Palmer Square Capital BDC (NYSE:PSBD) reported first-quarter financial results on Wednesday. The transcript from the company's first-quarter earnings call has been provided below.

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Summary

Palmer Square Capital BDC deployed $109.4 million of capital in Q1 2026, generating $26.2 million in total investment income and $11 million in net investment income, with a net investment income of $0.35 per share.

The company maintained a monthly NAV per share of $13.30, highlighting transparency and accountability amid market volatility, particularly in the software sector.

Management is optimistic about increasing investment activity and refinancing opportunities and expects a stabilization in software and AI-impacted loan markets.

A share repurchase program resulted in the buyback of approximately 140,149 shares for $1.6 million, with future repurchases under consideration given favorable stock trading levels.

The company declared a second quarter 2026 base dividend of $0.36 per share and remains committed to a distribution strategy that maximizes cash returns to investors.

Palmer Square Capital BDC's portfolio is diversified across 44 industries, with a focus on first lien loans and senior secured debt, maintaining strong credit performance.

Full Transcript

Regina (Operator)

Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time I would like to welcome everyone to the Palmer Square Capital BDC first quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Jeremy Goff, Managing Director. Please go ahead.

Jeremy Goff (Managing Director)

Welcome to Palmer Square Capital BDC first quarter 2026 earnings call. Joining me this afternoon are Chris Long, Chairman and Chief Executive Officer, Angie Long, Chief Investment Officer, Matt Bloomfield, President and Jeff Fox, Chief Financial Officer and Director. Palmer Square Capital BDC first quarter 2026 financial results were released earlier today and can also be accessed on Palmer Square's investor relations website at palmersquarebdc.com we have also arranged for a replay of today's event that can be accessed on our website. During this call I want to remind you that the forward looking statements we make are based on current expectations. The statements on this call that are not purely historical are forward looking statements. These forward looking statements are not a guarantee of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward looking statements, including and without limitation market conditions caused by uncertainty surrounding interest rates, changing economic conditions and other factors we identified in our filings with the SEC. Although we believe that the assumptions on which these forward looking statements are based are reasonable, any of those assumptions can prove to be inaccurate and as a result the forward looking statements based on those assumptions can be incorrect. You should not place undue reliance on these forward looking statements. The forward looking statements made during this call are made as of the date hereof and Palmer Square Capital BDC assumes no obligation to update the forward looking statements unless required by law to obtain copies of SEC related filings, please visit our website at palmersquarebdc.com with that, I will now turn the call over to Chris Long.

Chris Long (Chairman and Chief Executive Officer)

Good afternoon everyone. Thank you for joining us today for Palmer Square Capital BDC first quarter 2026 conference call. On today's call I will provide an overview of our first quarter results, touch on our market outlook and competitive positioning and then turn the call to the team to discuss the current industry dynamics at play, our portfolio activity and financial Results during the first quarter our team deployed $109.4 million of capital and generated total and net investment income of $26.2 million and $11 million respectively. We delivered net investment income of 35 cents per share and paid a 37 cent per share total dividend which includes a 1 cent supplemental distribution above our base dividend and included approximately 2 cents of spillover income consistent with the sector. Our earnings profile is reflective of monetary policy tightening over the last several quarters in addition to experiencing a slowdown in new deal and refinancing activity. Given the macro backdrop with this in mind, our dividend payout still represents an 11.1% yield on net asset value (NAV) and 13.5% yield on the stock price as of April 30, which we believe is a compelling value proposition for investors. We also believe we are beginning to experience a pickup in activity in April, which we are hopeful continues in the remainder of the second quarter. As such, our board has confirmed our second quarter base dividend of $0.36. With the supplemental to follow in normal course, we will continue to prioritize to the extent possible a distribution strategy that maximizes cash returns to investors. Our March net asset value (NAV) per share was $13.30. This mark is based on real actionable prices in the market and underscores our intentional commitment to transparency and accountability regardless of the day's market conditions. This level of transparency is especially relevant in today's environment with heightened scrutiny around BDC portfolio company valuations. We believe our monthly net asset value (NAV) disclosure delivers an added layer of confidence in the underlying value of PSBD's portfolio while highlighting the uniqueness of our portfolio's positioning in liquid senior secured debt. We are pleased with the increased amount of positive feedback we have been receiving in this regard. The first quarter of 2026 presented another episode of volatility induced by the software sell off and credit cycle concerns in general factors we discussed on our fourth quarter earnings call in February. These issues have continued to drive headlines in the months since. In addition to concerns economic impacts resulting from the Iran war, as I did last quarter, I'd like to spend a moment reiterating our philosophy around software and technology investments as it remains very topical. We continue to prefer deeply embedded mission critical software in areas such as cybersecurity, IT infrastructure and ERP systems, which we believe will ultimately be net beneficiaries of artificial intelligence (AI) advancements. Within these subsectors, we lend to large, highly scaled providers that have meaningful profitability and cash flow. We found that these large enterprise platforms tend to be backed by sophisticated private equity sponsors and believe their capital structures provide meaningful equity cushions below our senior secured loans. In our experience, these providers also frequently benefit from significant incumbency advantages. We believe another advantage is the breadth and depth of their data collected across industries. This data positions incumbents to develop more effective artificial intelligence (AI) infrastructure than their more nascent peers as data quality remains a foundational element of model performance and inference. To that end, we believe our portfolio companies are already realizing the benefits of artificial intelligence (AI) advancements. Examples include one data analytics business that has over 60% of its top 50 customers using at least one artificial intelligence (AI) native product, while one of our large ERP software company artificial intelligence (AI) application has seen adoption by 40% of its over 7,000 customers. In the latter example, management expects that adoption to be over 75% by year end 2026. Beginning in April, we've started to observe a stabilization and in some cases a reversal of the mark to market prices on software and other artificial intelligence (AI) impacted loans, which we believe reflects the market's growing realization of the advantages incumbent providers hold amid the artificial intelligence (AI) driven disruption. To echo recent commentary from a large private equity sponsor, these incumbents are well positioned to win, but that position is not guaranteed. We believe that advantage is predicated on their long term customer relationships, their ownership of critical data that underpins the day to day functions of their clients, and their ability to incorporate artificial intelligence (AI) into existing software systems to improve services. With that, I will hand the call over to Angie.

Angie Long (Chief Investment Officer)

Thank you Chris. Through the first quarter, Palmer Square Capital BDC's portfolio faced many macro headwinds, but we believe it performed respectably given the degree of volatility across asset classes. Importantly, given this backdrop, we continue to see stability in our underlying credits, continued earnings, growth in our software exposure and minimal fundamental impacts from the Iran war. As the broader market begins to regain its footing, we believe Palmer Square Capital BDC's portfolio will perform steadily as we look to capitalize on an improving opportunity set and what we believe should be better risk adjusted spreads going forward. Stepping back, the first quarter was defined by significant macro volatility driven by the sell off in software and technology credit, persistent headlines around redemptions in evergreen vehicles and geopolitical uncertainty, most notably the situation in Iran. Within that context, our views on software remain unchanged. As Chris alluded to earlier, we continue to believe that deeply embedded mission critical platforms are well positioned to be net beneficiaries of AI advancements. As we are already seeing across parts of the market, these businesses are beginning to incorporate AI into their existing systems, leveraging long standing customer relationships and differentiated data sets to enhance their offerings across the broader market. The dislocation has started to create more attractive entry points in the secondary loan market. In particular, we're seeing pricing that in certain cases reflects macro concerns more than company specific performance. That shift is beginning to create a much better risk reward dynamic than we have seen over the past several quarters. From an activity standpoint, MA volumes slowed during the quarter as sponsors paused in response to the macro backdrop. However, with improving visibility we we are beginning to see activity return, including increased refinancing activity and select new opportunities across both the broadly syndicated and private credit markets. Importantly, spreads are now beginning to move wider across both markets. We are cautiously optimistic and believe the extended period of spread tightening is likely behind us. Finally, we must acknowledge that geopolitical developments remain a key variable. A timely resolution in Iran would likely be supportive of market conditions, particularly given the potential for elevated oil prices to have broader inflationary impacts across the economy while the environment remains fluid. We believe the combination of more attractive pricing and a disciplined approach positions us well for the periods ahead. At the portfolio level, underlying credit performance continues to remain solid and capital markets remain open for high quality borrowers. We have experienced increased volatility in nav, which is not unexpected given the market dynamics we've discussed thus far and the overall liquid nature of our underlying loans. We view this as a function of an efficient market attempting to price in perceived risks rather than a reflection of any meaningful deterioration in underlying credit quality. To reiterate Chris's earlier comments, our monthly net asset value (NAV) is based on real estate actionable market prices, providing more frequent transparency into how the portfolio is valued and eliminating perceived questions around the true net asset value (NAV) of the bdc. In terms of our balance sheet, we continue to believe the flexibility of our financing facilities is a core benefit of the BDC. The CLO that we issued in 2024 will exit its non call period in July 2026 and we will likely be looking at a potential refinancing options for that during the second quarter. During the first quarter, we remained active and disciplined with our share repurchase program. We bought back 140,149 shares for approximately $1.6 million and have remaining availability of approximately $4.2 million. In addition, Palmer Square Capital Management, our manager, purchased an additional 67,875 shares for approximately 800,000 via its program. The Board will continue to evaluate share repurchases in the second quarter and beyond, given the attractive trading levels of our stock relative to nav and will consider future upsizes to the program if deemed appropriate. For added context, PSPD shares were yielding 13.5% as of April 30, 2026, a significant premium to the 11.1% yield on net asset value (NAV). We believe this presents a compelling value proposition in the current environment, especially when taking into account the quality and conservative position of PSPD's portfolio. As we look ahead to the remainder of 2026, we are constructive on the emerging opportunity set and believe the depth of our platform combined with with PSPD's flexibility to nimbly allocate across both public and private markets will continue to serve as a strong advantage in positioning the portfolio to capitalize on attractive risk adjusted opportunities as they emerge. I'll now turn the call over to Matt to discuss our portfolio and investment activity in more detail.

Matt Bloomfield (President)

Thank you, Angie. As Angie mentioned, Palmer Square Capital BDC navigated the first quarter of 2026 well, despite heightened volatility facing the sector and broader markets. Relative to the fourth quarter, our net investment income per share decreased to $0.35 per share in the first quarter of 2026, predominantly due to a combination of lower base rates as well as slower prepayment activity and the shortest quarter of the year. I'd like to note that the full impact of lower base rates was felt more in the first quarter of 2026 than in the fourth quarter of 2025 due to how our borrower contracts are structured and we believe the second quarter should represent a more normalized environment assuming no additional rate cuts in the near term. In recent weeks, we are beginning to observe increased new issue activity and refinancings. While prepayment activity is difficult to predict, we believe it could re accelerate as we move through the year. In addition to reiterate Chris and Angie's comments, we also believe we are in a more reasonable spread environment today versus the past several quarters and are optimistic about the opportunity to reinvest pay downs into a higher spread environment in the near term. Our total investment Portfolio as of March 31, 2026 had a fair value of approximately $1.15 billion diversified across 44 industries that demonstrate strong credit quality, industry and company specific tailwinds, and a variety of end markets. This compares to a fair value of $1.20 billion at the end of the fourth quarter of 2025, reflecting a decrease of approximately 4.1%. In the first quarter, we invested $109.4 million of capital which included 42 new investment commitments at an average value of approximately $2.1 million. During the same period, we realized approximately $79.9 million through repayments and sales. Importantly, we remain focused on diversification as we allocate new capital across the portfolio as we believe the recent market turbulence has refocused investors on the importance of risk management through diversification. To recap, key portfolio highlights at the end of the first quarter, our weighted average total yield to maturity of debt and income producing securities at Fair value was 11.73% and our weighted average total yield to maturity of debt and income producing securities at amortized cost was 8.26%. We believe our focus on first lien loans combined with diversification across industries and company size contributes to a strong credit profile with exposure to 44 different industries. Further, our 10 largest investments account for just 10.64% of the overall portfolio and our portfolio is 96% senior secured with an average hold size of approximately $4.4 million. We view this as a key risk management tool for Palmer Square Capital BDC. On a fair value weighted basis, our first lien borrowers have a weighted average EBITDA of $452 million, senior secured leverage of 5.5 times and interest coverage of 2.4 times. Additionally, new private credit loans comprise 22.3% of overall new investments at a weighted average spread of 486 basis points over the reference rate. While credit quality remains an industry wide concern, non accruals continue to be low at PSBD. On a fair value basis, non accruals represent less than 1 basis point and on an at cost basis only 90 basis points. Our PIC income represents approximately 1.64% of total investment income, well below our peers in the industry average. We believe this underscores the quality of our disclosed investment income. We've maintained an average internal rating of 3.6 on a fair value weighted basis for all loan investments. Our rating is derived from a unique relative value based scoring system. We believe credit performance across the portfolio remains strong, we continue to experience stable leverage levels and loan to value ratios and our diversification positions us attractively within the dynamic markets we participate in. As we have discussed in the past, we believe larger borrowers are better positioned to deliver favorable credit outcomes over the long term, a dynamic we expect to continue as artificial intelligence (AI) is advantageous to companies with the scale to invest in and leverage these technologies. As Angie described in conjunction with the board, we continue to evaluate share repurchases as a means of driving shareholder value given the discounts in the market. We will continue to evaluate share repurchases on a go forward basis and will look to balance attractive investment opportunities in conjunction with those potential repurchases. Earlier in the call, we mentioned dislocations in the secondary market creating a better risk reward dynamic than we have seen over the past several quarters. While we are actively evaluating new investments, we plan to approach these opportunities with balance. We are managing leverage carefully given movements in navigation, which Jeff will discuss in more detail, and we will be discerning in weighing the return profile of any new investments against that available through share repurchases to ensure we are making the most accretive capital allocation decisions on behalf of our shareholders. Now I'd like to turn the call over to Jeff, who will review our first quarter 2026 financial results.

Jeff Fox (Chief Financial Officer and Director)

Thank you, Matt Total investment income was $26.2 million for the first quarter of 2026, down 16% from $31.2 million for the comparable period last year. Income generation during the quarter reflected a mix of contractual interest income, paydown related income, and select fee income from new deal activity. Total net expenses for the first quarter were $15.2 million compared to $18.3 million in the prior year period. Net investment income for the first quarter of 2026 was $11 million, or $0.35 per share, compared to $12.9 million or $0.40 per share for the comparable period last year. During the first quarter of 2026, the company had total net realized and unrealized losses of $48.3 million compared to total net realized and unrealized losses of $21.3 million in the year first first quarter of 2025. This consisted of net unrealized depreciation of $52.8 million related to existing portfolio investments and net unrealized appreciation of $15.2 million related to exited portfolio investments. At the end of the first quarter, net asset value (NAV) per share was $13.30 compared to $14.85 at the end of the fourth quarter of 2025. Moving to our balance sheet, total assets were $1.2 billion and total net assets were $413.8 million as of March 31, 2026. At the end of the first quarter, our debt to equity ratio was 1.7 times compared to the 1.54 times at the end of the fourth quarter, 2025. This difference is predominantly due to the change in net asset value (NAV) as well as the modest impact from share repurchases. Available liquidity, consisting of cash and undrawn capacity on our credit facilities was approximately $325.3 million. This compares to approximately $311.3 million at the end of the fourth quarter of 2025. Finally, on May 6, the Board of Directors declared a second quarter 2026 base dividend of $0.36 per share in line with our dividend policy. Furthermore, our policy continues to be distributing excess earnings in the form of a quarterly supplemental distribution. And with that, I'd now like to open up the call for questions.

OPERATOR

We will now begin the question and answer session. To ask a question, press Star, then the number one on your telephone keypad. Please pick up your handset and ensure that your phone is not on mute when asking your question. Our first question will come from the line of Kenneth Lee with RBC Capital Markets. Please go ahead.

Kenneth Lee (Equity Analyst)

Hey, good afternoon and thanks for taking my question. Just one on the nav. 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? Thanks. 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. Okay, great, very helpful there. And one follow up, if I may. Just want to get your thoughts around dividend coverage just given where NII is leveling at right now. Thanks. Sure.

Matt Bloomfield (President)

So it's obviously something we in the board spend a lot of time on. You know, first quarter of the year is always, you know, the slowest from a, from a prepayment activity standpoint, shortest day count of the year and obviously with the volatility that transpired in, you know, predominantly February and March, you know, activity slowed down pretty dramatically there as we moved into April. I'd say we do feel incrementally better about, you know, what we're seeing from, you know, new origination activity conversations. We've had a couple of refinancings that have already hit. So we feel, you know, very good about the 36 cent 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, you know, obviously out of our control, but incrementally feeling better, you know, 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. Great, Very helpful there. Thanks again.

OPERATOR

Again. For questions, press Star 1 on your telephone keypad. Our next question will come from the line of Rick Shane with JP Morgan. Please go ahead.

Rick Shane (Equity Analyst)

Hey guys, I need to queue in a little faster. The Kenneth kind of asked my question, but I'm curious as well about cadence of deal flow, both repayments and investments. And you largely address that, but any other color you want to add, I'd be appreciative.

Matt Bloomfield (President)

Yeah, I mean, I think kind of similar to past years. Coming into the end of last year, conversations and activity level felt pretty robust and likely that that would continue into the first half of 2026. Certainly with what transpired in the software space and then followed by Iran war, as the case had been for the past several years, you know, M and A conversations can grind to a halt pretty quickly. That being said, I think, you know, specifically outside of software, it feels like conversations have re engaged, you know, through the latter half of April and into early May. You know, I think that always takes a little bit of time to translate into, you know, actual deal activity. But from, you know, what we're seeing from early looks, as we would call them on the broadly syndicated side, those have increased the past couple of weeks. Conversations, term sheets on the private credit side have marginally increased as well. I think, you know, certainly spreads, we expect to be wider and I think there's always got to be a little bit of, you know, digesting that from, from the borrower standpoint and from the sponsor community. So I don't expect it to be a, you know, a huge acceleration, but definitely expect it to be picking back up from the very, very depressed levels, you know, that we really saw for, you know, February, March of the, of the first quarter. Got it. And then just one follow up question and thank you for that. On the, you know, one of the things we're hearing more generally is improved documentation, better covenants associated with deals, more thoughtful opportunity for due diligence. Is that something particularly in the BSL market? Is it fair to extrapolate that as well? Yes, I think it is. You know, given the bandwidth we have across the firm, you know, from a capital deployment standpoint in the broadly syndicated market. So, you know, even outside of the BDC with our global CLO platform and private funds business, you know, we tend to be meaningful relationships to those sponsors. So we get to have a lot of early access with management team. I'd say the amount of time we're getting to spend has certainly increased and then as that flows through towards the credit documentation, certainly in times of volatility and wider spreads, it becomes a more lender friendly environment which we certainly welcome. It's been quite some time I feel like since we've been able to say that. So we'll use that to you know, to try to get as good of you know, documentation and as favorable, you know, levels that we can from, from a lender standpoint. And that's certainly, you know, come come to come to our favor here recently. Got it. And then last question, and I apologize for so many but we've asked most of the management teams in the space. When you think about where we are on the continuum in terms of structure and pricing, is it fair to say we're sort of back to the middle? We've gone from tight, but we're not at distressed tight markets. It's more sort of in the normal range right now. Yeah, I think the way we look at it and we've been pretty vocal I think over the really the past year plus in that spread to just been very, very tight relative to risk and that encompassed corporate credit, structured credit, investment grade, high yield. And so I'd say we've, you know, in a lot of ways I would have expected spreads to be considerably wider given everything going on. From a macro sentiment, I'd say we did see spread widening. I do think spreads will stay a little bit wider. But I think the way we view it from, from the markets, you know, we're participating in, we'd call it probably more fair value, certainly not cheap, certainly not, you know, you know, super wide to your point from you know, stressed or distressed levels. So I think, I think you're being, you know, better compensated certainly than we have been in quite some time. But we kind of view it, I'd say as fair compensation relative to, you know, what we've seen over the past 20 plus years.

Rick Shane (Equity Analyst)

Sounds good, I appreciate it very much guys, thank you.

OPERATOR

Our next question will come from the line of Dara Hewitt with Bank of America. Please go ahead.

Dara Hewitt (Equity Analyst)

Good afternoon. 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.

Matt Bloomfield (President)

Hi Derek, appreciate the question. I'd say from April standpoint, you know, we should be posting the updated NAV later next week. But you know, certainly to your point, we have seen, you know, a modest rebound in prices in April. So you know, 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 where things are headed. But we certainly, as you know, kind of given the underlying collateral and credit facilities we have, you know, we're able to manage leverage, you know, pretty quickly. You know, 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, for the unrealized mark to market move in nav, you know, 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 put par. And so when we have conviction in something, you know, we will, you know, we'll 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 really for the past, you know, 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 earnings tailwinds for some of the petrochemical producers. So we have been able to see some benefit from, from a couple of tactical positions there. So I think, you know, we've said over the last several quarters there hasn't been as much interesting things to do from a total return standpoint just given how tight spreads have gotten, that dynamic has certainly changed, with a lot of the dynamics across both software and the geopolitical tensions. That being said, you know, would still echo 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, you know, further dislocations. But we're certainly, certainly seeing more that's interesting to us now than we have in quite some time.

Dara Hewitt (Equity Analyst)

Thank you.

OPERATOR

And this concludes our question and answer session. I'll turn the call back over to Jeremy for any closing comments.

Jeremy Goff (Managing Director)

Thank you, operator. And thank you, everyone, for your time and all of the thoughtful questions. We look forward to updating everyone on second quarter 2026 financial results in August. Thank you again.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.