Pennantpark Investment (PNNT) risk factors, 2025 10-K

RISKS RELATING TO OUR BUSINESS AND STRUCTURE

1. 01We are subject to various covenants under our Truist Credit Facility which, if not complied with, could result in reduced availability and/or mandatory prepayments under our Truist Credit Facility
2. 02A requirement that our outstanding borrowings under the Truist Credit Facility not exceed a certain percentage of the value of our portfolio
3. 03We operate in a highly competitive market for investment opportunities
4. 04Our borrowers may default on their payments, which may have a materially negative effect on our financial performance
5. 05Any unrealized losses we experience on our investment portfolio may be an indication of future realized losses, which could reduce our income available for distribution
6. 06We are dependent upon our Investment Adviser’s key personnel for our future success, and if our Investment Adviser is unable to hire and retain qualified personnel or if our Investment Adviser loses any member of its management team, our ability to achieve our investment objectives could be significantly harmed
7. 07We are exposed to risks associated with changes in interest rates that may affect our cost of capital and net investment income
8. 08Our financial condition and results of operation depend on our ability to manage future growth effectively
9. 09We are highly dependent on information systems and systems failures could have a material adverse effect on our business, financial condition and results of operations
10. 10financial condition and result of operations accurately and on a timely basis could be adversely affectnew
11. 11We may not replicate the historical performance of other investment companies and funds with which our senior and other investment professionals have been or are affiliated
12. 12Any failure on our part to maintain our status as a BDC would reduce our operating flexibility
13. 13Loss of RIC tax status would substantially reduce our net assets and income available for debt service and distributions
14. 14We may have difficulty paying our Annual Distribution Requirement if we recognize income before or without receiving cash representing such income
15. 15Legislation enacted in 2018 allows us to incur additional leverage
16. 16Because we intend to distribute substantially all of our income to our stockholders to maintain our ability to be subject to tax as a RIC, we may need to raise additional capital to finance our growth. If funds are not available to us, we may need to curtail new investments, and our common stock value could decline
17. 17Regulations governing our operation as a BDC will affect our ability to, and the way in which we raise additional capital
18. 18We currently use borrowed funds to make investments and are exposed to the typical risks associated with leverage
19. 19If we incur additional debt, it could increase the risk of investing in our shares47% rewritten
20. 20As of September 30, 2025 and 2024, our asset coverage ratio, as computed in accordance with the 1940 Act, was 163% and 164%, respectivelynew
21. 21The assumed portfolio return is required by regulation of the SEC and is not a prediction of, and does not represent, our projected or actual performance
22. 22We may in the future determine to fund a portion of our investments with preferred stock, which is another form of leverage and would magnify the potential for loss and the risks of investing in us
23. 23We may in the future determine to fund a portion of our investments with debt securities, which would magnify the potential for loss and the risks of investing in us
24. 24Our credit ratings may not reflect all risks of an investment in our debt securities
25. 25A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us, our 2026 Notes or our 2026 Notes-2, if any, or change in the debt markets could cause the liquidity or market value of our 2026 Notes or our 2026 Notes-2 to decline significantly
26. 26Market conditions may make it difficult to extend the maturity of or refinance our existing indebtedness and any failure to do so could have a material adverse effect on our business
27. 27There are significant potential conflicts of interest which could impact our investment returns37% rewritten
28. 28We may experience fluctuations in our quarterly results
29. 29Holders of any preferred stock that we may issue will have the right to elect members of the board of directors and have class voting rights on certain matters
30. 30If we issue preferred stock, debt securities or convertible debt securities, the NAV and market value of our common stock may become more volatile
31. 31The trading market or market value of any publicly issued debt or convertible debt securities may be volatile
32. 32market rates of interest higher or lower than rates borne by the debt securities
33. 33Terms relating to debt redemption may have a material adverse effect on the return on any debt securities
34. 34If we issue subscription rights or warrants for our common stock, your interest in us may be diluted as a result of such rights or warrants offering
35. 35Changes in laws or regulations governing our operations or those of our portfolio companies may adversely affect our business
36. 36Our board of directors may change our investment objectives, operating policies and strategies without prior notice or stockholder approval
37. 37Our business and operations could be negatively affected if we become subject to stockholder activism, which could cause us to incur significant expense, hinder the execution of our investment strategy or impact our stock price

RISKS RELATING TO THE ILLIQUID NATURE OF OUR PORTFOLIO ASSETS

1. 38We invest in illiquid assets, and our valuation procedures with respect to such assets may result in recording values that are materially different than the values we ultimately receive upon disposition of such assets
2. 39The lack of liquidity in our investments may adversely affect our business
3. 40A general disruption in the credit markets could materially damage our business
4. 41We may invest in over-the-counter securities, which have and may continue to face liquidity constraints, to provide us with liquidity

RISKS RELATING TO OUR INVESTMENTS

1. 42We intend to invest primarily in first lien secured debt, second lien secured debt, subordinated debt and selected equity investments issued by U.S. and foreign middle-market companies35% rewritten
2. 43through a taxable subsidiary for federal income tax purposes. Upon sale or exit of such investment, we may pay taxes at regular corporate tax rates, which will reduce the amount of gains or dividends available for distributions to our stockholdersnew
3. 44Under the 1940 Act, we may invest up to 30% of our assets in investments that are not qualifying assets for BDCs. If we do not invest a sufficient portion of our assets in qualifying assets, we could be precluded from investing in assets that we deem to be attractive
4. 45We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we generally are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer
5. 46Economic recessions or downturns could impair our portfolio companies and harm our operating results
6. 47If we fail to make follow-on investments in our portfolio companies, this could materially impair the value of our portfolio
7. 48attempt to preserve or enhance the value of our investment
8. 49Because we generally do not hold controlling equity interests in our portfolio companies, we are not in a position to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments
9. 50Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies and our portfolio companies may be highly leveraged
10. 51Our incentive fee may induce the Investment Adviser to make speculative investments
11. 52Any investments in distressed debt may not produce income and may require us to bear large expenses in order to protect and recover our investment
12. 53Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments
13. 54We may make investments that cause our stockholders to bear investment advisory fees and other expenses on such investments in addition to our management fees and expenses
14. 55We may be obligated to pay our Investment Adviser incentive compensation even if we incur a loss
15. 56We may invest in derivatives or other assets that expose us to certain risks, including market risk, liquidity risk, counterparty risk, operational and legal risk and other risks similar to those associated with the use of leverage

RISKS RELATING TO AN INVESTMENT IN OUR COMMON STOCK

1. 57There is a risk that our stockholders may not receive distributions or that our distributions may not grow over time
2. 58Investing in our shares may involve an above average degree of risk
3. 59Sales of substantial amounts of our securities may have an adverse effect on the market price of our securities
4. 60We may allocate the net proceeds from any offering of our securities in ways with which you may not agree
5. 61Our shares may trade at discounts from NAV or at premiums that are unsustainable over the long term31% rewritten
6. 62The market price of our common stock may fluctuate significantly
7. 63loss of a major funding source
8. 64We may be unable to invest the net proceeds raised from offerings on acceptable terms, which would harm our financial condition and operating results
9. 65You may have current tax liabilities on distributions you reinvest in our common stock
10. 66There is a risk that our common stockholders may receive our stock as distributions in which case they may be required to pay taxes in excess of the cash they receive
11. 67Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock

RISKS RELATING TO AN INVESTMENT IN OUR DEBT SECURITIES

1. 68The 2026 Notes and the 2026 Notes-2 are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future
2. 69The 2026 Notes and the 2026-2 Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries
3. 70The indenture under which each of the 2026 Notes and the 2026-2 Notes were issued contains limited protection for their respective holders
4. 71In addition, the indenture will not require us to offer to purchase the Notes in connection with a change of control or any other event
5. 72The optional redemption provision may materially adversely affect your return on the 2026 Notes and the 2026 Notes-2
6. 73There is no active trading market for the Notes. If an active trading market does not develop for the Notes, you may not be able to sell them
7. 74If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the 2026 Notes or the 2026 Notes-2
8. 75FATCA withholding may apply to payments to certain foreign entities
9. 76Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies
10. 77Volatility or a prolonged disruption in the credit markets could materially damage our business
11. 78Any public health emergency, any outbreak of existing or new diseases, and the resulting financial and economic market uncertainty could have a significant adverse impact on us
12. 79Economic sanction laws in the United States and other jurisdictions may prohibit us and our affiliates from transacting with certain countries, individuals and companies
13. 80Failure or alleged failure to comply with applicable data protection and privacy laws and regulations could subject us to ongoing costs and, in some cases, fines and reputational harm
14. 81We may be the target of litigation
15. 82The effect of global climate change may impact the operations of our portfolio companies
16. 83Legislative or regulatory tax changes could adversely affect investors
17. 84Changes to U.S. tariff and import/export regulations may have a negative effect on our portfolio companiesnew
18. 85We are subject to risks associated with cybersecurity and cyber incidents80% rewritten
19. 86We are subject to risks related to artificial intelligencenew