Pearl Diver Credit Q1 2025 Earnings Call Transcript

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Provided by Quartr
April 29, 2025

There are 3 speakers on the call.

Operator

Greetings, and welcome to the Pearl Diver Credit Company Q1 twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Chatterjeet Chakrabhoti, CFO. Please go ahead.

Speaker 1

Good day, ladies and gentlemen. Thank you for standing by. World War Credit Company refers participants on this call to the investor web pages for the press release, investor information and filings with the SEC for discussion of the risks that affect the business. World Health Credit Company specifically refers participants to the presentation furnished today with the SEC and to remind participants that some of the comments may contain forward looking statements and as such be subject to risks and uncertainties which if they materialize could affect results. Reference is made to the section titled Forward Looking Statements in the company's press release for the quarter ended 03/31/2025 which is incorporated herein by reference.

Speaker 1

We note forward looking statements whether written or oral include but not limited to, world level credit company's expectations or predictions of financial or business performance and conditions as well as its competitive and industry outlook. Forward looking statements are subject to risks, uncertainties and assumptions which if they materialize could affect results and as such forward looking statements do not guarantee performance and world level credit company does not give such assurances, update, alter or otherwise revise any forward looking statement as a result of new information, future events or otherwise except as required by law. In addition, historical data pertaining to operating results and other performance indicators applicable to I will now turn the call over to Indranil Basu, Chief Executive Officer of Pearl Credit Company.

Speaker 2

Thank you, Shalduji. Thank you everyone for joining us today for your interest in Pearl Diver Credit Company and welcome to our twenty twenty five Q1 earnings call. We'd like to invite you to download our investor presentation from our website, which provides additional information about the company and our portfolio. With me today is our Chief Financial Officer Chandhuri Chakraborty. And after our prepared remarks, we will open it up to any questions.

Speaker 2

Gold Diver Credit Company is an externally managed closed end investment company with a core investment objective of maximizing our portfolio's total return with a secondary objective of generating a high current income. We invest primarily in equity and junior debt tranches of collateralized loan obligations or CLOs. The core pillars of our differentiated total return strategy are maintaining a sustainable distribution policy and protecting NAV. We utilize leverage opportunistically targeting lower long term leverage levels and prudently manage the risk in the portfolio through diversification across CLO managers, individual obligor and sector exposure, and CLO vintages and reinvestment end dates. Our portfolio of CLO investments as of March 31 is diversified across 50 unique CLO positions.

Speaker 2

The underlying corporate loan portfolios within these CLOs are managed by 33 distinct CLO managers. Across our CLOs, the underlying loan portfolios consist of approximately 1,700 unique loans spread over across 30 plus industry sectors. PDCC is well diversified across various manager styles, balancing conservative CLO managers with liquid portfolios and others who capitalize on higher loan spreads through less liquid holdings. Our largest manager exposure is 12.1% of the portfolio, while the largest single CLO equity position is 4.9%. With 50 positions spread across different manager strategies, evenly spread over different durations, from some short duration CLO equity to newly issued longer duration CLO equity.

Speaker 2

There is no significant concentration in any single CLO. We believe the portfolio is well diversified and not overly exposed to idiosyncratic risk. Additionally, our largest single corporate exposure is limited to just point 6% of the portfolio. All investments in the portfolio are in the reinvestment period, allowing CLO managers to take advantage of current market conditions and reinvest prepayments into loans at favorable prices, as well as reduce exposure to vulnerable issuers or sectors such as those especially sensitive to tariffs. The weighted average GAAP yield on the portfolio was 15.57% at March 31, an increase of 68 basis points from the prior quarter.

Speaker 2

The increase is largely due to a combination of fully investing proceeds from the December preferred share issuance and CLO refinancing activity, which lowered the CLO liability costs on certain CLO investments in the portfolio. I'm pleased to report that the company delivered solid period results reflecting the strength of our investment strategy, portfolio management, and successful execution of our strategic initiatives. Proceeds from our public offering of 8% Series A term preferred stock due 2029 have now been fully invested largely in attractive primary investment opportunities in the first quarter of twenty twenty five. The first quarter of twenty twenty five presented two contrasting narratives. The quarter began with strong CLO issuances and record low CLO liability spreads, followed by a widening of CLO spreads amid global macro uncertainty.

Speaker 2

In Q1 twenty twenty five, '40 '5 point '6 billion dollars in new US CLOs were issued and $96,000,000,000 in CLOs were refinanced. During this period, we took advantage of low CLO liability structures, locking in tight debt, and invested $30,800,000 in primary CLOs. Additionally, approximately 9% of our portfolio was refinanced or reset in Q1, capitalizing on the tight CLO liability market. Looking ahead, we anticipate a slowdown in CLO primary issuance and refinancing activity. As many CLOs have already extended their reinvestment periods and locked in tight liability spreads over the past year.

Speaker 2

On the other hand, we expect CLOs to capitalize on any loan market volatility due to their extended reinvestment periods and ability to absorb potential loan fund outflows. Turning to our credit outlook, the LSTA indexes trailing twelve month default rate ended the first quarter of twenty twenty five at 82 basis points, 11 basis points lower than at the end of twenty twenty four. Defaults, including distressed exchanges, also moderated to around 4%. CLO portfolios on average experienced credit stresses at roughly half that level. The first quarter was marked by stability, supported by strong corporate fundamentals, manageable near term maturities, accessible capital markets, and limited distress within the loan asset class.

Speaker 2

Tariffs have been top of mind since the April after President Trump announced reciprocal tariffs on all countries. Market volatility picked up following the newly announced tariff measures. However, we expect only a very moderate pickup in defaults and believe the CLO market will remain resilient, supported by strong underlying trade quality and limited exposure to tariff affected sectors and companies. Zillow portfolios are highly diversified and actively managed, allowing repositioning away from vulnerable sectors or names. Early signs show that some managers have already reduced exposure to tariff sensitive issuers, a proactive step that reduces headline risk and demonstrates agility.

Speaker 2

While recent tariffs have added another layer of complexity to an already uncertain macro environment, the leveraged loan and CLO markets are expected to demonstrate resilience. While some uptick in loan downgrades or defaults is likely, CLOs continue to offer strong structural protections with built in self correcting mechanisms. With that, I'll now turn the call over to Chandraseep for a more detailed review of our financial highlights for the quarter.

Speaker 1

Thanks, Indranil and hello again everyone. For the quarter ended 03/31/2025, we delivered investment income of $6,000,000 or $0.89 per share of common stock, an increase of $600,000 or $08 per share from the prior quarter as proceeds from the term preferred stock offering were invested throughout the quarter. Total expenses for the quarter were $2,600,000 or $0.38 per share, an increase of $600,000 or $08 per share largely attributable to interest expense on term preferred shares. In total, net investment income was $3,400,000 or $0.50 share. We recorded net unrealized loss on investments of $9,600,000 or $1.41 per share which was a result of market wide increase in risk premiums that affected CLO equity valuations.

Speaker 1

Consequently, our net loss for the quarter was $6,100,000 or $0.90 per share. Moving to our balance sheet, as of 03/31/2025, total assets were $173,700,000 and total net assets were $124,600,000 resulting in a net asset value per share of $18.33 Available liquidity consisting of short term investments net of unsettled trades was approximately $600,000 and the company had leverage of $40,400,000 composed of $33,400,000 from our public offering of Series A term preferred stock in mid December and $7,000,000 in short term reverse repurchase agreements. Our leverage at the March was 23.2% of total assets which approaches our long term target leverage range of 25% to 35%. Our leverage levels will vary over time as we intend to utilize leverage opportunistically when attractive investment opportunities arise and for short term cash management purposes. We distributed dividends of 22¢ per common share in January, February and March and will distribute our 22¢ per common share dividend in April.

Speaker 1

Based on our share price, at the March, our distributions represent an annualized dividend yield of 13.9%. In summary, we believe our strong and prudently managed investment portfolio positions us well to deliver attractive risk adjusted returns to our shareholders. I will now turn it over to our CEO, Indranil Basu.

Speaker 2

Thanks, Chandujit. We continue to be excited about the present opportunities in the CLO market and the long term resilience of the asset class in the face of tariff uncertainty. Fundamentally, we believe that CLOs provide investors with an efficient way to access the senior secured corporate loan asset class, and can offer an attractive risk return profile across various credit cycles. We believe that PDCC is positioned to provide investors with strong dividend yields and risk adjusted returns. With that, we thank you for your time and open up the call to Q and A.

Speaker 2

Operator?

Operator

Thank you. We'll now be conducting a question and answer session. We reached the end of our question and answer session. I'd to turn the floor back over for any further or closing comments. I'd like to turn the floor back over to management for any further or closing comments at this time.

Operator

Management lines are live. Perhaps your phones are self muted.

Speaker 1

Thank you, everybody, for participating in our earnings call for Perleva Credit Company. We appreciate your participation. Thank you.

Operator

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful

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Key Takeaways

  • Portfolio is diversified across 50 CLO positions managed by 33 managers, spanning approximately 1,700 loans in 30+ sectors, minimizing idiosyncratic risk.
  • Weighted average GAAP yield rose to 15.57%, up 68 basis points quarter-over-quarter due to invested preferred proceeds and reduced liability costs.
  • The company reported a first-quarter net loss of $6.1M (loss of $0.90 per share) driven by $9.6M in unrealized investment losses amid higher risk premiums.
  • Common stock dividends of $0.22 per share imply a 13.9% annualized yield, reflecting the firm's focus on generating high current income.
  • Management expects a slowdown in CLO primary issuance and refinancings but anticipates continued market resilience supported by extended reinvestment periods and limited default rates.
AI Generated. May Contain Errors.
Earnings Conference Call
Pearl Diver Credit Q1 2025
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