Q1 2025 Palmer Square Capital BDC Inc Earnings Call
Speaker Change: Welcome to Palmer Square Capital, BDC's first quarter, 2025 Earnings Call.
Speaker Change: At this time, all participants are in a listen-only mode. Any question and answer session will follow the prepared remarks. As a reminder, this conference call is being recorded.
Speaker Change: At this time, I'd like to turn the call over to Jeremy golf, managing director. You may begin.
Speaker Change: Welcome to Palmer Square Capital, BDC's first quarter 2025 earnings call.
Speaker Change: 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
Speaker Change: Palmer Square Capital, BDC's first quarter 2025 financial results were released earlier today and can also be accessed on Palmer Square's Investor Relations website at PalmerSquareBDC.com.
Speaker Change: 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.
Speaker Change: The statements on this call that are not truly historical are forward-looking statements.
Speaker Change: These forward-looking statements are not a guarantee of future performance in our subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including without limitation market conditions caused by uncertainty surrounding interest rates.
Speaker Change: Changing economic conditions and other factors we identified in our filings with DSEC.
Speaker Change: 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. You should not place undue reliance on those assumptions based on those assumptions based on those assumptions based on those
Speaker Change: 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.
Speaker Change: To obtain copies of SEC-related filings, please visit our website at PalmerSquaredBDC.com. With that, I will now turn the call over to Chris Long. Good afternoon, everyone. Thank you for joining us today for Palmer Square Capital BDC's first quarter 2025 conference call.
Chris Long: Today, I will begin by providing an overview of the quarterly highlights and touch on our differentiated market positioning, then turn the call to the team to discuss our market outlook for folio and financial results.
Chris Long: During the first quarter, our team deployed $104.3 million of capital and generated total and net investment income of $31.2 million and $12.9 million respectively.
Chris Long: We delivered net investment income $0.40 per share and paid a $0.39 per share first quarter total dividend, which includes a $0.03 supplemental distribution.
Chris Long: In line with our commitment to sector leading transparency, we recently announced our March NAV per share of $15.85.
Chris Long: To reiterate, the unique structure of our portfolio allows us to disclose an enhanced level of transparency.
Chris Long: We are the only public BDC to disclose monthly NAV providing real-time visibility into the health and value of our portfolio.
Chris Long: Before I turn the call over to Angie to discuss our market outlook, I'll touch on the current macro environment and how we are managing our portfolio accordingly.
Chris Long: The recent volatility spurred by Sheriff Uncertainty has no impact on our approach to underwriting or how we monitor our portfolio.
Chris Long: In fact, in many ways, Palmer Square has its roots in environments that are just like today and our investment thesis was built for times like these.
Chris Long: We founded Palmer Square Capital Management in the wake of the great recession and are focused on identifying the best relative value across corporate and structured credit has remained unchanged since 2009.
Chris Long: In that span of time, we've navigated numerous periods of volatility including the COVID-19 pandemic and the regional banking failures.
Chris Long: while scaring our broader platform to over $34 billion in assets undermanage.
Chris Long: As we have discussed on our previous earnings calls, we attribute the strength of our portfolio and stable credit quality to our rigorous investment process and focus on larger companies with strong fundamentals.
Chris Long: Our fundamental investment strategy rooted in both liquid credit opportunities and senior secured private credit investments remains fully intact. More importantly, it is underpinned by the resources and platform that Palmer Square capital management offers.
Chris Long: We have a robust team of investment professionals who work tirelessly to identify opportunities to optimize our portfolio in real time, and our senior leaders average over 20 years of credit investment experience.
Chris Long: Our team has demonstrated the unique ability to combine a top-down and bottom-up investment framework that places a premium on risk management and prudently deploys capital across
Chris Long: Our investor's philosophy focuses on finding innovative ways to identify market dislocations while using the flexibility created by our nimble portfolio structure, which spans liquid bank and private credit loans, to taxically take advantage of attractive opportunities as they arrive.
Chris Long: We believe our strategy was tailor-made to perform during periods of volatility, which is aided by our ability to act quickly on behalf of our fellow shareholders.
Chris Long: At our core, we are client and shareholder driven organization and we uphold shareholder line it with the most importance.
Chris Long: A few structures lower than most externally managed, publicly traded BDCs, and are annualized dividend power of 12.3% as of April 30th, reinforces our commitment to returning capital to our shareholders.
Chris Long: Finally, we combine the size and scale of our position as a growing global asset manager with our vocal roots.
Chris Long: Clients and investors choose to partner with Palmer Square because we have a global footprint with a specialized approach, but our team is approachable and accessible.
Chris Long: LPs and investors know that Palmer Square is a team they want to be part of and we have maintained a high touch approach to client service since our founding. In a time characterized by uncertainty, we are certain that the landscape will continue to shift. [inaudible]
Chris Long: But we believe that our nimble portfolio construction and ample liquidity enables us to capture the best relative value opportunities across the entire spectrum of corporate and structured credit.
Chris Long: Moving forward, investors will continue to get the full-powered breath of the Palmer Square platform as we work to deliver on our mission to generate attractive, risk-adjusted returns to a highly liquid strategy underpin by excellent credit quality and a shareholder-friendly fee structure.
I will now hand the call over to Angie.
Thank you, Chris.
Speaker Change: In the first quarter, our portfolio proved resilient against the dynamic macro backdrop, which continued to evolve into April , leading to a significant amount of volatility.
Speaker Change: As Chris mentioned, Palmer Square was created during an incredibly volatile time in the markets and our investing philosophy is rooted in managing portfolios to provide investors with strong risk adjusted returns in all market types.
Speaker Change: We believe the current backdrop is an incredible opportunity for investors to earn a premium yield of approximately 12.3 percent and a BDC focused on first-lane senior secures loans.
Speaker Change: Compared to other yields available in the credit markets today, it's very difficult to achieve that type of yield, without taking significant credit risk.
Speaker Change: The Leather's Lone Index yields 8.1%, and the 10-year Treasury yields 4.2%.
Speaker Change: The excess yield pickup for PSBD relative to the leverage loan index is also near the widest level since our IPO, at approximately 420 basis points of additional yield.
Speaker Change: While each offers a different type of credit risk profile, we believe the premium yield and spread on PSBD relative to the underlying portfolio risks continue to remain extremely attractive.
Speaker Change: As we noted on our fourth quarter earnings call, we observe credit spreads tightening across most credit markets, many through their 10-year tights, and we believe the conservative approach to portfolio management represented a prudent posture to our fellow shareholders.
while credits spreads have begun to widen.
Speaker Change: to the heightened market volatility over the past five, six weeks. We remain more conservatively positioned.
Speaker Change: I believe that maintaining some dry powder is especially wise in the current environment.
Speaker Change: We're in a fluid situation in terms of how trade policy develops in Washington.
Speaker Change: and there's a high degree of uncertainty around where the tariff rates will ultimately settle. In the recent past, we have seen concerning moves in volatility in the treasury markets, declines in consumer and CEO confidence, and a slowdown in new issuance in the credit markets as M&A activity remains subdued.
Speaker Change: Going forward, we anticipate M&A volumes are likely to remain muted due to heightened volatility and the inability for management teams to have conviction and strategic planning. The U.S. Trade Policy continues to evolve.
Speaker Change: However, our differentiated investment strategy provides us with the distinct ability to invest in both the private and public sides of the debt markets, which is unique across the broader BDC peer set.
Speaker Change: To put it more plainly, we are not reliant on M&A volumes to drive originations and portfolio activity.
Speaker Change: Our ability to invest in liquid credit gives us access to the approximately $1.5 trillion secondary market for broadly syndicated loans. We believe the current volatility in the market may create opportunities to invest in high-quality loans at compelling entry points.
Speaker Change: For the modest amount of new issuance volume we have seen in the syndicated market, spreads are certainly wider, discounts are larger than they have been in quite some time, and credit documentation has become more lender friendly.
Speaker Change: Historically, the best time to invest in the primary market have been coming out of valves of volatility due to that dynamic, and we believe our portfolio is advantageously structured to capitalize on that circumstance when some of the current market dynamics abate.
Speaker Change: We can do all of this while still maintaining flexibility to increase our private credit allocation. Should we see compelling investment opportunities there?
Speaker Change: As Chris mentioned, at Palmer Square Capital, we manage over 34 billion dollars in corporate and structured credit, and the BDC benefits from the size and scale of the entire platform.
Speaker Change: Our unique investment approach relative to most BDCs gives us more shots on goal as we evaluate investments across the liquid, private, and structure credit markets. This optionality becomes even more valuable during periods of volatility.
Speaker Change: We are confident in our ability to preserve our strong credit quality as we deliver better long-term risk-adjusted rewards for our investors over time, in addition to what we believe is an extremely attractive current yield.
Speaker Change: The Palmer Square team will continue to uphold our discipline underwriting standards as we navigate these unique times.
Speaker Change: As a result of this commitment, our portfolio has among the industry's lowest levels of take income and not accruals. We are confident that we have the right expertise to navigate any situation that arises in the months and quarters ahead. It's in our DNA.
Speaker Change: With that, I'd like to hand the call over to Matt, who will discuss our portfolio and investment activity.
Matt: Thank you Angie, turning to our portfolio and investment activity for the first quarter.
Speaker Change: Our total investment portfolio as of March 31st, 2025 had a fair value of approximately $1.33 billion across 39 industries to demonstrate strong credit quality, industry and company specific tailwinds, and a diverse mix of core service offerings and end markets.
Speaker Change: This compares to a fair value of $1.41 billion at the end of the fourth quarter of 2024 reflecting a decrease of approximately 5.2%.
Speaker Change: In the first quarter, we invested $104.3 million of capital, which included 23 new investment commitments at an average value of approximately $3.9 million.
Speaker Change: During the same period, we realized approximately $144.4 million through repayments and sales. To echo Angie toward the back half of 2024 and the first few months of 2025, we observed Titan spreads across the BSL and most other credit markets.
Speaker Change: As a result, we managed our portfolio conservatively to monitor risk and to maintain credit quality and liquidity.
Speaker Change: In many cases, we did not believe we were being adequately compensated for the underlying credit risk, and thus we chose to either be repaid during refinancing or to sell loans we believed were overvalued.
Speaker Change: Following the recent market turbulence, we continue to believe in our diligent approach to credit underwriting and portfolio management as we act in the best interests of our investors in portfolio.
Speaker Change: Before I turn the call over to Jeff, I'll provide an overview of our portfolio's performance during the quarter and composition.
Speaker Change: At the end of the first quarter, our weighted average total yield to maturity of debt and income producing securities at fair value was 10.37 percent and our weighted average total yield to maturity of debt and income producing securities at Amortized Cost was 8.48 percent.
Speaker Change: We continue to see our portfolio diversification as a key differentiator with our 10 largest investments accounting for just 10.19% of the overall portfolio.
Speaker Change: Our portfolio is 96% senior secured with an average hold size of approximately $5.2 million.
Speaker Change: On a fair-evaluated basis, our first lean borrowers have awaited average EBITDA of $399 million, senior secured leverage of 5.5 times, an interest coverage of 2.1 times.
Speaker Change: As of March 31, 2025, we had three loans on non-approval status, representing just 0.24% of fair value. Well below reported BDC market averages.
Speaker Change: In the quarter, new private credit loans comprise 8.6% of overall new investments and were funded at a weighted average spread of 476 basis points over the reference rate. Our pick income, as a percentage of total investment income, remains very low relative to the industry at approximately 1.63%.
Speaker Change: Our rating is based on a unique relative value based scoring system. We believe this is an increasingly important tool for our portfolio as our ability to find relative value opportunities has historically increased coming out of volatile periods. This is a very important tool for our portfolio.
Speaker Change: To reiterate, Chris and Angie's comments made earlier, Palmer Square Capital was established during the volatile times of 2009, and our entire credit underwriting mentality centers around risk mitigation and understanding relative value in the credit markets.
Speaker Change: Now, I'd like to turn it over to Jeff, who will review our first quarter 2025 financial results.
Jeff: Thank you, Matt. Total investment income was $31.2 million for the first quarter of 2025, down 10.3% from $34.8 million for the prior year period.
Jeff: We attribute the decrease to the impacts of a falling rate environment on our portfolio, which is predominantly comprised of floating rate loans.
Jeff: Total net expenses for the first quarter were $18.3 million, compared with $18.5 million in the prior year period.
Jeff: Net investment income for the first quarter of 2025 was $12.9 million or 40 cents per share compared to $16.3 million or $52 cents per share for the comparable period last year.
Jeff: During the first quarter of 2025, the company had total net realized and unrealized losses of 21.3 million dollars compared to total net realized and unrealized gains of $6.6 million in the first quarter of 2024.
Jeff: This consisted of net unrealized appreciation of $21.7 million related to the existing portfolio investments and net unrealized appreciation of $6.3 million related to exited portfolio investments.
[inaudible]
Jeff: At the end of the first quarter, Nav per share of was $15.85 [inaudible]
As a reminder,
Jeff: The March NAV also reflects the payment of a $0.39 quarterly distribution, comprised of a base dividend of $0.36 and a supplemental dividend of $0.3 per share.
Jeff: Moving to our balance sheet, total assets were $1.4 billion in total net assets were $515.8 million as of March 31st of 2025.
Jeff: At the end of the first quarter, our debt to equity ratio was 1.50 times consistent with the fourth quarter of 2024.
Jeff: Available liquidity, consisting of cash and undrawn capacity on our credit facilities was approximately $229.5 million. This compares to approximately $200 million at the end of the fourth quarter of 2024.
Jeff: As mentioned on our fourth quarter earnings call, our Board of Directors reinstated and extended our existing stock repurchase plan, which were commenced on January 22nd of 2025.
Jeff: The program expires on January 22nd of 2026. During the first quarter, we purchased 98,399 shares at an average price of $14.89 for a total purchase cost of $1.5 million.
Jeff: On May 7, the Board of Directors declared a second quarter 2025 base dividend of 36 cents per share in line with our formalized dividend policy. Given the liquid nature of the portfolio, we plan to announce the supplemental dividend in June which allows for repayments to settle.
Jeff: The supplemental distribution we paid out of the excess of PSBD's quarterly undistributed net investment income above the base quarterly distribution.
Jeff: With that, I now like to open up the call for questions.
Jeff: At this time, I would like to remind everyone in order to ask a question, press star, then number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
[inaudible]
Speaker Change: Your first question comes from Kenneth Lee with RBC Capital Markets.
Speaker Change: You're maintaining a conservative discipline. Any kind of updated outlook or thoughts around where leverage could range. Is there still continued possibility of potential de-laveraging over the near term of the FDX?
Speaker Change: I think, you know, on a go-forward basis, we'll certainly, you know, see what opportunities come about both in, you know, whether it's in the primary market or secondary market, but kind of given the backdrop with where we're at now, I think we feel pretty comfortable about where we're at.
Speaker Change: Gotcha. And then in terms of one fall-up, if I may, um...
Speaker Change: In terms of the potential opportunities, the track of opportunities, especially within the liquid bone market, are you seeing some early signs of pockets of opportunities at this point and perhaps are there any certain sectors or areas that look particularly interesting at this point? Thanks.
Yeah, good, good question.
You know, I think it's-
Speaker Change: You know, we feel like it's probably a little bit early to have strong conviction, you know, to really start deploying a heavy amount of capital into the secondary market right now, as you've heard and would expect, you know, new deal activity remains, you know, pretty slow.
Speaker Change: You know, there are some opportunities obviously in some tariff impacted sectors, you know, which we've, you know, tended to avoid or be underweight, you know, that certainly, you know, bore the brunt of some of the volatility, you know, again, we're doing a lot of work on some individual names within there. I think there most likely will be opportunities. But again, I think with with the moving pieces, you know, on the policy side and on the tariff side. Again, we think it's a little bit early to have a lot of conviction in those. But you know, you know, you know, you know, you know,
Speaker Change: I do think there's going to be some opportunities we are looking at some things that I think will be the interesting on a go forward basis.
Speaker Change: Gotcha. Actually, one quick follow up, if I may, in terms of the paydowns in the quarter and aside from any kind of refinancing or prepayments.
Speaker Change: Were there any discretionary trades or investments that were sold within the portfolio in the corridor? Thanks.
Speaker Change: I'd say the vast majority were from refinancing repayments. We kind of alluded to on last quarter's call with the spread tightening environment that really persisted in January and February . There was just a lot of instances where we didn't feel like we were being compensated from a spread in yield basis on a go forward so we just took those par paydowns. There were a smaller amount of discretionary sales that we made, more just on a relative value.
Speaker Change: IU, standpoint, but the vast bulk of that was just from paydown activity.
Got you. Very helpful there. Thanks again.
Your next question comes from Melissa Wedel with J.P. Morgan .
Thanks for taking my questions today.
Speaker Change: I wanted to start on just the Erving Power of the Portfolio right now, certainly talked about starting to widen out on new investments.
Speaker Change: that also sounds like her appetite to deploy additional capitol right now is...
Night.
Speaker Change: Totally robust. You're waiting for, you're sitting on some dry powder and looking for a little more clarity, it sounds like. So as we think about the earnings power, the portfolio going forward.
Speaker Change: While you guys take a very maybe a measured approach to deploying happen to wider spot opportunities.
Speaker Change: How are you thinking about earning power relative to one two levels?
Speaker Change: Melissa, thank you for the question. No, I think certainly in the first quarter given how much repayment activity we saw, you obviously saw us proactively shrinking the portfolio, keeping some drive powder, building some capacity. I certainly think with the macro backdrop now as you could expect.
Speaker Change: You know, refinancing activity has come to, you know, a very, very low level. And I do think, you know, we've seen, you know, spread tightening, you know, be in the rear view window at this point, which I think all of that votes well on a go-forward basis. You know, first quarter is also, you know, the lowest quarter from a day count standpoint, you know, which does have a bit of an impact as we move to the second quarter. So I think we feel good about, you know, the moves we made in advance of, you know, the April volatility.
Speaker Change: I think we're definitely open to deploy capital to the right situations. We do continue to see some new opportunities as well. We've got the trillion and a half secondary market to continue to look through. So, I think we want to be somewhat conservative still. There's still a lot of uncertainty out there from the macro standpoint. But if we find good opportunities and I do think we will, we're certainly ready to deploy capital into those. [inaudible]
Speaker Change: One thing you do know for sure is where your stock is trading and where your nav is.
Speaker Change: Certainly, trading is quite a discount. Obviously, you've got to repurchase plans there in place. Should we be expecting re-purchase activity to pick up the deep discount due now? Thank you.
Speaker Change: Yeah, I mean, you're absolutely right. We do have the the buyback programs in place. You know, they are formulaic in nature. And so those will, you know, should should that discount persist. Those will will will continue to be deployed. But, you know, you're absolutely right. We do think, you know, it's at a very attractive level.
Speaker Change: out there right now, both from, obviously, from a discount price standpoint, but also from the ability to capture that type of yield, you know, the Chris and Angie alluded to on the call. So, we'd, we'd, we'd duly noted and we agree with you. And yes, the, the buyback programs will, we'll continue to, to be in place.
I appreciate that. I hope I can keep.
Speaker Change: Again, if you would like to ask a question, press star one on your telephone keypad.
Thank you.
Speaker Change: Do you have a follow-up question from Melissa Wedel with JP Morgan?
Speaker Change: I might as well have just said that in the first place.
Speaker Change: Wood. I wanted to talk about touch on the decline in now, sort of quarter, quarter. I think one of the things that surprised us a little bit was the magnitude of the math declined.
Speaker Change: Particularly with how much flexibility you have relative to other BDCs to rotate assets. It sounds like I heard you say that a lot of the activity in the first quarter was from Ray Paynebs.
Making relative value trade within the portfolio.
Speaker Change: Can you just elaborate on what you saw throughout the quarter and how that decision-making takes place and how we should think about that going forward?
She's deaf.
Speaker Change: Certainly, good question. I think, you know, really, you know, January and February , there wasn't, you know, too much in the way of movement. It was really, you know, as we got into March, and particularly the back half of March.
Speaker Change: with some of the macro and equity volatility syndicated loan prices did sell off. There were some pretty big ETF outflows that drove that.
Speaker Change: So from our vantage point, it's kind of unrealized mark to market. I'd say we're not looking to time markets perfectly. And so from our vantage point, we'll demonstrate down a point or two for what we view as par assets. It's not in our best interest or I think shareholders best interest for us and necessarily sell those down to points and crystallize losses. So it was really just the last couple weeks of March, just from a mark to market basis.
Speaker Change: and Price movements that we fully expect to recapture over time as loans normalize.
. . .
Thank you.
Speaker Change: At this time, I would like to turn the call back to Chris Long for closing remarks.
Unknown Speaker.
Speaker Change: Thank you so much. On behalf of the entire management team, we appreciate you joining us today and your continued support of Palmer Square Capitol BDC. We look forward to updating you on our second quarter 2025 financial results in August .
. . .
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.