We make selective investments in middle market companies primarily backed by leading private equity sponsors. Our capital is deployed across every segment of the capital structure including senior secured debt, subordinated debt, and non-controlling equity. The core tenets of our investment approach include a focus on capital preservation, identifying strong cash flows, and cultivating strong working relationships with our sponsors and portfolio companies.
As banks and large investment managers increasingly compete to finance large companies, many mid-sized borrowers remain underserved by those lenders. PennantPark has maintained its focus on the less competitive core middle market, defined as companies with $10 million to $50 million of EBITDA. As a result, we are often able to negotiate superior loan structures with more favorable pricing, thereby generating excess returns for our investors. Our deep underwriting process has also helped us identify high-growth companies, resulting in enhanced returns from successful equity co-investments.
We adhere to a value-oriented philosophy, which seeks to minimize the risk of capital loss without foregoing potential for capital appreciation. Our investment professionals seek loans with relatively low leverage multiples, conservative loan-to-value ratios, monthly financial reporting, and important structural protections including financial maintenance covenants. This ethos of capital preservation also drives our approach to other parts of the capital structure.
We target profitable, growing, and cash-flowing companies across North America. PennantPark participates in a company’s first round of institutional investment. In these cases, we seek to leverage our deep industry expertise to act as a strategic lending partner and help drive growth. Our typical investment size ranges up to $250 million.
Generally, we seek middle market companies with leading market positions, significant competitive advantages, proven management teams, stable cash flows, variable cost structures, and limited exposure to economic cycles. Our primary industries of expertise include healthcare, government services, business services, consumer, and software & technology.
PennantPark’s multi-stage due diligence process is informed by the breadth and depth of our investment experience, industry expertise, and network of professional relationships. We believe that consistent performance across credit cycles is ultimately driven by rigorous fundamental research.
Our due diligence process typically includes:
