Executive Summary

Total investment income was $37.3M (+30% YoY), with net investment income (NII) of $15.7M ($0.48 per share); NAV per share declined 1.4% QoQ to $16.61 on realized and mild mark-to-market losses .
Portfolio metrics remained resilient: non-accruals rose to 0.26% of fair value from 0% in Q2 but remained low versus sector; PIK income was just 0.5% of total investment income; portfolio yield improved to 10.48% QoQ .
Liquidity stood at approximately $181.1M with debt-to-equity at 1.52x; the Board declared a Q4 2024 base dividend of $0.42 per share, with supplemental dividend to be announced in December .
Management emphasized strategy differentiation (liquid BSL plus large-cap private credit) and monthly NAV disclosure; they flagged two small, idiosyncratic non-accruals and a cautious stance amid tight spreads and evolving rate environment .

What Went Well and What Went Wrong

What Went Well

Strong topline and NII growth: total investment income of $37.3M (+30% YoY) and NII of $15.7M ($0.48/sh); dividend coverage supported a $0.47 total Q3 distribution (base $0.42 + supplemental $0.05) .
Very low PIK income and high transparency: PIK income was only $205K (~0.5% of TII) and PSBD continues to disclose monthly NAV, providing real-time portfolio visibility; September NAV was $16.61 .
Portfolio yield increased and private credit allocation building: portfolio yield rose to 10.48%; new private credit loans were funded at ~530 bps over reference rate, with ~10% private credit allocation approaching and expected to grow .

Management quote: “PSBD is the only publicly traded BDC that discloses monthly NAV to the Street, providing real-time visibility into the health and value of the portfolio” .

What Went Wrong

NAV and marks: NAV per share decreased to $16.61 (from $16.85 in Q2) driven by net realized and unrealized losses ($8.2M) and mild mark-to-market pressure .
Non-accruals appeared: two loans moved to non-accrual (0.26% of FV), reflecting idiosyncratic situations amid sector-wide uptick, though immaterial to income and size .
Slight leverage uptick and income quality headwinds: debt-to-equity increased to 1.52x (from 1.49x), and interest coverage for borrowers ticked down ~10 bps QoQ; spread tightening challenged incremental yield capture .

Financial Results

Metric	Q3 2023	Q2 2024	Q3 2024
Total Investment Income ($USD Millions)	$28.8	$36.5	$37.3
Net Investment Income ($USD Millions)	$14.8	$15.8	$15.7
NII per Share ($)	$0.57	$0.48	$0.48
NAV per Share ($)	$16.76	$16.85	$16.61
Debt-to-Equity (x)	1.42x	1.49x	1.52x
Portfolio Yield (%)	11.47%	9.82%	10.48%
Dividends per Share ($)	$0.56	$0.47	$0.47
NII Margin (%)	51.4% (14.8/28.8)	43.2% (15.8/36.5)	42.1% (15.7/37.3)

Segment/Instrument Mix (Q3 2024):

Instrument	Mix (%)
First lien senior secured debt	87.1%
Second lien senior secured debt	6.2%
Short-term investments	3.2%
CLO mezzanine & equity	3.1%
Corporate bonds	0.3%
Equity investments	0.1%

KPIs:

KPI	Q3 2024
Portfolio companies (count)	212
Investments on non-accrual (% FV)	0.26%
PIK income (% of TII)	0.5%
Weighted avg yield to maturity at FV	10.48%
Weighted avg borrower EBITDA	$457M
Senior secured leverage (borrowers)	5.5x
Interest coverage (borrowers)	2.0x
Available liquidity	~$181.1M
Debt outstanding (total principal)	~$824.4M
Share repurchases (Q3)	9,312 shares at $16.16; $150K

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Base dividend per share	Q4 2024	$0.42 base (Q3 distribution included $0.42 base + $0.05 supplemental)	$0.42 base declared (payable Jan 13, 2025)	Maintained
Supplemental dividend	Q4 2024	Q3 supplemental was $0.05	To be announced in December per policy	Maintained (policy-driven timing)
Share repurchase program	Through Jan 17, 2025	Authorization up to $20M	Program remains in place; $150K repurchased in Q3	Maintained
Revenue/Margins/OpEx/Tax	Q4 2024	Not provided	Not provided	N/A

Notes: CFO referenced interest rate sensitivity in the 10-Q (25 bp decrease scenario), but no explicit numerical guidance was given in the call/press release .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2)	Current Period (Q3)	Trend
Macro rates & spreads	Emphasized liquid, shorter-duration credits and opportunistic reallocation (Q1) ; tight spreads; strong results (Q2)	Fed cut in September; spreads tight near pre-COVID; disciplined underwriting; expect spreads could widen as M&A picks up	Stabilizing now; potential modest widening
Portfolio liquidity & positioning	Liquid approach enables agility (Q1)	Rotation from lower-spread syndicated loans into higher-spread private credit; position sizes smaller to boost diversification	Improving risk-adjusted positioning
Credit quality & non-accruals	No non-accruals in Q2; low PIK (0.5%)	Two non-accruals (0.26% FV), described as idiosyncratic and immaterial; PIK remains ~0.5%	Slight deterioration but still strong
Private credit allocation	Building over 2024 (implied)	Private credit allocation approaching ~10%; new private credit loans at ~530 bps over reference rate	Gradually increasing
Deal pipeline & activity	Active refinancing/pricing noted (Q2)	Expect pickup post-election and as rate path stabilizes; Q4 activity likely more muted near-term but could rise into 2025	Muted near-term; improving medium-term
Dividend policy & transparency	Base dividend $0.42; robust distributions (Q1/Q2)	Q4 base dividend declared; supplemental to follow in December; monthly NAV disclosure reiterated	Maintained

Management Commentary

Strategy differentiation: “We believe PSBD’s ability to act quickly across liquid and private markets will continue to drive shareholder value” .
Transparency: “PSBD is the only publicly traded BDC that discloses monthly NAV to the Street” .
Credit stance: “We had our second and third ever non-accruals... neither loan was material from a size and income perspective” .
Yield and underwriting: “With a 96% senior secured loan portfolio... we are still able to provide investors with an 11.3% yield as of September 30” and remain disciplined in tight spread environments .
Portfolio activity: Fair value ~$1.39B; $66M funded; $83M repayments; private credit approaching ~10% of portfolio; 10 largest investments only 10.1% of portfolio .
Financial metrics: NII $15.7M ($0.48/sh); NAV $16.61; liquidity ~$181M; debt-to-equity 1.52x; Q3 distributions totaled $0.47/sh .

Q&A Highlights

Private credit allocation cap: No hard cap; intent to maintain meaningful liquid portion while growing private credit where attractive; focus on relative value .
Underwriting quality/covenants: Hit ratio remains low amid strong demand for floating rate loans; spreads tightened; management remains prudent and disciplined .
Portfolio yield variability: Driven by refinancing/repricing dynamics, rotation into wider-spread private credit, and fair value movements; actions taken to maintain yield .
Accelerated OID: Not material in Q3; may see some in coming quarters as refinancing persists .
Seasonality and rate repricing: Q3 benefited minimally from SOFR decline; Q4 activity likely muted near-term; spreads have stabilized and could widen with greater M&A in 2025 .
Short-term investments: Decline reflects funding of committed deals; ~$15M of private credit commitments expected to fund in Q4 .

Estimates Context

Wall Street consensus via S&P Global was unavailable for PSBD this quarter; attempted retrieval returned an SPGI error. As a result, we cannot assess beat/miss versus consensus for revenue or EPS. We recommend monitoring coverage development and updating estimate comparisons when available.

Key Takeaways for Investors

Revenue and NII strength amid tight spreads: $37.3M TII (+30% YoY) and $15.7M NII ($0.48/sh) underscore resilient earnings power even as spreads tightened; portfolio actions preserved yield momentum .
Credit quality remains a differentiator: Non-accruals are small at 0.26% of FV and PIK is just 0.5%; borrower metrics (EBITDA $457M, leverage 5.5x, coverage 2.0x) reflect focus on larger, higher-quality credits .
Liquidity and flexibility: ~$181.1M available liquidity and a largely liquid portfolio enable tactical rotation across BSL and private credit; expect optionality to matter if spreads widen with an M&A pickup .
Dividend visibility: Base dividend of $0.42/sh declared for Q4 with supplemental to follow; monthly NAV disclosure provides transparency that can be a stock reaction catalyst in volatile markets .
Watch the spread trajectory: Management signaled potential modest spread widening as deal activity returns; this could support ROE and NII trends into 2025 if executed prudently .
Risks: NAV sensitivity to marks and idiosyncratic credit events; leverage at 1.52x requires continued credit discipline if macro softens .
Positioning: Bias toward maintaining liquidity while incrementally growing private credit allocation into favorable relative value—supportive for medium-term total return profile .

Palmer Square Capital BDC Inc. (PSBD)·Q3 2024 Earnings Summary