Investment Strategy—Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We anticipate that our portfolio will be comprised of investments in subordinated loans, referred to as mezzanine debt, and senior secured loans made to private U.S. middle market companies.
We employ a disciplined approach in selecting investments that meet our value-oriented investment criteria. 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 do not intend to pursue short-term origination targets. We believe this approach will 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
We may also invest in equity securities, such as preferred stock, common stock, warrants or options received in connection with our debt investments or through direct investments. We expect that our investments in mezzanine debt, senior secured loans and other investments will range between $10 million and $50 million each, although this investment size will vary proportionately with the size of our capital base.
While our primary focus is to generate current income and capital appreciation through debt and equity investments in thinly traded or private U.S. companies, we may invest up to 30% of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders. Such investments may include investments in high-yield bonds, distressed debt, private equity, securities of public companies that are not thinly traded and securities of middle-market companies located outside of the United States. We expect that these public companies generally will issue debt securities that are non-investment grade.
These qualities give the PennantPark an advantage over other capital providers in middle-market companies:
- Management expertise
- Disciplined investment approach with strong value orientation
- Focusing sourcing, due diligence, structuring and monitoring process generating positive risk-adjusted returns
- Ability to source and evaluate transactions through our investment adviser's research
- Trusted relationships throughout middle-market sponsor community
- Flexible transaction structuring
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