Palmer Square Capital BDC (PSBD) 5 Nov 242024 Q3 Earnings call transcript

Welcome to Palmer Square Capital BDC's Third Quarter 2024 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. Andrew, you may begin.

Capital Quarter Square Earnings Palmer to BDC's XXXX Third Call. Welcome

and Long, this Investment Chief President; Financial afternoon me Chairman and Officer; Fox, Director. Officer are Bloomfield, Chief Joining Long, Chris and Chief Angie Executive Matt Jeff Officer;

Quarter BDC's accessed earlier be financial results Palmer palmersquarebdc.com. Square's Investor Palmer today Third were can and Square XXXX Capital at also on released Relations website

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

I remind current to the statements call, that this on During based we want expectations. forward-looking you make are

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

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

should reliance You not on undue statements. place these forward-looking

made obtain To please no to law. palmersquarebdc.com. update obligation SEC statements made as statements Palmer assumes BDC required our of of call by visit forward-looking during The are at related and the this Capital the date website Square hereof, copies unless filings, forward-looking

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

will portfolio. results, by the Capital BDC's our portfolio earnings and joining by us Call. providing for an credit performance outlook, PSBD then strong for to performance. market Third Today, the supported quarterly our everyone. to turn highlights, Square delivered Conference of across Thank call the discuss Palmer afternoon, you financial Good quarter overview Quarter third XXXX begin team healthy I today

XX% year-over-year $XX paid delivered deployed investment per income team share respectively. $X.XX including quarter, quarter dividend, X% and and total third million supplemental During marking and the generated income per net investment distribution. million $X.XX We of growth, a total share a $XX.X million, of and our $X.XX capital of third net $XX.X

a in to As we the industry-leading announced BDC the some In X% portfolio. with from transparency, per NAV into Street, our only is commitment a end QX XX mild the the reminder, discloses of the our PSBD monthly traded real-time the $XX.XX, quarter. share and that publicly September providing value to health visibility losses realized recently and NAV of by of decrease mark-to-market line

driving underpins ability commitment portfolio variety Square across of providing economic delivering shareholder Our our in opportunistic that quality diversified differentiated returns and growth strong market a and opportunities with investors exceptional and consistent results. its to for capital has is third the credit breadth conditions. quarter while value in Palmer and wide

still of generating positioned while return to floating of to non-accruals options. overall, is on begin sector relative attractive remain up BDC and investment the levels high-quality confident across we As compared borrowers credit a outperform that portfolio our to tick see rate large, we total basis other

in cash will from PIK portfolios. future income. strong We for as managers in portfolio of majority believe PSBD and pay sector the be grapple an of the our the with very the differentiator vast some performance in and continue the across near lower a levels notably, evolving credit to see rate lowest their benefits environment We portfolio this some of

portfolio material I said, quarter. perspective. this to and neither do had in size we non-accruals the was a being acknowledge loan ever our want that income third and from PSBD That second

like I'd markets. the an ensure closely and monitoring PSBD's to situations opportunistic team our Square liquid both quickly optimal and private is to Palmer shareholders. us across which working benefit strategy, act credit investment reiterate enables are to resolution of the We for

both mandate large which enables credit structured our and is in BSLs believe secondary return. upside primary of more and positioning differentiated We select the private NAV and predominantly loans within and our markets, appreciation total credit purchased are portfolio investments through high-quality

find our believe have As income private We to attractive a new reminder, OID enable in and credit see potentially an income also could activity tend new loan markets. this past broadly but to to options we multiple and statement. credit accelerated flowing given both to pickup experience PSBD tightening avenues increase in a the and through the deal M&A syndicated in cycles, see across

to now to will heading our outlook XXXX. Angie I hand the discuss over into call

an Thank our views of quarter, the deliver attractive despite opportunity PSBD color was spread yield taking third across you, I'll more the credit tightening investors, our Chris. now market markets. on environment to for place that offer continued environment. the In current

first its X As cut know, Federal in the the quarter, interest you all in years. Reserve rate initiated third

the approach to forward expect a extrapolated measured, can to Reserve While the rate adjusted curve. operate in potential successfully to few our we additional we of well higher coming the over and by borrowers years environment the data-driven the any over cuts dot plot past have Federal scenarios or rate believe take months, the

would we say ratios underwriting we analysts current levels an which than would in current the the the yields Moreover, XX, is believe with we maintaining disciplined able interest investors as syndicated loan and us. trough measures higher backdrop, still XX% likely the assumed. when to a we BDC relative our the of market, broadly diligent provide remain to at yield by most and of historical at sector. they you many market pre-COVID attractive believe very September tightness, have XX.X% senior investors secured is ratios behind coverage spreads are are Today, Against look and loan in with standards portfolio of and coverage

or and the secondary structured set opportunity we markets, very more to attractive more primary becomes for to well continue credit, overall. aggressively across hunt private value we liquids, positioned While pockets of are when if and move

a reminder, XXth Palmer Capital anniversary celebrated As its Square summer. this Management

we we spreads in near spread see recent We strategies portfolios cycles. managed tightening have types, move quality. our through our When up multiple

will our management Our liquid allows the differentiated traditional BDC credit lenders. be from has and strategy to time-tested follow this private strategy, of middle-market which

shown evenly with of portion risk-adjusted BSL portfolios, disciplined with opportunities of spread History liquid to plenty for The and environments, that is we private And tight across both move mistakes. arise. returns. stretching the capacity yield has the provide pipeline long-term markets. have should We split credit deal to on investors patient broader when a can our incremental to in lead remaining tends spectrum further credit believe out that better the and

We the of We've past spreads Much of seen move loans shifting within credit lenders more begins quarter than to a demand we function believe point, basis from private remain saw refinancing at competitive. to could up. current of market, activity the pick they more part market spreads XXX points and this the M&A over supply to one anticipate as the back gradually to we the are of other. BSL involved widen

turn, there clarity as higher the that the pick attractive environment PSBD term and confident opportunities up deal more are in near are to we modestly should This, continue as the rate could including around election for in receive stabilizes. activity we deploy to spreads capital. investors, drive Additionally,

opened but money on rate the deal activity floodgates not new some both see market, to of September the beginning deals sides has cut in for the yet. are We

within broadly within loan stream addition the was market. a markets quarter largely and credit to the dividend the loan Activity in syndicated repricings of by private over past and refinancings driven recapitalization

we Although markets. syndicated we cannot quickly accelerate, precisely to private sponsors provided factors the to grown by either the M&A in involved, having finance how activity will predict appreciate believe numerous the the flexibility or opportunity have given

were the well environments. allows sponsors markets portfolio environment spread the prefer both be long by overall mentioned, manner X tools. supported anticipate opportunities, loans differentiated lower multiple the important to as to our rotate syndicated to to in into will the portfolio different higher only point. market we've a spread us tightening maneuver strategy reducing reiterate private spread we over Despite reduce that of spread We basis It's that thus and credit the portfolio term able manage the in

so we position long investments the track portfolio. shareholders thus doing through record into weights, increasing risk a has return opportunities, generating of attractive we Square with smaller Additionally, the Palmer been profiles. new did overall as deploy of for diversity have optimal in total

While current for environment rate portfolios generation. confident the specialize meaningful present sector, we're the will across will surely that ROE in managers that impact opportunities it

one proven continued a of for has and and we Square track the XXXX being positioned we rest for are those of well believe record of Palmer performance beyond. managers

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

you, Angie. Thank

quarter. third activity to our portfolio and Turning for the investment

industries September a billion small portfolio of strong XX compares investment billion fair offerings. XXXX, end approximately value value core of total to mix Our This as a diverse that demonstrate of of XXXX, of had $X.XX X%. second quality reflecting the of the a credit XX, $X.XX decline service both quarter fair at approximately of and a across

quarter, $XX million. an which capital, approximately invested the XX included we In $X.X at of value third of average new million commitments investment

through period, $XX approximately the and realized million During repayments we sales. same

both for credit Angie private have refinancing their syndicated existing which mentioned, true As the overall borrowers is in broadly especially structures. tightened spreads and markets, loan capital

size spreads across find PSBD look for to we risk-adjusted And to portfolio. thresholds. the we these find continue we of meet these said, investments to markets, being appropriate That both confident remain markets will given the appropriate

in offer large credit there the market XX% a we portfolio the we into which in is approaching the spreads as now syndicated portfolio, to of premium circumstances, forward could private year. the credit from look private next large-cap a grow and to Additionally, allocation most to to continued build as have PSBD cap continue market

market market essential issuers We to portfolio driving and what the new proactively possible believe organized issuers best our so is quickly but important sector knowledge, by we the belief below be expertise they loans to just when trade down industry are this been As especially underwriting our those and reminder, not intentional we relevant evaluated monitor transactions continuous the that due by team investment that experience our can use and credit core move value. have essentially all outcomes. is engagement our on deep which in fair to committee, to and industry, deep a to

in upside the the primary market to pursue the the discounts our broader shareholders our range secondary capture believe as market, ability universe. direct broadest in offers as lending well of to opportunities compared We meaningful

third statistics, our one the compelling at represents most portfolio quarter, wanted investment sector. back key PSBD the to the belief Looking opportunities in that of highlight I which underscore

XX.X% rate liquid floating dividend predominantly first September PSBD on of lien, a portfolio shares an securities. XX, As annualized yield offered focused on of

yield and appreciation opinion, return. our total our end In NAV this quarter, access with total flexible a investment upside to more XX.XX% of to investors income-producing income-producing and average debt yield and third to the weighted provides was At strategy cost maturity total the X.XX%. amortized to and debt of our of securities average was at at value fair securities maturity weighted

on portfolio profiles. offer mostly Based benefit at portfolio from risk quarter of investors sheet sectors the industry, a that IT XXXX Our end and highly all not borrowers. healthcare, our is services, and of services, and third largest we high-quality income professional of which included brokerage growing highly or stable diverse believe balance the services industries software, insurance, exposure

performance XX.X% portfolio. credit will across these to account industry-leading Further, only cycles. believe which factors of largest continue investments diversification, for We XX market the drive to overall point strong the

XX% approximately leverage rated of X.Xx. basis, million, coverage is of lien On hold secured with fair weighted of X.Xx have senior borrowers value a Our a $XXX first senior an portfolio interest and EBITDA million. our of secured size $X average average

portfolios a average and compare points. weighted markets. XX reflects the increases the premium the best-in-class ticked down with quarter-over-quarter interest while believe at secured Both favorably these public in EBITDA senior by small We coverage leverage basis metrics trading

value, During X loans quarter, moved X.XX% market averages. the below just of third nonaccrual we representing status, well to fair reported BDC

the as new and remain quarter, rate. for new overall were the of at our view diligent investments loans of idiosyncratic, a private XXX and outcome we reference credit shareholders. an situations XX% spread of will optimal In comprised in funded our Chris weighted basis points pursuit average As these event-driven mentioned, over

are quarter. In fourth to points XXX million have existing $XX the credit in of that commitments later addition, at an spread of private approximately average basis we expected close outstanding

income to Finally, that relative as percentage total our of remains income X.X%. investment at PIK industry to highlight I again approximately want a low very overall the

lower anticipate a end market, While of on we we PIK percentages opportunities may up PSBD this new pick the in private in certain as use we terms see tool remain as overall the to the of credit on NII. of industry

liquid to the senior strong most produces loans companies we larger returns. believe attractive on fundamentals, to what the in risk-adjusted with structure focus capital Our be

of fair This is rating by for internal represented investments. basis a on an loan X.X% average value all weighted

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

will to it financial review Now turn who I'd our XXXX third to results. like quarter over Jeff,

as increase for XX% was primarily Thank strong investment from you, Total delivered of million prior period. PSBD the The $XX.X driven third Total $XX were income million million $XX.X from third as expenses for Matt. results. compared prior the income up XXXX, quarter for the million was for the quarter year the the well interest net third in by quarter our investments. year period. with growth our portfolio $XX.X

the expenses share compared quarter in line $XX.X or driven portfolio income Net with year. increase $XX.X to million our expense per for share of per investment third expansion. period the the or The was to interest prior for XXXX the comparable last compared $X.XX in higher million $X.XX year by was

the the of in of total net net compared and of million During XXXX, third unrealized gains $XX.X and to the unrealized quarter losses the had company $X.X realized XXXX. third quarter of realized million

$XX September million a of to existing related has to of net depreciation exited been portion ended investments months net portfolio gains. investments, million and related of unrealized X unrealized depreciation XXXX, the of to consisted this For reclassified $X.X portfolio XX, which realized

quarter, third $XX.XX quarter. mark-to-market per $XX.XX the the of second mild XXXX, and by the driven of end of compared NAV to was in end the quarter share losses At realized the at

dividend payment reflects share. As a per a a reminder, $X.XX the distribution quarterly NAV of comprised of also and of a supplemental dividend the of September $X.XX base $X.XX

moving to balance sheet. our Now

million. acquire $XXX.X and As debt-to-equity common PSBD September of capacity stock million were credit the $XXX were as billion undrawn total was approximately end assets This of on our facilities to commitments, million. Board million QX. $XX X.XXx consisting approved and a XX, X.XXx to reminder, cash XXXX, repurchase to end liquidity, compares At compared a Available plan $X.X at our of QX, the assets Directors was investment ratio total net undrawn approximately our to up of $XX of of stock. of

third on line of a price repurchased expires at average program with dividend we The quarter, November January Directors XX, fourth XXXX, of in share, policy. $XX.XX for quarter of in base the Board $X.XX a total cost declared the X,XXX On XXXX dividend our X, of an purchase formalized shares $XXX,XXX. per

repayments portfolio, the the December, to announce of nature liquid the in we Given allows supplemental which for plan dividend settle. to

of out be distribution. quarterly the supplemental above the PSBD's income will quarterly excess investment base distribution net undistributed paid This of

open to like the now up questions. I'd that, With call for

line And Doug UBS our today Financial. first with it like the Harter Instructions] comes from question of looks [Operator

about about talked about Can kind to portfolio -- nature bit moving you the of maximum slightly more keep a portfolio? of liquid talk would of credit, you how in the private the little kind for a think into order you just

past everything I as value on Matt. question. is the been very it markets. we've Thanks and always have utilizing it's a evolved, fair the borrowers of the It's markets question. mean looked at couple over for way basis. the both sponsors have I think years, these Obviously, Doug, a relative

opportunities cap they pool of meaningful that we want necessarily liquid the but us, certainly to I portion se, a have when for think maintain arise. currency hard to per have So for a we don't

that has with on attractive current realistically, on cadence it's both that kind I in if time. similar the guess to But few to migrate the could markets. conversations past at think we're And I percentage transactions portfolio obviously, think continued And seeing to had up a I over having the looked basis. how quarters, of in sponsors we're continue

the in markets? And in you X are or market, as seeing given your seat look any you underwriting at just covenants the quality difference

Yes.

the seeing, remains we're what hit whether it's I'd relatively still low. frankly, overall think or private ratio say our side, I on liquid

supply/demand, market. a you private whether still in when in at look obviously or that's floating and meaningful think the there's rate demand I loans, the the markets for markets syndicated

advantage. So have that borrowers certainly

we're you've I seen on most that And trying be prudent. just in, secured not us, think think spreads pretty in lending I reflected side, for think in I coming credit markets, the so to

you think look a financing the where bit over extending prudent on to. XX, past these I more markets, markets when XX I being you're spread think careful tighter years warrants back and in

been So capacity be we've for the that also try I to secondary disciplined market okay, we got that be think plenty has think well. in be might market we'll just and quality sure as the sense. in make most that necessarily think but not And I transactions credit make the of primary might

[Operator our Melissa line Wedel with from Instructions] of comes next JPMorgan. And question the

function the if wanted portfolio just last perhaps jumped little that I'm yield. quarters, more sort touch rates. a to anything base else there's to measure around read I First, a going if on I the bit something noticed that. than I'm of just fair a over the there's if of change couple in bit value just on not it curious or sure of that's being a on? into has

what I Thanks of we've say, of to rates, towards and September. as standpoint the the Matt a again. has question. a date. mean, mentioned refinancing markets remarks, in the of I'd the certainly seen end kind the prepared there, outside foremost, obviously there's bulk play we right, from been came which first going lot of just activity across Melissa, market base into Yes, only been for it's on really

standpoint, not the might repricing yields some relative where sense refinancing value certainly there's make activity, been those PSBD portfolio. So and for

So in spreads allocation. let prepared We are of than mentioned of remarks, bit increase wider go. credit an some obviously, the in in those there syndicated we've private a market. loans the mentioned I the certainly

So benefit we've some there. had

a bit movement point, of value to as And as little then standpoint also, fair your well, a from well.

So biggest to kind within pool. kind repricing play. moved quarter the sure and the the been of we've all how portfolio I'd for the But from say things has it those yield activity come maintain of during refinancing, to just piece around try into the of

-- And accelerated was of that that. interest is that OID repricing was in of any out? separately sort isn't there took the -- the any income embedded sort appreciate I activity there Okay. that's there given maybe broken place, there we're in -- --

undoubtedly I'd we say of where see across look quarters next part income for to that sources the think do this we'll when quarter, over it. of it break activity. refinancing overly various to continue that as of some in income there wasn't robust out line the be will I from Q continue encompasses you just couple of other the

in acceleration I accretion from think OID an quarter. But was it or standpoint, don't the overly material

done. if And in space, fourth are in about know get burst trying I in the that activity and last quarter quarter. the there deals credit I traditionally Okay. to fourth in of particular, Thinking private BDC portfolios seasonal in companies as of be the sort -- to could, question. a some one tends

different You guys with of have a a focus, the more bit liquid sort portfolio. of obviously have little

there the guys credit quarter the you portfolio the investment the different see have directionally might you should in less adjust just focus activity think private we be activity or bit sort in little and in expectations I'm we Or for churn to because be what exits? do space. seasonality a of similar fourth curious rest of if our than should a it do

year, kind think No, in be guess date. really being a an a particular this good today election I question. is of important Yes. year I very that's And

seen have syndicated slow the the certainly things we market in So over down, week. last

which was slower probably, frankly, lot a months, would of there bit cases there of forward of a a maybe but pull little think bit going I a was the throughout lot be that on. activity historically summer

companies play it some some days. refinancing, of think point. from towards it's out will whether bit of see, over new of But to kind November as into net-net, but versus, Undoubtedly do I conversations seeing think, we kind more though, and early get the activity middle sponsors the summer few I of and skewed think see now, little and will this be wanting or we're just we things I what to next how the deal activity. more your a December, end muted Again,

America. our question next Derek line the of of comes And from Hewett Bank with

So trend what rates importantly, reflected X-month in results? continue SOFR if third as in lower, percentage kind reprice? the does -- quarter of rates more the kind quickly And decline how to of was of portfolio

locking moved de Derek. those it given question, X Good the borrowers, at quarter, in the was when No. this standpoint. from month September they're contracts meeting, and paying that third pretty most frankly, quite Fed kind I'd for minimis, say quarter if in on advance, of

kind read-through for So not much a in this of the of way particular quarter.

is an Obviously, of kind on obviously, other the we being out the on spread of a kind from available look standpoint in I -- on income, a But to achieve no what standpoint, point your your right, been lot from of baked of borrower investment on a what a kind think the XX-Q activity actually point else like borrower with in equal, from can market rates back what basis, how, all-in all a an moves. repricing portfolio of that latter go-forward of from XX basis. in list would has question decrease basis a

of stabilize through seen comment in thick And And kind the few that's here the in we a repricing we're past have the over private syndicated think the to I I both and market. months. activity credit market. the spreads think weeks the So of

makes on floor natural risk-reward sense a I standpoint. what think there's from just a

is more activity standpoint, into lead from just XXXX. To could up from up pick widening. that deal to to as little do activity earlier, certainly expect a question Melissa's does to continue supply/demand bit of we're that spread a the And to what we hopefully extent seeing hopefully pick

of types lot XX-year basis cases to overall. a kind on in a gotten of spread have things As

were be down source it's more investments forward, of -- past short-term meaningfully But would higher-yielding kind then liquidity. important of kind strategies? we this kind quarter. reinvested assuming which I'm should in of of an how should And we expect Okay. in going runoff

Yes, question. good

has that investments investments earmarked of been that committed been already or for that had So actually kind potential we'd cash to.

of this range prepared So certainly into point. million been quarter. think a we've mentioned at gotten credit I normalized will side so It's the in more in a elevated. got had I be commitments or fourth kind yet the $XX remarks, on that that that's bit also And private think my about I not been funded funded

capacity that's So some use short-term well. a of that of as

So I in think of probably a we're that finally of for bucket. kind more bit range a normalized

like All there It right. further Instructions] [Operator questions. are no looks

today's ahead go So all and you may you joining, for Thank will now I disconnect. and conclude call.