Palmer Square Capital BDC Inc. (PSBD) Earnings

Management highlights

• Chris Long provided an overview of first quarter results, market outlook, and competitive positioning. He discussed the firm's philosophy on software and technology investments, preferring deeply embedded, mission-critical software in areas like cybersecurity, IT infrastructure, and ERP systems, which are net beneficiaries of AI advancements. Examples of portfolio companies realizing AI benefits were given, and a pickup in activity was noted in April. • Angie Long mentioned PSBD's portfolio faced macro headwinds but performed respectably, with stability in underlying credits, continued earnings growth in software exposure, and minimal fundamental impacts from the Iran war. She noted the market is regaining footing and PSBD's portfolio should perform steadily with an improving opportunity set. • Matt Bloomfield discussed portfolio and investment activity, noting net investment income per share decreased in Q1 due to lower base rates and slower prepayment activity. He mentioned increased new issue and refinancing activity, a more reasonable spread environment, and the portfolio's diversification across 44 industries with strong credit quality. • Jeff Fox reviewed financial results, stating total investment income was $26.2 million in Q1, down 16% from the prior year. Net investment income was $11 million or 35 cents per share. Total net realized and unrealized losses were $48.3 million in Q1 compared to $21.3 million in the prior year. NAV per share was $13.30 at the end of Q1. Balance sheet details were provided, and the board declared a second quarter base dividend of 36 cents per share.

Guidance

• The board confirmed the second quarter base dividend of 36 cents with the supplemental to follow in normal course. • Management is cautiously optimistic as the extended period of spread tightening is likely behind us, and there are improving opportunities with better risk-adjusted spreads going forward. • They believe the second quarter should represent a more normalized environment assuming no additional rate cuts in the near term. • They are evaluating share repurchases given attractive trading levels relative to NAV and will balance investment opportunities with repurchases.

Segment performance

During the first quarter, PSBD deployed $109.4 million of capital and generated total and net investment income of $26.2 million and $11 million respectively. Net investment income was 35 cents per share. Total investment portfolio as of March 31st, 2026 had a fair value of approximately $1.15 billion diversified across 44 industries. Weighted average total yield to maturity of debt and income-producing securities at fair value was 11.73% and at amortized cost was 8.26%. Non-accruals were low, representing less than one basis point on fair value basis and 90 basis points on at-cost basis. PIC income was approximately 1.64% of total investment income. The 10 largest investments accounted for just 10.64% of the overall portfolio, and the portfolio was 96% senior secured with an average hold size of approximately $4.4 million. Weighted average EBITDA of first lien borrowers was $452 million, senior secured leverage 5.5 times and interest coverage 2.4 times. New private credit loans comprised 22.3% of overall new investments at a weighted average spread of 486 basis points over the reference rate.

Risks & headwinds

• Market conditions are affected by uncertainty surrounding interest rates, changing economic conditions. • Geopolitical developments, particularly the situation in Iran, are key variables that could impact market conditions. • The software and technology credit sell-off and related volatility in the sector pose risks. • Dislocations in the secondary market, while creating better risk-reward dynamics, still present uncertainties. • The assumptions underlying forward-looking statements can prove inaccurate, causing actual results to differ materially from forward-looking statements.

Analyst Q&A

• Q: Could you remind us again, and it sounds like a lot of the marks are driven by market and actionable pricing there. Could you remind us again, how much input does Palmer Square have in terms of the loan valuations within the book, or is it completely driven by what you're seeing on the secondary markets there?

  A: Hey, Ken, it's Matt. Thanks for the question. Yeah, so it's completely driven by third-party marks. So on the broadly syndicated side, those are real quotes, real levels tradable in the secondary market. So those come from a third-party service provider that aggregates all those daily marks on the syndicated loans. And then on the private credit side, those are marked from third-party valuation provider.

• Q: Just want to get your thoughts around dividend coverage, just given where NII is leveling at right now.

  A: Sure. So it's obviously something we in the board spend a lot of time on. First quarter of the year is always the slowest from a prepayment activity standpoint, shortest day count of the year, and obviously with the volatility that transpired in predominantly February and March, activity slowed down pretty dramatically there. As we moved into April, I'd say we do feel incrementally better about what we're seeing from new origination activity, conversations. We've had a couple of refinancings that have already hit. So we feel very good about the $0.36 base dividend and the ability to pay supplemental this quarter. So that's kind of the consideration. Obviously, base rates certainly play a big impact in that. Obviously, out of our control, but incrementally feeling better about where those are settling out, at least in the near term, obviously. You know, we're not interest rate prognosticators per se, but, you know, as we kind of look through things, look through the portfolio, look through activity in April, felt increasingly comfortable with where we're at here for the near to intermediate term.

• Q: Could you provide some color on pro forma leverage as of April since we've seen some recovery in the BSL market? And then secondly, are there like certain sectors that have been significantly dislocated earlier this year, maybe even software that you might lean into from a new investment perspective?

  A: Hi, Derek. Appreciate the question. I'd say from April's standpoint, we should be posting the updated NAV later next week. But certainly to your point, we have seen a modest rebound in prices in April. So we expect leverage to come back down. But we'll be able to kind of disclose the updated NAV for April, like I said, probably by the end of next week, which gives some good directionality, I think, to to where things are headed. But we certainly, as you know, kind of given the underlying collateral and credit facilities we have, we're able to manage leverage pretty quickly. We even paid down, I think, about $14 million in total on the credit facilities in the first quarter to try to maintain appropriate leverage levels, at least that we were comfortable with. There were obviously a lot of moving pieces going on. in the quarter, but that is something we have good control over and can manage that effectively on a daily basis. To the second part of your question, undoubtedly software was the most disrupted sector in the first quarter, and that predominantly is responsible for the unrealized mark-to-market move in NAV as the whole sector traded off considerably. That, you know, our opinion is we want to be prudent, you know, in how we think about overall exposure there. But I do think, and you've heard kind of our prepared comments from Chris, Angie, and myself, you know, there's undoubtedly some really great companies in there that are trading at, you know, real discounts to par. And so when we have conviction in something, you know, we will certainly look to take advantage of that where we think it makes sense. You know, outside of that as well, you know, obviously a lot going on with the Iran situation that, you know, has produced some interesting opportunities in the chemical space as an example that, you know, I think we've talked about in the past has been a very tough sector to, really for the past two plus years, given a lot of the supply-demand dynamics, a lot of the effective dumping by Chinese producers, specifically in some of the pan-European markets, with the closure of the Strait for the past couple of months, that's led to some meaningful, meaningful earnings tailwinds for some of the petrochemical producers So we have been able to see some benefit from a couple of tactical positions there. So I think, you know, we've said over the last, you know, several quarters, there hasn't been, you know, as much interesting things to do from a total return standpoint, just given how tight spreads have gotten. That dynamic has certainly changed with, you know, a lot of the dynamics across both software and the geopolitical tensions. That being said, you know, would still echo, you know, some of our prepared remarks where We want to be prudent. We want to make sure we have dry powder to the extent there's further dislocations. But we're certainly seeing more that's interesting to us now than we have in quite some time.