Palmer Square Capital BDC NYSE: PSBD reported lower third-quarter investment income than a year earlier, while its net asset value per share rose from the prior quarter as the company repurchased shares and reduced leverage.
The business development company reported net investment income of $11.6 million, or $0.38 per share, for the third quarter of 2026, compared with $13.6 million, or $0.43 per share, a year earlier. Total investment income fell 16.1% to $26.6 million from $31.7 million.
Chief Financial Officer Jeff Fox said income reflected contractual interest on investments, which was affected by lower base rates compared with the prior year, along with a modest amount of paydown-related and fee income. Net expenses declined to $14.9 million from $18 million.
Net asset value rose to $13.34 per share as of Sept. 30, from $13.21 at the end of the second quarter. Chairman and Chief Executive Officer Chris Long attributed the change in part to fair value adjustments associated with pricing moves in the broadly syndicated loan market.
Dividend and share repurchases
Third-quarter net investment income matched the company’s total dividend of $0.38 per share, which included a $0.02 supplemental distribution. The board declared a fourth-quarter base dividend of $0.36 per share on Nov. 4; Long said a supplemental dividend would be determined in the normal course.
President Matt Bloomfield said the company remained confident in the sustainability of its base dividend heading into 2027. He said the company expected recent refinancing activity to add to earnings power and that market-implied base-rate expectations could also provide support.
Palmer Square repurchased $5.2 million of its shares during the third quarter. Bloomfield said approximately $24.8 million remained available under the repurchase plan at quarter-end and described buybacks as a near-term capital allocation priority.
Management said it would continue to weigh repurchases against new investments and debt reduction. Bloomfield said the company was comfortable with its quarter-end leverage and did not expect to take it much higher, although it could decline further depending on available opportunities.
Portfolio shrinks as repayments exceed investments
The investment portfolio had a fair value of approximately $1.09 billion at Sept. 30, down from $1.11 billion at the end of the second quarter. The company deployed $115 million during the quarter, including 31 new investment commitments, while receiving approximately $165.8 million from repayments and sales.
Bloomfield said Palmer Square accepted paydowns on some broadly syndicated loans rather than participate in refinancings at spreads it considered inadequate for the risk. The company also sold many of its collateralized loan obligation mezzanine investments because it saw better prospective opportunities elsewhere, he said.
At quarter-end, 97% of the portfolio was senior secured, and its 10 largest investments represented 10.92% of the total. Non-accrual investments accounted for less than one basis point of the portfolio at fair value and 96 basis points at cost, according to Bloomfield. Payment-in-kind income represented approximately 2.18% of total investment income.
Bloomfield said the company currently saw better relative value in private credit than in syndicated loans, particularly on spreads. Within broadly syndicated loans, he favored secondary-market opportunities over new issuance. He said private credit represented roughly 15% of the portfolio.
Funding costs and market outlook
The company’s debt-to-equity ratio declined to 1.63 times from 1.71 times at the end of the second quarter, reflecting debt paydown and NAV appreciation. Available liquidity, including cash and undrawn credit-facility capacity, fell to approximately $195 million from $331 million.
During the quarter, Palmer Square reset and extended its BDC CLO, reducing its weighted average cost of debt to SOFR plus 139 basis points from SOFR plus 172 basis points. The transaction extended the reinvestment period to July 2031 and maturity to July 2039. The company also reduced excess capacity under its Bank of America broadly syndicated loan funding facility to lower unused fees.
Bloomfield said the financing facilities’ spreads should remain relatively steady, although their floating-rate costs will move with base rates. He added that higher rates could support portfolio yields, while noting that borrowers had interest coverage of about 2.4 times.
Long said elevated interest-rate volatility and geopolitical uncertainty could continue to weigh on fourth-quarter deal activity. He said sponsors had reported longer transaction processes, though he expected activity to improve over time at an uneven pace.
About Palmer Square Capital BDC (NYSE:PSBD)
Palmer Square Capital BDC, Inc is an externally managed business development company that seeks to provide financing to private middle-market companies. The company focuses primarily on privately originated and negotiated investments in senior secured loans and other debt instruments, with the goal of supporting businesses while generating current income for shareholders.
Palmer Square Capital BDC may invest across a range of industries and capital structures, including first-lien and unitranche loans, second-lien and subordinated debt, and select equity investments.
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