Nicholas Marshi submits:

We reviewed and commented on PennantPark’s (PNNT) earnings report a few days ago (see our prior article/blog). Since then we’ve burrowed deeper by reviewing both the 10-Q for the quarter ended December 31 2009 and listened to the conference call. We’re still positive on PNNT’s short term prospects after that homework. In fact, we bought more PNNT last week. Nonetheless, there are a number of serious issues with this company that need airing, and that both current and prospective shareholders should take into account:

Management Fees: There was nothing new about the level of fees in the 10-Q but it bears mentioning that the company is charged full freight by its Investment Adviser. First there is the Base Management Fee: 2% of gross assets. Then there’s the Incentive Fee, which essentially amounts to 20% of the company’s Net Investment Income as long as PNNT meets a pre-determined hurdle rate. PNNT’s earnings have been above the hurdle, so it’s been receiving the Incentive through the recession. Anyway, these two fees amounted to $2.5mn and $1.8mn respectively for a total of $4.3mn.

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