PennantPark Investment Corporation

PNNT – NASDAQ
Hold
Specialty Finance

February 4, 2010
From To
Changes (Previous) (Current)
Solid Quarter - Portfolio Churn in 2010; SBIC Provides Growth
Rating -- Hold in 2011
FY10E EPS $1.17 $1.25
(Net) Troy Ward (314) 342-2714 [email protected]
FY11E EPS -- $1.30
(Net) Greg Mason, CFA (314) 342-2194 [email protected]
Stock Data Jonathan Bock, CFA (314) 342-2918 [email protected]
Price (02/04/10): $8.88 Company Update
52-Week Range: $10 – $2
Market Cap.(mm): $227.3
FY 1Q10 Quarter Summary – PNNT announced earnings for its FY1Q
Shr.O/S-Diluted (mm): 25.6
(ended Dec) of $0.28 per share which was in line with our expectations and
Avg Daily Vol (3 Mo): 181,226
a penny ahead of consensus. Stated Book Value was virtually flat at $11.86
Dividend: $1.05
up from $11.85; however, we believe a more appropriate measure is
Yield (%): 11.8%
adjusted book value (which values the credit facility at cost similar to the
NAV ($): 11.86
rest of the BDCs), which increased to $10.17 from $9.89. Credit Quality
S&P Index: 1,063.11
Dividend is 2010 estimate.
remained stable with no loans on non-accrual status; however, this statistic
is a bit misleading as there have been several troubled investments but are
EPS (Net) 2009A 2010E 2011E not on non-accrual because PNNT sold them at substantial losses in 2009.
1Q $0.27A $0.28A $0.32 In 2009 PNNT had net realized losses of $55 million or ~$2.45 per share.
2Q 0.25A 0.30 0.31 Currently non-accruals total 0% of the debt portfolio and adjusting for the
3Q 0.27A 0.32 0.33 realized debt losses 2009, non-accruals would have been 10% which is still
4Q 0.28A 0.34 0.34 above the BDC average of 16%. Portfolio originations were $50 million in
FY Sep $1.07A $1.25 $1.30 the December quarter and PNNT had total originations of $170 million in
P/E 8.3x 7.1x 6.8x 2009 growing the portfolio by 50%. Liquidity to fund 2010 originations will
EPS estimates are Net Operating Income (NOI)
come from $40 million of available debt capacity and portfolio churn of
$150 million (which we estimate a 5% yield pick-up on new assets).
Revenue (Net) $45.1M $60.1M $75.6M Earnings Estimates are increasing slightly based on higher origination
1 Year Price History for PNNT activity to $1.25, up from $1.17. We are establishing a FY2012 estimate of
10
$1.30. (Continued on page 2)
8
6
4
2
Investment Thesis: While we are currently maintaining our Hold rating on
Q1 Q2 Q3 Q1
0 PNNT, we believe the outlook for PNNT has improved as credit quality
2009 2010
appears stable and updated commentary on the SBIC is very encouraging.
We believe the near-term keys to the PNNT story is its ability to recycle
Created by BlueMatrix capital into higher yielding investments and securing an SBIC license.
(Continued on page 2)

All relevant disclosures and certifications appear on pages 7 - 8 of this report. Page 1
PennantPark Investment Corporation (PNNT) February 4, 2010

Investment Thesis (continued): PNNT currently trades at an earnings yield of 14.0% based on our FY2010 earnings,
which is slightly above the 12.7% average earnings yield for the BDC peer group. On a price to book basis adjusting
book value for the credit facility at cost (to make an appropriate comparison with the rest of the BDCs) which is $10.17,
PNNT is trading at 0.87x versus 0.85x for its BDC peers.

Portfolio churn and increased borrowings will be the likely drivers of earnings growth in 2010. As management
awaits additional leverage via the SBIC program (mid-2011), we believe PNNT will likely churn its portfolio and utilize
~$40 million of remaining capacity on its SunTrust facility to fund new investments. We estimate PNNT can practically
use $280 million of the $300 million capacity in the facility). In total we estimate, PNNT could originate up to $190
million of investments by drawing from both sources and, as a result, this could add $0.06 - $0.09 a quarter to PNNT's
NOI/share. Figure 1 groups the various funding segments by order of attractiveness and lists their estimated impact to
NOI should PNNT fully redeploy the proceeds.

Figure 1 – New Investment Funding Sources

Annual Quarterly
Funding Funding Amount Cost Expected Estimated Increase Increase
Bucket Vehcile Available of Capital IRRs Spread to NOI/Share to NOI/Share
Bucket I Remaining Facility Capacity $40,000 1.50% 12.0% 10.5% 0.10 0.03
Bucket II Assets w/ 2.5 - 7% opportunity cost $53,489 5.68% 12.0% 6.3% 0.13 0.03
Bucket III Assets w/ 7 - 10% opportunity cost $99,914 7.65% 12.0% 4.4% 0.11 0.03
Total $193,402 6.2% 0.34 0.09

Source: Company Reports, Stifel Nicolaus Estimates

Bucket I - Existing Debt Capacity

PNNT has $240 million outstanding on its $300 million Suntrust facility currently priced at L+100 bps—leaving $60
million of available capital. We assume PNNT will use roughly $40 million to fund new investments with the remainder
being used for working capital purposes. As PNNT fully deploys this capital into new investments we estimate it would
add approximately $0.03 to NOI each quarter.

Buckets II and III – Portfolio Churn

To fund new originations we believe PNNT will liquidate lower yielding assets and reinvest the proceeds into new
investments with significantly higher yield. We looked at what we believe to be PNNTs more liquid portfolio names and
included only those investments with a fair value above 90% of par as eligible candidates to liquidate. We then sorted
these investments by PNNT's yield to maturity which is its opportunity cost for liquidating and ranked them from low to
high yields. See Figure 2.

Figure 2 – Estimated Asset Sales To Fund New Investments

PNNTs
Stated Opportunity % of FV vs.
Portfolio Company Investment Industry Coupon Cost Maturity FV Par Cost
Bucket II Investments with 2.5% - 7.0% Opportunity Cost
National Bedding First Lien Home and Office Furnishings L+200 2.53% 2/28/2013 6,207,194 91% -9%
Rexnord First Lien Manufacturing/Basic Industry L+225 2.66% 7/19/2013 2,698,628 94% -6%
Hughes Network Systems First Lien Telecommunications L+250 3.06% 4/15/2014 4,587,500 92% -8%
Performance Second Lien Leisure, Amusement, Motion L+575 6.51% 7/2/2013 8,115,625 93% -7%
Sheridan Holdings Second Lien Healthcare, Education L+575 6.52% 6/15/2015 19,694,000 92% 4%
Brand Energy Second Lien Energy/Utilities L+600 7.04% 2/7/2015 12,185,600 90% -7%
Total 53,488,547 92% -6%

Bucket III - Investments with 7.0% - 9.0% Opportunity Cost

Specialized Technology Second Lien Chemical, Plastics and Rubber L+700 7.23% 12/15/2014 22,500,000 100% 0%
TransFirst Holdings Second Lien Financial Services L+675 7.64% 6/15/2015 15,675,394 92% -5%
Brand Energy Second Lien Energy/Utilities L+700 7.86% 2/7/2015 11,124,000 93% -5%
1-800 Contacts, Inc. First Lien Distribution P+295€ 8.06% 3/4/2015 13,269,474 96% 11%
Generics International Second Lien Healthcare, Education L+750 8.09% 4/30/2015 11,496,000 96% -4%
Affinion Group Subordinated Debt Consumer Products L+750 8.72% 3/1/2012 22,346,382 95% -3%
World Color Press First Lien Printing P+500€ 8.97% 7/21/2012 3,502,415 100% 10%
Total 99,913,665 96% 1%

Source: Company Reports

Page 2
PennantPark Investment Corporation (PNNT) February 4, 2010

At present, roughly 40% of PNNTs assets are in highly liquid, syndicated deals. Recall that PNNT's outsized exposure
to syndicated deals is two-fold: 1) residual investments from deploying the IPO proceeds into the syndicated market;
and 2) PNNT was very opportunistic with the purchase of syndicated paper in 2009 and, as a result, now holds several
of these investments at a nice gain. An example is Sheridan holdings which we believe could be considered an
attractive funding source for new investments. This $20 million investment, purchased in Mar-09, is currently yielding
6.5% and is held at a 4% gain; thus it may make sense for PNNT to liquidate this investment given its considerable
size and low YTM and re-deploy it into 12+% yielding investments. PNNT may also choose to liquidate several
"non-core" portfolio investments, which trade at much higher levels following the improvement in the credit markets.
Three prime examples of potential non-core asset sales would be National Bedding, Rexnord, and Hughes. In total,
these investments have a $13 million in FV and generate a yield of roughly 2.7% per annum—which would be a very
attractive source of capital should PNNT reinvest that capital at 12% IRRs.

The SBIC Clock Is Now Ticking. PNNT announce it submitted its initial paperwork for an SBIC license in early
January which is the first step in a rather lengthy process. We think it is appropriate to use the timeline for FSC's
license to gauge how PNNT's approval process may proceed. FSC submitted its initial SBIC application in November
2008, raised capital to fund the SBIC in July 2009 (8 months) and received its license in January 2010 (13 months from
the original application). We believe the process may be 1-2 months shorter for PNNT due to less turbulent current
economic environment and pressure from the Obama administration to use the SBA purse strings to stimulate small
business lending. As a result, we assume PNNT will raise equity ($75 million) to fund the SBIC facility in calendar 4Q10
and actually receive the SBIC license in early 1Q11 with leverage being utilized in the second half of 2011.

Additional Leverage is Key to Portfolio Growth. PNNT was very fortunate throughout the credit turmoil of
2007-2009 to have a long-dated credit facility (5yr at L+100) and to be the only BDC to elect FAS159, which allowed
for a mark-to-market of the liabilities to help offset the mark-to-market of the assets. The FAS159 election helped lower
the risk that PNNT would violate a lending covenant and allowed it to avoid the re-negotiation with its lenders that
almost all BDC's have gone through. As a result PNNT's facility, which isn't due until June 2012, is still priced at L+100.
While FAS159 election was a very wise decision, the benefits of fair valuing the debt will likely keep PNNT from
expanding their facility which will likely constrict portfolio growth in 2010. There are two primary factors why PNNT will
keep the facility untouched: 1) PNNT still has 2.5 years at L +100 pricing which would likely be priced to L+300—400
and reduce earnings by $0.05 per quarter; and 2) the repricing would bring the FV mark of the liabilities back up to par
which would effectively increase the leverage ratio on the balance sheet from the current rate of 0.66x to 0.80x which
would be a fully leveraged position and thus PNNT would not be able to draw the remaining capital on the facility.
While we believe there may be a few alternatives for PNNT to add additional debt capacity in 2010 without
renegotiating the revolver, we haven't included any into our current modeling. All of the current assets are pledged to
the revolver and lenders today are not offering new unsecured lending relationships so PNNT's best opportunity
(outside of the SBIC) is to get a credit rating and attempt to issue private placement term debt. While this won't happen
quickly, we believe PNNT may be able to accomplish this if the appetite for higher yield paper remains robust and
PNNT can attract investors at a manageable pricing point.

Our outlook for PNNT's liabilities is that the current revolver is the only leverage available until early 2011 at which
point PNNT will have successfully navigated the SBIC process and be able to tap 10-year fixed leverage from the
government. That leverage will provide nice portfolio and earnings growth during 2011 however when the revolver gets
repriced higher in early 2012 (to L+300-400) it will dampen the positive impact of the SBIC.

Dividend Increase to $0.26. PNNT increased the quarterly dividend for the second time in 3 months. The new rate is
$0.26, up from $0.25 and still below quarterly earnings of $0.28. PNNT is one of a very few BDC's that did not have to
cut their dividend in the credit turmoil of '08/'09, largely in our opinion due to their utilization of FAS159 which allowed
them to keep a low cost of funding and keep earnings and the dividend stable. While PNNT has experienced some
miss-steps with credit ($55mln of losses in 2009), total operating earnings of $2.58 since their IPO have exceed the
total dividend of $2.48. We expect the dividend will remain very secure and depending on portfolio growth may
continue to increase slightly through 2010/2011.
Company Description
PennantPark Investment Corporation (Ticker: PNNT), headquartered in New York City, became a public company in
April 2007. PNNT is a specialty finance company focused on origination, structuring, and management of a portfolio of
senior loan, mezzanine, and equity securities of privately held middle market corporations. As a Business Development
Company/Registered Investment Company (BDC/RIC), PNNT is required to pay out 90% of its earnings in the form of
a dividend. As long as PNNT invests 70% of its funds in qualifying assets and distributes a minimum of 90% of its
income to shareholders annually, the company is exempt from federal income tax. Dividends are primarily taxed as
ordinary income to shareholders and are reported on a Form 1099. PNNT is an externally managed BDC and pays a
Page 3
PennantPark Investment Corporation (PNNT) February 4, 2010

management fee to a group formed by its founder Arthur Penn who previously worked for Apollo Group.

Page 4
 PennantPark Investment Corporation (PNNT) February 4, 2010
Pennant Park Invesetment Corp.
[NASD: PNNT]
Financial Model
Ward/Mason 314-342-2714 / 2194 Dec-09 Mar-10 June-10 Sept-10 Dec-10 Mar-11 June-11 Sept-11
(in thousands, except per share data) 2009 1Q10 2Q10E 3Q10E 4Q10E 2010E 1Q11E 2Q11E 3Q11E 4Q11E 2011E
Income Statement Summary
Revenues
Interest 44,906 13,279 14,467 15,244 15,810 58,800 16,709 17,987 19,256 20,417 74,369
Other Income 212 320 300 300 300 1,220 300 300 300 300 1,200
Total Revenues $45,119 $13,598 $14,767 $15,544 $16,110 $60,019 $17,009 $18,287 $19,556 $20,717 $75,569
Expenses
Base Management Fees 7,716 2,525 2,741 2,818 2,818 10,902 2,818 2,920 3,125 3,330 12,194
Incentive Mgmt Fees on NOI 5,683 1,809 1,967 2,093 2,198 8,068 2,390 2,612 2,747 2,829 10,577
Interest on Facility 4,629 819 972 1,019 1,012 3,821 868 800 1,131 1,585 4,383
Administrative Services 2,320 558 591 622 644 2,414 685 731 782 829 3,027
Other G&A 2,053 543 628 622 644 2,437 691 777 782 829 3,079
Total Operating Expenses $22,400 $6,254 $6,898 $7,173 $7,317 $27,642 $7,451 $7,840 $8,568 $9,402 $33,261
Income Tax Expense 107 0 0 0 107 100 0 0 0 100

Net Operating Income (NOI) $22,719 $7,238 $7,869 $8,371 $8,793 $32,270 $9,458 $10,446 $10,988 $11,316 $42,209

Credit Facility Adjustment 0 (5,839) 0 0 0 (5,839) 0 0 0 0 0

Net Realized Gains & Losses (39,244) (16,604) 0 0 0 (16,604) 0 0 0 0 0
Net Unrealized Gains & Losses 52,327 23,881 0 0 0 23,881 0 0 0 0 0
Total Net Unrealized Gain (Loss) 13,083 1,438 0 0 0 1,438 0 0 0 0 0

Net Income $35,802 $8,676 $7,869 $8,371 $8,793 $33,709 $9,458 $10,446 $10,988 $11,316 $42,209

Weighted Average Diluted 21,248 25,589 25,809 25,809 25,809 25,754 29,559 33,309 33,309 33,309 32,371

Per Share Data

NOI per Share $1.07 $0.28 $0.30 $0.32 $0.34 $1.25 $0.32 $0.31 $0.33 $0.34 $1.30
NOI + Realized Gains - Incentive Fees ($0.78) ($0.14) $0.30 $0.32 $0.34 $0.83 $0.32 $0.31 $0.33 $0.34 $1.30
Diluted EPS $1.66 $0.34 $0.30 $0.32 $0.34 $1.31 $0.32 $0.31 $0.33 $0.34 $1.30
Dividends $0.97 $0.25 $0.26 $0.26 $0.27 $1.04 $0.27 $0.27 $0.27 $0.27 $1.08
NAV per Share (Book Value) $11.85 $11.86 $11.79 $11.74 $11.70 $11.70 $10.97 $11.08 $11.10 $11.14 $11.14

Portfolio Summary ($ in millions)

Average Interest Earning Assets (less non-accruals) at COST $425,443 $478,143 $507,610 $516,756 $514,133 $504,161 $514,133 $532,938 $570,550 $604,962 $555,646
Average Total Portfolio Assets $371,184 $491,451 $528,141 $543,141 $543,141 $526,469 $543,141 $563,141 $603,141 $643,141 $588,141
Avg Debt $186,488 $235,400 $259,095 $271,660 $269,917 $259,018 $231,477 $213,222 $236,498 $249,339 $232,634
Avg Equity $182,980 $303,364 $216,766 $232,265 $233,474 $246,467 $202,355 $188,798 $211,686 $225,696 $207,134
Debt/Equity 66.0% 76.1% 76.8% 78% 47% 56% 59% 63%
Net Investment Growth 89,400 33,700 30,000 - - 63,700 - 40,000 40,000 40,000 120,000

Drivers
Revenues
Target Income / Avg Target Portfolio 10.21% 11.11% 11.40% 11.80% 12.30% 11.36% 13.00% 13.50% 13.50% 13.50% 12.77%
Expenses
Weighted Average Cost of Debt 2.53% 1.39% 1.50% 1.50% 1.50% 1.47% 1.50% 1.50% 1.50% 1.50% 1.50%
SBIC Cost of Debt 6.50% 6.50% 6.50% 6.50%
Administrative Fees / Revenue 5.10% 4.10% 4.00% 4.00% 4.00% 4.02% 4.02% 4.00% 4.00% 4.00% 4.01%
Other G&A / Revenue 4.55% 4.00% 4.25% 4.00% 4.00% 4.06% 4.06% 4.25% 4.00% 4.00% 4.08%
Credit Quality
Debt Portfolio Less Non-Accruals $431,669 $495,841 $519,379 $514,133 $514,133 $510,872 $514,133 $551,744 $589,355 $620,569 $568,950
Equity At Cost $21,369 $21,963 $21,963 $21,963 $21,963 $21,963 $21,963 $21,963 $21,963 $21,963 $21,963
Portfolio At Cost $460,986 $514,384 $544,384 $544,384 $544,384 $536,884 $536,884 $576,884 $616,884 $656,884 $596,884

Debt Portfolio At Cost $439,617 $495,841 $524,625 $524,625 $524,625 $517,429 $524,625 $563,004 $601,383 $639,761 $582,193
Non Accruals @ Cost $7,948 $0 $5,246 $10,493 $10,493 $6,558 $10,493 $11,260 $12,028 $19,193 $13,243
Non-Accruals Sold (Realized Loss) @ Cost $66,381 $66,381 $66,381 $66,381 $66,381 $66,381 $66,381 $66,381

% of Debt Portfolio on Non-Accrual (Cost) 0.00% 1.00% 2.00% 2.00% 2.00% 2.00% 2.00% 3.00%
% of Debt Port if Non-Accruals were not sold 11.8% 12.1% 13.0% 13.0% 13.0% 12.3% 11.7% 12.1%

Management Fee
Base Management Fee
Avg Assets 519,640 540,872 554,847 554,847 554,847 574,847 614,847 654,847
Less Cash Adjustment 20,149 6,026 5,000 5,000 5,000 5,000 5,000 5,000
Management Fee (Annualized) 2.05% 2.05% 2.05% 2.05% 2.05% 2.05% 2.05% 2.05%
Management Fee (Annualized) - - - - - - - -
Quarterly Management Fee 2,560 2,741 2,818 2,818 2,818 2,920 3,125 3,330
Management Fee (Waiver)

Incentive Management Fee

Pre-Incentive Fee NOI 9,154 9,836 10,464 10,991 11,948 13,058 13,735 14,145
NOI Return (Quarterly NOI / Last Q Book Value) 2.50% 3.21% 3.44% 3.63% 3.96% 3.57% 3.72% 3.83%
Hurdle Rate % 1.75% 1.75% 1.75% 1.75% 1.75% 1.75% 1.75% 1.75%
High Hurdle Rate % 2.19% 2.19% 2.19% 2.19% 2.19% 2.19% 2.19% 2.19%

Hurdle Rate $ 5,260 5,358 5,327 5,304 5,285 6,393 6,459 6,467
Outperformance $ 3,894 4,478 5,137 5,686 6,663 6,665 7,276 7,677
Incentive Fee $ 3,894 4,478 5,137 5,686 6,663 6,665 7,276 7,677

Incentive Fee if <> Low/High Hurdle - - - - - - - -

Full Incentive Fee (If above high hurdle) 1,831 1,967 2,093 2,198 2,390 2,612 2,747 2,829

Incentive Fee Payable 1,831 1,967 2,093 2,198 2,390 2,612 2,747 2,829

Analysis
Total Portfolio Yield 5.7% 5.6% 5.7% 5.9% 6.1% 5.8% 6.4% 6.7% 6.7% 6.6% 6.6%
Net Interest Margin 8.0% 9.7% 9.9% 10.3% 10.8% 10.2% 11.5% 12.0% 12.0% 12.0% 11.9%
NOI/Avg Total Investment
Mgmt Fees/Total Revenues 29.7% 31.9% 31.9% 31.6% 31.1% 31.6% 30.6% 30.3% 30.0% 29.7% 30.1%
G & A/ Total Revenues 4.0% 4.3% 4.0% 4.0% 4.1% 4.3% 4.0% 4.0%
NOI / Dividend 110% 113% 117% 125% 126% 120% 119% 116% 122% 126% 121%

(ROE) - operating earnings 9.0% 9.5% 10.3% 11.0% 11.6% 10.7% 11.7% 11.3% 11.9% 12.2% 11.7%
(ROE) - realized earnings 14.0% 11.4% 10.3% 11.0% 11.6% 11.2% 11.7% 11.3% 11.9% 12.2% 11.7%

Sources: Company Reports and Stifel Nicolaus

Page 5
 PennantPark Investment Corporation (PNNT) February 4, 2010
Pennant Park Invesetment Corp.
[NASD: PNNT]
Financial Model
Ward/Mason 314-342-2714 / 2194
Dec-09 Mar-10 June-10 Sept-10 Dec-10 Mar-11 June-11 Sept-11
(in thousands, except per share data) 2009 1Q10 2Q10E 3Q10E 4Q10E 2010E 1Q11E 2Q11E 3Q11E 4Q11E 2011E
Balance Sheet Data
Assets
Investments
Investments at fair value 469,760 513,141 543,141 543,141 543,141 543,141 543,141 583,141 623,141 663,141 663,141
Cash 33,248 7,051 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000
Receivable For Inv. Sold 2,726 46 46 46 46 46 46 46 46 46 46
Interest Receivable 5,539 5,714 5,714 5,714 5,714 5,714 5,714 5,714 5,714 5,714 5,714
Prepaid Expenses 1,109 945 945 945 945 945 945 945 945 945 945
Total assets $512,381 $526,898 $554,847 $554,847 $554,847 $554,847 $554,847 $594,847 $634,847 $674,847 $674,847

Liabilities
Distributions Payable 5,057 6,452 6,452 6,452 6,452 6,452 6,452 6,452 6,452 6,452 6,452
Payable for Investments Purchased 19,490 0 0 0 0 0 0 0 0 0 0
Unfunded Investments 6,331 6,455 6,455 6,455 6,455 6,455 6,455 6,455 6,455 6,455 6,455
Credit Facility Payable 175,475 201,914 231,617 232,913 234,035 234,035 170,675 206,921 216,451 234,942 234,942
Credit Facility At Cost 225,100 245,700 272,490 270,829 269,005 269,005 193,949 232,496 240,501 258,178 258,178
FV as a % of Cost 82% 85% 86% 87% 88% 89% 90% 91%
SBIC Debt 0 0 0 30,000 50,000 50,000
Interest Payable 73 62 62 62 62 62 62 62 62 62 62
Management Fees Payable 2,220 2,525 2,525 2,525 2,525 2,525 2,525 2,525 2,525 2,525 2,525
Perf. Based Inc. Fee Payable 1,508 1,809 1,809 1,809 1,809 1,809 1,809 1,809 1,809 1,809 1,809
Accrued Other Expenses 1,647 1,532 1,532 1,532 1,532 1,532 1,532 1,532 1,532 1,532 1,532
Total liabilities 211,801 220,749 250,452 251,748 252,870 252,870 189,510 225,756 265,286 303,777 303,777

Shareholders' Equity
Common Stock @ Par 25 26 26 26 26 26 26 26 26 26 26
Paid-In-Capital 327,062 330,406 330,406 330,406 330,406 330,406 407,998 407,998 407,998 407,998 407,998
Undistributed NOI 1,890 2,676 3,834 5,495 7,320 7,320 7,784 9,237 11,232 13,555 13,555
Effect of FAS 159 49,625 43,786 40,874 37,916 34,971 34,971 23,274 25,575 24,050 23,236 23,236
Accumulated Net Realized Loss -50,494 (67,098) (67,098) (67,098) (67,098) -67,098 (70,098) (70,098) (70,098) (70,098) -70,098
Net appreciation (depreciation) on invest. -27,528 (3,647) (3,647) (3,647) (3,647) -3,647 (3,647) (3,647) (3,647) (3,647) -3,647
Total shareholders' equity $300,580 $306,148 $304,395 $303,098 $301,977 $301,977 $365,337 $369,090 $369,561 $371,069 $371,069

Ratios
Debt/Equity (FV) 58.4% 66.0% 76.1% 76.8% 77.5% 77.5% 46.7% 56.1% 58.6% 63.3% 63.3%
Debt/Equity (COST) 80.3% 89.5% 89.4% 89.1% 53.1% 63.0% 65.1% 69.6%
Capital Raised
Common Shares Issued 4,301 0 0 0 0 0 7,500 0 0 0 7,500
Stock price assumption $0.00 $0.00 $0.00
Stock price net of underwriters fee $7.55 $9.89 $10.17 $10.21 $10.27 $10.27 $10.35 $10.27 $10.31 $10.37 $10.37
Net equity proceeds 32,479 0 0 0 0 0 77,592 0 0 0 77,592
Common shares outstanding (period end) 25,369 25,809 25,809 25,809 25,809 25,809 33,309 33,309 33,309 33,309 33,309

Average Investment Portfolio

Average Interest Earning Assets (COST) 433,259 485,583 510,233 524,625 524,625 511,267 524,625 543,815 582,193 620,572 567,801
Average Total Portfolio Assets 371,184 491,451 528,141 543,141 543,141 526,469 543,141 563,141 603,141 643,141 588,141
Average Assets 401,232 519,640 540,872 554,847 554,847 542,551 554,847 574,847 614,847 654,847 599,847
Average Debt 186,488 235,400 259,095 271,660 269,917 259,018 231,477 213,222 236,498 249,339 232,634
Average Shareholders Equity 182,980 303,364 216,766 232,265 233,474 246,467 202,355 188,798 211,686 225,696 207,134
Average Unrealized Appreciation (76,304) (15,587) (3,647) (3,647) (3,647) (6,632) (3,647) (3,647) (3,647) (3,647) (3,647)

Portfolio Stats
Originations 117,400 50,500 50,000 50,000 50,000 200,500 50,000 50,000 50,000 50,000 200,000
Repayments -28,000 -16,800 -20,000 -50,000 -50,000 -136,800 -50,000 -10,000 -10,000 -10,000 -80,000
Net Portfolio Growth 89,400 33,700 30,000 0 0 63,700 0 40,000 40,000 40,000 120,000

Source: Company Reports, Stifel Estimates

Page 6
PennantPark Investment Corporation (PNNT) February 4, 2010

Important Disclosures and Certifications

I, Troy Ward, certify that the views expressed in this research report accurately reflect my personal views
about the subject securities or issuers; and I, Troy Ward, certify that no part of my compensation was, is, or
will be directly or indirectly related to the specific recommendation or views contained in this research report.
I, Greg Mason, certify that the views expressed in this research report accurately reflect my personal views
about the subject securities or issuers; and I, Greg Mason, certify that no part of my compensation was, is, or
will be directly or indirectly related to the specific recommendation or views contained in this research report.

Rating and Price Target History for: PennantPark Investment Corporation (PNNT) as of 02-03-2010

12/10/08
I:H:NA

12

0
Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1
2007 2008 2009 2010

Rating Key

B - Buy UR - Under Review

H - Hold NR - No Rating
S - Sell NA - Not Applicable
I - Initiation RS - Rating Suspended
D - Dropped

Created by BlueMatrix

For a price chart with our ratings and target price changes for PNNT go to
http://sf.bluematrix.com/bluematrix/Disclosure?ticker=PNNT
PennantPark Investment Corporation is a client of Stifel, Nicolaus & Company, Inc. or an affiliate or was a client of
Stifel Nicolaus or an affiliate within the past 12 months.
PennantPark Investment Corporation is provided with investment banking services by Stifel, Nicolaus & Company, Inc.
or was provided with investment banking services by Stifel Nicolaus or an affiliate within the past 12 months.
Stifel, Nicolaus & Company, Inc or an affiliate has received compensation for investment banking services from
PennantPark Investment Corporation in the past 12 months.
Stifel, Nicolaus & Company, Inc. expects to receive or intends to seek compensation for investment banking services
from PennantPark Investment Corporation in the next 3 months.
Stifel, Nicolaus & Company, Inc. or an affiliate managed or co-managed a public offering of securities for PennantPark
Investment Corporation in the past 12 months.
Stifel, Nicolaus & Company, Inc. makes a market in the securities of PennantPark Investment Corporation.

Stifel, Nicolaus & Company, Inc.'s research analysts receive compensation that is based upon (among other factors)
Stifel Nicolaus' overall investment banking revenues.

Our investment rating system is three tiered, defined as follows:

BUY -We expect this stock to outperform the S&P 500 by more than 10% over the next 12 months. For higher-yielding
equities such as REITs and Utilities, we expect a total return in excess of 12% over the next 12 months.

HOLD -We expect this stock to perform within 10% (plus or minus) of the S&P 500 over the next 12 months. A Hold
rating is also used for those higher-yielding securities where we are comfortable with the safety of the dividend, but
believe that upside in the share price is limited.

Page 7
PennantPark Investment Corporation (PNNT) February 4, 2010

SELL -We expect this stock to underperform the S&P 500 by more than 10% over the next 12 months and believe the
stock could decline in value.
Of the securities we rate, 37% are rated Buy, 59% are rated Hold, and 4% are rated Sell.
Within the last 12 months, Stifel, Nicolaus & Company, Inc. or an affiliate has provided investment banking services for
11%, 10% and 3% of the companies whose shares are rated Buy, Hold and Sell, respectively.
Additional Disclosures
Please visit the Research Page at www.stifel.com for the current research disclosures applicable to the companies
mentioned in this publication that are within Stifel Nicolaus' coverage universe. For a discussion of risks to target price
please see our stand-alone company reports and notes for all Buy-rated stocks.

The information contained herein has been prepared from sources believed to be reliable but is not guaranteed by us
and is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell any
securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the
particular investment objectives, financial situation or needs of individual investors. Employees of Stifel, Nicolaus &
Company, Inc. or its affiliates may, at times, release written or oral commentary, technical analysis or trading strategies
that differ from the opinions expressed within. Past performance should not and cannot be viewed as an indicator of
future performance.
Stifel, Nicolaus & Company, Inc. is a multi-disciplined financial services firm that regularly seeks investment banking
assignments and compensation from issuers for services including, but not limited to, acting as an underwriter in an
offering or financial advisor in a merger or acquisition, or serving as a placement agent in private transactions.
Moreover, Stifel Nicolaus and its affiliates and their respective shareholders, directors, officers and/or employees, may
from time to time have long or short positions in such securities or in options or other derivative instruments based
thereon.

These materials have been approved by Stifel Nicolaus Limited, authorized and regulated by the Financial Services
Authority (UK), in connection with its distribution to professional clients and eligible counterparties in the European
Economic Area. (Stifel Nicolaus Limited home office: London +44 20 7557 6030.) No investments or services
mentioned are available in the European Economic Area to retail clients or to anyone in Canada other than a
Designated Institution. This investment research report is classified as objective for the purposes of the FSA rules.
Please contact a Stifel Nicolaus entity in your jurisdiction if you require additional information.

The use of information or data in this research report provided by or derived from Standard & Poor's Financial
Services, LLC is Copyright © 2010, Standard & Poor's Financial Services, LLC ("S&P"). Reproduction of Compustat
data and/or information in any form is prohibited except with the prior written permission of S&P. Because of the
possibility of human or mechanical error by S&P's sources, S&P or others, S&P does not guarantee the accuracy,
adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the
results obtained from the use of such information. S&P GIVES NO EXPRESS OR IMPLIED WARRANTIES,
INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE. In no event shall S&P be liable for any indirect, special or consequential damages
in connection with subscriber's or others' use of Compustat data and/or information. For recipient's internal use only.

Additional Information Is Available Upon Request

© 2010 Stifel, Nicolaus & Company, Inc. One South Street Baltimore, MD 21202. All rights reserved.

Page 8