Palmer Square Capital BDC (PSBD) 28 Feb 242023 Q4 Earnings call transcript

Welcome to the Palmer Square Capital BDC's Fourth Quarter and Year-End 2023 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I'd like to turn the call over to Andrew Wedderburn-Maxwell, Investor Relations.

You may now begin.

Good morning, and welcome to Palmer Square Capital BDC's Fourth Quarter and Year-End 2023 Earnings Call.

and are Chief Chairman President; Investment Fox, Financial morning Officer; Chief and this Chief Long, Angie Officer; Officer me Chris and Long, Executive Jeff Joining Director. Matt Bloomfield, Quarter Palmer Square results released Relations on today earlier website Fiscal accessed ended can be Square's XXXX were also and and Palmer Capital financial Year at Fourth BDC's Investor palmersquarebdc.com.

a website that can on our for We next event have be today's also replay of arranged months. the for X accessed

that call, cause the those are The forward-looking the statements on filings not materially I are to want performance and on including economic this could this actual other forward-looking are by forward-looking conditions not statements, changing you we based uncertainties remind During results of future expressed our make without the forward-looking surrounding and identified to and that from with statements statements. limitation, market guarantee uncertainties These conditions SEC. factors are and caused factors differ we subject current in are statements rates, a purely expectations. historical other interest call that in to

of we be assumptions on the believe which any on forward-looking can are can be forward-looking assumptions Although those based a reasonable, are prove assumptions statements to result, as inaccurate, on based and these the that those statements incorrect.

required I call Capital You Long. at filings, should unless not To of no to With turn palmersquarebdc.com. will law. assumes BDC Square to visit now the forward-looking reliance obligation the please on Palmer place website SEC statements by Chris undue obtain statements. our update forward-looking that, over these related copies

with have earnings our a first traded call This us Good today. morning, joining is you everyone. We're us. company. thrilled publicly as to Thank you for

Palmer going over performance. turn welcome to portfolio the team brief offer to a we BDC, to I'm discuss our IPO and of to and I investors outlook, then an it our So January, analysts. in financial see of our the new for opportunity Square market overview recently overview prospective initiated and shareholders, want the update

Capital in advisor manages in XXXX, parent Palmer firm value Adviser across the Today, superior broader to started crisis the credit. invested of relative to $XX Square Square as opportunities market top-ranked Investment structured We close Notably, in Management, corporate amidst has over financial billion deliver issuer have in credit and and since to the PSBD's investment structured the CLO assets inception. billion its corporate capital volume $XX by established and Palmer XXXX. deal global reputation the

ability and performance a that difficult approach strong broader PSBD. also excited our deliver This attractive find durable our CLO across range to bring through conditions. are market we demonstrates a merits for opportunities during our highlights value-driven issuance to investors investors relative performance environment for of of the to The

across short structured corporate launched XXXX, strategies: in income and Palmer credit X structured opportunistic; and focused finally, and investing Square's started duration; is early on XXXX. PSBD private in in we was and platform significant credit.

credit across We the platform and thoughtful capital liability to strong will broader approach Square markets expertise, to from Palmer with deep our relationships structures. benefit continue

and we and models, lending markets. given more attractive direct the invest investors model believe lending direct returns our a syndicated through transparent across traditional Unlike liquid offers ability to risk-adjusted our strategy

this we see excited for return today's strategy risk long-term given incredibly our and in in the are We about time, compelling opportunity especially moment the in present market.

understand offering our our about important you want to critically investment broader evaluate amidst X As sector, profile. tenets you we the

through agile ability long-term sector. total means strategy a provides broader First, ability across we be have and optionality This BDC generate with more the we NAV. building than the more upside to have more markets return that differentiated potential the to

competitive short, borrowers, focused yield we and than our stability more and generates broader offers to liquid more we is strategy believe In less with more significantly risk portfolio less our risk. because the on investors. Second, larger believe landscape our PSBD

enhance unique that And as are offering NAV updates committed assets. and as well monthly structure estimates to charges fee transparency, only third, extremely a we on net

let's attributes growth us. review for these into are Now, X those how drivers points dive and deeper

differentiated across can NAV multiple invest strategy multiple investment on total income the markets through generation total across return. offers discounted gives both to for liquid scale private This purchasing growth long-term the returns investors goal. and opportunity ability and attractive loans and expansion. our at to generate and First, markets invest to return deliver through shots NAV We us drive

has Specifically, value market private return in relative We've the in syndicated our broadly market parts and seen syndicated the the more broadly private to credit. issuers best the the the team both already of between to market face identify larger, ability of liquid economic And disruptions. to overlap the spreads. continue in is X broader frequently BDC by we and challenges tighter illiquid grow. loan to markets portfolio credit assets the will refinance The constrained the adjustment expect industry the

various capabilities nature due investment the markets our We multifaceted strategy. ability the across capitalize and believe to of we have to

attractive should drive shorter on on Importantly, our to able the emphasis arise to duration shareholder Again, drive dislocation. market This our opportunistically return. quality, curated case liquid credits opportunities in value when is uniquely enable grow or should relative when investments. capitalize and a ability NAV rotate were us high-quality long-term to and growth portfolio higher we

on loans strong have believe returns generates second that We mitigating constructed credit. large, takeaway large in that and an focus we risk. opportunistic private broadly we investing My is while portfolio syndicated

loans capital positions to the is that strong senior with are companies on fundamentals in larger in structure. focus Our

credit credit. a opportunistic investments pocket includes European We for also maintain firm investment specialized our where possesses structured This smaller capabilities. and

a Our on portfolio overall investment and rigorous credit downside protection quality. supported process focused by is

lending cash structural protection flow-based on limited credit downside. have We and strong and analysis techniques a and thoughtful focus

first to portfolio lien quickly. weighted limit risk highly liquid and us allow Our capital and will deploy

periods we In elevated of addition, during generate volatility. can returns market excess

commitment My last broader transparency to alignment our to shareholder the BDC and enhance relative point is landscape.

be management when fee only attract we on net, on gross, we Palmer capital equity not net a more structure to value, asset assets. traded charge that want Our is BDCs. unique fee for taking externally At publicly leverage. managed other not grows rewarded to We Square,

represent payable XX of X.XX% the would With gross management our assets. points current and approximately debt-to-equity net assets of ratio, fee basis base our

to plan NAVs. practice of also continue publishing We our monthly

liquid is For NAV actionable based assets, live, on this crisis. our

recently As We XX, XXXX, NAV was January per is of as this announced, with and $XX.XX. share alignment shareholders. disclosure believe our our best-in-class reinforces

the IPO offering IPO from To totaled could New to excited for and this embark year already company. at the on to not be $XX.XX how a outcome more I'll we Stock priced public discuss public to a team shares outlook offer approximately the hand journey is over want the approximately Angie offering delighted I York close, PSBD million our of more $XX million. capital a our to color use. have around the call little Exchange the Gross put on January to this a month. with X.X as XX, proceeds price On and of share. of good per The last now

you, Chris. Thank

environment Looking is at about. the excited and operating be lot outlook, to there a current

appreciation. While for to credit given still spread yields very NAV generate ability also with are and products, continued attractive we returns base have total rates, the

but discount we We of are the loans our at returns to that noting a many pleased drove trade it's in XXXX, worth still par. with

monthly included NAV. Remember, our these loan discounted in prices are

to capital return. total markets and as long-term our continue accelerates, So drive room has NAV refinancing to and reopen the appreciate

syndicated seen the broadly capital overall have strong the been the encouraged credit borrowers markets back have we've to in market. cases, start visibility by some on year. come QX past into have the to to finance pickup that the We activity themselves and relied private of In markets the

Our in recent conversations with market. parallel trend will sponsors this designed capital could believe This traditional and capitalize platform continue, solutions the activity bank years loan X market. larger dynamic indicate they change is the was to more private with credit this as growth a continue entering efficient on that from when more seek trend. the intentionally borrowers exact our We this prior

the hot past and whether recent this after or not happening sponsors around both of in We lending will the private years. increase. deal couple the already industry conversations topic announcements our large in continue markets' leveraged finance in equity capital XXXX as pick at banks' that is support less active Another with and up believe banks desks to being is

in see activity accelerated to XXXX. loan the up to 'XX start quarter of saw activity have and fourth continued pick We

the to long-term lead will interesting lead for to continue this could we portfolio. opportunities for return which across in operate. this opportunities expect markets us total the We I think again, And

Now, a credit turning the rigorous to optimal our that a disciplined investment senior strategy, over of is secured which is in view based on course cycle. selection credit loans and

default of delivering overall in quality credit Given evaluating on borrower. on protection single each every loan credit. paramount credit, opportunity name and risk downside focuses team nature is the investment and our when to the Minimizing idiosyncratic

expertise advantage of bench experience team investment average. of boasting a has of Square team these credit on proven multiple a believe Our We idea across with experienced record This the for XX opportune track deep cycles, a the competitive time dynamics. investment years industry generation, investment Palmer professionals in an management. leadership provides diligence and classes is risk given sourcing asset and industries and

facilities over to on pleased flexible IPO first to additional years are are secondary BDC proceeds We and borrowings be utilize financing the X in we able in quickly our and IPO the market. loan the that deploy

will for to not portfolio put to were our to work waiting this were for able we we beholden capital capital, The to order activity short Given mix origination new deploy in the we IPO, loans, look environment. relative primarily to in have consistent the yield so this think first which to value lien to BDC we secured prior continue how offer strong senior invested investors.

platform forward well in to opportunities look us are positioned and the to front year. our growth We this accelerating the capture of of

to to portfolio. like the investment discuss over and now the I'd who that, our With process will hand call Matt,

Adviser investment Thank Square of our with the opportunities platform. our the Management, depth important the you, process given flow which reviews platform, deal has of Capital Square of investment is investment agreement credit Across approximately potential and Management for PSBD. billion Angie. the annual established synergies team in of Palmer the suitable strength a PSBD's foundation is Investment Palmer The resource platform. Capital $XXX

and loan the the in the ever-growing In size private have access market. we trillion idea to and market at estimated credit leverage primary in market, generation large-cap $X.X also addition sourcing to secondary

Our from their set, our vertical, in has to Fundamental credit their selective to respective expert only networks to investing. an industry funnel also strategy each industry. large the corporate but critical be analyst not is approach to skill analytical within drawing Square's is that Palmer

is write-ups our their borrowers, better equal industries analysts and phase monitoring model in each conclusion from the due entire credit We forward. across the of to ultimately investment investment requiring as committee this At move unanimous process are the view our Of are information their investment firms and importance and team, performed updates analyst of that regarding the credit decision-making. process, unique quarterly, diligence presents the loan. a the daily results credit Detailed approval digesting competitors.

a diversified let's our granular Now, more look take into portfolio.

Our XX, total $X.X fair XXXX, a of and industries across December at had that approximately billion credit exhibit investment strong value diversification. portfolio XX quality

large revenue on companies recurring cyclical focuses avoiding strategy while streams industries. stable Our with

analysts organized is our our that trends by core ratings. As industry, mentioned, and are to intentional which not credit belief come by industry due

the across million investment fourth $XX XX we invested approximately new In quarter, commitments.

about realization. During period, same repayments the realized $XX and million through we

fiscal million, repayments. For $XXX the offset gross by and full $XXX million year were investments XXXX, ended in realizations

XXXX, commitments XX value year there approximately at an fiscal of the During average $X.X investment new million. were

total value cost As at maturity to weighted and maturity our at securities debt amortized of and fair average our to weighted yield was XX.XX%, average XXXX, and was X.XX%. income-producing of total of year-end income-producing securities debt yield

We the borrowers. and factors only based fourth services. is have XX.X% services investments account portfolio portfolio for sectors included strong Our care, a largest across XX At quarter of credit software, professional of health of believe industries largest the the exposure Further, XXXX, IT and diversified the on end these portfolio. the in resulted overall highly profile.

and fair lien million, a X.Xx. valuated senior of of basis, X.Xx leverage interest borrowers of EBITDA a first our weighted average have secured coverage On $XXX

on fair rating yielded focus liquid that X.X and an loan larger strong a with for status. to on credit nonaccrual average companies the loans are capital investments basis valuated and on investments Our of structure debt senior internal in positions no all strong fundamentals has including outcomes,

market It's size systems, are approach updated participate value-based ascertain a the the system scoring risk portfolio. real Unlike time allows is the and the warranted. best our reflect we that markets relative updated value to resides but to traditional scores that that given in where relative we dynamic of in, the when a middle unique quarterly, have team in

be issue loan or towards loan an point in at might As attractive X precise while new reinforcing relative that another we it issue and the example, characteristics spread value opportunities. better At and analysts while OID continue score to new value given think at credit approach discuss. a relative a We in outcomes, there makes market. strong look time, sector or to this underwrite fair time, par you for investment all that that us value time, and might that as that X loan the to a for process more that over the have our transparency might better a deem be heard in and accretes leads secondary

Now, will review over Jeff, year to who our results. I'd quarter like to it full turn and fourth financial

the Thank the We $XX.X compared were year fourth primarily driven was the due million was in million in increases investment results year our quarter up quarter the with interest of to and year in from by This to for you, prior Total Matt. for A to in fourth $XX.X period. pleased quarter our interest to income factor rate the fourth average XX% year very under major increase investments. $XX.X the XXXX, income period. primarily million compared XXXX. for was prior Total expenses our prior the increased facilities. net were credit $XX.X expenses million compared full

quarter was $X.XX year. or million compared comparable XXXX per per share $XX.X for $XX.X of or Net share the for the million income last as investment $X.XX period to fourth

As greater base QX spreads with net one interest would in the the rates generally QX for in of of provided market income versus XXXX. expect, XXXX context investment along higher higher

quarter a a end NAV of in the of sequentially. representing company of third compared realized had per fourth $XX.XX During $XX.X $X.X loss XXXX. the gains million quarter, from the increase of share million and of fourth at XXXX, the the up was quarter to total $XX.XX unrealized X.X%

dividend month. As NAV $X.XX a reflects intra reminder, also the payment a December the of

sheet. Moving to balance our

debt-to-equity December assets of commitments. liquidity, At As of on compares to were end million. total capacity approximately our the and compared X.XXx X.XXx our of cash facilities credit the ratio of XXXX, QX, QX. investment million This end total $XXX million. was were $X.X billion undrawn $XXX consisting assets of $XX.X at was XX, undrawn and Available to net

including addition in dialogue financing have extending continue to to of to with our alternative our lending options, In a and explore Fargo upsizing facility active XXXX, potential partners issuance. credit we December Wells CLO

XXXX. a approved million up This Directors January plan repurchase $XX of to Board Our stock program stock. PSBD of acquire common to expires on XX,

to $X authorization total Square Management that authorized has forward. program raise $XX million will going million Capital incremental Palmer repurchase Additionally, the an to up

a go-forward dividend Board and shareholders policy, Our front to be at is updating evaluate that we'll continuing on quarter end.

earned to call credit In high investment sum, demonstrate our across strong mitigating that, and we like our income attractive are to With up positioned possible. for now wherever across I'd and of risk open the while performance portfolio levels borrowers questions.

Instructions] [Operator

Lee Our from Kenneth Capital RBC first question Markets. from comes

now? you liquid wanted loan pockets thoughts Just across your to the are current get Where opportunity markets. seeing of right broadly the

we've starting loan for we've quarter year Ken, I seen syndicated of coming our continuing January been of it's couple Matt. market, XXXX and markets in mean, the in market. the larger syndicated say market. Thanks I'd be activity really the certainly Yes, transactions certainly of appreciate and that that to pretty syndicated for this the to the were in a There's back the it. transactions a a significant private pickup question. fourth came to I rumored few going to credit larger February. credit private seen

going conversations from from trend on on that side. equity of private the think There's likely an continues I on, market a lot M&A So side conversations standpoint. capital the

time we this a market. of take certainly then But rest think that actually will the are through to seeing some And pickup make it year. to that of some accelerates and the

the the investments, share more just overall outlook how if those investments debt environment? the in opportunistic wonder of in could for terms you of on and more thoughts in portfolio potentially then you of of And about I Great. attractiveness terms allocation investments CLO or your and the kind this equity relative think

liquid are the in Sure. think as investments, markets. we I I think about more incremental mean, we

strategy So put think to big money. able really portfolio been to a And in capital invest on part this only been to allocated. our how new wait is that what of to incremental rely we a work similar credit that to really already I the private was need we've don't is a transaction fashion has and differentiated able raised, means as to be the

strong that really seeing the We're way same we've opportunity along pockets of invested. been

in as So lien to primary to there's opportunities tremendous Matt the opportunity new our first in loans. going senior to incredibly feel for That's about be constructive, loans. syndicated secured way continue We market invest. the predominant mentioned,

are We that are the of also private larger the seeing market credit opportunities interesting. in space

opportunities market, debt the particular liquidity very some equity how allocated. similar been As investing there us allows of been as some we've and the in in already we areas look we've CLO to are at debt invest to CLO the there to continue already and

from Our next JPMorgan. Wedel question from Melissa comes

new would of if to you're would that primary syndicated of great. seeing maybe it fair wanted private secondary the been particular. BSL more capital terms you of what more provide would the I -- active narrowing on say Any interesting wanted the that deployment to in market back most generally that capital deployment? rather market broadly than credit BDC impacts is one sort have means the I of circle market. deals. than color sort sort better the your in it's to opportunities some back be on of coming case, And can the to what Is spread that's in rather PSBD private of comments about, your for understand

Matt and a maybe bit color. and have start Sure. I'll little It's more Angie, add

a likely in what's the different, purchased as strategy 'XX think do market we broadly means part to loans secondary we 'XX as think, can market is that's it are into opportunities and what look I we seeing primary compared really we we But increased our we in continue. the is as of syndicated and have to big and I always. and think

companies is space narrowing loans our move are The market to amount part, a a transactions transactions. the because trading of stability The confidence of to dry for catalyst discount. private The portfolio in it's giving spread of remains equity forward powder most the in at on the happen. interesting

in we an so is that loans of a price market in increase compressing actually we the a some of what rallying, see have. And already spread

expect offer begin you to that see would continue the to As primary we up, portfolio. into add to to market the pick spread opportunities

things discount, we're because already benefit to So so sides. able many at in a a both were way, on

both fundamental were spread from Yes. To you XXX going XXXX, And comment than get think existing standpoint, attractive one opportunity, kind some fourth average credit of as more the spreads. that portfolio. new we portfolios, is when just of basis to a about an be And investment so on refinancings from the new we issue from but quarter those point, Angie's on do across as lower well. spreads to the hopefully look higher points, spread

reopening So for we just of large-cap do think or markets, syndicated private in lot whether a optionality the presents this PSBD. kind the in credit the space of capital it's of

it. how kind different of I might maybe about environment? approach you help you of That's cycle. really ideally -- like are credit appreciate levels portfolio also you leverage the understand Could of And this you'd throughout helpful. Where thinking how touch of is in be it on kind guys parts to leverage? us portfolio how

definitely thing. leverage we It portfolio will great a market-dependent of That's forever don't be and a because kind opportunity dependent. of question target such as a think

be amount the decided leverage the it's the in feel a the and there for differentiating to reasons want way factor the actually to on leverage, comfortable to charge we're of that we want because is other environments BDC is right we because the now, raise from in of generation we where in And assets opportunity believe really reduce equity driver fees the perspective. to risk one to higher. invested, as didn't either our of risk the we any highlights be because a opposed why key management But could With there what range. X.Xx X.Xx or a main on fee environment isn't we that

comes from question from Citi. Wang next Kaili The

if policy you the investment your regular give in you your could update net Just income an on relatively share? Do you per a pay view Or addition slowing curious be expect related do on of going to supplemental stable to forward? to to expect hold dividend level that? distribution and that

you Chris that for Thank so question. Long here. much It's

Our Board and dividend a policy, on at continued go-forward has updating to shareholders we'll front that evaluate be end. quarter

Got it.

we first deploying think the quarter? IPO much about closing to be when how would of proceeds yield the Okay. investments, a that the new impact for are And you and

Yes.

as a to from standpoint as to Angie standpoint that the comments, in looks what So very shareholders. And lien deploy the we allocation and first earlier looked proceeds like benefit mix able of strategy yield for senior quickly before, mentioned portfolio roughly our very were our as both a those mentioned, the secured from is similar you well.

portfolio So able of we to benefit secondary to the existing to looked capital allocation. certainly that deploy fashion the market very be that had in large similar that a

Instructions] next JPMorgan. have Wedel [Operator Melissa question We from from our

wanted I focus sort on a about wanted that with up facing into maybe later your follow view to your view rate will be thoughts how sets of get year? declining and duration that back. question is Definitely I'm your up on begs shorter another this rate. your that note the a made question, environment of rate or environment we potentially a to declining

but for of environments rate agnostic question. different opportunities. environments, want Sure. different to opportunities. those different different don't we're take Thank to And the to allows our completely rate us advantage I you bring strategy that say

which confidence gives to So increased, interest I 'XX going giving of like opportunity us companies the in more that is more think a activity. be advantage and to expect we take robust is into transactions. to calendar we engage I of market, of see primary stability newer the one deal would to an rate is new say, the what leading transactions, And the opportunities

period designed a incredibly if low. year just XXXX-XXXX rates I could And we in when design product standpoint, product from are this add

rate costs with a believe drag, really financing able structure in it. differentiated product were lower the environment a this, of nature is strategy with obviously, that we any outperform investment with benefit of fee think to liquid differentiated we lower the so And and

of now, Chris have hands Long closing call don't I'd now over for we hand to right the remarks. yet. As back like raised to any

for more couldn't Thank the us We excited year be today. everyone, you so for ahead. much, joining and thank you,

We and have alignment so ability this structure, beginning with forward confidence our and product, you much attractive with this and is yields to in this report continuing strategy, enhanced the look liquidity continuing strong our really to differentiate on shareholders. PSBD. to in We this deliver really we our forward you market to ourselves just demonstrating forward so look to to going think Thank and investment much.

call. attending for Thank all you today's conference

You may a Have day. now wonderful all disconnect.