Pearl Diver Credit Q1 Earnings Call Highlights

Key Points

• Pearl Diver Credit reported a first-quarter net loss driven largely by $25.1 million in unrealized investment losses, even though net investment income was $2.6 million. Management emphasized these losses were non-cash and tied to market volatility in CLO equity.
• Recurring cash flow stayed strong, with $10.5 million from the CLO portfolio exceeding distributions and expenses by $0.56 per share. The company said underlying loan fundamentals remained constructive and defaults stayed low.
• The company cut its dividend starting in June to $0.13 per share from $0.22, saying the move better matches near-term net investment income and preserves capital for future deployment and NAV support.

Pearl Diver Credit NYSE: PDCC reported a first-quarter net loss as market-driven unrealized losses weighed on results, while management said recurring cash flows from its CLO portfolio remained strong enough to exceed distributions and expenses.

Chief Executive Officer Indranil Basu said the broader CLO equity market “remained challenged” during the quarter, with tight spreads early in the period followed by increased volatility tied to geopolitical risks, including the war in the Middle East, higher oil prices and renewed concerns about near-term inflation. He said the company’s quarterly results were “mostly driven by unrealized losses,” which he described as non-cash and based on market movements.

Despite that pressure, Basu said the portfolio continued to generate “strong recurring cash flows” and that underlying loan fundamentals remained constructive, with default rates still low and weakness concentrated rather than broad-based.

Quarterly results pressured by unrealized losses

Chief Financial Officer Chandrajit Chakraborty said Pearl Diver Credit generated investment income of $4.8 million, or $0.70 per common share, for the quarter ended March 31, 2026, compared with $5.7 million in the prior quarter. Total expenses were $2.1 million, or $0.31 per share, down from $0.37 per share in the previous quarter.

The company recorded net unrealized losses on investments of $25.1 million, or $3.67 per share, and a net realized loss of $24,000. Net investment income totaled $2.6 million, or $0.39 per share, while the company posted a net loss of $22.5 million, or $3.28 per share.

Recurring cash flows from the CLO portfolio totaled $10.5 million, or $1.53 per share, exceeding distributions and expenses by $0.56 per share. That compared with recurring cash flows of $9.8 million, or $1.44 per share, in the prior quarter.

Net asset value declines; leverage remains within target

As of March 31, Pearl Diver Credit reported total assets of $112.8 million and total net assets of $72 million, resulting in net asset value of $10.48 per share. That was down from $14.42 per share at Dec. 31.

Available liquidity, consisting of cash and short-term investments net of unsettled trades, was approximately $0.8 million. The company had $39.5 million of leverage, including $33.6 million of Series A term preferred stock and $5.8 million in short-term reverse repurchase agreements.

Chakraborty said leverage stood at 35% of total assets at quarter-end, which he said was within the company’s long-term target leverage range. He added that leverage levels may vary over time as the company uses leverage opportunistically for attractive investments and short-term cash management.

The company also continued issuing shares through its at-the-market equity issuance program. During the quarter, it issued 34,970 shares for net proceeds of approximately $0.5 million.

Dividend to be reduced beginning in June

Pearl Diver Credit distributed dividends of $0.22 per common share in January, February, March and April, and Chakraborty said the company would distribute another $0.22 per common share dividend later in May.

For June, July and August, the company declared a lower dividend of $0.13 per common share. Chakraborty said the board considers net investment income, taxable income, recurring cash flows and the outlook for the investment portfolio when setting the dividend.

He said the dividend reduction beginning in June “realigns our dividend with our near-term outlook for net investment income” and allows the company to preserve capital for additional deployment opportunities “in order to stabilize and grow our net asset value over time.”

During the question-and-answer session, Basu said the dividend change is intended to align the company’s dividend policy more closely with net interest income. He said preserved capital is expected to be invested in attractive opportunities and used to help protect NAV.

Portfolio positioned around reinvestment flexibility

Basu said the first quarter brought a more challenging backdrop in loan markets, with the loan index declining from 96.64 to 94.63 amid concerns about AI-exposed sectors and geopolitical tensions. Senior CLO debt tranches held up well, while CLO equity returns reflected the move in loans, with longer reinvestment-period positions outperforming shorter profiles.

As of March 31, the company’s portfolio included 60 CLO equity positions managed by 33 distinct CLO managers. The underlying loan portfolios included approximately 1,400 obligors across more than 30 sectors. No single CLO position represented more than 4.8% of the portfolio, and the largest corporate obligor exposure was 70 basis points.

Basu said nearly all investments remain in their reinvestment periods, with reinvestment period end dates of 2026 and later across almost the entire portfolio. He said that structure gives CLO managers flexibility to adjust exposures, reinvest repayments at attractive levels and manage sector-specific risks.

The company completed four resets and refinancings during the quarter, representing about 6% of the portfolio, and added one new position that management said offered attractive relative value. Basu said those transactions reduced the weighted average cost of debt by 22 basis points and reduced Triple A spreads by 18 basis points. The portfolio’s weighted average GAAP yield declined to 11.27% at quarter-end from 12.99% at Dec. 31.

Management sees secondary-market opportunities

Basu said primary CLO issuance totaled approximately $39 billion in the first quarter, while refinancing and reset activity totaled approximately $48 billion. He noted that reset and refinancing activity slowed in March as wider primary spreads reduced the economics of refinancing existing liabilities.

Looking ahead, Basu said a pipeline of 2024-vintage CLOs exiting non-call periods during 2026 could support increased refinancing and reset activity later in the year if spreads stabilize. In response to a question from Gaurav Mehta of Alliance Global Partners, Basu said about one-third of Pearl Diver Credit’s portfolio will come out of lockup this year and could be candidates for resets and refinancings.

Asked about the investment environment by Eric Zwick of Lucid Capital Markets, Basu said the company is currently more focused on the secondary market than the primary market. He said “interesting secondary market positions” are appearing in BWICs, where the company is more active.

Basu also said there are signs that loan spread compression is slowing. He said spreads had tightened by an average of roughly 2.5 basis points per month over the past couple of years, while in April the figure was closer to 50 basis points. He said the slowdown is a constructive signal for portfolio yields going forward.

Management said it remains constructive on CLOs and will continue to deploy capital selectively where it sees attractive risk-adjusted opportunities, with a focus on disciplined portfolio management and long-term total return.

About Pearl Diver Credit NYSE: PDCC

Pearl Diver Credit Company Inc is a newly organized, externally managed, non-diversified, closed-end management investment company. Its primary investment objective is to maximize its portfolio's total return, with a secondary objective of generating high current income. Pearl Diver Credit Company Inc is based in NEW YORK.

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