
ETX Energy Management Company, LLC		—	Oil and Gas		—			—		1,754,104		1,562,020		—
MidOcean JF Holdings Corp.		—	Distribution		—			—		65,933		24,761,831		2,082,554
Total Common Equity/Partnership Interests/Warrants												56,035,427		2,082,554
Total Investments in Non-Controlled, Affiliated Portfolio Companies												77,600,816		49,349,338
Investments in Controlled, Affiliated Portfolio Companies—40.1% ^(1), (2)
First Lien Secured Debt—18.8%
AKW Holdings Limited ^{(8), (10), (11)}	03/13/2024		Healthcare, Education and Childcare		6.54	%	3M L+575		£	28,000,000		39,051,600		34,504,400
RAM Energy LLC	07/01/2022		Energy and Utilities		8.00	%		—		35,000,000		35,000,000		35,000,000
RAM Energy LLC (Revolver)	07/01/2022		Energy and Utilities		8.00	%		—		40,000,000		40,000,000		40,000,000
Total First Lien Secured Debt												114,051,600		109,504,400
Second Lien Secured Debt—7.9%
PT Network Intermediate Holdings, LLC	11/30/2024		Healthcare, Education and Childcare		12.30	%	3M L+1,000			46,610,223		46,163,881		46,144,120
					(PIK 12.30	%)
Total Second Lien Secured Debt												46,163,881		46,144,120
Preferred Equity—1.6% ⁽⁶⁾
CI (PTN) Investment Holdings II, LLC		—	Healthcare, Education and Childcare		—			—		36,450		546,750		11,251
(PT Network, LLC) ⁽⁹⁾
PT Network Intermediate Holdings, LLC ⁽⁹⁾			Healthcare, Education and Childcare		12.14	%	3M L+1,000			833		8,975,000		9,264,347
Total Preferred Equity												9,521,750		9,275,598
Common Equity—11.8% ⁽⁶⁾
AKW Holdings Limited ^{(8), (10), (11)}		—	Healthcare, Education and Childcare		—			—	£	950		132,497		2,554,804
CI (PTN) Investment Holdings II, LLC		—	Healthcare, Education and Childcare		—			—		333,333		5,000,000		—
(PT Network, LLC) ⁽⁹⁾
PT Network Intermediate Holdings, LLC ⁽⁹⁾			Healthcare, Education and Childcare		—			—		621		5,983,333		17,014,720
RAM Energy Holdings LLC		—	Energy and Utilities		—			—		84,747		76,264,739		48,957,717
Total Common Equity												87,380,569		68,527,241
Total Investments in Controlled, Affiliated Portfolio Companies												257,117,800		233,451,359
Total Investments—209.6%												1,257,022,715		1,219,432,796
Cash and Cash Equivalents—10.2%
BlackRock Federal FD Institutional 30												47,640,291		47,640,291.72
BNY Mellon Cash Reserve and Cash												11,906,147		11,875,944
Total Cash and Cash Equivalents												59,546,438		59,516,236
Total Investments and Cash Equivalents—219.8%											$	1,316,569,153	$	1,278,949,032
Liabilities in Excess of Other Assets—(119.8%)														(697,043,364	)
Net Assets—100.0%													$	581,905,668

PennantPark Investment Corporation was organized as a Maryland corporation in January 2007. We are a closed-end, externally managed, non-diversified investment company that has elected to be treated as a BDC under the 1940 Act. PennantPark Investment’s objective is to generate both current income and capital appreciation while seeking to preserve capital through debt and equity investments. We invest primarily in U.S. middle-market companies in the form of first lien secured debt, second lien secured debt, subordinated debt and, to a lesser extent, equity investments. On April 24, 2007, we closed our initial public offering and our common stock trades on The Nasdaq Global Select Market under the symbol “PNNT.”

We have entered into the Investment Management Agreement with the Investment Adviser, an external adviser that manages our day-to-day operations. PennantPark Investment, through the Investment Adviser, manages day-to-day operations of and provides investment advisory services to SBIC II under a separate investment management agreement. We have also entered into the Administration Agreement with the Administrator, which provides the administrative services necessary for us to operate. PennantPark Investment, through the Administrator, also provides similar services to SBIC II under a separate administration agreement. See Note 3.

We have formed and expect to continue to form certain taxable subsidiaries, including the Taxable Subsidiaries, which are subject to tax as corporations. These taxable subsidiaries allow us to hold equity securities of certain portfolio companies treated as pass-through entities for U.S. federal income tax purposes while facilitating our ability to qualify as a RIC under the Code.

We are operated by a person who has claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act and, therefore, is not subject to registration or regulation as a commodity pool operator under the Commodity Exchange Act.

The preparation of our Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of our assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of income and expenses during the reported periods. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements have been included. Actual results could differ from these estimates due to changes in the economic and regulatory environment, financial markets and any other parameters used in determining such estimates and assumptions. Changes in the economic and regulatory environment, financial markets, the credit worthiness of our portfolio companies, the global outbreak of COVID-19 during the first quarter of 2020, and any other parameters used in determining these estimates and assumptions could cause actual results to differ from these estimates and assumptions. We may reclassify certain prior period amounts to conform to the current period presentation. We have eliminated all intercompany balances and transactions. References to ASC serve as a single source of accounting literature. Subsequent events are evaluated and disclosed as appropriate for events occurring through the date the Consolidated Financial Statements are issued.

Our Consolidated Financial Statements are prepared in accordance with GAAP, consistent with ASC Topic 946, Financial Services – Investment Companies, and pursuant to the requirements for reporting on Form 10-K/Q and Articles 6, 10 and 12 of Regulation S-X, as appropriate. In accordance with Article 6-09 of Regulation S-X, we have provided a Consolidated Statement of Changes in Net Assets in lieu of a Consolidated Statement of Changes in Stockholders’ Equity.

We expect that there may not be readily available market values for many of the investments, which are or will be in our portfolio, and we value such investments at fair value as determined in good faith by or under the direction of our board of directors using a documented valuation policy and a consistently applied valuation process, as described in this Report. With respect to investments for which there is no readily available market value, the factors that the board of directors may take into account in pricing our investments at fair value include, as relevant, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we consider the pricing indicated by the external event to corroborate or revise our valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the price used in an actual transaction may be different than our valuation and the difference may be material. See Note 5.

Security transactions are recorded on a trade-date basis. We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, using the specific identification method, without regard to unrealized appreciation or depreciation previously recognized, but considering prepayment penalties. Net change in unrealized appreciation or depreciation reflects, as applicable, the change in the fair values of our portfolio investments, the Credit Facilities and, prior to their redemption, the 2019 Notes during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

We record interest income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt investments with contractual PIK interest, which represents interest accrued and added to the loan balance that generally becomes due at maturity, we will generally not accrue PIK interest when the portfolio company valuation indicates that such PIK interest is not collectable. We do not accrue as a receivable interest on loans and debt investments if we have reason to doubt our ability to collect such interest. Loan origination fees, OID, market discount or premium and deferred financing costs on liabilities, which we do not fair value, are capitalized and then accreted or amortized using the effective interest method as interest income or, in the case of deferred financing costs, as interest expense. We record prepayment penalties earned on loans and debt investments as income. Dividend income, if any, is recognized on an accrual basis on the ex-dividend date to the extent that we expect to collect such amounts. From time to time, the Company receives certain fees from portfolio companies, which are non-recurring in nature. Such fees include loan prepayment penalties, structuring fees and amendment fees, and are recorded as other investment income when earned.

Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more and/or if there is reasonable doubt that principal or interest will be collected. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. As of September 30, 2020, we had two portfolio companies on non-accrual, representing 4.9% and 3.4% of our overall portfolio on a cost and fair value basis, respectively. As of September 30, 2019, we had no portfolio companies on non-accrual.

We have complied with the requirements of Subchapter M of the Code and have qualified to be treated as a RIC for federal income tax purposes. In this regard, we account for income taxes using the asset and liability method prescribed by ASC Topic 740, Income Taxes, or ASC 740. Under this method, income taxes are provided for amounts currently payable and for amounts deferred as tax assets and liabilities based on differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Based upon our qualification and election to be treated as a RIC, we do not anticipate incurring any material federal income taxes. However, we may choose to retain a portion of our calendar year income, which may result in the imposition of an excise tax. Additionally, certain of the Company’s consolidated subsidiaries are subject to U.S. federal and state income taxes. For the years ended September 30, 2020, 2019 and 2018, we recorded a provision for taxes of $1.2 million (approximately one-half of which was for U.S. federal excise tax and the remainder for U.S. federal and state income taxes and franchise taxes related to the Taxable Subsidiaries), $1.2 million (approximately one-half of which was for U.S. federal excise tax and the remainder for U.S. federal and state income taxes related to Taxable Subsidiaries) and zero, respectively.

We recognize the effect of a tax position in our Consolidated Financial Statements in accordance with ASC 740 when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by the applicable tax authority. Tax positions not considered to satisfy the “more-likely-than-not” threshold would be recorded as a tax expense or benefit. Penalties or interest, if applicable, that may be assessed relating to income taxes would be classified as other operating expenses in the financial statements. There were no tax accruals relating to uncertain tax positions and no amounts accrued for any related interest or penalties with respect to the periods presented herein. The Company’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. Although the Company files both federal and state income tax returns, the Company’s major tax jurisdiction is federal.

Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and net realized gains recognized for financial reporting purposes. Differences between tax regulations and GAAP may be permanent or temporary. Permanent differences are reclassified among capital accounts in the Consolidated Financial Statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future.

Distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid, if any, as a distribution is determined by the board of directors each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are distributed at least annually. The tax attributes for distributions will generally include ordinary income and capital gains, but may also include certain tax-qualified dividends and/or return of capital.

Capital transactions, in connection with our dividend reinvestment plan or through offerings of our common stock, are recorded when issued and offering costs are charged as a reduction of capital upon issuance of our common stock.

Our books and records are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:

Although net assets and fair values are presented based on the applicable foreign exchange rates described above, we do not isolate that portion of the results of operations due to changes in foreign exchange rates on investments, other assets and debt from the fluctuations arising from changes in the fair value of investments and liabilities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments and liabilities.

Foreign security and currency translations may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices to be more volatile than those of comparable U.S. companies or U.S. government securities.

As permitted under Regulation S-X and as explained by ASC paragraph 946-810-45-3, PennantPark Investment will generally not consolidate its investment in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to us. Accordingly, we have consolidated the results of our SBIC Funds, our formerly wholly-owned subsidiary, Funding I, and our Taxable Subsidiaries in our Consolidated Financial Statements. We do not consolidate our non-controlling interest in PSLF. See further description of our investment in PSLF in Note 4.

Asset transfers that do not meet ASC Topic 860, Transfers and Servicing, requirements for sale accounting treatment are reflected in the Consolidated Statements of Assets and Liabilities and the Consolidated Schedules of Investments as investments. The creditors of Funding I have received a security interest in all its assets and such assets are not intended to be available to the creditors of PennantPark Investment or any of its affiliates.

Under the Investment Management Agreement, we implemented the previously announced permanent reductions in base management and incentive fees, effective January 1, 2018. The Investment Management Agreement with the Investment Adviser was reapproved by our board of directors, including a majority of our directors who are not interested persons of us or the Investment Adviser, in February 2020. Under the Investment Management Agreement, the Investment Adviser, subject to the overall supervision of our board of directors, manages the day-to-day operations of and provides investment advisory services to us. The Investment Adviser serves as the servicer to Funding I and has irrevocably directed that the management fee owed to it with respect to such services be paid to the Company so long as the Investment Adviser remains the servicer. SBIC II’s investment management agreement does not affect the management or incentive fees that we pay to the Investment Adviser on a consolidated basis. For providing these services, the Investment Adviser receives a fee from us, consisting of two components— a base management fee and an incentive fee or, collectively, Management Fees.

Effective January 1, 2018, the base management fee is calculated at an annual rate of 1.50% of our “average adjusted gross assets,” which equals our gross assets (exclusive of U.S. Treasury Bills, temporary draws under any credit facility, cash and cash equivalents, repurchase agreements or other balance sheet transactions undertaken at the end of a fiscal quarter for purposes of preserving investment flexibility for the next quarter and unfunded commitments, if any) and is payable quarterly in arrears. In addition, on November 13, 2018, in connection with our board of directors’ approval of the application of the modified asset coverage requirement under the 1940 Act to the Company, our board of directors also approved an amendment to the Investment Advisory Agreement reducing the Investment Adviser’s annual base management fee from 1.50% to 1.00% on gross assets that exceed 200% of the Company’s total net assets as of the immediately preceding quarter-end. This amendment became effective on February 5, 2019 with the amendment and restatement of the Investment Management Agreement on April 12, 2019. The base management fee is calculated based on the average adjusted gross assets at the end of the two most recently completed calendar quarters, and appropriately adjusted for any share issuances or repurchases during the current calendar quarter. For example, if we sold shares on the 45th day of a quarter and did not use the proceeds from the sale to repay outstanding indebtedness, our gross assets for such quarter would give effect to the net proceeds of the issuance for only 45 days of the quarter during which the additional shares were outstanding. For periods prior to January 1, 2018, the base management fee was calculated at an annual rate of 2.00% of our “average adjusted gross assets.” From December 31, 2015 through December 31, 2017, the Investment Adviser voluntarily agreed, in consultation with the board of directors, to irrevocably waive 16% of base management fees, correlated to our 16% energy exposure (oil & gas and energy & utilities industries) at cost as of December 31, 2015. For the years ended September 30, 2020, 2019 and 2018, the Investment Adviser earned base management fees of $18.6 million, $18.2 million and $16.5 million (after a waiver of $0.9 million), respectively, from us.

computed net of all realized capital losses or unrealized capital appreciation or depreciation. Pre-Incentive Fee Net Investment Income, expressed as a percentage of the value of our net assets at the end of the immediately preceding calendar quarter, is compared to the hurdle rate of 1.75% per quarter (7.00% annualized). Effective January 1, 2018, we pay the Investment Adviser an incentive fee with respect to our Pre- Incentive Fee Net Investment Income in each calendar quarter as follows: (1) no incentive fee in any calendar quarter in which our Pre-Incentive Fee Net Investment Income does not exceed the hurdle rate of 1.75%, (2) 100% of our Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.1212% in any calendar quarter (8.4848% annualized), and (3) 17.5% of the amount of our Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.1212% in any calendar quarter. These calculations are pro-rated for any share issuances or repurchases during the relevant quarter, if applicable. For periods prior to January 1, 2018, we paid the Investment Adviser an incentive fee with respect to our Pre-Incentive Fee Net Investment Income in each calendar quarter as follows: (1) no incentive fee in any calendar quarter in which our Pre-Incentive Fee Net Investment Income did not exceed the hurdle rate of 1.75%, (2) 100% of our Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeded the hurdle rate but was less than 2.1875% in any calendar quarter (8.75% annualized), and (3) 20% of the amount of our Pre-Incentive Fee Net Investment Income, if any, that exceeded 2.1875% in any calendar quarter. From December 31, 2015 through December 31, 2017, the Investment Adviser voluntarily agreed, in consultation with the board of directors, to irrevocably waive 16% of incentive fees, correlated to our 16% energy cost exposure (oil & gas and energy & utilities industries) at cost as of December 31, 2015. Additionally, beginning April 1, 2020 and through September 30, 2020, the Investment Adviser has voluntarily agreed, in consultation with our board of directors, to irrevocably waive the performance-based incentive fees. For the years ended September 30, 2020, 2019 and 2018, the Investment Adviser earned $2.7 million (after a waiver of $1.9 million), $5.1 million and $11.0 million (after a waiver of $0.5 million), respectively, in incentive fees on net investment income from us.

Under GAAP, we are required to accrue a capital gains incentive fee based upon net realized capital gains and net unrealized capital appreciation and depreciation on investments held at the end of each period. In calculating the capital gains incentive fee accrual, we considered the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains incentive fee would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Management Agreement. This accrual is calculated using the aggregate cumulative realized capital gains and losses and cumulative unrealized capital appreciation or depreciation. If such amount is positive at the end of a period, then we record a capital gains incentive fee equal to 17.5% of such amount (20.0% for periods prior to January 1, 2018), less the aggregate amount of actual capital gains related to incentive fees paid in all prior years. If such amount is negative, then there is no accrual for such year. There can be no assurance that such unrealized capital appreciation will be realized in the future. For the years ended September 30, 2020, 2019 and 2018, the Investment Adviser did not accrue an incentive fee on capital gains as calculated under GAAP.

The Administration Agreement with the Administrator was reapproved by our board of directors, including a majority of our directors who are not interested persons of us, in February 2020. Under the Administration Agreement, the Administrator provides administrative services and office facilities to us. The Administrator provides similar services to SBIC II under its administration agreement with PennantPark Investment. For providing these services, facilities and personnel, we have agreed to reimburse the Administrator for its allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including rent and our allocable portion of the costs of compensation and related expenses of our Chief Compliance Officer, Chief Financial Officer and their respective staffs. The Administrator also offers, on our behalf, significant managerial assistance to portfolio companies to which we are required to offer such assistance. Reimbursement for certain of these costs is included in administrative services expenses in the Consolidated Statements of Operations. For the years ended September 30, 2020, 2019 and 2018, we reimbursed the Investment Adviser approximately $1.4 million, $1.8 million and $2.0 million, respectively, including expenses the Investment Adviser incurred on behalf of the Administrator, for services described above.

For the year ended September 30, 2020, the Company purchased $15.0 million in total investments from an affiliated fund managed by our Investment Adviser in accordance with, and pursuant to, procedures adopted under Rule 17a-7 of the 1940 Act. There were no transactions in accordance with Rule 17a-7 of the 1940 Act during the years ended September 30, 2019 and 2018, respectively.

Purchases of investments, including PIK interest, for the years ended September 30, 2020, 2019 and 2018 totaled $333.9 million, $545.6 million and $616.1 million, respectively. Sales and repayments of investments for the same periods totaled $162.7 million, $426.5 million and $630.5 million, respectively.

The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets (excluding cash and cash equivalents) in such industries as of:

On July 31, 2020, we and Pantheon formed PSLF, an unconsolidated joint venture. PSLF invests primarily in middle-market and other corporate debt securities consistent with our strategy. PSLF was formed as a Delaware limited liability company. Pursuant to the terms of the transaction, Pantheon invested $35.0 million to acquire a 28% stake in PSLF (of which $12.5 million was paid to the Company), and we contributed our formerly wholly-owned subsidiary, Funding I, to PSLF for a 72% stake in PSLF which was valued at $96.2 million ($63.0 million of PSLF member notes and 72% of PSLF’s members’ equity). Funding I held $356.1 million of senior loans at fair value as of July 31, 2020 and had a net asset value of $133.6 million. As a result of this tax-free transaction, Funding I became a wholly-owned subsidiary of PSLF and has been deconsolidated from our financial statements which triggered a $9.2 million deconsolidation realized loss recognized in our Statement of Operations. The $9.2 million deconsolidation realized loss is comprised of $6.8 million of unrealized depreciation on the portfolio as of the transaction date and $2.4 million of additional dilution.

As of September 30, 2020, PSLF had total assets of $361.8 million. PSLF’s portfolio consisted of debt investments in 37 portfolio companies as of. As of September 30, 2020, at fair value, the largest investment in a single portfolio company in PSLF was $18.4 million and the five largest investments totaled $77.9 million. PSLF invests in portfolio companies in the same industries in which we may directly invest.

We provide capital to PSLF in the form of subordinated notes and equity interests. As of September 30, 2020, we and Pantheon owned 72% and 28%, respectively, of each of the outstanding subordinated notes and equity interests in PSLF. As of the same date, our investment in PSLF consisted of subordinated notes of $63.0 million and equity interests of $36.3 million.

We and Pantheon each appointed two members to PSLF’s four-person Member Designees’ Committee. All material decisions with respect to PSLF, including those involving its investment portfolio, require unanimous approval of a quorum of Member Designees’ Committee. Quorum is defined as (i) the presence of two members of the Member Designees’ Committee; provided that at least one individual is present that was elected, designated or appointed by each of us and Pantheon; (ii) the presence of three members of the Member Designees’ Committee, provided that the individual that was elected, designated or appointed by each of us or Pantheon, as the case may be, with only one individual present shall be entitled to cast two votes on each matter; and (iii) the presence of four members of the Member Designees’ Committee shall constitute a quorum, provided that two individuals are present that were elected, designated or appointed by each of us or Pantheon.

Additionally, PSLF has entered into a $250.0 million senior secured revolving credit facility which bears interest at LIBOR (or an alternative risk-free interest rate index) plus 260 basis points, or the PSLF Credit Facility, with BNP Paribas through its wholly-owned subsidiary, or PSLF Subsidiary, subject to leverage and borrowing base restrictions.

Issuer Name	Maturity	Industry	Current Coupon			Basis Point Spread Above Index ⁽¹⁾	Par		Cost		Fair Value ⁽²⁾
First Lien Secured Debt—701.6%
Advantage Sales & Marketing	07/23/2021	Grocery		4.25	%	1M L+325		8,627,315	$	8,418,699	$	8,456,926
Altamira Technologies, LLC	07/24/2025	Aerospace and Defense		7.00	%	3M L+600		971,231		958,950		937,238
American Insulated Glass, LLC	12/21/2023	Building Materials		6.50	%	3M L+550		14,775,105		14,571,097		14,479,603
Apex Service Partners, LLC	07/31/2025	Personal, Food and Miscellaneous Services		6.25	%	1M L+525		6,607,449		6,546,594		6,409,225
Bazaarvoice, Inc.	02/01/2024	Printing and Publishing		6.75	%	1M L+575		14,628,085		14,509,210		14,408,664
Bottom Line Systems, LLC	02/13/2023	Healthcare, Education and Childcare		6.25	%	1M L+550		15,000,000		14,895,515		14,683,499
Cano Health, LLC	06/02/2025	Healthcare, Education and Childcare		8.50	%	1M L+750		18,274,854		18,174,687		18,411,916
Datalot Inc.	01/24/2025	Insurance		6.25	%	3M L+525		7,116,895		6,991,975		7,125,435
DRS Holdings III, Inc.	11/03/2025	Consumer Products		6.75	%	1M L+575		13,564,726		13,448,313		13,316,490
ECM Industries, LLC	12/23/2025	Electronics		5.50	%	1M L+450		2,873,184		2,846,226		2,858,818
Holdco Sands Intermediate, LLC	12/19/2025	Aerospace and Defense		7.50	%	3M L+600		12,193,571		12,028,384		11,888,732
HW Holdco, LLC	12/10/2024	Media		5.50	%	3M L+450		14,737,500		14,619,623		14,295,375
Integrity Marketing Acquisition, LLC	08/27/2025	Insurance		6.50	%	3M L+550		447,833		444,755		443,354
K2 Pure Solutions NoCal, L.P.	12/20/2023	Chemicals, Plastics and Rubber		8.00	%	1M L+700		14,737,500		14,583,983		14,413,275
Kentucky Downs, LLC	03/07/2025	Hotels, Motels, Inns and Gaming		9.50	%	1M L+850		10,153,350		9,978,792		10,001,050
LAV Gear Holdings, Inc.	10/31/2024	Leisure, Amusement, Motion Pictures, Entertainment		8.50	%	3M L+750		2,015,428		1,998,623		1,856,411
Lightspeed Buyer Inc.	02/03/2026	Healthcare, Education and Childcare		6.25	%	1M L+525		12,598,209		12,365,207		12,440,731
Lombart Brothers, Inc.	04/13/2023	Healthcare, Education and Childcare		7.25	%	1M L+625		16,914,403		16,770,520		15,882,625
MAG DS Corp.	04/01/2027	Aerospace and Defense		6.50	%	1M L+550		6,000,000		5,700,000		5,707,500
MeritDirect, LLC	05/23/2024	Media		6.50	%	3M L+550		14,076,563		13,914,921		13,407,926
PlayPower, Inc.	05/08/2026	Consumer Products		5.72	%	3M L+550		4,025,520		3,990,631		3,824,244
Radius Aerospace, Inc.	03/31/2025	Aerospace and Defense		6.75	%	3M L+575		13,779,429		13,608,176		13,503,840
Research Now Group, Inc. and Survey Sampling International LLC	12/20/2024	Business Services		6.50	%	3M L+550		14,847,328		14,728,854		14,023,302
Riverpoint Medical, LLC	06/20/2025	Healthcare, Education and Childcare		5.50	%	3M L+450		1,975,000		1,958,417		1,905,678
Sales Benchmark Index LLC	01/03/2025	Business Services		7.75	%	3M L+600		7,887,195		7,748,712		7,697,903
Sargent & Greenleaf Inc.	12/20/2024	Electronics		7.00	%	1M L+550		5,448,483		5,378,893		5,350,411
Signature Systems Holding Company	05/03/2024	Chemicals, Plastics and Rubber		7.50	%	3M L+650		14,250,000		14,096,623		13,786,875
Solutionreach, Inc.	01/17/2024	Communications		6.75	%	3M L+575		12,531,123		12,351,398		12,393,282
STV Group Incorporated	12/11/2026	Transportation		5.40	%	1M L+525		12,351,980		12,238,771		12,228,460
TeleGuam Holdings, LLC	11/20/2025	Telecommunications		5.50	%	1M L+450		5,080,832		5,034,725		4,928,407
Teneo Holdings LLC	07/18/2025	Financial Services		6.25	%	1M L+525		1,980,000		1,874,970		1,905,750
TPC Canada Parent, Inc. and TPC US Parent, LLC	11/24/2025	Food		6.25	%	3M L+525		5,650,076		5,593,575		5,480,573
TVC Enterprises, LLC	01/18/2024	Transportation		6.50	%	1M L+550		14,547,897		14,343,185		14,438,788
TWS Acquisition Corporation	06/16/2025	Education		7.25	%	1M L+625		8,644,186		8,469,082		8,471,302
UBEO, LLC	04/03/2024	Printing and Publishing		5.50	%	3M L+450		4,738,102		4,700,032		4,453,816
Vision Purchaser Corporation	06/10/2025	Media		7.25	%	1M L+625		14,358,203		14,112,113		13,496,711
Whitney, Bradley & Brown, Inc.	10/18/2022	Aerospace and Defense		8.50	%	1M L+750		14,194,162		14,029,177		14,052,223
Total First Lien Secured Debt										358,023,408		353,366,358
Cash and Cash Equivalents—26.9%
BlackRock Federal FD Institutional 30										7,353,307		7,353,307
US Bank Cash										183,412		183,412
Total Cash and Cash Equivalents										7,536,719		7,536,719
Total Investments and Cash Equivalents—1,141.9%									$	365,560,127	$	360,903,077
Liabilities in Excess of Other Assets—(1,041.9)%												(310,538,386	)
Members' Equity—100.0%											$	50,364,691

ASC 820 classifies the inputs used to measure these fair values into the following hierarchies:

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Generally, most of our investments, our Credit Facilities and our SBA debentures are classified as Level 3. Our 2019 Notes were, and our 2024 Notes are, classified as Level 2, as they are financial instruments with readily observable market inputs. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the price used in an actual transaction may be different than our valuation and those differences may be material.

The inputs into the determination of fair value may require significant management judgment or estimation. Even if observable market data is available, such information may be the result of consensus pricing information, disorderly transactions or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence were available. Corroborating evidence that would result in classifying these non-binding broker/dealer bids as a Level 2 asset includes observable orderly market-based transactions for the same or similar assets or other relevant observable market-based inputs that may be used in pricing an asset.

Our investments are generally structured as debt and equity investments in the form of first lien secured debt, second lien secured debt, subordinated debt and equity investments. The transaction price, excluding transaction costs, is typically the best estimate of fair value at inception. Ongoing reviews by our Investment Adviser and independent valuation firms are based on an assessment of each underlying investment, incorporating valuations that consider the evaluation of financing and sale transactions with third parties, expected cash flows and market-based information including comparable transactions, performance multiples and yields, among other factors. These non-public investments valued using unobservable inputs are included in Level 3 of the fair value hierarchy.

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in our ability to observe valuation inputs may result in a reclassification for certain financial assets or liabilities.

As outlined in the table below, some of our Level 3 investments using a market approach valuation technique are valued using the average of the bids from brokers or dealers. The bids include a disclaimer, may not have corroborating evidence, may be the result of a disorderly transaction and may be the result of consensus pricing. The Investment Adviser assesses the source and reliability of bids from brokers or dealers. If the board of directors has a bona fide reason to believe any such bids do not reflect the fair value of an investment, it may independently value such investment by using the valuation procedure that it uses with respect to assets for which market quotations are not readily available.

The remainder of our investment portfolio and our long-term Credit Facilities are valued using a market comparable or an enterprise market value technique. With respect to investments for which there is no readily available market value, the factors that the board of directors may take into account in pricing our investments at fair value include, as relevant, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flow, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the pricing indicated by the external event, excluding transaction costs, is used to corroborate the valuation. When using earnings multiples to value a portfolio company, the multiple used requires the use of judgment and estimates in determining how a market participant would price such an asset. These non-public investments using unobservable inputs are included in Level 3 of the fair value hierarchy. Generally, the sensitivity of unobservable inputs or combination of inputs such as industry comparable companies, market outlook, consistency, discount rates and reliability of earnings and prospects for growth, or lack thereof, affects the multiple used in pricing an investment. As a result, any change in any one of those factors may have a significant impact on the valuation of an investment. Generally, an increase in a market yield will result in a decrease in the valuation of a debt investment, while a decrease in a market yield will have the opposite effect. Generally, an increase in an earnings before interest, taxes, depreciation and amortization, or EBITDA, multiple will result in an increase in the valuation of an investment, while a decrease in an EBITDA multiple will have the opposite effect.

Our Level 3 valuation techniques, unobservable inputs and ranges were categorized as follows for ASC 820 purposes:

Our investments, cash and cash equivalents, Credit Facilities, SBA debentures and 2024 Notes were categorized as follows in the fair value hierarchy for ASC 820 purposes:

The tables below show a reconciliation of the beginning and ending balances for fair valued investments measured using significant unobservable inputs (Level 3):

The tables below show a reconciliation of the beginning and ending balances for liabilities recognized at fair value and measured using significant unobservable inputs (Level 3):

As of September 30, 2020, we had outstanding non-U.S. dollar borrowings on our Credit Facilities. Net change in fair value on foreign currency translation on outstanding borrowings is listed below:

As of September 30, 2019, we had outstanding non-U.S. dollar borrowings on our Truist Credit Facility. Net change in fair value on foreign currency translation on outstanding borrowings is listed below:

Generally, the carrying value of our consolidated financial liabilities approximates fair value. We have adopted the principles under ASC Subtopic 825-10, Financial Instruments, or ASC 825-10, which provides companies with an option to report selected financial assets and liabilities at fair value, and made an irrevocable election to apply ASC 825-10 to our Credit Facilities and, prior to their redemption, the 2019 Notes. We elected to use the fair value option for the Credit Facilities and, prior to their redemption, the 2019 Notes to align the measurement attributes of both our assets and liabilities while mitigating volatility in earnings from using different measurement attributes. Due to that election and in accordance with GAAP, we incurred expenses of zero, $7.1 and zero relating to amendment costs on the Credit Facilities during the years ended September 30, 2020, 2019 and 2018, respectively. ASC 825-10 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and to more easily understand the effect on earnings of a company’s choice to use fair value. ASC 825-10 also requires entities to display the fair value of the selected assets and liabilities on the face of the Consolidated Statements of Assets and Liabilities and changes in fair value of the Credit Facilities and, prior to their redemption, the 2019 Notes are reported in our Consolidated Statements of Operations. We did not elect to apply ASC 825-10 to any other financial assets or liabilities, including the 2024 Notes and the SBA debentures.

An affiliated portfolio company is a company in which we have ownership of 5% or more of its voting securities. A portfolio company is generally presumed to be a non-controlled affiliate when we own at least 5% but 25% or less of its voting securities and a controlled affiliate when we own more than 25% of its voting securities. Transactions related to our funded investments with both controlled and non-controlled affiliates for the year ended September 30, 2020 were as follows:

Name of Investment	Fair Value at September 30, 2019		Gross Additions⁽¹⁾		Gross Reductions		Net Change in Appreciation / (Depreciation)			Fair Value at September 30, 2020		Interest Income		PIK Income		Net Realized Gains (Losses)
Controlled Affiliates
AKW Holdings Limited	$	37,059,204	$	630,775	$	—	$	82,136		$	37,772,115	$	2,349,991	$	—	$	—
PennantPark Senior Loan Fund, LLC *		—		96,221,176		—		3,041,401			99,262,577		976,500		—		—
PT Networks, LLC		72,434,438		8,847,077		—		10,103,134			91,384,649		61,367		5,902,180		—
RAM Energy LLC		123,957,717		11,443,334		—		(45,477,533	)		89,923,518		—		1,426,666		—
Total Controlled Affiliates	$	233,451,359	$	117,142,362	$	—		(32,250,862.00	)	$	318,342,859	$	3,387,858	$	7,328,846	$	—
Non-Controlled Affiliates
ETX Energy, LLC	$	22,717,376	$	—	$	—		(17,661,525	)	$	5,055,851	$	—	$	—	$	—
MidOcean JF Holdings Corp.		26,631,962		28,104		—		(3,962,024	)		22,698,042		—		—		—
Total Non-Controlled Affiliates	$	49,349,338	$	28,104	$	—	$	(21,623,549	)	$	27,753,893	$	—	$	—	$	—
Total Controlled and Non-Controlled Affiliates	$	282,800,697	$	117,170,466	$	—	$	(53,874,411	)	$	346,096,752	$	3,387,858	$	7,328,846	$	—

The following information sets forth the computation of basic and diluted per share net increase in net assets resulting from operations:

Distributions from net investment income and net realized capital gains are determined in accordance with U.S. federal tax regulations, which may materially differ from amounts determined in accordance with GAAP. These book-to-tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are reclassified to undistributed net investment income, accumulated net realized gain or paid-in-capital, as appropriate. Distributions from net realized capital gains, if any, are normally declared and paid annually, but the Company may make distributions on a more frequent basis to comply with the distribution requirements for RICs under the Code.

As of September 30, 2020 and 2019, the cost of investments for federal income tax purposes approximates the amortized cost reported in the Consolidated Schedule of Investments.

The following reconciles net (decrease) increase in net assets resulting from operations to taxable income:

The components of undistributed taxable income on a tax basis and reconciliation to accumulated deficit on a book basis are as follows:

Cash equivalents represent cash in money market funds pending investment in longer-term portfolio holdings. Our portfolio may consist of temporary investments in U.S. Treasury Bills (of varying maturities), repurchase agreements, money market funds or repurchase agreement-like treasury securities. These temporary investments with original maturities of 90 days or less are deemed cash equivalents and are included in the Consolidated Schedule of Investments. At the end of each fiscal quarter, we may take proactive steps to preserve investment flexibility for the next quarter by investing in cash equivalents, which is dependent upon the composition of our total assets at quarter-end. We may accomplish this in several ways, including purchasing U.S. Treasury Bills and closing out positions on a net cash basis after quarter-end, temporarily drawing down on the Credit Facility, or utilizing repurchase agreements or other balance sheet transactions as are deemed appropriate for this purpose. These amounts are excluded from average adjusted gross assets for purposes of computing the Investment Adviser’s management fee. U.S. Treasury Bills with maturities greater than 60 days from the time of purchase are valued consistent with our valuation policy. As of September 30, 2020 and 2019, cash and cash equivalents consisted of money market funds in the amounts of $25.8 million and $59.5 million at fair value, respectively.

	2020			2019			2018			2017			2016
Per Share Data:
Net asset value, beginning of year	$	8.68		$	9.11		$	9.10		$	9.05		$	9.82
Net investment income ⁽¹⁾		0.58			0.66			0.75			0.79			0.99
Net realized and unrealized (loss) gain ⁽¹⁾		(0.82	)		(0.42	)		(0.07	)		0.08			(0.73	)
Net (decrease) increase in net assets resulting from operations ⁽¹⁾		(0.24	)		0.24			0.68			0.87			0.26
Distributions to stockholders^{(1), (2)}
Distribution of net investment income		(0.60	)		(0.72	)		(0.72	)		(0.82	)		(0.81	)
Distribution of realized gains		—			—			—			—			(0.30	)
Total distributions to stockholders		(0.60	)		(0.72	)		(0.72	)		(0.82	)		(1.11	)
Repurchase of common stock ⁽¹⁾		—			0.05			0.05			—			0.08
Net asset value, end of year	$	7.84		$	8.68		$	9.11		$	9.10		$	9.05
Per share market value, end of year	$	3.19		$	6.27		$	7.46		$	7.51		$	7.52
Total return ⁽³⁾		(39.62	)%		(6.28	)%		9.70	%		10.80	%		36.64	%
Shares outstanding at end of year		67,045,105			67,045,105			69,053,958			71,060,836			71,060,836
Ratios / Supplemental Data:
Ratio of operating expenses to average net assets ^{(4), (6)}		4.91	%		4.83	%		4.99	%		5.78	%		6.65	%
Ratio of interest and expenses on debt to average net assets⁽⁵⁾		6.22	%		6.29	%		3.54	%		4.69	%		4.18	%
Ratio of total expenses to average net assets ^{(5), (6)}		11.13	%		11.12	%		8.53	%		10.47	%		10.83	%
Ratio of net investment income to average net assets⁽⁵⁾		7.01	%		7.35	%		8.28	%		8.67	%		10.70	%
Net assets at end of year	$	525,708,852		$	581,905,668		$	628,901,895		$	646,808,471		$	643,366,856
Weighted average debt outstanding ⁽⁷⁾	$	794,641,334		$	638,424,193		$	504,963,762		$	605,661,674		$	634,769,508
Weighted average debt per share^{(1), (7)}	$	11.85		$	9.43		$	7.14		$	8.52		$	8.86
Asset coverage per unit ⁽⁸⁾	$	2,078		$	2,066		$	2,919		$	2,998		$	2,794
Average market value per unit ^{(9), (10)}	$	23.47		$	24.87		$	—		$	—		$	24.68
Portfolio turnover ratio		12.74	%		35.44	%		56.51	%		43.60	%		26.50	%

The annualized weighted average cost of debt for the years ended September 30, 2020, 2019 and 2018, inclusive of the fee on the undrawn commitment and amendment costs on the Truist Credit Facility, debt issuance costs on the BNP Credit Facility and amortized upfront fees on SBA debentures and 2024 Notes, was 4.0%, 6.0% and 4.5%, respectively. As of September 30, 2020, in accordance with the 1940 Act, with certain limited exceptions, we are only allowed to borrow amounts such that we are in compliance with the 150% asset coverage ratio requirement after such borrowing, excluding SBA debentures, pursuant to exemptive relief from the SEC received in June 2011.

On February 5, 2019, our stockholders approved the application of the modified asset coverage requirement set forth in Section 61(a)(2) of the 1940 Act, as amended by the Consolidated Appropriations Act of 2018 (which includes the Small Business Credit Availability Act, or SBCAA) as approved by our board of directors on November 13, 2018. As a result, the asset coverage requirement applicable to us for senior securities was reduced from 200% (i.e., $1 of debt outstanding for each $1 of equity) to 150% (i.e., $2 of debt outstanding for each $1 of equity), subject to compliance with certain disclosure requirements. As of September 30, 2020 and 2019, our asset coverage ratio, as computed in accordance with the 1940 Act, was 208% and 207%, respectively.

On February 22, 2019, Funding I closed the BNP Credit Facility for up to $250.0 million in borrowings with certain lenders and BNP Paribas, as administrative agent, and The Bank of New York Mellon Trust Company, N.A., as collateral agent. As of July 31, 2020, Funding I is no longer a subsidiary of the Company consolidated in our financial statements and thus the BNP credit facility is no longer presented on the Statement of Assets and Liabilities (See Note 4). As of September 30, 2019, Funding I had $171.0 million in outstanding borrowings under the BNP Credit Facility. The BNP Credit Facility had a weighted average interest rate of 4.6% as of September 30, 2019. The BNP Credit Facility is a five-year revolving facility with a stated maturity date of February 22, 2024 and pricing set at 260 basis points over LIBOR (or an alternative risk-free floating interest rate index). The BNP Credit Facility is secured by all of the assets of Funding I. Prior to deconsolidation on July 31, 2020, we owned 100% of the equity interest in Funding I and treat the indebtedness of Funding I as our leverage. Our Investment Adviser serves as the servicer to Funding I in connection with the BNP Credit Facility.

As of September 30, 2020, we had the multi-currency Truist Credit Facility for up to $475.0 million in borrowings with certain lenders and Truist Bank (formerly SunTrust Bank), acting as administrative agent, and JPMorgan Chase Bank, N.A., acting as syndication agent for the lenders. As of September 30, 2020 and 2019, we had $388.3 million and $301.6 million, respectively, in outstanding borrowings under the Truist Credit Facility. The Truist Credit Facility had a weighted average interest rate of 2.5% and 4.2%, respectively, exclusive of the fee on undrawn commitment, as of September 30, 2020 and 2019. The Truist Credit Facility is a revolving facility with a stated maturity date of September 4, 2024 ($40.0 million of the $475 million commitment will mature May 25, 2022), a one-year term-out period on September 4, 2023 ($40.0 million of the $475 million commitment has a one year term-out period on May 25, 2021) and pricing set at 225 basis points over LIBOR (or an alternative risk-free floating interest rate index). As of September 30, 2020 and 2019, we had $86.7 million and $173.4 million of unused borrowing capacity under the Truist Credit Facility, respectively, subject to leverage and borrowing base restrictions. The Truist Credit Facility is secured by substantially all of our assets excluding assets held by SBIC II. As of September 30, 2020, we were in compliance with the terms of the Truist Credit Facility.

SBIC II is able to borrow funds from the SBA against regulatory capital (which approximates equity capital) that is paid-in and is subject to customary regulatory requirements including an examination by the SBA. We have funded SBIC II with $75.0 million of equity capital and it had SBA debentures outstanding of $118.5 million and $150.0 million as of September 30, 2020 and 2019, respectively. SBA debentures are non-recourse to us and may be prepaid at any time without penalty. The interest rate of SBA debentures is fixed at the time of issuance, often referred to as pooling, at a market-driven spread over 10-year U.S. Treasury Notes. Under current SBA regulations, a SBIC may individually borrow to a maximum of $175.0 million, which is up to twice its potential regulatory capital, and as part of a group of SBICs under common control may borrow a maximum of $350 million in the aggregate.

The 2019 Notes were redeemed on March 4, 2019 at a redemption price equal to $1,008.65 for each $1,000.00 of principal of notes outstanding, plus accrued and unpaid interest to March 4, 2019, pursuant to the indenture governing the 2019 Notes. Interest on the 2019 Notes was paid semi-annually on April 1 and October 1, at a rate of 4.50% per year. The 2019 Notes were scheduled to mature on October 1, 2019. The 2019 Notes were general, unsecured obligations and ranked equal in right of payment with all of our existing and future senior unsecured indebtedness. The 2019 Notes were structurally subordinated to our SBA debentures and the assets pledged or secured under our Credit Facilities.

As of September 30, 2020 and 2019, we had $86.3 million and $75.0 million in aggregate principal amount of 2024 Notes outstanding, respectively. Interest on the 2024 Notes is paid quarterly on January 15, April 15, July 15 and October 15, at a rate of 5.5% per year. The 2024 Notes mature on October 15, 2024. The 2024 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future senior unsecured indebtedness. The 2024 Notes are structurally subordinated to our SBA debentures and the assets pledged or secured under our Credit Facility. The 2024 Notes may be repurchased from time to time in open market purchases and privately-negotiated transactions.

From time to time, we, the Investment Adviser or the Administrator may be a party to legal proceedings, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations. Unfunded debt and equity investments, if any, are disclosed in the Consolidated Schedules of Investments. Under these arrangements, we may be required to supply a letter of credit to a third party if the portfolio company were to request a letter of credit. As of September 30, 2020 and 2019, we had $37.4 million and $30.4 million, respectively, in commitments to fund investments. For the same periods, there were no letters of credit issued.

We must determine which, if any, of our unconsolidated controlled portfolio companies is a "significant subsidiary" within the meaning of Regulation S-X. We have determined that, as of September 30, 2020, PennantPark Senior Loan Fund, LLC, PT Networks, LLC and RAM Energy Holdings LLC triggered at least one of the significance tests. As a result and in accordance with Rule 3-09 of Regulation S-X, presented below is summarized unaudited financial information for PT Networks, LLC as of September 30, 2020 and 2019 as well as for the years ended September 30, 2020, 2019 and 2018. In accordance with Rule 3-09, separate audited financial statements of RAM Energy Holdings LLC for the years ended September 30, 2020 and 2019 are being filed herewith as Exhibit 99.2, and Exhibit 99.3 and separate unaudited financial statements for the year ending September 30, 2018 are being filed herewith as Exhibit 99.4. In addition, audited financial statements will be filed for PT Networks, LLC. Similarly, in accordance with Rule 4-08(g) of Regulation S-X which requires summarized financial information to be included in the notes to the Company’s financial statements, please refer to Note 4. to review the Statement of Assets and Liabilities as well as the Statement of Operations for PennantPark Senior Loan Fund, LLC. PennantPark Senior Loan Fund, LLC did not meet the significance threshold under Rule 3-09 which requires separate audited financial statements.

On May 9, 2018, we announced a share repurchase program which allowed us to repurchase up to $30 million of our outstanding common stock in the open market at prices below our NAV as reported in our then most recently published consolidated financial statements. The program expired on May 9, 2019. For the years ended September 30, 2019 and 2018, we repurchased 2.0 million, 2.0 million and zero shares of common stock in open market transactions for an aggregate cost (including transaction costs) of $14.5 million and $15.0 million, respectively.

As of September 30, 2020, we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.

Management’s Report on Internal Control Over Financial Reporting, which appears on page 55 of this Form 10-K, is incorporated by reference herein.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recently completed fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We will file a definitive Proxy Statement for our 2021 Annual Meeting of Stockholders with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G (3) to Form 10-K. Only those sections of our definitive Proxy Statement that specifically address the items set forth herein are incorporated by reference.

The information required by Item 10 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2021 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year.

The information required by Item 11 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2021 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year.

The information required by Item 12 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2021 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year.

The information required by Item 13 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2021 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year.

The information required by Item 14 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2021 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 19, 2020.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

MARYLAND		20-8250744
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

590 Madison Avenue, 15^th Floor New York, N.Y.		10022
(Address of principal executive offices)		(Zip Code)

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share	PNNT	The Nasdaq Stock Market LLC
5.50% Notes due 2024	PNNTG	The Nasdaq Stock Market LLC

PART I

Item 1.	Business	4

Item 1A.	Risk Factors	18

Item 1B.	Unresolved Staff Comments	35

Item 2.	Properties	35

Item 3.	Legal Proceedings	35

Item 4.	Mine Safety Disclosures	36

PART II

Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	37

Item 6.	Selected Financial Data	40

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	53

Item 8.	Consolidated Financial Statements and Supplementary Data	54

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	85

Item 9A.	Controls and Procedures	85

Item 9B.	Other Information	85

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	86

Item 11.	Executive Compensation	86

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	86

Item 13.	Certain Relationships and Related Transactions, and Director Independence	86

Item 14.	Principal Accountant Fees and Services	86

PART IV

Item 15.	Exhibits and Financial Statement Schedules	87

	Signatures	89

• Aerospace and Defense		• Energy and Utilities
• Auto Sector		• Environmental Services
• Beverage, Food and Tobacco		• Financial Services
• Broadcasting and Entertainment		• Grocery
• Buildings and Real Estate		• Healthcare, Education and Childcare
• Building Materials		• High Tech Industries
• Business Services		• Home & Office Furnishings, Housewares & Durable Consumer Products
• Cable Television		• Hotels, Motels, Inns and Gaming
• Capital Equipment		• Insurance
• Cargo Transportation		• Leisure, Amusement, Motion Picture, Entertainment
• Chemicals, Plastics and Rubber		• Logistics
• Communications		• Manufacturing/Basic Industries
• Consumer Products		• Media
• Consumer Services		• Mining, Steel, Iron and Non-Precious Metals
• Containers Packaging & Glass		• Oil and Gas
• Distribution		• Other Media
• Diversified/Conglomerate Manufacturing		• Personal, Food and Miscellaneous Services
• Diversified/Conglomerate Services		• Printing and Publishing
• Diversified Natural Resources, Precious Metals and Minerals		• Retail
• Education		• Wholesale
• Electronics

Incentive fee		= 17.5% x Pre-Incentive Fee Net Investment Income, subject to “catch-up”
		= 2.125% - 1.75%
		= 0.375%
		= 100% x 0.375%
		= 0.375%

Portfolio Company	2020⁽¹⁾			Portfolio Company	2019
PT Network, LLC		9	%	RAM Energy Holdings LLC		10	%
RAM Energy Holdings LLC		9		PT Network, LLC		6
Cascade Environmental LLC		6		Cascade Environmental LLC		4
Winter Park Intermediate, Inc.		6		Winter Park Intermediate, Inc.		4
AKW Holdings Limited		4		AKW Holdings Limited		3
DecoPac, Inc.		3		American Insulated Glass, LLC		3
Halo Buyer, Inc.		3		Cano Health, LLC		3
Provation Medical, Inc.		3		Halo Buyer, Inc.		3
Research Horizons, LLC		3		MailSouth, Inc.		3
Walker Edison Furniture Company LLC		3		TVC Enterprises, LLC		3

Year 1 incentive fee		= 17.5% x (0)
		= 0
		= no incentive fee
Year 2 incentive fee		= 17.5% x (6% - 1%)
		= 17.5% x 5%
		= 0.875%

Assumed return on portfolio (net of expenses) ⁽¹⁾			(10.0	)%			(5.0	)%			—	%			5.0	%			10.0	%
Corresponding return to common stockholders ⁽²⁾			(24.6	)%			(14.0	)%			(3.4	)%			7.2	%			17.8	%

			Closing Sale Prices				Premium / (Discount) of High Sale			Premium / (Discount) of Low Sale			Distributions
Period	NAV ⁽¹⁾		High		Low		Price to NAV ⁽²⁾			Price to NAV ⁽²⁾			Declared
Year Ended September 30, 2020
Fourth quarter	$	7.84	$	3.78	$	3.01		(52	)%		(62	)%	$	0.12
Third quarter		7.82		4.19		2.32		(46	)		(70	)		0.12
Second quarter		7.71		6.70		1.95		(13	)		(75	)		0.18
First quarter		8.79		6.84		5.92		(22	)		(33	)		0.18
Year Ended September 30, 2019
Fourth quarter		8.68		6.71		6.18		(23	)		(29	)		0.18
Third quarter		8.74		7.15		6.23		(18	)		(29	)		0.18
Second quarter		8.83		7.34		6.61		(17	)		(25	)		0.18
First quarter		9.05		7.64		6.30		(16	)		(30	)		0.18

Stockholder transaction expenses
Sales load (as a percentage of offering price)	—	%	⁽¹⁾
Offering expenses (as a percentage of offering price)	—		⁽²⁾
Dividend reinvestment plan expenses	—		⁽³⁾
Total stockholder expenses (as a percentage of offering price)	—
Estimated annual expenses (as a percentage of average net assets attributable to common shares)⁽⁴⁾
Management fees	3.21		⁽⁵⁾
Incentive fees	0.83		⁽⁶⁾
Interest on borrowed funds	5.82		⁽⁷⁾
Acquired fund fees and expenses	2.12		⁽⁸⁾
Other expenses	1.45		⁽⁹⁾
Total estimated annual expenses	13.43	%	⁽¹⁰⁾

⁽¹⁾	In the event that the securities to which any applicable prospectus relates are sold to or through underwriters or agents, a corresponding prospectus supplement will disclose the applicable sales load.
⁽²⁾	In the event that we conduct an offering of our securities, a corresponding prospectus supplement will disclose the estimated amount of offering expenses, the offering price and the offering expenses borne by us as a percentage of the offering price.

⁽⁷⁾	As of September 30, 2020, we had $86.7 million of unused borrowing capacity, subject to maintenance of the applicable total assets to debt ratio, under the 1940 Act. As of such date, we had $388.3 million in borrowings outstanding under our $475.0 million Truist Credit Facility and $86.3 million in aggregate principal of 2024 Notes. As of September 30, 2020, our SBIC Funds had debenture commitments from the SBA in the amount of $118.5 million, all of which were outstanding with a weighted average interest rate of 3.2%, exclusive of the 3.4% of upfront fees. We may use proceeds of any offering of securities under any applicable registration statement to repay outstanding obligations under our Credit Facilities. After completing any such offering, we may continue to borrow under our Credit Facilities to finance our investment objectives. Annual interest expense on borrowed funds represents actual interest expense incurred for the fiscal year ended September 30, 2020 and amendment costs and make-whole premiums, if any, and we caution you that our actual interest expense will depend on prevailing interest rates and our rate of borrowing, which may be substantially higher than the estimate provided in this table.
⁽⁸⁾	Our stockholders indirectly bear 72.0% of the expenses of our investment in PSLF. No management fee is charged by PennantPark Investment Advisers in connection with PSLF. PSLF pays the Administrator an annual fee of 0.25% of average gross assets under management. For this chart, PSLF fees and operating expenses are based on our share of the actual fees and operating expenses of PSLF for the fiscal year ended September 30, 2020. Expenses for PSLF may fluctuate over time and may be substantially higher or lower in the future.
⁽⁹⁾	“Other expenses” includes our general and administrative expenses, professional fees, directors’ fees, insurance costs, expenses of our dividend reinvestment plan and the expenses of the Investment Adviser reimbursable under our Investment Management Agreement and of the Administrator reimbursable under our Administration Agreement. Additionally, “Other expenses” also includes one-time PSLF transaction costs in the amount of $2.2 million. Such expenses are based on estimated amounts for the current fiscal year.
⁽¹⁰⁾	“Total estimated annual expenses” as a percentage of average net assets attributable to common shares, to the extent we borrow money to make investments, are higher than the total estimated annual expenses percentage would be for a company that is not leveraged. We may borrow money to leverage our net assets and increase our total assets. The SEC requires that the “total estimated annual expenses” percentage be calculated as a percentage of net assets (defined as total assets less indebtedness) rather than total assets, which include assets that have been funded with borrowed money. If the “Total estimated annual expenses” percentage were calculated instead as a percentage of total assets, our “Total estimated annual expenses” would be 5.92% of average total assets.

You would pay the following expenses on a $1,000 common stock investment	1 Years		3 Years		5 Years		10 Years
Assuming a 5% annual return (assumes no return from net realized capital gains or net
unrealized capital appreciation)	$	152	$	360	$	538	$	876
Assuming a 5% annual return (assumes return only from realized capital gains and thus
subject to the capital gains incentive fee)	$	160	$	378	$	561	$	898

Issuance Dates	Maturity	Fixed All-in Coupon Rate ⁽¹⁾			As of September 30, 2020 Principal Balance
March 23, 2016	March 1, 2026		2.9	%		22,500,000
September 21, 2016	September 1, 2026		2.4			10,000,000
September 20, 2017	September 1, 2027		2.9			27,500,000
March 21, 2018	March 1, 2028		3.5			58,500,000
Weighted Average Rate / Total			3.2	%	$	118,500,000

Issuance Dates	Maturity	Fixed All-in Coupon Rate ⁽¹⁾			As of September 30, 2019 Principal Balance
March 23, 2016	March 1, 2026		2.9	%		22,500,000
September 21, 2016	September 1, 2026		2.4			25,000,000
September 20, 2017	September 1, 2027		2.9			31,500,000
March 21, 2018	March 1, 2028		3.5			71,000,000
Weighted Average Rate / Total			3.1	%	$	150,000,000

Class and Year	Total Amount Outstanding ⁽¹⁾		Asset Coverage Per Unit^{(2), (3)}		Average Market Value Per Unit
Truist Credit Facility
Fiscal 2020	$	388,252	$	2,078	N/A
Fiscal 2019		301,636		2,066	N/A
Fiscal 2018		80,520		2,919	N/A
Fiscal 2017		79,393		2,998	N/A
Fiscal 2016		50,340		2,794	N/A
Fiscal 2015		136,864		2,586	N/A
Fiscal 2014		55,226		3,215	N/A
Fiscal 2013		145,500		4,205	N/A
Fiscal 2012		145,000		5,615	N/A
Fiscal 2011		240,900		2,912	N/A
BNP Credit Facility
Fiscal 2019		171,000		2,066	N/A
2019 Notes
Fiscal 2018		250,000		2,919	N/A
Fiscal 2017		250,000		2,998	N/A
Fiscal 2016		250,000		2,794	N/A
Fiscal 2015		250,000		2,586	N/A
Fiscal 2014		250,000		3,215	N/A
2024 Notes
Fiscal 2020		86,250		2,078	$	23.47	⁽⁴⁾
Fiscal 2019		75,000		2,066	24.87		⁽⁴⁾
2025 Notes
Fiscal 2016		71,250		2,794	24.68		⁽⁵⁾
Fiscal 2015		71,250		2,586	25.13		⁽⁵⁾
Fiscal 2014		71,250		3,215	24.51		⁽⁵⁾
Fiscal 2013		71,250		4,205	24.79		⁽⁵⁾

⁽²⁾	The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by senior securities representing indebtedness at par. This asset coverage ratio is multiplied by $1,000 to determine the Asset Coverage Per Unit.
⁽³⁾	These amounts exclude SBA debentures from our total amount outstanding and asset coverage per unit computation pursuant to an exemptive relief letter provided by the SEC in June 2011.
⁽⁴⁾	The average market value per unit is derived based on the daily closing price of the 2024 Notes trading on The Nasdaq Global Select Market under the symbol “PNNTG.” The 2024 Notes were issued in increments of $25 per unit and commenced trading on September 30, 2019.
⁽⁵⁾	The average market value per unit is derived based on the monthly average closing price of the 2025 Notes, which were traded on the New York Stock Exchange, or NYSE, under the symbol “PNTA” since issuance. The 2025 Notes were issued in increments of $25 per unit. On June 29, 2017, the 2025 Notes were redeemed in full.

	September 30, 2020
Total investments	$	353,366,358
Weighted average yield on debt investments		7.3	%
Number of portfolio companies in PSLF		37
Largest portfolio company investment	$	18,411,916
Total of five largest portfolio company investments	$	77,896,431

Statements of Assets and Liabilities
	September 30, 2020
Assets
Investments at fair value (cost—$358,023,408)	$	353,366,358
Cash and cash equivalents (cost—$7,536,719)		7,536,719
Interest receivable		877,008
Total assets		361,780,085
Liabilities
Distribution payable		1,393,716
Payable for investments purchased		5,700,000
Credit facility payable		213,500,000
Notes payable to members		87,500,000
Interest payable on credit facility		1,649,852
Interest payable on members notes		1,356,250
Accrued other expenses		315,576
Total liabilities		311,415,394
Commitments and contingencies ⁽¹⁾		—
Members' equity		50,364,691
Total liabilities and members' equity	$	361,780,085

Statements of Operations⁽¹⁾
	Period Ended September 30,
	2020
Investment income:
Interest	$	4,504,788
Other income		2,444
Total investment income		4,507,232
Expenses:
Interest and expenses on credit facility		1,039,327
Interest expense on members notes		1,356,250
Administrative services expenses		195,310
Other general and administrative expenses ⁽²⁾		120,266
Total expenses		2,711,153
Net investment income		1,796,079
Realized and unrealized gain on investments:
Net realized gain on investments		254,653
Net change in unrealized appreciation on investments		2,173,436
Net realized and unrealized gain from investments		2,428,089
Net increase in members' equity resulting from operations	$	4,224,168

	Payments due by period (in millions)
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Truist Credit Facility	$	388.3	$	—	$	32.7	$	355.6	$	—
SBA debentures		118.5		—		—		—		118.5
2024 Notes		86.3		—		—		86.3		—
Total debt outstanding ⁽¹⁾		593.0		—		32.7		441.8		118.5
Unfunded investments ⁽²⁾		37.4		6.0		11.4		16.4		3.6
Total contractual obligations	$	630.4	$	6.0	$	44.1	$	458.2	$	122.1

Change in Interest Rates	Change in Interest Income, Net of Interest Expense (in thousands)			Change in Interest Income, Net of Interest Expense Per Share
Down 1%	$	534		$	0.01
Up 1%		(1,929	)		(0.03	)
Up 2%		1,220			0.02
Up 3%		4,369			0.07
Up 4%	$	7,518		$	0.11

		Page
Management’s Report on Internal Control over Financial Reporting		55

Report of Independent Registered Public Accounting Firm		56

Report of Independent Registered Public Accounting Firm On Internal Control Over Financial Reporting		57

Consolidated Statements of Assets and Liabilities as of September 30, 2020 and 2019		58

Consolidated Statements of Operations for the years ended September 30, 2020, 2019 and 2018		59

Consolidated Statements of Changes in Net Assets for the years ended September 30, 2020, 2019 and 2018		60

Consolidated Statements of Cash Flows for the years ended September 30, 2020, 2019 and 2018		61

Consolidated Schedules of Investments as of September 30, 2020 and 2019		62

Notes to the Consolidated Financial Statements		69

	September 30, 2020			September 30, 2019
Assets
Investments at fair value
Non-controlled, non-affiliated investments (cost—$713,683,209 and $922,304,099, respectively)	$	735,674,666		$	936,632,099
Non-controlled, affiliated investments (cost—$77,628,920 and $77,600,816, respectively)		27,753,893			49,349,338
Controlled, affiliated investments (cost—$374,260,162 and $257,117,800, respectively)		318,342,859			233,451,359
Total of investments (cost—$1,165,572,291 and $1,257,022,715, respectively)		1,081,771,418			1,219,432,796
Cash and cash equivalents (cost—$25,801,087 and $59,546,438, respectively)		25,806,002			59,516,236
Interest receivable		5,005,715			6,226,539
Distribution receivable		1,393,716			—
Prepaid expenses and other assets		376,030			662,442
Total assets		1,114,352,881			1,285,838,013
Liabilities
Distributions payable		8,045,413			12,068,119
Payable for investments purchased		5,461,508			—
BNP Credit Facility payable, at fair value (cost—zero and $171,000,000, respectively) (See Notes 5 and 11)		—			170,145,000
Truist Credit Facility payable, at fair value (cost—$388,252,000 and $301,636,000, respectively) (See Notes 5 and 11)		368,701,972			295,245,214
2024 Notes payable, net (par—$86,250,000 and $75,000,000, respectively) (See Notes 5 and 11)		83,837,560			72,256,607
SBA debentures payable, net (par—$118,500,000 and $150,000,000, respectively) (See Notes 5 and 11)		115,772,677			146,111,055
Base management fee payable, net (See Note 3)		4,369,637			4,641,480
Interest payable on debt		2,022,614			2,895,695
Accrued other expenses		432,648			569,175
Total liabilities		588,644,029			703,932,345
Commitments and contingencies (See Note 12)
Net assets
Common stock, 67,045,105 and 67,045,105 shares issued and outstanding, respectively. Par value $0.001 per share and 100,000,000 shares authorized		67,045			67,045
Paid-in capital in excess of par value		787,625,031			788,192,159
Accumulated distributable loss		(261,983,224	)		(206,353,536	)
Total net assets	$	525,708,852		$	581,905,668
Total liabilities and net assets	$	1,114,352,881		$	1,285,838,013
Net asset value per share	$	7.84		$	8.68

	September 30, 2020				September 30, 2019
Investment Classification	Cost		Fair Value		Cost		Fair Value
First lien	$	451,763,766	$	439,013,082	$	697,120,114	$	695,280,815
Second lien		238,335,508		220,843,480		269,204,159		269,310,647
Subordinated debt / corporate notes		50,780,591		50,569,409		61,522,066		61,187,670
Subordinated notes in PSLF		63,000,000		63,000,000		—		—
Equity		328,471,250		272,082,870		229,176,376		193,653,664
Equity in PSLF		33,221,176		36,262,577		—		—
Total investments		1,165,572,291		1,081,771,418		1,257,022,715		1,219,432,796
Cash and cash equivalents		25,801,087		25,806,002		59,546,438		59,516,236
Total investments and cash and cash equivalents	$	1,191,373,378	$	1,107,577,420	$	1,316,569,153	$	1,278,949,032

Industry Classification	September 30, 2020 ⁽¹⁾			September 30, 2019
Healthcare, Education and Childcare		17	%		16	%
Energy and Utilities		9			10
Auto Sector		6			4
Consumer Products		6			6
Environmental Services		6			4
Media		6			8
Building Materials		4			5
Business Services		4			4
Distribution		4			3
Electronics		4			2
Hotels, Motels, Inns and Gaming		4			2
Insurance		4			1
Personal, Food and Miscellaneous Services		4			3
Beverage, Food and Tobacco		3			3
Education		3			1
Home and Office Furnishings		3			2
Aerospace and Defense		2			4
Chemicals, Plastics and Rubber		2			4
Other Media		2			2
Printing and Publishing		2			4
Telecommunications		2			2
Transportation		2			3
Manufacturing / Basic Industries		1			3
Other		—			4
Total		100	%		100	%

Asset Category	Fair value at September 30, 2020		Valuation Technique	Unobservable Input	Range of Input (Weighted Average)⁽¹⁾
First lien	$	38,794,224	Market Comparable	Broker/Dealer bids or quotes	N/A
First lien		400,218,858	Market Comparable	Market Yield	6.4% – 15.0% (9.0%)
Second lien		202,060,703	Market Comparable	Market Yield	8.4% – 11.0% (10.0%)
Second lien		18,782,777	Enterprise Market Value	EBITDA multiple	8.5x
Subordinated debt / corporate notes		113,569,409	Market Comparable	Market Yield	9.4% – 16.1% (12.0%)
Equity		253,101,893	Enterprise Market Value	EBITDA multiple	4.6x – 22.0x (11.4x)
Equity		17,652,053	Market Comparable	Market Yield	19.1%
Total Level 3 investments	$	1,044,179,917
Truist Credit Facility	$	368,701,972	Market Comparable	Market Yield	3.8%

	Fair Value at September 30, 2020
Description	Fair Value		Level 1		Level 2		Level 3		Measured at Net Asset Value⁽¹⁾
Debt investments	$	773,425,971.0	$	—	$	—	$	773,425,971	$	—
Equity investments		308,345,447		1,328,924		—		270,753,946		36,262,577
Total investments		1,081,771,418		1,328,924		—		1,044,179,917		36,262,577
Cash and cash equivalents		25,806,002		25,806,002		—		—		—
Total investments and cash and cash equivalents	$	1,107,577,420	$	27,134,926	$	—	$	1,044,179,917	$	36,262,577
Truist Credit Facility	$	368,701,972	$	—	$	—	$	368,701,972	$	—
SBA Debentures ⁽²⁾		115,772,677		—		—		115,772,677		—
2024 Notes ⁽²⁾		83,837,560		—		83,837,560		—		—
Total debt	$	568,312,209	$	—	$	83,837,560	$	484,474,649	$	—

	Fair Value at September 30, 2019
Description	Fair Value		Level 1		Level 2		Level 3
Debt investments	$	1,025,779,132	$	—	$	—	$	1,025,779,132
Equity investments		193,653,664		794,580		—		192,859,084
Total investments	$	1,219,432,796		794,580		—		1,218,638,216
Cash and cash equivalents		59,516,236		59,516,236		—		—
Total investments and cash and cash equivalents	$	1,278,949,032	$	60,310,816	$	—	$	1,218,638,216
BNP Credit Facility	$	170,145,000	$	—	$	—	$	170,145,000
Truist Credit Facility		295,245,214		—		—		295,245,214
SBA Debentures⁽¹⁾		146,111,055		—		—		146,111,055
2024 Notes		72,256,607		—		72,256,607		—
Total debt	$	683,757,876	$	—	$	72,256,607	$	611,501,269

	Year Ended September 30, 2020
Description	Debt investments			Equity investments			Totals
Beginning Balance	$	1,025,779,134		$	192,859,082		$	1,218,638,216
Net realized gain (loss)		1,166,755			(12,123,615	)		(10,956,860	)
Net change in unrealized depreciation		(28,386,686	)		(19,106,443	)		(47,493,129	)
Purchases, PIK interest, net discount accretion and non-cash exchanges		287,551,273			109,604,770			397,156,043
Sales, repayments and non-cash exchanges		(149,713,495	)		(479,848	)		(150,193,343	)
Investments contributed in-kind to PSLF		(356,140,523	)		—			(356,140,523	)
Realized loss on investments contributed in-kind to PSLF		(6,830,487	)		—			(6,830,487	)
Transfers in/out of Level 3		—			—			—
Ending Balance	$	773,425,971		$	270,753,946		$	1,044,179,917
Net change in unrealized depreciation reported within the net change in unrealized depreciation on investments in our Consolidated Statements of Operations attributable to our Level 3 assets still held at the reporting date.	$	(27,243,048	)	$	(22,106,443	)	$	(49,349,491	)

	Years Ended September 30,
Long-Term Credit Facilities	2020				2019
Beginning Balance (cost – $472,636,000 and $78,520,000, respectively)	$	465,390,214			$	75,645,830
Net change in unrealized (depreciation) appreciation included in earnings		(12,304,242	)			(4,371,616	)
Borrowings ⁽¹⁾		298,000,000				743,000,000
Repayments ⁽¹⁾		(145,384,000	)			(348,884,000	)
Transfers in and/or out of Level 3		(245,000,000	)	⁽²⁾		—
Ending Balance (cost – $380,252,000 and $472,636,000, respectively)	$	360,701,972			$	465,390,214
Temporary draws outstanding, at cost		8,000,000				—
Ending Balance (cost – $388,252,000 and $472,636,000, respectively)	$	368,701,972			$	465,390,214

Foreign Currency		Amount Borrowed				Borrowing Cost				Current Value				Reset Date		Change in Fair Value
British Pound		£	28,000,000			$	38,752,000			$	36,198,400			December 18, 2020		$	(2,553,600	)

	As of September 30,
	2020			2019			2018
Undistributed net investment income – tax basis	$	21,934,012		$	22,848,424		$	20,714,977
Realized loss carried forward		(201,268,590	)		(180,338,571	)		(68,819,477	)
Distributions payable and other book to tax differences		(18,407,316	)		(18,494,772	)		(16,579,769	)
Net unrealized depreciation on investments and debt		(64,241,330	)		(30,368,617	)		(110,212,110	)
Total accumulated deficit – book basis	$	(261,983,224	)	$	(206,353,536	)	$	(174,896,379	)

Balance Sheet ⁽¹⁾	September 30, 2020		September 30, 2019
Current assets	$	53,466	$	33,149
Noncurrent assets		215,550		211,337
Current liabilities		54,504		24,890
Noncurrent liabilities	$	189,677	$	181,322

	Years Ended September 30,
Income Statement ⁽¹⁾	2020			2019			2018
Total revenue	$	215,458		$	197,602		$	201,364
Total expenses		(227,227	)		(247,125	)		(235,391	)
Net loss	$	(11,769	)	$	(49,523	)	$	(34,027	)