Release Date: November 05, 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) delivered strong third quarter earnings with a 30% year-over-year growth in total net investment income.
- The company paid a $0.47 per share third quarter total dividend, including a $0.05 supplemental distribution.
- PSBD is the only publicly traded BDC that discloses monthly NAV, providing real-time visibility into the portfolio's health and value.
- The portfolio is 96% senior secured loans, offering an attractive yield of 11.3% as of September 30, 2024.
- PSBD's opportunistic credit investment strategy allows for quick action across liquid and private markets, enhancing potential NAV appreciation and total return.
Negative Points
- The NAV per share decreased by 1% from the end of Q2, reflecting mild mark-to-market and realized losses.
- PSBD experienced its second and third non-accruals in the portfolio this quarter, although neither was material in size or income.
- Total net realized and unrealized losses were $8.2 million for the third quarter, compared to gains in the same period last year.
- The debt-to-equity ratio increased slightly to 1.52 times at the end of Q3, indicating higher leverage.
- Short-term investments were down significantly, impacting liquidity and requiring careful management of reinvestment strategies.
Q & A Highlights
Q: Can you discuss your approach to increasing private credit exposure while maintaining portfolio liquidity?
A: Matthew Bloomfield, President: We assess everything on a relative value basis and aim to maintain a significant portion of liquid assets to seize opportunities. While we don't have a strict cap on private credit exposure, we are seeing attractive transactions in both markets, and the portfolio may continue to shift similarly to recent quarters.
Q: Are there differences in underwriting quality or covenants between the liquid and private credit markets?
A: Matthew Bloomfield, President: Overall, credit quality remains stable, but we are cautious in tighter spread markets. We maintain discipline to ensure capacity for the most sensible transactions, whether in primary or secondary markets.
Q: The portfolio yield has fluctuated recently. Can you explain the reasons behind this?
A: Matthew Bloomfield, President: The fluctuations are due to refinancing and repricing activities, as well as an increase in private credit allocation, which offers wider spreads. These factors, along with fair value adjustments, have influenced the yield.
Q: How does the recent decline in one-month SOFR affect your portfolio, and how quickly does it reprice?
A: Christopher Long, CEO: The impact was minimal in Q3 due to the timing of the Fed's rate cut. Going forward, we expect spreads to stabilize, and any rate changes will be reflected in our income as outlined in our 10-Q.
Q: Should we expect more runoff in short-term investments, and will these be reinvested in higher-yielding strategies?
A: Matthew Bloomfield, President: Short-term investments have normalized and are earmarked for committed investments. We expect to fund $15 million in private credit commitments in Q4, using some of this capacity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
