UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 814-00736

PENNANTPARK INVESTMENT CORPORATION

(Exact name of registrant as specified in its charter)

MARYLAND	20-8250744
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
590 Madison Avenue, 15th Floor New York, N.Y.	10022
(Address of principal executive offices)	(Zip Code)

(212) 905-1000

(Registrant’s Telephone Number, Including Area Code)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐(Donotcheckifasmallerreportingcompany)	Smaller reporting company	☐
Emerging growth company	☐

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐No☒

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of May 8, 2017 was 71,060,836.

PENNANTPARK INVESTMENT CORPORATION

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2017

TABLE OF CONTENTS

PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Assets and Liabilities as of March 31, 2017 (unaudited) and September 30, 2016	4
Consolidated Statements of Operations for the three and six months ended March 31, 2017 and 2016 (unaudited)	5
Consolidated Statements of Changes in Net Assets for the six months ended March 31, 2017 and 2016 (unaudited)	6
Consolidated Statements of Cash Flows for the six months ended March 31, 2017 and 2016 (unaudited)	7
Consolidated Schedules of Investments as of March 31, 2017 (unaudited) and September 30, 2016	8
Notes to Consolidated Financial Statements (unaudited)	14
Report of Independent Registered Public Accounting Firm	24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3. Quantitative and Qualitative Disclosures About Market Risk	33
Item 4. Controls and Procedures	33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	34
Item 1A. Risk Factors	34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3. Defaults Upon Senior Securities	34
Item 4. Mine Safety Disclosures	34
Item 5. Other Information	34
Item 6. Exhibits	35
SIGNATURES	36

2

PART I—CONSOLIDATED FINANCIAL INFORMATION

We are filing this Quarterly Report on Form 10-Q, or the Report, in compliance with Rule 13a-13 promulgated by the Securities and Exchange Commission, or the SEC. In this Report, “Company,” “we,” “our” or “us” refer to PennantPark Investment Corporation and its consolidated subsidiaries unless the context suggests otherwise. “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, and PennantPark SBIC II LP, or SBIC II, and its general partner, PennantPark SBIC GP II, LLC; “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; “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”; “Credit Facility” refers to our multi-currency, senior secured revolving credit facility, as amended and restated; “2025 Notes” refers to our 6.25% notes due 2025; “2019 Notes” refers to our 4.50% notes due 2019; “our Notes” refers, collectively, to our 2025 Notes and our 2019 Notes; “BDC” refers to a business development company under the Investment Company Act of 1940, as amended, or the “1940 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 or investments include investments we make through our SBIC Funds and other consolidated subsidiaries.

3

Item1.Consolidated Financial Statements

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

	March31, 2017			September 30, 2016
	(unaudited)
Assets
Investments at fair value
Non-controlled, non-affiliated investments (cost—$806,381,197 and $805,189,545, respectively)	$	827,414,297		$	813,467,491
Non-controlled, affiliated investments (cost—$247,342,695 and $262,476,906, respectively)		242,689,039			215,192,547
Controlled, affiliated investments (cost—$195,523,633 and $186,290,695, respectively)		124,376,311			125,019,637
Total of investments (cost—$1,249,247,525 and $1,253,957,146, respectively)		1,194,479,647			1,153,679,675
Cash and cash equivalents (cost—$66,560,479 and $75,617,133, respectively)		66,565,207			75,608,113
Interest receivable		10,167,252			7,032,858
Receivable for investments sold		12,086,044			—
Prepaid expenses and other assets		2,275,115			2,615,232
Total assets		1,285,573,265			1,238,935,878
Liabilities
Distributions payable		12,790,950			19,897,034
Credit Facility payable (cost—$99,586,300 and $50,339,700, respectively) (See Notes 5 and 10)		88,491,651			39,551,187
2019 Notes payable (par—$250,000,000) (See Notes 5 and 10)		255,137,500			254,175,000
SBA debentures payable, net (par—$197,500,000) (See Notes 5 and 10)		193,579,200			193,244,534
2025 Notes payable (par—$71,250,000) (See Notes 5 and 10)		72,247,500			72,618,000
Base management fee payable, net (See Note 3)		5,319,305			5,074,830
Performance-based incentive fee payable, net (See Note 3)		3,060,280			2,865,444
Interest payable on debt		7,649,300			7,520,113
Accrued other expenses		1,109,912			622,880
Total liabilities		639,385,598			595,569,022
Commitments and contingencies (See Note 11)
Net assets
Common stock, 71,060,836 shares issued and outstanding, respectively    Par value $0.001 per share and 100,000,000 shares authorized		71,061			71,061
Paid-in capital in excess of par value		819,983,676			819,983,676
Undistributed net investment income		1,640,939			3,119,380
Accumulated net realized loss on investments		(125,709,891	)		(84,771,820	)
Net unrealized depreciation on investments		(54,757,767	)		(100,280,954	)
Net unrealized depreciation on debt		4,959,649			5,245,513
Total net assets	$	646,187,667		$	643,366,856
Total liabilities and net assets	$	1,285,573,265		$	1,238,935,878
Net asset value per share	$	9.09		$	9.05

SEE NOTESTOCONSOLIDATEDFINANCIAL STATEMENTS

4

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended March31,						Six Months Ended March31,
	2017			2016			2017			2016
Investment income:
From non-controlled, non-affiliated investments:
Interest	$	24,090,316		$	26,649,790		$	45,962,445		$	54,867,820
Other income		1,565,617			5,860,016			3,668,153			7,527,669
From non-controlled, affiliated investments:
Interest		4,440,386			3,337,000			8,666,067			5,517,576
Other income		—			—			22,500			—
From controlled, affiliated investments:
Interest		3,618,674			3,261,619			7,264,738			6,458,652
Total investment income		33,714,993			39,108,425			65,583,903			74,371,717
Expenses:
Base management fee (See Note 3)		6,332,507			6,115,075			12,607,289			12,620,855
Performance-based incentive fee (See Note 3)		3,643,189			4,772,473			7,017,399			8,568,255
Interest and expenses on debt (See Note 10)		7,179,057			6,942,925			13,914,631			13,669,250
Administrative services expenses (See Note 3)		894,000			900,500			1,788,000			1,768,000
Other general and administrative expenses		668,483			937,563			1,336,990			1,822,192
Expenses before Management Fees waiver and provision for taxes		18,717,236			19,668,536			36,664,309			38,448,552
Management Fees waiver (See Note 3)		(1,596,111	)		(1,742,008	)		(3,139,950	)		(3,390,262	)
Provision for taxes		425,000			350,000			850,000			1,650,000
Net expenses		17,546,125			18,276,528			34,374,359			36,708,290
Net investment income		16,168,868			20,831,897			31,209,544			37,663,427
Realized and unrealized (loss) gain on investments and debt:
Net realized loss on investments		(18,742,737	)		(11,210,018	)		(40,938,071	)		(36,584,981	)
Net change in unrealized (depreciation) appreciation on:
Non-controlled, non-affiliated investments		(6,279,870	)		(6,211,252	)		13,356,331			(22,954,067	)
Non-controlled and controlled, affiliated investments		26,429,957			(9,775,018	)		32,166,856			(32,904,728	)
Debt (appreciation) depreciation (See Notes 5 and 10)		(6,116,548	)		10,314,028			(285,864	)		17,974,803
Net change in unrealized appreciation (depreciation) on investments and debt		14,033,539			(5,672,242	)		45,237,323			(37,883,992	)
Net realized and unrealized (loss) gain from investments and debt		(4,709,198	)		(16,882,260	)		4,299,252			(74,468,973	)
Net increase (decrease) in net assets resulting from operations	$	11,459,670		$	3,949,637		$	35,508,796		$	(36,805,546	)
Net increase (decrease) in net assets resulting from operations per common share (See Note 7)	$	0.16		$	0.06		$	0.50		$	(0.51	)
Net investment income per common share	$	0.23		$	0.29		$	0.44		$	0.52

SEE NOTESTOCONSOLIDATEDFINANCIAL STATEMENTS

5

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

	Six Months Ended March31,
	2017			2016
Net increase (decrease) in net assets from operations:
Net investment income	$	31,209,544		$	37,663,427
Net realized loss on investments		(40,938,071	)		(36,584,981	)
Net change in unrealized appreciation (depreciation) on investments		45,523,187			(55,858,795	)
Net change in unrealized (appreciation) depreciation on debt		(285,864	)		17,974,803
Net increase (decrease) in net assets resulting from operations		35,508,796			(36,805,546	)
Distributions to stockholders:		(32,687,985	)		(39,985,833	)
Capital transactions:
Repurchase of common stock		—			(12,180,491	)
Net increase (decrease) in net assets		2,820,811			(88,971,870	)
Net assets:
Beginning of period		643,366,856			716,590,542
End of period	$	646,187,667		$	627,618,672
Undistributed (distributions in excess of) net investment income, at end of period	$	1,640,939		$	(15,747,292	)
Capital share activity:
Shares of common stock repurchased		—			(1,905,207	)

SEE NOTESTOCONSOLIDATEDFINANCIAL STATEMENTS

6

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended March 31,
	2017			2016
Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations	$	35,508,796		$	(36,805,546	)
Adjustments to reconcile net increase (decrease) in net assets resulting from    operations to net cash (used in) provided by operating activities:
Net change in net unrealized (appreciation) depreciation on investments		(45,523,187	)		55,858,795
Net change in unrealized appreciation (depreciation) on debt		285,864			(17,974,803	)
Net realized loss on investments		40,938,071			36,584,981
Net accretion of discount and amortization of premium		(1,791,876	)		(2,897,809	)
Purchases of investments		(289,692,765	)		(216,808,143	)
Payment-in-kind income		(11,287,854	)		(6,151,360	)
Proceeds from dispositions of investments		266,232,636			200,963,008
Amortization of deferred financing costs		334,666			293,819
(Increase) decrease in interest receivable		(3,134,394	)		182,936
Increase in receivable for investments sold		(12,086,044	)		—
Decrease in prepaid expenses and other assets		340,117			4,965,110
Decrease in payable for investments purchased		—			(3,591,177	)
Increase in interest payable on debt		129,187			22,614
Increase (decrease) in base management fee payable, net		244,475			(1,465,365	)
Increase (decrease) in performance-based incentive fee payable, net		194,836			(998,916	)
Increase (decrease) in accrued other expenses		487,032			(2,322,367	)
Net cash (used in) provided by operating activities		(18,820,440	)		9,855,777
Cash flows from financing activities:
Repurchase of common stock		—			(12,180,491	)
Distributions paid to stockholders		(39,794,068	)		(40,519,291	)
Borrowings under SBA debentures		—			22,500,000
Capitalized borrowing costs		—			(545,625	)
Borrowings under Credit Facility		345,760,000			276,164,923
Repayments under Credit Facility		(296,513,400	)		(271,699,400	)
Net cash provided by (used in) financing activities		9,452,532			(26,279,884	)
Net decrease in cash equivalents		(9,367,908	)		(16,424,107	)
Effect of exchange rate changes on cash		325,002			(20	)
Cash and cash equivalents, beginning of period		75,608,113			49,619,256
Cash and cash equivalents, end of period	$	66,565,207		$	33,195,129
Supplemental disclosure of cash flow information:
Interest paid	$	13,450,777		$	13,352,817
Taxes paid	$	102,458		$	2,157,017
Non-cash exchanges and conversions	$	25,049,756		$	39,438,420

SEE NOTESTOCONSOLIDATEDFINANCIAL STATEMENTS

7

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

MARCH 31, 2017

(Unaudited)

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—128.1% (1), (2)
First Lien Secured Debt—49.7%
Bottom Line Systems, LLC	02/13/2023	Healthcare, Education and Childcare		8.51	%		L+750				19,950,000	$	19,658,923	$	19,776,358
Broder Bros., Co., Tranche A	06/03/2021	Consumer Products		7.00	%		L+575				9,037,500		8,894,361		9,037,500
Broder Bros., Co., Tranche B	06/03/2021	Consumer Products		13.50	%		L+1,225				9,150,000		8,999,849		9,150,000
DermaRite Industries LLC	03/03/2022	Manufacturing / Basic Industries		8.02	%		L+700				10,000,000		9,851,491		9,854,227
Hollander Sleep Products, LLC	10/21/2020	Consumer Products		9.00	%		L+800				4,372,074		4,329,154		4,328,353
Interior Specialists, Inc.	06/30/2020	Building Materials		9.00	%		L+800				24,727,793		24,555,615		24,975,071
Juniper Landscaping of Florida, LLC	12/22/2021	Personal, Food and Miscellaneous Services		10.50	%		L+950				14,264,438		13,990,995		14,264,438
Juniper Landscaping of Florida, LLC (Revolver)	12/22/2021	Personal, Food and Miscellaneous Services		10.50	%		L+950				180,000		180,000		180,000
Juniper Landscaping of Florida, LLC (Revolver) (8)	12/22/2021	Personal, Food and Miscellaneous Services		—				—			3,420,000		—		—
K2 Pure Solutions NoCal, L.P.	02/19/2021	Chemicals, Plastics and Rubber		10.00	%		L+900				14,522,529		14,281,764		14,327,892
LSF9 Atlantis Holdings, LLC	01/15/2021	Retail		10.02	%		L+900				37,406,659		36,967,307		38,154,793
One Sixty Over Ninety, LLC	03/03/2022	Media		10.22	%		L+922				16,250,000		15,927,812		15,925,000
Prince Mineral Holding Corp. (5)	12/16/2019	Mining, Steel, Iron and Non-Precious Metals		11.50	%			—			14,250,000		14,170,818		14,463,750
Robertshaw US Holding Corp.	06/18/2019	Electronics		8.50	%		L+700				15,884,843		15,825,004		15,829,611
Sotera Defense Solutions, Inc.	04/21/2017	Aerospace and Defense		9.00	%		L+750				37,929,343		37,890,912		37,360,403
Sunborn Oy, Sunborn Saga Oy (9), (11), (12)	06/28/2019	Hotels, Motels, Inns and Gaming		11.50	%		L+1,050			€	29,623,798		30,551,086		31,684,222
				(PIK 3.50	%)
Triad Manufacturing, Inc.	12/28/2020	Manufacturing / Basic Industries		12.23	%		L+1,125				26,186,907		25,770,090		26,186,907
Trust Inns Limited (9), (11), (12)	02/12/2020	Buildings and Real Estate		10.84	%		L+1,050		(7)	£	21,520,472		34,514,100		26,955,991
US Med Acquisition, Inc.	08/13/2021	Healthcare, Education and Childcare		10.15	%		L+900				8,607,813		8,607,813		8,521,734
Total First Lien Secured Debt													324,967,094		320,976,250
Second Lien Secured Debt—55.2%
Acre Operating Company, LLC	12/12/2023	Electronics		10.50	%		L+950				38,800,000		38,137,869		38,800,000
Balboa Capital Corporation (12)	03/04/2022	Financial Services		13.75	%			—			28,500,000		28,271,082		28,500,000
Harbortouch Payments, LLC	10/11/2024	Financial Services		10.50	%		L+950				17,500,000		17,163,491		17,237,500
Howard Berger Co. LLC	09/30/2020	Distribution		11.15	%		L+1,000				41,812,500		40,169,970		38,049,375
				(PIK 5.32	%)
Intermediate Transportation 100, LLC (5)	06/01/2017	Cargo Transport	—			(6)		—			5,156,586		3,739,798		2,990,819
MailSouth, Inc.	10/22/2021	Printing and Publishing		11.50	%		L+1,050				26,425,000		25,964,846		26,689,250
Novitex Acquisition, LLC	07/07/2021	Business Services		12.32	%		L+1,100				44,625,000		44,135,394		45,071,250
Parq Holdings Limited Partnership (9), (12)	12/17/2021	Hotels, Motels, Inns and Gaming		13.00	%		L+1,200				75,000,000		75,000,000		77,781,101
Pre-Paid Legal Services, Inc.	07/01/2020	Personal, Food and Miscellaneous Services		10.25	%		L+900				62,750,000		62,261,413		62,854,793
Veritext Corp. (f/k/a VT Buyer Acquisition Corp.)	01/30/2023	Business Services		10.15	%		L+900				18,834,375		18,319,105		18,457,688
Total Second Lien Secured Debt													353,162,968		356,431,776
Subordinated Debt/Corporate Notes—15.9%
Alegeus Technologies, LLC	02/15/2019	Financial Services		13.15	%		L+1,200				8,930,000		8,853,259		8,883,496
Cascade Environmental LLC	08/20/2021	Environmental Services		12.00	%			—			32,675,553		32,107,388		32,348,798
Credit Infonet, Inc.	10/26/2020	Personal, Food and Miscellaneous Services		13.00	%			—			11,110,315		10,898,315		11,014,693
				(PIK 0.75	%)
Goldsun Trading Limited (9), (11), (12)	02/19/2018	Healthcare, Education and Childcare		18.50	%		L+1,400			£	8,661,597