10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2021

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)

Securities registered pursuant to Section 12(b) of the Act:

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

 Securities registered pursuant to Section 12(g) of the Act: None

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.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	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 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, 2021 based on the closing price on that date of $5.58 on The Nasdaq Global Select Market was approximately $364 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 17, 2021.

Documents Incorporated by Reference: Portions of the Registrant’s Proxy Statement relating to the Registrant’s 2022 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.

PENNANTPARK INVESTMENT CORPORATION

FORM 10-K

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS

PART I
Item 1.	Business	4
Item 1A.	Risk Factors	19
Item 1B.	Unresolved Staff Comments	37
Item 2.	Properties	37
Item 3.	Legal Proceedings	37
Item 4.	Mine Safety Disclosures	37
PART II
Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	38
Item 6.	Selected Financial Data	41
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 8.	Consolidated Financial Statements and Supplementary Data	55
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	87
Item 9A.	Controls and Procedures	87
Item 9B.	Other Information	87
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	88
Item 11.	Executive Compensation	88
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	88
Item 13.	Certain Relationships and Related Transactions, and Director Independence	88
Item 14.	Principal Accountant Fees and Services	88
PART IV
Item 15.	Exhibits and Financial Statement Schedules	89
	Signatures	91

PART I

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 CI (Galls) Prime Investment Holdings, LLC, and PNNT Investment Holdings, 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; “2026 Notes” refers to our 4.50% Notes due 2026; “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.

Summary of Risk Factors

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:

• our ability to remain in compliance with the financial and operational covenants of our Credit Facility;

• our ability to operate in a highly competitive market for investment opportunities;

• the prospects of our portfolio companies and the ability of our portfolio companies to achieve their objectives, the decline or failure of which may result in our borrowers defaulting on their payments to us;

• the ability of our Investment Adviser to hire and retain qualified personnel, to monitor and administer our investments and to manage our future growth effectively;

• changes to the interest rate environment, including the phasing out of LIBOR and the uncertainties associated therewith;

• our reliance on information systems, the failure of which could result in delays or other problems with our business activities, and the susceptibility of such systems to cybersecurity threats;

• our ability to replicate historical performance of other investment companies and funds with which our professionals have been affiliated;

• our ability to raise additional capital while remaining in compliance with certain annual distribution, asset coverage,asset composition and other regulatory requirements needed to maintain our status as a BDC and a RIC;

• our ability to comply with applicable SBA requirements;

• the use of leverage to fund our investments, including the indebtedness resulting from our Credit Facility, 2024 Notes, 2026 Notes and SBA Debentures, and the risk that we may fail to comply with the terms governing such indebtedness or maintain certain asset coverage ratio requirements;

• our issuance of debt securities and/or preferred stock and the impact of such issuances on the value of our common stock or NAV;

• market conditions that may make it difficult for us to refinance or extend the maturity of our existing indebtedness;

• potential conflicts of interest of our Investment Adviser and Administrator;

• the potential dilution caused by any future issuances of subscription rights or warrants;

• the impact of recent financial reform legislation, uncertainty about presidential administration initiatives and any future laws and regulations on our business and our portfolio companies;

• the investment objectives and decisions advanced by the board of directors or the Investment Adviser which are not subject to stockholder approval and potential activism by our shareholders;

• the illiquid nature of the assets in which we invest and our valuation procedures with respect to such assets;

• making investments in first lien secured debt, second lien secured debt, subordinated debt and the equity of certain portfolio companies, and the risks of making such investments in privately held middle-market companies;

• the Investment Adviser’s incentive to make speculative investments to earn a greater incentive fee and, in some instances, our obligation to pay incentive compensation to our Investment Adviser even after we incur a loss;

• the potential dilution of our common stock which may result from issuances of our common stock below the then current NAV per share;

• our allocation of net proceeds from offering in ways which you may not agree and our inability to invest proceeds from offerings in new investment opportunities, which could negatively affect our financial performance;

• tax liabilities resulting from reinvestments in our common stock or from receiving our stock as a distribution;

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• the measures we have taken to deter takeover attempts, which may adversely impact the price of our common stock;

• changes to political, economic or industry conditions or conditions affecting the financial and capital markets, including changes caused by the COVID-19 pandemic and Brexit, that could cause volatility or prolonged disruption of the capital markets and impact the value of our assets;

• the COVID-19 pandemic and its effect on our results of operations and the operations of our portfolio companies;

• the impact of economic sanction laws in the United States and other jurisdictions which may prohibit us and our affiliates from transacting with certain countries, individuals and companies;

• potential litigation, whether initiated by shareholders or other parties; and

• the impact of global climate change on the operations of our portfolio companies.

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.

Item 1. Business

General Business of PennantPark Investment Corporation

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.

Organization and Structure of PennantPark Investment Corporation

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 allowed 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 was 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.

Our Investment Adviser and Administrator

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 $13.8 billion in 585 companies with more than 195 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

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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.

Market Opportunity

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 middle-market companies have faced difficulty raising debt in private markets. From time to time, banks, finance companies, hedge funds and collateralized loan obligation, or CLO, funds have withdrawn, and may again withdraw, capital from the middle-market, resulting in opportunities for alternative funding sources.

• We believe middle-market companies have faced difficulty in raising debt through the capital markets. Many middle-market companies look to raise funds by issuing high-yield bonds and broadly syndicated loans. We believe this approach to financing becomes difficult at times when institutional investors seek to invest in larger, more liquid offerings. We believe this has made it harder for middle-market companies to raise funds by issuing high-yield securities from time to time.

• We believe that credit market dislocation for middle-market companies improves the risk-reward on our investments. From time to time, market participants have reduced lending to middle-market and non-investment grade borrowers. As a result, we believe there is less competition in our market, more conservative capital structures, higher yields and stronger covenants.

• We believe there is a large pool of uninvested private equity capital likely to seek to combine their capital with sources of debt capital to complete private investments. We expect that private equity firms will continue to be active investors in middle-market companies. These private equity funds generally seek to leverage their investments by combining their capital with loans provided by other sources, and we believe that we are well-positioned to partner with such equity investors.

• We believe there is substantial supply of opportunities resulting from maturing loans that seek refinancing. A high volume of financings will come due in the next few years. Additionally, we believe that demand for debt financing from middle-market companies will remain strong because these companies will continue to require credit to refinance existing debt, to support growth initiatives and to finance acquisitions. We believe the combination of strong demand by middle-market companies and, from time to time, the reduced supply of credit described above should increase lending opportunities for us. We believe this supply of opportunities coupled with a lack of demand offers attractive risk-reward to investors.

Competitive Advantages

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

a) Experienced Management Team

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.

b) Disciplined Investment Approach with Strong Value Orientation

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:

• strong competitive positions;

• positive cash flow that is steady and stable;

• experienced management teams with strong track records;

• potential for growth and viable exit strategies; and

• capital structures offering appropriate risk-adjusted terms and covenants.

c) Ability to Source and Evaluate Transactions through our Investment Adviser’s Proactive, Research Capability and Established Network

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.

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d) Flexible Transaction Structuring

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.

Competition

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.

Leverage

As of September 30, 2021, we had the multi-currency Truist Credit Facility for up to $435.0 million (decreased from $475.0 million on May 25, 2021 pursuant to its terms) 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, 2021 and 2020, we had $316.5 million and $388.3 million, respectively, in outstanding borrowings under the Truist Credit Facility. The Truist Credit Facility had a weighted average interest rate of 2.4% and 2.5%, respectively, exclusive of the fee on undrawn commitment, as of September 30, 2021 and 2020. The Truist Credit Facility is a revolving facility with a stated maturity date of September 4, 2024, a one-year term-out period on September 4, 2023 and pricing set at 225 basis points over LIBOR (or an alternative risk-free floating interest rate index). As of September 30, 2021 and 2020, we had $118.5 million and $86.7 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, 2021, we were in compliance with the terms of the Truist Credit Facility.

As of September 30, 2021 and 2020, our SBIC II had $63.5 million and $118.5 million in debt commitments, respectively, all of which was drawn, with a weighted average interest rate of 3.3% and 3.2%, respectively, exclusive of 3.4% of upfront fees. As of September 30, 2021 and 2020, 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, 2021 and 2020, we had $86.3 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 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 April 2021, we issued $150.0 million in aggregate principal amount of our 2026 Notes at a public offering price per note of 99.4%. Interest on the 2026 Notes is paid semi-annually on May 1 and November 1 of each year, at a rate of 4.50% per year, commencing November 1, 2021. The 2026 Notes mature on May 1, 2026 and may be redeemed in whole or in part at our option subject to a make-whole premium if redeemed more than three months prior to maturity. The 2026 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future senior unsecured indebtedness. The 2026 Notes are effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, financing vehicles, or similar facilities. We do not intend to list the 2026 Notes on any securities exchange or automated dealer quotation system.

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.

Investment Policy Overview

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.

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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.

First Lien Secured Debt

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

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.

Subordinated Debt

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.

Investment Selection Criteria

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.

a) Leading and defensible competitive market positions

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.

b) Investing in stable borrowers with positive cash flow

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.

c) Proven management teams

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.

d) Financial sponsorship

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.

e) Investments in different borrowers, industries and geographies

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.

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f) Viable exit strategy

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.

Due Diligence

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.

Our due diligence may include:

• review of historical and prospective financial information;

• research relating to the portfolio company’s management, industry, markets, products and services and competitors;

• interviews with management, employees, customers and vendors of the potential portfolio company;

• on-site visits;

• review of loan documents; and

• background checks.

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.

Investment Structure

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:

• requiring a total return on our investments (including both interest in the form of a floor and potential equity appreciation) that compensates us for credit risk;

• incorporating “put” rights and call protection into the investment structure; and

• negotiating covenants in connection with our investments that afford our portfolio companies as much flexibility in managing their businesses as possible, consistent with our focus of preserving capital. Such restrictions may include affirmative and negative covenants, default penalties, lien protection, change of control provisions and board rights, including either observation or participation rights.

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.

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Ongoing Relationships with Portfolio Companies

Monitoring

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:

• assessment of success in adhering to a portfolio company’s business plan and compliance with covenants;

• periodic or regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments;

• comparisons to other portfolio companies in the industry, if any;

• attendance at and participation in board meetings or presentations by portfolio companies; and

• review of periodic financial statements and financial projections for portfolio companies.

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.

Managerial Assistance

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.

Staffing

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 Corporate Information

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 Portfolio

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:

•       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

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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: 

Portfolio Company	2021 (1)			Portfolio Company	2020
PT Network, LLC		12	%	PT Network, LLC		9	%
RAM Energy Holdings LLC		7		RAM Energy Holdings LLC		9
Cascade Environmental LLC		6		Cascade Environmental LLC		6
Cano Health, LLC		5		Winter Park Intermediate, Inc.		6
JF Acquisition		4		AKW Holdings Limited		4
AKW Holdings Limited		4		DecoPac, Inc.		3
Lilly Lashes		3		Halo Buyer, Inc.		3
Halo Buyer, Inc.		3		Provation Medical, Inc.		3
Walker Edison Furniture Company LLC		3		Research Horizons, LLC		3
Research Horizons, LLC		2		Walker Edison Furniture Company LLC		3

Industry	2021 (1)			Industry	2020
Healthcare, Education and Childcare		23	%	Healthcare, Education and Childcare		17	%
Business Services		9		Energy and Utilities		9
Consumer Products		9		Auto Sector		6
Energy and Utilities		7		Consumer Products		6
Media		7		Environmental Services		6
Distribution		7		Media		6
Environmental Services		6		Building Materials		4
Hotels, Motels, Inns and Gaming		4		Business Services		4
Education		3		Electronics		4
Building Materials		3		Insurance		4

⁽¹⁾ Excludes investments in PSLF.

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 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. We may also co-invest in the future on a concurrent basis with our affiliates, subject to compliance with applicable regulations, our trade allocation procedures and, if applicable, the terms of our exemptive relief.

Investment Management Agreement

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:

• determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes;

• identifies, evaluates and negotiates the structure of the investments we make (including performing due diligence on our prospective portfolio companies);

• closes and monitors the investments we make; and

• provides us with such other investment advisory, research and related services, as we may need from time to time.

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.

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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”. For the years ended September 30, 2021, 2020 and 2019, the Investment Adviser earned base management fees of $17.3 million, $18.6 million and $18.2 million, respectively, from us.

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

Gross assets as of December 31, 20XX = $160 million

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

Adjusted gross assets as of December 31, 20XX = $150 million

Gross assets as of March 31, 20XX = $200 million

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

Adjusted gross assets as of March 31, 20XX = $180 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.

The incentive fee has two parts, as follows:

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 March 31, 2021, 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, 2021, 2020 and 2019, the Investment Adviser earned $0.6 million, $2.7 million (after a waiver of $1.9 million) and $5.1 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:

Pre-Incentive Fee Net Investment Income

(expressed as a percentage of the value of net assets)

Percentage of Pre-Incentive Fee Net Investment Income

allocated to income-related portion of incentivefee

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, 2021, 2020 and 2019, the Investment Adviser did not accrue an incentive fee on capital gains as calculated under the Investment Management Agreement (as described above).

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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, 2021, 2020 and 2019, the Investment Adviser did not accrue an incentive fee on capital gains as calculated under GAAP.

Examples of Quarterly Incentive Fee Calculation

Example 1: Income Related Portion of Incentive Fee (*):

Alternative 1:

Assumptions

Investment income (including interest, dividends, fees, etc.) = 1.25%

Hurdle ⁽¹⁾ = 1.75%

Base management fee ⁽²⁾ = 0.375%

Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.20%

Pre-Incentive Fee Net Investment Income

(investment income—(base management fee + other expenses)) = 0.675%

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

Alternative 2:

Assumptions

Investment income (including interest, dividends, fees, etc.) = 2.70%

Hurdle ⁽¹⁾ = 1.75%

Base management fee ⁽²⁾ = 0.375%

Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.20%

Pre-Incentive Fee Net Investment Income

(investment income—(base management fee + other expenses)) = 2.125%

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%

Alternative 3:

Assumptions

Investment income (including interest, dividends, fees, etc.) = 3.00%

Hurdle ⁽¹⁾ = 1.75%

Base management fee ⁽²⁾ = 0.375%

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Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.20%

Pre-Incentive Fee Net Investment Income

(investment income—(base management fee + other expenses)) = 2.425%

Incentive fee	= 17.5% x Pre-Incentive Fee Net Investment Income, subject to “catch-up” (3)
Incentive fee	= 100% x “catch-up” + (17.5% x (Pre-Incentive Fee Net Investment Income - 2.1212%))
Catch-up	= 2.1212% - 1.75%
	= 0.3712%
	= (100% x 0.3712%) + (17.5% x (2.425% - 2.1212%))
	= 0.3712% + (17.5% x 0.3038%)
	= 0.3712% + 0.053165%
	= 0.424365%

^* The hypothetical amount of Pre-Incentive Fee Net Investment Income shown is based on a percentage of total net assets.

⁽¹⁾ Represents 7.0% annualized hurdle.

⁽²⁾ Represents 1.5% annualized base management fee.

⁽³⁾ The “catch-up” provision is intended to provide the Investment Adviser with an incentive fee of 17.5% on all of our Pre-Incentive Fee Net Investment Income as if a hurdle rate did not apply when our net investment income exceeds 2.1212% in any calendar quarter.

Example 2: Capital Gains Portion of Incentive Fee:

Assumptions

Year 1 = no net realized capital gains or losses

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)

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%

Organization of the Investment Adviser

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.

Duration and Termination of Investment Management Agreement

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 2021. Unless terminated earlier as described below, the Investment Management Agreement will continue in effect for a period of one year through February 2022. 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.

Administration Agreement

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, 2021, 2020 and 2019, we reimbursed the Investment Adviser approximately $1.2 million, $1.4 million and $1.8 million, respectively, including expenses the Investment Adviser incurred on behalf of the Administrator for services described above.

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Duration and Termination of Administration Agreement

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 2021. Unless terminated earlier as described below, our Administration Agreement will continue in effect for a period of one year through February 2022. 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.

Indemnification

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.

License Agreement

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.

PennantPark Senior Loan Fund, LLC

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, 2021 and 2020 PSLF had total assets of $417.4 million and $361.8 million, respectively. PSLF’s portfolio consisted of debt investments in 47 and 37 portfolio companies as of September 30, 2021 and 2020, respectively. As of September 30, 2021, at fair value, the largest investment in a single portfolio company in PSLF was $16.8 million and the five largest investments totaled $74.4 million. 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, 2021 and 2020 we and Pantheon owned 60.5% and 39.5%, respectively, and 72.0% and 28.0%, respectively, of each of the outstanding subordinated notes and equity interests of PSLF. As of the same dates, our investment in PSLF consisted of subordinated notes of $64.2 million and $63.0 million, respectively, and equity interests of $41.2 million and $36.3 million, respectively.

REGULATION

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.

Qualifying Assets

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:

(1) Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined under the 1940 Act to include any issuer which:

(a) is organized under the laws of, and has its principal place of business in, the United States;

(b) is not an investment company (other than a small business investment company wholly-owned by the BDC) or a company that would be an investment company but is excluded from the definition of an investment company by Section 3(c) of the 1940 Act; and

(c) satisfies any of the following:

(i) does not have any class of securities listed on a national securities exchange;

(ii) has any class of securities listed on a national securities exchange subject to a maximum market capitalization of $250.0 million; or

(iii) is controlled by a BDC, either alone or as part of a group acting together, and such BDC in fact exercises a controlling influence over the management or policies of such eligible portfolio company and, as a result of such control, has an affiliated person who is a director of such eligible portfolio company.

(2) Securities of any eligible portfolio company which we control.

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(3) Securities purchased in a private transaction from a U.S. operating company or from an affiliated person of the issuer, or in transactions incidental thereto, if such issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements.

(4) Securities of an eligible portfolio company purchased from any person in a private transaction if there is no readily available market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.

(5) Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities.

(6) Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment.

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.

Managerial Assistance to Portfolio Companies

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.

Temporary Investments

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.

Senior Securities

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.

Joint Code of Ethics and Code of Conduct

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.

Proxy Voting Policies and Procedures

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.

Introduction

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.

Proxy Policies

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.

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Proxy Voting Records

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: Richard Cheung, Chief Financial Officer and Treasurer, 590 Madison Avenue, 15th Floor, New York, New York 10022.

Privacy Protection Principles

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.

Other

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.

Sarbanes-Oxley Act of 2002

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.

For example:

• pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, our Chief Executive Officer and Chief Financial Officer must certify the accuracy of the financial statements contained in our periodic reports;

• pursuant to Item 307 of Regulation S-K, our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls and procedures;

• pursuant to Rule 13a-15 of the Exchange Act, our management must prepare an annual report regarding its assessment of our internal controls over financial reporting; and

• pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the Exchange Act, our periodic reports must disclose whether there were significant changes in our internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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.

Election to be Treated as a RIC

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.

In order to qualify as a RIC for federal income tax purposes, we must:

• maintain an election to be treated as a BDC under the 1940 Act at all times during each taxable year;

• derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of stock or other securities, net income from certain qualified publicly traded partnerships or other income derived with respect to our business of investing in such stock or securities, or the 90% Income Test; and

• diversify our holdings, or the Diversification Tests, so that at the end of each quarter of the taxable year:

1) at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer neither represents more than 5% of the value of our assets nor more than 10% of the outstanding voting securities of the issuer; and

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2) no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer or of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or in certain qualified publicly traded partnerships.

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.

Taxation as a RIC

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.

Failure to Qualify as a RIC

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 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.

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SBA Regulations

SBIC II is licensed to operate 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, among other things, making investments in SBA eligible “small businesses” (as defined by the SBA), investing at least 25% of regulatory capital in eligible “smaller business enterprises”, placing certain limitations on the financing terms of investments by SBICs in portfolio companies, prohibiting investing in certain industries, and meeting certain required capitalization thresholds among other regulations. Furthermore, SBIC II is subject to regulation and oversight by the SBA, including, among other things, periodic the performance of financial audits by an independent auditor and periodic examinations, including of SBIC II’s 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 SBA-guaranteed 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 SBIC 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.

Eligible Small and Smaller Businesses

Under present current SBA regulations, eligible “small business” generally include businesses that (together with their affiliates) have tangible net worth not exceeding $19.5 million and have average annual net income after U.S. federal income taxes not exceeding of $6.5 million (average net income to be computed without benefit of any carryover loss) for the two most recent fiscal years. In addition, SBIC II must invest at least 25% of its investment capitals in “smaller” concerns enterprises”. A “smaller concern enterprise” is generally includes a business (together with its affiliates) that has tangible net worth not exceeding $6.0 million and has average annual net income after U.S. federal income taxes not exceeding $2.0 million (average net income to be computed without benefit of any carryover loss) for the two most recent fiscal years. SBA regulations also provide alternative industry size standard criteria to determine eligibility for designation as an eligible small business or a smaller enterprise, which criteria depend on the primary industry in which the business is engaged and is based on the number of employees or gross revenue of the business and its affiliates 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. However, 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 at the time of the follow-on investment, up and until to the time a business offers its securities in a public market the company’s initial public offering, if any.

Financing Limitations, Terms and Changes in Control

The SBA generally 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 any one company and its affiliates 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.

Idle Funds Limitation

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

• direct obligations of, or obligations guaranteed as to principal and interest by, the U.S. Government, which mature within 15 months from the date of the investment;

• repurchase agreements with federally insured institutions with a maturity of seven days or less (and the securities underlying the repurchase obligations must be direct obligations of or guaranteed by the federal government);

• mutual funds, securities or other instruments that exclusively consist of, or represent pooled assets of, investments described in the first and second bulleted paragraphs above;

• certificates of deposit with a maturity of one year or less, issued by a federally insured institution; or

• a deposit account in a federally insured institution that is subject to withdrawal restriction of one year or less.

• a checking account in a federally insured institution; or

• • a reasonable petty cash fund.

SBA Leverage or Debentures

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. The SBA, as a creditor, will have a superior claim to SBIC II’s assets over our stockholders in the event we liquidate SBIC II or the SBA exercises its remedies under the SBA-guaranteed debentures issued by SBIC II upon an event of default.

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Item 1A. Risk Factors

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.

RISKS RELATING TO OUR BUSINESS AND STRUCTURE

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:

• A requirement to retain our status as a RIC;

• A requirement to maintain a minimum amount of stockholders’ equity; and

• A requirement that our outstanding borrowings under the Credit Facility not exceed a certain percentage of the value of our portfolio.

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.

We operate in a highly competitive market for investment opportunities.

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.

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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.

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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 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.

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Legislation enacted in 2018 allows us to incur additional leverage.

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.

• Senior Securities. As a result of issuing senior securities, we are exposed to typical risks associated with leverage, including an increased risk of loss. If we issue preferred securities, they would rank “senior” to common stock in our capital structure. Preferred stockholders would have separate voting rights and may have rights, preferences or privileges more favorable than those of holders of our common stock. Furthermore, 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 your best interest. Our senior securities may include conversion features that cause them to bear risks more closely associated with an investment in our common stock.

• Additional Common Stock. Our board of directors may decide to issue common stock to finance our operations rather than issuing debt or other senior securities. As a BDC, we are generally not able to issue our common stock at a price below NAV per share without first obtaining certain approvals from our stockholders and our board of directors. Also, subject to the requirements of the 1940 Act, we may issue rights to acquire our common stock at a price below the current NAV per share of the common stock if our board of directors determines that such sale is in our best interests and the best interests of our common stockholders. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our board of directors, closely approximates the market value of such securities. However, when required to be undertaken, the procedures used by the board of directors to determine the NAV per share of our common stock within 48 hours of each offering of our common stock may differ materially from and will necessarily be more abbreviated than the procedures used by the board of directors to determine the NAV per share of our common stock at the end of each quarter because there is a an extensive process each quarter to determine the NAV per share of our common stock which cannot be completed in 48 hours. The quarterly process includes preliminary valuation conclusions, engagement of independent valuation firms and review by those firms of preliminary valuation conclusions. By contrast, the procedures in connection with an offering may yield a NAV that is less precise than the NAV determined at the end of each quarter. We will not offer transferable subscription rights to our stockholders at a price equivalent to less than the then current NAV per share of common stock, excluding underwriting commissions, unless we first file a post-effective amendment that is declared effective by the SEC with respect to such issuance and the common stock to be purchased in connection with such rights represents no more than one-third of our outstanding common stock at the time such rights are issued. In addition, for us to file a post-effective amendment to a registration statement on Form N-2, we must then be qualified to register our securities under the requirements of Form S-3. We may actually issue shares above or below a future NAV. If we raise additional funds by issuing more common stock or warrants or senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our common stockholders at that time would decrease, and our common stockholders would experience voting dilution.

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• Securitization. In addition to issuing securities to raise capital as described above, we anticipate that in the future, as market conditions and the rules and regulations of the SEC permit, we may securitize our loans to generate cash for funding new investments. To securitize loans, we may create a wholly-owned subsidiary, contribute a pool of loans to the subsidiary and have the subsidiary issue primarily investment grade debt securities to purchasers who we would expect to be willing to accept a substantially lower interest rate than the loans earn. Even though we expect the pool of loans that we contribute to any such securitization vehicle to be rated below investment grade, because the securitization vehicle’s portfolio of loans would secure all of the debt issued by such vehicle, a portion of such debt may be rated investment grade, subject in each case to market conditions that may require such portion of the debt to be over collateralized and various other restrictions. If applicable accounting pronouncements or SEC staff guidance require us to consolidate the securitization vehicle’s financial statements with our financial statements, any debt issued by it would be generally treated as if it were issued by us for purposes of the asset coverage ratio applicable to us. In such case, we would expect to retain all or a portion of the equity and/or subordinated notes in the securitization vehicle. Our retained equity would be exposed to any losses on the portfolio of loans before any of the debt securities would be exposed to such losses. Accordingly, if the pool of loans experienced a low level of losses due to defaults, we would earn an incremental amount of income on our retained equity but we would be exposed, up to the amount of equity we retained, to that proportion of any losses we would have experienced if we had continued to hold the loans in our portfolio. We may hold subordinated debentures in any such securitization vehicle and, if so, we would not consider such securities to be senior securities. An inability to successfully securitize our loan portfolio could limit our ability to grow our business and fully execute our business strategy and adversely affect our earnings, if any. Moreover, the successful securitization of a portion of our loan portfolio might expose us to losses as the residual loans in which we do not sell interests will tend to be those that are riskier and less liquid.

• SBA Debentures. In addition to issuing securities and using securitizations to raise capital as described above, we have issued and may in the future issue, as permitted under SBA regulations and through our wholly-owned subsidiary, SBIC II, and any future SBIC subsidiary, SBA debentures to generate cash for funding new investments. To issue SBA debentures, we may request commitments for debt capital from the SBA. SBIC II is, and any future SBIC subsidiary may be, exposed to any losses on its portfolio of loans;, however, such debentures are non-recourse to us.

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 if it does not have sufficient capital in accordance with SBA regulations, that which may be necessary to maintain our status as a RIC tax treatment. We may have to request a waiver of the SBA’s restrictions limitations for SBIC II to make certain distributions to maintain our RIC tax statustreatment. 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 inwe may not be able to meet the distribution requirements to maintain our RIC tax treatment corporate level income tax on us.

SBIC II is licensed by the SBA and is subject to SBA regulations.

SBIC II, our wholly-owned subsidiary, received a license to operate as a SBIC under the 1958 Act and is subject to regulation and oversight 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, 2026 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, 2026 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.

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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. As a result, as of February 6, 2019, the asset coverage requirement applicable to us for senior securities was reduced from 200% to 150%. As of such date, 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.

As of September 30, 2021 and 2020, our asset coverage ratio, as computed in accordance with the 1940 Act, was 221% and 208%, respectively. Since our leverage, including SBA debentures outstanding, was 92% and 116% of our net assets as of September 30, 2021 and 2020, respectively, we would have to receive an annual return of at least 1.7% and 1.6%, respectively, to cover annual interest payments.

As of September 30, 2021, we had outstanding borrowings of $316.5 million under our Credit Facility, $63.5 million outstanding under the SBA debentures, $86.3 million of 2024 Notes outstanding and $150.0 million of 2026 Notes. Our consolidated debt outstanding was $616.3 million and had a weighted average annual interest rate at the time of 3.5%, 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, 2021 of 47% of total assets (including such borrowed funds), at the current interest rate at the time of 3.4%, 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.

Assumed return on portfolio (net of expenses) (1)	(10.0	)%	(5.0	)%	—	%	5.0	%	10.0	%
Corresponding return to common stockholders (2)	(22.8	)%	(13.0	)%	(3.2	)%	6.6	%	16.4	%

⁽¹⁾ The assumed portfolio return is required by regulation of the SEC and is not a prediction of, and does not represent, our projected or actual performance.

⁽²⁾ In order to compute the “corresponding return to common stockholders,” the “assumed return on portfolio” is multiplied by the total value of our assets at the beginning of the period to obtain an assumed return to us. From this amount, all interest expense expected to be accrued during the period is subtracted to determine the return available to stockholders. The return available to stockholders is then divided by the total value of our net assets as of the beginning of the period to determine the “corresponding return to common stockholders.”

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 or our 2026 Notes, if any, or change in the debt markets could cause the liquidity or market value of our 2024 Notes or our 2026 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 or our 2026 Notes. Our credit ratings may not reflect the potential impact of risks relating to the structure or marketing of our 2024 Notes or our 2026 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 or our 2026 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.

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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, our 2024 Notes mature in October 2024 and our 2026 Notes mature in November 2026. Additionally, our SBA debentures mature between March 2026 and March 2028. We utilize proceeds from the Credit Facility, our 2024 Notes, our 2026 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, our 2026 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, our 2026 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.

We are subject to risks associated with cybersecurity and cyber incidents.

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 may experience fluctuations in our quarterly results.

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.

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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.

These factors include the following:

• the time remaining to the maturity of these debt securities;

• the outstanding principal amount of debt securities with terms identical or similar to these debt securities;

• the supply of debt securities trading in the secondary market, if any;

• the redemption, repayment or convertible features, if any, of these debt securities;

• the level, direction and volatility of market interest rates; and

• market rates of interest higher or lower than rates borne by the 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.

The impact of recent financial reform legislation on us is uncertain.

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.

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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.

RISKS RELATING TO THE ILLIQUID NATURE OF OUR PORTFOLIO ASSETS

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.

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The lack of liquidity in our investments may adversely affect our business.

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.

RISKS RELATING TO OUR INVESTMENTS

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.

1. First Lien Secured Debt: When we extend first lien secured debt, we will generally take a security interest in the available assets of these portfolio companies, including the equity interests of their subsidiaries, although this may not always be the case. We expect this security interest, if any, to help mitigate the risk that we will not be repaid. However, there is a risk that the collateral securing our loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital. Also, in some circumstances, our lien could be subordinated to claims of other creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the loan. Consequently, the fact that a first lien secured debt investment is secured does not guarantee that we will receive principal and interest payments according to the loan’s terms, or at all, or that we will be able to collect on the loan should we be forced to enforce our remedies.

2. Second Lien Secured Debt: Our 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. This may result in an above average amount of risk and volatility or a loss of principal. These investments may involve additional risks that could adversely affect our investment returns. To the extent interest payments associated with such debt are deferred, such debt may be subject to greater fluctuations in valuations, and such debt could subject us and our stockholders to non-cash income. Since we may not receive cash interest or principal prior to the maturity of some of our second lien secured debt investments, such investments may be of greater risk than cash paying loans.

3. Subordinated Debt: Our subordinated debt usually ranks junior in priority of payment to first lien secured debt and second lien secured debt, and are 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. This may result in an above average amount of risk and volatility or a loss of principal. These investments may involve additional risks that could adversely affect our investment returns. To the extent interest payments associated with such debt are deferred, such debt may be subject to greater fluctuations in valuations, and such debt could subject us and our stockholders to non-cash income. Since we may not receive cash interest or principal prior to the maturity of some of our subordinated debt investments, such investments may be of greater risk than cash paying loans.

4. Equity Investments: We have made and expect to continue to make select equity investments, all of which are subordinated to debt investments. In addition, when we invest in first lien secured debt, second lien secured debt or subordinated debt, we may acquire warrants to purchase equity investments from time to time. Our goal is ultimately to dispose of these equity investments and realize gains upon our disposition of such interests. However, the equity investments we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity investments, and any gains that we do realize on the disposition of any equity investments may not be sufficient to offset any other losses we experience. In addition, many of the equity securities in which we invest may not pay dividends on a regular basis, if at all. Furthermore, we may hold equity investments in partnerships through a taxable subsidiary for federal income tax purposes. Upon sale or exit of such investment, we may pay taxes at regular corporate tax rates, which will reduce the amount of gains or dividends available for distributions to our stockholders.

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

• companies may be highly leveraged, have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment;

• they typically have shorter operating histories, more limited publicly available information, narrower product lines, more concentration of revenues from customers and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and changing market conditions, as well as general economic downturns;

• they are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us;

• they generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position. In addition, our executive officers, directors and our Investment Adviser may be named as defendants in litigation arising from our investments in the portfolio companies; and

• they may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to refinance their outstanding indebtedness upon maturity.

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:

• increase or maintain in whole or in part our equity ownership percentage;

• exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or

• attempt to preserve or enhance the value of our investment.

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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.

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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.

We may expose ourselves to risks if we engage in hedging transactions.

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.

RISKS RELATING TO AN INVESTMENT IN OUR COMMON STOCK

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.

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Investing in our shares may involve an above average degree of risk.

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 $6.49 and $3.19 on September 30, 2021 and 2020, respectively. Our NAV per share was $9.85 and $7.84, 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 of our common stock may fluctuate significantly.

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:

• significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector, which are not necessarily related to the operating performance of these companies;

• changes in regulatory policies or tax guidelines, particularly with respect to RICs, BDCs or SBICs;

• any loss of our BDC or RIC status or any loss of our subsidiaries’ SBIC licenses;

• changes in earnings or variations in operating results;

• changes in prevailing interest rates;

• changes in the value of our portfolio of investments;

• any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;

• the inability of our Investment Adviser to employ additional experienced investment professionals or the departure of any of the Investment Adviser’s key personnel;

• operating performance of companies comparable to us;

• general national and international economic trends and other external factors;

• general price and volume fluctuations in the stock markets, including as a result of short sales;

• conversion features of subscription rights, warrants or convertible debt; and

• loss of a major funding source.

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 ability to invest idle funds to the following types of securities:

• direct obligations of, or obligations guaranteed as to principal and interest by, the U.S. government, which mature within 15 months from the date of the investment;

• repurchase agreements with federally insured institutions with a maturity of seven days or less (and the securities underlying the repurchase obligations must be direct obligations of or guaranteed by the federal government);

• mutual funds, securities or other instruments that exclusively consist of, or represent pooled assets of, investments described in the first and second bulleted paragraphs above;

• certificates of deposit with a maturity of one year or less, issued by a federally insured institution; or

• a deposit account in a federally insured institution that is subject to a withdrawal restriction of one year or less.

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• a checking account in a federally insured institution; or

• • a reasonable petty cash fund.

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 20% of such dividend) 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.

RISKS RELATING TO AN INVESTMENT IN OUR DEBT SECURITIES

The 2024 Notes and the 2026 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 and the 2026 Notes are not secured by any of our assets or any of the assets of our subsidiaries. As a result, the 2024 Notes and the 2026 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 and the 2026 Notes. As of September 30, 2021, we had $316.5 million 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 and our 2026 Notes to the extent of the value of such assets.

The 2024 Notes and the 2026 Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

The 2024 Notes and the 2026 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 or the 2026 Notes and the 2024 Notes and the 2026 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 and our 2026 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 and the 2026 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 and the 2026 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, 2021 and 2020, our SBIC Fund had $63.5 million and $118.5 million in debt commitments, respectively, all of which was drawn. All of such indebtedness is structurally senior to the 2024 Notes and the 2026 Notes. In addition, our subsidiaries may incur substantial additional indebtedness in the future, all of which would be structurally senior to the 2024 Notes and the 2026 Notes.

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The indenture under which each of the 2024 Notes and the 2026 Notes were issued contains limited protection for their respective holders.

The indenture under which each of the 2024 Notes and the 2026 Notes were issued offers limited protection to holders. The terms of the indenture and each of the 2024 Notes and the 2026 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 and the 2026 Notes. In particular, the terms of the indenture and each of the 2024 Notes and the 2026 Notes will not place any restrictions on our or our subsidiaries’ ability to:

• issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to each of the 2024 Notes and the 2026 Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to each of the 2024 Notes and the 2026 Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore would rank structurally senior to each of the 2024 Notes and the 2026 Notes and (4) securities, indebtedness or other obligations issued or incurred by our subsidiaries that would be senior in right of payment to our equity interests in our subsidiaries and therefore would rank structurally senior in right of payment to each of the 2024 Notes and the 2026 Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) of the 1940 Act as modified by Section 61(a)(1) and (2) of the 1940 Act or any successor provisions, as such obligations may be amended or superseded, giving effect to any exemptive relief granted to us by the SEC;

• pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the 2024 Notes and the 2026 Notes;

• sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets);

• enter into transactions with affiliates;

• create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions;

• make investments; or

• create restrictions on the payment of dividends or other amounts to us from our subsidiaries.

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 each of the 2024 Notes and the 2026 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 and the 2026 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 and the 2026 Notes or negatively affecting their trading value.

Certain of our current debt instruments include more protections for their respective holders than the indenture and each of the 2024 Notes and the 2026 Notes. In addition, other debt we issue or incur in the future could contain more protections for its holders than the indenture and each of the 2024 Notes and the 2026 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 and the 2026 Notes, if any.

The optional redemption provision may materially adversely affect your return on the 2024 Notes and the 2026 Notes.

The 2024 Notes and 2026 Notes may 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 or February 1, 2026, respectively. We may choose to redeem the 2024 Notes or the 2026 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 or the 2026 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.

While a trading market developed after issuing the 2026 Notes, we cannot assure you that an active trading market for the 2026 Notes will be maintained.

While a trading market developed after issuing the 2026 Notes, we cannot assure you that an active and liquid market for the 2026 Notes will be maintained. We do not intend to list the 2026 Notes on any securities exchange or for quotation of the 2026 Notes on any automated dealer quotation system. If the 2026 Notes are traded after their initial issuance, they may trade at a discount to their public offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, including the impact of COVID-19, our financial condition, performance and prospects and other factors. The underwriters may discontinue any market-making in the 2026 Notes at any time at their sole discretion. In addition, any market-making activity will be subject to limits imposed by law. Accordingly, we cannot assure you that a liquid trading market will be maintained for the 2026 Notes, that you will be able to sell your 2026 Notes at a particular time or that the price you receive when you sell will be favorable. To the extent an active trading market is not maintained, the liquidity and trading price for the 2026 Notes may be harmed. Accordingly, you may be required to bear the financial risk of an investment in the Notes for an indefinite period of time. 

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If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the 2024 Notes or the 2026 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 or the 2026 Notes and substantially decrease the market value of such 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.

FATCA withholding may apply to payments to certain foreign entities.

Payments made under the 2024 Notes or the 2026 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 or the 2026 Notes as well as scheduled payments of principal, early redemption, or sale of the 2024 Notes or the 2026 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 and the 2026 Notes should consult their own tax advisors regarding FATCA and how it may affect their investment in the notes.

GENERAL RISK FACTORS

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 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 materially disrupted the demand for our portfolio companies’ products and services and made it more difficult for our portfolio companies to conduct their businesses. In addition, supply chains worldwide have been, and continue to be, interrupted, slowed, or rendered inoperable as a result of the COVID-19 pandemic and other factors. Governmental mandates to control the outbreak resulted in forced shutdowns of certain of our portfolio companies’ facilities for extended periods. These prolonged disruptions in the business of our portfolio companies, including disruptions in their supply chains, adversely affected their ability to obtain the necessary raw materials or components to make their products and caused a decline in some cases in the demand for their products or services. This required certain of our portfolio companies to furlough or lay off employees, terminate relationships with service providers or otherwise significantly curtail their standard business operations, which has in some cases caused a negative impact on their operating results.

The global impact of the COVID-19 outbreak continues to evolve and could continue to adversely affect our operations and the operations of our portfolio companies. The COVID-19 pandemic has resulted 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) in some cases 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. .

The outbreak has led to a continued adverse impact on economic and market conditions. 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 extent to which COVID-19 will continue to affect our business, financial condition, liquidity, our portfolio companies’ results of operations and by extension our operating results will depend on future developments such as the speed and extent of further vaccine distribution and the impact of the Delta variant or other variants that might arise, which are highly uncertain and cannot be predicted, 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. As COVID-19 continues to spread, the potential impacts, including a global, regional, or other economic recession, remain uncertain and difficult to assess. To the extent our portfolio companies are adversely impacted by the effects of the COVID-19, it may have a material adverse impact on our future financial condition.

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

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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.

The COVID-19 pandemic resulted in a period of capital markets disruption and economic uncertainty.

The U.S. capital markets 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 in the past 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 adversely affected our business, financial condition, results of operations and cash flows, and future market disruptions and/or illiquidity may again negatively impact us. Such unfavorable economic conditions could also increase our funding costs and limit 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 could 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. As such, we could 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.

Any public health emergency, including the COVID-19 pandemic or any outbreak of other existing or new diseases, and the resulting financial and economic market uncertainty could have a significant adverse impact on us.

The extent of the impact of any public health emergency, including the COVID-19 pandemic, on our and our portfolio companies’ operational and financial performance will depend on many factors, including the duration and scope of such public health emergency, the actions taken by governmental authorities to contain its financial and economic impact, the extent of any related travel advisories and restrictions implemented, the impact of such public health emergency on overall supply and demand, investor liquidity and levels of economic activity and the extent of its disruption to important global, regional and local supply chains and economic markets, all of which are highly uncertain and cannot be predicted. In addition, our and our portfolio companies’ operations may be significantly impacted, or halted, as a result of government quarantine measures, restrictions on travel and other factors related to a public health emergency, including its potential adverse impact on the health of any of our or our portfolio companies’ personnel. This could create widespread business continuity issues for us and our portfolio companies. These factors may also cause the valuation of our investments to differ materially from the values that we may ultimately realize. Any public health emergency, including the COVID-19 pandemic or any outbreak of other existing or new epidemic diseases, or the threat thereof, and the resulting financial and economic market uncertainty could have a significant adverse impact on us and the fair value of our investments and our portfolio companies.

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

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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 litigation.

We may be the target of securities litigation in the future, particularly if the trading price of our common stock, our 2024 Notes or our 2026 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.

Legislative or regulatory tax changes could adversely affect investors.

At any time, the federal income tax laws governing RICs or the administrative interpretations of those laws or regulations may be amended. The Biden

Administration has announced a number of tax law proposals, including American Families Plan and Made in America Tax Plan, which include increases in the corporate

and individual tax rates, and impose a minimum tax on book income and profits of certain multinational corporations. Any new laws, regulations or interpretations may take

effect retroactively and could adversely affect the taxation of us or our shareholders. Therefore, changes in tax laws, regulations or administrative interpretations or any

amendments thereto could diminish the value of an investment in our shares or the value or the resale potential of our investments.

Item 1B.Unresolved Staff Comments

None.

Item 2.Properties

As of September 30, 2021, 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.

Item 3.Legal Proceedings

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.

Item 4.Mine Safety Disclosures

Not applicable.

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PART II

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

PRICE RANGE OF COMMON STOCK

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, 2021 and 2020.

			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, 2021
Fourth quarter	$	9.85	$	6.88	$	6.28		(30	)%		(36	)%		0.12
Third quarter		9.59		7.37		5.74		(23	)		(40	)		0.12
Second quarter		9.24		6.21		4.49		(33	)		(51	)		0.12
First quarter		8.78		4.62		2.85		(47	)		(68	)		0.12
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

⁽¹⁾ NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The NAVs shown are based on outstanding shares at the end of each period.

⁽²⁾ Calculated as the respective high or low closing sales price less NAV per share, divided by the quarter-end NAV per share.

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 $6.49 and $3.19 as of September 30, 2021 and 2020, respectively. Our NAV per share was $9.85 and $7.84 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, 2021, we had 6 stockholders of record.

Sale of Unregistered Securities

We did not engage in any sales of unregistered securities during the year ended September 30, 2021.

Issuer Purchases of Equity Securities

We did not repurchase any of our common stock during the year ended September 30, 2021.

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DISTRIBUTIONS

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 2022, 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, 2021 and 2020 from ordinary income (including short-term gains), if any, totaled $32.2 million and $40.2 million, or $0.48 and $0.60 per share, respectively, based on the weighted average shares outstanding for the respective years.

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.

Stock Performance Graph

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, 2016, 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.

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Fees and Expenses

The following table is being provided to update, as of September 30, 2021, 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.

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	2.87		(5)
Incentive fees	0.10		(6)
Interest on borrowed funds	3.73		(7)
Acquired fund fees and expenses	1.75		(8)
Other expenses	0.78		(9)
Total estimated annual expenses	9.23	%	(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.

⁽³⁾ The expenses of the dividend reinvestment plan are included in “Other expenses.”

⁽⁴⁾ Net assets attributable to common shares equals average net assets as of September 30, 2021.

⁽⁵⁾ The contractual management fee is calculated at an annual rate of 1.50% of our average adjusted gross assets up to 200% of the Company’s total net assets as of the immediately preceding quarter-end and 1.00% for amounts that exceed such amount on September 30, 2021. See “Business—Investment Management Agreement” and “Business—Management Fees” for more information.

⁽⁶⁾ The portion of incentive fees paid with respect to net investment income and capital gains, if any, is based on actual amounts incurred during the fiscal year ended September 30, 2021. Such incentive fees are based on performance, vary from period to period and are not paid unless our performance exceeds specified thresholds. Incentive fees in respect of net investment income do not include incentive fees in respect of net capital gains. The portion of our incentive fee paid in respect of net capital gains 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 equals 17.5% of our realized capital gains, 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 purposes of this chart and our Consolidated Financial Statements, our incentive fees on capital gains are calculated in accordance with GAAP. As we cannot predict our future net investment income or capital gains, the incentive fee paid in future periods, if any, may be substantially different than the fee earned during the fiscal year ended September 30, 2021. For more detailed information about the incentive fee, please see “Business—Investment Management Agreement” and “Business—Management Fees” for more information.

(7)	As of September 30, 2021, we had $118.5 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 $316.5 million in borrowings outstanding under our $435.0 million Truist Credit Facility, $86.3 million in aggregate principal of 2024 Notes and $150.0 million in aggregate principal of 2026 Notes. As of September 30, 2021, our SBIC Fund had debenture commitments from the SBA in the amount of $63.5 million, all of which were outstanding with a weighted average interest rate of 3.3%, 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, 2021 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 60.5% 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, 2021. 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.
(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 4.7% of average total assets.

Example

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 9.13% 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.

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)	$	121	$	283	$	432	$	754
Assuming a 5% annual return (assumes return only from realized capital gains and thus
subject to the capital gains incentive fee)	$	129	$	304	$	461	$	790

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.

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Item 6. Selected Financial Data

Not applicable

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

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:

• our future operating results;

• our business prospects and the prospects of our prospective portfolio companies, including as a result of the current pandemic caused by COVID-19 or any worsening there of;

• changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets that could result in changes to the value of our assets, including changes from the impact of the current COVID-19 pandemic or any worsening there of;

• our ability to continue to effectively manage our business due to the significant disruptions caused by the current COVID-19 pandemic or any worsening there of;

• the dependence of our future success on the general economy and its impact on the industries in which we invest;

• the impact of a protracted decline in the liquidity of credit markets on our business;

• the impact of investments that we expect to make;

• the impact of fluctuations in interest rates and foreign exchange rates on our business and our portfolio companies;

• our contractual arrangements and relationships with third parties;

• the valuation of our investments in portfolio companies, particularly those having no liquid trading market;

• the ability of our prospective portfolio companies to achieve their objectives;

• our expected financings and investments;

• the adequacy of our cash resources and working capital;

• the timing of cash flows, if any, from the operations of our prospective portfolio companies;

• the impact of price and volume fluctuations in the stock market;

• the ability of our Investment Adviser to locate suitable investments for us and to monitor and administer our investments;

• the impact of future legislation and regulation on our business and our portfolio companies; and

• the impact of the United Kingdom’s withdrawal from the European Union and other world economic and political issues.

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.

Overview

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 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.

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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.

Organization and Structure of PennantPark Investment Corporation

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 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 Developments

COVID-19 was first detected in December 2019 and has since been identified as a global pandemic by the World Health Organization. The effect of the ongoing COVID-19 pandemic or any worsening thereof, uncertainty relating to more contagious strains of the virus, the length of recovery of certain economic sectors in the U.S. and globally and the speed and efficiency of the vaccination process, including the extent to which the available vaccines are ineffective against any new COVID- 19 variants may create stress on the market and may affect some of our portfolio companies. We cannot predict the full impact of the COVID-19 pandemic, including any worsening thereof or its duration in the United States and globally and any impact to our business operations or the business operations of our portfolio companies. Depending on the length and magnitude of the disruption to the operations of our portfolio companies, certain portfolio companies may experience financial distress and possibly default on their financial obligations to us and their other capital providers in the future. These developments could impact the value of our investments in such portfolio companies.

The COVID-19 pandemic, including any worsening thereof, may have an adverse impact on certain sectors of the global economy. 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 due to the risk of any sever adverse reaction to the vaccine, politicization of the vaccination process or general public skepticism of the safety and efficacy of the vaccine. While we are unable to predict the ultimate adverse effect of the COVID-19 pandemic, or any worsening thereof, 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:

• U.S. and global economic recovery;

• changes in interest rates, including LIBOR;

• limited availability of credit, both in the United States and internationally;

• disruptions to supply-chains and price volatility;

• changes to existing laws and regulations, or the imposition of new laws and regulations; and

• uncertainty regarding future governmental and regulatory policies.

The business disruption and financial harm resulting from the COVID-19 pandemic experienced by some of our portfolio companies may 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 previous years. Although we had no non-accrual assets during the quarter ended September 30, 2021, the continuing impact of the COVID-19 pandemic, or any worsening thereof, may result in portfolio investments being placed on non-accrual status in the future.

Additionally, as of September 30, 2021 and September 30, 2020, our asset coverage ratio, as computed in accordance with the 1940 Act, was 221% and 208%, respectively. The Truist Credit Facility includes standard covenants and events of default provisions. If we fail to make the required payments or breach the covenants therein, it could result in a default under the Truist Credit Facility. Failure to cure such default or obtain a waiver from the appropriate party would result in an event of default, and the lenders may accelerate the repayment of our indebtedness under the Truist 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, 2021, our debt portfolio consisted of 92% 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 Truist Credit Facility also has floating rate interest provisions, with pricing set at 225 basis points over LIBOR (or an alternative risk-free floating interest rate index).  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 may decrease, 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 have continued to implement 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 our business continuity planning strategy, nearly all of our employees have returned to the office. 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.

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Revenues

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.

Expenses

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:

* the cost of calculating our net asset value, including the cost of any third-party valuation services;

* the cost of effecting sales and repurchases of shares of our common stock and other securities;

* fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence and reviews of prospective investments or complementary businesses;

* expenses incurred by the Investment Adviser in performing due diligence and reviews of investments;

* transfer agent and custodial fees;

* fees and expenses associated with marketing efforts;

* federal and state registration fees and any exchange listing fees;

* federal, state, local and foreign taxes;

* independent directors’ fees and expenses;

* brokerage commissions;

* fidelity bond, directors and officers, errors and omissions liability insurance and other insurance premiums;

* direct costs such as printing, mailing, long distance telephone and staff;

* fees and expenses associated with independent audits and outside legal costs;

* costs associated with our reporting and compliance obligations under the 1940 Act, the 1958 Act and applicable federal and state securities laws; and

* all other expenses incurred by either the Administrator or us in connection with administering our business, including payments under our Administration Agreement that will be based upon 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.

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.

PORTFOLIO AND INVESTMENT ACTIVITY

As of September 30, 2021, our portfolio totaled $1,255.3 million and consisted of $552.5 million of first lien secured debt, $176.9 million of second lien secured debt, $121.2 million of subordinated debt (including $64.2 million in PSLF) and $404.7 million of preferred and common equity (including $41.2 million in PSLF). Our debt portfolio consisted of 92% variable-rate investments and 8% fixed-rate investments. As of September 30, 2021, we had no portfolio companies on non-accrual. Overall, the portfolio had net unrealized appreciation of $34.2 million as of September 30, 2021. Our overall portfolio consisted of 97 companies with an average investment size of $12.9 million, had a weighted average yield on interest bearing debt investments of 9.0% and was invested 44% in first lien secured debt, 14% in second lien secured debt, 10% in subordinated debt (including 5% in PSLF) and 32% in preferred and common equity (including 3% in PSLF). As of September 30, 2021, all of the investments held by PSLF were first lien secured debt.

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.

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For the year ended September 30, 2021, we invested $441.4million of investments in 30new and 49existing portfolio companies with a weighted average yield on debt investments of8.1%. Sales and repayments of investments for the same period totaled $434.5million.

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.

PennantPark Senior Loan Fund, LLC

As of September 30, 2021, PSLF’s portfolio totaled $405.2 million, consisted of 47 companies with an average investment size of $8.6 million and had a weighted average yield on debt investments of 7.1%. For the year ended 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 year ended September 30, 2021, PSLF invested $149.4 million (of which $123.4 million was purchased from the Company) in 18 new and nine existing portfolio companies with a weighted average yield on debt investments of 7.3%. PSLF’s sales and repayments of investments for the same period totaled $104.9 million.

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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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, including the credit worthiness of our portfolio companies and the global outbreak of COVID-19. 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.

Investment Valuations

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 our 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:

(1) Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our Investment Adviser responsible for the portfolio investment;

(2) Preliminary valuation conclusions are then documented and discussed with the management of the Investment Adviser;

(3) Our board of directors also engages independent valuation firms to conduct independent appraisals of our investments for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment. The independent valuation firms review management’s preliminary valuations in light of their own independent assessment and also in light of any market quotations obtained from an independent pricing service, broker, dealer or market maker;

(4) The audit committee of our board of directors reviews the preliminary valuations of the Investment Adviser and those of the independent valuation firms on a quarterly basis, periodically assesses the valuation methodologies of the independent valuation firms, and responds to and supplements the valuation recommendations of the independent valuation firms to reflect any comments; and

(5) Our board of directors discusses these valuations and determines the fair value of each investment in our portfolio in good faith, based on the input of our Investment Adviser, the respective independent valuation firms and the audit committee.

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 our 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.

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

Level 1: Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities, accessible by us at the measurement date.

Level 2: Inputs that are quoted prices for similar assets or liabilities in active markets, or that are quoted prices for identical or similar assets or liabilities in markets that are not active and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term, if applicable, of the financial instrument.

Level 3: Inputs that are unobservable for an asset or liability because they are based on our own assumptions about how market participants would price the asset or liability.

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, 2026 Notes and our SBA debentures are classified as Level 3. Our 2019 Notes were, and our 2024 Notes are, classified as Level 2 as they were valued using the closing price from the primary exchange. 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 SEC recently adopted Rule 2a-5 under the 1940 Act which established requirements for determining fair value in good faith purposes of the 1940 Act. We will comply with the requirement of the rule before the requirement date in 2022.

In addition to using the above inputs to value cash equivalents, investments, our 2019 Notes, our SBA debentures, our 2024 Notes, our 2026 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, zero and $7.1 million relating to amendment costs on the Credit Facilities during the years ended September 30, 2021, 2020 and 2019, 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 elect not to apply ASC 825-10 to any other financial assets or liabilities, including the 2024 Notes, 2026 Notes and SBA debentures. 

For the year ended September 30, 2021, the Credit Facility had a net change in unrealized appreciation of $17.8 million. For the years ended September 30, 2020 and 2019, the 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, 2021, the net unrealized depreciation on our Credit Facility totaled $1.7 million. As of September 30, 2020, the net unrealized depreciation on our Credit Facilities totaled $19.6 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.

Revenue Recognition

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 values of our portfolio investments, and our Credit Facilities, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

Foreign Currency Translation

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

1. Fair value of investment securities, other assets and liabilities – at the exchange rates prevailing at the end of the applicable period; and

2. Purchases and sales of investment securities, income and expenses – at the exchange rates prevailing on the respective dates of such transactions.

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 values of investments and liabilities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments and liabilities.

Payment-in-Kind, or, PIK Interest

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.

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Federal Income Taxes

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 U.S. 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 an amount at least equal to thesum of (1) 98% of our net ordinary income (subject to certain deferrals and elections) for the calendar year, (2) 98.2% of the excess, if any, of our capital gains over our capital losses, or capital gain net income (adjusted for certain ordinary losses) for the one-year period ending on October 31 of the calendar year plus (3) the sum of any net ordinary income plus capital gain net income for preceding years that was not distributed during such years and on which we did not incur any U.S. federal income tax, or 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 maintaining our ability to be subject to tax as a RIC, in order to provide us with additional liquidity.

Because federal income tax regulations differ from GAAP, distributions characterized 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 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.

RESULTS OF OPERATIONS

Set forth below are the results of operations for the years ended September 30, 2021 and 2020. For information regarding results of operations for the year ended September 30, 2019, see the Company's Form 10-K for the fiscal year ended September 30, 2020, as filed with the SEC on November 19, 2020.

Investment Income

Investment income for the year ended September 30, 2021 was $81.6 million and was attributable to $47.0 million from first lien secured debt, $20.2 million from second lien secured debt and $7.0 million from subordinated debt and $7.4 from preferred and common equity. The decrease in investment income over the prior year was primarily due to a decrease in LIBOR and a lower average investment balance.

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.

Expenses

Net expenses for the year ended September 30, 2021 totaled $45.1 million. Base management fee for the same period totaled $17.3 million, incentive fee totaled $0.6 million, debt related interest and other financing expenses totaled $22.5 million and general and administrative expenses totaled $4.1 million. The decrease in expenses over the prior year was primarily due to a decrease in debt related expenses and a decrease in incentive fees.as well as the incentive fee waiver.

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.

Net Investment Income

Net investment income totaled $36.5 million, or $0.54 per share, and $38.7 million, or $0.58 per share, for the years ended September 30, 2021 and 2020, respectively. The decrease in net investment income per share compared to the prior year was primarily due to a decrease in LIBOR.

Net Realized Gains or Losses

Sales and repayments of investments for the years ended September 30, 2021 and 2020 totaled $434.5 million and $162.7 million, respectively, and net realized gain (loss) totaled $30.0 million and ($20.8) 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, caused by the fluctuations in the market and in the economy, as discussed above under “COVID-19 Developments”.

Unrealized Appreciation or Depreciation on Investments and Credit Facilities

For the years ended September 30, 2021 and 2020, we reported net change in unrealized appreciation (depreciation) on investments of $117.9 million and ($46.2) million, respectively. As of September 30, 2021 and 2020, our net unrealized appreciation (depreciation) on investments totaled $34.2 million and ($83.8) million, respectively. The net change in unrealized appreciation/depreciation on our investments for the year ended September 30, 2021 compared to the prior year was primarily due to changes in the capital market conditions of our investments and the values at which they were realized, caused by the fluctuation in the market and in the economy, as discussed above under “COVID-19 Developments.”

For the years ended September 30, 2021 and 2020, our Credit Facilities had a net change in unrealized (appreciation) depreciation of $(17.8) million and $12.3 million, respectively. As of September 30, 2021 and 2020, our net unrealized depreciation on our Credit Facilities totaled $1.7 million and $19.6 million, respectively. The net change in unrealized depreciation for the year ended September 30, 2021 compared to the prior year was primarily due to changes in the capital markets, as further discussed above under “COVID-19 Developments”.

Net Change in Net Assets Resulting From Operations

Net change in net assets resulting from operations totaled $166.6 million, or $2.49 per share, and ($16.0) million, or ($0.24) per share, for the years ended September 30, 2021 and 2020, respectively. The increase in net assets from operations for the year ended September 30, 2021 compared to the prior year was primarily due to appreciation of the portfolio primarily driven by recovery from 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.”

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LIQUIDITY AND CAPITAL RESOURCES

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, 2021, 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. This “Liquidity and Capital Resources” section should be read in conjunction with the “COVID-19 Developments” section above.

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.

As of September 30, 2021 and 2020, our asset coverage ratio, as computed in accordance with the 1940 Act, was 221% and 208%, respectively.

The annualized weighted average cost of debt for the years ended September 30, 2021 and 2020, 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 3.5% and 4.0%, respectively.

As of September 30, 2021, we had the multi-currency Truist Credit Facility for up to $435.0 million (decreased from $475.0 million on May 25, 2021 pursuant to its terms) 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, 2021 and 2020, we had $316.5 million and $388.3 million, respectively, in outstanding borrowings under the Truist Credit Facility. The Truist Credit Facility had a weighted average interest rate of 2.4% and 2.5%, respectively, exclusive of the fee on undrawn commitments, as of September 30, 2021 and 2020. The Truist Credit Facility is a revolving facility with a stated maturity date of September 4, 2024, a one-year term-out period on September 4, 2023 and pricing set at 225 basis points over LIBOR (or an alternative risk-free floating interest rate index). As of September 30, 2021 and 2020, we had $118.5 million and $86.7 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, 2021, we were in compliance with the terms of the Truist Credit Facility.

As of September 30, 2021, 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 April 2021, we issued $150.0 million in aggregate principal amount of our 2026 Notes at a public offering price per note of 99.4%. Interest on the 2026 Notes is paid semi-annually on May 1 and November 1 of each year, at a rate of 4.50% per year, commencing November 1, 2021. The 2026 Notes mature on May 1, 2026 and may be redeemed in whole or in part at our option subject to a make-whole premium if redeemed more than three months prior to maturity. The 2026 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future senior unsecured indebtedness. The 2026 Notes are effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, financing vehicles, or similar facilities. We do not intend to list the 2026 Notes on any securities exchange or automated dealer quotation system.

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, 2021. 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.

 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 2021 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 2021 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.

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.

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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 $63.5 million as of September 30, 2021. 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, 2021 and 2020, SBIC II had an initial $150.0 million in debt commitments, all of which were drawn. During the years ended September 30, 2021 and 2020, $55.0 million and $31.5 million in SBA debentures were repaid, respectively. As of September 30, 2021 and 2020, the unamortized fees on the SBA debentures were $1.3 million and $2.7 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.

Our fixed-rate SBA debentures were as follows:

Issuance Dates	Maturity	Fixed All-in Coupon Rate (1)			As of September 30, 2021 Principal Balance
September 20, 2017	September 1, 2027		2.9	%		27,500,000
March 21, 2018	March 1, 2028		3.5			36,000,000
Weighted Average Rate / Total			3.3	%	$	63,500,000
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

⁽¹⁾ Excluding 3.4% of upfront fees.

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, 2021, 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, 2021 and 2020, 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, 2021 and 2020, we had cash and cash equivalents of $20.4 million and $25.8 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 provided cash of $7.9 million for the year ended September 30, 2021, and our financing activities used cash of $(13.4) million for the same period. Our operating activities used cash primarily for our investment activities and our financing activities provided cash primarily for net repayments under our Credit Facilities and the repayment of the SBA debentures.

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.

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

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Senior Securities

Information about our senior securities is shown in the following table as of September 30, 2021, 2020, 2019, 2018, 2017, 2016, 2015, 2014, 2013 and 2012. The report of RSM US LLP, an independent registered public accounting firm, on the Senior Securities table as of September 30, 2021, is attached as an exhibit to this Report.

Class and Year	Total Amount Outstanding (1)		Asset Coverage Per Unit (2), (3)		Average Market Value Per Unit
Truist Credit Facility
Fiscal 2021	$	316,545	$	2,208	N/A
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
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 2021		86,250		2,208	$	25.14	(4)
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)
2026 Notes
Fiscal 2021		150,000		2,208	N/A		(5)

⁽¹⁾ Total cost of each class of senior securities outstanding at the end of the period presented in thousands (000s).

(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.

PennantPark Senior Loan Fund, LLC

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, 2021 and 2020 PSLF had total assets of $417.4 million and $361.8 million, respectively. PSLF’s portfolio consisted of debt investments in 47 and 37 portfolio companies as of September 30, 2021 and 2020, respectively. As of September 30, 2021, at fair value, the largest investment in a single portfolio company in PSLF was $16.8 million and the five largest investments totaled $74.4 million. 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, 2021 and 2020 we and Pantheon owned 60.5% and 39.5%, and 72.0% and 28.0%, respectively, of each of the outstanding subordinated notes and equity interests of PSLF. As of September 30, 2021 and 2020 , our investment in PSLF consisted of subordinated notes of $64.2 million and equity interests of $41.2 million and $63.0 million and equity interests of $36.3 million, respectively.

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, through its wholly-owned subsidiary, or PSLF Subsidiary, has entered into a $275.0 million (increased from $250.0 million on November 6, 2020) 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, subject to leverage and borrowing base restrictions.

50

Below is a summary of PSLF’s portfolio at fair value:

	September 30, 2021			September 30, 2020
Total investments	$	405,232,480		$	353,366,358
Weighted average yield on debt investments		7.1	%		7.3	%
Number of portfolio companies in PSLF		47			37
Largest portfolio company investment	$	16,816,670		$	18,411,916
Total of five largest portfolio company investments	$	74,444,646		$	77,896,431

Below is a listing of PSLF’s individual investments as of September 30, 2021:

Issuer Name	Maturity	Industry	Current Coupon	Basis Point Spread Above Index (1)		Par		Cost		Fair Value (2)
First Lien Secured Debt - 570.7%
Ad.net Acquisition, LLC	05/06/26	Media	7.00%	3M L + 600		$	4,987,500	$	4,919,652	$	4,912,688
Altamira Technologies, LLC	07/24/25	Aerospace and Defense	8.00%	3M L+700			921,231		911,674		863,654
American Insulated Glass, LLC	12/21/23	Building Materials	6.50%	3M L+550			14,625,244		14,480,504		14,478,992
Any Hour Services	07/21/27	Personal, Food and Miscellaneous Services	6.75%	1M L+525			6,500,000		6,378,125		6,370,000
Apex Service Partners, LLC	07/31/25	Personal, Food and Miscellaneous Services	6.25%	1M L+550			6,569,222		6,517,624		6,503,530
Apex Service Partners, LLC Term Loan B	07/31/25	Personal, Food and Miscellaneous Services	6.55%		—		3,346,690		3,313,038		3,313,223
Applied Technical Services, LLC	12/29/26	Environmental Services	6.75%	3M L+575			7,443,750		7,335,875		7,294,875
Bottom Line Systems, LLC	02/13/23	Healthcare, Education and Childcare	6.25%	1M L+550			13,729,432		13,673,678		13,729,432
Crash Champions, LLC	08/05/25	Auto Sector	6.00%	1M L+525			5,985,000		5,873,298		5,865,300
DRS Holdings III, Inc.	11/03/25	Consumer Products	7.25%	1M L+625			13,428,053		13,335,008		13,334,057
ECL Entertainment, LLC	03/31/28	Hotels, Motels, Inns and Gaming	8.25%	3M L+750			4,603,846		4,559,898		4,707,433
ECM Industries, LLC	12/23/25	Electronics	5.50%	3M L+450			2,826,993		2,804,979		2,770,453
Global Holdings InterCo LLC	03/16/26	Banking, Finance, Insurance & Real Estate	7.00%	3M L+600			7,462,500		7,360,276		7,425,188
Hancock Roofing and Construction L.L.C.	12/31/26	Insurance	6.00%	3M L+500			5,955,000		5,819,284		5,895,450
Holdco Sands Intermediate, LLC	12/19/25	Aerospace and Defense	7.50%	3M L+600			12,070,714		11,934,092		12,010,361
HW Holdco, LLC	12/10/24	Media	5.50%	3M L+450			14,587,500		14,499,086		14,441,625
IMIA Holdings, Inc.	04/09/27	Aerospace and Defense	6.75%	3M L+600			9,059,429		8,889,612		8,878,241
Integrity Marketing Acquisition, LLC	08/27/25	Insurance	6.50%	3M L+550			7,868,080		7,803,025		7,828,740
Juniper Landscaping of Florida, LLC	12/22/21	Personal, Food and Miscellaneous Services	6.50%	3M L+550			9,420,290		9,420,290		9,420,290
K2 Pure Solutions NoCal, L.P.	12/20/23	Chemicals, Plastics and Rubber	8.00%	1M L+700			14,587,500		14,478,841		14,199,473
LAV Gear Holdings, Inc.	10/31/24	Leisure, Amusement, Motion Pictures, Entertainment	8.50%	3M L+750			2,119,558		2,106,623		1,986,661
Lightspeed Buyer Inc.	02/03/26	Healthcare, Education and Childcare	6.75%	1M L+550			12,471,593		12,273,343		12,471,593
Lombart Brothers, Inc.	04/13/23	Healthcare, Education and Childcare	7.25%	1M L+825			16,816,670		16,728,518		16,816,670
MAG DS Corp.	04/01/27	Aerospace and Defense	6.50%	1M L+550			5,836,801		5,581,189		5,253,121
Mars Acquisition Holdings Corp.	05/14/26	Media	6.50%	1M L+575			8,000,000		7,851,584		7,920,000
MBS Holdings, Inc.	04/16/27	Telecommunications	6.75%	3M L+550			7,481,250		7,337,946		7,331,625
MeritDirect, LLC	05/23/24	Media	6.50%	3M L+550			13,386,132		13,271,890		13,252,270
PlayPower, Inc.	05/08/26	Consumer Products	5.65%	3M L+575			3,805,440		3,777,669		3,735,687
Radius Aerospace, Inc.	03/31/25	Aerospace and Defense	6.75%	3M L+600			13,334,912		13,201,809		13,068,214
Rancho Health MSO, Inc.	12/18/25	Healthcare, Education and Childcare	6.75%	3M L+550			5,231,625		5,140,072		5,231,625
Recteq, LLC	01/29/26	Consumer Products	7.00%	3M L+450			9,950,000		9,774,928		9,850,500
Research Now Group, LLC and Dynata, LLC	12/20/24	Business Services	6.50%	3M L+600			14,694,656		14,601,817		14,507,887
Riverpoint Medical, LLC	06/20/25	Healthcare, Education and Childcare	5.50%	1M L+550			3,245,909		3,216,526		3,205,984
Sales Benchmark Index LLC	01/03/25	Business Services	7.75%	3M L+750			7,632,493		7,526,205		7,441,681
Sargent & Greenleaf Inc.	12/20/24	Electronics	7.00%	3M L+575			5,232,159		5,180,794		5,232,159
Signature Systems Holding Company	05/03/24	Chemicals, Plastics and Rubber	8.50%	1M L+525			13,500,000		13,396,987		13,365,000
Solutionreach, Inc.	01/17/24	Communications	6.75%	1M L+600			11,881,773		11,758,141		11,881,773
STV Group Incorporated	12/11/26	Transportation	5.33%	1M L+450			12,098,653		12,002,839		12,038,160
TAC LifePort Purchaser, LLC	03/01/26	Aerospace and Defense	7.00%	1M L+525			4,967,133		4,891,093		4,965,530
TeleGuam Holdings, LLC	11/20/25	Telecommunications	5.50%	3M L+525			4,593,270		4,557,883		4,547,337
Teneo Holdings LLC	07/18/25	Financial Services	6.25%	1M L+575			2,996,753		2,883,779		2,980,511
TPC Canada Parent, Inc. and TPC US Parent, LLC	11/24/25	Food	6.25%	1M L+625			5,593,148		5,537,216		5,425,353
TVC Enterprises, LLC	03/26/26	Transportation	6.75%	3M L+550			12,773,152		12,642,764		12,773,152
TWS Acquisition Corporation	06/16/25	Education	7.25%	3M L+450			9,647,753		9,514,502		9,647,753
Tyto Athene, LLC	04/03/28	Aerospace and Defense	6.25%	1M L+675			9,950,000		9,853,217		9,950,000
UBEO, LLC	04/03/24	Printing and Publishing	5.50%	1M L+500			4,710,212		4,676,033		4,686,661
Vision Purchaser Corporation	06/10/25	Media	7.75%				14,248,804		14,055,791		14,035,072
Wildcat Buyerco, Inc.	02/27/26	Electronics	6.00%				7,424,623		7,360,375		7,387,500
Total First Lien Secured Debt							409,602,447		405,009,393		405,232,480
Cash and Cash Equivalents—18.9%
BlackRock Federal FD Institutional 30									11,013,454		11,013,454
US Bank Cash
Total Cash and Cash Equivalents									11,013,454		11,013,454
Total Investments and Cash Equivalents—592.7%								$	416,022,848	$	416,245,935
Liabilities in Excess of Other Assets—(492.7)%											(348,213,498	)
Members' Equity—100.0%										$	68,032,437

⁽¹⁾ Represents floating rate instruments that accrue interest at a predetermined spread relative to an index, typically the applicable LIBOR or “L” or Prime rate or “P”. The spread may change based on the type of rate used. The terms in the Schedule of Investments disclose the actual interest rate in effect as of the reporting period. LIBOR loans are typically indexed to a 30-day, 60-day, 90-day or 180-day LIBOR rate (1M L, 2M L, 3M L, or 6M L, respectively), at the borrower’s option. All securities are subject to a LIBOR or Prime rate floor where a spread is provided, unless noted. The spread provided includes PIK interest and other fee rates, if any.

⁽²⁾ Valued based on PSLF’s accounting policy.

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Below is a listing of PSLF’s individual investments as of: September 30, 2020

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

(1) Represents floating rate instruments that accrue interest at a predetermined spread relative to an index, typically the applicable LIBOR, or “L” or Prime rate or “P”. The spread may change based on the type of rate used. The terms in the Schedule of Investments disclose the actual interest rate in effect as of the reporting period. LIBOR loans are typically indexed to a 30-day, 60-day, 90-day or 180-day LIBOR rate (1M L, 2M L, 3M L, or 6M L, respectively), at the borrower’s option. All securities are subject to a LIBOR or Prime rate floor where a spread is provided, unless noted. The spread provided includes PIK interest and other fee rates, if any.

(2) Valued based on PSLF’s accounting policy.

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Below is the financial information for PSLF:

Statements of Assets and Liabilities
	September 30, 2021		September 30, 2020
Assets
Investments (cost—$405,009,393 and $358,023,408, respectively)	$	405,232,480	$	353,366,358
Cash and cash equivalents (cost—$11,013,454 and $7,536,719, respectively)		11,013,454		7,536,719
Interest receivable		1,175,230		877,008
Total assets		417,421,164		361,780,085
Liabilities
Distribution payable		2,800,000		1,393,716
Payable for investments purchased		12,792,969		5,700,000
Credit facility payable		224,000,000		213,500,000
Notes payable to members		106,040,612		87,500,000
Interest payable on credit facility		1,499,406		1,649,852
Interest payable on members notes		1,643,629		1,356,250
Accrued other expenses		612,111		315,576
Total liabilities		349,388,727		311,415,394
Commitments and contingencies (1)		—		—
Members' equity		68,032,437		50,364,691
Total liabilities and members' equity	$	417,421,164	$	361,780,085

⁽¹⁾ For the years ended of September 30, 2021 and 2020, PSLF did not have any unfunded commitments to fund investments.

Statements of Operations (1)
	Period Ended September 30,		Period Ended September 30,
	2021		2020
Investment income:
Interest	$	27,489,180	$	4,504,788
Other income		1,802,790		2,444
Total investment income		29,291,970		4,507,232
Expenses:
Interest and expenses on credit facility		6,283,544		1,039,327
Interest expense on members notes		9,532,516		1,356,250
Administrative services expenses		1,171,860		195,310
Other general and administrative expenses (2)		446,588		120,266
Total expenses		17,434,508		2,711,153
Net investment income		11,857,462		1,796,079
Realized and unrealized gain on investments:
Net realized gain on investments		544,547		254,653
Net change in unrealized appreciation on investments		4,880,137		2,173,436
Net realized and unrealized gain from investments		5,424,684		2,428,089
Net increase in members' equity resulting from operations	$	17,282,146	$	4,224,168

⁽¹⁾ PSLF commenced operations on July 31, 2020.

⁽²⁾ No management or incentive fees are payable by PSLF.

Recent Developments

Subsequent to September 30, 2021, we entered into an underwriting agreement, or the Underwriting Agreement, dated October 14, 2021, by and among the Company, the Investment Adviser, the Administrator and Raymond James & Associates, Inc., Keefe, Bruyette & Woods, Inc. and Truist Securities, Inc., as representatives of the several underwriters named on Schedule A to the Underwriting Agreement, in connection with the issuance and sale of $165.0 million aggregate principal amount of our 4.0% Notes due 2026, or the 2026-2 Notes. On October 21, 2021, we closed the transaction and issued $165.0 million in aggregate principal amount of our 2026-2 Notes at a public offering price per note of 99.436%. Interest on the 2026-2 Notes is paid semi-annually on May 1 and November 1 of each year, at a rate of 4.0% per year, commencing May 1, 2022. The 2026-2 Notes mature on November 1, 2026 and may be redeemed in whole or in part at our option subject to a make-whole premium if redeemed more than three months prior to maturity. The 2026-2 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future senior unsecured indebtedness. The 2026-2 Notes are effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, financing vehicles, or similar facilities. We do not intend to list the 2026-2 Notes on any securities exchange or automated dealer quotation system.

On October 14, 2021, we announced that we will redeem $86,250,000 in principal amount of the 2024 Notes in full on November 13, 2021. We redeemed in full the 2024 Notes with a principal amount of $86.3 million on November 13, 2021. The 2024 Notes were redeemed at a redemption price of $25 per 2024 Note, plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to, but excluding, November 13, 2021.

Subsequent to quarter end, PNNT had new funded investment of $97.8 million, net of sales and repayments.  

Distributions

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.

53

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 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 taxas a RIC, in order to provide us with additional liquidity.

During the years ended September 30, 2021 and 2020, we declared distributions of $0.48 per share and $0.60 per share, respectively, for total distributions of $32.2 million and $40.2 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.

Recent Accounting Pronouncements

In March 2020, the FASB issued Accounting Standards Update No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued because of the reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is evaluating the potential impact that the adoption of this guidance will have on the Company’s financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. As of September 30, 2021, our debt portfolio consisted of 92% variable-rate investments and 8% 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:

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%	$	349		$	0.01
Up 1%		(2,345	)		(0.03	)
Up 2%		2,426			0.04
Up 3%		7,198			0.11
Up 4%	$	11,969		$	0.18

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.

54

Item 8.Consolidated Financial Statements and Supplementary Data

	Page
Management’s Report on Internal Control over Financial Reporting	56
Report of Independent Registered Public Accounting Firm	57
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting	58
Consolidated Statements of Assets and Liabilities as of September 30, 2021 and 2020	59
Consolidated Statements of Operations for the years ended September 30, 2021, 2020 and 2019	60
Consolidated Statements of Changes in Net Assets for the years ended September 30, 2021, 2020 and 2019	61
Consolidated Statements of Cash Flows for the years ended September 30, 2021, 2020 and 2019	62
Consolidated Schedules of Investments as of September 30, 2021 and 2020	63
Notes to the Consolidated Financial Statements	71

55

Management’s Report on Internal Control Over Financial Reporting

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, 2021. 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, 2021. 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, 2021, 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, 2021. This report appears on page 57.

56

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of

PennantPark Investment Corporation and its Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of assets and liabilities of PennantPark Investment Corporation and its Subsidiaries (the Company), including the consolidated schedules of investments, as of September 30, 2021 and 2020, 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, 2021, and the related notes to the consolidated financial statements (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, 2021 and 2020, and the results of its operations, changes in net assets, and cash flows for each of the three years in the period ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2021, 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 17, 2021, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

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 procedures included confirmation of securities owned as of September 30, 2021 and 2020, by correspondence with the custodians and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Level 3 Fair Value Measurements

The fair value of the Company’s investments valued using Level 3 fair value measurements was approximately $1.21 billion as of September 30, 2021. The fair value of the Company’s financial instruments classified as liabilities valued using Level 3 fair value measurements was approximately $314.8 million as of September 30, 2021. As discussed in Notes 2 and 5 to the consolidated financial statements, the Company’s investment portfolio generally consists of illiquid securities, including debt and equity investments, which were acquired directly from the issuer. Such investments include first lien secured debt, second lien secured debt, subordinated debt and equity investments. Additionally, the Company has elected to apply the fair value option to certain financial instruments classified as liabilities. The inputs into the determination of fair value may require significant management judgment or estimation.

We identified Level 3 fair value measurements as a critical audit matter due to the subjective nature of the judgments necessary for management to select valuation techniques and the use of significant unobservable inputs to estimate the fair value. Auditing the reasonableness of management’s selection of valuation technique and the related unobservable inputs required a high degree of auditor judgment and increased audit effort, including the use of a valuation specialist.

The primary procedures we performed to address this critical audit matter included the following, among others:

• We obtained an understanding of the relevant controls related to management’s valuation of Level 3 fair value measurements, including those related to valuation techniques and significant unobservable inputs and tested such controls for design and operating effectiveness.

• With the assistance of our valuation specialists, we evaluated the appropriateness of the selected valuation techniques, and any changes to selected valuation techniques from prior periods, used for Level 3 fair value measurements. We also tested the related significant unobservable inputs by comparing these inputs to external sources.

• We evaluated management’s historical ability to estimate fair value through comparison of previous estimates to the transaction price of available transactions occurring subsequent to the previous valuation date.

/s/ RSM US LLP

We have served as the Company's auditor since 2013.

New York, New York

November 17, 2021

57

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of

PennantPark Investment Corporation and its Subsidiaries

Opinion on the Internal Control Over Financial Reporting

We have audited PennantPark Investment Corporation and its Subsidiaries' (collectively referred to as the “Company”) internal control over financial reporting as of September 30, 2021, 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, 2021, 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, 2021 and 2020, 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, 2021, and the related notes to the consolidated financial statements (collectively, the financial statements) of the Company and our report dated November 17, 2021 expressed an unqualified opinion.

Basis for 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.

Definition and Limitations of Internal Control Over Financial Reporting

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.

/s/ RSM US LLP

New York, New York

November 17, 2021

58

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

	September 30, 2021			September 30, 2020
Assets
Investments at fair value
Non-controlled, non-affiliated investments (cost—$729,811,369 and $713,683,209, respectively)	$	820,500,111		$	735,674,666
Non-controlled, affiliated investments (cost—$78,723,320 and $77,628,920, respectively)		50,161,391			27,753,893
Controlled, affiliated investments (cost—$412,586,761 and $374,260,162, respectively)		384,628,332			318,342,859
Total of investments (cost—$1,221,121,450 and $1,165,572,291 , respectively)		1,255,289,834			1,081,771,418
Cash and cash equivalents (cost—$20,382,959 and $25,801,087 , respectively)		20,357,016			25,806,002
Interest receivable		4,958,217			5,005,715
Receivable for investments sold		12,792,969			—
Distribution receivable		1,694,000			1,393,716
Prepaid expenses and other assets		—			376,030
Total assets		1,295,092,036			1,114,352,881
Liabilities
Distributions payable		8,045,413			8,045,413
Payable for investments purchased		8,407,287			5,461,508
Truist Credit Facility payable, at fair value (cost—$316,544,900 and $388,252,000, respectively)    (See Notes 5 and 11)		314,813,145			368,701,972
2024 Notes payable, net (par—$86,250,000 and $86,250,000, respectively) (See Notes 5 and 11)		84,503,061			83,837,560
2026 Notes payable, net (par—$150,000,000 and zero, respectively) (See Notes 5 and 11)		145,865,253			—
SBA debentures payable, net (par—$63,500,000 and $118,500,000, respectively) (See Notes 5 and 11)		62,158,642			115,772,677
Base management fee payable, net (See Note 3)		4,580,227			4,369,637
Incentive fee payable, net (See Note 3)		574,728			—
Interest payable on debt		4,942,513			2,022,614
Accrued other expenses		1,057,660			432,648
Total liabilities		634,947,929			588,644,029
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		786,992,974			787,625,031
Accumulated distributable loss		(126,915,912	)		(261,983,224	)
Total net assets	$	660,144,107		$	525,708,852
Total liabilities and net assets	$	1,295,092,036		$	1,114,352,881
Net asset value per share	$	9.85		$	7.84

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

59

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended September 30,
	2021			2020			2019
Investment income:
From non-controlled, non-affiliated investments:
Interest	$	46,018,282		$	77,453,276		$	88,060,418
Payment-in-kind		8,566,689			7,233,317			6,445,122
Other income		4,136,578			4,821,510			3,122,988
From non-controlled, affiliated investments:
Interest		456,998			—			—
From controlled, affiliated investments:
Interest		9,824,994			3,387,858			9,381,881
Payment-in-kind		6,222,805			7,328,846			4,319,300
Dividend income		6,361,000			—			—
Other income		—			—			776,945
Total investment income		81,587,346			100,224,807			112,106,654
Expenses:
Base management fee (See Note 3)		17,334,682			18,636,039			18,225,229
Performance-based incentive fee (See Note 3)		574,728			4,579,660			5,146,696
Interest and expenses on debt (See Note 11)		22,506,953			32,167,755			28,943,312
Administrative services expenses (See Note 3)		1,770,080			2,075,080			2,113,895
Other general and administrative expenses		2,323,923			2,573,920			2,637,820
Expenses before Management Fees waiver, provision for taxes and financing costs		44,510,366			60,032,454			57,066,952
Management Fees waiver (See Note 3)		—			(1,921,987	)		—
Provision for taxes		600,000			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		45,110,366			61,494,595			67,509,683
Net investment income		36,476,980			38,730,212			44,596,971
Realized and change in unrealized gain (loss) on investments and debt:
Net realized gain (loss) on:
Non-controlled, non-affiliated investments		49,729,190			(11,577,419	)		(51,940,526	)
Non-controlled and controlled, affiliated investments		(19,708,359	)		—			(56,575,132	)
Deconsolidation loss (Note 4)		—			(9,249,833	)		—
Net realized (loss) gain on investments		30,020,831			(20,827,252	)		(108,515,658	)
Net change in change in unrealized (depreciation) appreciation on:
Non-controlled, non-affiliated investments		50,129,570			7,686,665			22,788,117
Non-controlled and controlled, affiliated investments		67,807,797			(53,863,620	)		51,361,260
Debt (See Notes 5 and 11)		(17,818,273	)		12,304,242			5,694,116
Net change in unrealized (depreciation) appreciation on investments and debt		100,119,094			(33,872,713	)		79,843,493
Net realized and change in unrealized gain (loss) from investments and debt		130,139,925			(54,699,965	)		(28,672,165	)
Net (decrease) increase in net assets resulting from operations	$	166,616,905		$	(15,969,753	)	$	15,924,806
Net (decrease) increase in net assets resulting from operations per common share (See Note 7)	$	2.49		$	(0.24	)	$	0.24
Net investment income per common share	$	0.54		$	0.58		$	0.66

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

60

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

	Years Ended September 30,
	2021			2020			2019
Net increase (decrease) in net assets resulting from operations:
Net investment income	$	36,476,980		$	38,730,212		$	44,596,971
Net realized gain (loss) on investments		30,020,831			(11,577,419	)		(108,515,658	)
Net deconsolidation realized loss		—			(9,249,833	)		—
Net change in unrealized appreciation (depreciation) on investments		117,937,367			(46,176,955	)		74,149,377
Net change in unrealized (appreciation) depreciation on debt		(17,818,273	)		12,304,242			5,694,116
Net increase (decrease) in net assets resulting from operations		166,616,905			(15,969,753	)		15,924,806
Distributions to stockholders:
Distribution of net investment income		(32,181,650	)		(40,227,063	)		(48,449,313	)
Total distributions to stockholders		(32,181,650	)		(40,227,063	)		(48,449,313	)
Capital transactions:
Repurchase of common stock		—			—			(14,471,720	)
Net increase (decrease) in net assets		134,435,255			(56,196,816	)		(46,996,227	)
Net assets:
Beginning of year		525,708,852			581,905,668			628,901,895
End of year	$	660,144,107		$	525,708,852		$	581,905,668
Capital share activity:
Shares of common stock repurchased		—			—			(2,006,878	)

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

61

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STEATEMENTS OF CASH FLOWS

	Years Ended September 30,
	2021			2020			2019
Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations	$	166,616,905		$	(15,969,753	)	$	15,924,806
Adjustments to reconcile net (decrease) increase in net assets resulting from    operations to net cash provided (used in) by operating activities:
Net change in net unrealized (appreciation) depreciation on investments		(117,937,367	)		46,176,955			(74,149,377	)
Net change in unrealized depreciation on debt		17,818,273			(12,304,242	)		(5,694,116	)
Net realized (gain) loss on investments		(30,020,831	)		11,577,419			108,515,658
Deconsolidation realized loss		—			9,249,833			—
Net accretion of discount and amortization of premium		(3,525,381	)		(2,592,265	)		(2,631,213	)
Purchases of investments		(441,364,505	)		(319,307,932	)		(533,619,983	)
Payment-in-kind income		(15,210,123	)		(14,549,188	)		(12,011,137	)
Proceeds from dispositions of investments		434,472,734			162,693,343			426,498,436
Amortization of deferred financing costs		2,452,220			1,857,349			744,433
Decrease in interest receivable		47,498			1,220,824			1,380,425
Increase in receivables from investments sold		(12,792,969	)		—			—
Increase in distribution receivable		(300,284	)		(1,393,716	)		—
(Increase) decrease in prepaid expenses and other assets		376,030			(437,144	)		257,593
Increase (decrease) in payable for investments purchased		2,945,779			5,461,508			—
Decrease in interest payable on debt		2,919,899			(873,081	)		(3,680,698	)
(Decrease) increase in base management fee payable, net		210,590			(271,843	)		554,649
(Decrease) increase in performance-based incentive fee payable, net		574,728			—			(2,964,265	)
Decrease in accrued other expenses		625,012			(136,527	)		(248,997	)
Net cash provided (used in) by operating activities		7,908,208			(129,598,460	)		(81,123,786	)
Cash flows from financing activities:
Repurchase of common stock		—			—			(14,471,720	)
Distributions paid to stockholders		(32,181,652	)		(44,249,769	)		(48,810,906	)
Borrowings under SBA debentures		—			—			—
Repayments of SBA debentures		(55,000,000	)		(31,500,000	)		(30,000,000	)
Net proceeds from 2024 Notes issuance		—			10,912,500			72,250,000
Net proceeds from 2026 Notes issuance		145,464,500			—			—
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		310,311,500			331,000,000			697,000,000
Repayments under Truist Credit Facility		(382,018,601	)		(244,384,000	)		(475,884,000	)
Net cash (used in) provided by financing activities		(13,424,253	)		95,778,731			121,083,374
Net (decrease) increase in cash and cash equivalents		(5,516,045	)		(33,819,729	)		39,959,588
Effect of exchange rate changes on cash		67,059			109,495			50,494
Cash and cash equivalents, beginning of year		25,806,002			59,516,236			19,506,154
Cash and cash equivalents, end of year	$	20,357,016		$	25,806,002		$	59,516,236
Supplemental disclosures:
Interest paid	$	17,134,834		$	31,183,487		$	31,879,577
Taxes paid	$	983,706		$	1,049,381		$	1,143,380
Non-cash exchanges and conversions (1)	$	16,515,842		$	108,812,276		$	14,823,909

⁽¹⁾ In addition to the “Non-cash exchanges and conversions” reported above, on July 31, 2020 we and Pantheon formed PSLF, an unconsolidated joint venture. 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 is included in “Proceeds from dispositions of investments” on the Statement of Cash Flows. We contributed our formerly wholly-owned subsidiary, Funding I, to PSLF in exchange for a 72% stake in the joint venture which was valued at $96.2 million ($63.0 million of PSLF member notes and 72% of PSLF’s members’ equity). As a result of this non-cash transaction, Funding I was deconsolidated from PennantPark Investment’s financial statements, including Funding I’s portfolio of senior loans valued at $356.1 million as of July 31, 2020.

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

62

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

SEPTEMBER 30, 2021

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—124.3% (1), (2)
First Lien Secured Debt—77.5%
18 Freemont Street Acquisition, LLC	08/11/2025	Hotels, Motels, Inns and Gaming		9.50	%	1M L+800			7,432,867	$	6,815,049	$	7,562,943
Ad.net Acquisition, LLC (Revolver)	05/06/2026	Media		7.00	%	3M L+600			75,556		75,556		74,422
Ad.net Acquisition, LLC (Revolver) (7)	05/06/2026	Media		—			—		368,889		—		(5,533	)
Altamira Technologies, LLC (Revolver)	07/24/2025	Aerospace and Defense		8.00	%	3M L+700			50,000		50,000		46,875
Altamira Technologies, LLC (Revolver) (7)	07/24/2025	Aerospace and Defense		—			—		137,500		—		(8,594	)
American Insulated Glass, LLC	12/21/2023	Building Materials		6.50	%	3M L+550			15,795,264		15,638,927		15,637,311
Any Hour Services (7)	07/21/2027	Personal, Food and Miscellaneous Services		—			—		3,823,529		—		(38,235	)
Any Hour Services (Revolver) (7)	07/21/2027	Personal, Food and Miscellaneous Services		—			—		1,147,059		—		(22,941	)
Apex Service Partners, LLC	07/31/2025	Personal, Food and Miscellaneous Services		6.25	%	1M L+525			1,330,729		1,330,729		1,317,421
Apex Service Partners, LLC Term Loan C	07/31/2025	Personal, Food and Miscellaneous Services		6.25	%	1M L+525			5,592,391		5,508,960		5,536,467
Apex Service Partners, LLC Term Loan C (7)	01/31/2022	Personal, Food and Miscellaneous Services		—			—		6,657,609		—		(8,322	)
Apex Service Partners, LLC (Revolver)	07/29/2024	Personal, Food and Miscellaneous Services		6.25	%	3M L+525			238,991		238,991		234,809
Apex Service Partners, LLC (Revolver) (7)	07/29/2024	Personal, Food and Miscellaneous Services		—			—		693,074		—		(12,129	)
Applied Technical Services, LLC (7)	06/29/2022	Environmental Services		—			—		6,235,427		—		(54,560	)
Applied Technical Services, LLC (Revolver) (7)	12/29/2026	Environmental Services		—			—		1,000,000		—		(20,000	)
Bottom Line Systems, LLC	02/13/2023	Healthcare, Education and Childcare		6.25	%	1M L+550			6,153,097		6,128,168		6,153,097
Broder Bros., Co.	12/02/2022	Consumer Products		9.75	%	3M L+850			25,332,751		25,333,384		25,332,751
CF512, Inc.	08/20/2026	Media		7.00	%	3M L+600			10,000,000		9,802,447		9,800,000
CF512, Inc. (7)	08/20/2026	Media		—			—		2,727,273		—		(27,273	)
CF512, Inc.(Revolver) (7)	08/20/2026	Media		—			—		909,091		—		(18,182	)
Compex Legal Services, Inc.	02/09/2026	Business Services		6.75	%	3M L+575			3,569,654		3,514,434		3,528,959
Compex Legal Services, Inc. (Revolver)	02/07/2025	Business Services		6.75	%	3M L+575			458,962		458,962		453,730
Compex Legal Services, Inc. (Revolver) (7)	02/07/2025	Business Services		—			—		196,698		—		(2,242	)
Connatix Buyer, Inc.	07/13/2027	Media		6.25	%	3M L+550			12,000,000		11,765,652		11,760,000
Connatix Buyer, Inc. (7)	01/13/2023	Media		—			—		3,157,895		—		(31,579	)
Connatix Buyer, Inc. (Revolver)	07/13/2027	Media		6.25	%	3M L+550			185,938		185,938		182,219
Connatix Buyer, Inc. (Revolver) (7)	07/13/2027	Media		—			—		1,673,438		—		(33,469	)
Crane 1 Services, Inc.	08/16/2027	Personal, Food and Miscellaneous Services		6.75	%	3M L+575			1,847,368		1,820,153		1,828,895
Crane 1 Services, Inc. (7)	08/16/2023	Personal, Food and Miscellaneous Services		—			—		777,512		—		(1,944	)
Crane 1 Services, Inc. (Revolver) (7)	08/16/2027	Personal, Food and Miscellaneous Services		—			—		291,567		—		(2,916	)
Crash Champions, LLC	08/05/2025	Auto Sector		6.00	%	3M L+500			4,750,756		4,703,891		4,655,741
Crash Champions, LLC (7)	05/14/2022	Auto Sector		—			—		6,749,244		—		(67,492	)
DermaRite Industries LLC	03/03/2022	Auto Sector		8.00	%	1M L+700			8,054,975		8,041,482		7,719,888
Dr. Squatch, LLC	08/27/2026	Personal and Non-Durable Consumer Products		7.00	%	3M L+600			13,514,714		13,247,087		13,244,419
Dr. Squatch, LLC (Revolver)	08/27/2026	Personal and Non-Durable Consumer Products		7.00	%	3M L+600			1,705,610		1,705,610		1,671,498
Dr. Squatch, LLC (Revolver) (7)	08/27/2026	Personal and Non-Durable Consumer Products		—			—		620,222		—		(12,404	)
DRS Holdings III, Inc.	11/03/2025	Consumer Products		7.25	%	3M L+625			9,975,000		9,881,551		9,905,175
DRS Holdings III, Inc. (Revolver) (7)	11/03/2025	Consumer Products		—			—		1,782,555		—		(12,478	)
ECL Entertainment, LLC	03/31/2028	Hotels, Motels, Inns and Gaming		8.25	%	1M L+750			8,747,308		8,663,806		8,944,122
ECM Industries, LLC (Revolver) (7)	12/23/2025	Electronics		—			—		517,594		—		(2,588	)
Fairbanks Morse Defense	06/17/2028	Aerospace and Defense		5.50	%	3M L+475			3,500,000		3,487,100		3,500,000
Gantech Acquisition Corp.	05/14/2026	Business Services		7.25	%	1M L+625			19,900,000		19,522,193		19,502,000
Gantech Acquisition Corp. (Revolver)	05/14/2026	Business Services		7.25	%	1M L+625			497,771		497,771		487,816
Gantech Acquisition Corp. (Revolver) (7)	05/14/2026	Business Services		—			—		1,493,313		—		(29,866	)
Graffiti Buyer, Inc.	08/10/2027	Distribution		6.75	%	3M L+575			1,994,048		1,954,772		1,964,137
Graffiti Buyer, Inc. (7)	08/10/2023	Distribution		—			—		892,857		—		(4,464	)
Graffiti Buyer, Inc. (Revolver) (7)	08/10/2027	Distribution		—			—		768,634		—		(17,832	)
Hancock Roofing and Construction L.L.C. (7)	12/31/2022	Insurance		—			—		1,500,000		—		(15,000	)
Hancock Roofing and Construction L.L.C. (Revolver) (7)	12/31/2026	Insurance		—			—		750,000		—		(7,500	)
HW Holdco, LLC	12/10/2024	Media		5.50	%	3M L+450			2,541,048		2,525,585		2,515,638
HW Holdco, LLC (Revolver)	12/10/2024	Media		5.50	%	3M L+450			1,219,355		1,219,355		1,207,161
HW Holdco, LLC (Revolver) (7)	12/10/2024	Media		—			—		2,167,742		—		(21,677	)
IG Investments Holdings, LLC	09/22/2028	Business Services		6.75	%	3M L+600			4,518,304		4,428,218		4,427,938
IG Investments Holdings, LLC (Revolver) (7)	09/22/2027	Business Services		—			—		476,879		—		—
IMIA Holdings, Inc.	04/09/2027	Aerospace and Defense		6.75	%	3M L+575			13,589,144		13,340,706		13,317,361
IMIA Holdings, Inc. (Revolver) (7)	04/09/2027	Aerospace and Defense		—			—		1,673,705		—		(33,474	)
Integrity Marketing Acquisition, LLC	08/27/2025	Insurance		6.49	%	3M L+550			17,220,295		17,116,076		17,134,194
Integrity Marketing Acquisition, LLC (7)	07/09/2023	Insurance		—			—		4,277,692		—		10,694
Juniper Landscaping of Florida, LLC	12/22/2021	Personal, Food and Miscellaneous Services		6.50	%	1M L+550			2,614,750		2,610,844		2,614,750
K2 Pure Solutions NoCal, L.P.	12/20/2023	Chemicals, Plastics and Rubber		8.00	%	1M L+700			11,799,667		11,712,192		11,485,796
K2 Pure Solutions NoCal, L.P. (Revolver)	12/20/2023	Chemicals, Plastics and Rubber		8.00	%	1M L+700			872,143		872,143		848,944
K2 Pure Solutions NoCal, L.P. (Revolver) (7)	12/20/2023	Chemicals, Plastics and Rubber		—			—		1,065,952		—		(28,354	)
Lash OpCo, LLC	02/18/2027	Consumer Products		8.00	%	1M L+700			30,000,000		29,334,858		29,400,001
Lash OpCo, LLC (Revolver)	08/16/2026	Consumer Products		8.00	%	1M L+700			291,142		291,142		285,319
Lash OpCo, LLC (Revolver) (7)	08/19/2026	Consumer Products		—			—		1,528,494		—		(30,570	)
LAV Gear Holdings, Inc.	10/31/2024	Leisure, Amusement, Motion Pictures, Entertainment		8.50	%	1M L+750			790,306		785,493		740,754
				(PIK 5.00	%)
Lightspeed Buyer Inc.	02/03/2026	Healthcare, Education and Childcare		6.75	%	1M L+575			4,993,874		4,922,030		4,993,874
Lightspeed Buyer Inc. (Revolver) (7)	02/03/2026	Healthcare, Education and Childcare		—			—		1,165,780		—		—
Lombart Brothers, Inc.	04/13/2023	Healthcare, Education and Childcare		7.25	%	1M L+625			1,035,618		1,035,618		1,035,618
Lombart Brothers, Inc. (Revolver)	04/13/2023	Healthcare, Education and Childcare		7.25	%	1M L+625			737,293		737,293		737,293
Mars Acquisition Holdings Corp. (Revolver)(7)	5/14/2026	Media		—			—		806,142		—		(8,061	)
MBS Holdings, Inc. (Revolver) (7)	04/16/2027	Telecommunications		—			—		694,444		—		(13,889	)
MeritDirect, LLC	05/23/2024	Media		6.50	%	3M L+550			2,759,490		2,735,940		2,731,895
MeritDirect, LLC (Revolver) (7)	05/23/2024	Media		—			—		2,518,345		—		(25,183	)
Municipal Emergency Services, Inc.	09/28/2027	Distribution		6.00	%	3M L+500			6,952,830		6,813,773		6,813,773
Municipal Emergency Services, Inc. (7)	09/28/2027	Distribution		—			—		1,880,414		—		—
Municipal Emergency Services, Inc. (Revolver) (7)	09/28/2027	Distribution		—			—		1,880,414		—		—
NBH Group LLC	08/19/2026	Healthcare, Education and Childcare		6.50	%	1M L+550			7,561,352		7,412,724		7,410,125
NBH Group LLC (Revolver) (7)	08/19/2026	Healthcare, Education and Childcare		—			—		1,162,916		—		(23,258	)

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

63

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

SEPTEMBER 30, 2021

Issuer Name	Maturity / Expiration	Industry	Current Coupon			Basis Point Spread Above Index (4)		Par / Shares		Cost		Fair Value (3)
OIS Management Services, LLC	07/09/2026	Healthcare, Education and Childcare		5.75	%	3M L+475			3,892,500	$	3,842,568	$	3,834,113
OIS Management Services, LLC (7)	07/09/2023	Healthcare, Education and Childcare		—			—		1,433,333		—		(10,750	)
OIS Management Services, LLC (Revolver) (7)	07/09/2026	Healthcare, Education and Childcare		—			—		333,333		—		(5,000	)
One Stop Mailing, LLC	05/07/2027	Cargo Transport		7.25	%	3M L+625			14,919,643		14,630,941		14,658,549
ORL Acquisition, Inc.	09/03/2027	Business Services		6.25	%	3M L+525			5,040,902		4,940,826		4,940,084
ORL Acquisition, Inc. (Revolver) (7)	09/03/2027	Business Services		—			—		596,963		—		—
Ox Two, LLC	05/18/2026	Building Materials		7.00	%	1M L+600			15,671,250		15,435,477		15,357,825
Ox Two, LLC (Revolver)	05/18/2026	Building Materials		7.00	%	1M L+600			645,161		645,161		632,258
Ox Two, LLC (Revolver) (7)	05/18/2026	Building Materials		—			—		1,774,194		—		(35,484	)
PRA Events, Inc.	08/07/2025	Business Services		11.50	%	3M L+1,050			23,674,669		20,421,188		22,372,562
				(PIK 11.50	%)
PRA Events, Inc. (Revolver)	08/07/2025	Business Services		11.50	%	3M L+1,050			2,461,198		2,122,969		2,325,832
				(PIK 11.50	%)
Quantic Electronics, LLC	11/19/2026	Aerospace and Defense		7.25	%	1M L+625			6,187,790		6,094,679		6,064,035
Quantic Electronics, LLC (7)	11/19/2026	Aerospace and Defense		—			—		2,093,825		—		(20,938	)
Quantic Electronics, LLC (Revolver) (7)	11/19/2026	Aerospace and Defense		—			—		528,486		—		(10,570	)
Questex, LLC	09/09/2024	Media		6.00	%	3M L+500			21,825,000		21,583,560		20,515,500
Questex, LLC (Revolver)	09/09/2024	Media		6.00	%	3M L+500			2,154,255		2,154,255		2,025,000
Questex, LLC (Revolver) (7)	09/09/2024	Media		—			—		1,436,170		—		(86,170	)
Radius Aerospace, Inc. (Revolver) (7)	03/31/2025	Aerospace and Defense		—			—		2,227,142		—		(62,805	)
Rancho Health MSO, Inc. (7)	12/18/2025	Healthcare, Education and Childcare		—			—		1,050,000		—		—
Rancho Health MSO, Inc. (Revolver) (7)	12/18/2025	Healthcare, Education and Childcare		—			—		525,000		—		—
Recteq, LLC (Revolver) (7)	01/29/2026	Consumer Products		—			—		1,126,761		—		(11,268	)
Research Horizons, LLC	06/28/2022	Media		7.25	%	1M L+625			28,796,453		28,682,356		28,508,488
Research Now Group, Inc. and Dynata, LLC	12/20/2024	Business Services		6.50	%	3M L+550			2,883,769		2,883,769		2,847,117
Riverpoint Medical, LLC (Revolver) (7)	06/20/2025	Healthcare, Education and Childcare		—			—		363,636		—		(4,473	)
Riverside Assessments, LLC	03/10/2025	Education		6.75	%	3M L+575			16,173,514		15,951,570		15,769,176
Sales Benchmark Index LLC (Revolver) (7)	01/03/2025	Business Services		—			—		731,707		—		(18,293	)
Sargent & Greenleaf Inc. (Revolver)	12/20/2024	Electronics		7.00	%	3M L+550			298,972		298,972		298,972
Sargent & Greenleaf Inc. (Revolver) (7)	12/20/2024	Electronics		—			—		298,972		—		—
Schlesinger Global, Inc.	07/14/2025	Business Services		8.00	%	3M L+700			512,170		507,440		489,123
				(PIK 1.00	%)
Schlesinger Global, Inc. (Revolver)	07/14/2025	Business Services		8.00	%	3M L+700			24,235		24,235		23,144
				(PIK 1.00	%)
Schlesinger Global, Inc. (Revolver)(7)	07/14/2025	Business Services		—			—		14,089		—		(634	)
Sigma Defense Systems, LLC	12/18/2025	Telecommunications		9.75	%	3M L+875			6,519,875		6,378,184		6,405,777
Sigma Defense Systems, LLC (Revolver) (7)	12/18/2025	Telecommunications		—			—		950,869		—		(16,640	)
Signature Systems Holding Company - Term Loan II	12/31/2021	Chemicals, Plastics and Rubber		8.50	%	3M L+750			806,452		802,420		798,387
Signature Systems Holding Company (Revolver)	05/03/2024	Chemicals, Plastics and Rubber		8.50	%	3M L+750			483,871		483,871		479,032
Signature Systems Holding Company (Revolver) (7)	05/03/2024	Chemicals, Plastics and Rubber		—			—		1,532,258		—		(15,323	)
Solutionreach, Inc. (Revolver) (7)	01/17/2024	Communications		—			—		1,665,000		—		—
Spear Education, LLC	02/26/2025	Education		6.00	%	3M L+500			14,898,125		14,780,767		14,898,125
Spear Education, LLC (7)	02/26/2022	Education		—			—		6,875,000		—		—
Spectacle Gary Holdings, LLC	12/23/2025	Hotels, Motels, Inns and Gaming		11.00	%	1M L+900			21,546,000		20,971,842		23,390,984
TAC LifePort Purchaser, LLC (Revolver) (7)	03/01/2026	Aerospace and Defense		—			—		620,155		—		(200	)
The Bluebird Group LLC	07/27/2026	Business Services		8.00	%	3M L+700			5,605,539		5,495,767		5,570,223
The Bluebird Group LLC (Revolver) (7)	07/27/2026	Business Services		—			—		733,737		—		(4,623	)
The Vertex Companies, LLC	08/30/2027	Business Services		6.50	%	1M L+550			4,577,116		4,486,280		4,491,420
The Vertex Companies, LLC (7)	08/30/2027	Business Services		—			—		2,220,985		—		(19,373	)
The Vertex Companies, LLC (Revolver) (7)	08/30/2027	Business Services		—			—		740,328		—		(13,861	)
TPC Canada Parent, Inc. and TPC US Parent, LLC (8),(11)	11/24/2025	Food		6.25	%	3M L+525			1,771,084		1,771,084		1,717,952
TVC Enterprises, LLC	03/26/2026	Transportation		6.75	%	1M L+575			15,506,132		15,347,022		15,506,132
TVC Enterprises, LLC (Revolver) (7)	03/26/2026	Transportation		—			—		2,702,152		—		—
TWS Acquisition Corporation	06/16/2025	Education		7.25	%	1M L+625			4,136,641		4,136,641		4,136,641
TWS Acquisition Corporation (Revolver) (7)	06/16/2025	Education		—			—		1,643,571		—		—
Tyto Athene, LLC  (Revolver) (7)	04/01/2026	Aerospace and Defense		—			—		363,610		—		—
Walker Edison Furniture Company LLC	03/31/2027	Home and Office Furnishings		6.75	%	3M L+575			24,875,000		24,293,307		23,942,188
Wildcat Buyerco, Inc.	02/27/2026	Electronics		6.00	%	3M L+500			1,628,686		1,612,485		1,620,542
Wildcat Buyerco, Inc. (7)	02/27/2022	Electronics		—			—		2,573,529		—		16,085
Wildcat Buyerco, Inc. (Revolver) (7)	02/27/2026	Electronics		—			—		551,471		—		(7,279	)
Total First Lien Secured Debt											509,046,239		511,405,396
Second Lien Secured Debt—16.2%
Atlas Purchaser, Inc	05/07/2029	Telecommunications		9.75	%	3M L+900			17,000,000		16,506,150		16,872,500
Data Axle, Inc.	04/03/2024	Other Media		10.25	%	3M L+925			20,400,000		20,220,262		20,400,000
ENC Parent Corporation	08/19/2029	Business Services		8.25	%	3M L+750			7,500,000		7,425,504		7,425,000
Halo Buyer, Inc.	07/06/2026	Consumer Products		9.25	%	1M L+825			32,500,000		32,105,964		31,118,750
Inventus Power, Inc.	09/29/2024	Electronics		9.50	%	3M L+850			16,593,290		16,292,435		16,261,424
QuantiTech LLC	02/04/2027	Aerospace and Defense		11.00	%	3M L+1,000			150,000		147,229		147,375
VT Topco, Inc.	08/17/2026	Business Services		7.06	%	3M L+675			15,000,000		14,921,967		15,000,000
Total Second Lien Secured Debt											107,619,511		107,225,049
Subordinated Debt/Corporate Notes—8.6%
Blackhawk Industrial Distribution, Inc.	03/17/2025	Distribution		12.00	%		—		14,334,994		14,165,120		14,334,994
				(PIK 2.00	%)
Cascade Environmental LLC	12/30/2023	Environmental Services		13.00	%		—		42,467,662		42,150,188		42,680,001
				(PIK 13.00	%)
Total Subordinated Debt/Corporate Notes											56,315,308		57,014,995

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

64

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

SEPTEMBER 30, 2021

Issuer Name	Maturity / Expiration		Industry	Current Coupon			Basis Point Spread Above Index (4)		Par / Shares		Cost		Fair Value (3)
Preferred Equity/Partnership Interests—3.9% (6)
Ad.net Holdings, Inc. (9)		—	Media		—			—		2,400		240,000		240,000
AH Newco Equityholdings, LLC		—	Healthcare, Education and Childcare		6.00	%		—		211		500,000		944,468
Cascade Environmental LLC		—	Environmental Services		16.00	%		—		178,304		17,607,478		21,133,488
Mars Intermediate Holdings II, Inc			Media		—			—		414		414,000		432,109
MeritDirect Holdings, LP (9)		—	Media		—			—		540		540,000		692,857
NXOF Holdings, Inc. (Tyto Athene, LLC)		—	Aerospace and Defense		—			—		160		159,808		202,082
ORL Holdco, Inc.		—	Business Services		—			—		575		57,461		57,461
Signature CR Intermediate Holdco, Inc.		—	Chemicals, Plastics and Rubber		12.00	%		—		1,527		1,527,026		1,878,601
TPC Holding Company, LP (8),(11)		—	Food		—			—		219		219,012		262,278
TWD Parent Holdings, LLC (The Vertex Companies, LLC)		—	Business Services		—			—		30		29,804		29,804
Total Preferred Equity/Partnership Interests												21,294,589		25,873,148
Common Equity/Partnership Interests/Warrants—18.0% (6)
Ad.net Holdings, Inc. (9)		—	Media		—			—		2,667		26,667		49,105
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		1,192,367
AG Investco LP (7), (9)		—	Business Services		—			—		194,836		—		—
Altamira Intermediate Company II, Inc.		—	Aerospace and Defense		—			—		125,000		125,000		32,859
Atlas Investment Aggregator, LLC (9)		—	Telecomunications		—			—		1,700,000		1,700,000		1,710,022
Cascade Environmental Holdings, LLC (9)		—	Environmental Services		—			—		33,901		2,852,080		478,175
CI (Allied) Investment Holdings, LLC		—	Business Services		—			—		120,962		1,243,217		475,439
(PRA Events, Inc.) (9)
Connatix Parent, LLC		—	Media		—			—		57,416		631,576		635,147
Cowboy Parent LLC		—	Distribution		—			—		22,500		2,250,000		1,902,358
(Blackhawk Industrial Distribution, Inc.)
Crane 1 Acquisition Parent Holdings, L.P.		—	Personal, Food and Miscellaneous Services		—			—		113		104,000		104,001
Crash Champion Holdings, LLC (9)		—	Auto Sector		—			—		36		327,778		369,273
Delta InvestCo LP (Sigma Defense Systems, LLC) (9)		—	Telecommunications		—			—		570,522		570,522		488,103
Delta InvestCo LP (Sigma Defense Systems, LLC) (7), (9)		—	Telecommunications		—			—		570,522		—		(82,419	)
ECM Investors, LLC (9)		—	Electronics		—			—		167,537		40,735		564,506
eCommission Holding Corporation (11)		—	Financial Services		—			—		80		1,004,625		1,152,560
FedHC InvestCo LP (9)		—	Aerospace and Defense		—			—		3,331		333,128		338,986
FedHC InvestCo LP (7),(9)		—	Aerospace and Defense		—			—		4,072		—		—
Gauge Lash Coinvest LLC		—	Consumer Products		—			—		889,376		135,598		3,557,503
Gauge Schlesinger Coinvest, LLC		—	Business Services		—			—		9		8,896		8,944
Gauge TVC Coinvest, LLC		—	Transportation		—			—		810,645		—		2,662,736
(TVC Enterprises, LLC)
GCOM InvestCo LP (9)		—	Business Services		—			—		1,855		809,488		351,789
GCOM InvestCo LP (7),(9)		—	Business Services		—			—		965		—		—
Go Dawgs Capital III, LP		—	Building Materials		—			—		675,325		675,325		844,156
(American Insulated Glass, LLC) (9)
Green Veracity Holdings, LP - Class A		—	Business Services		—			—		15,000		1,500,000		5,319,880
(VT Topco, Inc.)
Hancock Claims Consultants Investors, LLC (9)		—	Insurance		—			—		450,000		450,000		613,335
Infogroup Parent Holdings, Inc. (Data Axle, Inc.)		—	Other Media		—			—		181,495		2,040,000		3,220,546
Ironclad Holdco, LLC (Applied Technical Services, LLC) (9)		—	Environmental Services		—			—		3,960		389,697		433,917
ITC Rumba, LLC (Cano Health, LLC) (9)		—	Healthcare, Education and Childcare		—			—		375,675		—		60,807,873
JWC-WE Holdings, L.P.		—	Home and Office Furnishings		—			—		1,906,433		—		6,616,373
(Walker Edison Furniture Company LLC) (9)
Kadmon Holdings, Inc. (5)		—	Healthcare, Education and Childcare		—			—		252,014		2,265,639		2,195,042
Kentucky Racing Holdco, LLC (Warrants) (9)		—	Hotels, Motels, Inns and Gaming		—			—		161,252		—		1,147,039
KL Stockton Co-Invest LP (Any Hour Services) (9)		—	Personal, Food and Miscellaneous Services		—			—		382,353		382,353		382,353
Lariat ecoserv Co-Invest Holdings, LLC (9)		—	Environmental Services		—			—		363,656		363,656		1,043,693
Lightspeed Investment Holdco LLC		—	Healthcare, Education and Childcare		—			—		273,143		273,143		314,579
Mars Intermidiate Holdings II, Inc.		—	Media		—			—		414		—		169,217
MeritDirect Holdings, LP (9)		—	Media		—			—		540		—		126,202
Municipal Emergency Services, Inc.		—	Distribution		—			—		1,593,514		1,593,514		1,593,514
NEPRT Parent Holdings, LLC (Recteq, LLC) (9)		—	Consumer Products		—			—		1,299		1,262,435		1,536,711
NXOF Holdings, Inc.		—	Aerospace and Defense		—			—		3,261		3,261		186,421
(Tyto Athene, LLC)
OceanSound Discovery Equity, LP		—	Aerospace and Defense		—			—		98,286		978,695		1,624,567
(Holdco Sands Intermediate, LLC) (9)
Oral Surgery (ITC) Holdings, LLC (9)		—	Healthcare, Education and Childcare		—			—		2,904		62,500		62,501
ORL Holdco, Inc.		—	Business Services		—			—		638		6,385		6,385
QuantiTech InvestCo LP (9)		—	Aerospace and Defense		—			—		700		65,957		365,036
QuantiTech InvestCo LP (7),(9)		—	Aerospace and Defense		—			—		967		—		—
QuantiTech InvestCo II LP (9)		—	Aerospace and Defense		—			—		40		24,000		20,625
RFMG Parent, LP (Rancho Health MSO, Inc.)		—	Healthcare, Education and Childcare		—			—		1,050,000		1,050,000		1,253,055
SBI Holdings Investments LLC		—	Business Services		—			—		36,585		365,854		278,256
(Sales Benchmark Index LLC)
Signature CR Intermediate Holdco, Inc.		—	Chemicals, Plastics and Rubber		—			—		80		80,370		—
SSC Dominion Holdings, LLC		—	Electronics		—			—		1,500		1,500,000		1,889,568
Class A (US Dominion, Inc.)
SSC Dominion Holdings, LLC		—	Electronics		—			—		1,500		—		3,534,020
Class B (US Dominion, Inc.)
StellPen Holdings, LLC (CF512, Inc.)		—	Media		—			—		153,846		153,846		153,846

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

65

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

SEPTEMBER 30, 2021

Issuer Name	Maturity / Expiration		Industry	Current Coupon			Basis Point Spread Above Index (4)		Par / Shares		Cost		Fair Value (3)
TAC LifePort Holdings, LLC (9)		—	Aerospace and Defense		—			—		232,558	$	232,554	$	259,757
TPC Holding Company, LP (8). (11)		—	Food		—			—		11,527		11,527		32,967
TWD Parent Holdings, LLC (The Vertex Companies, LLC)		—	Business Services		—			—		608		608		608
U.S. Well Services, Inc. - Class A (5), (11)		—	Oil and Gas		—			—		1,261,201		3,021,880		914,497
UniVista Insurance		—	Business Services		—			—		400		400,000		405,264
Wildcat Parent, LP (Wildcat Buyerco, Inc.)		—	Electronics		—			—		2,314		231,400		411,287
ZS Juniper L.P.		—	Personal, Food and Miscellaneous Services		—			—		1,056		1,056,250		5,226,979
(Juniper Landscaping of Florida, LLC) (9)
Total Common Equity/Partnership Interests/Warrants												35,535,722		118,981,523
Total Investments in Non-Controlled, Non-Affiliated Portfolio Companies												729,811,369		820,500,111
Investments in Non-Controlled, Affiliated Portfolio Companies—7.6% (1), (2)
Preferred Equity/Partnership Interests—6.2% (6)
ETX Energy, LLC (9)		—	Oil and Gas		—			—		61,732		6,173,200		—
ETX Energy, LLC - Series X (9)		—	Oil and Gas		—			—		10,944		1,094,400		—
MidOcean JF Holdings Corp.		—	Distribution		—			—		153,922		15,392,189		41,022,520
Total Preferred Equity/Partnership Interests												22,659,789		41,022,520
Common Equity/Partnership Interests/Warrants—1.4% (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		24,789,935		9,138,871
Total Common Equity/Partnership Interests/Warrants												56,063,531		9,138,871
Total Investments in Non-Controlled, Affiliated Portfolio Companies												78,723,320		50,161,391
Investments in Controlled, Affiliated Portfolio Companies—58.3% (1), (2)
First Lien Secured Debt—6.2%
AKW Holdings Limited (8), (10), (11)	03/13/2024		Healthcare, Education and Childcare		7.50	%	3M L+700		£	30,500,000		42,389,025		41,124,675
Total First Lien Secured Debt												42,389,025		41,124,675
Second Lien Secured Debt—10.6%
Mailsouth Inc.	04/23/2025		Printing and Publishing		15.00	%		—		11,086,944		11,086,944		11,086,944
					(PIK 15.00	%)
PT Network Intermediate Holdings, LLC	11/30/2024		Healthcare, Education and Childcare		11.00	%	3M L+1,000			58,581,522		58,276,260		58,581,522
					(PIK 11.00	%)
Total Second Lien Secured Debt												69,363,204		69,668,466
Subordinated Debt—9.7%
PennantPark Senior Loan Fund, LLC (11)	07/31/2027		Financial Services		9.00	%	3M L+800			64,154,570		64,154,570		64,154,570
Total Subordinated Debt												64,154,570		64,154,570
Preferred Equity—2.0% (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		13,412,023
Total Preferred Equity												11,271,750		13,412,023
Common Equity—29.7% (6)
AKW Holdings Limited (8), (10), (11)		—	Healthcare, Education and Childcare		—			—	£	950		132,497		254,276
CI (PTN) Investment Holdings II, LLC		—	Healthcare, Education and Childcare		—			—		333,333		5,000,000		—
(PT Network, LLC) (9)
MSpark, LLC		—	Printing and Publishing		—			—		51,151		16,515,842		11,013,353
PennantPark Senior Loan Fund, LLC (11)		—	Financial Services		—			—		33,830,005		33,892,823		41,159,625
PT Network Intermediate Holdings, LLC (9)			Healthcare, Education and Childcare		—			—		621		7,158,977		62,131,082
RAM Energy Holdings LLC		—	Energy and Utilities		—			—		180,805		162,708,073		81,710,262
Total Common Equity												225,408,212		196,268,598
Total Investments in Controlled, Affiliated Portfolio Companies												412,586,761		384,628,332
Total Investments—190.2%												1,221,121,450		1,255,289,834
Cash and Cash Equivalents—3.1%
BlackRock Federal FD Institutional 30												18,219,519		18,219,519
BNY Mellon Cash Reserve and Cash												2,163,440		2,137,497
Total Cash and Cash Equivalents												20,382,959		20,357,016
Total Investments and Cash Equivalents—193.2%											$	1,241,504,409	$	1,275,646,850
Liabilities in Excess of Other Assets—(93.2%)														(615,502,744	)
Net Assets—100.0%													$	660,144,106

(1) The provisions of the 1940 Act classify investments based on the level of control that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally presumed to be “non-controlled” when we own 25% or less of the portfolio company’s voting securities and “controlled” when we own more than 25% of the portfolio company’s voting securities.

(2) The provisions of the 1940 Act classify investments further based on the level of ownership that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally deemed as “non-affiliated” when we own less than 5% of a portfolio company’s voting securities and “affiliated” when we own 5% or more of a portfolio company’s voting securities (See Note 6).

(3) Valued based on our accounting policy (See Note 2).

(4) Represents floating rate instruments that accrue interest at a predetermined spread relative to an index, typically the applicable London Interbank Offered Rate, or LIBOR or “L,” the Euro Interbank Offered Rate, or EURIBOR or “E,” or Prime rate, or “P.” The spread may change based on the type of rate used. The terms in the Schedule of Investments disclose the actual interest rate in effect as of the reporting period. LIBOR loans are typically indexed to a 30-day, 90-day or 180-day LIBOR rate (1M L, 3M L, or 6M L, respectively), and EURIBOR loans are typically indexed to a 90-day EURIBOR rate (3M E), at the borrower’s option. All securities are subject to a LIBOR or Prime rate floor where a spread is provided, unless noted. The spread provided includes PIK interest and other fee rates, if any.

(5) The security was not valued using significant unobservable inputs. The value of all other securities was determined using significant unobservable inputs (See Note 5).

(6) Non-income producing securities.

(7) Represents the purchase of a security with delayed settlement or a revolving line of credit that is currently an unfunded investment. This security does not earn a basis point spread above an index while it is unfunded.

(8) Non-U.S. company or principal place of business outside the United States.

(9) Investment is held through our Taxable Subsidiaries (See Note 1).

(10) Par / Shares amount is denominated in British Pounds (£) as denoted.

(11) The investment is treated as a non-qualifying asset under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of our total assets. As of September 30, 2021, qualifying assets represent 88% of the Company’s total assets and non-qualifying assets represent 12% of the Company’s total assets.

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

66

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

SEPTEMBER 30, 2020

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	)

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

67

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

SEPTEMBER 30, 2020

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

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

68

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS—(Continued)

SEPTEMBER 30, 2020

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

(1) The provisions of the 1940 Act classify investments based on the level of control that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally presumed to be “non-controlled” when we own 25% or less of the portfolio company’s voting securities and “controlled” when we own more than 25% of the portfolio company’s voting securities.

(2) The provisions of the 1940 Act classify investments further based on the level of ownership that we maintain in a particular portfolio company. As defined in the 1940 Act, a company is generally deemed as “non-affiliated” when we own less than 5% of a portfolio company’s voting securities and “affiliated” when we own 5% or more of a portfolio company’s voting securities (See Note 6).

(3) Valued based on our accounting policy (See Note 2).

(4) Represents floating rate instruments that accrue interest at a predetermined spread relative to an index, typically the applicable London Interbank Offered Rate, or LIBOR or “L,” the Euro Interbank Offered Rate, or EURIBOR or “E,” or Prime rate, or “P.” The spread may change based on the type of rate used. The terms in the Schedule of Investments disclose the actual interest rate in effect as of the reporting period. LIBOR loans are typically indexed to a 30-day, 90-day or 180-day LIBOR rate (1M L, 3M L, or 6M L, respectively), and EURIBOR loans are typically indexed to a 90-day EURIBOR rate (3M E), at the borrower’s option. All securities are subject to a LIBOR or Prime rate floor where a spread is provided, unless noted. The spread provided includes PIK interest and other fee rates, if any.

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

69

(5) The security was not valued using significant unobservable inputs. The value of all other securities was determined using significant unobservable inputs (See Note 5).

(6) Non-income producing securities.

(7) Represents the purchase of a security with delayed settlement or a revolving line of credit that is currently an unfunded investment. This security does not earn a basis point spread above an index while it is unfunded.

(8) Non-U.S. company or principal place of business outside the United States.

(9) Investment is held through our Taxable Subsidiaries (See Note 1).

(10) Par / Shares amount is denominated in British Pounds (£) as denoted.

(11) The investment is treated as a non-qualifying asset under Section 55(a) of the 1940 Act. Under the 1940 Act, we may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of our total assets. As of September 30, 2020, qualifying assets represent 87% of the Company’s total assets and non-qualifying assets represent 13% of the Company’s total assets.

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

70

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

1. ORGANIZATION

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. Our 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 an investment management agreement, or 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 the day-to-day operations of and provides investment advisory services to SBIC II under a separate investment management agreement. We have also entered into an administration agreement, or 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.

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. 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, and prior to deconsolidation, had 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. See Note 4.

In April 2021, we issued $150.0 million in aggregate principal amount of our 2026 Notes at a public offering price per note of 99.4%. Interest on the 2026 Notes is

paid semi-annually on May 1 and November 1 of each year, at a rate of 4.50% per year, commencing November 1, 2021. The 2026 Notes mature on May 1, 2026 and may be redeemed in whole or in part at our option subject to a make-whole premium if redeemed more than three months prior to maturity. The 2026 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future senior unsecured indebtedness. The 2026 Notes are effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, financing vehicles, or similar facilities. We do not intend to list the 2026 Notes on any securities exchange or automated dealer quotation system.

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.

2. SIGNIFICANT ACCOUNTING POLICIES

The preparation of our Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles, or 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. Changes in the economic and regulatory environment, financial markets, the credit worthiness of our portfolio companies, the global outbreak of the novel coronavirus (“COVID-19”) and any other parameters used in determining these estimates and assumptions could cause actual results to differ from 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 in consolidation. References to the Financial Accounting Standards Board’s, or FASB’s, Accounting Standards Codification, as amended, or 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.

Our significant accounting policies consistently applied are as follows:

(a) Investment Valuations

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 our 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.

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September 30, 2021

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:

(1) Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Investment Adviser responsible for the portfolio investment;

(2) Preliminary valuation conclusions are then documented and discussed with the management of the Investment Adviser;

(3) Our board of directors also engages independent valuation firms to conduct independent appraisals of our investments for which market quotations are not readily available or are readily available but deemed not reflective of the fair value of the investment. The independent valuation firms review management's preliminary valuations in light of their own independent assessment and also in light of any market quotations obtained from an independent pricing service, broker, dealer or market maker; 

(4) The audit committee of our board of directors reviews the preliminary valuations of the Investment Adviser and those of the independent valuation firms on a quarterly basis, periodically assesses the valuation methodologies of the independent valuation firms, and responds to and supplements the valuation recommendations of the independent valuation firms to reflect any comments; and

(5) Our board of directors discusses these valuations and determines the fair value of each investment in our portfolio in good faith, based on the input of our Investment Adviser, the respective independent valuation firms and the audit committee.

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 our 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.

(b) Security Transactions, Revenue Recognition, and Realized/Unrealized Gains or Losses

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 the 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, original issue discount, or 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, 2021 we had no portfolio companies on non-accrual. 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.

(c) Income Taxes

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 for U.S. Federal income tax purpose, we typically do not incur 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, state and local income taxes. For the years ended September 30, 2021, 2020 and 2019, we recorded a provision for taxes of $0.6 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 $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), 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 U.S. federal income tax regulations differ from GAAP, distributions characterized 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.

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September 30, 2021

(d) Distributions and Capital Transactions

Distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid, if any, as a distribution is determined by our 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 a 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.

(e) Foreign Currency Translation

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

1. Fair value of investment securities, other assets and liabilities – at the exchange rates prevailing at the end of the applicable period; and

2. Purchases and sales of investment securities, income and expenses – at the exchange rates prevailing on the respective dates of such transactions.

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 values 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.

(f)Consolidation

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.

(g)Asset Transfers and Servicing

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.

(h)Recent Accounting Pronouncements

In March 2020, the FASB issued Accounting Standards Update No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued because of the reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is evaluating the potential impact that the adoption of this guidance will have on the Company’s financial statements.

3. AGREEMENTS AND RELATED PARTY TRANSACTIONS

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 2021. 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.

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 requirements under the 1940 Act to the Company, our board of directors also approved an amendment to the Investment Management 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.” For the years ended September 30, 2021, 2020 and 2019, the Investment Adviser earned base management fees of $17.3 million, $18.6 million and $18.2 million, respectively, from us.

The incentive fee has two parts, as follows:

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 and any interest expense or amendment fees under any credit facility 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 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

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September 30, 2021

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 March 31, 2021, 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, 2021, 2020 and 2019, the Investment Adviser earned $0.6 million, $2.7 million (after a waiver of $1.9 million) and $5.1 million, respectively, in incentive fees on net investment income from us.

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, 2021, 2020 and 2019, the Investment Adviser did not accrue an incentive fee on capital gains as calculated under the Investment Management Agreement (as described above).

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, 2021, 2020 and 2019, 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 2021. 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, 2021, 2020 and 2019, we reimbursed the Investment Adviser approximately $1.2 million, $1.4 million and $1.8 million, respectively, including expenses the Investment Adviser incurred on behalf of the Administrator, for services described above.

For the years ended September 30, 2021, 2020 and 2019, the Company purchased zero, $15.0 million and zero, respectively, 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.

4. INVESTMENTS

Purchases of investments, including PIK interest, for the years ended September 30, 2021, 2020 and 2019 totaled $456.5 million, $333.9 million and $545.6 million, respectively. Sales and repayments of investments for the same periods totaled $434.5 million, $162.7 million and $426.5 million, respectively.

Investments and cash and cash equivalents consisted of the following:

	September 30, 2021				September 30, 2020
Investment Classification	Cost		Fair Value		Cost		Fair Value
First lien	$	551,435,262	$	552,530,069	$	451,763,766	$	439,013,082
Second lien		176,982,716		176,893,514		238,335,508		220,843,480
Subordinated debt / corporate notes		56,315,308		57,014,996		50,780,591		50,569,409
Subordinated notes in PSLF		64,154,570		64,154,570		63,000,000		63,000,000
Equity		338,340,770		363,537,060		328,471,250		272,082,870
Equity in PSLF		33,892,823		41,159,625		33,221,176		36,262,577
Total investments		1,221,121,450		1,255,289,834		1,165,572,291		1,081,771,418
Cash and cash equivalents		20,382,959		20,357,016		25,801,087		25,806,002
Total investments and cash and cash equivalents	$	1,241,504,409	$	1,275,646,851	$	1,191,373,378	$	1,107,577,420

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September 30, 2021

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:

Industry Classification	September 30, 2021 (1)			September 30, 2020
Healthcare, Education and Childcare		23	%		17	%
Business Services		9			4
Consumer Products		9			6
Distribution		7			4
Energy and Utilities		7			9
Media		7			6
Environmental Services		6			6
Hotels, Motels, Inns and Gaming		4			4
Building Materials		3			4
Education		3			3
Home and Office Furnishings		3			3
Aerospace and Defense		2			2
Electronics		2			4
Insurance		2			4
Other Media		2			2
Printing and Publishing		2			2
Telecommunications		2			2
Transportation		2			2
Cargo Transport		1			—
Chemicals, Plastics and Rubber		1			2
Manufacturing / Basic Industries		1			1
Personal and Non-Durable Consumer Products		1			—
Personal, Food and Miscellaneous Services		1			4
Other		—			9
Total		100	%		100	%

⁽¹⁾ Excludes investments in PSLF.

PennantPark Senior Loan Fund, LLC

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, 2021 and 2020 PSLF had total assets of $417.4 million and $361.8 million, respectively. PSLF’s portfolio consisted of debt investments in 47 and 37 portfolio companies as of September 30, 2021 and 2020, respectively. As of September 30, 2021, at fair value, the largest investment in a single portfolio company in PSLF was $16.8 million and the five largest investments totaled $74.4 million. 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, 2021 and 2020 we and Pantheon owned 60.5% and 39.5%, and 72.0% and 28.0%, respectively, of each of the outstanding subordinated notes and equity interests of PSLF. As of September 30, 2021 and 2020, our investment in PSLF consisted of subordinated notes of $64.2 million and equity interests of $41.2 million and 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, or the 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, through its wholly-owned subsidiary, or PSLF Subsidiary, has entered into a $275.0 million (increased from $250.0 million on November 6, 2020) 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, subject to leverage and borrowing base restrictions.

Below is a summary of PSLF’s portfolio at fair value:

	September 30, 2021			September 30, 2020
Total investments	$	405,232,480		$	353,366,358
Weighted average yield on debt investments		7.1	%		7.3	%
Number of portfolio companies in PSLF		47			37
Largest portfolio company investment	$	16,816,670		$	18,411,916
Total of five largest portfolio company investments	$	74,444,646		$	77,896,431

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September 30, 2021

Below is a listing of PSLF’s individual investments as of: September 30, 2021

Issuer Name	Maturity	Industry	Current Coupon	Basis Point Spread Above Index (1)		Par		Cost		Fair Value (2)
First Lien Secured Debt - 570.7%
Ad.net Acquisition, LLC	05/06/26	Media	7.00%	3M L + 600		$	4,987,500	$	4,919,652	$	4,912,688
Altamira Technologies, LLC	07/24/25	Aerospace and Defense	8.00%	3M L+700			921,231		911,674		863,654
American Insulated Glass, LLC	12/21/23	Building Materials	6.50%	3M L+550			14,625,244		14,480,504		14,478,992
Any Hour Services	07/21/27	Personal, Food and Miscellaneous Services	6.75%	1M L+525			6,500,000		6,378,125		6,370,000
Apex Service Partners, LLC	07/31/25	Personal, Food and Miscellaneous Services	6.25%	1M L+550			6,569,222		6,517,624		6,503,530
Apex Service Partners, LLC Term Loan B	07/31/25	Personal, Food and Miscellaneous Services	6.55%		—		3,346,690		3,313,038		3,313,223
Applied Technical Services, LLC	12/29/26	Environmental Services	6.75%	3M L+575			7,443,750		7,335,875		7,294,875
Bottom Line Systems, LLC	02/13/23	Healthcare, Education and Childcare	6.25%	1M L+550			13,729,432		13,673,678		13,729,432
Crash Champions, LLC	08/05/25	Auto Sector	6.00%	1M L+525			5,985,000		5,873,298		5,865,300
DRS Holdings III, Inc.	11/03/25	Consumer Products	7.25%	1M L+625			13,428,053		13,335,008		13,334,057
ECL Entertainment, LLC	03/31/28	Hotels, Motels, Inns and Gaming	8.25%	3M L+750			4,603,846		4,559,898		4,707,433
ECM Industries, LLC	12/23/25	Electronics	5.50%	3M L+450			2,826,993		2,804,979		2,770,453
Global Holdings InterCo LLC	03/16/26	Banking, Finance, Insurance & Real Estate	7.00%	3M L+600			7,462,500		7,360,276		7,425,188
Hancock Roofing and Construction L.L.C.	12/31/26	Insurance	6.00%	3M L+500			5,955,000		5,819,284		5,895,450
Holdco Sands Intermediate, LLC	12/19/25	Aerospace and Defense	7.50%	3M L+600			12,070,714		11,934,092		12,010,361
HW Holdco, LLC	12/10/24	Media	5.50%	3M L+450			14,587,500		14,499,086		14,441,625
IMIA Holdings, Inc.	04/09/27	Aerospace and Defense	6.75%	3M L+600			9,059,429		8,889,612		8,878,241
Integrity Marketing Acquisition, LLC	08/27/25	Insurance	6.50%	3M L+550			7,868,080		7,803,025		7,828,740
Juniper Landscaping of Florida, LLC	12/22/21	Personal, Food and Miscellaneous Services	6.50%	3M L+550			9,420,290		9,420,290		9,420,290
K2 Pure Solutions NoCal, L.P.	12/20/23	Chemicals, Plastics and Rubber	8.00%	1M L+700			14,587,500		14,478,841		14,199,473
LAV Gear Holdings, Inc.	10/31/24	Leisure, Amusement, Motion Pictures, Entertainment	8.50%	3M L+750			2,119,558		2,106,623		1,986,661
Lightspeed Buyer Inc.	02/03/26	Healthcare, Education and Childcare	6.75%	1M L+550			12,471,593		12,273,343		12,471,593
Lombart Brothers, Inc.	04/13/23	Healthcare, Education and Childcare	7.25%	1M L+825			16,816,670		16,728,518		16,816,670
MAG DS Corp.	04/01/27	Aerospace and Defense	6.50%	1M L+550			5,836,801		5,581,189		5,253,121
Mars Acquisition Holdings Corp.	05/14/26	Media	6.50%	1M L+575			8,000,000		7,851,584		7,920,000
MBS Holdings, Inc.	04/16/27	Telecommunications	6.75%	3M L+550			7,481,250		7,337,946		7,331,625
MeritDirect, LLC	05/23/24	Media	6.50%	3M L+550			13,386,132		13,271,890		13,252,270
PlayPower, Inc.	05/08/26	Consumer Products	5.65%	3M L+575			3,805,440		3,777,669		3,735,687
Radius Aerospace, Inc.	03/31/25	Aerospace and Defense	6.75%	3M L+600			13,334,912		13,201,809		13,068,214
Rancho Health MSO, Inc.	12/18/25	Healthcare, Education and Childcare	6.75%	3M L+550			5,231,625		5,140,072		5,231,625
Recteq, LLC	01/29/26	Consumer Products	7.00%	3M L+450			9,950,000		9,774,928		9,850,500
Research Now Group, LLC and Dynata, LLC	12/20/24	Business Services	6.50%	3M L+600			14,694,656		14,601,817		14,507,887
Riverpoint Medical, LLC	06/20/25	Healthcare, Education and Childcare	5.50%	1M L+550			3,245,909		3,216,526		3,205,984
Sales Benchmark Index LLC	01/03/25	Business Services	7.75%	3M L+750			7,632,493		7,526,205		7,441,681
Sargent & Greenleaf Inc.	12/20/24	Electronics	7.00%	3M L+575			5,232,159		5,180,794		5,232,159
Signature Systems Holding Company	05/03/24	Chemicals, Plastics and Rubber	8.50%	1M L+525			13,500,000		13,396,987		13,365,000
Solutionreach, Inc.	01/17/24	Communications	6.75%	1M L+600			11,881,773		11,758,141		11,881,773
STV Group Incorporated	12/11/26	Transportation	5.33%	1M L+450			12,098,653		12,002,839		12,038,160
TAC LifePort Purchaser, LLC	03/01/26	Aerospace and Defense	7.00%	1M L+525			4,967,133		4,891,093		4,965,530
TeleGuam Holdings, LLC	11/20/25	Telecommunications	5.50%	3M L+525			4,593,270		4,557,883		4,547,337
Teneo Holdings LLC	07/18/25	Financial Services	6.25%	1M L+575			2,996,753		2,883,779		2,980,511
TPC Canada Parent, Inc. and TPC US Parent, LLC	11/24/25	Food	6.25%	1M L+625			5,593,148		5,537,216		5,425,353
TVC Enterprises, LLC	03/26/26	Transportation	6.75%	3M L+550			12,773,152		12,642,764		12,773,152
TWS Acquisition Corporation	06/16/25	Education	7.25%	3M L+450			9,647,753		9,514,502		9,647,753
Tyto Athene, LLC	04/03/28	Aerospace and Defense	6.25%	1M L+675			9,950,000		9,853,217		9,950,000
UBEO, LLC	04/03/24	Printing and Publishing	5.50%	1M L+500			4,710,212		4,676,033		4,686,661
Vision Purchaser Corporation	06/10/25	Media	7.75%				14,248,804		14,055,791		14,035,072
Wildcat Buyerco, Inc.	02/27/26	Electronics	6.00%				7,424,623		7,360,375		7,387,500
Total First Lien Secured Debt							409,602,447		405,009,393		405,232,480
Cash and Cash Equivalents—18.9%
BlackRock Federal FD Institutional 30									11,013,454		11,013,454
US Bank Cash
Total Cash and Cash Equivalents									11,013,454		11,013,454
Total Investments and Cash Equivalents—592.7%								$	416,022,848	$	416,245,935
Liabilities in Excess of Other Assets—(492.7)%											(348,213,498	)
Members' Equity—100.0%										$	68,032,437

⁽¹⁾ Represents floating rate instruments that accrue interest at a predetermined spread relative to an index, typically the applicable LIBOR or “L” or Prime rate or “P”. The spread may change based on the type of rate used. The terms in the Schedule of Investments disclose the actual interest rate in effect as of the reporting period. LIBOR loans are typically indexed to a 30-day, 60-day, 90-day or 180-day LIBOR rate (1M L, 2M L, 3M L, or 6M L, respectively), at the borrower’s option. All securities are subject to a LIBOR or Prime rate floor where a spread is provided, unless noted. The spread provided includes PIK interest and other fee rates, if any.

⁽²⁾ Valued based on PSLF’s accounting policy.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2021

Below is a listing of PSLF’s individual investments as of: September 30, 2020

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

⁽¹⁾ Represents floating rate instruments that accrue interest at a predetermined spread relative to an index, typically the applicable LIBOR or “L” or Prime rate or “P”. The spread may change based on the type of rate used. The terms in the Schedule of Investments disclose the actual interest rate in effect as of the reporting period. LIBOR loans are typically indexed to a 30-day, 60-day, 90-day or 180-day LIBOR rate (1M L, 2M L, 3M L, or 6M L, respectively), at the borrower’s option. All securities are subject to a LIBOR or Prime rate floor where a spread is provided, unless noted. The spread provided includes PIK interest and other fee rates, if any.

⁽²⁾ Valued based on PSLF’s accounting policy.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2021

Below is the financial information for PSLF:

Statements of Assets and Liabilities
	September 30, 2021		September 30, 2020
Assets
Investments (cost—$405,009,393 and $358,023,408, respectively)	$	405,232,480	$	353,366,358
Cash and cash equivalents (cost—$11,013,454 and $7,536,719, respectively)		11,013,454		7,536,719
Interest receivable		1,175,230		877,008
Total assets		417,421,164		361,780,085
Liabilities
Distribution payable		2,800,000		1,393,716
Payable for investments purchased		12,792,969		5,700,000
Credit facility payable		224,000,000		213,500,000
Notes payable to members		106,040,612		87,500,000
Interest payable on credit facility		1,499,406		1,649,852
Interest payable on members notes		1,643,629		1,356,250
Accrued other expenses		612,111		315,576
Total liabilities		349,388,727		311,415,394
Commitments and contingencies (1)		—		—
Members' equity		68,032,437		50,364,691
Total liabilities and members' equity	$	417,421,164	$	361,780,085

⁽¹⁾ For the years ended of September 30, 2021 and 2020, PSLF did not have any unfunded commitments to fund investments.

Statements of Operations (1)
	Period Ended September 30,		Period Ended September 30,
	2021		2020
Investment income:
Interest	$	27,489,180	$	4,504,788
Other income		1,802,790		2,444
Total investment income		29,291,970		4,507,232
Expenses:
Interest and expenses on credit facility		6,283,544		1,039,327
Interest expense on members notes		9,532,516		1,356,250
Administrative services expenses		1,171,860		195,310
Other general and administrative expenses (2)		446,588		120,266
Total expenses		17,434,508		2,711,153
Net investment income		11,857,462		1,796,079
Realized and unrealized gain on investments:
Net realized gain on investments		544,547		254,653
Net change in unrealized appreciation on investments		4,880,137		2,173,436
Net realized and unrealized gain from investments		5,424,684		2,428,089
Net increase in members' equity resulting from operations	$	17,282,146	$	4,224,168

⁽¹⁾ PSLF commenced operations on July 31, 2020.

⁽²⁾ No management or incentive fees are payable by PSLF.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

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:

Level 1: Inputs that are quoted prices (unadjusted) in active markets for identical assets or liabilities, accessible by us at the measurement date.

Level 2: Inputs that are quoted prices for similar assets or liabilities in active markets, or that are quoted prices for identical or similar assets or liabilities in markets that are not active and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term, if applicable, of the financial instrument.

Level 3: Inputs that are unobservable for an asset or liability because they are based on our own assumptions about how market participants would price the asset or liability.

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 2024 Notes are classified as Level 1 and our 2026 Notes are classified as

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2021

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.

In addition to using the above inputs to value cash equivalents, investments, our 2019 Notes, our SBA debentures, our 2024 Notes, our 2026 Notes and our Credit Facilities, 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. See Note 2.

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. In accordance with ASC 820, we do not categorize any investments for which fair value is measured using the net asset value per share within the fair value hierarchy.

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 our 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:

Asset Category	Fair value at September 30, 2021		Valuation Technique	Unobservable Input	Range of Input (Weighted Average) (1)
First lien	$	90,266,035	Market Comparable	Broker/Dealer bids or quotes	N/A
First lien		462,264,033	Market Comparable	Market yield	6.1% – 13.1% (8.1%)
Second lien		39,297,500	Market Comparable	Broker/Dealer bids or quotes	N/A
Second lien		126,509,070	Market Comparable	Market yield	10.3% – 11.5% (10.7%)
Second lien		11,086,944	Enterprise Market Value	EBITDA multiple	5.4x
Subordinated debt / corporate notes		121,169,566	Market Comparable	Market yield	9.6% – 17.1% (12.5%)
Equity		278,486,160	Enterprise Market Value	EBITDA multiple	2.6x – 18.5x (8.5x)
Equity		60,807,873	Enterprise Market Value	DLOM(2)	9.3%
Equity		21,133,488	Market Comparable	Market yield	20.4%
Total Level 3 investments	$	1,211,020,669
Truist Credit Facility	$	314,813,145	Market Comparable	Market yield	2.4%

⁽¹⁾ The weighted averages disclosed in the table above were weighted by their relative fair value. 

⁽²⁾ DLOM is defined as discount for lack of marketability

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%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2021

⁽³⁾ The weighted averages disclosed in the table above were weighted by their relative fair value. 

Our investments, cash and cash equivalents, Credit Facility, SBA debentures, 2024 Notes and 2026 Notes were categorized as follows in the fair value hierarchy:

	Fair Value at September 30, 2021
Description	Fair Value		Level 1		Level 2		Level 3		Measured at Net Asset Value (1)
Debt investments	$	850,593,147	$	—	$	—	$	850,593,148	$	—
Equity investments		404,696,684		3,109,539		—		360,427,521		41,159,625
Total investments		1,255,289,831		3,109,539		—		1,211,020,669		41,159,625
Cash and cash equivalents		20,357,016		20,357,016		—		—		—
Total investments and cash and cash equivalents	$	1,275,646,847	$	23,466,555	$	—	$	1,211,020,667	$	41,159,625
Truist Credit Facility	$	314,813,145	$	—	$	—	$	314,813,145	$	—
SBA Debentures (2)		62,158,642		—		—		62,158,642		—
2024 Notes (2)		84,503,061		84,503,061		—		—		—
2026 Notes (2)		145,865,253		—		145,865,253		—		—
Total debt	$	607,340,101	$	84,503,061	$	145,865,253	$	376,971,787	$	—

⁽¹⁾ In accordance with ASC Subtopic 820-10, Fair Value Measurements and Disclosures, or ASC 820-10, our equity investment in PSLF is measured using the net asset value per share (or its equivalent) as a practical expedient for fair value, and thus has not been classified in the fair value hierarchy.

⁽²⁾ We elected not to apply ASC 825-10 to the SBA debentures or the 2024 Notes and the 2026 Notes and thus the balance reported in the Consolidated Statement of Assets and Liabilities represents the carrying value. As of September 30, 2021, the carrying value of the SBA debentures approximates the fair value.

	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	$	—	$	—	$	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	$	—

⁽³⁾ In accordance with ASC Subtopic 820-10, Fair Value Measurements and Disclosures, or ASC 820-10, our equity investment in PSLF is measured using the net asset value per share (or its equivalent) as a practical expedient for fair value, and thus has not been classified in the fair value hierarchy.

⁽⁴⁾ We elected not to apply ASC 825-10 to the SBA debentures and the 2024 Notes and thus the balance reported in the Consolidated Statement of Assets and Liabilities represents the carrying value. As of September 30, 2020, the carrying value of the SBA debentures approximates the fair value.

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

	Year Ended September 30, 2021
Description	Debt investments			Equity investments			Totals
Beginning Balance	$	773,425,971		$	270,753,946		$	1,044,179,917
Net realized gain (loss)		(2,769,793	)		32,722,785			29,952,992
Net change in unrealized depreciation		32,159,186			79,804,054			111,963,240
Purchases, PIK interest, net discount accretion and non-cash exchanges		414,127,196			45,270,058			459,397,254
Sales, repayments and non-cash exchanges		(366,349,412	)		(68,123,322	)		(434,472,734	)
Transfers in/out of Level 3		—			—			—
Ending Balance	$	850,593,148		$	360,427,521		$	1,211,020,669
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.	$	29,959,237		$	85,912,588		$	115,871,825

80

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2021

	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	)

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

	Years Ended September 30,
Long-Term Credit Facilities	2021			2020
Beginning Balance (cost – $388,252,000 and $472,636,000, respectively)	$	360,701,972		$	465,390,214
Net change in unrealized (depreciation) appreciation included in earnings		17,818,273			(12,304,242	)
Borrowings (1)		310,311,500			298,000,000
Repayments (1)		(374,018,600	)		(145,384,000	)
Transfers in and/or out of Level 3 (2)		—			(245,000,000	)
Ending Balance (cost – $316,544,900 and $380,252,000, respectively)	$	314,813,145		$	360,701,972
Temporary draws outstanding, at cost		—			8,000,000
Ending Balance (cost – $316,544,900 and $388,252,000, respectively)	$	314,813,145		$	368,701,972

⁽¹⁾ Excludes temporary draws.

⁽²⁾ On July 31, 2020, we and Pantheon formed PSLF, an unconsolidated joint venture. Pursuant to the terms of the transaction, we contributed our formerly wholly-owned subsidiary, Funding I, to PSLF for a 72% stake in the joint venture. As a result of the transaction, Funding I was deconsolidated from PennantPark Investment’s financial statements, including Funding I’s BNP Credit Facility with $245.0 million drawn as of July 31, 2020. This non-cash transaction has been reported above as transfer out of level 3.

As of September 30, 2021, 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:

Foreign Currency	Amount Borrowed		Borrowing Cost		Current Value		Reset Date	Change in Fair Value
British Pound	£	29,000,000	$	40,044,900	$	39,102,150	December 17, 2021	$	(942,750	)

As of September 30, 2020, 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:

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	)

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, zero and $7.1 million relating to amendment costs on the Credit Facilities during the years ended September 30, 2021, 2020 and 2019, 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, 2026 Notes and the SBA debentures. 

For the year ended September 30, 2021, the Credit Facility had a net change in unrealized appreciation of $17.8 million. For the years ended September 30, 2020 and 2019, the 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, 2021, the net unrealized depreciation on Truist Credit Facility totaled $1.7 million. As of September 30, 2020, the net unrealized depreciation on our Credit Facilities totaled $19.6 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.

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PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2021

6. TRANSACTIONS WITH AFFILIATED COMPANIES

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, 2021 were as follows:

Name of Investment	Fair Value at September 30, 2020		Gross Additions(1)		Gross Reductions			Net Change in Appreciation / (Depreciation)			Fair Value at September 30, 2021		Interest Income		PIK Income		Dividend Income		Net Realized Gains (Losses)
Controlled Affiliates
AKW Holdings Limited	$	37,772,115	$	2,706,650	$	—		$	900,186		$	41,378,951	$	3,081,272	$	—	$	—	$	—
Mailsouth Inc. (2)	$	18,782,777		11,086,942		(19,708,359	)		11,938,935			22,100,296		1,275,851		—		—		(19,708,359	)
PennantPark Senior Loan Fund, LLC *		99,262,577		1,826,218		—			4,225,401			105,314,196		5,845,157		—		6,361,000		—
PT Networks, LLC		91,384,649		6,190,946		—			36,549,031			134,124,626		79,713		6,222,805		—		—
RAM Energy LLC		89,923,518		—		—			(8,213,256	)		81,710,262		—		—		—		—
Total Controlled Affiliates	$	337,125,636	$	21,810,756	$	(19,708,359	)		45,400,297.55		$	384,628,332	$	10,281,992	$	6,222,805	$	6,361,000	$	(19,708,359	)
Non-Controlled Affiliates
ETX Energy, LLC	$	5,055,851	$	—	$	—			(5,055,851	)	$	—	$	—	$	—	$	—	$	—
MidOcean JF Holdings    Corp.		22,698,042		—		—			27,463,350			50,161,391		—		—		—		—
Total Non-Controlled    Affiliates	$	27,753,893	$	—	$	—		$	22,407,499		$	50,161,391	$	—	$	—	$	—	$	—
Total Controlled and    Non-Controlled    Affiliates	$	282,800,697	$	21,810,756	$	(19,708,359	)	$	67,807,797		$	434,789,723	$	10,281,992	$	6,222,805	$	6,361,000	$	(19,708,359	)

⁽¹⁾ Includes PIK.

⁽²⁾ Mailsouth Inc. became a controlled affiliate during the quarter ended December 31, 2020.

* We and Pantheon are the members of PSLF, a joint venture formed as a Delaware limited liability company that is not consolidated by us for financial reporting purposes. The members of PSLF make investments in the PSLF in the form of subordinated debt and equity interests, and all portfolio and other material decision regarding PSLF must be submitted to PSFL’s board of directors or investment committee, both of which are comprised of two members appointed by each of us and Pantheon. Because management of PSLF is shared equally between us and Pantheon, we do not believe we control PSLF for purposes of the 1940 Act or otherwise.

7. CHANGE IN NET ASSETS FROM OPERATIONS PER COMMON SHARE

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

	Years Ended September 30,
	2021		2020			2019
Numerator for net increase (decrease) in net assets resulting from operations	$	166,616,905	$	(15,969,753	)	$	15,924,806
Denominator for basic and diluted weighted average shares		67,045,105		67,045,105			67,708,683
Basic and diluted net increase (decrease) in net assets per share resulting from operations	$	2.49	$	(0.24	)	$	0.24

8. TAXES AND DISTRIBUTIONS

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, 2021 and 2020, the cost of investments for federal income tax purposes approximates the amortized cost reported in the Consolidated Schedule of Investments.

The following amounts were reclassified for tax purposes:

	Years Ended September 30,
	2021			2020			2019
Decrease in paid-in capital	$	(632,057	)	$	(567,128	)	$	(1,067,350	)
Decrease in accumulated net realized gain		(1,773,454	)		(1,805,680	)		(2,136,670	)
Increase in undistributed net investment income		2,405,511			2,372,808			3,204,020

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PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2021

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

	Years Ended September 30,
	2021			2020			2019
Net increase (decrease) in net assets resulting from operations	$	166,616,905		$	(15,969,753	)	$	15,924,806
Net realized (gain) loss on investments		(30,020,831	)		20,827,252			108,515,658
Net change in unrealized (appreciation) depreciation on investments and debt		(100,119,094	)		33,872,713			(79,843,493	)
Other book-to-tax differences		(5,333,577	)		1,752,182			2,985,657
Other non-deductible expenses		2,647,457			2,837,966			2,874,707
Taxable income before dividends paid deduction	$	33,790,860		$	43,320,360		$	50,457,335

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

	As of September 30,
	2021			2020			2019
Undistributed net investment income – tax basis	$	23,560,452		$	21,934,012		$	22,848,424
Short-term realized loss carried forward		(1,578,244	)		(2,528,068	)		(24,269,334	)
Long-term realized loss carried forward	$	(165,036,666	)	$	(198,740,522	)	$	(156,069,237	)
Distributions payable and other book to tax differences		(15,367,982	)		(18,407,316	)		(18,494,772	)
Net unrealized appreciation (depreciation) on investments and debt		31,506,528			(64,241,330	)		(30,368,617	)
Total accumulated deficit – book basis	$	(126,915,912	)	$	(261,983,224	)	$	(206,353,536	)

The tax characteristics of distributions declared are as follows:

	Years Ended September 30,
	2021		2020		2019
Ordinary income (including short-term gains, if any)	$	32,181,650	$	40,227,063	$	48,449,313
Long-term capital gain		—		—		—
Total distributions	$	32,181,650	$	40,227,063	$	48,449,313
Total distributions declared per share	$	0.48	$	0.60	$	0.72

9. CASH AND CASH EQUIVALENTS

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, 2021 and 2020, cash and cash equivalents consisted of money market funds in the amounts of $20.4 million and $25.8 million at fair value, respectively.

83

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2021

10. FINANCIAL HIGHLIGHTS

Below are the financial highlights for each of the years ended September 30:

	2021			2020			2019			2018			2017
Per Share Data:
Net asset value, beginning of year	$	7.84		$	8.68		$	9.11		$	9.10		$	9.05
Net investment income (1)		0.54			0.58			0.66			0.75			0.79
Net realized and unrealized (loss) gain (1)		1.94			(0.82	)		(0.42	)		(0.07	)		0.08
Net (decrease) increase in net assets resulting from operations (1)		2.49			(0.24	)		0.24			0.68			0.87
Distributions to stockholders (1), (2)
Distribution of net investment income		(0.48	)		(0.60	)		(0.72	)		(0.72	)		(0.82	)
Distribution of realized gains		—			—			—			—			—
Total distributions to stockholders		(0.48	)		(0.60	)		(0.72	)		(0.72	)		(0.82	)
Repurchase of common stock (1)		—			—			0.05			0.05			—
Net asset value, end of year	$	9.85		$	7.84		$	8.68		$	9.11		$	9.10
Per share market value, end of year	$	6.49		$	3.19		$	6.27		$	7.46		$	7.51
Total return (3)		120.98	%		(39.62	)%		(6.28	)%		9.70	%		10.80	%
Shares outstanding at end of year		67,045,105			67,045,105			67,045,105			69,053,958			71,060,836
Ratios / Supplemental Data:
Ratio of operating expenses to average net assets (4), (6)		3.74	%		4.91	%		4.83	%		4.99	%		5.78	%
Ratio of interest and expenses on debt to average net assets (5)		3.73	%		6.22	%		6.29	%		3.54	%		4.69	%
Ratio of total expenses to average net assets (5), (6)		7.47	%		11.13	%		11.12	%		8.53	%		10.47	%
Ratio of net investment income to average net assets (5)		6.04	%		7.01	%		7.35	%		8.28	%		8.67	%
Net assets at end of year	$	660,144,107		$	525,708,852		$	581,905,668		$	628,901,895		$	646,808,471
Weighted average debt outstanding (7)	$	649,665,619		$	794,641,334		$	638,424,193		$	504,963,762		$	605,661,674
Weighted average debt per share (1), (7)	$	9.69		$	11.85		$	9.43		$	7.14		$	8.52
Asset coverage per unit (8)	$	2,208		$	2,078		$	2,066		$	2,919		$	2,998
Average market value per unit (9), (10)	$	25.13		$	23.47		$	24.87		$	—		$	—
Portfolio turnover ratio		37.74	%		12.74	%		35.44	%		56.51	%		43.60	%

⁽¹⁾ Based on the weighted average shares outstanding for the respective periods.

⁽²⁾ The tax status of distributions is calculated in accordance with income tax regulations, which may differ from amounts determined under GAAP, and reported on Form 1099-DIV each calendar year.

⁽³⁾ Based on the change in market price per share during the period and assumes distributions, if any, are reinvested.

⁽⁴⁾ Excludes debt related costs.

⁽⁵⁾ Includes interest and expenses on debt (annualized) as well as Credit Facility amendment and debt issuance costs, if any (not annualized).

⁽⁶⁾ For the years ended September 30, 2020, 2019, 2018 and 2017, the ratio of operating expenses to average net assets before the waiver of certain Management Fees to average net assets was 4.65%, 5.26%, 5.21% and 6.65%, respectively, and the ratio of total expenses to average net assets before the waiver of certain Management Fees to average net assets was 9.12%, 11.48%, 8.75% and 11.33%, respectively.

⁽⁷⁾ Includes SBA debentures outstanding.

⁽⁸⁾ 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 the senior securities representing indebtedness at par (changed from fair value). This asset coverage ratio is multiplied by $1,000 to determine the asset coverage per unit. These amounts exclude SBA debentures from our asset coverage per unit computation pursuant to exemptive relief received from the SEC in June 2011.

⁽⁹⁾ The average market value per unit is derived based on the monthly average closing price of the 2025 Notes trading on NYSE under the symbol “PNTA,” which were issued in increments of $25 per unit. On June 29, 2017, the 2025 Notes were redeemed in full and no amounts were outstanding as of September 30, 2020, 2019 or 2018.

⁽¹⁰⁾ 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,” which were issued in increments of $25 per unit and commenced trading on September 30, 2019.

11. DEBT

The annualized weighted average cost of debt for the years ended September 30, 2021, 2020 and 2019, 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, 2024 Notes and 2026 Notes, was 3.5%, 4.0% and 6.0%, respectively. As of September 30, 2021, 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, 2021 and 2020, our asset coverage ratio, as computed in accordance with the 1940 Act, was 221% and 208%, respectively.

BNP Credit Facility

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 was 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 treated the indebtedness of Funding I as our leverage. Our Investment Adviser served as the servicer to Funding I in connection with the BNP Credit Facility.

84

PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2021

TruistCredit Facility

As of September 30, 2021, we had the multi-currency Truist Credit Facility for up to $435.0 million (decreased from $475.0 million on May 25, 2021 pursuant to its terms) 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, 2021 and 2020, we had $316.5 million and $388.3 million, respectively, in outstanding borrowings under the Truist Credit Facility. The Truist Credit Facility had a weighted average interest rate of 2.4% and 2.5%, respectively, exclusive of the fee on undrawn commitment, as of September 30, 2021 and 2020. The Truist Credit Facility is a revolving facility with a stated maturity date of September 4, 2024, a one-year term-out period on September 4, 2023 and pricing set at 225 basis points over LIBOR (or an alternative risk-free floating interest rate index). As of September 30, 2021 and 2020, we had $118.5 million and $86.7 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, 2021, we were in compliance with the terms of the Truist Credit Facility.

SBA Debentures

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 $63.5 million and $118.5 million as of September 30, 2021 and 2020, 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.      

As of both September 30, 2021 and 2020, SBIC II had an initial $150.0 million in debt commitments, all of which were drawn. During the years ended September 30, 2021 and 2020, $55.0 million and $31.5 million in SBA debentures were repaid, respectively. As of September 30, 2021 and 2020, the unamortized fees on the SBA debentures were $1.3 million and $2.7 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.

Our fixed-rate SBA debentures were as follows:

Issuance Dates	Maturity	Fixed All-in Coupon Rate (1)			As of September 30, 2021 Principal Balance
September 20, 2017	September 1, 2027		2.9			27,500,000
March 21, 2018	March 1, 2028		3.5			36,000,000
Weighted Average Rate / Total			3.3	%	$	63,500,000
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

⁽¹⁾ Excluding 3.4% of upfront fees.

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).

2019 Notes

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.

2024 Notes

As of September 30, 2021 and 2020, we had $86.3 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.

2026 Notes

In April 2021, we issued $150.0 million in aggregate principal amount of our 2026 Notes at a public offering price per note of 99.4%. Interest on the 2026 Notes is paid semi-annually on May 1 and November 1 of each year, at a rate of 4.50% per year, commencing November 1, 2021. The 2026 Notes mature on May 1, 2026 and may be redeemed in whole or in part at our option subject to a make-whole premium if redeemed more than three months prior to maturity. The 2026 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future senior unsecured indebtedness. The 2026 Notes are effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, financing vehicles, or similar facilities. We do not intend to list the 2026 Notes on any securities exchange or automated dealer quotation system.

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PENNANTPARK INVESTMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

September 30, 2021

12. COMMITMENTS AND CONTINGENCIES

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, 2021 and 2020, we had $104.8 million and $37.4 million, respectively, in commitments to fund investments. For the same periods, there were no letters of credit issued.

13. UNCONSOLIDATED SIGNIFICANT SUBSIDIARIES

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, 2021, 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, 2021 and 2020 as well as for the years ended September 30, 2021, 2020 and 2019. In accordance with Rule 3-09, separate audited financial statements of RAM Energy Holdings LLC for the years ended September 30, 2021, 2020 and 2019 are being filed herewith as Exhibit 99.2, Exhibit 99.3 and Exhibit 99.4, respectively. 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.

PT Networks, LLC:

Balance Sheet (1)	September 30, 2021		September 30, 2020
Current assets	$	55,422	$	53,466
Noncurrent assets		217,045		215,550
Current liabilities		31,451		54,504
Noncurrent liabilities	$	211,047	$	189,677

	Years Ended September 30,
Income Statement (1)	2021			2020			2019
Total revenue	$	254,761		$	213,886		$	196,543
Total expenses		(252,188	)		(225,655	)		(246,066	)
Net loss	$	2,573		$	(11,769	)	$	(49,523	)

⁽¹⁾ All amounts are in thousands.

14. 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. For the year ended September 30, 2019, we repurchased 2.0 million shares of common stock in open market transactions for an aggregate cost (including transaction costs) of $14.5 million.

15. SUBSEQUENT EVENTS

Subsequent to September 30, 2021, we entered into an underwriting agreement, or the Underwriting Agreement, dated October 14, 2021, by and among the Company, the Investment Adviser, the Administrator and Raymond James & Associates, Inc., Keefe, Bruyette & Woods, Inc. and Truist Securities, Inc., as representatives of the several underwriters named on Schedule A to the Underwriting Agreement, in connection with the issuance and sale of $165.0 million aggregate principal amount of the Company’s 4.0% Notes due 2026, or the 2026-2 Notes. On October 21, 2021, we closed the transaction and issued $165.0 million in aggregate principal amount of our 2026-2 Notes at a public offering price per note of 99.436%. Interest on the 2026-2 Notes is paid semi-annually on May 1 and November 1 of each year, at a rate of 4.0% per year, commencing May 1, 2022. The 2026-2 Notes mature on November 1, 2026 and may be redeemed in whole or in part at our option subject to a make-whole premium if redeemed more than three months prior to maturity. The 2026-2 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future senior unsecured indebtedness. The 2026-2 Notes are effectively subordinated to all of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness and structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, financing vehicles, or similar facilities. We do not intend to list the 2026-2 Notes on any securities exchange or automated dealer quotation system.

On October 14, 2021, we announced that we will redeem $86,250,000 in principal amount of the 2024 Notes in full on November 13, 2021. We redeemed in full the 2024 Notes with a principal amount of $86.3 million on November 13, 2021. The 2024 Notes were redeemed at a redemption price of $25 per 2024 Note, plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to, but excluding, November 13, 2021.

Subsequent to quarter end, PNNT had new funded investment of $97.8 million, net of sales and repayments.  

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

None.

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As of September 30, 2021, 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.

(b) Management’s Report on Internal Control Over Financial Reporting

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

(c) Changes in Internal Controls Over Financial Reporting

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.

Item 9B. Other Information

None.

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PART III

We will file a definitive Proxy Statement for our 2022 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.

Item 10. Directors, Executive Officers and Corporate Governance

The information required by Item 10 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2022 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year.

Item 11. Executive Compensation

The information required by Item 11 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2022 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year.

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

The information required by Item 12 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2022 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year.

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

The information required by Item 13 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2022 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year.

Item 14. Principal Accountant Fees and Services

The information required by Item 14 is hereby incorporated by reference from our definitive Proxy Statement relating to our 2022 Annual Meeting of Stockholders, to be filed with the SEC within 120 days following the end of our fiscal year.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

The following documents are filed as part of this Annual Report:

(1) Financial Statements—Refer to Item 8 starting on page 54.

(2) Financial Statement Schedules—None.

(3) Exhibits

3.1	Articles of Incorporation (Incorporated by reference to Exhibit 99(a) to the Registrant’s Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2/A (File No. 333-140092), filed on April 5, 2007).
3.2	Second Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q (File No. 814-00736), filed on May 11, 2020).
4.1	Form of Share Certificate (Incorporated by reference to Exhibit 99(d)(1) to the Registrant’s Registration Statement on Form N-2 (File No. 333-150033), filed on April 2, 2008).
4.2	Base Indenture, dated as of January 22, 2013, relating to the 6.25% Senior Notes due 2025, between the Registrant and American Stock Transfer & Trust Company, LLC, as trustee (Incorporated by reference to Exhibit 99(d)(8) to the Registrant’s Post-Effective Amendment No.4 to the Registration Statement on Form N-2/A (File No.333-172524), filed on January 22, 2013).
4.3	Second Supplemental Indenture, dated as of September 23, 2014, relating to the 4.50% Notes due 2019, between the Registrant and American Stock Transfer & Trust Company, LLC, as trustee (Incorporated by reference to Exhibit 99 (d)(11) to the Registrant’s Post-Effective Amendment No. 2 to Form N-2 (File No. 333-192782), filed on September 23, 2014.
4.4	Form of 4.50% Notes due 2019 (included as part of Exhibit 4.3).
4.5	Third Supplemental Indenture, dated as of September 27, 2019, by and between the Company and American Stock Transfer & Trust Company, LLC, as trustee (Incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K (File No. 814-00736), filed September 27, 2019).
4.6	Form of 5.50% Notes due 2024 (included as part of Exhibit 4.5).
4.7	Fourth Supplemental Indenture, dated as of April 21, 2021, by and between the Company and American Stock Transfer & Trust Company, LLC, as trustee (Incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K (File No. 814-00736), filed April 22, 2021).
4.8	Form of 4.50% Notes due 2026 (included as part of Exhibit 4.7).
4.9	Fifth Supplemental Indenture, dated as of October 21, 2021, by and between the Company and American Stock Transfer & Trust Company, LLC, as trustee (Incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K (File No. 814-00736), filed on October 21, 2021).
4.10	Form of 4.50% Notes due 2026 (included as part of Exhibit 4.9).
4.11	Description of Securities (Incorporated by reference to Exhibit 4.7 to the Registrant’s Form 10-K (File No. 814-00736), filed November 21, 2019).
10.1	Form of Administration Agreement between the Registrant and PennantPark Investment Administration LLC (Incorporated by reference to Exhibit 99(k)(1) to the Registrant’s Registration Statement on Form N-2 (File No. 333-150033), filed on April 2, 2008).
10.2	Dividend Reinvestment Plan (Incorporated by reference to Exhibit 99(e) to the Registrant’s Registration Statement on Form N-2 (File No. 333-150033), filed on April 2, 2008).
10.3	First Omnibus Amendment to Second Amended and Restated Senior Secured Revolving Credit Agreement and Second Amended and Restated Guarantee and Security Agreement, dated as of May 25, 2017, among the Registrant, the lenders party thereto and SunTrust Bank, as administrative agent for the lenders (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 814-00736), filed on August 7, 2017).
10.4	Indemnification Agreement, dated as of November 15, 2016, between PennantPark Investment Corporation and each of the directors and officers listed on Schedule A attached thereto (Incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K (File No. 814-00736) filed on November 21, 2016).
10.5	Third Amended and Restated Investment Advisory Management Agreement, dated as of April 12, 2019, between the Registrant and PennantPark Investment Advisers, LLC (Incorporated by reference to Exhibit (g)(3) to the Registrant’s Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-230014), filed on April 12, 2019).

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10.6	Second Amendment to Second Amended and Restated Senior Secured Revolving Credit Agreement, dated as of September 4, 2019, by and among PennantPark Investment Corporation, as borrower, the lenders party thereto, SunTrust Bank, as administrative agent and collateral agent, and solely with respect to Section 4.9, PNNT CI (GALLS) Prime Investment Holdings, LLC, PNNT Investment Holdings, LLC, PNNT New Gulf Resources, LLC, PNNT ecoserve, LLC and PNNT Cascade Environmental Holdings, LLC (Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (File No. 814-00736), filed on September 4, 2019).
10.7	Amended and Restated Limited Liability Company Agreement of PennantPark Senior Loan Fund, LLC, dated as of July 31, 2020, by and among PennantPark Investment Corporation, Pantheon Private Debt Program SCSp SICAV – RAIF In Respect Of Its Compartment Pantheon Senior Debt Secondaries II (USD) and Solutio Premium Private Debt I SCSp (Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (File No. 814-00736), filed on August 4, 2020).
10.8	First Amendment to the Amended and Restated Limited Liability Company Agreement of PennantPark Senior Loan Fund, LLC, dated as of October 31, 2020, by and among PennantPark Investment Corporation, Pantheon Private Debt Program SCSp SICAV – RAIF In Respect Of Its Compartment Pantheon Senior Debt Secondaries II (USD), Pantheon Private Debt Program SCSp SICAV-RAIF In Respect Of Its Compartment Pantheon Credit Opportunities II (USD), Pantheon Private Debt Program SCSp SICAV-RAIF In Respect Of Its Compartment Tubera Credit 2020 and Solutio Premium Private Debt I SCSp (Incorporated by reference to Exhibit 10.12 to the Registrant’s Form 10-K (File No. 814-00736), filed on November 19, 2020).
10.9	First Omnibus Amendment, dated as of July 31, 2020, by and among PennantPark Investment Funding I, LLC, as borrower, PennantPark Senior Loan Fund, LLC, as equityholder of the borrower, PennantPark Investment Corporation, PennantPark Investment Advisers, LLC, as servicer, and The Bank of New York Mellon Trust Company, National Association, as collateral agent, Sterling National Bank, as lender and BNP Paribas, as administrative agent and as lender (Incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K (File No. 814-00736), filed on August 4, 2020).
14.1*	Joint Code of Ethics of the Registrant.
21.1*	Subsidiaries of the Registrant.
23.1*	Consent of RSM US LLP.
23.2*	Consent of BDO USA, LLP.
31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.
32.1*	Certification of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Privacy Policy of the Registrant (Incorporated by reference to Exhibit 99.1 to the Registrant’s Annual Report on Form 10-K (File No. 814-00736), filed on November 16, 2011).
99.2*	Audited Consolidated Financial Statements of RAM Energy Holdings LLC and Subsidiaries for the Year Ended September 30, 2021.
99.3*	Audited Consolidated Financial Statements of RAM Energy Holdings LLC and Subsidiaries for the Year Ended September 30, 2020.
99.4*	Audited Consolidated Financial Statements of RAM Energy Holdings LLC and Subsidiaries for the Year Ended September 30, 2019.
99.5*	Report of RSM US LLP on Senior Securities Table.

* Filed herewith

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SIGNATURES

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 17, 2021.

By:	/s/    ARTHUR H. PENN
Name:	Arthur H. Penn
Title:	Chief Executive Officer and Chairman of the Board of Directors

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.

Signature	Title	Date
/s/    ARTHUR H. PENN	Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)	November 17, 2021
Arthur H. Penn
/s/    RICHARD CHEUNG	Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)	November 17, 2021
Richard Cheung
/s/    ADAM K. BERNSTEIN	Director	November 17, 2021
Adam K. Bernstein
/s/    JEFFREY FLUG	Director	November 17, 2021
Jeffrey Flug
/s/    MARSHALL BROZOST	Director	November 17, 2021
Marshall Brozost
/s/    SAMUEL L. KATZ	Director	November 17, 2021
Samuel L. Katz

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EX-14.1

EXHIBIT 14.1

JOINT CODE OF ETHICS

FOR

PENNANTPARK INVESTMENT CORPORATION

PENNANTPARK FLOATING RATE CAPITAL LTD.

PENNANTPARK INVESTMENT ADVISERS, LLC

Section Iof General Fiduciary Principles

This Joint Code of Ethics (the “Code”) has been adopted by each of PennantPark Investment Corporation, PennantPark Floating Rate Capital, Ltd. (each individually, the “Corporation”), and PennantPark Investment Advisers, LLC, the Corporations’ investment adviser (the “Adviser”), in compliance with Rule 17j-1 under the Investment Company Act of 1940 (the “Act”) and Section 204A of the Investment Advisers Act of 1940 (the “Advisers Act”). The purpose of the Code is to establish standards and procedures for the detection and prevention of activities by which persons having knowledge of the investments and investment intentions of the Corporations may abuse their fiduciary duty to the Corporations, and otherwise to deal with the types of conflict of interest situations to which Rule 17j-1 is addressed. As it relates to Section 204A of the Advisers Act, the purpose of this Code is to establish procedures that, taking into consideration the nature of the Adviser’s business, are reasonably designed to prevent misuse of material non-public information in violation of the federal securities laws by persons associated with the Adviser.

The Code is based on the principle that the directors and officers of the Corporations, and the managers, partners, officers and employees of the Adviser, who provide services to the Corporations, owe a fiduciary duty to the Corporations to conduct their personal securities transactions in a manner that does not interfere with the Corporations’ transactions or otherwise take unfair advantage of their relationship with the Corporations. All directors, managers, partners, officers and employees of the Corporations, and the Adviser (“Covered Personnel”) are expected to adhere to this general principle as well as to comply with all of the specific provisions of this Code that are applicable to them. Any Covered Personnel who is affiliated with another entity that is a registered investment adviser is, in addition, expected to comply with the provisions of the code of ethics that has been adopted by such other investment adviser.

Technical compliance with the Code will not automatically insulate any Covered Personnel from scrutiny of transactions that show a pattern of compromise or abuse of the individual’s fiduciary duty to the Corporation. Accordingly, all Covered Personnel must seek to avoid any actual or potential conflicts between their personal interests and the interests of the Corporation and its shareholders. In sum, all Covered Personnel shall place the interests of the Corporation before their own personal interests.

All Covered Personnel must read and retain this Code.

Section IIDefinitions

(A) “Access Person” means any director, officer, general partner or Advisory Person (as defined below) of the Corporations or the Adviser.

(B) An “Advisory Person” of the Corporation or the Adviser means: (i) any employee of the Corporation or the Adviser, or any company in a Control (as defined below) relationship to the Corporation or the Adviser, who in connection with his or her regular functions or duties makes, participates in, or obtains information regarding the purchase or sale of any Covered Security (as defined below) by the Corporation, or whose functions relate to the making of any recommendation with respect to such purchases or sales; and (ii) any natural person in a Control relationship to the Corporation or the Adviser, who obtains information concerning recommendations made to the Corporation with regard to the purchase or sale of any Covered Security by the Corporation.

(C) “Beneficial Ownership” is interpreted in the same manner as it would be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934 (the “1934 Act”) in determining whether a person is a beneficial owner of a security for purposes of Section 16 of the 1934 Act and the rules and regulations thereunder.

(D) “Chief Compliance Officer” means the Chief Compliance Officer of the Corporation (who also may serve as the compliance officer of the Adviser and/or one or more affiliates of the Adviser).

(E) “Control” shall have the same meaning as that set forth in Section 2(a)(9) of the Act.

(F) “Covered Security” means a security as defined in Section 2(a)(36) of the Act, which includes: any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, pre-organization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a “security,” or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing. Except that “Covered Security” does not include: (i) direct obligations of the Government of the United States; (ii) bankers’ acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and (iii) shares issued by open-end investment companies registered under the Act. References to a Covered Security in this Code (e.g., a prohibition or requirement applicable to the purchase or sale of a Covered Security) shall be deemed to refer to and to include any warrant for, option in, or security immediately convertible into that Covered Security, and shall also include any instrument that has an investment return or value that is based, in whole or in part, on that Covered Security (collectively, “Derivatives”). Therefore, except as otherwise specifically provided by this Code: (i) any prohibition or requirement of this Code applicable to the purchase or sale of a Covered Security shall also be applicable to the purchase or sale of a Derivative relating to that Covered Security; and (ii) any prohibition or requirement of this Code applicable to the purchase or sale of a Derivative shall also be applicable to the purchase or sale of a Covered Security relating to that Derivative.

(G) “Independent Director” means a director of the Corporation who is not an “interested person” of the Corporation within the meaning of Section 2(a)(19) of the Act.

(H) “Initial Public Offering” means an offering of securities registered under the Securities Act of 1933 (the “1933 Act”), the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the 1934 Act.

(I) “Limited Offering” means an offering that is exempt from registration under the 1933 Act pursuant to Section 4(2) or Section 4(6) thereof or pursuant to Rule 504, Rule 505, or Rule 506 thereunder.

(J) “Restricted List” means the “Pipeline” report of potential investments combined with the current holdings of the clients. PennantPark Access Persons are restricted from trading any security on the Restricted List.

1

(K) “Security Held or to be Acquired” by the Corporation means: (i) any Covered Security which, within the most recent 15 days: (A) is or has been held by the Corporation; or (B) is being or has been considered by the Corporation or the Adviser for purchase by the Corporation; and (ii) any option to purchase or sell, and any security convertible into or exchangeable for, a Covered Security described in Section II (K)(i).

(L) “17j-1 Organization” means the Corporation or the Adviser, as the context requires.

Section IIIObjective and General Prohibitions

Covered Personnel may not engage in any investment transaction under circumstances in which the Covered Personnel benefits from or interferes with the purchase or sale of investments by the Corporation. In addition, Covered Personnel may not use information concerning the investments or investment intentions of the Corporation, or their ability to influence such investment intentions, for personal gain or in a manner detrimental to the interests of the Corporation.

Covered Personnel may not engage in conduct that is deceitful, fraudulent or manipulative, or that involves false or misleading statements, in connection with the purchase or sale of investments by the Corporation. In this regard, Covered Personnel should recognize that Rule 17j-1 makes it unlawful for any affiliated person of the Corporation, or any affiliated person of an investment adviser for the Corporation, in connection with the purchase or sale, directly or indirectly, by the person of a Security Held or to be Acquired by the Corporation to:

(i) employ any device, scheme or artifice to defraud the Corporation;

(ii) make any untrue statement of a material fact to the Corporation or omit to state to the Corporation a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;

(iii) engage in any act, practice or course of business that operates or would operate as a fraud or deceit upon the Corporation; or

(iv) engage in any manipulative practice with respect to the Corporation.

Covered Personnel should also recognize that a violation of this Code or of Rule 17j-1 may result in the imposition of: (1) sanctions as provided by Section VIII below; or (2) administrative, civil and, in certain cases, criminal fines, sanctions or penalties.

Section IVPre-Clearance of Personal Account Transactions; Window Period to Trade PennantPark shares

Except as noted below, all Access Persons must obtain the prior written approval of the Managing Member (or such person as the Managing Member may designate) (“Approving Officer”) before engaging in any transaction in his or her Personal Account. The Approving Officer may approve the transaction if he concludes that the transaction would comply with the provisions of this Code of Ethics and is not likely to have any adverse economic impact on clients. A request for preclearance must be made by email, with a copy to the Compliance Officer, in advance of the contemplated transaction. No particular form is required, but the email must include sufficient detail for the Approving Officer to decide if a trade is permissible.

Any approval given under this paragraph will be provided by email and will remain in effect for 72 hours.

Exceptions to the Pre-Clearance Requirement Policy,

Access Persons will be allowed to trade securities of the Corporations during a “window period” that may be announced following the release of Corporations’ earnings release. If the window is opened for trading, it will begin no earlier than the second business day after a Corporation publicly releases quarterly or annual financial results and extends no later than (i) 30 calendar days after the release of results (29 calendar days in all) or (ii) in the case of PennantPark Floating Rate Capital, Ltd.’s and the Adviser’s decision to sell such Corporation’s equity securities, the end of the quarterly period during which such financial results of such Corporation have been publicly released. Note that the ability of an officer, director or other Access Person to engage in transactions in the securities of a Corporation during a window period is not automatic or absolute because no trades may be made even during a window period by an individual who possesses material, nonpublic information. Further, the window period may not open in a particular quarter, and it may be closed prior to (i) the expiration of 30 days or (ii) to the extent provided above in the case of PennantPark Floating Rate Capital, Ltd., the applicable quarter end, in each case as events require.

Additionally, Independent Directors are not required to seek preapproval for any transactions other than those which would trigger reporting requirements as set forth in Section VI (C) of this Code below.

Section VProhibited Transactions

(A) An Access Person may not purchase or otherwise acquire direct or indirect Beneficial Ownership of any Covered Security on the Restricted List, and may not sell or otherwise dispose of any Covered Security on the Restricted List in which he or she has direct or indirect Beneficial Ownership, if he or she knows or should know at the time of entering into the transaction that: (1) the Corporation has purchased or sold the Covered Security within the last 15 calendar days, or is purchasing or selling or intends to purchase or sell the Covered Security in the next 15 calendar days; or (2) the Adviser has within the last 15 calendar days considered purchasing or selling the Covered Security for the Corporation or within the next 15 calendar days intend to consider purchasing or selling the Covered Security for the Corporation.

(B) Every Advisory Person of the Corporation or the Adviser must obtain approval from the Corporation or the Adviser, as the case may be, before directly or indirectly acquiring Beneficial Ownership in any securities in an Initial Public Offering or in a Limited Offering. Such approval must be obtained from the Chief Compliance Officer, unless he is the person seeking such approval, in which case it must be obtained from the President of the 17j-1 Organization.

(C) No Access Person shall recommend any transaction in any Covered Securities by the Corporation without having disclosed to the Chief Compliance Officer his or her interest, if any, in such Covered Securities or the issuer thereof, including: the Access Person’s Beneficial Ownership of any Covered Securities of such issuer; any contemplated transaction by the Access Person in such Covered Securities; any position the Access Person has with such issuer; and any present or proposed business relationship between such issuer and the Access Person (or a party which the Access Person has a significant interest).

Section VIReports by Access Persons

(A) Personal Securities Holdings Reports.

All Access Persons shall within 10 days of the date on which they become Access Persons, and thereafter, within 30 days after the end of each calendar year, disclose the title, number of shares and principal amount of all Covered Securities in which they have a Beneficial Ownership as of the date the person became an Access

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Person, in the case of such person’s initial report, and as of the last day of the year, as to annual reports. A form of such report, which is hereinafter called a “Personal Securities Holdings Report,” is attached as Schedule A. Each Personal Securities Holdings Report must also disclose the name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for the direct or indirect benefit of the Access Person as of the date the person became an Access Person or as of the last day of the year, as the case may be. Each Personal Securities Holdings Report shall state the date it is being submitted.

(B) Quarterly Transaction Reports.

Within 30 days after the end of each calendar quarter, each Access Person shall make a written report to the Chief Compliance Officer of all transactions occurring in the quarter in a Covered Security in which he or she had any Beneficial Ownership. A form of such report, which is hereinafter called a “Quarterly Securities Transaction Report,” is attached as Schedule B.

A Quarterly Securities Transaction Report shall be in the form of Schedule B or such other form approved by the Chief Compliance Officer and must contain the following information with respect to each reportable transaction:

(1)Date and nature of the transaction (purchase, sale or any other type of acquisition or disposition);

(2) Title, interest rate and maturity date (if applicable), number of shares and principal amount of each Covered Security involved and the price of the Covered Security at which the transaction was effected;

(3)Name of the broker, dealer or bank with or through whom the transaction was effected; and

(4)The date the report is submitted by the Access Person.

(C) Independent Directors.

Notwithstanding the reporting requirements set forth in this Section V, an Independent Director who would be required to make a report under this Section V solely by reason of being a director of the Corporation is not required to file a Personal Securities Holding Report upon becoming a director of the Corporation or an annual Personal Securities Holding Report. Such an Independent Director also need not file a Quarterly Securities Transaction Report unless such director knew or, in the ordinary course of fulfilling his or her official duties as a director of the Corporation, should have known that during the 15-day period immediately preceding or after the date of the transaction in a Covered Security by the director such Covered Security is or was purchased or sold by the Corporation or the Corporation or the Adviser considered purchasing or selling such Covered Security.

(D) Access Persons of the Adviser.

An Access Person of the Adviser need not make a Quarterly Transaction Report if all of the information in the report would duplicate information required to be recorded pursuant to Rules 204-2(a)(12) or (13) under the Investment Advisers Act of 1940, as amended.

(E) Brokerage Accounts and Statements.

Access Persons, except Independent Directors, shall:

(1)within 10 days after the end of each calendar quarter, identify the name of the broker, dealer or bank with whom the Access Person established an account in which any securities were held during the quarter for the direct or indirect benefit of the Access Person and identify any new account(s) and the date the account(s) were established. This information shall be included on the appropriate Quarterly Securities Transaction Report.

(2)instruct the brokers, dealers or banks with whom they maintain such an account to provide duplicate account statements to the Chief Compliance Officer.

(3)on an annual basis, certify that they have complied with the requirements of (1) and (2) above.

(F) Form of Reports.

A Quarterly Securities Transaction Report may consist of broker statements or other statements that provide a list of all personal Covered Securities holdings and transactions in the time period covered by the report and contain the information required in a Quarterly Securities Transaction Report.

(G) Responsibility to Report.

It is the responsibility of each Access Person to take the initiative to comply with the requirements of this Section V. Any effort by the Corporation, or by the Adviser and its affiliates, to facilitate the reporting process does not change or alter that responsibility. A person need not make a report hereunder with respect to transactions effected for, and Covered Securities held in, any account over which the person has no direct or indirect influence or control.

(H) Where to File Reports.

All Quarterly Securities Transaction Reports and Personal Securities Holdings Reports must be filed with the Chief Compliance Officer.

(I) Disclaimers.

Any report required by this Section V may contain a statement that the report will not be construed as an admission that the person making the report has any direct or indirect Beneficial Ownership in the Covered, Security to which the report relates.

Section VIIAdditional Prohibitions

(A) Confidentiality of the Corporation’s Transactions.

Until disclosed in a public report to shareholders or to the Securities and Exchange Commission in the normal course, all information concerning the securities “being considered for purchase or sale” by the Corporation shall be kept confidential by all Covered Personnel and disclosed by them only on a “need to know” basis. It shall be the responsibility of the Chief Compliance Officer to report any inadequacy found in this regard to the directors of the Corporation.

(B) Outside Business Activities and Directorships.

Access Persons may not engage in any outside business activities that may give rise to conflicts of interest or jeopardize the integrity or reputation of the Corporation. Similarly, no such outside business activities may be inconsistent with the interests of the Corporation. All directorships of public or private companies held by Access Persons shall be reported to the Chief Compliance Officer.

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(C) Gratuities.

Covered Personnel shall not, directly or indirectly, take, accept or receive gifts or other consideration in merchandise, services or otherwise of more than nominal value from any person, firm, corporation, association or other entity other than such person’s employer that does business, or proposes to do business, with the Corporation.

Section VIIIProhibition Against Insider Trading

This Section is intended to satisfy the requirements of Section 204A of the Advisers Act, which is applicable to the Adviser and requires that the Adviser establish and enforce procedures designed to prevent the misuse of material, non-public information by its associated persons. It applies to all Advisory Persons. Trading securities while in possession of material, non-public information, or improperly communicating that information to others, may expose an Advisory Person to severe penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten years imprisonment. The SEC can recover the profits gained or losses avoided through the violative trading, a penalty of up to three times the illicit windfall, and an order permanently barring an Advisory Person from the securities industry. Finally, an Advisory Person may be sued by investors seeking to recover damages for insider trading violations.

(A) No Advisory Person may trade a security, either personally or on behalf of any other person or account (including any fund), while in possession of material, non-public information concerning that security or the issuer thereof, nor may any Advisory Person communicate material, non-public information to others in violation of the law.

(B) Information is “material” where there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions. Generally, this includes any information the disclosure of which will have a substantial effect on the price of a security. No simple test exists to determine when information is material; assessments of materiality involve a highly fact specific inquiry. For this reason, an Advisory Person should direct any questions about whether information is material to the Chief Compliance Officer. Material information often relates to a company’s results and operations, including, for example, dividend changes, earnings results, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems, and extraordinary management developments. Material information may also relate to the market for a company’s securities. Information about a significant order to purchase or sell Securities may, in some contexts, be material. Pre-publication information regarding reports in the financial press may also be material.

(C) Information is “public” when it has been disseminated broadly to investors in the marketplace. For example, information is public after it has become available to the general public through a public filing with the SEC or some other government agency, the Dow Jones “tape” or The Wall Street Journal or some other publication of general circulation, and after sufficient time has passed so that the information has been disseminated widely.

(D) An Advisory Person, before executing any trade for himself or herself, or others, including the Corporation or other accounts managed by the Adviser or by a stockholder of the Adviser, or any affiliate of the stockholder (“Client Accounts”), must determine whether he or she has material, non-public information. Any Advisory Person who believes he or she is in possession of material, non-public information must take the following steps:

(1)Report the information and proposed trade immediately to the Chief Compliance Officer.

(2)Do not purchase or sell the securities on behalf of anyone, including Client Accounts.

(3)Do not communicate the information to any person, other than to the Chief Compliance Officer.

After the Chief Compliance Officer has reviewed the issue, the Chief Compliance Officer will determine whether the information is material and non-public and, if so, what action the Advisory Person should take. An Advisory Person must consult with the Chief Compliance Officer before taking any further action. This degree of caution will protect the Advisory Person and the Adviser.

(E) To prevent and detect insider trading from occurring, the Chief Compliance Officer shall prepare and maintain a “Restricted List” in order to monitor and prevent the occurrence of insider trading in certain securities that Access Persons are prohibited or restricted from trading. The Chief Compliance Officer manages, maintains and updates the Restricted List to actually restrict trading (no buying, no selling, no shorting, no trading, etc.) in the securities of specific issuers for personal accounts and on behalf Adviser’s clients. Before executing any trade for himself or herself, Advisory Persons are required to determine whether the transaction involves a security on the Restricted List. Advisory Persons are prohibited from trading any security which appears on the Restricted List, except that, with prior approval, an Advisory Person may sell securities which were not on the Restricted List when acquired (or which were acquired at a time when the Advisory Person was not subject to such restrictions). The Restricted List must be maintained strictly confidential and not disclosed to anyone outside of the Adviser and the Corporation.

(F) Contacts with public companies will sometimes be a part of an Adviser’s research efforts. Persons providing investment advisory services to the Corporation may make investment decisions on the basis of conclusions formed through such contacts and analysis of publicly available information. Difficult legal issues arise, however, when, in the course of these contacts, an Advisory Person becomes aware of material, non-public information. This could happen, for example, if a company’s chief financial officer prematurely discloses quarterly results to an analyst, or an investor relations representative makes selective disclosure of adverse news to a handful of investors. In such situations, the Adviser must make a judgment as to its further conduct. To protect yourself, clients and the Adviser, you should contact the Chief Compliance Officer immediately if you believe that you may have received material, non-public information.

Section IXAnnual Certification

(A) Access Persons.

Access Persons who are directors, managers, officers or employees of the Corporation or the Adviser shall be required to certify annually that they have read this Code and that they understand it and recognize that they are subject to it. Further, such Access Persons shall be required to certify annually that they have complied with the requirements of this Code.

(B) Board Review.

No less frequently than annually, the Corporation and the Adviser must furnish to the Corporation’s board of directors, and the board must consider, a written report that: (A) describes any issues arising under this Code or procedures since the last report to the board, including, but not limited to, information about material violations of the Code or procedures and sanctions imposed in response to material violations; and (B) certifies that the Corporation or the Adviser, as applicable, has adopted procedures reasonably necessary to prevent Access Persons from violating the Code.

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Section XSanctions

Any violation of this Code shall be subject to the imposition of such sanctions by the 17j-1 Organization as may be deemed appropriate under the circumstances to achieve the purposes of Rule 17j-1 and this Code. The sanctions to be imposed shall be determined by the board of directors, including a majority of the Independent Directors, provided, however, that with respect to violations by persons who are directors, managers, officers or employees of the Adviser (or of a company that controls the Adviser), the sanctions to be imposed shall be determined by the Adviser (or the controlling person thereof). Sanctions may include, but are not limited to, suspension or termination of employment, a letter of censure and/or restitution of an amount equal to the difference between the price paid or received by the Corporation and the more advantageous price paid or received by the offending person.

Section XIAdministration and Construction

(A) The administration of this Code shall be the responsibility of the Chief Compliance Officer.

(B) The duties of the Chief Compliance Officer are as follows:

(1) Continuous maintenance of a current list of the names of all Access Persons with an appropriate description of their title or employment, including a notation of any directorships held by Access Persons who are officers or employees of the Adviser or of any company that controls the Adviser, and informing all Access Persons of their reporting obligations hereunder;

(2) On an annual basis, providing all Covered Personnel a copy of this Code and informing such persons of their duties and obligations hereunder including any supplemental training that may be required from time to time;

(3)Maintaining or supervising the maintenance of all records and reports required by this Code;

(4) Preparing listings of all transactions effected by Access Persons who are subject to the requirement to file Quarterly Securities Transaction Reports and reviewing such transactions against a listing of all transactions effected by the Corporation;

(5) Issuance either personally or with the assistance of counsel as may be appropriate, of any interpretation of this Code that may appear consistent with the objectives of Rule 17j-1 and this Code;

(6) Conduct such inspections or investigations as shall reasonably be required to detect and report, with recommendations, any apparent violations of this Code to the board of directors of the Corporation;

(7) Submission of a report to the board of directors of the Corporation, no less frequently than annually, a written report that describes any issues arising under the Code since the last such report, including but not limited to the information described in Section VII (B); and

(C) The Chief Financial Officer shall maintain and cause to be maintained in an easily accessible place at the principal place of business of the 17j-1 Organization, the following records:

(1) A copy of all codes of ethics adopted by the Corporation or the Adviser and its affiliates, as the case may be, pursuant to Rule 17j-1 that have been in effect at any time during the past five (5) years;

(2) A record of each violation of such codes of ethics and of any action taken as a result of such violation for at least five (5) years after the end of the fiscal year in which the violation occurs;

(3) A copy of each report made by an Access Person for at least two (2) years after the end of the fiscal year in which the report is made, and for an additional three (3) years in a place that need not be easily accessible;

(4) A copy of each report made by the Chief Compliance Officer to the board of directors for two (2) years from the end of the fiscal year of the Corporation in which such report is made or issued and for an additional three (3) years in a place that need not be easily accessible;

(5) A list of all persons who are, or within the past five (5) years have been, required to make reports pursuant to the Rule and this Code of Ethics, or who are or were responsible for reviewing such reports;

(6) A copy of each report required by Section VII (B) for at least two (2) years after the end of the fiscal year in which it is made, and for an additional three (3) years in a place that need not be easily accessible; and

(7) A record of any decision, and the reasons supporting the decision, to approve the acquisition by an Advisory Person of securities in an Initial Public Offering or Limited Offering for at least five (5) years after the end of the fiscal year in which the approval is granted.

(D) This Code may not be amended or modified except in a written form that is specifically approved by majority vote of the Independent Directors.

This Joint Code of Ethics, originally adopted December 12, 2007, is annually reviewed and approved by the Board of Directors of the Corporation, including a majority of the Independent Directors.

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EX-21.1

EXHIBIT 21.1

Subsidiaries of the Registrant

Name of entity and place of jurisdiction	Voting Securities Owned Percentage
PennantPark Investment Funding I, LLC (Delaware)	100	%
PennantPark SBIC GP II, LLC (Delaware)	100	%
PennantPark SBIC II LP (Delaware)	100	% (1)
PNNT Alabama Holdings Inc. (Delaware)	100	% (2)
PNNT CI (GALLS) Prime Investment Holdings, LLC (Delaware)	100	%
PNNT Investment Holdings, LLC (Delaware)	100	%
RAM Energy Holdings LLC (Delaware)	100	% (3)
PennantPark Senior Loan Fund, LLC	72	% (3)
AKW Holdings Limited (Isle of Man)	84	% (3)
PT Network Intermediate Holdings, LLC (Delaware)	62	% (3)

⁽¹⁾ The entity is directly owned 99% by us and 1% by PennantPark SBIC GP II, LLC, which is effectively wholly-owned by us.

⁽²⁾ This entity is not operational.

⁽³⁾ This is a controlled affiliated investment.

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement on Form N-2 of PennantPark Investment Corporation and Subsidiaries (the Company) of our reports dated November 17, 2021, relating to the consolidated financial statements and the effectiveness of internal control over financial reporting of the Company, appearing in the Annual Report on Form 10-K of the Company for the year ended September 30, 2021. We also consent to the use in such Registration Statement of our report dated November 17, 2021, relating to the senior securities table appearing as Exhibit 99.5 in the accompanying Form 10-K of the Company for the year ended September 30, 2021.

We also consent to the reference to our firm under the headings “Senior Securities” in the accompanying Form 10-K and “Independent Registered Public Accounting Firm” in such Registration Statement on Form N-2.

/s/ RSM US LLP

New York, New York

November 17, 2021

EX-23.2

EXHIBIT 23.2

Consent of Independent Auditor

We hereby consent to the incorporation by reference in the Registration Statement on Form N-2 (No. 333-230014) of PennantPark Investment Corporation of our reports dated November 16, 2021, November 16, 2020 and November 15, 2019, relating to the consolidated financial statements of Ram Energy Holdings LLC as of and for the years ended September 30, 2021, 2020 and 2019, respectively, which appear in this Annual Report on Form 10-K.

/s/ BDO USA, LLP

Houston, Texas

November 17, 2021

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Arthur H. Penn, Chief Executive Officer and Chairman of the Board of Directors of PennantPark Investment Corporation, certify that:

1. I have reviewed this Annual Report on Form 10-K of PennantPark Investment Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; and

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 17, 2021

/s/ Arthur H. Penn
Name:	Arthur H. Penn
Title:	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302

CHIEF FINANCIAL OFFICER CERTIFICATION

I, Richard Cheung, Chief Financial Officer of PennantPark Investment Corporation, certify that:

1. I have reviewed this Annual Report on Form 10-K of PennantPark Investment Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; and

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 17, 2021

/s/ Richard Cheung
Name:	Richard Cheung
Title:	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

In connection with the Annual Report on Form 10-K of PennantPark Investment Corporation for the annual period ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Arthur H. Penn, as Chief Executive Officer of the Registrant hereby certify, to the best of my knowledge that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/s/ Arthur H. Penn
Name:	Arthur H. Penn
Title:	Chief Executive Officer
Date:	November 17, 2021

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

In connection with the Annual Report on Form 10-K of PennantPark Investment Corporation for the annual period ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard Cheung, as Chief Financial Officer of the Registrant hereby certify, to the best of my knowledge that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/s/ Richard Cheung
Name:	Richard Cheung
Title:	Chief Financial Officer
Date:	November 17, 2021

EX-99.2

Exhibit99.2

RAMENERGYHOLDINGSLLCANDSUBSIDIARIES

ConsolidatedFinancialStatements

AsofandfortheYearEndedSeptember30,2021

RAMENERGYHOLDINGSLLC

ANDSUBSIDIARIES

ConsolidatedFinancialStatements

AsofandfortheYearEndedSeptember30,2021

RAMEnergyHoldingsLLCandSubsidiaries

Contents

	Page
Independent Auditor’s Report	3-4
Consolidated Financial Statements
Consolidated Balance Sheet as of September 30, 2021	6
Consolidated Statement of Operations for the Year Ended September 30, 2021	7
Consolidated Statement of Member’s Equity for the Year Ended September 30, 2021	8
Consolidated Statement of Cash Flows for the Year Ended September 30, 2021	9
Notes to Consolidated Financial Statements	10-20

2

IndependentAuditor’sReport

To the Board of Directors

RAM Energy Holdings LLC

Tulsa, Oklahoma

Opinion

WehaveauditedtheaccompanyingconsolidatedfinancialstatementsofRAMEnergyHoldingsLLCandits subsidiaries (the “Company”), which comprise the consolidated balance sheet as of September 30,2021,andtherelatedconsolidatedstatementsofoperations,member’sequity,andcashflowsfortheyearthenended, and therelatednotestotheconsolidatedfinancialstatements.

In our opinion, the accompanying consolidated financial statements present fairly, in all materialrespects, the financial position of the Company as of September 30, 2021, and the results of itsoperations and its cash flows for the year then ended in accordance with accounting principlesgenerallyacceptedintheUnitedStatesofAmerica.

BasisforOpinion

WeconductedourauditinaccordancewithauditingstandardsgenerallyacceptedintheUnitedStatesofAmerica(“GAAS”).OurresponsibilitiesunderthosestandardsarefurtherdescribedintheAuditor’sResponsibilities for the Audit of the Consolidated Financial Statements section of our report. We arerequired to be independent of the Company and to meet our other ethical responsibilities, inaccordance with the relevant ethical requirements relating to our audit. We believe that the auditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

ResponsibilitiesofManagementfortheConsolidatedFinancialStatements

Management is responsible for the preparation and fair presentation of the consolidated financialstatements in accordance with accounting principles generally accepted in the United States ofAmerica, and for the design, implementation, and maintenance of internal control relevant to thepreparation and fair presentation of consolidated financial statements that are free from materialmisstatement,whetherduetofraudorerror.

Inpreparingtheconsolidatedfinancialstatements,managementisrequiredtoevaluatewhetherthereareconditionsorevents,consideredintheaggregate,thatraisesubstantialdoubtabouttheCompany’sability to continue as a going concern within one year after the date that the consolidated financialstatementsareissuedoravailabletobeissued.

Auditor’sResponsibilitiesfortheAuditoftheConsolidated FinancialStatements

Ourobjectivesaretoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andtoissueanauditor’sreport that includes our opinion. Reasonable assurance is a high level of assurance but is not absoluteassurance and therefore is not a guarantee that an audit conducted in accordance with GAAS willalwaysdetectamaterialmisstatementwhenitexists.Theriskofnotdetectingamaterialmisstatement resulting from fraud is higher than for one resulting from error, as fraud may involvecollusion, forgery, intentional omissions, misrepresentations, or the override of internal control.Misstatements are considered material if there is a substantial likelihood that, individually or in theaggregate, they would influence the judgment made by a reasonable user based on the consolidatedfinancialstatements.

InperforminganauditinaccordancewithGAAS,we:

• Exerciseprofessionaljudgmentandmaintainprofessionalskepticismthroughouttheaudit.

3

• Identifyandassesstherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whether due to fraud or error, and design and perform audit procedures responsive to thoserisks.Suchproceduresincludeexamining,onatestbasis,evidenceregardingtheamountsanddisclosuresintheconsolidatedfinancialstatements.

• Obtain an understanding of internal control relevant to the audit in order to design auditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheCompany’sinternalcontrol.Accordingly,nosuchopinionisexpressed.

• Evaluate the appropriateness of accounting policies used and the reasonableness of significantaccountingestimatesmadebymanagement,aswellasevaluatetheoverallpresentationoftheconsolidatedfinancialstatements.

• Concludewhether,inourjudgment,thereareconditionsorevents,consideredintheaggregate, that raise substantial doubt about the Company’s ability to continue as a goingconcernforareasonableperiodoftime.

Wearerequiredtocommunicatewiththosechargedwithgovernanceregarding,amongothermatters,the planned scope and timing of the audit, significant audit findings, and certain internal control-relatedmattersthatweidentifiedduringtheaudit.

/s/BDOUSA,LLP

Houston, Texas

November16,2021

4

ConsolidatedFinancialStatements

5

RAMEnergyHoldingsLLCandSubsidiaries

ConsolidatedBalanceSheet

September 30,	2021
Assets
Current Assets
Cash and cash equivalents	$	27,466,302
Accounts receivable, net		4,572,592
Derivative assets		14,806
Prepaid expenses		185,530
Total Current Assets		32,239,230
Property and Equipment, at Cost
Proved oil and natural gas properties and equipment, full cost method		125,102,893
Unproved oil and natural gas properties		7,544,317
Gas gathering and processing equipment		18,159,939
Other property and equipment		651,138
		151,458,287
Less: accumulated depreciation, depletion, amortization and impairment		(100,129,778	)
Net Property and Equipment		51,328,509
Other Assets
Derivative assets	100,052
Restricted cash		1,123,069
Other		15,334
Total Other Assets		1,238,455
Total Assets	$	84,806,194
Liabilities and Member’s Equity
Current Liabilities
Accounts payable	$	4,591,853
Revenue payable		3,494,864
Accrued liabilities		1,005,360
Derivative liabilities		5,185,147
Current portion of asset retirement obligations		780,292
Total Current Liabilities		15,057,516
Long-Term Liabilities
Derivative liabilities		1,689,999
Asset Retirement Obligations, net of current portion		4,447,549
Long-Term Debt, net		41,253,592
Total Long-Term Liabilities		47,391,140
Commitments and Contingencies (Note 8)
Member’s Equity		22,357,538
Total Liabilities and Member’s Equity	$	84,806,194

Theaccompanyingnotesareanintegralpart oftheseconsolidatedfinancialstatements.

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RAMEnergyHoldingsLLCandSubsidiaries

ConsolidatedStatementofOperations

Year Ended September 30,	2021
Revenues
Crude oil sales	$	19,730,676
Natural gas sales		24,629,252
Natural gas liquids sales		10,706,765
Water supply services		384,205
Gathering fees		2,480,249
Total Revenues	57,931,147
Operating Expenses
Oil and natural gas operating expenses	14,980,252
Oil and natural gas production taxes		1,803,035
Water usage		75,000
Depreciation, depletion and amortization		9,402,159
Accretion of asset retirement obligations		608,494
General and administrative, overhead and other    expenses, net of operator's overhead fees	4,475,254
Total Operating Expenses	31,344,194
Income from Operations	26,586,953
Other Income (Expense)
Interest expense		(1,529,501	)
Interest income		14,591
Loss on derivative instruments		(7,841,401	)
Other income, net		1,189,321
Total Other Income (Expense)		(8,166,990	)
Net Income	$	18,419,963

Theaccompanyingnotesareanintegralpart oftheseconsolidatedfinancialstatements.

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RAMEnergyHoldingsLLCandSubsidiaries

ConsolidatedStatementofMember’sEquity

	Units		Member’s Equity
Balance, October 1, 2020		180,805	$	3,937,575
Net income		-		18,419,963
Balance, September 30, 2021		180,805	$	22,357,538

Theaccompanying notesareanintegralpartoftheseconsolidatedfinancialstatements.

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RAMEnergyHoldingsLLCandSubsidiaries

ConsolidatedStatementofCashFlows

Year Ended September 30,	2021
Cash Flows from Operating Activities
Net income	$	18,419,963
Adjustments to reconcile net income to net cash provided    by operating activities:
Depreciation, depletion and amortization		9,402,159
Interest expense paid in kind		1,280,153
Amortization of deferred loan costs		209,050
Accretion of asset retirement obligations		608,494
Gain on forgiveness of debt		(1,025,700	)
Loss on derivative instruments		7,841,401
Derivative premiums paid		(635,011	)
Derivative cash settlements paid		(983,259	)
Settlements of asset retirement obligations		(647,654	)
Changes in operating assets and liabilities:
Accounts receivable		(2,796,241	)
Prepaid expenses and other assets		(17,941	)
Accounts payable and revenue payable		(2,740,375	)
Accrued liabilities		35,460
Net Cash Provided by Operating Activities		28,950,499
Cash Flows from Investing Activities
Payments for oil and natural gas properties and equipment		(10,153,106	)
Payments for other property and equipment		(116,235	)
Net Cash Used in Investing Activities		(10,269,341	)
Cash Flows from Financing Activities
Proceeds from borrowings on long-term debt	524,700
Deferred loan costs		(28,157	)
Net Cash Provided by Financing Activities		496,543
Net Increase in Cash, Cash Equivalents and Restricted Cash		19,177,701
Cash, Cash Equivalents and Restricted Cash - Beginning of Year		9,411,670
Cash, Cash Equivalents and Restricted Cash - End of Year	$	28,589,371
Non-Cash Investing and Financing Activities
Oil and natural gas properties accrued	$	3,050
Asset retirement obligations	$	464,020

Theaccompanyingnotesareanintegralpart oftheseconsolidatedfinancialstatements.

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RAMEnergyHoldingsLLCandSubsidiaries

NotestoConsolidatedFinancialStatements

1. NatureofOperationsandOrganization

RAM Energy Holdings LLC (“Holdings” or the “Company”) is a Delaware limited liability company,formed in July 2014 and originally was wholly-owned by PennantPark Investment Corporation(“PennantPark”).InMay2021,PennantParkcontributeditsownership inHoldingstoPNNTInvestment Holdings, LLC (“PNNT Investment”), its wholly-owned subsidiary.As a result, Holdingsis wholly-ownedbyPNNTInvestmentonSeptember30,2021.

Holdings was formed as a holding company for interest ownership in RAM Energy LLC (“RAM”). RAMFayetteLLC(“Fayette”)wasformedinSeptember2017andFayetteServiceCompanyLLC(“Service”)wasformedinJune2018,bothaswholly-ownedsubsidiariesofRAM.OnOctober1,2019,RAMcontributeditsownershipinServicetoHoldingsandServicebecamewholly-ownedbyHoldings.Holdings,RAM,FayetteandService arehereinreferredtoasthe“Company.”

RAMwasformedinApril2012asaprivatelyheld,independentoilandnaturalgascompanyengagedintheacquisition,exploration,exploitation,developmentandproductionofoilandnaturalgas.

In July 2018, the Company began a drilling program in the Austin Chalk formation. Fayette wasformed to be an owner in the new wells drilled, and Service was formed to invest in gathering andfacilitiesinfrastructure.

RAM operates exclusively in the upstream segment of the oil and gas industry with activitiesincluding the drilling, completion, and operation of oil and natural gas wells. RAM conducts themajority of its operations in the state of Texas, with minor operations in the states of Arkansas,NewMexicoandOklahoma.

2. SummaryofSignificantAccountingPolicies

BasisofPresentation

The accompanying consolidated financial statements include the accounts of Holdings, its wholly-owned subsidiaries, RAM and Service, and RAM’s wholly-owned subsidiary, Fayette. All significantintercompanyaccountsandtransactionshavebeeneliminated inconsolidation.

PropertyandEquipment

The Company follows the full cost method of accounting for oil and natural gas properties. Underthis method, all productive and nonproductive costs incurred in connection with the acquisition,exploration,anddevelopmentofoilandnaturalgasreservesarecapitalized.Nogainsorlossesarerecognizeduponthesaleorotherdispositionofoilandnaturalgaspropertiesexceptintransactionsthat would significantly alter the relationship between capitalized costs and proved reserves. Thecosts of unproved oil and natural gas properties are excluded from the amortizable base until thetime that either proven reserves are found or it has been determined that such properties areimpaired. As properties become evaluated, the related costs are transferred to proved oil andnaturalgasproperties.

Underthefullcostmethod,thenetbookvalueofoilandnaturalgaspropertiesmaynotexceedtheestimated after-tax future net revenues from proved oil and natural gas properties, discounted at10% (the “Ceiling Limitation”). In arriving at estimated future net revenues, estimated leaseoperating expenses, development costs, and certain production-related and ad valorem taxes arededucted.

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RAMEnergyHoldingsLLCandSubsidiaries

NotestoConsolidatedFinancialStatements

In calculating future net revenues, prices and costs are held constant indefinitely, except forchanges that are fixed and determinable by existing contracts. The net book value is compared tothe Ceiling Limitation and the excess, if any, of the net book value above the Ceiling Limitation ischargedtoexpenseintheperiodinwhichitoccursandisnotsubsequentlyreinstated.AtSeptember30, 2021, the net book value of the Company’s oil and natural gas properties did not exceed theCeilingLimitation.

The costs directly associated with unevaluated oil and natural gas properties are not initiallyincludedintheamortizationbaseandrelatetounprovedleaseholdacreage,seismicdata,wellsandproduction facilities in progress and wells pending determination. Unevaluated leasehold costs aretransferred to the amortization base once determination has been made or upon expiration of alease. Geological and geophysical costs and cumulative drilling costs to date associated with aspecific unproved property are transferred to the amortization base with the associated leaseholdcosts on a specific project basis. Costs associated with wells in progress and wells pendingdetermination are transferred to the amortization base once a determination is made whether ornot proved reserves can be assigned to the property. All costs included in the Company’s unprovedpropertybalanceareassessedonaperiodicbasisforpossibleimpairmentorreductioninvalue.Theassessment includes consideration of numerous factors, including intent to drill, remaining leaseterm, geological and geophysical evaluations, drilling results and activity, assignment of provedreserves and economic viability of development if proved reserves are assigned. Any impairmentsofunevaluatedpropertiesaretransferredtotheamortizationbase.TheCompanydidnothaveanyimpairmentofitsunproved oiland gaspropertiesfortheyearended September30,2021.

Other property and equipment consists principally of furniture and equipment and leaseholdimprovements.Otherpropertyandequipmentandrelatedaccumulateddepreciationandamortization are relieved upon retirement or sale and the gain or loss is included in operations.Renewals and replacements that extend the useful life of property and equipment are treated ascapital additions.

Depreciation,DepletionandAmortization

Allcapitalizedcostsofoilandnaturalgaspropertiesandequipment,includingtheestimatedfuturecoststodevelopprovedreserves,areamortizedusingtheunit-of-productionmethodbasedontotalproved reserves. Depreciation of gathering assets and related facilities, and other equipment iscomputed on the straight-line method over the estimated useful lives of the assets, generallyranging from 3 to 30 years. Amortization of leasehold improvements is computed based on thestraight-line method over the term of the associated lease or estimated useful life, whichever isshorter.

DepreciationexpenseofotherpropertyandequipmentfortheyearendedSeptember30,2021wasapproximately$616thousand.

CashandCashEquivalents

All highly liquid unrestricted investments with a maturity of three months or less when purchasedareconsideredtobecashequivalents.

RestrictedCash

AtSeptember30,2021,theCompanyhadapproximately$1.1millionincertificatesofdepositheldas collateral for letters of credit for the beneficiary of states for the purpose of plugging andabandonment costs of the wells in which the Company has an interest. Such amounts are classifiedas restrictedcashintheaccompanyingconsolidatedbalancesheet.

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RAMEnergyHoldingsLLCandSubsidiaries

NotestoConsolidatedFinancialStatements

Thefollowingtableprovidesareconciliationofcash,cashequivalents,andrestrictedcashreportedwithinthestatementoffinancialpositionthatsumtothetotalofthesamesuchamountsshownintheconsolidatedstatementofcashflows:

September 30,	2021
Cash and cash equivalents	$	27,466,302
Restricted cash included in other long-term assets		1,123,069
Total cash, cash equivalents, and restricted cash shown in the statement of    cash flows	$	28,589,371

ConcentrationsofCreditRisk

The Company sells oil and natural gas to various customers and participates with other parties inthedrilling,completionandoperationofoilandnaturalgaswells.Jointinterestandoilandnaturalgas sales receivables related to these operations are generally unsecured. For the year endedSeptember 30, 2021, over 90% of total revenues and total receivables were from two customers.The Company provides an allowance for doubtful accounts for certain purchasers and certain jointinterest owners’ receivable balances when the Company believes the receivable balance may notbecollected.Accountsreceivablearepresentednetoftherelatedallowancefordoubtfulaccounts.At September30,2021,theallowancefordoubtfulaccountswas$4thousand.

In 2021, the Company had cash deposits in certain banks that at times exceeded the maximuminsuredbytheFederalDepositInsuranceCorporation.TheCompanymonitorsthefinancialconditionofthebanksandhasexperiencedno lossesontheseaccounts.

GeneralandAdministrativeExpenses

The Company receives fees for the operation of jointly owned oil and natural gas properties andrecords such reimbursements as reductions of general and administrative expenses. Such feestotaledapproximately$0.5millionfortheyearendedSeptember30,2021.

UseofEstimates

The preparation of consolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingentassetsandliabilitiesatthedateoftheconsolidatedfinancialstatementsandthereportedamountsof revenues and expenses during the reporting period. Estimates and assumptions that, in theopinionofmanagementaresignificant,includeoilandnaturalgasreserveswhichareutilizedinthecalculations of, depreciation, depletion and amortization related to oil and natural gas properties,asset retirement obligations and derivative instrument valuations. The Company evaluates itsestimates and assumptions on a regular basis. Estimates are based on historical experience andvarious other assumptions that are believed to be reasonable under the circumstances. Actualresultsmaydifferfromtheseestimates.

OilandNaturalGasReservesEstimates

IndependentpetroleumandgeologicalengineersprepareestimatesoftheCompany’soilandnaturalgas reserves. Proved reserves and the estimated future net revenues are estimated based upon acombination of historical data and estimates of future activity. Consistent with Topic 932 –ExtractiveActivities-OilandGasoftheCodification,atSeptember30,2021,theCompanycalculateditsestimateofprovedreservesusingatwelvemonthaverageprice,calculatedasthe unweighted arithmetic average of the first-day-of-the-month price for each period within thetwelve-monthperiodpriortotheendofthereportingperiod.Thereserveestimatesareusedintheassessment of the Company’s ceiling limitation and in calculating depreciation, depletion andamortization. Significant assumptions are

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RAMEnergyHoldingsLLCandSubsidiaries

NotestoConsolidatedFinancialStatements

required in the valuation of proved oil and natural gasreserveswhich,asdescribedherein,mayaffecttheamountatwhichoilandnaturalgaspropertiesare recorded.Actualresultscoulddiffermaterially fromtheseestimates.

AssetRetirementObligations

Thefairvalueofaliabilityforanassetretirementobligationisrecognizedintheperiodinwhichitis incurred if a reasonable estimate of fair value can be made, and the associated asset retirementcostsarecapitalizedaspartofthecarryingamountofthelong-livedasset.TheCompanydeterminesitsassetretirementobligationsonitsoilandnaturalgaspropertiesbycalculatingthepresentvalueoftheestimatedcashflowsrelatedtotheestimatedliability.Periodicaccretionofthediscountofthe estimated liability associated with the Company’s oil and natural gas properties is recorded intheconsolidatedstatementofoperations.

TheCompanyrecordedthefollowingactivityrelatedtotheassetretirementobligations:

Year Ended September 30,	2021
Liability for Asset Retirement Obligations, Beginning of Year	$	5,731,021
Accretion expense		608,494
Additions		132,169
Obligations for wells sold		(568,413	)
Settlements		(647,654	)
Changes in estimates		(27,776	)
Liability for Asset Retirement Obligations, End of Year	5,227,841
Less: Current asset retirement obligations		780,292
Long-Term Asset Retirement Obligations	$	4,447,549

RevenueRecognition

On October 1, 2020, the Company adopted Accounting Standards update (“ASU”) No. 2019-09,Revenue from Contracts with Customers (“ASC 606”), which supersedes the revenue recognitionrequirements in Accounting Standards Codification 605, Revenue Recognition. The FinancialAccountingStandardsBoard(“FASB”)hasalsoissuedseveralamendments(ASU2015-14,ASU2016-10, ASU 2016-12 and ASU 2016-20) clarifying different aspects of ASC 606. See Note 3 – RevenuefromContractswithCustomers.

IncomeTaxes

RAM, Fayette and Service are disregarded subsidiaries of Holdings. Upon its formation, Holdingselected to be classified as a corporation. On May 31, 2021, Holdings became a wholly-ownedsubsidiaryofPNNTInvestmentandelectedtobeadisregardedentityafterthischangeinownership.There was no tax impact to the Company as this was treated as a tax-free reorganization underSection 368(a)(1)(D) of the Internal Revenue Code. The following table presents the deferred taxbalancesasof May31,2021.

May 31, 2021
Depreciable/depletable property, plant and equipment	$	12,614,509
Asset retirement obligation		1,446,615
Derivative assets		579,373
Reserves and other		25,359
Net operating loss carryforward		15,119,086
Total noncurrent deferred tax assets		29,784,942
Valuation allowance		(29,784,942	)
Net noncurrent deferred tax assets	$	-

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RAMEnergyHoldingsLLCandSubsidiaries

NotestoConsolidatedFinancialStatements

As the Company is now considered a disregarded entity for tax purposes as of May 31, 2021, aprovision for federal income taxes associated with the Company has not been recorded in theaccompanying consolidated financial statements.Taxable income or losses generated by theCompanyas ofthedateoftheelectionwillonlybetaxedattheCompany’sparent’staxreturn.

The Company follows guidance issued by the FASB in accounting for uncertainty in income taxes.This guidance clarifies the accounting for income taxes by prescribing the minimum recognitionthreshold an income tax position is required to meet before being recognized in the consolidatedfinancial statements and applies to all income tax positions. Each income tax position is assessedusingatwo-stepprocess.Adeterminationisfirstmadeastowhetheritismorelikelythannotthatthe income tax position will be sustained, based upon technical merits, upon examination by thetaxingauthorities.Iftheincometaxpositionisexpectedtomeetthemorelikelythannotcriteria,the benefit recorded in the consolidated financial statements equals the largest amount that isgreaterthan50%likelytoberealizeduponitsultimatesettlement.TheCompanyhadnouncertaintaxpositionsasofSeptember30,2021.

The Company records income tax-related interest and penalties, if applicable, as a component ofthe provision for income tax expense. There were no amounts recognized relating to interest andpenalties in the consolidated statement of income for the fiscal year ended September 30, 2021.Furthermore, none of the Company’s federal or state income tax returns are currently underexamination by federal or state authorities. Fiscal year 2017 and forward remain subject toexaminationbyfederalandstateauthorities.

3. RevenuefromContractswithCustomers

Effective October 1, 2020, the Company adopted ASC 606 using the modified retrospective methodof adoption. There were no impacts to the Company’s net income or cash flows from operations asa result of the Company’s adoption of ASC 606. However, there were certain changes to thepresentationofrevenuesandrelatedexpensesbeginningOctober1,2020.

Theimpactofadoptioninthecurrentperiodresultsisasfollows:

	Year Ended September 30, 2021
	Under ASC 606		Under ASC 605		Change
Operating Revenues
Crude oil sales	$	19,730,676	$	19,730,676	$	-
Natural gas sales		24,629,252		31,829,590		(7,200,338	)
Natural gas liquids sales		10,706,765		10,707,881		(1,116	)
Water supply services		384,205		384,205		-
Gathering fees		2,480,249		2,480,249		-
Total Operating Revenues	$	57,931,147	$	65,132,601	$	(7,201,454	)
Operating Expenses    Oil and natural gas operating expenses	$	14,980,252	$	22,181,706	$	(7,201,454	)
Net Income	$	18,419,963	$	18,419,963	$	-
Member's Equity, as of September 30, 2021	$	22,357,538	$	22,357,538	$	-

Oil and Natural Gas Sales Revenue

The Company enters into contracts with customers to sell its produced oil, natural gas and naturalgas liquids and gas gathering services. Revenues for oil, gas and natural gas liquids are primarilygenerated

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RAMEnergyHoldingsLLCandSubsidiaries

NotestoConsolidatedFinancialStatements

in Texas. Revenue attributable to these contracts is recognized in accordance with thefive-step revenue recognition model prescribed in ASC 606. Specifically, revenue is recognized atthepointintimewhentheCompany’sperformanceobligationsunderthesecontractsaresatisfied,which generally occurs when control of oil, natural gas and natural gas liquids transfers to thecustomer and collectability of the consideration is considered probable. In accordance with ASC606, the Company considers the following indicators of the transfer of control to determine thepoint in time at which control transfers to its customers: (i) the Company has a present right topayment for the asset; (ii) the customer has legal title to the product; (iii) the Company hastransferred physical possession of the product; and (iv) the customer has the significant risks andrewardsofownership.

When the control of the product transfers to the customer differs depending on the contractualterms of each of the Company’s arrangements with its customers. This generally occurs at thewellhead. Transfer of control drives the presentation of transportation, gathering, processing, andother post-production expenses (“fees and other deductions”). Fees and other deductions incurredpriortocontroltransferarerecordedwithinleaseoperatingexpensesintheconsolidatedstatements of operations, while fees and other deductions incurred subsequent to the controltransferarerecordedasa reduction ofrevenues.

TheCompanyhastwogeneralcategoriesunderwhichoilandnaturalgasrevenueisgenerated:

1) The company sells oil production at or near the wellhead and receives an agreed-uponindex price from the purchaser, net of basis, quality and transportation differentials.Underthisarrangement,control transfersat ornear thewellhead.

2) The Company sells unprocessed natural gas to a midstream processor at the inlet of themidstream processing entity’s system. The midstream processor gathers and processesthe raw natural gas stream and remits proceeds to the Company from the ultimate saleoftheprocessednaturalgasliquidsandresiduegastothirdparties.Insucharrangements, the midstream processor obtains control of the product at the inlet andis considered the Company’s customer. Proceeds received for unprocessed gas underthesearrangementsarereflectedasoilandnaturalgasrevenueswithintheconsolidatedstatements of operations and are recorded net of transportation and processing feesincurred bythemidstreamprocessoraftercontrolhas transferred.

Significant judgments made in applying the guidance in ASC Topic 606 relate to the point in timewhencontroltransferstocustomersingasprocessingarrangementswithmidstreamprocessors.TheCompanydoesnotbelievethatsignificantjudgmentsarerequiredwithrespecttothedeterminationof the transaction price, including amounts that represent variable consideration, as volume andprice carry a low level of estimation uncertainty given the precision of volumetric measurementsandtheuseofindexpricingwithgenerallypredictabledifferentials.Accordingly,theCompanydoesnotconsiderestimatesofvariableconsiderationtobeconstrained.

The Company’s performance obligations arise upon the production of produced oil, natural gas andnatural gas liquids from wells in which the Company has an ownership interest. The performanceobligationsareconsideredsatisfieduponcontroltransferringtoapurchaseratthewellhead,inlet,ortailgateofthemidstreamprocessor’sprocessingfacility,orothercontractuallyspecifieddeliverypoint.Thetimeperiodbetweenproductionandsatisfactionofperformanceobligationsisgenerallyless than one day; thus, there are no material unsatisfied or partially unsatisfied performanceobligationsattheendofthereporting period.

Revenueisrecordedinthemonthwhenperformanceobligationsaresatisfied.However,settlementstatementsfromthepurchasersofproducedoil,naturalgasandnaturalgasliquidsandtherelatedcash consideration are received 30 to 90 days after production has occurred. As a result, theCompanymust

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RAMEnergyHoldingsLLCandSubsidiaries

NotestoConsolidatedFinancialStatements

estimatetheamountofproductiondeliveredtothecustomerandtheconsiderationthat will ultimately be received for sale of the product. Estimated revenue due to the Company isrecordedwithintheaccountsreceivablelineitemontheaccompanyingconsolidatedbalancesheetuntil payment is received. The accounts receivable balance from contracts with customers withinthe accompanying consolidated balance sheet as of September 30, 2021 was $4.6 million. Toestimate accounts receivable from contracts with customers, the Company uses knowledge of itsproperties,historicalperformance,contractualarrangements,indexpricing,qualityandtransportationdifferentials,andotherfactorsasthebasisfortheseestimates.Differencesbetweenestimates and actual amounts received for product sales are recorded in the month that paymentis received from the purchaser. Revenue recognized for the year ended September 30, 2021 thatrelatedtoperformance obligationssatisfiedinpriorreportingperiodswasimmaterial.

For the Company’s product sales that have a contract term of one year or less, the Company hasutilized the practical expedient in ASC 606 that exempts it from disclosure of the transaction priceallocated to remaining performance obligations if the performance obligation is part of a contractthathasanoriginalexpecteddurationofoneyearor less.

FortheCompany’sproductsalesthathaveacontracttermgreaterthanoneyear,theCompanyhasutilized the practical expedient in ASC 606 that states it is not required to disclose the transactionprice allocated to the remaining performance obligations if the variable consideration is allocatedentirely to a wholly unsatisfied performance obligation. Under these sales contracts, each unit ofproductrepresentsaseparateperformanceobligation;thereforefuturevolumesarewhollyunsatisfied and disclosure of the transaction price allocated to remaining performance obligationsis notrequired.

GasGatheringRevenue

The Company also provides natural gas gathering and compression services through its ownershipinterest in a gas gathering system. The Company’s gathering revenues are generated in Texas. Forthe provision of gas gathering and compression services, the Company collects its share of thegatheringandcompressionfeesperunitofgasservicedandrecognizesgatheringrevenueovertimeusinganoutputmethodbasedonunitsofgasgathered.

4. FairValueMeasurements

There is a three-level valuation hierarchy for disclosure of fair value measurements. The valuationhierarchy categorizes assets and liabilities measured at fair value into one of three different levelsdepending on the observability of the inputs employed in the measurement. The three levels aredefinedasfollows:

Level1-inputstothevaluationmethodologyarequotedprices(unadjusted) foridenticalassets orliabilitiesinactivemarkets.

Level 2-inputs to the valuationmethodology include quotedpricesfor similarassetsand liabilities in active markets, and inputs that are observable for the asset or liability,eitherdirectlyorindirectly,forsubstantiallythefulltermofthefinancialinstrument.

Level 3-inputstothe valuation methodology areunobservable andsignificant to thefairvaluemeasurement.

Afinancialinstrument’scategorizationwithinthevaluationhierarchyisbaseduponthelowestlevelof input that is significant to the fair value measurement. The Company’s assessment of thesignificance of a particular input to the fair value measurement in its entirety requires judgmentandconsidersfactorsspecific totheassetor liability.

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RAMEnergyHoldingsLLCandSubsidiaries

NotestoConsolidatedFinancialStatements

The following table sets forth the assets and liabilities measured at fair value on a recurring basis,bylevel, asofSeptember30, 2021:

	As of September 30, 2021
	Level 1		Level 2		Level 3		Total
Derivative Asset    (Commodity Contracts)	$	-	$	114,858	$	-	$	114,858
Derivative Liability    (Commodity Contracts)	$	-	$	6,875,146	$	-	$	6,875,146

The Company estimates the fair value of its derivative instruments based on published forwardcommodity price curves as of the date of the estimate, less discounts to recognize present values.TheCompanyestimatedthefairvalueofitsderivativesusingapricingmodelwhichalsoconsideredmarketvolatility,counterpartycreditriskandadditionalcriteriaindeterminingdiscountrates.Thediscount rate used in the discounted cash flow projections was based on published LIBOR rates,Eurodollar futures rates and interest swap rates. The counterparty credit risk was determined bycalculating the difference between the derivative counterparty’s bond rate and published bondrates. A credit valuation adjustment (“CVA”) for the Company is incorporated into the derivativevaluationwhentheoverallderivativepositionwithacounterpartyisinaliabilityposition.ACVAiscalculatedbased onthespreadbetweentheCompany’screditcurve and arisk-free rate.

At September 30, 2021, the carrying value of cash, restricted cash, receivables and payablesreflected in the Company’s consolidated financial statements approximates fair value due to theirshort-term nature. The fair value of the Main Street Lending Program Loan approximates fair valueduetotheinterest ratebeing reflectiveofmarketrates.

The Company’s non-financial assets and liabilities, which are initially measured at fair value, arecomprisedprimarilyofassetretirementobligations.Theseliabilitiesarerecordedatfairvaluewhenacquired/incurred,butnotre-measuredatfairvalueinsubsequentperiods.TheCompanyclassifiessuch initial measurements as Level 3, since certain significant unobservable inputs are utilized intheir determination. The fair value of additions to the asset retirement obligations and certainchanges in the estimated fair value of the liabilities are measured using valuation techniquesconsistent with the income approach, converting future cash flows to a single discounted amount.Inputs to the valuation include: (1) estimated plug and abandonment cost based on a third-partystudy; (2) estimated remaining life of each field; (3) the Company’s credit-adjusted risk-freeinterestrateof3.12%;and(4)theaverageinflationfactorof1.80%.Theseinputsrequiresignificantjudgments and estimates by the Company’s management at the time of the valuation, and are themostsensitiveandsubjecttochange.

5. DerivativeContracts

The Company periodically utilizes various hedging strategies to manage the price received for aportion of its future oil and natural gas production to reduce exposure to fluctuations in oil andnaturalgaspricesandtoachieve amorepredictablecashflow.

During2021,theCompanyenteredintocertainderivativecontractstomanagetheimpactofoilandnatural gas price fluctuations and as required by the terms of its credit facility. The Company didnot designate these transactions as hedges. Accordingly, all gains and losses on the derivativeinstrumentsduring2021have beenrecordedinthe consolidatedstatementof operations.

17

RAMEnergyHoldingsLLCandSubsidiaries

NotestoConsolidatedFinancialStatements

The Company’s derivative positions at September 30, 2021, consisting of costless collars and puts,areshowninthefollowing table:

As of September 30, 2021
Start Date	End Date	Commodity	Option Type	Notional Quantity	Weighted Average Floor	Weighted Average Ceiling	Weighted Average Premium
11/1/2021	10/31/2024	Natural Gas	Collar	6,570,000 MMBTU	$2.175	$3.093	Costless
1/1/2021	3/31/2023	Crude Oil	Put	317,900 BBL	$29.310	N/A	$1.998

GrossfairvaluesoftheCompany’sderivativeinstruments,priortonettingofassets andliabilities subjecttoamasternettingarrangement,areasfollows:

Derivative Financial Instruments	Balance Sheet Location	Fair Value as of September 30, 2021
Commodity Contracts	Current Assets - Derivative Assets	$	14,806
Commodity Contracts	Noncurrent Assets - Derivative Assets	$	100,052
Commodity Contracts	Current Liabilities - Derivative Liabilities	$	(5,185,147	)
Commodity Contracts	Long Term Liabilities - Derivative Liabilities	$	(1,689,999	)
Total Derivatives, net		$	(6,760,288	)

All of the gains and losses related to derivative contracts are recorded through the “Loss onderivativeinstruments”accountintheconsolidated statementofoperations.

6. AcquisitionsandDivestitures

May2021Disposition

In May 2021, the Company closed on the sale of certain oil and natural gas properties located invariouscountiesinTexasandNewMexico.TheCompanyreceivednoproceeds,butwasrelievedof $568thousandofpluggingliability.TheCompanydidnotrecognizeagainorlossonthesaleasthedivestiture did not significantly alter the relationship between capitalized costs and proved oil andgasreserves.

September2021Acquisition

InSeptember2021,theCompanyclosedontheacquisitionoftheremainingworkinginterestintheUhyrek #1-OL Unit located in Fayette County, Texas. The full cost pool was increased by thepurchasepriceof$456thousand.

7. Long-TermDebt

Long-termdebtconsistsofthefollowing:

September 30,	2021
2020 Main Street Lending Program Loan	$	42,080,153
Less: Deferred Loan Costs		826,561
Long-Term Debt, net	$	41,253,592

PaycheckProtectionProgramLoan

The Company entered into two loans in the amounts of $501 thousand on April 29, 2020, and $525thousand on February 16, 2021, with the Paycheck Protection Program through the United StatesSmallBusinessAdministration.Eachloanhadatermoftwoyearsandcarriedaninterestrateof1%.The loan

18

RAMEnergyHoldingsLLCandSubsidiaries

NotestoConsolidatedFinancialStatements

amounts were based on approximately 2.5 months’ of payroll, rent and utilities expenseand were forgivable upon showing support for applicable expenditures and proof of eligibilityrequirements.TheCompanysubmittedforgivenessapplicationsandtheloanswereforgiveninJune

and August of 2021, respectively. The Company has elected to use ASC 470 to account for theseloans, and has recognized gains on forgiveness of debt in the periods in which the debt was legallyforgiven. The application for these funds required the Company to, in good faith, certify that thecurrent economic uncertainty made the loan requests necessary to support the ongoing operationsof the Company. The receipt of these funds, and the forgiveness of the loans attendant to thesefunds, was dependent on the Company having initially qualified for the loan and qualifying for theforgivenessofsuchloansbasedonitsfutureadherencetotheforgivenesscriteria.

MainStreetLendingProgramLoanFacility

OnSeptember4,2020,RAM,withHoldings,FayetteandService,asguarantors,enteredintoa$40.8million loan facility with the Main Street Lending Program and Vast Bank (the “Main Street Loan”).TheCompanyused$26.5millionoftheproceedstorepaythedebtwithaformerlenderanddeferredloancosts.

TheMainStreetLoanmaturesin2025andcarriesaninterestrateofLIBORplus3%.Theloanprovidesfor interest to be paid in-kind through September 4, 2021 in the amount of $1.3 million.The firstinterestpaymentisdueOctober4,2021andeachmonththereafter.Principalisdueasfollows:15%onSeptember 4,2023,15% onSeptember4,2024,andthe remaining 70%onSeptember4,2025.

TheMainStreetLoanissecuredbyliensonsubstantiallyallpropertiesandassetsoftheborrowers.The loan agreement contains representations, warranties and covenants customary in transactionsof this nature, including a financial covenant relating to a minimum debt service coverage ratio,calculated semi-annually. As of September 30, 2021, the Company was in compliance with itsfinancialcovenants.

8. CommitmentsandContingencies

From time to time the Company may be involved in claims and litigation arising in the ordinarycourseofbusiness.Intheopinionofmanagement,theoutcomeofallexistingmatterswillnothaveamaterialadverseeffectontheCompany’sfinancialpositionorresultsofoperations.

Leases

RAM leases office space and certain equipment under non-cancelable operating lease agreementsthat expire on various dates through 2024. Approximate future minimum lease payments as ofSeptember30, 2021areasfollows:

Year Ending September 30,
2022	$	464
2023		118
2024		9
	$	591

Rentexpenseofapproximately$0.5millionwasincurredunderoperatingleasesfortheyearendedSeptember30, 2021.

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RAMEnergyHoldingsLLCandSubsidiaries

NotestoConsolidatedFinancialStatements

9. RelatedPartyTransactions

RAMmadecertainpaymentsonbehalfofanofficertotaling$51thousandin2021,whichareduetotheCompany asof September30, 2021.

10. SubsequentEvents

The Company evaluates events and transactions occurring after the balance sheet date and beforetheconsolidatedfinancialstatementsareavailableforissuance.Sucheventsandtransactionshavebeen evaluated through November 16, 2021, the date the consolidated financial statements wereavailabletobeissued.

On October 4 and November 4, 2021, the Company paid the first and second interest paymentsdueontheMainStreetloanintheamounts of$109thousandand$113thousand,respectively.

20

EX-99.3

Exhibit 99.3

RAM ENERGY HOLDINGS LLC

AND SUBSIDIARIES

Consolidated Financial Statements

Asofandforthe YearEnded

September 30, 2020

RAM ENERGY HOLDINGS LLC

AND SUBSIDIARIES

Consolidated Financial Statements

As of and for the Year Ended

September 30, 2020

RAM Energy Holdings LLC and Subsidiaries
Contents

Page
Independent Auditor’s Report	3
Consolidated Financial Statements
Consolidated Balance Sheet as of September 30, 2020	5
Consolidated Statement of Operations for the Year Ended September 30, 2020	6
Consolidated Statement of Member’s Equity for the Year Ended September 30, 2020	7
Consolidated Statement of Cash Flows for the Year Ended September 30, 2020	8
Notes to Consolidated Financial Statements	9-20

2

Independent Auditor’s Report

To the BoardofDirectorsRAM Energy Holdings LLC

Tulsa, Oklahoma

We have audited the accompanying consolidated financial statements of RAM Energy Holdings LLC and its subsidiaries (the “Company”), which comprise the consolidated balance sheet as of September 30, 2020, and the related consolidated statements of operations, member’s equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements.

Management’sResponsibility forthe Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’sResponsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of RAM Energy Holdings LLC and its subsidiaries as of September 30, 2020, and the results of their operations and their cash flows for the year then ended, in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As more fully described in Note 2 to the consolidated financial statements, the Company has been materially impacted by the outbreak of a novel coronavirus (COVID-19), which was declared a global pandemic by the World Health Organization in March 2020. The pandemic has compounded the crude oil price volatility due to disruption of global supply and demand, which has, and may continue to have a material impact to the Company’s financial position and results of operations. Our opinion is not modified with respect to this matter.

/s/ BDO USA, LLP

Houston, TX

November 16, 2020

Consolidated Financial Statements

RAM Energy Holdings LLC and Subsidiaries

Consolidated Balance Sheet

September 30,	2020
Assets
Current Assets
Cash and cash equivalents	$	8,670,146
Accounts receivable, net		1,776,351
Prepaid expenses		167,589
Total Current Assets		10,614,086
Property and Equipment, at Cost
Proved oil and natural gas properties and equipment,    full cost method		116,121,091
Unproved oil and natural gas properties		7,488,377
Gas gathering and processing equipment		17,610,003
Other property and equipment		534,903
		141,754,374
Less:  accumulated depreciation, depletion,    amortization and impairment		(90,727,620	)
Net Property and Equipment		51,026,754
Other Assets
Restricted cash		741,524
Other		15,334
Total Other Assets		756,858
Total Assets	$	62,397,698
Liabilities and Member’s Equity
Current Liabilities
Accounts payable	$	9,297,593
Revenue payable		1,526,449
Accrued liabilities		1,074,357
Derivative liabilities		537,157
Current portion of asset retirement obligations		903,228
Total Current Liabilities		13,338,784
Asset Retirement Obligations, net of current portion		4,827,793
Long-Term Debt, net		40,293,546
Total Liabilities		58,460,123
Commitments and Contingencies (Note 9)
Member’s Equity		3,937,575
Total Liabilities and Member’s Equity	$	62,397,698
The accompanying notes are an integral part of these consolidated financial statements.

5

RAM Energy Holdings LLC and Subsidiaries

Consolidated Statement of Operations

Year Ended September 30,	2020
Operating Revenues
Crude oil sales	$	13,242,725
Natural gas sales		8,046,227
Natural gas liquids sales		5,281,458
Water supply services		748,221
Gathering fees		3,267,474
Total Revenues		30,586,105
Operating Expenses
Oil and natural gas operating expenses		19,371,952
Oil and natural gas production taxes		713,228
Water usage		75,000
Depreciation, depletion and amortization		14,816,892
Impairment of oil and gas properties		32,455,508
Accretion of asset retirement obligations		576,665
Bad debt expense		1,050
General and administrative, overhead and other    expenses, net of operator's overhead fees		4,450,780
Total Operating Expenses		72,461,075
Loss from Operations		(41,874,970	)
Other Income (Expense)
Interest expense		(5,945,697	)
Interest income		86,697
Gain on derivative instruments		2,322,535
Other income, net		82,745
Total Other Income (Expense)		(3,453,720	)
Net Loss	$	(45,328,690	)
The accompanying notes are an integral part of these consolidated financial statements.

6

RAM Energy Holdings LLC and Subsidiaries

Consolidated Statement of Member’s Equity

	Units		Member’s Equity (Deficit)
Balance, October 1, 2019		84,747	$	(37,177,068	)
Conversion of debt to equity		96,058		86,443,333
Net loss		-		(45,328,690	)
Balance, September 30, 2020		180,805	$	3,937,575
The accompanying notes are an integral part of these consolidated financial statements.

7

RAM Energy Holdings LLC and Subsidiaries

Consolidated Statement of Cash Flows

Year Ended September 30,	2020
Cash Flows from Operating Activities
Net loss	$	(45,328,690	)
Adjustments to reconcile net loss to net cash used in    operating activities:
Depreciation, depletion and amortization		14,816,892
Impairment of oil and gas properties		32,455,508
Interest expense paid in kind		1,443,333
Amortization of deferred loan costs		8,466
Accretion of asset retirement obligations		576,665
Bad debt expense		1,050
Gain on derivative instruments		(2,322,535	)
Derivative cash settlements		2,859,692
Changes in operating assets and liabilities:
Accounts receivable		6,049,168
Prepaid expenses and other assets		57,806
Accounts payable and revenue payable		(18,113,792	)
Drilling advances		(2,226,283	)
Settlements of asset retirement obligations		(664,473	)
Accrued liabilities		(507,152	)
Net Cash Used in Operating Activities		(10,894,345	)
Cash Flows from Investing Activities
Payments for oil and natural gas properties and equipment		(34,021,957	)
Proceeds from sales of oil and natural gas properties		75,000
Payments for other property and equipment		(7,297	)
Net Cash Used in Investing Activities		(33,954,254	)
Cash Flows from Financing Activities
Proceeds from borrowings on long-term debt		81,801,000
Payments on long-term debt		(30,500,000	)
Deferred financing costs		(965,920	)
Net Cash Provided by Financing Activities		50,335,080
Net Increase in Cash, Cash Equivalents and Restricted Cash		5,486,481
Cash, Cash Equivalents and Restricted Cash - Beginning of Year		3,925,189
Cash, Cash Equivalents and Restricted Cash - End of Year	$	9,411,670
Supplemental Cash Flow Information
Cash paid for interest	$	2,301,546
Non-Cash Investing and Financing Activities
Oil and natural gas properties accrued	$	1,935,869
Asset retirement obligations	$	334,919
Conversion of debt to equity	$	86,443,333
The accompanying notes are an integral part of these consolidated financial statements.

8

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

1. NatureofOperationsandOrganization

RAM Energy Holdings LLC (“Holdings”) is a Delaware limited liability company, wholly-owned by PennantPark Investment Corporation (“PennantPark”), and was formed in July 2014 as a holding company for interest ownership in RAM Energy LLC (“RAM”). RAM Fayette LLC (“Fayette”) was formed in September 2017 and Fayette Service Company LLC (“Service”) was formed in June 2018, both as wholly-owned subsidiaries of RAM. On October 1, 2019, RAM contributed its ownership in Service to Holdings and Service became wholly-owned by Holdings. Holdings, RAM, Fayette and Service are herein referred to as the “Company.”

RAM was formed in April 2012 as a privately held, independent oil and natural gas company engaged in the acquisition, exploration, exploitation, development and production of oil and natural gas.

In September 2017, Holdings issued PennantPark 61,606 common units in satisfaction of the $88 million of outstanding debt that RAM owed to PennantPark. Holdings then entered into a new $35 million term loan. In June 2018, the credit agreement was amended to add a $15 million revolving loan. The credit agreement was amended in January 2019 and May 2019 to increase the revolving loan to $40 million, and further amended in October 2019 to increase the revolving loan to $50 million. In January 2020, the debt was restructured and converted to equity, and Holdings issued PennantPark 96,058 common units in satisfaction of the $86 million in debt that Holdings owed to PennantPark.  See Notes 7 and 8.

In July 2018, the Company began a drilling program in the Austin Chalk formation. Fayette was formed to be an owner in the new wells drilled, and Service was formed to invest in gathering and facilities infrastructure.

RAM operates exclusively in the upstream segment of the oil and gas industry with activities including the drilling, completion, and operation of oil and natural gas wells. RAM conducts the majority of its operations in the state of Texas, with minor operations in the states of Arkansas, New Mexico and Oklahoma.

2. Liquidity and Recent Events

A novel strain of coronavirus (“COVID-19”) was first identified in December 2019, and subsequently declared a global pandemic by the World Health Organization in March 2020. As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served.

The adverse economic effects of the COVID-19 outbreak have materially decreased demand for crude oil based on the restrictions in place by governments trying to curb the outbreak and changes in consumer behavior. This has led to a significant global oversupply of oil and consequently a substantial decrease in crude oil prices.  In response to the reduction in crude oil prices, the Company has instituted cost reduction measures that include negotiated cost reductions with vendors and elimination or deferral of certain discretionary capital spending.  Further, as discussed in Note 1, the Company’s sole Member converted all of its outstanding debt to equity during the year, and as further discussed in Note 7, the Company also refinanced its debt with Macquarie with a loan from the Main Street Lending Program, which is part of the U.S. Federally enacted “CAREs Act”.  As a result of these two transactions, the Company has no debt principal payments due until 2023 and no cash interest payments due until October 2021.

While management believes it has sufficient liquidity to fund its cash requirements through November 2021 based on current oil and gas pricing models and derivative instruments the Company has in place, the full impact of the COVID-19 pandemic continues to evolve, and as such,

9

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations is uncertain. Management is actively monitoring the impact of the COVID-19 pandemic and oil and gas pricing volatility on the Company's financial position, liquidity, operations, suppliers, industry and workforce.

3. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Holdings, its wholly-owned subsidiaries, RAM and Service, and RAM’s wholly-owned subsidiary, Fayette. All significant intercompany accounts and transactions have been eliminated in consolidation.

Property and Equipment

The Company follows the full cost method of accounting for oil and natural gas properties. Under this method, all productive and nonproductive costs incurred in connection with the acquisition, exploration, and development of oil and natural gas reserves are capitalized. No gains or losses are recognized upon the sale or other disposition of oil and natural gas properties except in transactions that would significantly alter the relationship between capitalized costs and proved reserves. The costs of unevaluated oil and natural gas properties are excluded from the amortizable base until the time that either proven reserves are found or it has been determined that such properties are impaired. As properties become evaluated, the related costs are transferred to proved oil and natural gas properties.

Under the full cost method, the net book value of oil and natural gas properties may not exceed the estimated after-tax future net revenues from proved oil and natural gas properties, discounted at 10% (the “Ceiling Limitation”). In arriving at estimated future net revenues, estimated lease operating expenses, development costs, and certain production-related and ad valorem taxes are deducted.

In calculating future net revenues, prices and costs are held constant indefinitely, except for changes that are fixed and determinable by existing contracts. The net book value is compared to the Ceiling Limitation and the excess, if any, of the net book value above the Ceiling Limitation is charged to expense in the period in which it occurs and is not subsequently reinstated. During the first half of calendar 2020, crude oil prices declined significantly due to the Saudi-Russia conflict and decreased demand as a result of the COVID-19 pandemic.  As a result, the Company recognized an impairment of $32.5 million during the year ended September 30, 2020.

The costs directly associated with unevaluated oil and natural gas properties are not initially included in the amortization base and relate to unproved leasehold acreage, seismic data, wells and production facilities in progress and wells pending determination. Unevaluated leasehold costs are transferred to the amortization base once determination has been made or upon expiration of a lease. Geological and geophysical costs and cumulative drilling costs to date associated with a specific unevaluated property are transferred to the amortization base with the associated leasehold costs on a specific project basis. Costs associated with wells in progress and wells pending determination are transferred to the amortization base once a determination is made whether or not proved reserves can be assigned to the property. All costs included in the Company’s unevaluated property balance are assessed on a periodic basis for possible impairment or reduction in value. The assessment includes consideration of numerous factors, including intent to drill, remaining lease term, geological and geophysical evaluations, drilling results and activity, assignment of proved reserves and economic viability of development if proved reserves are assigned. Any impairments of unevaluated properties are transferred to the amortization base.

10

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

The Company did not have any impairment of its unproved oil and gas properties for the yearended September 30, 2020.

Depreciation, Depletion and Amortization

All capitalized costs of oil and natural gas properties and equipment, including the estimated future costs to develop proved reserves, are amortized using the unit-of-production method based on total proved reserves. Depreciation of gathering assets and related facilities, and other equipment is computed on the straight-line method over the estimated useful lives of the assets, generally ranging from 3 to 30 years. Amortization of leasehold improvements is computed based on the straight-line method over the term of the associated lease or estimated useful life, whichever is shorter.

Other property and equipment consists principally of furniture and equipment and leasehold improvements. Other property and equipment and related accumulated depreciation and amortization are relieved upon retirement or sale and the gain or loss is included in operations. Renewals and replacements that extend the useful life of property and equipment are treated as capital additions. Depreciation expense of other property and equipment for the year ended September 30, 2020 was approximately $463 thousand.

Cash and Cash Equivalents

All highly liquid unrestricted investments with a maturity of three months or less when purchased are considered to be cash equivalents.

Restricted Cash

At September 30, 2020, the Company had approximately $742 thousand in certificates of deposit held as collateral for letters of credit for the beneficiary of states for the purpose of plugging and abandonment costs of the wells in which the Company has an interest. Such amounts are classified as restricted cash in the accompanying consolidated balance sheet.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows:

September 30,	2020
Cash and cash equivalents	$	8,670,146
Restricted cash included in other long-term assets		741,524
Total cash, cash equivalents, and restricted cash    shown in the statement of cash flows	$	9,411,670

11

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

Concentrations of Credit Risk

The Company sells oil and natural gas to various customers and participates with other parties in the drilling, completion and operation of oil and natural gas wells. Joint interest and oil and natural gas sales receivables related to these operations are generally unsecured. For the year ended September 30, 2020, over 87% of total revenues and total receivables were from two customers. The Company provides an allowance for doubtful accounts for certain purchasers and certain joint interest owners’ receivable balances when the Company believes the receivable balance may not be collected. Accounts receivable are presented net of the related allowance for doubtful accounts. At September 30, 2020, the allowance for doubtful accounts was $8 thousand.

In 2020, the Company had cash deposits in certain banks that at times exceeded the maximum insured by the Federal Deposit Insurance Corporation. The Company monitors the financial condition of the banks and has experienced no losses on these accounts.

General and Administrative Expenses

The Company receives fees for the operation of jointly owned oil and natural gas properties and records such reimbursements as reductions of general and administrative expenses. Such fees totaled approximately $0.5 million for the year ended September 30, 2020.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions that, in the opinion of management are significant, include oil and natural gas reserves, depreciation, depletion and amortization related to oil and natural gas properties, asset retirement obligations and derivative instrument valuations. The Company evaluates its estimates and assumptions on a regular basis. Estimates are based on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Oil and Natural Gas Reserves Estimates

Independent petroleum and geological engineers prepare estimates of the Company’s oil and natural gas reserves. Proved reserves and the estimated future net revenues are estimated based upon a combination of historical data and estimates of future activity. Consistent with Topic 932 of the Codification, at September 30, 2020, the Company calculated its estimate of proved reserves using a twelve month average price, calculated as the unweighted arithmetic average of the first-day-of-the-month price for each period within the twelve-month period prior to the end of the reporting period. The reserve estimates are used in the assessment of the Company’s ceiling limitation and in calculating depreciation, depletion and amortization. Significant assumptions are required in the valuation of proved oil and natural gas reserves which, as described herein, may affect the amount at which oil and natural gas properties are recorded. Actual results could differ materially from these estimates.

Asset Retirement Obligations

The fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made, and the associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Company determines its asset retirement obligations on its oil and natural gas properties by

12

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

calculating the present value of the estimated cash flows related to the estimated liability. Periodic accretion of the discount of the estimated liability associated with the Company’s oil and natural gas properties is recorded in the consolidated statement of operations.

The Company recorded the following activity related to the asset retirement obligations:

Year Ended September 30,	2020
Liability for Asset Retirement Obligations,
Beginning of Year	$	5,483,910
Accretion expense		576,665
Additions		124,960
Obligations for wells sold		(432,932	)
Settlements		(664,473	)
Changes in estimates		642,891
Liability for Asset Retirement Obligations,    End of Year		5,731,021
Less:  Current asset retirement obligations		903,228
Long-Term Asset Retirement Obligations	$	4,827,793

Revenue Recognition

Oil and natural gas sales are recognized when production is sold to a purchaser at a fixed or determinable price, delivery has occurred, title has transferred, and collectability of the revenue is probable. Delivery occurs and title is transferred when production has been delivered to a pipeline, railcar or truck. The sales method of accounting is used for oil and natural gas sales such that revenues are recognized based on the Company’s share of actual proceeds from the oil and natural gas sold to purchasers. Oil and natural gas imbalances are generated on properties for which two or more owners have the right to take production “in-kind” and, in doing so take more or less than their respective entitled percentage. As of September 30, 2020, there were no significant oil and natural gas imbalances.

Income Taxes

RAM, Fayette and Service are disregarded subsidiaries of Holdings. As Holdings has elected to be classified as a corporation, a tax provision has been calculated for the year ended September 30, 2020.

The benefit for income taxes differs from the amount computed by applying the statutory federal income tax rate to loss before provision for income taxes. For the year ended September 30, 2020, the Company had a benefit for income taxes of $12.5 million, which was completely offset by a valuation allowance. The significant differences between pre-tax book income and taxable book income relate to non-deductible expenses, state income taxes, change in valuation allowance, and other adjustments to deferred tax balances.

13

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

The sources and tax effects of the differences are as follows:

Year Ended September 30,	2020
Income tax benefit at the federal statutory rate (21%)	$	(9,519,026	)
Return to provision adjustments		(1,213,195	)
State income tax expense, net of federal benefit		(1,793,866	)
Other		12,671
Change in valuation allowance		12,513,416
Income tax benefit	$	-

The Company’s income tax provision was computed based on the federal statutory rate and the average state statutory rates, net of the related federal benefit. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Significant components of the Company’s deferred tax assets and liabilities are as follows:

September 30,	2020
Depreciable/depletable property, plant and equipment	$	15,471,467
Asset retirement obligation		1,181,556
Derivative assets		606,481
Reserves and other		22,473
Net operating loss carryforward		18,072,194
Total noncurrent deferred tax assets		35,354,171
Valuation allowance		(35,354,171	)
Net noncurrent deferred tax assets	$	-

As of September 30, 2020, the Company has a net operating loss carryforward of approximately $79 million for federal income tax reporting purposes. Of this amount, $31.4 million will begin to expire in 2034 and $47.6 million has an indefinite carryforward period. The 2018 Tax Cuts and Jobs Act changed the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. Based on the history of losses of the predecessor entity and the continued depression of oil and gas prices, the Company concluded it was not more likely than not that the net operating losses would be utilized; accordingly, a valuation allowance was recorded. In addition, the Company has generated a net operating loss carryforward for state income tax purposes, which the Company believes is not more likely than not to be realized during the relevant carryforward periods; however, such amounts have not been separately disclosed in the consolidated financial statements as the Company does not believe that these net operating losses are material to the amounts presented herein.

A valuation allowance has been established with respect to the portion of the deferred tax asset associated with tax basis in excess of carrying value of the Company’s assets for which the Company currently does not reasonably believe under the deferred tax asset realization criteria set forth in Topic 740 that it will more likely than not realize a benefit in future periods. As of September 30, 2020, the Company recorded a valuation allowance of $35.4 million.

Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is

14

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

expected to meet the more likely than not criteria, the benefit recorded in the consolidated financial statements equals the largest amount that is greater than 50 percent likely to be realized upon its ultimate settlement. The Company had no uncertain tax positions as of September 30, 2020.

The Company’s federal and state tax returns from its inception remain subject to examination by the applicable tax authorities.

4. Fair Value Measurements

There is a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:

Level1-inputstothevaluationmethodologyarequotedprices(unadjusted)foridenticalassets orliabilitiesinactivemarkets.

Level2-inputstothevaluationmethodologyincludequotedpricesforsimilarassetsandliabilitiesinactivemarkets,andinputsthatareobservablefortheassetorliability,eitherdirectlyorindirectly,forsubstantiallythe full termofthe financialinstrument.

Level3-inputstothevaluationmethodologyareunobservableandsignificanttothefairvalue measurement.

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. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The following table sets forth the assets and liabilities measured at fair value on a recurring basis, by level, as of September 30, 2020:

	As of September 30, 2020
	Level 1		Level 2		Level 3		Total
Derivative Liability (Commodity Contracts)	$	-	$	537,157	$	-	$	537,157

The Company estimates the fair value of its derivative instruments based on published forward commodity price curves as of the date of the estimate, less discounts to recognize present values. The Company estimated the fair value of its derivatives using a pricing model which also considered market volatility, counterparty credit risk and additional criteria in determining discount rates. The discount rate used in the discounted cash flow projections was based on published LIBOR rates, Eurodollar futures rates and interest swap rates. The counterparty credit risk was determined by calculating the difference between the derivative counterparty’s bond rate and published bond rates. A credit valuation adjustment (“CVA”) for the Company is incorporated into the derivative valuation when the overall derivative position with a counterparty is in a liability position. A CVA is calculated based on the spread between the Company’s credit curve and a risk-free rate.

At September 30, 2020, the carrying value of cash, restricted cash, receivables and payables reflected in the Company’s consolidated financial statements approximates fair value due to their short-term nature. The fair value of the Main Street Lending Program Loan approximates fair value

15

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

due to the interest rate being reflective of market rates and the Paycheck Protection Program Loan is not material.

The Company’s non-financial assets and liabilities, which are initially measured at fair value, are comprised primarily of asset retirement obligations. These liabilities are recorded at fair value when acquired/incurred, but not re-measured at fair value in subsequent periods. The Company classifies such initial measurements as Level 3, since certain significant unobservable inputs are utilized in their determination. The fair value of additions to the asset retirement obligations and certain changes in the estimated fair value of the liabilities are measured using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount. Inputs to the valuation include: (1) estimated plug and abandonment cost based on a third-party study; (2) estimated remaining life of each field; (3) the Company’s credit-adjusted risk-free interest rate of 3.24%; and (4) the average inflation factor of 1.80%. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation, and are the most sensitive and subject to change.

5. Derivative Contracts

The Company periodically utilizes various hedging strategies to manage the price received for a portion of its future oil and natural gas production to reduce exposure to fluctuations in oil and natural gas prices and to achieve a more predictable cash flow.

During 2020, the Company entered into certain derivative contracts to manage the impact of oil and natural gas price fluctuations and as required by the terms of its credit facility. The Company did not designate these transactions as hedges. Accordingly, all gains and losses on the derivative instruments during 2020 have been recorded in the consolidated statement of operations.

The Company’s derivative position at September 30, 2020, consisting of swaps, is shown in the following table:

	Start Date	End Date	Commodity	Notional Quantity			Average Strike Price
Contract 1	11/1/2020	3/31/2021	Natural Gas		1,208,000	MMBTU	$	2.601

Gross fair values of the Company’s derivative instruments, prior to netting of assets and liabilities subject to a master netting arrangement, are as follows:

Derivative Financial Instruments	Balance Sheet Location	Fair Value as of September 30, 2020
Commodity Contracts	CurrentLiabilities-Derivative Liabilities		$	537,157
			$	537,157

During 2020, the Company entered into certain derivative contracts with Macquarie Investments US Inc. (“Macquarie”). The Company unwound and terminated the derivative contracts in connection with the extinguishment of the debt with Macquarie, after obtaining financing from the Main Street Lending Program.  See Note 7.

All of the gains and losses related to derivative contracts are recorded through the “Gain on derivative instruments” account in the consolidated statement of operations.

16

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

6. Acquisitions and Divestitures

Leon County Disposition

In February 2020, the Company closed on the sale of certain oil and natural gas properties located in Leon County, Texas for $75 thousand in proceeds, and was relieved of $288 thousand of plugging liability. The full cost pool was reduced by the net proceeds.

Brazos County Disposition

In April 2020, the Company closed on the sale of certain oil and natural gas properties located in Brazos County, Texas. The Company received no proceeds but was relieved of $102 thousand of plugging liability.

Dewitt County Disposition

In July 2020, the Company closed on the sale of certain oil and natural gas properties located in Dewitt County, Texas. The Company received no proceeds but was relieved of $42 thousand of plugging liability.

7. Long-Term Debt

Long-term debt consists of the following:

September 30,	2020
2020 Main Street Lending Program Loan	$	40,800,000
2020 Paycheck Protection Program Loan		501,000
	$	41,301,000
Less:  Deferred Financing Costs	$	1,007,454
Long-Term Debt, net	$	40,293,546

17

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

PennantPark Credit Facility

On September 30, 2019, the Company had a 2017 term loan of $35 million and a 2018 revolving loan of $40 million under a loan agreement with PennantPark. The loan agreement was to mature on July 2, 2022. In October 2019, the loan agreement was amended to increase the revolving loan commitment to $50 million. Both the term loan and revolving loan carried an interest rate of 8% with a 50% paid-in-kind interest option.In December 2019 and January 2020, the loans with PennantPark were restructured and converted to equity, and Holdings issued PennantPark 96,058 common units in satisfaction of the $86 million in debt that Holdings owed to PennantPark.

Macquarie Credit Facility

On October 16, 2019, RAM, Fayette and Service, as co-borrowers, entered into a $70 million credit facility with Macquarie Investments US Inc. (“Macquarie”) as Administrative Agent for itself. The amount funded at closing was $30.5 million, net of deferred loan costs. The facility included a $30.5 million Tranche A term loan, a $16 million Tranche B term loan and a $23.5 million Tranche C term loan. Wells that were currently drilling were identified as Tranche A wells. Tranche B and Tranche C wells are identified in RAM’s future development plan. Tranche A was funded at closing, and was used to pay a working capital deficit and other development and operating costs of Tranche A wells. Tranches B and C were to be available when certain wells satisfied production targets and other conditions were met.

The Tranche A term loan provided for monthly payments of interest and principal during its term. Interest was charged at LIBOR plus the Applicable Margin of 8.0%. The Tranche A monthly amortization payments varied based on production of the new Fayette wells. The first principal repayment was due November 30, 2019.

The facility was secured by liens on substantially all properties and assets of the borrowers. The loan agreement contained representations, warranties and covenants customary in transactions of this nature, including financial covenants relating to a current ratio, a maximum leverage ratio and a PDP coverage ratio. The facility further provided for certain hedging requirements, and the Company entered into certain hedging agreements during October 2019.

The Company repaid the credit facility on September 15, 2020 with proceeds from the Main Street Loan as further discussed below.  The agreement was terminated at that time.

Paycheck Protection Program Loan

On April 29, 2020, the Company entered into a $501 thousand loan with the Paycheck Protection Program through the United States Small Business Administration.  The loan has a term of two years and carries an interest rate of 1%.  The loan amount is based on approximately 2.5 months’ of payroll, rent and utilities expense and is forgivable upon showing support for applicable expenditures and proof of eligibility requirements.  The Company submitted a forgiveness application in September 2020.  The Company has elected to use ASC 470 to account for this loan and will record a gain on forgiveness of debt in the period in which the debt is legally forgiven.  The application for these funds requires the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company.  The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on its future adherence to the forgiveness criteria.

18

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

Main Street Lending Program Loan Facility

On September 4, 2020, RAM, with Holdings, Fayette and Service, as guarantors,entered into a $40.8 million loan facility with the Main Street Lending Program and Vast Bank (the “Main Street Loan”).  The Company used $26.5 million of the proceeds to repay the debt with Macquarie and deferred loan costs.

The Main Street Loan matures in 2025 and carries an interest rate of LIBOR plus 3%.  The first interest payment is due October 4, 2021 and each month thereafter.  Principal is due as follows:  15% on September 4, 2023, 15% on September 4, 2024, and the remaining 70% on September 4, 2025.

The Main Street Loan is secured by liens on substantially all properties and assets of the borrowers. The loan agreement contains representations, warranties and covenants customary in transactions of this nature, including a financial covenant relating to a minimum debt service coverage ratio, calculated semi-annually. As of September 30, 2020, the Company was in compliance with its financial covenants.

8. Member’s Equity

PennantPark holds all units in Holdings. Debt restructuring in December 2019 and January 2020 included PennantPark contributing the then outstanding 2017 $35 million term loan plus the 2018 $50 million revolving loan to Holdings, effectively extinguishing the debt. In exchange, Holdings issued PennantPark 96,058 common units. As PennantPark is the sole owner of Holdings, the debt restructuring was deemed a capital transaction at cost basis with no gain or loss recorded. The cost basis of the debt plus interest paid-in-kind immediately prior to the extinguishment and the resulting equity contribution was $86 million on conversion of the debt.

9. Commitments and Contingencies

From time to time the Company may be involved in claims and litigation arising in the ordinary course of business. In the opinion of management, the outcome of all existing matters will not have a material adverse effect on the Company’s financial position or results of operations.

Leases

RAM leases office space and certain equipment under non-cancelable operating lease agreements that expire on various dates through 2024. Approximate future minimum lease payments as of September 30, 2020 are as follows:

Year Ending September 30,
2021	$	458
2022		389
2023		108
2024		9
2025		-
	$	964

Rent expense of approximately $0.5 million was incurred under operating leases for the year ended September 30, 2020.

19

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

10. Related Party Transactions

RAM made certain payments on behalf of an officer totaling $59 thousand in 2020, which are due to the Company as of September 30, 2020.

11. Subsequent Events

The Company evaluates events and transactions occurring after the balance sheet date and before the consolidated financial statements are available for issuance. Such events and transactions have been evaluated through November 16, 2020, the date the consolidated financial statements were available to be issued.

The Company entered derivative positions in October and November 2020, as summarized in the following table:

Start Date

End Date

Commodity

Option Type

Notional Quantity

Weighted Average Floor

Weighted Average Ceiling

Weighted Average Premium

4/1/2021

10/31/2023

Natural Gas

Collar

3,442,500

MMBTU

$

2.575

$

3.153

Costless

1/1/2021

3/31/2023

Crude Oil

Put

153,400

BBL

$

25.000

N/A

$

1.919

20

EX-99.4

Exhibit 99.4

RAM ENERGY HOLDINGS LLC

AND SUBSIDIARIES

Consolidated Financial Statements

As of and for the Year Ended

September 30, 2019

RAM ENERGY HOLDINGS LLC

AND SUBSIDIARIES

Consolidated Financial Statements

As of and for the Year Ended

September 30, 2019

RAM Energy Holdings LLC and Subsidiaries

Contents

	Page
Independent Auditor’s Report	3
Consolidated Financial Statements	4
Consolidated Balance Sheet as of September 30, 2019	5-6
Consolidated Statement of Operations for the Year Ended September 30, 2019	7
Consolidated Statement of Member’s Deficit for the Year Ended September 30, 2019	8
Consolidated Statement of Cash Flows for the Year Ended September 30, 2019	9
Notes to Consolidated Financial Statements	10-19

2

Independent Auditor’s Report

To the BoardofDirectorsRAM Energy Holdings LLC

Tulsa, Oklahoma

We have audited the accompanying consolidated financial statements of RAM Energy Holdings LLC and its subsidiaries (the “Company”), which comprise the consolidated balance sheet as of September 30, 2019, and the related consolidated statements of operations, member’s deficit, and cash flows for the year then ended, and the related notes to the consolidated financial statements.

Management’sResponsibility forthe Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’sResponsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of RAM Energy Holdings LLC and its subsidiaries as of September 30, 2019, and the results of their operations and their cash flows for the year then ended, in accordance with accounting principles generally accepted in the United States of America.

/s/ BDO USA, LLP

Houston, TX

November 15, 2019

3

Consolidated Financial Statements

4

RAM Energy Holdings LLC and Subsidiaries

Consolidated Balance Sheet

September 30,	2019
Assets
Current Assets
Cash and cash equivalents	$	3,192,507
Accounts receivable, net		7,826,569
Prepaid expenses		225,395
Total Current Assets		11,244,471
Property and Equipment, at Cost
Proved oil and natural gas properties and equipment, using full cost accounting		91,207,852
Unproved oil and natural gas properties		7,351,669
Gas gathering and processing equipment		10,253,833
Other property and equipment		527,606
		109,340,960
Less:  accumulated depreciation, depletion, amortization and impairment		(43,455,219	)
Net Property and Equipment		65,885,741
Other Assets
Restricted cash		732,682
Other		65,334
Total Other Assets		798,016
Total Assets	$	77,928,228

The accompanying notes are an integral part of these consolidated financial statements.

5

RAM Energy Holdings LLC and Subsidiaries

Consolidated Balance Sheet

September 30,	2019
Liabilities and Member's Deficit
Current Liabilities
Trade accounts payable	$	26,150,721
Revenue payable		4,722,982
Accrued liabilities		1,521,400
Drilling advances		2,226,283
Current portion of asset retirement obligations		492,957
Total Current Liabilities		35,114,343
Asset Retirement Obligations, net of current portion		4,990,953
Long-Term Debt - Affiliate		75,000,000
Total Liabilities		115,105,296
Commitments and Contingencies (Note 7)
Member's Deficit		(37,177,068	)
Total Liabilities and Member's Deficit	$	77,928,228

The accompanying notes are an integral part of these consolidated financial statements.

6

RAM Energy Holdings LLC and Subsidiaries

Consolidated Statement of Operations

Year Ended September 30,	2019
Operating Revenues
Crude oil sales	$	13,614,137
Natural gas sales		6,357,124
Natural gas liquids sales		4,358,603
Water supply services		800,322
Gathering fees		2,811,356
Total Revenues		27,941,542
Operating Expenses
Oil and natural gas operating expenses		13,974,739
Oil and natural gas production taxes		683,131
Water usage		115,908
Depreciation, depletion and amortization		9,581,200
Accretion of asset retirement obligations		642,791
Bad debt expense		29,840
General and administrative, overhead and other expenses, net of operator's    overhead fees		4,828,700
Total Operating Expenses		29,856,309
Loss from Operations		(1,914,767	)
Other Income (Expense)
Interest expense		(5,212,222	)
Interest income		133,544
Gains on sales of assets		14,796
Other income, net		637,562
Total Other Expense		(4,426,320	)
Net Loss	$	(6,341,087	)

The accompanying notes are an integral part of these consolidated financial statements.

7

RAM Energy Holdings LLC and Subsidiaries

Consolidated Statement of Member’s Deficit

			Member's
	Units		Deficit
Balance, October 1, 2018		84,747		(30,835,981	)
Net loss		—		(6,341,087	)
Balance, September 30, 2019		84,747	$	(37,177,068	)

The accompanying notes are an integral part of these consolidated financial statements.

8

RAM Energy Holdings LLC and Subsidiaries

Consolidated Statement of Cash Flows

Year Ended September 30,	2019
Cash Flows from Operating Activities
Net loss	$	(6,341,087	)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation, depletion and amortization		9,581,200
Accretion of asset retirement obligations		642,791
Bad debt expense		29,840
Gains on sales of assets		(14,796	)
Changes in operating assets and liabilities:
Accounts receivable		(4,786,246	)
Prepaid expenses and other assets		13,484
Accounts payable and revenue payable		20,944,181
Drilling advances		3,441,260
Settlements of asset retirement obligations		(400,446	)
Accrued liabilities		707,942
Net Cash Provided by Operating Activities		23,818,123
Cash Flows from Investing Activities
Payments for oil and natural gas properties and equipment		(53,780,398	)
Proceeds from sales of oil and natural gas properties		588,000
Proceeds from sales of other property and equipment		26,000
Deposit and other assets		(41,500	)
Net Cash Used in Investing Activities		(53,207,898	)
Cash Flows from Financing Activities
Proceeds from borrowings on long-term debt		30,000,000
Net Cash Provided by Financing Activities		30,000,000
Net Increase in Cash, Cash Equivalents and Restricted Cash		610,225
Cash, Cash Equivalents and Restricted Cash - Beginning of Year		3,314,964
Cash, Cash Equivalents and Restricted Cash - End of Year	$	3,925,189
Supplemental Cash Flow Information
Cash paid for interest	$	5,217,778
Non-Cash Investing and Financing Activities
Oil and natural gas properties accrued	$	2,102,034
Asset retirement obligations	$	(483,851	)

The accompanying notes are an integral part of these consolidated financial statements.

9

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

1. NatureofOperationsandOrganization

RAM Energy Holdings LLC (“Holdings”), formerly named PNNT RAM Energy LLC, is a Delaware limited liability company, wholly-owned by PennantPark Investment Corporation (“PennantPark”), and was formed in July 2014 as a holding company for interest ownership in RAM Energy LLC (“RAM”). RAM Fayette LLC (“Fayette”) was formed in September 2017 and Fayette Service Company LLC (“Service”) was formed in June 2018. As of September 30, 2019, both subsidiaries were wholly-owned by RAM. Holdings, RAM and its subsidiaries are herein referred to as the “Company.”

RAM was formed in April 2012 as a privately held, independent oil and natural gas company engaged in the acquisition, exploration, exploitation, development and production of oil and natural gas.

In August 2015, RAM became a wholly-owned and consolidated subsidiary of Holdings.

In September 2017, Holdings issued PennantPark 61,606 common units in satisfaction of the $88 million of outstanding debt that RAM owed to PennantPark. Holdings then entered into a new $35 million term loan. In June 2018, the credit agreement was amended to add a $15 million revolving loan. The credit agreement was amended in January 2019 and May 2019 to increase the revolving loan to $40 million, and further amended in October 2019 to increase the revolving loan to $50 million.  See Notes 6 and 9.

In July 2018, the Company began a drilling program in the Austin Chalk formation. Fayette was formed to be an owner in the new wells drilled, and Service was formed to invest in gathering and facilities infrastructure.

RAM operates exclusively in the upstream segment of the oil and gas industry with activities including the drilling, completion, and operation of oil and natural gas wells. RAM conducts the majority of its operations in the state of Texas, with minor operations in the states of Arkansas, New Mexico and Oklahoma.

2. Liquidity

The Company had a member’s deficit of $37.2 million and a working capital deficit of $23.9 million at September 30, 2019. The working capital deficit is largely due to the new drilling program.

On October 16, 2019, RAM, in conjunction with Fayette and Service as co-borrowers, secured and closed a first-lien multi-draw $70 million term loan facility with Macquarie Investments US Inc. (“Macquarie”).  At closing, RAM borrowed $30.5 million from Macquarie (“Tranche A”).  The Tranche A use of proceeds was for working capital, for the completion of the four wells mentioned above and for fees and expenses of the facility.  

At closing, Pennant Park invested an additional $10 million of equity, funded as an additional revolving advance to Holdings, for additional working capital support.  Tranche B availability of $16 million, if utilized, along with cash flow from operations, is expected to be applied towards the drilling and completion costs of the Ranger Pad.  Tranche B will become available when certain production targets are met by existing assets and the four wells currently being completed.  The Company fully expects to meet Tranche B production targets.  Tranche C is documented as $23.5 million and conditions of its draw and use of proceeds is to be determined at a later date.  

The Macquarie term loan has a LIBOR plus 8% interest rate, payable monthly.  Further, there is a variable amortization schedule with the first amortization payment due at the end of November 2019 with additional amortization payments after the Tranche B draw, to the extent it becomes available and is drawn.  This debt facility has typical affirmative and negative covenant for a first-

10

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

lien oil and gas credit facility.  Management believes that each of the agreed covenants will be met through November 2020.

3. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Holdings, its wholly-owned subsidiary, RAM, and RAM’s wholly-owned subsidiaries, Fayette and Service. All significant intercompany accounts and transactions have been eliminated in consolidation.

Property and Equipment

The Company follows the full cost method of accounting for oil and natural gas properties. Under this method, all productive and nonproductive costs incurred in connection with the acquisition, exploration, and development of oil and natural gas reserves are capitalized. No gains or losses are recognized upon the sale or other disposition of oil and natural gas properties except in transactions that would significantly alter the relationship between capitalized costs and proved reserves. The costs of unevaluated oil and natural gas properties are excluded from the amortizable base until the time that either proven reserves are found or it has been determined that such properties are impaired. As properties become evaluated, the related costs are transferred to proved oil and natural gas properties.

Under the full cost method, the net book value of oil and natural gas properties may not exceed the estimated after-tax future net revenues from proved oil and natural gas properties, discounted at 10% (the “Ceiling Limitation”). In arriving at estimated future net revenues, estimated lease operating expenses, development costs, and certain production-related and ad valorem taxes are deducted.

In calculating future net revenues, prices and costs are held constant indefinitely, except for changes that are fixed and determinable by existing contracts. The net book value is compared to the Ceiling Limitation and the excess, if any, of the net book value above the Ceiling Limitation is charged to expense in the period in which it occurs and is not subsequently reinstated. At September 30, 2019, the net book value of the Company’s oil and natural gas properties did not exceed the Ceiling Limitation.

The costs directly associated with unevaluated oil and natural gas properties are not initially included in the amortization base and relate to unproved leasehold acreage, seismic data, wells and production facilities in progress and wells pending determination. Unevaluated leasehold costs are transferred to the amortization base once determination has been made or upon expiration of a lease. Geological and geophysical costs and cumulative drilling costs to date associated with a specific unevaluated property are transferred to the amortization base with the associated leasehold costs on a specific project basis. Costs associated with wells in progress and wells pending determination are transferred to the amortization base once a determination is made whether or not proved reserves can be assigned to the property. All costs included in the Company’s unevaluated property balance are assessed on a periodic basis for possible impairment or reduction in value. The assessment includes consideration of numerous factors, including intent to drill, remaining lease term, geological and geophysical evaluations, drilling results and activity, assignment of proved reserves and economic viability of development if proved reserves are assigned. Any impairments of unevaluated properties are transferred to the amortization base. The Company did not have any impairment of its unproved oil and gas properties for the year ended September 30, 2019.

11

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

Other property and equipment consists principally of furniture and equipment and leasehold improvements. Other property and equipment and related accumulated depreciation and amortization are relieved upon retirement or sale and the gain or loss is included in operations. Renewals and replacements that extend the useful life of property and equipment are treated as capital additions. Depreciation expense of other property and equipment for the year ended September 30, 2019 was approximately $34 thousand.

Depreciation, Depletion and Amortization

All capitalized costs of oil and natural gas properties and equipment, including the estimated future costs to develop proved reserves, are amortized using the unit-of-production method based on total proved reserves. Depreciation of gathering assets and related facilities, and other equipment is computed on the straight-line method over the estimated useful lives of the assets, generally ranging from 3 to 30 years. Amortization of leasehold improvements is computed based on the straight-line method over the term of the associated lease or estimated useful life, whichever is shorter.

Cash and Cash Equivalents

All highly liquid unrestricted investments with a maturity of three months or less when purchased are considered to be cash equivalents.

Restricted Cash

At September 30, 2019, the Company had approximately $733 thousand in certificates of deposit held as collateral for letters of credit for the beneficiary of states for the purpose of plugging and abandonment costs of the wells in which the Company has an interest. Such amounts are classified as restricted cash in the accompanying consolidated balance sheet.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows (in thousands):

September 30,	2019
Cash and cash equivalents	$	3,192
Restricted cash included in other long-term assets		733
Total cash, cash equivalents, and restricted cash
shown in the statement of cash flows	$	3,925

Concentrations of Credit Risk

The Company sells oil and natural gas to various customers and participates with other parties in the drilling, completion and operation of oil and natural gas wells. Joint interest and oil and natural gas sales receivables related to these operations are generally unsecured. For the year ended September 30, 2019, over 83% of total revenues and total receivables were from two customers. The Company provides an allowance for doubtful accounts for certain purchasers and certain joint interest owners’ receivable balances when the Company believes the receivable balance may not be collected. Accounts receivable are presented net of the related allowance for doubtful accounts. At September 30, 2019, the allowance for doubtful accounts was $8 thousand.

In 2019, the Company had cash deposits in certain banks that at times exceeded the maximum insured by the Federal Deposit Insurance Corporation. The Company monitors the financial condition of the banks and has experienced no losses on these accounts.

General and Administrative Expenses

12

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

The Company receives fees for the operation of jointly owned oil and natural gas properties and records such reimbursements as reductions of general and administrative expenses. Such fees totaled approximately $0.7 million for the yearended September 30, 2019.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions that, in the opinion of management are significant, include oil and natural gas reserves, depreciation, depletion and amortization related to oil and natural gas properties, asset retirement obligations and derivative instrument valuations. The Company evaluates its estimates and assumptions on a regular basis. Estimates are based on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Oil and Natural Gas Reserves Estimates

Independent petroleum and geological engineers prepare estimates of the Company’s oil and natural gas reserves. Proved reserves and the estimated future net revenues are estimated based upon a combination of historical data and estimates of future activity. Consistent with Topic 932 of the Codification, at September 30, 2019, the Company calculated its estimate of proved reserves using a twelve month average price, calculated as the unweighted arithmetic average of the first-day-of-the-month price for each period within the twelve-month period prior to the end of the reporting period. The reserve estimates are used in the assessment of the Company’s ceiling limitation and in calculating depreciation, depletion and amortization. Significant assumptions are required in the valuation of proved oil and natural gas reserves which, as described herein, may affect the amount at which oil and natural gas properties are recorded. Actual results could differ materially from these estimates.

Asset Retirement Obligations

The fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made, and the associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Company determines its asset retirement obligations on its oil and natural gas properties by calculating the present value of the estimated cash flows related to the estimated liability. Periodic accretion of the discount of the estimated liability associated with the Company’s oil and natural gas properties is recorded in the consolidated statement of operations.

13

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

The Company recorded the following activity related to the asset retirement obligations (in thousands):

Year Ended September 30,	2019
Liability for Asset Retirement Obligations, Beginning of Year	$	5,325
Accretion expense		643
Additions		173
Obligations for wells sold		(257	)
Settlements		(400	)
Changes in estimates		—
Liability for Asset Retirement Obligations, End of Year		5,484
Less:  current asset retirement obligations		493
Long-Term Asset Retirement Obligations	$	4,991

Revenue Recognition

Oil and natural gas sales are recognized when production is sold to a purchaser at a fixed or determinable price, delivery has occurred, title has transferred, and collectability of the revenue is probable. Delivery occurs and title is transferred when production has been delivered to a pipeline, railcar or truck. The sales method of accounting is used for oil and natural gas sales such that revenues are recognized based on the Company’s share of actual proceeds from the oil and natural gas sold to purchasers. Oil and natural gas imbalances are generated on properties for which two or more owners have the right to take production “in-kind” and, in doing so take more or less than their respective entitled percentage. As of September 30, 2019, there were no significant oil and natural gas imbalances.

Income Taxes

RAM and its subsidiaries are disregarded subsidiaries of Holdings. As Holdings has elected to be classified as a corporation, a tax benefit has been calculated for the year ended September 30, 2019.

The benefit for income taxes differs from the amount computed by applying the statutory federal income tax rate to loss before provision for income taxes. For the year ended September 30, 2019, the Company had a benefit for income taxes of $26 thousand, which was completely offset by a valuation allowance. The significant differences between pre-tax book income and taxable book income relate to non-deductible expenses, state income taxes, change in valuation allowance, and other adjustments to deferred tax balances.

The sources and tax effects of the differences are as follows (in thousands):

Year Ended September 30,	2019
Income tax benefit at the federal statutory rate (21%)	$	(1,332	)
Return to provision adjustments		1,380
State income tax expense, net of federal benefit		(78	)
Other		4
Change in valuation allowance		26
Income tax benefit	$	—

The Company’s income tax benefit was computed based on the federal statutory rate and the average state statutory rates, net of the related federal benefit. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

14

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

Year Ended September 30,	2019
Depreciable/depletable property, plant and equipment	$	6,595
Asset retirement obligation		1,874
Interest expense		1,129
Derivative assets		472
Reserves and other		19
Net operating loss carryforward		12,752
Total noncurrent deferred tax assets		22,841
Valuation allowance		(22,841	)
Net noncurrent deferred tax assets	$	—

As of September 30, 2019, the Company has a net operating loss carryforward of approximately $57.4 million for federal income tax reporting purposes.  Of this amount, $31.4 million will begin to expire in 2036 and $26 million has an indefinite carryforward period, but only has the availability to offset future income of up to 80% in any single year.  The 2018 Tax Cuts and Jobs Act changed the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.  Based on the history of losses of the predecessor entity and the continued depression of oil and gas prices, the Company concluded it was not more likely than not that the net operating losses would be utilized; accordingly, a valuation allowance was recorded. In addition, the Company has generated a net operating loss carryforward for state income tax purposes, which the Company believes will not be realized during the relevant carryforward periods; however, such amounts have not been separately disclosed in the consolidated financial statements as the Company does not believe that these net operating losses are material to the amounts presented herein.

A valuation allowance has been established with respect to the portion of the deferred tax asset associated with tax basis in excess of carrying value of the Company’s assets for which the Company currently does not reasonably believe under the deferred tax asset realization criteria set forth in Topic 740 that it will more likely than not realize a benefit in future periods. During the year ended September 30, 2019, the Company recorded a valuation allowance of $22.8 million.

Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the consolidated financial statements equals the largest amount that is greater than 50 percent likely to be realized upon its ultimate settlement. The Company had no uncertain tax positions as of September 30, 2019.

The Company’s federal and state tax returns from its inception remain subject to examination by the applicable tax authorities.

4. Fair Value Measurements

There is a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:

15

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

Level1-inputstothevaluationmethodologyarequotedprices(unadjusted)foridenticalassets orliabilitiesinactivemarkets.

Level2-inputstothevaluationmethodologyincludequotedpricesforsimilarassetsandliabilitiesinactivemarkets,andinputsthatareobservablefortheassetorliability,eitherdirectlyorindirectly,forsubstantiallythe full termofthe financialinstrument.

Level3-inputstothevaluationmethodologyareunobservableandsignificanttothefairvalue measurement.

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. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The Company had no assets or liabilities measured at fair value on a recurring basis, by level, as of September 30, 2019.

At September 30, 2019, the carrying value of cash, restricted cash, receivables and payables reflected in the Company’s consolidated financial statements approximates fair value due to their short-term nature. Additionally, we believe that the carrying value of the Company’s long-term debt under the credit facility approximates fair value because the credit facility carries an interest rate that approximates current market rates. The long-term debt is classified as Level 2.

5. Acquisitions and Divestitures

McMullen County Disposition

In January 2019, the Company closed on the sale of certain oil and natural gas properties located in McMullen County, Texas for $260 thousand.  The full cost pool was reduced by the net proceeds.

Lavaca County Disposition

In April 2019, the Company closed on the sale of certain oil and natural gas properties located in Lavaca County, Texas.  The Company received no proceeds but was relieved of $193 thousand of plugging liability.

6. Long-Term Debt - Affiliate

Long-term debt - affiliate consists of the following(in thousands):

September 30,	2019		2018
2017 Term Loan	$	35,000	$	35,000
2018 Revolving Loan		40,000		10,000
	$	75,000	$	45,000

On September 29, 2017, the Company entered into a term loan of $35 million under a loan agreement with PennantPark. The loan agreement was made effective July 1, 2017 and matures on July 2, 2022. The term loan carries an interest rate of 8% with a 50% paid-in-kind interest option.

On June 5, 2018, the loan agreement was amended to add a revolving loan with a total commitment of $15 million. The loan agreement was further amended on January 7, 2019 and May 10, 2019, to

16

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

increase the revolving loan commitment to $35 million and $40 million, respectively.  The loan agreement was amended a fourth time in October 2019, as discussed in Note 9.  Borrowings on the revolving loan must be at a minimum of $1 million and in $1 million increments, and carries an interest rate of 8%.

The loan agreement includes representations, warranties, and customary covenants, including certain financial covenants for minimum liquidity and maximum annual capital expenditures. As of September 30, 2019, the Company was in compliance with its financial covenants.

7. Commitments and Contingencies

From time to time the Company may be involved in claims and litigation arising in the ordinary course of business. In the opinion of management, the outcome of all existing matters will not have a material adverse effect on the Company’s financial position or results of operations.

Leases

RAM leases office space and certain equipment under non-cancelable operating lease agreements that expire on various dates through 2024.  Approximate future minimum lease payments as of September 30, 2019 are as follows (in thousands):

Year Ending September 30,
2020	$	347
2021		214
2022		215
2023		20
2024		2
	$	798

Rent expense of approximately $0.5 million was incurred under operating leases for the year ended September 30, 2019.

8. Related Party Transactions

RAM made certain payments on behalf of an officer totaling $53 thousand in 2019, which are due to the Company as of September 30, 2019. LEL Energy, a company owned by an officer of RAM, made payments on behalf of RAM totaling $18 thousand in 2019, which are payables on RAM’s books as of September 30, 2019.

9. Subsequent Events

The Company evaluates events and transactions occurring after the balance sheet date and before the consolidated financial statements are available for issuance. Such events and transactions have been evaluated through November 15, 2019, the date the consolidated financial statements were available to be issued.

On October 11, 2019, the loan agreement with PennantPark was amended to increase the revolving loan commitment to $50 million.  The Company borrowed an additional $10 million on the revolving loan, bringing the total borrowings on the revolving loan to $50 million.

Macquarie Credit Facility

17

RAM Energy Holdings LLC and Subsidiaries

Notes to Consolidated Financial Statements

On October 16, 2019, RAM, Fayette and Service,as co-borrowers, entered into a $70 million credit facility with Macquarie Investments US Inc. (“Macquarie”) as Administrative Agent for itself.  The amount funded at closing was $30.5 million, net of deferred loan costs.The facility includes a $30.5 million Tranche A term loan, a $16 million Tranche B term loan and a $23.5 million Tranche C term loan.  Wells that are currently drilling are identified as Tranche A wells.  Tranche B and Tranche C wells are identified in RAM’s future development plan.  Tranche A was funded at closing, and will be used to pay a working capital deficit and other development and operating costs of Tranche A wells.Tranches B and C will be available when certain wells satisfy production targets and other conditions are met.

The Tranche A term loan provides for monthly payments of interest and principal during its term.  Interest is charged at LIBOR plus the Applicable Margin of 8.0%.  The Tranche A monthly amortization payments vary based on production of the new Fayette wells. The first principal repayment is due November 30, 2019.  The Tranche B term loan provides for incremental monthly amortization payments, upon such date the Tranche B loan should become available.

The facility is secured by liens on substantially all properties and assets of the borrowers.  The loan agreement contains representations, warranties and covenants customary in transactions of this nature, including financial covenants relating to a current ratio, a maximum leverage ratio and a PDP coverage ratio.  The facility further provides for certain hedging requirements, and the Company entered into hedging agreements during October 2019.

Hedging contracts entered during October 2019 are summarized below:

	Start Date	End Date	Commodity	Notional Quantity			Average Strike Price
Contract 1	11/1/2019	10/31/2022	Crude Oil		378,996	BBL	$	51.097
Contract 2	11/1/2019	10/31/2020	Natural Gas		1,816,546	MMBTU	$	2.304
Contract 3	12/1/2019	3/31/2020	Natural Gas		976,000	MMBTU	$	2.556
Contract 4	11/1/2020	3/31/2021	Natural Gas		1,208,000	MMBTU	$	2.601
Contract 5	4/1/2021	10/31/2022	Natural Gas		1,679,051	MMBTU	$	2.367
Contract 6	11/1/2019	10/31/2022	Natural Gas Liquids		17,166,450	GAL	$	0.170
Contract 7	11/1/2019	10/31/2022	Natural Gas Liquids		7,125,846	GAL	$	0.450

The facility matures October 16, 2022.

18

EX-99.5

EXHIBIT 99.5

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

PennantPark Investment Corporation and its Subsidiaries

Our audits of the consolidated financial statements and internal control over financial reporting referred to in our reports dated November 17, 2021, (appearing in the accompanying Form 10-K) also included an audit of the senior securities table of PennantPark Investment Corporation and its Subsidiaries (the Company) appearing in Part II, Item 7 in this Form 10-K. This table is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits of the consolidated financial statements.

In our opinion, the senior securities table, 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.

/s/ RSM US LLP

New York, New York

November 17, 2021