Palmer Square Capital's Q4 2024: Contradictions in Private Credit Strategy and Market Outlook

These are the key contradictions discussed in Palmer Square Capital BDC's latest 2024Q4 earnings call, specifically including: Private Credit Exposure and Strategic Mix, and Market Conditions and Investment Outlook:



Dividend Adjustment and Capital Deployment:
- Palmer Square Capital BDC (PSBD) adjusted its base dividend to $0.36 per share for Q1 2025, a reduction from the previous quarter.
- This decision was driven by the current rate environment and the desire to maintain flexibility for future capital deployment opportunities.

Portfolio Performance and Growth:
- PSBD's portfolio ended 2024 with a fair value of $1.41 billion, showing a 1.2% increase from the end of Q3.
- The growth was supported by the deployment of $171.8 million in new capital investments and strong financial results, including $34.9 million in total investment income and $14.8 million in net investment income.

Investment Strategy and Market Outlook:
- PSBD's investment strategy focuses on senior secured loans to large stable borrowers, which provide attractive risk-adjusted returns and superior diversification.
- The current market environment presents opportunities in liquid and private credit, with floating rate assets offering advantages over fixed-rate credit.

Credit Quality and Portfolio Management:
- The portfolio is 96% senior secured, with an average hold size of $5.4 million and a 96% weighted average senior secured leverage of 5.4x and interest coverage of 2.0x.
- The high credit quality and low exposure to nonaccrual loans (0.08% of fair value) are maintained through disciplined underwriting and portfolio management practices.