Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Palmer Square Capital BDC Inc (PSBD, Financial) reported strong earnings results for the second quarter of 2024, with total and net investment income growing by 33% and 11% year-over-year, respectively.
- The company deployed $189 million of capital during the quarter, demonstrating continued portfolio expansion.
- PSBD maintains a high level of transparency by disclosing monthly NAV, with the June 30th NAV per share reported at $16.85.
- The company's opportunistic credit investment strategy allows it to invest across liquid and private markets, providing flexibility and the ability to capitalize on market opportunities.
- PSBD's portfolio is highly diversified across 39 industries, with a focus on high-quality sectors such as software, healthcare, and professional services, contributing to strong credit performance.
Negative Points
- The company experienced total net realized and unrealized losses of $10.4 million during the second quarter of 2024.
- Net investment income per share decreased from $0.56 in the prior year period to $0.48 in the second quarter of 2024.
- The NAV per share decreased from $17.16 at the end of the first quarter to $16.85 at the end of the second quarter.
- PSBD's debt-to-equity ratio increased from 1.42 times at the end of Q1 to 1.49 times at the end of Q2, indicating higher leverage.
- The company faced challenges with spread tightening and refinancing activities, which led to some loans being repaid at par, reversing unrealized gains.
Q & A Highlights
Q: Can you elaborate on the investments sold within the portfolio this quarter and the rationale behind these sales?
A: Matthew Bloomfield, President: The majority of sales were due to refinancings or repricings in the market, leading to spread tightening. While we liked some loans from a credit standpoint, they no longer met our yield targets. In some cases, loans were refinanced into new seven-year term loans, and we opted to take our par payoff due to concerns about long-term business fundamentals.
Q: What are your thoughts on the relative attractiveness of the primary versus secondary syndicated loan markets currently?
A: Matthew Bloomfield, President: Most of our new investments were refinancing transactions for existing borrowers rather than new borrowers. While capital markets have been more open, new issue M&A volumes are still below expectations. However, recent conversations suggest increased activity, and we are cautiously optimistic about new borrowers entering the market in the latter half of the year.
Q: How do you view the relative attractiveness of liquid markets versus direct lending?
A: Matthew Bloomfield, President: Both markets have been interesting, with the syndicated market being more active. We focus on larger private credit transactions rather than pure middle or lower middle market. While spreads have tightened, both markets offer attractive opportunities, and we continue to focus on larger borrowers.
Q: How have covenant and collateral packages been trending in recent transactions?
A: Matthew Bloomfield, President: Despite recent market volatility, terms have remained borrower-friendly. It's too early to determine if recent volatility will lead to more lender-friendly terms, but the second quarter was still a borrower-friendly market.
Q: Can you clarify the impact of realized gains in the portfolio this quarter?
A: Matthew Bloomfield, President: Some loans with strong performance were marked above par, and when repaid at par, resulted in a reversal of unrealized gains, negatively impacting the quarter by approximately $3 million. This situation is unusual and not expected to be a consistent theme across the portfolio.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
