Palmer Square Capital BDC Inc. Q3 FY2024 earnings call

• Chris Long highlighted strong Q3 earnings supported by healthy credit performance, $66 million capital deployment, net investment income growth, $0.48 per share net investment income, and $0.47 per share dividend. Mentioned 2 non-accruals (non-material) and the opportunistic credit strategy.
• Angie Long discussed Fed rate cuts, disciplined underwriting, 11.3% yield, portfolio quality, spread tightening in credit markets, and deal pipeline with activity evenly split between BSL and private credit markets.
• Matt Bloomfield detailed portfolio and investment activity: $66 million invested, $83 million realized, portfolio fair value decline, private credit allocation approaching 10% of the portfolio, portfolio stats (diversification, senior secured, EBITDA, leverage, interest coverage), and low PIK income relative to industry.
• Jeff Fox reviewed financial results: total investment income up 30% YOY, net expenses up due to portfolio expansion, net investment income $15.7 million or $0.48 per share, realized/unrealized losses, NAV per share, balance sheet details, stock repurchase plan, and dividend declaration.

Palmer Square Capital BDC's third quarter 2024 financial results showed total net investment income of $15.7 million, marking 6% year-over-year growth. Total investment income was $37.3 million, a 30% year-over-year increase. The portfolio had a fair value of approximately $1.39 billion as of September 30, 2024, a 3% decline from the end of Q2. NAV per share was $16.61 at the end of Q3, a 1% decrease from Q2. The portfolio offered an annualized dividend yield of 11.3% as of September 30, 2024, with a weighted average total yield to maturity of debt and income-producing securities at fair value of 10.48% and at amortized cost of 9.41%.

• Expect deal activity to pick up in the near-term as election clarity and rate environment stabilize, potentially leading to spread widening.
• Private credit allocation could grow further.
• Board approved a stock repurchase plan to acquire up to $20 million of PSBD common stock, expiring on January 17, 2025.

• Uncertainties in interest rates, changing economic conditions, and other factors identified in SEC filings that could cause actual results to differ from forward-looking statements.
• Non-accruals in the portfolio, though neither loan was material from a size and income perspective.

Q: Can you just talk about moving into slightly more private credit, kind of how you would think about kind of a maximum for the portfolio in order to keep the liquid nature of the portfolio?

A: Matt Bloomfield said they don't have a hard cap but want to maintain a meaningful liquid pool for opportunities, and private credit allocation could continue to grow in similar cadence.

Q: And just given your seat in the market, are you seeing any difference in underwriting quality or covenants as you look at the two markets?

A: Matt Bloomfield said hit ratio remains relatively low, credit quality has been okay but they'll be prudent.

Q: I wanted to just touch on the portfolio yield. I noticed that has jumped around a little bit over the last couple of quarters, perhaps a bit more than sort of the change in base rates. I'm just curious if there's anything to read into that?

A: Matt Bloomfield said refinancing activity, increase in private credit allocation, and fair value movement have contributed to portfolio yield changes.

Q: And is there any sort of was there -- given the repricing activity that took place, was there any sort of accelerated OID that's embedded in there -- in the interest income that we're -- maybe isn't separately broken out?

A: Matt Bloomfield said accelerated OID wasn't overly material in the quarter but could be seen in the next couple of quarters.

Q: Thinking about the fourth quarter, I know that in traditionally in BDC portfolios and in the private credit space, in particular, there tends to be sort of a seasonal burst of activity in the fourth quarter as companies are trying to get some deals done. You guys have obviously have a little bit of a different focus, sort of with the more liquid portfolio. I'm curious if we should adjust our expectations for sort of portfolio activity or churn in the fourth quarter just because you guys do have a different focus than there might be a little bit less the seasonality in investment activity and exits?

A: Chris Long said activity might be a bit more muted due to election year and recent market slowdown, but some activity expected in November/December.

Q: So what percentage of the decline in one month SOFR was reflected in third quarter results? And more importantly, kind of as rates -- if rates continue to trend lower, kind of how quickly does the portfolio reprice?

A: Chris Long said decline in one month SOFR had de minimis impact on Q3 results, and repricing activity is baked in, with deal activity expected to pick up in 2025.

Q: Short-term investments were down meaningfully this past quarter. I'm assuming it's an important source of liquidity. But how should we -- should we expect kind of more runoff going forward, which would be kind of reinvested in kind of in higher-yielding strategies?

A: Chris Long said short-term investments were in a more normalized range, with $15 million private credit commitments to be funded in Q4.