What happened?
PennantPark Investment
(PNNT 0.96%) just reported fourth-quarter earnings, kicking off a busy February of earnings reports for business development companies. In a sign that the quarter didn't exactly knock out the lights, the company announced it would waive part of the fees it pays its external manager.

Does it matter?
As one of the first to report, and one of the BDCs with the highest energy exposure, it's somewhat of a bellwether for the oil-heavy companies in its industry.

The company reported earning net investment income of $16.8 million for the fourth quarter, or $0.23 per share, benefiting from fee waivers, which added up to $0.02 per share. Including capital gains and losses in the portfolio, PennantPark Investment reported a net loss of $40.8 million, or $0.56 per share.


Per share impact

Net investment income


Net capital gains or losses


Net income


Impact of share repurchases


Source: company filings.

Notably, PennantPark's fourth quarter net investment income of $0.23 per share failed to cover its $0.28 quarterly dividend.

If there is one bright spot, it's that fee waiver is fairly generous, given that PennantPark's fees are charged based on the "fair value" of its portfolio, but the waiver was sized based on the much-higher "cost" of its energy investments.

PennantPark notes that energy companies made up about 16% of its investments at cost. In its industry tables, the company discloses that energy and utilities and oil and gas firms make up roughly 10% of its investments at fair value. Importantly, though, it stopped short of completely realigning its fee structure so that shareholders don't pay incentive fees when total returns are negative.

Investors should tune in closely to the company's conference call. Given the sizable gap between net investment income and the company's dividend, high balance sheet leverage, and a growing pile of unrealized losses, it's only a matter of time before the company cuts its dividend.