Palmer Square Capital BDC's Q2 2025: Analyzing Key Contradictions in Leverage, European Opportunities, and Dividend Strategy

Leverage management strategy, European investment opportunities, portfolio strategy and exposure to European markets, dividend strategy and market conditions, and portfolio yield and repricing activity are the key contradictions discussed in Palmer Square Capital BDC's latest 2025Q2 earnings call.



Portfolio Performance and Market Conditions:
- Palmer Square Capital BDC (PSBD) deployed $92.4 million of capital in Q2 2025 and generated $31.7 million in total investment income, with a net investment income of $13.8 million.
- The company delivered a net investment income of $0.43 per share and paid a total dividend of $0.42 per share, including a supplemental distribution of $0.06.
- The performance was driven by the company's conservative portfolio positioning and the ability to adjust to changing market conditions, including volatility from tariff policies and geopolitical risks.

Credit Market Resilience and Opportunity:
- Despite April's volatility, PSBD's spreads nearly returned to pre-tariff levels by the end of Q2, with a yield of 12.12%.
- The company benefited from its diversified and high-quality portfolio, which is 96% senior secured and has an average hold size of approximately $5.1 million.
- The resilience of the credit market and the company's ability to find relative value opportunities positioned PSBD well to exploit new opportunities as spreads widen.

Strategic Sourcing and Yield Management:
- New investments included 18% sourced from the European investment team, enhancing the company's global footprint and access to high-quality opportunities.
- The weighted average yield on new investments increased by 40 basis points, driven by attractive opportunities in Europe and the U.S.
- This strategic sourcing and yield management strategy contributed to maintaining a low PIK income percentage and a strong internal rating of 3.6.

Financial Results and Dividend Strategy:
- Total net investment income for Q2 2025 was $13.8 million or $0.43 per share, compared to $15.8 million or $0.48 per share in the prior year period.
- The company declared a third-quarter base dividend of $0.36 per share and continues its stock repurchase plan.
- The drop in net investment income was primarily due to a 100 basis point rate cut at the end of 2024, affecting income from a floating-rate loan portfolio.