SEC Filing | PennantPark

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2015

¨	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: 814-00891

PENNANTPARK FLOATING RATE CAPITAL LTD.

(Exact name of registrant as specified in its charter)


MARYLAND		27-3794690
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

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

(212) 905-1000

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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

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

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of February 4, 2016 was 26,730,074.

PENNANTPARK FLOATING RATE CAPITAL LTD.

FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2015

TABLE OF CONTENTS


PART I. CONSOLIDATED FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Consolidated Statements of Assets and Liabilities as of December 31, 2015 (unaudited) and September 30, 2015			4

Consolidated Statements of Operations for the three months ended December 31, 2015 and 2014 (unaudited)			5

Consolidated Statements of Changes in Net Assets for the three months ended December 31, 2015 and 2014 (unaudited)			6

Consolidated Statements of Cash Flows for the three months ended December 31, 2015 and 2014 (unaudited)			7

Consolidated Schedules of Investments as of December 31, 2015 (unaudited) and September 30, 2015			8

Notes to Consolidated Financial Statements (unaudited)			14

Report of Independent Registered Public Accounting Firm			24

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25

Item 3. Quantitative And Qualitative Disclosures About Market Risk			32

Item 4. Controls and Procedures			32

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			33

Item 1A. Risk Factors			33

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			33

Item 3. Defaults Upon Senior Securities			33

Item 4. Mine Safety Disclosures			33

Item 5. Other Information			33

Item 6. Exhibits			34

SIGNATURES			35

PART I—CONSOLIDATED FINANCIAL INFORMATION

We are filing this Report on Form 10-Q, or the Report, in compliance with Rule 13a-13 promulgated by the Securities and Exchange Commission, or the SEC. In this Report, except where the context suggests otherwise, the terms “Company,” “we,” “our” or “us” refer to PennantPark Floating Rate Capital Ltd. and its wholly-owned consolidated subsidiaries; “Funding I” refers to PennantPark Floating Rate Funding I, LLC; “PennantPark Investment Advisers” or “Investment Adviser” refers to PennantPark Investment Advisers, LLC; “PennantPark Investment Administration” or “Administrator” refers to PennantPark Investment Administration, LLC; “1940 Act” refers to the Investment Company Act of 1940, as amended; “Code” refers to the Internal Revenue Code of 1986, as amended; “RIC” refers to a regulated investment company under the Code; “BDC” refers to a business development company under the 1940 Act. References to our portfolio, our investments, our multi-currency, senior secured revolving credit facility, as amended and restated, or the Credit Facility, and our business include investments we make through our subsidiaries.

Item 1.

Consolidated Financial Statements

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES


	December 31, 2015			September 30, 2015
	(unaudited)
Assets
Investments at fair value
Non-controlled, non-affiliated investments (cost—$464,023,806 and $394,561,175, respectively)	$	457,289,068		$	388,535,383
Controlled, affiliated investments (cost—$2,777,132 and $2,777,132, respectively)		2,776,507			2,776,507

Total of investments (cost—$466,800,938 and $397,338,307, respectively)		460,065,575			391,311,890
Cash equivalents		14,035,946			21,428,514
Interest receivable		2,273,976			1,959,404
Prepaid expenses and other assets		1,480,015			1,420,529

Total assets		477,855,512			416,120,337

Liabilities
Distributions payable		2,539,357			2,539,357
Payable for investments purchased		10,802,662			9,367,500
Credit Facility payable (cost—$96,300,000 and $29,600,000, respectively) (See Notes 5 and 10)		95,698,125			29,600,000
Interest payable on Credit Facility		339,854			224,633
Management fee payable (See Note 3)		1,077,741			956,115
Performance-based incentive fee payable (See Note 3)		—			2,936
Accrued other expenses		378,516			539,347

Total liabilities		110,836,255			43,229,888

Commitments and contingencies (See Note 11)
Net assets
Common stock, 26,730,074 shares issued and outstanding. Par value $0.001 per share and 100,000,000 shares authorized.		26,730			26,730
Paid-in capital in excess of par value		371,502,801			371,502,801
Undistributed net investment income		4,459,360			6,991,473
Accumulated net realized (loss) gain on investments		(2,836,146	)		395,862
Net unrealized depreciation on investments		(6,735,363	)		(6,026,417	)
Net unrealized depreciation on Credit Facility		601,875			—

Total net assets	$	367,019,257		$	372,890,449

Total liabilities and net assets	$	477,855,512		$	416,120,337

Net asset value per share	$	13.73		$	13.95

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended December 31,
	2015			2014
Investment income:
From non-controlled, non-affiliated investments:
Interest	$	8,612,862		$	7,448,774
Other income		102,685			27,946
From controlled, affiliated investments:
Interest		40,933			—

Total investment income		8,756,480			7,476,720

Expenses:
Base management fee (See Note 3)		1,077,741			883,370
Performance-based incentive fee (See Note 3)		(2,936	)		(314,057	)
Interest and expenses on Credit Facility (See Note 10)		939,682			885,758
Administrative services expenses (See Note 3)		200,000			226,000
Other general and administrative expenses		548,313			217,203

Expenses before provision for taxes and amendment costs		2,762,800			1,898,274
Provision for taxes		—			110,000
Credit Facility amendment costs (See Notes 5 and 10)		907,722			—

Total expenses		3,670,522			2,008,274

Net investment income		5,085,958			5,468,446

Realized and unrealized loss on investments and Credit Facility:
Net realized loss on investments		(3,232,008	)		(173,989	)
Net change in unrealized depreciation on:
Non-controlled, non-affiliated investments		(708,946	)		(4,897,130	)
Credit Facility depreciation (See Notes 5 and 10)		601,875			40,875

Net change in unrealized depreciation on investments and Credit Facility		(107,071	)		(4,856,255	)

Net realized and unrealized loss from investments and Credit Facility		(3,339,079	)		(5,030,244	)

Net increase in net assets resulting from operations	$	1,746,879		$	438,202

Net increase in net assets resulting from operations per common share (See Note 7)	$	0.07		$	0.03

Net investment income per common share	$	0.19		$	0.37

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)


	Three Months Ended December 31,
	2015			2014
Net increase in net assets from operations:
Net investment income	$	5,085,958		$	5,468,446
Net realized loss on investments		(3,232,008	)		(173,989	)
Net change in unrealized depreciation on investments		(708,946	)		(4,897,130	)
Net change in unrealized depreciation on Credit Facility		601,875			40,875

Net increase in net assets resulting from operations		1,746,879			438,202

Distributions to stockholders		(7,618,071	)		(4,022,475	)

Net decrease in net assets		(5,871,192	)		(3,584,273	)

Net assets:
Beginning of period		372,890,449			214,527,710

End of period	$	367,019,257		$	210,943,437

Undistributed net investment income, end of period	$	4,459,360		$	6,324,062

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended December 31,
	2015			2014
Cash flows from operating activities:
Net increase in net assets resulting from operations	$	1,746,879		$	438,202
Adjustments to reconcile net increase in net assets resulting from operations to net cash (used) provided by operating activities:
Net change in unrealized depreciation on investments		708,946			4,897,130
Net change in unrealized depreciation on Credit Facility		(601,875	)		(40,875	)
Net realized loss on investments		3,232,008			173,989
Net accretion of discount and amortization of premium		(337,666	)		(292,312	)
Purchases of investments		(99,199,653	)		(46,998,949	)
Payment-in-kind interest		(18,135	)		(168,128	)
Proceeds from dispositions of investments		26,860,815			44,916,238
Increase in interest receivable		(314,572	)		(388,891	)
Decrease in receivable for investments sold		—			9,001,938
(Increase) decrease in prepaid expenses and other assets		(59,486	)		53,631
Increase in payable for investments purchased		1,435,162			1,738,000
Increase (decrease) in interest payable on Credit Facility		115,221			(1,264	)
Increase (decrease) in management fee payable		121,626			(31,608	)
Decrease in performance-based incentive fee payable		(2,936	)		(1,350,865	)
(Decrease) increase in accrued other expenses		(160,831	)		247,912

Net cash (used) provided by operating activities		(66,474,497	)		12,194,148

Cash flows from financing activities:
Distributions paid to stockholders		(7,618,071	)		(4,022,475	)
Borrowings under Credit Facility (See Notes 5 and 10)		69,300,000			34,300,000
Repayments under Credit Facility (See Notes 5 and 10)		(2,600,000	)		(45,200,000	)

Net cash provided (used) by financing activities		59,081,929			(14,922,475	)

Net decrease in cash equivalents		(7,392,568	)		(2,728,327	)
Cash equivalents, beginning of period		21,428,514			13,113,817

Cash equivalents, end of period	$	14,035,946		$	10,385,490

Supplemental disclosure of cash flow information:
Interest paid	$	824,461		$	852,022

Taxes paid	$	1,190		$	—

Non-cash exchanges and conversions	$	4,547,934		$	—

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

DECEMBER 31, 2015

(Unaudited)


Issuer Name	Maturity	Industry	Current Coupon			Basis Point Spread Above Index ⁽¹⁾			Par / Shares		Cost		Fair Value ⁽²⁾
Investments in Non-Controlled, Non-Affiliated Portfolio Companies—124.6% ^{(3), (4)}
First Lien Secured Debt—109.1%
AKA Diversified Holdings, Inc.	04/02/2018	Retail		14.25	%		P+1,075	⁽⁹⁾		10,597,197	$	10,516,936	$	10,775,203
AKA Diversified Holdings, Inc. (Revolver) ⁽¹⁰⁾	04/02/2018	Retail		—			—			1,165,725		—		19,581
ALG USA Holdings, LLC	02/28/2019	Hotel, Gaming and Leisure		7.00	%		L+575			7,136,577		7,104,384		7,118,736
Alvogen Pharma US, Inc. ^{(6), (11)}	04/04/2022	Healthcare and Pharmaceuticals		6.00	%		L+500			3,843,577		3,825,433		3,742,683
Ancile Solutions, Inc.	07/16/2018	High Tech Industries		6.25	%		L+500			2,948,755		2,932,168		2,904,524
AP Gaming I, LLC	12/21/2020	Hotel, Gaming and Leisure		9.25	%		L+825			6,585,275		6,499,641		6,330,096
ARC Automotive Group, Inc.	10/12/2020	Automotive		7.50	%		P+400	⁽⁹⁾		3,960,000		3,926,852		3,920,400
Azure Midstream Energy LLC	11/15/2018	Energy: Oil and Gas		7.50	%		L+650			5,193,754		5,079,294		4,155,003
Blue Bird Body Company	06/29/2020	Automotive		6.50	%		L+550			4,218,085		4,167,693		4,170,632
Bowlmor AMF Corp.	09/17/2021	Retail		7.25	%		L+625			12,869,811		12,790,612		12,687,446
Broder Bros., Co., Tranche A	06/03/2021	Consumer Goods: Non-Durable		7.00	%		L+575			2,485,000		2,435,901		2,122,190
Broder Bros., Co., Tranche B	06/03/2021	Consumer Goods: Non-Durable		13.50	%		L+1,225			2,490,000		2,440,522		2,753,940
Camin Cargo Control, Inc.	06/30/2021	Transportation: Cargo		5.75	%		L+475			2,487,500		2,463,983		2,431,531
CareCentrix, Inc.	07/08/2021	Healthcare and Pharmaceuticals		6.00	%		L+500			4,987,500		4,870,465		4,825,406
CBAC Borrower, LLC ⁽⁸⁾	07/02/2020	Hotel, Gaming and Leisure		8.25	%		L+700			5,000,000		4,964,472		4,675,000
Charming Charlie LLC	12/24/2019	Retail		9.00	%		L+800			4,421,250		4,373,291		3,713,850
Chicken Soup for the Soul Publishing, LLC	01/08/2019	Media: Advertising, Printing and Publishing		7.25	%		L+600			4,925,000		4,889,338		4,925,000
Corfin Industries LLC	11/25/2020	Aerospace and Defense		10.75	%		L+975			6,320,000		6,195,334		6,193,600
Corfin Industries LLC (Revolver) ⁽¹⁰⁾	11/25/2020	Aerospace and Defense		—			—			518,033		—		—
CRGT Inc.	12/21/2020	High Tech Industries		7.50	%		L+650			11,786,392		11,684,681		11,668,528
Curo Health Services Holdings, Inc.	02/07/2022	Healthcare and Pharmaceuticals		6.50	%		L+550			1,985,000		1,967,026		1,960,188
DCS Business Services, Inc.	03/19/2018	Business Services		7.25	%		L+575			2,968,976		2,947,751		2,968,976
DISA Global Solutions, Inc.	12/09/2020	Business Services		5.50	%		L+450			4,962,500		4,920,683		4,838,437
Douglas Products and Packaging Company LLC	06/30/2020	Chemicals, Plastics and Rubber		5.75	%		L+475			4,875,000		4,840,289		4,875,000
Driven Performance Brands, Inc. ⁽⁸⁾	09/10/2020	Consumer Goods: Durable		5.75	%		L+475			8,887,500		8,845,343		8,798,625
Driven Performance Brands Inc. (Revolver) ^{(8) , (10)}	09/10/2020	Consumer Goods: Durable		—			—			1,000,000		—		—
Emerging Markets Communications, LLC	07/01/2021	Telecommunications		6.75	%		L+575			4,975,000		4,904,048		4,664,062
FHC Health Systems, Inc.	12/23/2021	Healthcare and Pharmaceuticals		5.00	%		L+400			4,962,500		4,916,335		4,714,375
GlobalLogic Holdings, Inc.	05/31/2019	High Tech Industries		6.25	%		L+525			3,920,000		3,893,076		3,841,600
Greenway Health, LLC	11/04/2020	High Tech Industries		6.00	%		L+500			6,860,000		6,809,832		6,414,100
Hollander Sleep Products, LLC	10/21/2020	Consumer Goods: Non-Durable		9.00	%		L+800			1,191,000		1,175,786		1,191,000
Hostway Corporation	12/13/2019	High Tech Industries		6.00	%		L+475			2,735,307		2,715,937		2,694,277
Hunter Defense Technologies, Inc.	08/05/2019	Aerospace and Defense		6.50	%		L+550			6,562,500		6,514,306		6,464,062
ICC-Nexergy, Inc.	04/30/2020	Consumer Goods: Durable		6.50	%		L+550			4,975,000		4,931,317		4,875,500
Icynene U.S. Acquisition Corp. ^{(6), (11)}	11/04/2020	Construction and Building		7.25	%		L+625			6,947,500		6,829,010		6,947,500
Idera, Inc.	04/09/2021	High Tech Industries		6.50	%		L+550			7,000,000		6,321,011		6,335,000
iEnergizer Limited and Aptara, Inc.^{(6), (11)}	05/01/2019	Business Services		7.25	%		L+600			9,739,761		9,616,987		8,765,785
Instant Web, LLC, Term Loan A	03/28/2019	Media: Advertising, Printing and Publishing		5.50	%		L+450			5,343,581		5,288,139		5,343,581
Instant Web, LLC, Term Loan B	03/28/2019	Media: Advertising, Printing and Publishing		12.00	%		L+1,100			4,500,000		4,450,077		4,500,000
Interior Specialists, Inc.	06/30/2020	Construction and Building		9.00	%		L+800			6,765,680		6,702,907		6,630,366
Jackson Hewitt Inc.	07/30/2020	Consumer Services		8.00	%		L+700			5,000,000		4,906,292		4,781,250
K2 Pure Solutions NoCal, L.P. ⁽⁸⁾	08/19/2019	Chemicals, Plastics and Rubber		11.00	%		L+1,000			5,926,736		5,842,352		5,652,521
Kendra Scott, LLC	07/17/2020	Retail		7.00	%		L+600			2,962,500		2,934,869		2,918,062
KHC Holdings, Inc.	10/31/2022	Wholesale		7.00	%		L+600			12,500,000		12,284,327		12,281,250
KHC Holdings, Inc. (Revolver) ^{(8) , (10)}	10/30/2020	Wholesale		—			—			1,209,677		—		—
Lanyon Solutions, Inc.	11/13/2020	High Tech Industries		5.50	%		L+450			1,960,014		1,953,138		1,889,786
LifeCare Holdings LLC ⁽⁸⁾	11/30/2018	Healthcare and Pharmaceuticals		6.50	%		L+525			5,774,263		5,720,252		5,774,263
Lindblad Expeditions, Inc. ^{(6), (11)}	05/10/2021	Hotel, Gaming and Leisure		5.50	%		L+450			2,203,214		2,192,478		2,181,182
Lindblad Maritime Enterprises, Ltd. ^{(6), (11)}	05/10/2021	Hotel, Gaming and Leisure		5.50	%		L+450			284,286		282,900		281,443
LSF9 Cypress Holdings LLC	10/10/2022	Construction and Building		7.25	%		L+625			12,500,000		11,887,766		11,833,375
LTI Holdings, Inc.	04/18/2022	Chemicals, Plastics and Rubber		5.25	%		L+425			1,990,000		1,980,638		1,892,152
MB Aerospace ACP Holdings II Corp.	12/15/2022	Aerospace and Defense		6.50	%		L+550			7,000,000		6,930,137		6,930,000
New Trident HoldCorp, Inc.	07/31/2019	Healthcare and Pharmaceuticals		6.50	%		L+525			8,892,647		8,834,283		8,483,585
Physiotherapy Corporation ⁽⁸⁾	06/04/2021	Healthcare and Pharmaceuticals		5.75	%		L+475			3,491,250		3,474,976		3,473,794
PlayPower, Inc.	06/23/2021	Construction and Building		5.75	%		L+475			3,980,000		3,942,773		3,960,100
Polyconcept Finance B.V.	06/28/2019	Consumer Goods: Non-Durable		6.00	%		L+475			10,489,901		10,446,081		10,371,890
Premier Dental Services, Inc.	11/01/2018	Consumer Services		7.50	%		L+650			7,528,230		7,451,555		6,511,919
Profile Products LLC	05/20/2021	Environmental Industries		6.00	%		L+500			7,423,156		7,353,188		7,423,156
Profile Products LLC (Revolver) ^{(8) , (10)}	05/20/2020	Environmental Industries		—			—			2,459,016		—		—
Quality Home Brands Holdings LLC	12/17/2018	Consumer Goods: Durable		7.75	%		L+650			4,900,000		4,865,884		4,895,933
Research Now Group, Inc.	03/18/2021	High Tech Industries		5.50	%		L+450			6,947,500		6,915,515		6,843,288
Robertshaw US Holding Corp.	06/18/2019	Consumer Goods: Durable		9.00	%		L+750			3,579,361		3,555,127		3,565,082
Ryan, LLC	08/07/2020	Business Services		6.75	%		L+575			4,387,500		4,325,099		4,250,391
Sotera Defense Solutions, Inc.	04/21/2017	Aerospace and Defense		9.00	%		L+750			6,079,313		5,947,582		6,048,916
St. George’s University Scholastic Services LLC ^(6), (11)	08/09/2021	Consumer Services		5.75	%		L+475			474,200		472,188		473,015
Sundial Group Holdings LLC	10/19/2021	Consumer Goods: Non-Durable		7.25	%		L+625			7,500,000		7,375,975		7,387,500

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS – (Continued)

DECEMBER 31, 2015

(Unaudited)


Issuer Name	Maturity		Industry	Current Coupon			Basis Point Spread Above Index ⁽¹⁾			Par / Shares		Cost		Fair Value ⁽²⁾
Survey Sampling International, LLC		12/16/2020	Business Services		6.00	%		L+500			6,203,125	$	6,157,530	$	6,079,062
Systems Maintenance Services Holding, Inc.		10/18/2019	High Tech Industries		5.00	%		L+400			5,880,000		5,858,754		5,762,400
Tensar Corporation		07/09/2021	Construction and Building		5.75	%		L+475			4,937,500		4,895,615		4,190,703
TOMS Shoes, LLC		11/02/2020	Consumer Goods: Non-Durable		6.50	%		L+550			1,985,000		1,817,452		1,746,800
Triad Manufacturing, Inc.		12/28/2020	Capital Equipment		11.25	%		L+1,075			13,550,000		13,279,861		13,279,000
UniTek Global Services, Inc. ⁽⁸⁾		01/14/2019	Telecommunications		9.50 (PIK 1.00	% %)		L+850			394,411		394,411		394,411
UniTek Global Services, Inc. ⁽⁸⁾		01/14/2019	Telecommunications		8.50	%		L+750			599,702		552,030		569,717
UniTek Global Services, Inc. ^{(8), (10)}		01/14/2019	Telecommunications		—			—			151,090		—		—
Universal Fiber Systems, LLC		10/04/2021	Chemicals, Plastics and Rubber		6.50	%		L+550			5,000,000		4,951,254		4,975,000
U.S. Anesthesia Partners, Inc.		12/31/2019	Healthcare and Pharmaceuticals		7.50	%		P+400	⁽⁹⁾		10,000,000		9,900,463		9,900,000
U.S. Farathane, LLC		02/07/2022	Automotive		6.75	%		L+575			9,673,360		9,561,353		9,552,443
US Med Acquisition, Inc. ⁽⁸⁾		08/13/2021	Healthcare and Pharmaceuticals		10.00	%		L+900			3,113,281		3,113,281		3,113,281
Vistage Worldwide, Inc.		08/19/2021	Media: Broadcasting and Subscription		6.50	%		L+550			4,968,750		4,921,064		4,968,750
Wilton Brands, LLC		08/30/2018	Consumer Goods: Non-Durable		8.50	%		L+725			2,618,000		2,591,579		2,489,273
Worley Claims Services, LLC		10/30/2020	Banking, Finance, Insurance and Real Estate		9.00	%		L+800			7,372,126		7,305,708		7,372,126

Total First Lien Secured Debt													406,926,590		400,452,602

Second Lien Secured Debt—12.8%
Affinion Group, Inc. ⁽⁸⁾		10/31/2018	Consumer Goods: Durable		8.50	%		L+700			1,000,000		924,755		851,110
American Gilsonite Company^{(5), (8)}		09/01/2017	Metals and Mining		11.50	%		—			1,000,000		1,000,000		700,000
Douglas Products and Packaging Company LLC		12/31/2020	Chemicals, Plastics and Rubber		11.00	%		L+1,050			2,000,000		1,966,607		2,000,000
Howard Berger Co. LLC		09/30/2020	Wholesale		11.00	%		L+1,000			11,000,000		10,444,331		10,450,000
J.A. Cosmetics Holdings, Inc. ⁽⁸⁾		07/31/2019	Consumer Goods: Durable		11.00	%		L+1,000			4,000,000		3,941,391		4,020,000
Language Line, LLC		07/07/2022	Consumer Services		10.75	%		L+975			10,750,000		10,591,643		10,561,875
Novitex Acquisition, LLC		07/07/2021	Business Services		11.75	%		L+1,050			11,000,000		10,904,594		10,780,000
Penton Media, Inc. ⁽⁸⁾		10/02/2020	Media: Diversified and Production		9.00	%		L+775			5,252,824		5,195,698		5,134,636
Sunshine Oilsands Ltd. ^{(5), (6), (8), (11)}		08/01/2017	Energy: Oil and Gas		10.00	%		—			2,812,500		2,711,149		2,615,625

Total Second Lien Secured Debt													47,680,168		47,113,246

Subordinated Debt/Corporate Notes—0.8% ⁽⁸⁾
Affinion International Holdings Limited ^{(6), (11)}		07/30/2018	Consumer Goods: Durable		7.50 (PIK 7.50	% %)		—			1,096,000		951,483		931,600
Credit Infonet, Inc.		10/26/2018	High Tech Industries		13.50 (PIK 2.25	% %)		—			2,036,550		2,013,178		1,894,361
UniTek Global Services, Inc.		07/15/2019	Telecommunications		15.00 (PIK 15.00	% %)		—			131,415		131,415		131,415

Total Subordinated Debt/Corporate Notes													3,096,076		2,957,376

Preferred Equity—0.4%^{(7), (8)}
J.A. Cosmetics US, Inc.		—	Consumer Goods: Durable		8.00	%		—			400		399,704		464,151
UniTek Global Services, Inc.		—	Telecommunications		13.50	%		—			1,047,317		670,283		796,245

Total Preferred Equity													1,069,987		1,260,396

Common Equity/Warrants—1.5% ^{(7), (8)}
A2Z Wireless Holdings, Inc.		—	Retail		—			—			463		118,817		893,059
Affinion Group Holdings, Inc.		—	Consumer Goods: Durable		—			—			99,029		3,514,572		3,539,111
Affinion Group Holdings, Inc., Series C and Series D		—	Consumer Goods: Durable		—			—			4,298		1,186,649		23,791
Corfin InvestCo, L.P.		—	Aerospace and Defense		—			—			3,000		300,000		300,000
Corfin InvestCo, L.P. ⁽¹⁰⁾		—	Aerospace and Defense		—			—			3,000		—		—
Faraday Holdings, LLC (Interior Specialists, Inc.)		—	Construction and Building		—			—			939		45,761		51,153
J.A. Cosmetics US, Inc.		—	Consumer Goods: Durable		—			—			30		296		343,453
Patriot National, Inc.		—	Banking, Finance, Insurance and Real Estate		—			—			11,867		27,995		79,628
UniTek Global Services, Inc.		—	Telecommunications		—			—			149,617		—		—
Vestcom Parent Holdings, Inc.		—	Media: Advertising, Printing and Publishing		—			—			15,179		56,895		275,253

Total Common Equity/Warrants													5,250,985		5,505,448

Total Investments in Non-Controlled, Non-Affiliated Portfolio Companies													464,023,806		457,289,068

Investments in Controlled, Affiliated Portfolio Companies—0.8%
First Lien Secured Debt—0.8%
GMC Television Broadcasting Holdings, LLC ^(8), (12)		12/30/2016	Media: Broadcasting and Subscription		4.33	%		L+400	⁽⁹⁾		3,702,009		2,777,132		2,776,507

Total Investments—125.4%													466,800,938		460,065,575

Cash Equivalents—3.8%
BlackRock Liquidity Funds, Temp Cash and Temp Fund, Institutional Shares													14,035,946		14,035,946

Total Investments and Cash Equivalents—129.2%												$	480,836,884	$	474,101,521

Liabilities in Excess of Other Assets—(29.2)%															(107,082,264	)
Net Assets—100.0%														$	367,019,257

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS – (Continued)

DECEMBER 31, 2015

(Unaudited)


(1)		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,” or Prime rate, or “P.” All securities are subject to a LIBOR or Prime rate floor where a spread is provided, unless noted. The spread provided includes payment-in-kind, or PIK, interest and other fee rates, if any.
(2)		Valued based on our accounting policy (see Note 2).
(3)		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.
(4)		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.
(5)		Security is exempt from registration under Rule 144A promulgated under the Securities Act of 1933, as amended, or the Securities Act. The security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers.
(6)		Non-U.S. company or principal place of business outside the United States.
(7)		Non-income producing securities.
(8)		The securities are not pledged as collateral under the Credit Facility. All other securities are pledged as collateral under the Credit Facility and held through Funding I.
(9)		Coupon is not subject to a LIBOR or Prime rate floor.
(10)		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.
(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.
(12)		Became a controlled affiliate during the quarter ended September 30, 2015.

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

SEPTEMBER 30, 2015


Issuer Name	Maturity	Industry	Current Coupon			Basis Point Spread Above Index ⁽¹⁾			Par / Shares		Cost		Fair Value ⁽²⁾
Investments in Non-Controlled, Non-Affiliated Portfolio Companies—104.2% ^{(3), (4)}
First Lien Secured Debt—89.1%
AKA Diversified Holdings, Inc.	04/02/2018	Retail		11.97	%		L+1,175	⁽⁹⁾		10,734,388	$	10,555,953	$	10,895,404
AKA Diversified Holdings, Inc. (Revolver) ⁽¹⁰⁾	04/02/2018	Retail		—			—			1,165,725		—		17,486
ALG USA Holdings, LLC	02/28/2019	Hotel, Gaming and Leisure		7.00	%		L+575			7,136,577		7,101,328		7,118,736
Alvogen Pharma US, Inc. ^{(6), (11)}	04/04/2022	Healthcare and Pharmaceuticals		6.00	%		L+500			3,900,038		3,881,182		3,880,538
Ancile Solutions, Inc.	07/16/2018	High Tech Industries		6.25	%		L+500			2,990,287		2,971,513		2,975,336
AP Gaming I, LLC	12/21/2020	Hotel, Gaming and Leisure		9.25	%		L+825			6,602,074		6,517,717		6,492,018
ARC Automotive Group, Inc.	10/12/2020	Automotive		6.00	%		L+500			3,970,000		3,935,708		3,930,300
Azure Midstream Energy LLC	11/15/2018	Energy: Oil and Gas		7.50	%		L+650			5,310,750		5,189,661		4,514,138
Blue Bird Body Company	06/29/2020	Automotive		6.50	%		L+550			4,280,585		4,227,278		4,264,533
Bowlmor AMF Corp.	09/17/2021	Retail		7.25	%		L+625			12,902,393		12,820,758		12,805,625
Camin Cargo Control, Inc.	06/30/2021	Transportation: Cargo		5.75	%		L+475			2,493,750		2,469,351		2,468,812
CareCentrix, Inc.	07/08/2021	Healthcare and Pharmaceuticals		6.00	%		L+500			5,000,000		4,878,103		4,870,850
CBAC Borrower, LLC ⁽⁸⁾	07/02/2020	Hotel, Gaming and Leisure		8.25	%		L+700			5,000,000		4,961,991		4,700,000
Charming Charlie LLC	12/24/2019	Retail		9.00	%		L+800			4,432,500		4,381,480		4,210,875
Chicken Soup for the Soul Publishing, LLC	01/08/2019	Media: Advertising, Printing and Publishing		7.25	%		L+600			4,925,000		4,887,389		4,925,000
CRGT Inc.	12/21/2020	High Tech Industries		7.50	%		L+650			11,861,946		11,755,521		11,743,327
Curo Health Services Holdings, Inc.	02/07/2022	Healthcare and Pharmaceuticals		6.50	%		L+550			1,990,000		1,971,403		1,988,348
DCS Business Services, Inc.	03/19/2018	Business Services		7.25	%		L+575			2,976,683		2,952,648		3,017,613
DISA Global Solutions, Inc.	12/09/2020	Business Services		5.50	%		L+450			4,975,000		4,931,287		4,875,500
Douglas Products and Packaging Company LLC	06/30/2020	Chemicals, Plastics and Rubber		5.75	%		L+475			4,937,500		4,901,367		4,937,500
Driven Performance Brands, Inc. ⁽⁸⁾	09/10/2020	Consumer Goods: Durable		5.75	%		L+475			9,000,000		8,955,000		8,955,000
Driven Performance Brands Inc. (Revolver) ^{(8) , (10)}	09/10/2020	Consumer Goods: Durable		—			—			1,000,000		—		—
Emerging Markets Communications, LLC	07/01/2021	Telecommunications		6.75	%		L+575			4,987,500		4,914,374		4,862,812
FHC Health Systems, Inc.	12/23/2021	Healthcare and Pharmaceuticals		5.00	%		L+400			4,975,000		4,927,105		4,897,290
GlobalLogic Holdings, Inc.	05/31/2019	High Tech Industries		6.25	%		L+525			3,930,000		3,900,641		3,910,350
Granite Broadcasting Corporation	05/23/2018	Media: Broadcasting and Subscription		6.75	%		L+550			1,091,582		1,090,547		1,088,177
Greenway Health, LLC	11/04/2020	High Tech Industries		6.00	%		L+500			6,877,500		6,827,661		6,739,950
Help/Systems Holdings, Inc.	06/28/2019	High Tech Industries		5.50	%		L+450			4,900,000		4,866,257		4,851,000
Hollander Sleep Products, LLC	10/21/2020	Consumer Goods: Non-Durable		9.00	%		L+800			1,194,000		1,178,322		1,194,000
Hostway Corporation	12/13/2019	High Tech Industries		6.00	%		L+475			2,753,737		2,734,900		2,726,199
Hunter Defense Technologies, Inc.	08/05/2019	Aerospace and Defense		6.50	%		L+550			6,650,000		6,598,073		6,641,687
ICC-Nexergy, Inc.	04/30/2020	Consumer Goods: Durable		6.50	%		L+550			4,987,500		4,941,329		4,937,625
Icynene U.S. Acquisition Corp. ^{(6), (11)}	11/04/2020	Construction and Building		7.25	%		L+625			6,965,000		6,842,099		6,965,000
iEnergizer Limited and Aptara, Inc.^{(6), (11)}	05/01/2019	Business Services		7.25	%		L+600			10,094,315		10,001,190		9,084,884
Instant Web, LLC, Term Loan A	03/28/2019	Media: Advertising, Printing and Publishing		5.50	%		L+450			5,366,227		5,306,494		5,366,227
Instant Web, LLC, Term Loan B	03/28/2019	Media: Advertising, Printing and Publishing		12.00	%		L+1,100			4,500,000		4,447,058		4,500,000
Interior Specialists, Inc.	06/30/2020	Construction and Building		9.00	%		L+800			6,800,000		6,734,452		6,800,000
Jackson Hewitt Tax Service Inc.	07/30/2020	Consumer Services		8.00	%		L+700			5,000,000		4,901,996		4,900,000
K2 Pure Solutions NoCal, L.P. ⁽⁸⁾	08/19/2019	Chemicals, Plastics and Rubber		11.00	%		L+1,000			5,965,222		5,874,403		5,537,227
Kendra Scott, LLC	07/17/2020	Retail		7.00	%		L+600			3,000,000		2,970,849		2,977,500
Lanyon Solutions, Inc.	11/13/2020	High Tech Industries		5.50	%		L+450			1,965,012		1,958,874		1,943,731
LifeCare Holdings LLC ⁽⁸⁾	11/30/2018	Healthcare and Pharmaceuticals		6.50	%		L+525			5,789,068		5,735,375		5,736,619
Lindblad Expeditions, Inc. ⁽¹¹⁾	05/10/2021	Hotel, Gaming and Leisure		5.50	%		L+450			2,208,750		2,197,809		2,197,706
Lindblad Maritime Enterprises, Ltd. ^{(6), (11)}	05/10/2021	Hotel, Gaming and Leisure		5.50	%		L+450			285,000		283,588		283,575
LTI Holdings, Inc.	04/18/2022	Chemicals, Plastics and Rubber		5.25	%		L+425			1,995,000		1,985,364		1,973,175
New Trident HoldCorp, Inc.	07/31/2019	Healthcare and Pharmaceuticals		6.50	%		L+525			8,917,647		8,854,192		8,566,559
Physiotherapy Corporation ⁽⁸⁾	06/04/2021	Healthcare and Pharmaceuticals		5.75	%		L+475			3,500,000		3,482,889		3,491,250
PlayPower, Inc.	06/23/2021	Construction and Building		5.75	%		L+475			3,990,000		3,951,094		3,970,050
Polyconcept Finance B.V.	06/28/2019	Consumer Goods: Non-Durable		6.00	%		L+475			11,482,697		11,430,576		11,425,283
Premier Dental Services, Inc.	11/01/2018	Consumer Services		6.00	%		L+500			8,219,601		8,131,135		7,109,955
Profile Products LLC	05/20/2021	Environmental Industries		6.00	%		L+500			7,470,287		7,398,025		7,470,287
Profile Products LLC (Revolver) ^{(8) , (10)}	05/20/2020	Environmental Industries		—			—			2,459,016		—		—
Quality Home Brands Holdings LLC	12/17/2018	Consumer Goods: Durable		7.75	%		L+650			4,912,500		4,880,217		4,914,563
Research Now Group, Inc.	03/18/2021	High Tech Industries		5.50	%		L+450			6,965,000		6,931,604		6,912,763
Robertshaw US Holding Corp.	06/18/2019	Consumer Goods: Durable		9.00	%		L+750			3,582,758		3,557,217		3,575,247
Ryan, LLC	08/07/2020	Business Services		6.75	%		L+575			4,443,750		4,378,244		4,382,648
Sotera Defense Solutions, Inc.	04/21/2017	Aerospace and Defense		9.00	%		L+750			6,101,682		5,946,657		5,491,514
St. George’s University Scholastic Services LLC ^(6), (11)	08/09/2021	Consumer Services		5.75	%		L+475			714,200		711,056		714,200
Surgical Specialties Corporation (US), Inc.	08/22/2018	Healthcare and Pharmaceuticals		7.25	%		L+575			10,037,432		10,017,760		9,937,058
Survey Sampling International, LLC	12/16/2020	Business Services		6.00	%		L+500			6,218,750		6,171,308		6,164,336
Systems Maintenance Services Holding, Inc.	10/18/2019	High Tech Industries		5.00	%		L+400			5,895,000		5,875,736		5,895,000
Tensar Corporation	07/09/2021	Construction and Building		5.75	%		L+475			4,950,000		4,906,969		4,588,056
TOMS Shoes, LLC	11/02/2020	Consumer Goods: Non-Durable		6.50	%		L+550			1,990,000		1,814,920		1,845,725
UniTek Global Services, Inc. ⁽⁸⁾	01/14/2019	Telecommunications		9.50 (PIK 1.00	% %)		L+850			430,126		430,126		430,126
UniTek Global Services, Inc. ⁽⁸⁾	01/14/2019	Telecommunications		8.50	%		L+750			599,702		548,736		569,717

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS – (Continued)

SEPTEMBER 30, 2015


Issuer Name	Maturity	Industry	Current Coupon			Basis Point Spread Above Index ⁽¹⁾			Par / Shares		Cost		Fair Value ⁽²⁾
UniTek Global Services, Inc. ^{(8), (10)}	01/14/2019	Telecommunications		—			—			151,090	$	—	$	—
U.S. Farathane, LLC	02/07/2022	Automotive		6.75	%		L+575			3,800,641		3,729,952		3,807,672
US Med Acquisition, Inc. ⁽⁸⁾	08/13/2021	Healthcare and Pharmaceuticals		10.00	%		L+900			3,121,094		3,121,094		3,121,094
Vistage Worldwide, Inc. ⁽⁸⁾	08/19/2021	Media: Broadcasting and Subscription		6.50	%		L+550			5,000,000		4,950,477		4,975,000
Wilton Brands, LLC	08/30/2018	Consumer Goods: Non-Durable		8.50	%		L+725			2,703,000		2,674,736		2,630,370
Worley Claims Services, LLC	10/30/2020	Banking, Finance, Insurance and Real Estate		9.00	%		L+800			6,490,688		6,429,955		6,490,688

Total First Lien Secured Debt												335,790,073		332,180,834

Second Lien Secured Debt—12.8%
Affinion Group, Inc. ⁽⁸⁾	10/31/2018	Consumer Goods: Durable		8.50	%		L+700			1,000,000		919,155		893,130
American Gilsonite Company^{(5), (8)}	09/01/2017	Metals and Mining		11.50	%		—			1,000,000		1,000,000		950,000
Douglas Products and Packaging Company LLC	12/31/2020	Chemicals, Plastics and Rubber		11.00	%		L+1,050			2,000,000		1,965,770		2,000,000
Howard Berger Co. LLC	09/30/2020	Wholesale		11.00	%		L+1,000			11,000,000		10,423,463		10,670,000
J.A. Cosmetics Holdings, Inc. ⁽⁸⁾	07/31/2019	Consumer Goods: Durable		11.00	%		L+1,000			4,000,000		3,938,373		4,040,000
Language Line, LLC	07/07/2022	Consumer Services		10.75	%		L+975			10,750,000		10,589,814		10,723,125
Novitex Acquisition, LLC	07/07/2021	Business Services		11.75	%		L+1,050			11,000,000		10,902,202		10,780,000
Penton Media, Inc. ⁽⁸⁾	10/02/2020	Media: Diversified and Production		9.00	%		L+775			5,252,824		5,194,116		5,230,920
Sunshine Oilsands Ltd. ^{(5), (6), (8), (11)}	08/01/2017	Energy: Oil and Gas		10.00	%		—			2,812,500		2,697,607		2,615,625

Total Second Lien Secured Debt												47,630,500		47,902,800

Subordinated Debt/Corporate Notes—1.5% ⁽⁸⁾
Affinion Group Holdings, Inc.	09/14/2018	Consumer Goods: Durable		—	⁽⁷⁾		—			4,786,483		4,361,551		1,818,864
Affinion Investments LLC	08/15/2018	Consumer Goods: Durable		—	⁽⁷⁾		—			2,484,000		2,146,500		1,664,280
Credit Infonet, Inc.	10/26/2018	High Tech Industries		13.00 (PIK 1.75	% %)		—			2,025,065		1,999,885		1,992,841
UniTek Global Services, Inc.	07/15/2019	Telecommunications		15.00 (PIK 15.00	% %)		—			126,259		126,259		126,259

Total Subordinated Debt/Corporate Notes												8,634,195		5,602,244

Preferred Equity—0.3%^{(7), (8)}
J.A. Cosmetics US, Inc.	—	Consumer Goods: Durable		8.00	%		—			400		399,704		455,490
UniTek Global Services, Inc.	—	Telecommunications		13.50	%		—			1,047,317		670,283		691,115

Total Preferred Equity												1,069,987		1,146,605

Common Equity/Warrants—0.5% ^{(7), (8)}
A2Z Wireless Holdings, Inc.	—	Retail		—			—			463		118,817		674,296
Affinion Group Holdings, Inc., Series A (Warrants)	12/12/2023	Consumer Goods: Durable		—			—			554,715		1,186,649		291,226
Affinion Group Holdings, Inc., Series B (Warrants)	12/12/2023	Consumer Goods: Durable		—			—			1,135,743		—		22,715
Faraday Holdings, LLC (Interior Specialists, Inc.)	—	Construction and Building		—			—			939		45,761		52,466
J.A. Cosmetics US, Inc.	—	Consumer Goods: Durable		—			—			30		296		215,689
Patriot National, Inc. (Warrants)	11/27/2023	Banking, Finance, Insurance and Real Estate		—			—			14,484		28,002		190,609
UniTek Global Services, Inc.	—	Telecommunications		—			—			149,617		—		—
Vestcom Parent Holdings, Inc.	—	Media: Advertising, Printing and Publishing		—			—			15,179		56,895		255,899

Total Common Equity/Warrants												1,436,420		1,702,900

Total Investments in Non-Controlled, Non-Affiliated Portfolio Companies												394,561,175		388,535,383

Investments in Controlled, Affiliated Portfolio Companies—0.7%
First Lien Secured Debt—0.7%
GMC Television Broadcasting Holdings, LLC ^(8), (12)	12/30/2016	Media: Broadcasting and Subscription		4.33	%		L+400	⁽⁹⁾		3,702,009		2,777,132		2,776,507

Total Investments—104.9%												397,338,307		391,311,890

Cash Equivalents—5.8%
BlackRock Liquidity Funds, Temp Cash and Temp Fund, Institutional Shares												21,428,514		21,428,514

Total Investments and Cash Equivalents—110.7%											$	418,766,821	$	412,740,404

Liabilities in Excess of Other Assets—(10.7)%														(39,849,955)
Net Assets—100.0%													$	372,890,449

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS – (Continued)

SEPTEMBER 30, 2015


(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.” All securities are subject to a LIBOR or Prime rate floor where a spread is provided, unless noted. The spread provided includes payment-in-kind, or PIK, interest and other fee rates, if any.
(2)		Valued based on our accounting policy (see Note 2).
(3)		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.
(4)		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.
(5)		Security is exempt from registration under Rule 144A promulgated under the Securities Act. The security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers.
(6)		Non-U.S. company or principal place of business outside the United States.
(7)		Non-income producing securities.
(8)		The securities are not pledged as collateral under the Credit Facility. All other securities are pledged as collateral under the Credit Facility and held through Funding I.
(9)		Coupon is not subject to a LIBOR or Prime rate floor.
(10)		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.
(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.
(12)		Became a controlled affiliate during the quarter ended September 30, 2015.

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2015

(Unaudited)

1. ORGANIZATION

PennantPark Floating Rate Capital Ltd. was organized as a Maryland corporation in October 2010. 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 investment objectives are to generate current income and capital appreciation. We seek to achieve our investment objective by investing primarily in loans bearing a variable-rate of interest, or Floating Rate Loans, and other investments made to U.S. middle-market private companies whose debt is rated below investment grade. Floating Rate Loans pay interest at variable rates, which are determined periodically, on the basis of a floating base lending rate such as LIBOR, with or without a floor, plus a fixed spread. Under normal market conditions, we generally expect that at least 80% of the value of our Managed Assets, which means our net assets plus any borrowings for investment purposes, will be invested in Floating Rate Loans and other investments bearing a variable rate of interest, which may include, from time to time, variable rate derivative instruments. We generally expect that senior secured debt, or first lien loans, will represent at least 65% of our overall portfolio. We generally expect to invest up to 35% of our overall portfolio opportunistically in other types of investments, including second lien, high yield, mezzanine and distressed debt securities and, to a lesser extent, equity investments.

We 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. We also entered into an administration agreement, or the Administration Agreement, with the Administrator, which provides the administrative services necessary for us to operate.

Funding I, our wholly owned subsidiary and a special purpose entity, was organized in Delaware as a limited liability company in May 2011. We formed Funding I in order to establish our Credit Facility. The Investment Adviser serves as the collateral manager to Funding I and has irrevocably directed that any management fee owed with respect to such services is to be paid to us so long as the Investment Adviser remains the collateral manager. This arrangement does not increase our consolidated management fee. The Credit Facility allows Funding I to borrow up to $350 million at LIBOR plus 200 basis points during the revolving period. The Credit Facility is secured by all of the assets held by Funding I. See Note 10.

On August 18, 2015, we completed the acquisition of MCG Capital Corporation, or MCG, pursuant to the Agreement and Plan of Merger, or the Merger Agreement, dated as of April 28, 2015, by and among MCG, our Investment Adviser and the Company. As a result of the transactions contemplated by the Merger Agreement, MCG was ultimately merged with and into PFLT Funding II, LLC with PFLT Funding II, LLC as the surviving company.

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. Actual results could differ from these estimates due to changes in the economic and regulatory environment, financial markets and any other parameters used in determining such estimates and assumptions. We may reclassify certain prior period amounts to conform to the current period presentation. We have eliminated all intercompany balances and transactions. References to the Financial Accounting Standards Board’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 946, Financial Services – Investment Companies, and pursuant to the requirements for reporting on Form 10-K/Q and Article 6 or 10 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 our 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, described in this Report, and a consistently applied valuation process. With respect to investments for which there is no readily available market value, the factors that the board of directors may take into account in pricing our investments at fair value include, as relevant, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we consider the pricing indicated by the external event to corroborate or revise our valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the price used in an actual transaction may be different than our valuation and the difference may be material. See Note 5.

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 our 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;

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2015

(Unaudited)

(4)

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

(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 the change in the fair value of our portfolio investments and Credit Facility during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.

We record interest income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt investments with contractual PIK interest, which represents interest accrued and added to the loan balance that generally becomes due at maturity, we will generally not accrue PIK interest when the portfolio company valuation indicates that such PIK interest is not collectible. 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. 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.

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.

(c) Income Taxes

We have complied with the requirements of Subchapter M of the Code and expect to be subject to taxation as a RIC. As a result, we account for income taxes using the asset and liability method prescribed by ASC 740, Income Taxes. 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 subject to taxation as a RIC, we do not typically pay any material level of federal income taxes. Although we are not subject to federal income taxes as a RIC, we elected to retain a portion of our calendar year income and accrue an excise tax of zero and $0.1 million, for the three months ended December 31, 2015 and 2014, respectively.

We recognize the effect of a tax position in our Consolidated Financial Statements 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. We did not have any uncertain tax positions or any unrecognized tax benefits that met the recognition or measurement criteria of ASC 740-10-25 as of the periods presented herein.

Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences 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.

(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 ratified by the board of directors each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are distributed at least annually. The tax attributes for distributions will generally include ordinary income and capital gains, but may also include 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) Consolidation

As permitted under Regulation S-X and as explained by ASC 946-810-45, PennantPark Floating Rate Capital Ltd. 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 subsidiaries in our Consolidated Financial Statements.

(f) Asset Transfers and Servicing

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

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2015

(Unaudited)

3. AGREEMENTS

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 2016. 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 collateral manager to Funding I and has irrevocably directed that the management fee owed with respect to such services is to be paid to the Company so long as the Investment Adviser remains the collateral manager. This arrangement does not increase our consolidated management fee. For providing these services, the Investment Adviser receives a fee from us consisting of two components—a base management fee and an incentive fee.

The base management fee is calculated at an annual rate of 1.00% of our “average adjusted gross assets,” which equals our gross assets (net 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 adjusted to exclude cash, cash equivalents and unfunded commitments, if any) and is payable quarterly in arrears. 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 the three months ended December 31, 2015 and 2014, the Investment Adviser earned a base management fee of $1.1 million and $0.9 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 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). 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) 50% 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 2.9167% in any calendar quarter (11.67% annualized) (we refer to this portion of our Pre-Incentive Fee Net Investment Income (which exceeds the hurdle but is less than 2.9167%) as the “catch-up,” which is meant to provide our Investment Adviser with 20% of our Pre-Incentive Fee Net Investment Income, as if a hurdle did not apply, if this net investment income exceeds 2.9167% in any calendar quarter), and (3) 20% of the amount of our Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.9167% in any calendar quarter. These calculations are pro-rated for any share issuances or repurchases during the relevant quarter, if applicable. For the three months ended December 31, 2015 and 2014, the Investment Adviser earned zero and $0.7 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 equals 20% 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 the three months ended December 31, 2015 and 2014, the Investment Adviser earned an incentive fee on capital gains of approximately zero and $(0.4) million, respectively, 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 20% of such amount, less the aggregate amount of actual capital gains related 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. The incentive fee accrued for under GAAP on our unrealized and realized capital gains for the three month ended December 31, 2015 and 2014 was zero and $(0.6) million, respectively.

The Administration Agreement with the Administrator was reapproved by our board of directors, including a majority of the directors who are not interested persons of us, in February 2016. Under the Administration Agreement, the Administrator provides administration services and office facilities to us. For providing these services, facilities and personnel, 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 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, 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 three months ended December 31, 2015 and 2014, the Investment Adviser was reimbursed approximately $0.1 million and $0.1 million, respectively, from us, including expenses the Investment Adviser incurred on behalf of the Administrator, for services described above.

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2015

(Unaudited)

4. INVESTMENTS

Purchases of investments, including PIK interest, for the three months ended December 31, 2015 and 2014 totaled $99.2 million and $47.2 million, respectively. Sales and repayments of investments for the same periods totaled $26.9 million and $44.9 million, respectively.

Investments and cash equivalents consisted of the following:


	December 31, 2015				September 30, 2015
Investment Classification	Cost		Fair Value		Cost		Fair Value
First lien	$	409,703,722	$	403,229,109	$	338,567,205	$	334,957,341
Second lien		47,680,168		47,113,246		47,630,500		47,902,800
Subordinated debt / corporate notes		3,096,076		2,957,376		8,634,195		5,602,244
Preferred equity / common equity / warrants		6,320,972		6,765,844		2,506,407		2,849,505

Total investments		466,800,938		460,065,575		397,338,307		391,311,890

Cash equivalents		14,035,946		14,035,946		21,428,514		21,428,514

Total investments and cash equivalents	$	480,836,884	$	474,101,521	$	418,766,821	$	412,740,404

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


Industry Classification	December 31, 2015			September 30, 2015
High Tech Industries		11	%		13	%
Healthcare and Pharmaceuticals		10			12
Business Services		8			10
Construction and Building		7			6
Consumer Goods: Durable		7			8
Retail		7			8
Aerospace and Defense		6			3
Consumer Goods: Non-Durable		6			4
Consumer Services		5			6
Wholesale		5			3
Automotive		4			3
Chemicals, Plastics and Rubber		4			4
Hotel, Gaming and Leisure		4			5
Capital Equipment		3			—
Media: Advertising, Printing and Publishing		3			4
Banking, Finance, Insurance & Real Estate		2			2
Environmental Industries		2			2
Media: Broadcasting and Subscription		2			2
All Other		4			5

Total		100	%		100	%

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2015

(Unaudited)

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value, as defined under ASC 820, Fair Value Measurement, or 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 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 and our Credit Facility are classified as Level 3. 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. A review of fair value hierarchy classifications is conducted on a quarterly basis.

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 was 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 Floating Rate Loans, mainly senior secured debt, but also may include second lien, high yield, mezzanine and distressed debt securities 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. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of the Level 3 category as of the end of the quarter in which the reclassifications occur. During the three months ended December 31, 2015 and 2014, our ability to observe valuation inputs resulted in one reclassification of an asset from Level 2 to 1 and one reclassification of an asset from Level 2 to 3, respectively.

In addition to using the above inputs in cash equivalents, investments and our Credit Facility 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. 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 typically 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 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.

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

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2015

(Unaudited)

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


Asset Category	Fair Value at December 31, 2015		Valuation Technique	Unobservable Input	Range of Input (Weighted Average)
Debt investments	$	260,254,735	Market Comparable	Broker/Dealer bids or quotes	N/A
Debt investments		193,044,996	Market Comparable	Market Yield	5.8% – 26.3% (10.5%)
Equity investments		6,686,216	Enterprise Market Value	EBITDA multiple	6.0x – 10.5x (7.6x)

Total Level 3 investments	$	459,985,947
Long-Term Credit Facility	$	95,698,125	Market Comparable	Market Yield	3.5%
Asset Category	Fair Value at September 30, 2015		Valuation Technique	Unobservable Input	Range of Input (Weighted Average)
Debt investments	$	259,566,475	Market Comparable	Broker/Dealer bids or quotes	N/A
Debt investments		128,895,910	Market Comparable	Market Yield	5.5% – 34.7% (10.6%)
Equity investments		313,941	Market Comparable	Broker/Dealer bids or quotes	N/A
Equity investments		2,344,955	Enterprise Market Value	EBITDA multiple	6.0x – 10.5x (7.6x)

Total Level 3 investments	$	391,121,281

Long-Term Credit Facility	$	29,600,000	Market Comparable	Market Yield	2.9%

Our investments, cash equivalents and Credit Facility were categorized as follows in the fair value hierarchy for ASC 820 purposes:


	Fair Value Measurements at December 31, 2015
Description	Fair Value		Level 1		Level 2		Level 3
Debt investments (First lien)	$	403,229,109	$	—	$	—	$	403,229,109
Debt investments (Second lien)		47,113,246		—		—		47,113,246
Debt investments (Subordinated debt / corporate notes)		2,957,376		—		—		2,957,376
Equity investments		6,765,844		79,628		—		6,686,216

Total investments		460,065,575		79,628		—		459,985,947

Cash equivalents		14,035,946		14,035,946		—		—

Total investments and cash equivalents	$	474,101,521	$	14,115,574	$	—	$	459,985,947

Long-Term Credit Facility	$	95,698,125	$	—	$	—	$	95,698,125


	Fair Value Measurements at September 30, 2015
Description	Fair Value		Level 1		Level 2		Level 3
Debt investments (First lien)	$	334,957,341	$	—	$	—	$	334,957,341
Debt investments (Second lien)		47,902,800		—		—		47,902,800
Debt investments (Subordinated debt / corporate notes)		5,602,244		—		—		5,602,244
Equity investments		2,849,505		—		190,609		2,658,896

Total investments		391,311,890		—		190,609		391,121,281

Cash equivalents		21,428,514		21,428,514		—		—

Total investments and cash equivalents	$	412,740,404	$	21,428,514	$	190,609	$	391,121,281

Long-Term Credit Facility	$	29,600,000	$	—	$	—	$	29,600,000

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2015

(Unaudited)

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


	Three Months Ended December 31, 2015
Description	First Lien			Second lien, subordinated debt and equity investments			Totals
Beginning Balance	$	334,957,341		$	56,163,940		$	391,121,281
Net realized gains (losses)		53,300			(3,285,308	)		(3,232,008	)
Net unrealized (depreciation) appreciation		(2,864,750	)		2,266,779			(597,971	)
Purchases, PIK interest, net discount accretion and non-cash exchanges		97,970,469			1,584,985			99,555,454
Sales, repayments and non-cash exchanges		(26,887,251	)		26,442			(26,860,809	)
Transfers in and/or out of Level 3		—			—			—

Ending Balance	$	403,229,109		$	56,756,838		$	459,985,947

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.	$	(2,963,079	)	$	(758,129	)	$	(3,721,208	)


	Three Months Ended December 31, 2014
Description	First Lien			Second lien, subordinated debt and equity investments			Totals
Beginning Balance	$	302,565,355		$	40,707,230		$	343,272,585
Net realized losses		(171,920	)		—			(171,920	)
Net unrealized depreciation		(3,201,049	)		(1,186,681	)		(4,387,730	)
Purchases, PIK interest, net discount accretion and non-cash exchanges		34,337,890			10,391,025			44,728,915
Sales, repayments and non-cash exchanges		(44,918,307	)		—			(44,918,307	)
Transfers in and/or out of Level 3		—			3,370,599			3,370,599

Ending Balance	$	288,611,969		$	53,282,173		$	341,894,142

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.	$	(3,046,683	)	$	(1,377,721	)	$	(4,424,404	)

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2015

(Unaudited)

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


	Carrying/Fair Value
	Three Months Ended December 31,
Long-Term Credit Facility	2015			2014
Beginning Balance (cost – $29,600,000 and $146,400,000, respectively)	$	29,600,000		$	146,949,000
Net change in unrealized depreciation included in earnings		(601,875	)		(40,875	)
Borrowings		69,300,000			34,300,000
Repayments		(2,600,000	)		(45,200,000	)
Transfers in and/or out of Level 3		—			—

Ending Balance (cost – $96,300,000 and $135,500,000, respectively)	$	95,698,125		$	136,008,125

We adopted 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 Facility. We elected to use the fair value option for our Credit Facility 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 had expenses of $0.9 million and zero, respectively, relating to amendment fees on the Credit Facility during the three months ended December 31, 2015 and 2014. 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 Facility are reported in our Consolidated Statements of Operations. We elected not to apply ASC 825-10 to any other financial assets or liabilities. For the three months ended December 31, 2015 and 2014, our Credit Facility had a net change in unrealized depreciation of $0.6 million and less than $0.1 million, respectively. As of December 31, 2015 and September 30, 2015, the net unrealized depreciation on our Credit Facility totaled $0.6 million and zero, respectively. We use a nationally recognized independent valuation service to measure the fair value of our Credit Facility in a manner consistent with the valuation process that the board of directors uses to value our investments.

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 three months ended December 31, 2015 were as follows:


Name of Investment	Fair Value at September 30, 2015		Purchases of / Advances to Affiliates		Sale of / Distributions from Affiliates		Income Accrued		Fair Value at December 31, 2015		Net Realized Gains (Losses)
Controlled Affiliates
GMC Television Broadcasting Holdings, LLC	$	2,776,507	$	—	$	—	$	40,933	$	2,776,507	$	—

Total Controlled Affiliates	$	2,776,507	$	—	$	—	$	40,933	$	2,776,507	$	—

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:


	Three Months Ended December 31,
	2015		2014
Numerator for net increase in net assets resulting from operations	$	1,746,879	$	438,202
Denominator for basic and diluted weighted average shares		26,730,074		14,898,056
Basic and diluted net increase in net assets per share resulting from operations	$	0.07	$	0.03

8. 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 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 December 31, 2015 and September 30, 2015, cash equivalents consisted of money market funds in the amounts of $14.0 million and $21.4 million, respectively.

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2015

(Unaudited)

9. FINANCIAL HIGHLIGHTS

Below are the financial highlights:


	Three Months Ended December 31,
	2015			2014
Per Share Data:
Net asset value, beginning of period	$	13.95		$	14.40
Net investment income ⁽¹⁾		0.19			0.37
Net realized and unrealized loss ⁽¹⁾		(0.12	)		(0.34	)

Net increase in net assets resulting from operations ⁽¹⁾		0.07			0.03
Distributions to stockholders ^{(1), (2)}		(0.29	)		(0.27	)

Net asset value, end of period	$	13.73		$	14.16

Per share market value, end of period	$	11.25		$	13.73

Total return* ⁽³⁾		(3.48	)%		1.55	%
Shares outstanding at end of period		26,730,074			14,898,056

Ratios / Supplemental Data:**
Ratio of operating expenses to average net assets ⁽⁴⁾		1.98	%		2.11	%
Ratio of Credit Facility related expenses to average net assets ⁽⁵⁾		1.26	%		1.67	%

Ratio of total expenses to average net assets ⁽⁵⁾		3.24	%		3.78	%
Ratio of net investment income to average net assets ⁽⁵⁾		6.25	%		10.29	%
Net assets at end of period	$	367,019,257		$	210,943,437

Weighted average debt outstanding	$	63,132,609		$	143,708,696

Weighted average debt per share ⁽¹⁾	$	2.36		$	9.65
Asset coverage per unit ⁽⁶⁾	$	4,835		$	2,551
Portfolio turnover ratio		25.35	%		51.92	%

*	Not annualized for periods less than one year.

**	Annualized for periods less than one year.

⁽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 takes into account distributions, if any, reinvested in accordance with our dividend reinvestment plan.

⁽⁴⁾	Excludes Credit Facility related costs.

⁽⁵⁾	Credit Facility amendment costs, if any, are not annualized.

⁽⁶⁾

The asset coverage ratio for a class of senior securities representing indebtedness is calculated on our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by the senior securities representing indebtedness. This asset coverage ratio is multiplied by $1,000 to determine the asset coverage per unit.

10. CREDIT FACILITY

Funding I’s multi-currency Credit Facility with affiliates of SunTrust Bank, or the Lenders, was $350 million as of December 31, 2015, subject to satisfaction of certain conditions and the regulatory restrictions that the 1940 Act imposes on us as a BDC, has an interest rate spread above LIBOR of 200 basis points, a maturity date of August 2020 and a revolving period that ends in August 2018. As of December 31, 2015 and September 30, 2015, Funding I had $96.3 million and $29.6 million of outstanding borrowings under the Credit Facility, respectively. The Credit Facility had an interest rate of 2.43% and 2.20%, excluding the undrawn commitment fees as of December 31, 2015 and September 30, 2015, respectively. The annualized weighted average cost of debt for the three months ended December 31, 2015 and 2014, inclusive of the fee on the undrawn commitment on the Credit Facility but excluding amendment costs, was 5.95% and 2.47%, respectively.

During the revolving period, the Credit Facility bears interest at LIBOR plus 200 basis points and, after the revolving period, the rate sets to LIBOR plus 425 basis points for the remaining two years, maturing in August 2020. The Credit Facility is secured by all of the assets of Funding I. Both PennantPark Floating Rate Capital Ltd. and Funding I have made customary representations and warranties and are required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities.

The Credit Facility contains covenants, including, but not limited to, restrictions of loan size, industry requirements, average life of loans, geographic and individual portfolio concentrations, minimum portfolio yield and loan payment frequency. Additionally, the Credit Facility requires the maintenance of a minimum equity investment in Funding I and income ratio as well as restrictions on certain payments and issuance of debt. For instance, we must maintain at least $25 million in equity and must maintain an interest coverage ratio of at least 125%. The Credit Facility compliance reporting is prepared on a basis of accounting other than GAAP. As of December 31, 2015, we were in compliance with the covenants relating to our Credit Facility.

We own 100% of the equity interest in Funding I and treat the indebtedness of Funding I as our leverage. In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to borrow amounts such that we are in compliance with our asset coverage ratio after such borrowing. Our Investment Adviser serves as collateral manager to Funding I under the Credit Facility.

Our interest in Funding I (other than the management fee) is subordinate in priority of payment to every other obligation of Funding I and is subject to certain payment restrictions set forth in the Credit Facility. We may receive cash distributions on our equity interests in Funding I only after it has made all required payments of (1) cash interest and, if applicable, principal to the Lenders, (2) administrative expenses and (3) claims of other unsecured creditors of Funding I. The Investment Adviser has irrevocably directed that any management fee owed with respect to such services is to be paid to the Company so long as the Investment Adviser remains the collateral manager.

PENNANTPARK FLOATING RATE CAPITAL LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

DECEMBER 31, 2015

(Unaudited)

11. COMMITMENTS AND CONTINGENCIES

From time to time, we, the Investment Adviser or the Administrator may be a party to legal proceedings in the ordinary course of business, 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 investments, if any, are disclosed in the Consolidated Schedules of Investments. As of December 31, 2015 and September 30, 2015, we had $6.8 million and $4.8 million, respectively, in commitments to fund investments.

Between May 6, 2015, and May 18, 2015, a number of putative class action lawsuits were filed by former stockholders of MCG challenging our acquisition of MCG in the Delaware Court of Chancery. The consolidated complaint alleged that MCG’s directors violated their fiduciary duties by, among other things, not protecting against their supposed conflicts of interest and failing to take steps to maximize the consideration to be received by MCG’s former stockholders in our acquisition of MCG. The consolidated complaint also alleged that the Company and the Investment Adviser aided and abetted the MCG directors’ purported breach of fiduciary duties. We believe that the consolidated complaint is without merit. On July 30, 2015, the parties entered into a memorandum of understanding setting forth an agreement in principle to settle the class action complaint. The parties plan to file a stipulation of settlement with the court, which provides for, among other things, settlement of the class action complaint. There can be no assurance that the settlement will be finalized or that the court will approve the settlement.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

PennantPark Floating Rate Capital Ltd. and its Subsidiaries:

We have reviewed the accompanying consolidated statements of assets and liabilities of PennantPark Floating Rate Capital Ltd. and its Subsidiaries (collectively referred to as the “Company”), including the consolidated schedule of investments, as of December 31, 2015, and the consolidated statements of operations, changes in net assets and cash flows for the three months ended December 31, 2015 and 2014. These consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated statement of assets and liabilities of the Company, including the consolidated schedule of investments, as of September 30, 2015, and the related consolidated statements of operations, changes in net assets, and cash flows for the year then ended (not presented herein); and in our report dated November 12, 2015, we expressed an unqualified opinion on those financial statements.

/s/ RSM US LLP

New York, New York

February 4, 2016

Item 2.

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;

•

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 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 markets;

•

the ability of the 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;

•

the impact of European sovereign debt and other world economic 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.

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 Securities Exchange Act of 1934, as amended, or 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 Floating Rate Capital Ltd. is a BDC whose objectives are to generate current income and capital appreciation by investing primarily in Floating Rate Loans and other investments made to U.S. middle-market companies.

We believe that Floating Rate Loans to U.S. middle-market companies offer attractive risk-reward to investors due to a limited amount of capital available for such companies and the potential for rising interest rates. We use the term “middle-market” to refer to companies with annual revenues between $50 million and $1 billion. Our investments are typically rated below investment grade. 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. However, when compared to junk bonds and other non-investment grade debt, senior secured Floating Rate Loans typically have more robust capital-preserving qualities, such as historically lower default rates than junk bonds, represent the senior source of capital in a borrower’s capital structure and often have certain of the borrower’s assets pledged as collateral. 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.

Under normal market conditions, we generally expect that at least 80% of the value of our Managed Assets will be invested in Floating Rate Loans and other investments bearing a variable-rate of interest. We generally expect that senior secured debt, or first lien loans, will represent at least 65% of our overall portfolio. We also generally expect to invest up to 35% of our overall portfolio opportunistically in other types of investments, including second-lien, high yield, mezzanine and distressed debt securities and, to a lesser extent, equity investments. We seek to create a diversified portfolio by generally targeting an investment size between $2 million and $15 million, on average, although we expect that this investment size will vary proportionately with the size of our capital base.

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 Credit Facility, 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 Floating Rate Capital Ltd.

PennantPark Floating Rate Capital Ltd., a Maryland corporation organized in October 2010, 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 elected to be treated, and intend to qualify annually, as a RIC under the Code.

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 total assets as well as an incentive fee based on our investment performance. 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. 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.

On August 18, 2015, we completed the acquisition of MCG pursuant to the Merger Agreement. As a result of the transactions contemplated by the Merger Agreement, MCG was merged with and into PFLT Panama, LLC with MCG as the surviving corporation, following which MCG was merged with and into PFLT Funding II, LLC with PFLT Funding II, LLC as the surviving company. In accordance with the terms of the Merger Agreement, each outstanding share of MCG common stock (including shares of restricted stock) was converted into the right to receive (i) 0.32044 shares of our common stock (with MCG stockholders receiving cash in lieu of fractional shares of our common stock), and (ii) $0.30595 per share in cash. As a result of the transactions contemplated by the Merger Agreement, we issued an aggregate of approximately 11.8 million shares of our common stock to former MCG stockholders, and our Investment Adviser made an aggregate cash payment of approximately $11.3 million to former MCG stockholders.

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 senior secured debt or mezzanine debt, typically have a term of three to ten years and bear interest at a fixed or floating rate. Interest on debt securities is generally payable quarterly or semiannually. In some cases, some of our investments provide for deferred interest payments or 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 managerial assistance and possibly consulting fees. Loan origination fees, OID and market discount or premium are capitalized, and we accrete or amortize such amounts as income or expense, as applicable, using the effective interest method as interest income. We record prepayment penalties on loans and debt securities 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.

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 Credit Facility. 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 stock exchange listing fees;

•

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

•

federal, state and local 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;

•

costs associated with our reporting and compliance obligations under the 1940 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 December 31, 2015, our portfolio totaled $460.1 million and consisted of $403.2 million of senior secured debt, $47.1 million of second lien secured debt and $9.8 million of subordinated debt, preferred and common equity. Our debt portfolio consisted of 99% variable-rate investments (including 92% with a LIBOR or prime floor) and 1% fixed-rate investments. Overall, the portfolio had net unrealized depreciation of $6.7 million as of December 31, 2015. Our overall portfolio consisted of 83 companies with an average investment size of $5.5 million, had a weighted average yield on debt investments of 8.2%, and was invested 88% in senior secured debt, 10% in second lien secured debt and 2% in subordinated debt, preferred and common equity.

As of September 30, 2015, our portfolio totaled $391.3 million and consisted of $335.0 million of senior secured debt, $47.9 million of second lien secured debt and $8.4 million of subordinated debt, preferred and common equity. Our debt portfolio consisted of 97% variable-rate investments (including 92% with a LIBOR or prime floor) and 3% fixed-rate investments. As of September 30, 2015, we had one company on non-accrual, representing 1.6% and 0.9% of our overall portfolio on a cost and fair value basis, respectively. Overall, the portfolio had net unrealized depreciation of $6.0 million as of September 30, 2015. Our overall portfolio consisted of 76 companies with an average investment size of $5.1 million, had a weighted average yield on debt investments of 7.9%, and was invested 86% in senior secured debt, 12% in second lien secured debt and 2% in subordinated debt, preferred and common equity.

For the three months ended December 31, 2015, we invested $99.2 million in ten new and five existing portfolio companies with a weighted average yield on debt investments of 8.4%. Sales and repayments of investments for the three months ended December 31, 2015 totaled $26.9 million.

For the three months ended December 31, 2014, we invested $47.0 million in eight new and five existing portfolio companies with a weighted average yield on debt investments of 8.5%. Sales and repayments of investments for the three months ended December 31, 2014 totaled $44.9 million.

CRITICAL ACCOUNTING POLICIES

The preparation of our Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of our assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of income and expenses during the reported periods. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements have been included. Actual results could differ from these estimates due to changes in the economic and regulatory environment, financial markets and any other parameters used in determining such estimates and assumptions. We may reclassify certain prior period amounts to conform to the current period presentation. We have eliminated all intercompany balances and transactions. References to the 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.

Valuation of Portfolio Investments

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

Our investments generally consist 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)

(2)

Preliminary valuation conclusions are then documented and discussed with the management of our 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 an investment. The independent valuation firms review management’s preliminary valuations in light of its own independent assessment and also in light of any market quotations obtained from an independent pricing service, broker, dealer or market maker;

(4)

(5)

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

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

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


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.

The carrying value of our consolidated financial liabilities approximates fair value. We adopted 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 Facility. We elected to use the fair value option for our Credit Facility 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 had expenses of $0.9 million and zero, respectively, relating to amendment fees on the Credit Facility during the three months ended December 31, 2015 and 2014. 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 Facility are reported in our Consolidated Statements of Operations. We elected not to apply ASC 825-10 to any other financial assets or liabilities. For the three months ended December 31, 2015 and 2014, our Credit Facility had a net change in unrealized depreciation of $0.6 million and less than $0.1 million, respectively. As of December 31, 2015 and September 30, 2015, the net unrealized depreciation on our Credit Facility totaled $0.6 million and zero, respectively. We use a nationally recognized independent valuation service to measure the fair value of our Credit Facility 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 collectible. 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. 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.

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

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

Payment-in-Kind Interest or PIK

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. For us to maintain our status as a RIC, substantially all of this income must be paid out to stockholders in the form of distributions, even though we have not collected any cash with respect to interest on PIK securities.

Federal Income Taxes

We have elected to be taxed, and intend to qualify annually to maintain our election to be taxed, as a RIC under Subchapter M of the Code. To maintain our RIC tax election, we must, among other requirements, meet certain source-of-income and quarterly asset diversification requirements. We also must annually distribute dividends to our stockholders 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, out of the assets legally available for distribution. 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 to our stockholders in respect of each calendar year of an amount generally at least equal to the sum of (1) 98% of our net ordinary income for the calendar year, (2) 98.2% of the sum of our capital gain net income (i.e., the excess, if any, of capital gains over capital losses) for the one-year period ending on October 31 of the calendar year plus (3) the sum of any net ordinary income plus net capital gain income for preceding years that was not distributed during such years and on which we paid no

federal income tax. In addition, although we may distribute realized net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually, out of the assets legally available for such distributions in the manner described above, we have retained and may continue to retain such net capital gains or investment company taxable income, subject to maintaining our ability to be subject to tax as a RIC, to provide us with additional liquidity.

RESULTS OF OPERATIONS

Set forth below are the results of operations for the three months ended December 31, 2015 and 2014.

Investment Income

Investment income for the three months ended December 31, 2015 was $8.8 million and was attributable to $7.3 million from senior secured debt, $1.4 million from second lien secured debt and $0.1 million from subordinated debt, respectively. Investment income for the three months ended December 31, 2014 was $7.5 million and was attributable to $5.8 million from senior secured debt and $1.7 million from second lien secured debt and subordinated debt. The increase in investment income compared with the same period in the prior year was primarily due to the growth of our portfolio at cost.

Expenses

Expenses for the three months ended December 31, 2015 totaled $3.7 million. Base management fee for the same period totaled $1.1 million, incentive fee totaled zero, Credit Facility expenses totaled $1.8 million (including $0.9 million of Credit Facility amendment expenses) and general and administrative expenses totaled $0.8 million. Expenses for the three months ended December 31, 2014 totaled $2.0 million. Base management fee for the same period totaled $0.9 million, incentive fee totaled $(0.3) million (including $(0.4) million on realized gains and $(0.6) million on unrealized gains accrued but not payable), Credit Facility expenses totaled $0.9 million, general and administrative expenses totaled $0.4 million and excise taxes were $0.1 million. The increase in expenses compared with the same period in the prior year was primarily due to Credit Facility amendment expenses and base management fee as a result from the growth of our portfolio.

Net Investment Income

Net investment income totaled $5.1 million, or $0.19 per share, for the three months ended December 31, 2015, and $5.5 million, or $0.37 per share, for the three months ended December 31, 2014. The decrease in net investment income per share compared to the same period in the prior year was primarily due to the issuance of new shares in connection with our acquisition of MCG in August 2015.

Net Realized Gains or Losses

Sales and repayments of investments for the three months ended December 31, 2015 totaled $26.9 million and realized losses totaled $3.2 million. Sales and repayments of investments totaled $44.9 million and realized losses totaled $0.2 million for the three months ended December 31, 2014. The increase in realized losses compared with the same period in the prior year was primarily due to the changes in market conditions of our investments and the values at which they were realized.

Unrealized Appreciation or Depreciation on Investments and Credit Facility

For the three months ended December 31, 2015 and 2014, we reported net unrealized depreciation on investments of $0.7 million and $4.9 million, respectively. As of December 31, 2015 and September 30, 2015, our net unrealized depreciation on investments totaled $6.7 million and $6.0 million, respectively. The net change in unrealized depreciation on our investments was driven primarily by changes in the capital market conditions, financial performance of certain portfolio companies, and the reversal of unrealized depreciation (appreciation) of investments sold.

For the three months ended December 31, 2015 and 2014, we reported net unrealized depreciation on our Credit Facility of $0.6 million and $0.1 million, respectively. The change compared with the same period in the prior year was primarily due to changes in the capital markets.

Net Change in Net Assets Resulting from Operations

Net change in net assets resulting from operations totaled $1.7 million, or $0.07 per share, for the three months ended December 31, 2015. This compares to a net change in net assets resulting from operations of $0.4 million, or $0.03 per share, for the three months ended December 31, 2014. The increase in the change in net assets from operations compared to the same period in the prior year was primarily due to a net decrease in realized and unrealized losses offset by lower net investment income. We continue to find attractive investment opportunities to grow net assets from operations.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital resources are derived from public offerings, our Credit Facility, 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 Credit Facility, the rotation of our portfolio and proceeds from public and private offerings of securities to finance our investment objectives.

Funding I’s multi-currency Credit Facility with the Lenders was $350 million as of December 31, 2015, subject to satisfaction of certain conditions and the regulatory restrictions that the 1940 Act imposes on us as a BDC, has an interest rate spread above LIBOR of 200 basis points, a maturity date of August 2020 and a revolving period that ends in August 2018. As of December 31, 2015 and September 30, 2015, Funding I had $95.7 million and $29.6 million of outstanding borrowings under the Credit Facility, respectively. The Credit Facility had an interest rate of 2.43% and 2.20%, respectively, excluding undrawn commitment fees as of December 31, 2015 and September 30, 2015. The annualized weighted average cost of debt for the three months ended December 31, 2015 and 2014, inclusive of the fee on the undrawn commitment on the Credit Facility but excluding amendment costs, was 5.95% and 2.47%, respectively. As of December 31, 2015 and September 30, 2015, we had $253.7 million and $260.4 million of unused borrowing capacity under our Credit Facility, respectively, subject to the regulatory restrictions.

The Credit Facility contains covenants, including but not limited to, restrictions of loan size, currency types and amounts, industry requirements, average life of loans, geographic and individual portfolio concentrations, minimum portfolio yield and loan payment frequency. Additionally, the Credit Facility requires the maintenance of a minimum equity investment in Funding I and income ratio as well as restrictions on certain payments and issuance of debt. For instance, we must maintain at least $25 million in equity and must maintain an interest coverage ratio of at least 125%. The Credit Facility compliance reporting is prepared on a basis of accounting other than GAAP. As of December 31, 2015, we were in compliance with the covenants relating to our Credit Facility.

Our interest in Funding I (other than the management fee) is subordinate in priority of payment to every other obligation of Funding I and is subject to certain payment restrictions set forth in the Credit Facility. We may receive cash distributions on our equity interests in Funding I only after it has made (1) all required cash interest and, if applicable, principal payments to the Lenders, (2) required administrative expenses and (3) claims of other unsecured creditors of Funding I. We cannot assure you that there will be sufficient funds available to make any distributions to us or that such distributions will meet our expectations from Funding I. The Investment Adviser has irrevocably directed that the management fee owed with respect to such services is to be paid to the Company so long as the Investment Adviser remains the collateral manager.

We may raise equity or debt capital through both registered offerings and private offerings of securities, securitizing a portion of our investments among other considerations or mergers and acquisitions. Furthermore, our Credit Facility availability depends on various covenants and restrictions as discussed in the preceding paragraphs. 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 purposes.

On December 31, 2015 and September 30, 2015, we had cash equivalents of $14.0 million and $21.4 million, respectively, available for investing and general corporate purposes. We believe our liquidity and capital resources are sufficient to take advantage of market opportunities.

Our operating activities used cash of $66.5 million for the three months ended December 31, 2015, and our financing activities provided cash of $59.1 million for the same period. Our operating activities used cash primarily for our investment activities and our financing activities provided cash primarily from net borrowings under the Credit Facility.

Our operating activities provided cash of $12.2 million for the three months ended December 31, 2014, and our financing activities used cash of $14.9 million for the same period. Our operating activities provided cash primarily from sales and repayments on our investments and our financing activities used cash primarily from net repayments under the Credit Facility.

Contractual Obligations

A summary of our significant contractual payment obligations at cost as of December 31, 2015, including borrowings under our Credit Facility and other contractual obligations, is as follows:


	Payments due by period (millions)
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Credit Facility	$	96.3	$	—	$	—	$	96.3	$	—
Unfunded investments ⁽¹⁾		6.8		—		1.2		5.3		0.3

Total contractual obligations	$	103.1	$	—	$	1.2	$	101.6	$	0.3

⁽¹⁾	Unfunded investments are disclosed in the Consolidated Schedule of Investments.

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 2016, PennantPark Investment Advisers serves as our Investment Adviser. 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 gross assets and (2) an incentive fee based on our performance.

Under our Administration Agreement, which was reapproved by our board of directors, including a majority of our directors who are not interested persons of us, in February 2016, the Administrator furnishes us with office facilities and administrative services necessary to conduct our day-to-day operations. If requested to provide 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.

Off-Balance Sheet Arrangements

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

Distributions

In order to be subject to tax as a RIC 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 to 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, out of the assets legally available for distribution. 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 to our stockholders in respect of each calendar year of an amount generally at least equal to the sum of (1) 98% of our net ordinary income for the calendar year, (2) 98.2% of our capital gain net income (i.e., the excess, if any, of capital gains over capital 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 were not distributed during such years and on which we paid no federal income tax. In addition, although we may distribute realized net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually, out of the assets legally available for such distributions in the manner described above, we have retained and may continue to retain such net capital gains or investment company taxable income, subject to maintaining our ability to be subject to tax as a RIC, to provide us with additional liquidity.

During the three months ended December 31, 2015 and 2014, we declared distributions of $0.285 and $0.270 per share, respectively, for total distributions of $7.6 million and $4.0 million, respectively. 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. Tax characteristics of all distributions will be reported to stockholders on Form 1099-DIV after the end of the calendar year and in our periodic reports filed with the SEC.

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

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 test for borrowings 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 percentage of our income annually, we will suffer adverse tax consequences, including possible loss of RIC status. We cannot assure stockholders that they will receive any distributions at a particular level.

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. A stockholder will be considered to have recognized dividend income equal to the fair market value of the stock paid by us plus cash received with respect to such dividend. We have not elected to distribute stock as a dividend but reserve the right to do so.

Item 3.

Quantitative And Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. As of December 31, 2015, our debt portfolio consisted of 99% variable-rate investments (including 92% with a LIBOR or prime floor) and 1% fixed-rate investments. The variable-rate loans are usually based on a LIBOR 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 existing 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)	Per Share
Up 1%	$ 861	$ 0.03
Up 2%	$ 4,510	$ 0.17
Up 3%	$ 8,159	$ 0.31
Up 4%	$ 11,808	$ 0.44

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. During the periods covered by this Report, we did not engage in interest rate or foreign currency hedging activities.

Item 4.

Controls and Procedures

As of the period covered by this Report, 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 filings with the SEC 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.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

Neither we nor our Investment Adviser nor 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 our Administrator may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies.

A discussion of certain litigation in connection with our acquisition of MCG is incorporated by reference to Part I “Item 3. Legal Proceedings” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015. 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 1A.

Risk Factors

In addition to the other information set forth in this Report, you should consider carefully the factors discussed in Part I “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing PennantPark Floating Rate Capital Ltd. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not Applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

Unless specifically indicated otherwise, the following exhibits are incorporated by reference to exhibits previously filed with the SEC:


3.1		Articles of Amendment and Restatement of the Registrant (Incorporated by reference to the Registrant’s Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-170243), filed on March 29, 2011).

3.2		Amended and Restated Bylaws of the Registrant (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 814-00891), filed on December 2, 2015).

4.1		Form of Share Certificate (Incorporated by reference to the Registrant’s Pre-Effective Amendment No. 5 to the Registration Statement on Form N-2 (File No. 333-170243), filed on April 5, 2011).

10.1*		Second Amended and Restated Investment Advisory Management Agreement, dated as of February 2, 2016, between the Registrant and PennantPark Investment Advisers, LLC.

11		Computation of Per Share Earnings (included in the notes to the Consolidated Financial Statements contained in this Report).

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 the Registrant’s Annual Report on Form 10-K (File No. 814-00891), filed on November 17, 2011).

*	Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.


	PENNANTPARK FLOATING RATE CAPITAL LTD.

Date: February 4, 2016	By:	/s/ Arthur H. Penn
		Arthur H. Penn
		Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)

Date: February 4, 2016	By:	/s/ Aviv Efrat
		Aviv Efrat
		Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

EX-10.1

Exhibit 10.1

SECOND AMENDED AND RESTATED

INVESTMENT ADVISORY MANAGEMENT AGREEMENT

BETWEEN

PENNANTPARK FLOATING RATE CAPITAL LTD.

AND

PENNANTPARK INVESTMENT ADVISERS, LLC

SECOND AMENDED AND RESTATED AGREEMENT (this “Agreement”) made this 2nd day of February 2016, by and between PENNANTPARK FLOATING RATE CAPITAL LTD., a Maryland corporation (the “Corporation”), and PENNANTPARK INVESTMENT ADVISERS, LLC, a Delaware limited liability company (the “Adviser”).

WHEREAS, the Corporation operates as a closed-end management investment company;

WHEREAS, the Corporation has filed an election to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”);

WHEREAS, the Corporation and the Adviser are parties to that certain investment advisory management agreement dated April 7, 2011, as amended and restated on August 7, 2012, by and between the Corporation and the Adviser (the “Prior Agreement”);

WHEREAS, the Corporation and the Adviser desire to amend and restate the Prior Agreement to set forth the terms and conditions for the continued provision by the Adviser of investment advisory services to the Corporation; and

WHEREAS, the Corporation’s board of directors has determined that such amendment and restatement clarifies the intent of the Prior Agreement in a manner that is consistent with the Corporation’s public disclosures and is not detrimental to the Corporation.

NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the parties hereby agree as follows:

1. Duties of the Adviser.

(a) The Corporation hereby employs the Adviser to act as the investment adviser to the Corporation and to manage the investment and reinvestment of the assets of the Corporation, subject to the supervision of the Board of Directors of the Corporation, for the period and upon the terms herein set forth, (i) in accordance with the investment objective, policies and restrictions that are set forth in the Corporation’s registration statement, as the same may be amended from time to time, (ii) in accordance with the 1940 Act and (iii) during the term of this Agreement in accordance with all other applicable federal and state laws, rules and regulations, and the Corporation’s charter and by-laws. Without limiting the generality of the foregoing, the Adviser shall, during the term and subject to the provisions of this Agreement, (i) determine the composition of the portfolio of the Corporation, the nature and timing of the changes therein and the manner of implementing such changes; (ii) identify, evaluate and negotiate the structure of the investments made by the Corporation; (iii) close and monitor the Corporation’s investments; determine the securities and other assets that the Corporation will purchase, retain, or sell; perform due diligence on prospective portfolio companies; and (vi) provide the Corporation with such other investment advisory, research and related services as the Corporation may, from time to time, reasonably require for the investment of its funds. The Adviser shall have the power and authority on behalf of the Corporation to effectuate its investment decisions for the Corporation, including the execution and delivery of all documents relating to the Corporation’s investments and the placing of orders for other purchase or sale transactions on behalf of the Corporation. In the event that the Corporation determines to acquire debt financing, the Adviser will arrange for such financing on the Corporation’s behalf, subject to the oversight and approval of the Corporation’s Board of Directors. If it is necessary for the Adviser to make investments on behalf of the Corporation through a special purpose vehicle, the Adviser shall have authority to create or arrange for the creation of such special purpose vehicle and to make such investments through such special purpose vehicle in accordance with the 1940 Act.

(b) The Adviser hereby accepts such employment and agrees during the term hereof to render the services described herein for the compensation provided herein.

(c) Subject to the requirements of the 1940 Act, the Adviser is hereby authorized to enter into one or more sub-advisory agreements with other investment advisers (each, a “Sub-Adviser”) pursuant to which the Adviser may obtain the services of the Sub-Adviser(s) to assist the Adviser in fulfilling its responsibilities hereunder. Specifically, the Adviser may retain a Sub-Adviser to recommend specific securities or other investments based upon the Corporation’s investment objective and policies, and work, along with the Adviser, in structuring, negotiating, arranging or effecting the acquisition or disposition of such investments and monitoring investments on behalf of the Corporation, subject to the oversight of the Adviser and the Corporation. The Adviser, and not the Corporation, shall be responsible for any compensation payable to any Sub-Adviser. Any sub-advisory agreement entered into by the Adviser shall be in accordance with the requirements of the 1940 Act and other applicable federal and state law.

(d) The Adviser shall for all purposes herein provided be deemed to be an independent contractor and, except as expressly provided or authorized herein, shall have no authority to act for or represent the Corporation in any way or otherwise be deemed an agent of the Corporation.

(e) The Adviser shall keep and preserve, in the manner and for the period that would be applicable to investment companies registered under the 1940 Act any books and records relevant to the provision of its investment advisory services to the Corporation and shall specifically maintain all books and records with respect to the Corporation’s portfolio transactions and shall render to the Corporation’s Board of Directors such periodic and special reports as the Board may reasonably request. The Adviser agrees that all records that it maintains for the Corporation are the property of the Corporation and will surrender promptly to the Corporation any such records upon the Corporation’s request, provided that the Adviser may retain a copy of such records.

2. Corporation’s Responsibilities and Expenses Payable by the Corporation. All investment professionals of the Adviser and their respective staffs, when and to the extent engaged in providing investment advisory and management services hereunder, and the compensation and routine overhead expenses of such personnel allocable to such services, will be provided and paid for by the Adviser and not by the Corporation. The Corporation will bear all other costs and expenses of its operations and transactions, including (without limitation) those relating to: organization and offering; calculating the Corporation’s net asset value (including the cost and expenses of any independent valuation firm); expenses incurred by the Adviser payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for the Corporation and in monitoring the Corporation’s investments and performing due diligence (including related legal expenses) on its prospective portfolio companies; interest payable on debt, if any, incurred to finance the Corporation’s investments and expenses related to unsuccessful portfolio acquisition efforts; offerings of the Corporation’s common stock and other securities; investment advisory and management fees; administration fees payable under the Administration Agreement (the “Administration Agreement”) between the Corporation and PennantPark Investment Administration, LLC (the “Administrator”), the Corporation’s administrator; fees payable to third parties, including agents, consultants or other advisors, relating to, or associated with, evaluating and making investments, including costs associated with meeting potential financial sponsors; transfer agent and custodial fees; federal and state registration fees; all costs of registration and listing the Corporation’s shares on any securities exchange; federal, state and local taxes; independent directors’ fees and expenses; costs of preparing and filing reports or other documents required by the Securities and Exchange Commission; costs of any reports, proxy statements or other notices to stockholders, including printing costs; costs associated with individual or group stockholders; the Corporation’s allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; direct costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs; and all other expenses incurred by the Corporation or the Administrator in connection with administering the Corporation’s business, including payments under the Administration Agreement between the Corporation and the Administrator based upon the Corporation’s allocable portion of the Administrator’s overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of the Corporation’s chief compliance officer and chief financial officer and their respective staffs.

3. Compensation of the Adviser. The Corporation agrees to pay, and the Adviser agrees to accept, as compensation for the services provided by the Adviser hereunder, a base management fee (“Base Management Fee”) and an incentive fee (“Incentive Fee”) as hereinafter set forth. The Corporation shall make any payments due hereunder to the Adviser or to the Adviser’s designee as the Adviser may otherwise direct. To the extent permitted by applicable law, the Adviser may elect, or adopt a deferred compensation plan pursuant to which it may elect, to defer all or a portion of its fees hereunder for a specified period of time.

(a) The Base Management Fee shall be calculated at an annual rate of 1.00% of the Corporation’s “average adjusted gross assets,” which equals the Corporation’s gross assets (net 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 adjusted to exclude cash, cash equivalents and unfunded commitments, if any). For services rendered under this Agreement, the Base Management Fee will be payable quarterly in arrears. The Base Management Fee will be 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. Base Management Fees for any partial month or quarter will be appropriately pro-rated.

(b) The Incentive Fee shall consist of two parts, as follows:

(i)

One part will be calculated and payable quarterly in arrears based on the Corporation’s 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, structuring, prepayment penalties, diligence and consulting fees or other fees that the Corporation receives from portfolio companies, accrued during the calendar quarter, minus the Corporation’s 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 original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income that the Corporation has 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 the Corporation’s net assets at the end of the immediately preceding calendar quarter, will be compared to a “hurdle rate” of 1.75% per quarter (7.00% annualized). The Corporation’s net investment income used to calculate this part of the Incentive Fee is also included in the amount of its gross assets used to calculate the 1.00% Base Management Fee. The Corporation will pay the Adviser an Incentive Fee with respect to the Corporation’s pre-Incentive Fee net investment income in each calendar quarter as follows: (1) no Incentive Fee in any calendar quarter in which the Corporation’s pre-Incentive Fee net investment income does not exceed the hurdle rate of 1.75%; (2) 50% of the Corporation’s 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 2.9167% in any calendar quarter (11.67% annualized) (this portion of the pre-Incentive Fee net investment income (which exceeds the hurdle but is less than 2.9167%) is referred to herein as the “catch-up,” which is meant to provide the Adviser with 20% of the Corporation’s pre-Incentive Fee net investment income, as if a hurdle did not apply, if this net investment income exceeds 2.9167% in any calendar quarter); and (3) 20% of the amount of the Corporation’s pre-Incentive Fee net investment income, if any, that exceeds 2.9167% in any calendar quarter. These calculations will be appropriately pro-rated for any period of less than three months and adjusted for any share issuances or repurchases during the relevant quarter.

(ii)

The second part of the Incentive Fee (the “Capital Gains Fee”) will be determined and payable in arrears as of the end of each calendar year (or upon termination of this Agreement as set forth below), commencing with December 31, 2011, and will equal 20.0% of the Corporation’s 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 Gains Fees. In the event that this Agreement shall terminate as of a date that is not a calendar year end, the termination date shall be treated as though it were a calendar year end for purposes of calculating and paying a Capital Gains Fee.

4. Covenants of the Adviser. The Adviser covenants that it is registered as an investment adviser under the Advisers Act. The Adviser agrees that its activities will at all times be in compliance in all material respects with all applicable federal and state laws governing its operations and investments.

5. Excess Brokerage Commissions. The Adviser is hereby authorized, to the fullest extent now or hereafter permitted by law, to cause the Corporation to pay a member of a national securities exchange, broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another member of such exchange, broker or dealer would have charged for effecting that transaction, if the Adviser determines in good faith, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities, that such amount of commission is reasonable in relation to the value of the brokerage and/or research services provided by such member, broker or dealer, viewed in terms of either that particular transaction or its overall responsibilities with respect to the Corporation’s portfolio, and constitutes the best net results for the Corporation.

6. Limitations on the Employment of the Adviser. The services of the Adviser to the Corporation are not exclusive, and the Adviser may engage in any other business or render similar or different services to others including, without limitation, the direct or indirect sponsorship or management of other investment based accounts or commingled pools of capital, however structured, having investment objectives similar to those of the Corporation, so long as its services to the Corporation hereunder are not impaired thereby, and nothing in this Agreement shall limit or restrict the right of any manager, partner, officer or employee of the Adviser to engage in any other business or to devote his or her time and attention in part to any other business, whether of a similar or dissimilar nature, or to receive any fees or compensation in connection therewith (including fees for serving as a director of, or providing consulting services to, one or more of the Corporation’s portfolio companies, subject to applicable law). So long as this Agreement or any extension, renewal or amendment remains in effect, the Adviser shall be the only investment adviser for the Corporation, subject to the Adviser’s right to enter into sub-advisory agreements. The Adviser assumes no responsibility under this Agreement other than to render the services called for hereunder. It is understood that directors, officers, employees and stockholders of the Corporation are or may become interested in the Adviser and its affiliates, as directors, officers, employees, partners, stockholders, members, managers or otherwise, and that the Adviser and directors, officers, employees, partners, stockholders, members and managers of the Adviser and its affiliates are or may become similarly interested in the Corporation as stockholders or otherwise.

7. Responsibility of Dual Directors, Officers and/or Employees. If any person who is a manager, partner, officer or employee of the Adviser or the Administrator is or becomes a director, officer and/or employee of the Corporation and acts as such in any business of the Corporation, then such manager, partner, officer and/or employee of the Adviser or the Administrator shall be deemed to be acting in such capacity solely for the Corporation, and not as a manager, partner, officer or employee of the Adviser or the Administrator or under the control or direction of the Adviser or the Administrator, even if paid by the Adviser or the Administrator.

8. Limitation of Liability of the Adviser; Indemnification. The Adviser (and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with the Adviser, including without limitation its general partner and the Administrator) shall not be liable to the Corporation for any action taken or omitted to be taken by the Adviser in connection with the performance of any of its duties or obligations under this Agreement or otherwise as an investment adviser of the Corporation, except to the extent specified in Section 36(b) of the 1940 Act concerning loss resulting from a breach of fiduciary duty (as the same is finally determined by judicial proceedings) with respect to the receipt of compensation for services, and the Corporation shall indemnify, defend and protect the Adviser (and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with the Adviser, including without limitation its general partner and the Administrator, each of whom shall be deemed a third party beneficiary hereof, collectively, the “Indemnified Parties”) and hold them harmless from and against all damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) incurred by the Indemnified Parties in or by reason of any pending, threatened or completed action, suit, investigation or other proceeding (including an action or suit by or in the right of the Corporation or its security holders) arising out of or otherwise based upon the performance of any of the Adviser’s duties or obligations under this Agreement or otherwise as an investment

adviser of the Corporation. Notwithstanding the preceding sentence of this Paragraph 8 to the contrary, nothing contained herein shall protect or be deemed to protect the Indemnified Parties against or entitle or be deemed to entitle the Indemnified Parties to indemnification in respect of, any liability to the Corporation or its security holders to which the Indemnified Parties would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of the Adviser’s duties or by reason of the reckless disregard of the Adviser’s duties and obligations under this Agreement (as the same shall be determined in accordance with the 1940 Act and any interpretations or guidance by the Securities and Exchange Commission or its staff thereunder).

9. Effectiveness, Duration and Termination of Agreement. This Agreement shall become effective as of the first date above written. This Agreement shall continue automatically for successive annual periods, provided that such continuance is specifically approved at least annually by (a) the vote of the Corporation’s Board of Directors, or by the vote of a majority of the outstanding voting securities of the Corporation and (b) the vote of a majority of the Corporation’s directors who are not parties to this Agreement or “interested persons” (as such term is defined in Section 2(a)(19) of the 1940 Act) of any such party, in accordance with the requirements of the 1940 Act. This Agreement may be terminated at any time, without the payment of any penalty, upon 60 days’ written notice, by the vote of a majority of the outstanding voting securities of the Corporation, or by the vote of the Corporation’s Directors or by the Adviser. This Agreement will automatically terminate in the event of its “assignment” (as such term is defined for purposes of Section 15(a)(4) of the 1940 Act). The provisions of Paragraph 8 of this Agreement shall remain in full force and effect, and the Adviser shall remain entitled to the benefits thereof, notwithstanding any termination of this Agreement. Further, notwithstanding the termination or expiration of this Agreement as aforesaid, the Adviser shall be entitled to any amounts owed under Section 3 through the date of termination or expiration and Section 8 shall continue in force and effect and apply to the Adviser and its representatives as and to the extent applicable.

10. Notices. Any notice under this Agreement shall be given in writing, addressed and delivered or mailed, postage prepaid, to the other party at its principal office.

11. Amendments. This Agreement may be amended by mutual consent, but the consent of the Corporation must be obtained in conformity with the requirements of the 1940 Act.

12. Entire Agreement; Governing Law. This Agreement contains the entire agreement of the parties and supersedes all prior agreements, understandings and arrangements with respect to the subject matter hereof. This Agreement shall be construed in accordance with the laws of the State of New York and the applicable provisions of the 1940 Act. To the extent the applicable laws of the State of New York, or any of the provisions herein, conflict with the provisions of the 1940 Act, the latter shall control.

[The remainder of this page intentionally left blank]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the date above written.


PENNANTPARK FLOATING RATE CAPITAL LTD.

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

PENNANTPARK INVESTMENT ADVISERS, LLC

By:		/s/ Arthur Penn
Name:		Arthur Penn
Title:		Managing Member

EX-31.1

CERTIFICATION PURSUANT TO SECTION 302

CHIEF EXECUTIVE OFFICER CERTIFICATION

EXHIBIT 31.1

I, Arthur H. Penn, Chief Executive Officer of PennantPark Floating Rate Capital Ltd., certify that:

1. I have reviewed this Report on Form 10-Q of PennantPark Floating Rate Capital Ltd.;

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 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.

Dated: February 4, 2016


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

EX-31.2

CERTIFICATION PURSUANT TO SECTION 302

CHIEF FINANCIAL OFFICER CERTIFICATION

EXHIBIT 31.2

I, Aviv Efrat, Chief Financial Officer of PennantPark Floating Rate Capital Ltd., certify that:

1. I have reviewed this Report on Form 10-Q of PennantPark Floating Rate Capital Ltd.;

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.

Dated: February 4, 2016


/s/ Aviv Efrat
Name:		Aviv Efrat
Title:		Chief Financial Officer

EX-32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)

EXHIBIT 32.1

In connection with this Report on Form 10-Q for the three months ended December 31, 2015, or the Report, of PennantPark Floating Rate Capital Ltd., or the Registrant, as filed with the Securities and Exchange Commission on the date hereof, I, Arthur H. Penn, 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, as amended; 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:		February 4, 2016

EX-32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)

EXHIBIT 32.2

In connection with this Report on Form 10-Q for the three months ended December 31, 2015, or the Report, of PennantPark Floating Rate Capital Ltd., or the Registrant, as filed with the Securities and Exchange Commission on the date hereof, I, Aviv Efrat, 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, as amended; 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/ Aviv Efrat
Name:		Aviv Efrat
Title:		Chief Financial Officer
Date:		February 4, 2016

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