Q2 2026 Palmer Square Capital BDC Inc Earnings Call

Operator 2: Welcome to Palmer Square Capital BDC's Q2 2026 Earnings Call. At this time, all participants are in listen-only mode. A question and answer session will follow the prepared remarks. As a reminder, this conference call is being recorded. At this time, I'd like to turn the call over to Jeremy Goff, managing director. You may begin.

Speaker #1: As a reminder, this conference call is being recorded. At this time, I'd like to turn the call over to Jeremy Goff, Managing Director. You may begin.

Speaker #2: Welcome to Palmer Square Capital BDC's second 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.

Jeremy Goff: Welcome to Palmer Square Capital BDC's Q2 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's Q2 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.

Speaker #2: Palmer Square Capital BDC's second quarter 2026 financial results were released earlier today and can also be accessed on palmer-squares.investorrelations website at palmer-square-bdc.com. We have also arranged for a replay of today's event that can be accessed on our website.

Speaker #2: 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.

Speaker #2: 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.

Jeremy Goff: 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. For obtain copies of SEC-related filings, please visit our website at palmersquarebdc.com.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: For paying copies of SEC-related filings, please visit our website at palmer-square-bdc.com. With that, I will now turn the call over to Chris Long.

Jeremy Goff: With that, I will now turn the call over to Chris Long.

Speaker #3: Good afternoon, everyone. Thank you for joining us today for Palmer Square Capital BDC's second quarter 2026 conference call. On today's call, I will provide an overview of our second quarter results, touch on our market outlook, and then turn the call to the team to discuss the current industry dynamics at play, our portfolio activity, and financial results.

Chris Long: Good afternoon, everyone. Thank you for joining us today for Palmer Square Capital BDC's Q2 2026 conference call. On today's call, I will provide an overview of our Q2 results, touch on our market outlook, then turn the call to the team to discuss the current industry dynamics at play, our portfolio activity, and financial results. During the Q2, our team deployed $72.4 million of capital and generated total and net investment income of $27.3 million and $12 million, respectively. We delivered net investment income of $0.39 per share and paid a $0.39 per share total dividend, which includes a $0.03 supplemental distribution above our base dividend. Notably, our dividend payout represents an attractive 11.8% yield on NAV and 16.3% yield on the stock price as of 31 July. We remain committed to a disciplined capital allocation strategy that prioritizes long-term shareholder value.

Speaker #3: During the second quarter, our team deployed 72.4 million dollars of capital and generated total and net investment income of 27.3 million dollars and 12 million dollars respectively.

Speaker #3: We delivered net investment income of $0.39 per share and paid a $0.39 per share total dividend, which includes a $0.03 supplemental distribution above our base dividend.

Speaker #3: Notably, our dividend payout represents an attractive 11.8 percent yield on NAV and 16.3 percent yield on the stock price as of July 31st. We remain committed to a disciplined capital allocation strategy that prioritizes long-term shareholder value.

Speaker #3: Consistent with that approach, our board has declared a third-quarter base dividend of $0.36 per share, with the supplemental dividend to be determined in the normal course.

Chris Long: Consistent with that approach, our board has declared a Q3 base dividend of $0.36 per share with the supplemental dividend to be determined in the normal course. At the same time, with deal activity across both private credit and the broadly syndicated loan market remaining subdued, our board and management team concluded that expanding our share repurchase program during the quarter represented a compelling use of capital and an attractive risk-adjusted opportunity to create value for shareholders. Our June NAV per share was $13.21, reflecting fair value adjustments resulting from pricing moves within the broadly syndicated loan market and reflecting the complex market picture we'll discuss further throughout the call.

Speaker #3: At the same time, with deal activity across both private credit and the broadly syndicated loan market remaining subdued, our Board and management team concluded that expanding our share repurchase program during the quarter represented a compelling use of capital and an attractive risk-adjusted opportunity to create value for shareholders.

Speaker #3: Our June NAV per share was $13.21, reflecting fair value adjustments resulting from pricing moves within the broadly syndicated loan market, and reflecting the complex market picture we'll discuss further throughout the call.

Speaker #3: While the macro environment continues to be fluid, we believe our enhanced level of transparency—particularly our monthly disclosed net asset value per share—provides meaningful value to investors and should help provide confidence in the stated value of PSBD's portfolio.

Chris Long: While the macro environment continues to be fluid, we believe our enhanced level of transparency, particularly our monthly disclosed net asset value per share, provides meaningful value to investors and should help provide confidence in the stated value of PSBD's portfolio. I want to take a moment to highlight one of the key advantages of the Palmer Square Capital Management platform. As one of the industry's leading global CLO managers, we believe Palmer Square provides our BDC with a clear competitive advantage. The breadth of our platform gives us visibility across the entire universe of broadly syndicated loan issuance, allowing us to evaluate a wide range of investment opportunities and selectively deploy capital into those we believe offer the most attractive risk-adjusted returns.

Speaker #3: I want to take a moment to highlight one of the key advantages of the Palmer Square Capital Management Platform. As one of the industry's leading global CLO managers, we believe Palmer Square provides our BDC with a clear competitive advantage.

Speaker #3: The breadth of our platform gives us visibility across the entire universe of broadly syndicated loan issuance, allowing us to evaluate a wide range of investment opportunities and selectively deploy capital into those we believe offer the most attractive risk-adjusted returns.

Speaker #3: We believe this sourcing advantage combined with our scale and long-standing relationships in the syndicated loan market made the underappreciated by equity investors who are more familiar with BDC's focus primarily on traditional direct lending.

Chris Long: We believe this sourcing advantage, combined with our scale and long-standing relationships in the syndicated loan market, may be underappreciated by equity investors who are more familiar with BDCs focused primarily on traditional direct lending. Turning to the debate around software, while AI-driven disruption continues to impact investor sentiment, we remain confident in the performance of our software portfolio. As we've discussed on prior earnings calls, we have been deliberate in allocating capital to software businesses operating in areas such as cybersecurity, IT infrastructure and ERP system. Segments we believe are well positioned to benefit from increased AI adoption and are led by management teams with a demonstrated ability to adapt and innovate. While AI has become a dominant narrative shaping investor sentiment for both the broader market and the BDC sector specifically, we believe the underlying market dynamics are more nuanced.

Speaker #3: Turning to the debate around software, while AI-driven disruption continues to impact investor sentiment, we remain confident in the performance of our software portfolio. As we've discussed on prior earnings calls, we have been deliberate in allocating capital to software businesses operating in areas such as cybersecurity, IT infrastructure, and ERP systems—segments we believe are well-positioned to benefit from increased AI adoption and are led by management teams with a demonstrated ability to adapt and innovate.

Speaker #3: While AI has become a dominant narrative shaping investor sentiment for both the broader market and the BDC sector specifically, we believe the underlying market dynamics are more nuanced.

Speaker #3: We are seeing the effects of 2021 and 2022 loan vintages reaching maturity in a more constrained exit environment, with a higher interest rate backdrop.

Chris Long: We are seeing the effects of 2021 and 2022 loan vintages reaching maturity in a more constrained exit environment with a higher interest rate backdrop. As these loans mature, outcomes are likely to become increasingly company specific. Many businesses will likely refinance successfully, albeit at a higher cost of capital, while others may face more meaningful challenges. These dynamics are highly dependent on individual borrower profiles and should not be used to paint whole sectors or the broader BSL and private credit markets as structurally weak. We believe this environment reinforces the value of disciplined credit selection and active portfolio management. Given the breadth of our platform and the flexibility of our investment approach, we believe we are well positioned to navigate this period of increased dispersion and identify attractive opportunities as they emerge. With that, I will hand the call over to Angie.

Speaker #3: As these loans mature, outcomes are likely to become increasingly company-specific. Many businesses will likely refinance successfully, albeit at a higher cost of capital, while others may face more meaningful challenges.

Speaker #3: These dynamics are highly dependent on individual borrower profiles and should not be used to paint whole sectors or the broader BSL and private credit markets as structurally weak.

Speaker #3: We believe this environment reinforces the value of disciplined credit selection and active portfolio management. Given the breadth of our platform and the flexibility of our investment approach, we believe we are well positioned to navigate this period of increased dispersion and identify attractive opportunities as they emerge.

Speaker #3: With that, I will hand the call over to Angie.

Speaker #4: Thank you, Chris. During the second quarter, PSBD’s portfolio continued to perform steadily despite another period of elevated macro uncertainty. While markets navigated the conflict in Iran, ceasefire discussions, and continued scrutiny around software and AI exposure, we believe the portfolio’s underlying credit quality remained resilient.

Angie Long: Thank you, Chris. During the Q2, PSBD's portfolio continued to perform steadily despite another period of elevated macro uncertainty. While markets navigated the conflict in Iran, ceasefire discussions, and continued scrutiny around software and AI exposure, we believe the portfolio's underlying credit quality remained resilient, as evidenced by PSBD's 0.29% non-accrual rate. With muted activity across both private credit and the broadly syndicated market, we remain disciplined in our capital allocation, prioritizing opportunities that we believe offer the strongest risk-adjusted returns. As Chris mentioned, that included expanding our share repurchase program, which we viewed as an attractive and accretive use of capital while near-term market opportunities remain more limited. At the same time, we generated solid net income during the quarter and believe our disciplined approach leaves us well positioned to capitalize on a healthier investment environment as market activity and refinancing volumes improve over time.

Speaker #4: As evidenced by PSBD's 0.29% non-accrual rate, with muted activity across both private credit and the broadly syndicated market, we remain disciplined in our capital allocation, prioritizing opportunities that we believe offer the strongest risk-adjusted returns.

Speaker #4: As Chris mentioned, that included expanding our share repurchase program, which we viewed as an attractive and accretive use of capital while near-term market opportunities remained more limited.

Speaker #4: At the same time, we generated solid net income during the quarter and believe our disciplined approach leaves us well positioned to capitalize on a healthier investment environment as market activity and refinancing volumes improve over time.

Speaker #4: Stepping back, the second quarter included several mini-cycles, driven by geopolitical and macroeconomic factors. Federal Reserve policy remains a subject of active debate, creating continued uncertainty around the interest rate outlook.

Angie Long: Stepping back, the Q2 included several mini cycles driven by geopolitical and macroeconomic factors. Federal Reserve policy remains a subject of active debate, creating continued uncertainty around the interest rate outlook. While we are not macro forecasters, persistent inflation, driven in part by the Iran war's impact on energy prices, remains an important consideration for our portfolio companies. Turning to software. Despite signs of stabilization earlier in the quarter, loans weakened meaningfully toward quarter end as sentiment deteriorated. With fewer market transactions available to help inform valuations, it has become increasingly challenging for investors to benchmark private assets. We believe this dynamic has contributed to the disconnect between public market sentiment and the underlying performance of our portfolio. We expect that in the coming quarters, increased refinancing activity will be a catalyst to help establish valuation and spread benchmarks.

Speaker #4: While we are not macro forecasters, persistent inflation—driven in part by the Iran war's impact on energy prices—remains an important consideration for our portfolio companies.

Speaker #4: Turning to software, despite signs of stabilization earlier in the quarter, loans weakened meaningfully toward quarter end as sentiment deteriorated. With fewer market transactions available to help inform valuations, it has become increasingly challenging for investors to benchmark private assets.

Speaker #4: We believe this dynamic has contributed to the disconnect between public market sentiment and the underlying performance of our portfolio. We expect that in the coming quarters, increased refinancing activity will be a catalyst to help establish valuation and spread benchmarks. Even with the current dynamics, we continue to believe many of these businesses are well-positioned—although individual outcomes will vary and ultimately depend on how effectively companies incorporate AI into their products to enhance value.

Angie Long: Even with the current dynamics, we continue to believe many of these businesses are well positioned, although individual outcomes will vary and ultimately depend on how effectively companies incorporate AI into their products to enhance value. We are increasingly seeing discounted opportunities in the broadly syndicated market, whether in software or certain cyclicals, but we remain disciplined and prudent in underwriting them. As Chris mentioned, with dispersion elevated across credit, many of these situations involve layered capital structure complexity, which places a premium on the kind of idiosyncratic credit by credit analysis our broad investment platform enables. Looking more closely at our portfolio, this quarter we focused on optimizing the right side of our balance sheet to enhance financial flexibility while reducing our overall cost of capital.

Speaker #4: We are increasingly seeing discounted opportunities in the broadly syndicated market, whether in software or certain cyclicals. However, we remain disciplined and prudent in underwriting them.

Speaker #4: As Chris mentioned, with dispersion elevated across credit, many of these situations involve layered capital structure complexity, which places a premium on the kind of idiosyncratic, credit-by-credit analysis our broad investment platform enables.

Speaker #4: Looking more closely at our portfolio, this quarter we focused on optimizing the right side of our balance sheet to enhance financial flexibility while reducing our overall cost of capital.

Speaker #4: As part of these efforts, we successfully reset and extended our BDC CLO, lowering the weighted average cost of debt to SOFR plus 1.39%, from SOFR plus 1.72%, while extending the reinvestment period to July 2031 and the maturity to July 2039.

Angie Long: As part of these efforts, we successfully reset and extended our BDC CLO, lowering the weighted average cost of debt to SOFR plus 1.39% from SOFR plus 1.72%, while extending the reinvestment period to July 2031 and maturity to July 2039. The transaction, which closed on 15 July, is expected to be fully accretive after refinancing costs beginning in the Q4. Given the lower cost of our term finance CLO, which is currently a more efficient funding source for BSL investments, we have reduced the excess capacity on our Bank of America BSL funding facility to lower associated unused fees. These actions reduce carrying costs while preserving liquidity should M&A activity accelerate. We've maintained availability under our Wells Fargo facility, which we intend to deploy primarily towards private credit opportunities where we currently see more attractive spreads. Overall, we are very pleased with our strong balance sheet position.

Speaker #4: The transaction, which closed on July 15, is expected to be fully accretive, after refinancing costs, beginning in the fourth quarter. Given the lower cost of our term-financed CLO—which is currently a more efficient funding source for BSL investments—we have reduced the excess capacity on our Bank of America BSL funding facility to lower associated unused fees.

Speaker #4: These actions reduce carrying costs while preserving liquidity, should M&A activity accelerate. We've maintained availability under our Wells Fargo facility, which we intend to deploy primarily toward private credit opportunities, where we currently see more attractive spreads.

Speaker #4: Overall, we are very pleased with our strong balance sheet position. As we look toward the remainder of 2026, we are constructive about the outlook for our portfolio.

Angie Long: As we look toward the remainder of 2026, we are constructive about the outlook for our portfolio, and we remain focused on maintaining our prudent approach to underwriting in the face of uncertain macro conditions. We believe improving refinancing activity, greater pricing transparency, and a strong balance sheet position PSBD well to identify attractive opportunities as they emerge across both the broadly syndicated and private credit markets. I'll now turn the call over to Matt to discuss our portfolio and investment activity in more detail.

Speaker #4: And we remain focused on maintaining our prudent approach to underwriting in the face of uncertain macro conditions. We believe improving refinancing activity, greater pricing transparency, and a strong balance sheet position PSBD well to identify attractive opportunities as they emerge across both the broadly syndicated and private credit markets.

Speaker #4: I'll now turn the call over to Matt to discuss our portfolio and investment activity in more detail.

Speaker #3: Thank you, Angie. To echo Chris and Angie, current market valuations across the BDC sector imply a more pessimistic outlook for portfolio performance than we believe is warranted.

Matt Bloomfield: Thank you, Angie. To echo Chris and Angie, current market valuations across the BDC sector imply a more pessimistic outlook for portfolio performance than we believe is warranted. In our view, the fundamentals tell a different story. Credit performance remains healthy, and we believe has a strong outlook for earnings in 2026. Current trading discounts are implying default expectations that we believe are disconnected from underlying portfolio performance. Media coverage has often conflated unrelated market developments into a single broader narrative, further weighing on investor sentiment, specifically as it relates to private credit. Private credit loans comprise approximately 14% of our portfolio at PSBD as of last quarter, with a median revenue and EBITDA growth of approximately 9% each, respectively. We think these are healthy growth levels in any market environment.

Speaker #3: In our view, the fundamentals tell a different story. Credit performance remains healthy, and we believe it has a strong outlook for earnings in 2026. Furthermore, current trading discounts are implying default expectations that we believe are disconnected from underlying portfolio performance.

Speaker #3: At the same time, media coverage has often conflated unrelated market developments into a single, broader narrative, further weighing on investor sentiment—specifically as it relates to private credit.

Speaker #3: In that context, private credit loans comprise approximately 14 percent of our portfolio at PSBD as of last quarter, with a median revenue and EBITDA growth of approximately 9 percent each, respectively.

Speaker #3: We think these are healthy growth levels in any market environment. To that end, during the second quarter, we maintained a solid portfolio performance, delivering net investment income of $0.39 per share.

Matt Bloomfield: During the Q2, we maintained a solid portfolio performance, delivering net investment income of $0.39 per share. Borrowers continue to meet our expectations, and we remain confident in our ability to navigate the current environment through disciplined underwriting and active portfolio management. Our total investment portfolio as of 30 June 2026, had a fair value of approximately $1.11 billion, diversified across 45 industries that demonstrate strong credit quality, industry and company specific tailwinds in a variety of end markets. This compares to a fair value of $1.15 billion at the end of the Q1 2026, reflecting a decrease of approximately 3.6%. In the Q2, we invested $72.4 million of capital, which included 21 new investment commitments at an average value of approximately $3.3 million. During the same period, we realized approximately $109.8 million through repayments and sales.

Speaker #3: Borrowers continue to meet our expectations, and we remain confident in our ability to navigate the current environment through disciplined underwriting and active portfolio management.

Speaker #3: Our total investment portfolio as of June 30, 2026, had a fair value of approximately $1.11 billion, diversified across 45 industries that demonstrate strong credit quality, industry and company-specific tailwinds, and a variety of end markets.

Speaker #3: This compares to a fair value of $1.15 billion at the end of the first quarter of 2026, reflecting a decrease of approximately 3.6 percent.

Speaker #3: In the second quarter, we invested $72.4 million of capital, which included 21 new investment commitments at an average value of approximately $3.3 million.

Speaker #3: During the same period, we realized approximately $109.8 million through repayments and sales. Importantly, we remained focused on diversification as we allocate new capital across the portfolio, as we believe the recent market turbulence has reinforced the importance of risk management.

Matt Bloomfield: We remain focused on diversification as we allocate new capital across the portfolio, as we believe the recent market turbulence has reinforced the importance of risk management. At the end of the Q2, our weighted average total yield to maturity of debt and income-producing securities at fair value was 11.95%, and our weighted average total yield to maturity of debt and income-producing securities at amortized cost was 8.43%. 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 45 different industries. Our 10 largest investments account for just 10.74% of the overall portfolio, and our portfolio is 96% senior secured, with an average hold size of approximately $4.2 million.

Speaker #3: To recap key portfolio highlights, at the end of the second quarter, our weighted average total yield to maturity of debt and income-producing securities at fair value was 11.95%.

Speaker #3: And our weighted average total yield to maturity of debt and income-producing securities at amortized cost was 8.43%. 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 45 different industries.

Speaker #3: Further, our 10 largest investments account for just 10.74 percent of the overall portfolio, and our portfolio is 96 percent senior secured, with an average hold size of approximately $4.2 million.

Speaker #3: On a fair value-weighted basis, our first lien borrowers have a weighted average EBITDA of $463 million, senior secured leverage of 5.6 times, and interest coverage of 2.5 times.

Matt Bloomfield: On a fair value weighted basis, our first lien borrowers have a weighted average EBITDA of $463 million, senior secured leverage of 5.6x, and interest coverage of 2.5x. New private credit loans comprise 24.1% of overall new investments at a weighted average spread of 534 basis points over the reference rate. On a fair value basis, non-approvals represent approximately 29 basis points, and on an at-cost basis, only 149 basis points. Our PIK income represents approximately 1.37% of total investment income, well below our peers and 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.

Speaker #3: Additionally, new private credit loans comprise 24.1% of overall new investments at a weighted average spread of 534 basis points over the reference rate.

Speaker #3: On a fair value basis, non-approvals represent approximately 29 basis points, and on an at-cost basis, only 149 basis points. Our PIC income represents approximately 1.37 percent of total investment income.

Speaker #3: 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.

Speaker #3: As Angie highlighted, we focused our attention on the right side of the balance sheet in the quarter in order to lower our overall cost of capital and to reduce our associated financing expenses, all of which should help drive additional earnings power for shareholders starting in the fourth quarter of '26.

Matt Bloomfield: As Angie highlighted, we focused our attention to the right side of the balance sheet in the quarter in order to lower our overall cost of capital and to reduce our associated financing expenses, all of which should help drive additional earnings power for shareholders starting in Q4 2026. We also believe the increased share buyback program of $30 million is another key mechanism to drive shareholder value going forward. While we do expect the M&A environment to improve at some point in the future, it is always difficult to predict when. Thus, we have focused our attention on these other tools to help drive value for PSBD. Now, I'd like to turn the call over to Jeff, who will review our Q2 2026 financial results.

Speaker #3: We also believe the increased share buyback program of $30 million is another key mechanism to drive shareholder value going forward. While we do expect the M&A environment to improve at some point in the future, it is always difficult to predict when, and thus we have focused our attention on these other tools to help drive value for PSBD.

Speaker #3: Now, I'd like to turn the call over to Jeff, who will review our second quarter 2026 financial results.

Speaker #2: Thank you, Matt. Total investment income was $27.3 million for the second quarter of 2026, down 13.8 percent from $31.7 million for the comparable prior-year period.

Jeff Fox: Thank you, Matt. Total investment income was $27.3 million for Q2 2026, down 13.8% from the $31.7 million for the comparable prior year period. Income generation during the quarter reflected contractual interest income from our investments, which was impacted by lower base rates versus the prior year, as well as a modest amount of paydown-related income and fee income. Total net expenses for the second quarter were $15.3 million compared to $17.8 million in the prior year period. Net investment income for Q2 2026 was $12 million, or $0.39 per share, compared to $13.8 million, or $0.43 per share, for the comparable period last year. During Q2 2026, the company had total net realized and unrealized losses of $3.6 million, compared to total net realized and unrealized losses of $6.7 million in Q2 2025.

Speaker #2: Income generation during the quarter reflected contractual interest income from our investments, which was impacted by lower base rates versus the prior year, as well as a modest amount of paydown-related income and fee income.

Speaker #2: Total net expenses for the second quarter were 15.3 million dollars, compared to 17.8 million dollars in the prior year period. Net investment income for the second quarter of 2026 was 12 million dollars, or 39 cents per share, compared to 13.8 million dollars, or 43 cents per share, for the comparable period last year.

Speaker #2: During the second quarter of 2026, the company had total net realized and unrealized losses of 3.6 million dollars, compared to total net realized and unrealized losses of 6.7 million dollars in the second quarter of 2025.

Speaker #2: This consisted of net unrealized depreciation of $6.3 million, related to existing portfolio investments, and net unrealized appreciation of $6 million, related to exited portfolio investments.

Jeff Fox: This consisted of net unrealized depreciation of $6.3 million related to existing portfolio investments. Net unrealized appreciation of $6 million related to exited portfolio investments. At the end of Q2, NAV per share was $13.21, compared to $13.30 at the end of Q1 2026. Moving to our balance sheet, total assets were $1.1 billion, and total net assets were $406.2 million as of 30 June 2026. At the end of Q2, our debt-to-equity ratio was 1.71 times, compared to the 1.70 times at the end of Q1 2026. Available liquidity, consisting of cash and undrawn capacity on our credit facilities, was approximately $331 million. This compares to approximately $325.3 million at the end of Q1 2026.

Speaker #2: At the end of the second quarter, net per share was 13 dollars and 21 cents, compared to 13 dollars and 30 cents at the end of the first quarter of 2026.

Speaker #2: Moving to our balance sheet, total assets were 1.1 billion dollars and total net assets were 406.2 million dollars as of June 30, 2026. At the end of the second quarter, our debt-to-equity ratio was 1.71 times, compared to the 1.70 times at the end of the first quarter of 2026.

Speaker #2: Available liquidity consisting of cash and undrawn capacity on our credit facilities was approximately 331 million dollars. This compares to approximately 325.3 million dollars at the end of the first quarter of 2026.

Speaker #2: Finally, on August 3rd, the board of directors declared a third quarter 2026 base dividend of 36 cents per share, in line with our dividend policy.

Jeff Fox: Finally, on 3 August, the board of directors declared a Q3 2026 base dividend of $0.36 per share, in line with our dividend policy. Furthermore, our policy continues to distribute excess earnings in the form of a quarterly supplemental distribution. With that, I'd now like to open the call up for questions.

Speaker #2: Furthermore, our policy continues to distribute excess earnings in the form of a quarterly supplemental distribution. With that, I'd now like to open the call up for questions.

Speaker #1: At this time, if you would like to ask a question, press star, then the number 1 on your telephone keypad. To withdraw your question, simply press star 1 again.

Operator 2: At this time, if you would like to ask a question, press star, then the number 1 on your telephone keypad. To withdraw your question, simply press star 1 again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Kenneth Lee with RBC Capital Markets. Please go ahead.

Speaker #1: We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Kenneth Lee with RBC Capital Markets.

Speaker #1: Please go ahead.

Speaker #4: Hey, good afternoon, and thanks for taking my question. Just one on the share repurchase program, the recent expansion there. Wondering how active you could be with repurchases, just given current valuations and some of the opportunities you talked about in the near term.

Kenneth Lee: Hey, good afternoon. Thanks for taking my question. Just one on the share repurchase program, the recent expansion there. Wondering how active you could be with repurchases, just given current valuations and some of the opportunities you talked about in the near term. Thanks.

Speaker #4: Thanks.

Speaker #3: Hey, again, it's Matt. Thank you for the question. You know, certainly I think by the quantum that we announced, here during the quarter of 30 million dollars, which, you know, as a percentage of market cap, we think is pretty meaningful.

Matt Bloomfield: Hey, Ken. It's Matt. Thank you for the question. Certainly, I think by the quantum that we announced here during the quarter of $30 million, which as a percentage of market cap we think is pretty meaningful. I think we see a lot of value in utilizing that program. We used about $4 million, pretty much of the existing program through Q2, so have essentially the full availability of that $30 million going forward. I think when we look across the landscape, there's certainly a lot of gives and takes that you have to analyze whether it's share buybacks versus deploying capital. I think the size of that program should speak to our view that at these levels of discount, we think it's a very strong return on equity for investors.

Speaker #3: I think we see a lot of value in utilizing that program. You know, we used about $4 million, pretty much, of the existing program through the second quarter, so we have, you know, essentially the full availability of that $30 million going forward.

Speaker #3: So, I think when we look across the landscape, there's certainly a lot of give and take that you have to analyze—whether it's share buybacks versus deploying capital.

Speaker #3: But I think the size of that program should speak to our view that at these levels of discount, we think it's a very, very strong return on equity for investors.

Speaker #3: And so I would envision, at least here in the near term, we'll look to deploy a fair amount of that, but also, you know, one, maintaining the appropriate levels of leverage, and making sure we're comfortable from a balance sheet standpoint as well.

Matt Bloomfield: I would envision at least here in the near term, we'll look to deploy a fair amount of that. Also one away, maintaining the appropriate levels of leverage, making sure we're comfortable from a balance sheet standpoint as well. In light of what's transpiring from an M&A standpoint or kind of still lack thereof. We certainly feel like those share buybacks are a very accretive tool to utilize.

Speaker #3: But in light of, you know, what's transpiring from an M&A standpoint, or kind of still lack thereof, we certainly feel like those share buybacks are a very accretive tool to utilize.

Speaker #4: Gotcha. Very helpful there. And then one follow-up, if I may, you mentioned in the prepared remarks seeing some discounted opportunities. I assume within the liquid loan markets, what would make you more positive in terms of potentially taking advantage of some of these opportunities?

Kenneth Lee: Got you. Very helpful there. One follow-up, if I may. You mentioned in the prepared remarks seeing some discounted opportunities, I assume within the liquid loan markets. What would make you more positive in terms of potentially taking advantage of some of these opportunities? What would make you feel a little bit more constructive around that? Thanks.

Speaker #4: What would make you feel a little bit more constructive around that? Thanks.

Speaker #3: I mean, I think, you know, the size of the secondary loan market, you know, well north of 1.5 trillion, gives us a lot of things to look at.

Matt Bloomfield: I think the size of the secondary loan market well north of $1.5 trillion gives us a lot of things to look at. Certainly there's a lot going on from a macro standpoint. We certainly take that into consideration. Obviously even more importantly at each company level what our view is on those underlying credits. Traditionally, if things are trading at much of a discount, there's usually a reason for that. Certainly within the software sector there's still a lot of lack of clarity on where some of these play out. For us, take a sub-industry such as cybersecurity. We're very constructive there, and there are some interesting opportunities. As we take a look at some of these credits that are trading at discounts that have rather near-term maturities.

Speaker #3: You know, certainly there's a lot going on from a macro standpoint. You know, so we certainly take that into consideration. But, you know, obviously even each company level, you know, what our view is, is on those underlying credits, you know, traditionally, if things are trading at, you know, much of a discount, there's usually a reason for that.

Speaker #3: Certainly within the software sector, right, there's still a lot of, you know, lack of clarity on where some of these play out. But for us, you know, take a sub-industry such as cybersecurity— we're very constructive there, and there are some interesting opportunities.

Speaker #3: You know, as we take a look at some of these credits that are trading at discounts that have rather near-term maturities, there can certainly be some interesting opportunities to take advantage of that as you think about any sort of refinancing, you know, in some cases, additional equity coming into some of these businesses to help facilitate refinancings.

Matt Bloomfield: There can certainly be some interesting opportunities to take advantage of that as you think about any sort of refinancing. In some cases, additional equity coming into some of these businesses to help facilitate refinancings. We think there's certainly going to be some interesting opportunities there. I think on the broadly syndicated side of things, that's probably where more interesting opportunities lie. On the flip side from private credit transactions, while again deal activity has been relatively muted, we have seen spreads widen in that market. I do think there's going to continue to be some interesting opportunities. As you saw this past quarter where we did deploy new capital an increasing allocation of that has gone to the private credit space, just given spreads there have widened out more so than we've seen for relatively new issue in the syndicated markets.

Speaker #3: We think, you know, there's certainly going to be some interesting opportunities there. So I think on the broadly syndicated side of things, that's probably where more interesting opportunities lie.

Speaker #3: But then, you know, on the flip side, from private credit transactions, while again, you know, deal activity has been relatively muted, you know, we have seen spreads continue to be some interesting opportunities.

Speaker #3: And, you know, as you saw this past quarter, where we did deploy new capital, you know, an increasing allocation of that has gone to, you know, the private credit space just given spreads there, have widened out more so than we've seen for, you know, relatively new issue in the syndicated markets.

Speaker #4: Gotcha. That was very helpful. Thanks again.

Kenneth Lee: Got you. Very helpful there. Thanks again.

Speaker #1: Your next question comes from the line of Melissa Waddell with UBS. Please go ahead.

Operator 2: Your next question comes from the line of Melissa Wedel with UBS. Please go ahead.

Speaker #5: Hi, good afternoon. It's good to talk to you guys. Thanks for taking my questions. I think you've answered a lot of them right off the bat.

Melissa Wedel: Hi, good afternoon. Good to talk to you guys. Thanks for taking my questions. I think you've answered a lot of them right off the bat. I did want to revisit, though, the idea of portfolio leverage remaining a bit elevated. I think when you guys talk about the relatively liquid positions in your portfolio versus other more traditional direct lending BDCs, the idea was that maybe you would be able to manage that leverage and be a little bit more nimble and opportunistic as you saw fit. Then are you choosing to keep leverage a little bit higher? Thanks.

Speaker #5: I did want to revisit, though, the idea of portfolio leverage remaining a bit elevated. You know, I think when you guys talk about the relatively liquid positions in your portfolio versus other more traditional direct lending, BDC.

Speaker #5: The idea was that maybe you would be able to manage that leverage and be a little bit more nimble in opportunistic. As you saw fit, I'm curious why is that not the case?

Speaker #5: And then, are you choosing to keep leverage a little bit higher? Thanks.

Speaker #3: Thanks, Melissa. Nice to hear your voice again, and congrats on the new role. Yeah, I think, look, we're certainly comfortable with where leverage is at.

Matt Bloomfield: Thanks, Melissa. Nice to hear your voice again, and congrats on the new role. Yeah, I think, look, we're certainly comfortable with where leverage is at. It's definitely on the higher end of where we would traditionally target. I think the majority of that has just been with some of the NAV movement we saw in Q1 with predominantly where syndicated SOFR loans went, was kind of the biggest reason for that. Given the underlying liquidity in the vast majority of the portfolio, we can manage that really on a day-to-day basis. So it's something we monitor daily and feel pretty comfortable at. Certainly as we think about share buybacks and how that impacts leverage, that's one piece of the equation. Then to the other part of your question, how we think about deployment. It's something we're continuing to look at and want to balance accordingly.

Speaker #3: It's, you know, definitely on the higher end of where we would traditionally target. I think, you know, the majority of that has just been with, you know, some of the NAV movement we saw in first quarter, you know, with predominantly where, you know, syndicated software loans went was kind of the biggest reason for that.

Speaker #3: Given the underlying liquidity in the vast majority of the portfolio, you know, we can manage that, you know, really on a day-to-day basis. And so it's something we monitor daily and feel pretty comfortable at.

Speaker #3: You know, certainly as we think about share buybacks and how that impacts leverage, that's, you know, one piece of the equation. And then to the other part of your question, you know, how we think about deployment.

Speaker #3: So, you know, it's something we're continuing to look at and want to balance accordingly. You know, to the extent we want to pay down debt and deleverage, we can do that.

Matt Bloomfield: To the extent we want to pay down debt and de-leverage, we can do that. With kind of what we've seen in July, and first week, I guess, of August, we still feel very comfortable with that. Certainly think share buybacks should continue to be a big piece of that puzzle. The leverage is something we can manage on our end pretty well.

Speaker #3: But with kind of what we've seen in July, and, you know, first week, I guess, of August, you know, we still feel very comfortable with that.

Speaker #3: And certainly, I think share buybacks should continue to be a big piece of that puzzle. But, you know, the leverage is something we can manage on our end pretty well.

Speaker #5: Okay, got it. And then I guess the follow-up question on that would just be around any expected repayment activity. Of course, there's always some every quarter, but do you have any line of sight to anything outsized, more in the near term?

Melissa Wedel: Okay. Got it. I guess the follow-up question on that would just be around any expected repayment activity. Of course, there's always some every quarter, but do you have any line of sight to anything outsized more in the near term? Appreciate it.

Speaker #5: Appreciate it.

Speaker #3: So, I'd say we have seen a bit, and towards the back end of the quarter, did see a pickup in refinancing activity, predominantly on the broadly syndicated side.

Matt Bloomfield: I'd say we have seen a bit, towards the back end of the quarter did see a pickup in refinancing activity, predominantly on the broadly syndicated side. You obviously saw some portfolio shrinkage this quarter, which we thought made a lot of sense. A big piece of the syndicated market has continued to be relatively tight on spread, borrowers have been able to come back to the market and reprice or refinance their debt at tighter spreads. Quite frankly, in a lot of cases, tighter spreads than we thought made sense for this portfolio. We did see a bit more elevated repayment activity in Q2. That trend has continued, I'd say, into Q3. We are seeing a little bit of a pickup in some new activity.

Speaker #3: So you obviously saw some portfolio shrinkage this quarter, which we think made a lot of sense. You know, a big piece of the syndicated market has continued to be, you know, relatively tight on spread.

Speaker #3: And borrowers have been able to come back to the market, you know, and reprice or refinance their debt at tighter spreads. And, quite frankly, in a lot of cases, at tighter spreads than we thought made sense for this portfolio.

Speaker #3: So, we did see a bit more elevated repayment activity in the second quarter. You know, that trend has continued, I'd say, into the third quarter.

Speaker #3: We are seeing a little bit of a pickup in some new activity, some of which is refinancing activity for credits we had not been involved in in the past.

Matt Bloomfield: Some of which is some refinancing activity for credits we had not been involved in in the past. A little bit to Ken's earlier question even, as we think about some of those loans that have traded at discounts with a bit shorter maturity profile, we've seen some interesting opportunities here in the back half of July and into August. I think that continues as capital markets are pretty open. I think some of these companies which had very tight cost of debt from a historical basis are going to have to pay a spread premium to push out some of these maturities. I think there's some opportunities that we'll continue to take a look at there which should be good for the portfolio.

Speaker #3: But a little bit to Ken's earlier question—even as we think about some of those loans that have traded at discounts with a bit shorter maturity profile—we've seen some interesting opportunities here in the back half of July and into August.

Speaker #3: I think that continues as, you know, capital markets are pretty open. But I think some of these companies, which had, you know, very tight cost of debt from a historical basis, are going to have to pay a spread premium to push out some of these maturities.

Speaker #3: And so, I think there are some opportunities that we will continue to take a look at there, which should be good for the portfolio.

Speaker #5: Thank you.

Melissa Wedel: Thank you.

Speaker #1: Your next question comes from the line of Rick Shane with JPMorgan. Please go ahead.

Operator 2: Your next question comes from the line of Rich Shane with JPMorgan. Please go ahead.

Speaker #6: Hey, guys. Thanks for taking my question this afternoon. Just quickly, so year-to-date, you guys have realized about 14 million dollars in net realized losses.

Rich Shane: Hey, guys. Thanks for taking my questions this afternoon. Just quickly, year-to-date, you guys have realized about $14 million in net realized losses. Can you help us understand two things? Roughly how many positions would that be scattered over? More importantly, where have realizations come in versus your prior quarter carrying values? The reason I ask is that for the last two quarters, you've realized losses totally sort of par for the course in terms of where we are in the cycle. Even when the losses have been large, they haven't sort of fully netted out against the additional unrealized losses. We're trying to understand sort of where the marks are.

Speaker #6: Can you help us understand two things? Roughly, how many positions would that be scattered over? And then, more importantly, where have realizations come in versus your prior quarter carrying values?

Speaker #6: And the reason I ask is that, you know, for the last two quarters, you've realized losses—totally sort of par for the course in terms of where we are in the cycle.

Speaker #6: But even when the losses have been large, they haven't sort of fully netted out against the additional unrealized losses. And so we're trying to understand sort of where the marks are.

Speaker #3: Yeah, thanks for the question, Rick. I'd say for the first part of the year, it was really concentrated in, really, a handful or fewer positions.

Matt Bloomfield: Yeah. Thanks for the question, Rich. I'd say for the first part of the year, it was really concentrated in really a handful or less positions. Those that had kind of been or moved to non-accrual. Certainly the First Brands was a big one for us coming out of the end of last year. It's been relatively concentrated across the majority of those non-accruals that we've had over the past few quarters. I think from where those sit relative to marks, I think they've been pretty accurate given those have been in the broadly syndicated market, and have had pretty active quotes on the vast majority of them, if not all of them.

Speaker #3: You know, those that had kind of been, or moved to non-accrual, certainly the first brands — that was a big one for us coming out of the end of last year.

Speaker #3: So it's been relatively concentrated across the majority of those non-accruals that we've had over the past few quarters. I think from where those sit relative to marks, I think they've been, you know, pretty accurate given, you know, those have been in the broadly syndicated market.

Speaker #3: And have had, you know, pretty active quotes on the vast majority of them, if not all of them. So I think as we look across the liquid and the entirety of the portfolio, we haven't really seen much dispersion from where we see, you know, those marks, and where things have been, you know, traded or quoted on the secondary markets.

Matt Bloomfield: I think as we look across the liquid and the entirety of the portfolio, we haven't really seen much dispersion from where we see those marks and where things have been traded or quoted on the secondary markets.

Speaker #6: Got it. That's helpful. And then again, obviously, you know, I'm still getting up to speed a little bit on the company, but is that sort of the strategy—to take advantage of the liquidity in your core markets and sort of take a first loss, best loss approach? If it's on non-accrual, move to exit quickly so you don't tie up too much capital that way and just take the loss and move on?

Rich Shane: Got it. That's helpful. Again, obviously, I'm still getting up to speed a little bit on the company, is that sort of the strategy, take advantage of the liquidity in your core markets and sort of take a first loss, best loss approach if it's on non-accrual move to exit quickly so you don't tie up too much capital in that way and just take the loss and move on?

Speaker #3: Not necessarily. I think, you know, we try to look at every situation on a company-by-company basis and really try to determine, you know, where we think the ultimate value and recovery of those businesses are.

Matt Bloomfield: Not necessarily. I think we try to look at every situation on a company-by-company basis and really try to determine where we think the ultimate value and recovery of those businesses are. To the extent we can be early and identify those and sell out before there's a bigger issue, yes, we definitely try to do that and I think have done a really nice job historically of doing that. To the extent we think things are trading below or well below their intrinsic value, we'll certainly go through a restructuring and own the business on the outside of that if we have to. I think we've also done a nice job of that historically. We had a relatively decent-sized position last year in LifeScan that went through that sort of restructuring, ultimately we realized a par plus recovery on that.

Speaker #3: To the extent we can be early and identify those and sell out before there's a bigger issue, yes. I mean, we definitely, you know, try to do that.

Speaker #3: And I think have done a really nice job historically of doing that. But to the extent we think things are trading, you know, below or well below their intrinsic value, you know, we'll certainly go through, you know, through a restructuring and own the business on the, you know, outside of that if we have to.

Speaker #3: And I think we've also done a nice job of that historically. You know, we had a relatively decent-sized position last year in Lifescan that went through that sort of restructuring, and ultimately, you know, we realized a par-plus recovery on that.

Speaker #3: So we have the ability and the team with a lot of, you know, decades of experience doing just that. But certainly, when we're underwriting credits and, you know, actively monitoring these businesses, we try to do our best to avoid those situations as best we can.

Matt Bloomfield: We have the ability and the team with a lot of decades of experience doing just that. Certainly when we're underwriting credits and actively monitoring these businesses, we try to do our best to avoid those situations as best we can. We look at it company by company and really try to make the best decision we can at any point in time on where we think that outcome's going to go.

Speaker #3: So we look at it, you know, company by company, and really try to make the best decision we can at any point in time on, you know, where we think that outcome's going to go.

Speaker #6: Got it. I really appreciate the context. Thank you, guys.

Rich Shane: Got it. I really appreciate the context. Thank you, guys.

Speaker #1: Your next question comes from the line of Ethan Kaye with Lucid Capital Markets. Please go ahead.

Operator 2: Your next question comes from the line of Ethan Kaye with Lucid Capital Markets. Please go ahead.

Speaker #7: Hey, guys. Just a quick one from me. Can you just remind us how kind of like flexible or strategic you're able to be on repurchases, right?

Ethan Kaye: Hey, guys. Just a quick one for me. Can you just remind us how kind of flexible or strategic you're able to be on repurchases, right? How much of it is formulaic versus discretionary?

Speaker #7: How much of it is formulaic versus discretionary?

Speaker #3: Hey, Ethan, yeah. Thanks for the question on that. So with the new program, or the upsized program that we just announced, of the $30 million, $10 million of that is in the 10B5-1 program.

Matt Bloomfield: Hey, Ethan. Yeah, thanks for the question on that. With the new program or the upsized program that we just announced of the 30 million, 10 million of that is in the 10b5-1 program. You would classify that as formulaic. The additional 20 million is in an open market, which we have a bit more discretion on when and how we deploy those repurchases.

Speaker #3: So, you know, classify that as formulaic. And the additional $20 million is in an open market, which, you know, we have a bit more discretion on when and how we deploy those repurchases.

Speaker #7: Great. Thank you.

Ethan Kaye: Great. Thank you.

Speaker #1: Your next question comes from the line of Derek Hewitt with Bank of America. Please go ahead.

Operator 2: Your next question comes from the line of Derek Hewitt with Bank of America. Please go ahead.

Speaker #8: Good afternoon, everyone. Could you talk about your supplemental dividend policies, since the total payout has exceeded the core earnings? I think, in aggregate, over the last 12 months—especially given that leverage is a little elevated—although granted, it's due to some mark-to-market issues that will likely reverse over time.

Derek Hewitt: Good afternoon, everyone. Could you talk about your supplemental dividend policy since the total payout has exceeded the core earnings, I think in aggregate the last 12 months, especially given kind of leverage is a little elevated, although granted it's due to some mark-to-market issues that will likely reverse over time, and then just given the either kind of discount BSL opportunities or buybacks in terms of ways to deploy incremental capital?

Speaker #8: And then, just given either the kind of discount BSL opportunities or buybacks, in terms of ways to deploy incremental capital.

Speaker #3: Yeah, thanks, Derek. Yeah, so, I mean, for this quarter, our dividend of $0.39 was the $0.36 base and a $0.03 supplemental.

Matt Bloomfield: Yeah. Thanks, Derek. Yeah. For this quarter, our dividend at $0.39 was the $0.36 pace and $0.03 supplemental. It matched our NII for the quarter. In a previous quarter or so, I think we did have some spillover income where we caught that up and had a little bit outside dividend relative to where NII came in. For the most part, over the long term, we've tried to match it as close as we can in order to kind of pay out as much or nearly all income generated that we can. That's, I think, kind of been the policy since we've been public and kind of look at that independently of how we think about capital deployment in any given quarter.

Speaker #3: So it matched our NII for the quarter and the previous quarter, so I think we did have some spillover income where we caught that up.

Speaker #3: And so, we had a little bit of outside dividend relative to where NII came in. But for the most part, over the long term, we've tried to match it as closely as we can.

Speaker #3: In order to, you know, kind of pay out as much or nearly all income generated as we can. And so that's, I think, kind of been the policy since we've been public.

Speaker #3: And kind of look at that independently of how we think about, you know, capital deployment in any given quarter.

Speaker #8: Okay. Thank you.

Derek Hewitt: Okay. Thank you.

Speaker #1: That concludes our question and answer session. I would now like to turn the call back to Jeremy Goff for closing remarks.

Operator 2: That concludes our question and answer session. I would now like to turn the call back to Jeremy Goff for closing remarks.

Speaker #3: Thank you. And thank you, everyone, for taking the time to join our call today. We look forward to revisiting with everybody on third quarter results in November.

Jeremy Goff: Thank you. Thank you, everyone, for taking the time to join our call today. We look forward to revisiting with everybody else on Q3 results in November. Thank you.

Speaker #3: Thank you.

Operator 2: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.