Palmer Square BDC Q3 Income Declines as Portfolio Shrinks

Palmer Square Capital BDC Inc. (NYSE: PSBD) reported lower third-quarter investment income and net investment income from a year earlier as sales and repayments exceeded new funding, reducing the size of its portfolio. Net asset value per share nevertheless increased from the previous quarter, while leverage declined and non-accrual investments remained below 0.01% of the portfolio at fair value.

Total investment income was $26.6 million for the quarter ended September 30, 2026, compared with $31.7 million a year earlier. Net investment income declined to $11.6 million, or $0.38 per share, from $13.6 million, or $0.43 per share, in the third quarter of 2025.

Interest income, the company’s largest revenue component, was $24.8 million, down from $30.4 million a year earlier. Total expenses decreased to $14.9 million from $18.0 million, reflecting lower interest expense, incentive fees and management fees.

PSBD recorded $2.4 million of net realized and unrealized gains during the quarter, consisting of $7.0 million in net unrealized gains partly offset by $4.6 million in net realized losses. Net asset value rose to $13.34 per share from $13.21 at June 30. The company reported a 5.00% quarterly total return, calculated using the change in NAV and dividends earned during the period.

Portfolio declines as repayments exceed new investments

PSBD funded approximately $115.0 million across 31 new investments during the quarter, while sales and repayments totaled $165.8 million. That resulted in $50.8 million of net investment reductions at amortized cost.

The investment portfolio had a fair value of $1.09 billion at quarter-end, down from $1.11 billion at June 30 and $1.26 billion a year earlier. The portfolio comprised 278 investments across 200 companies and 45 industries.

First-lien senior secured debt represented 90.88% of new investments. New commitments had a weighted average interest rate of 8.34%, a weighted average maturity of 2.89 years and were 98.13% floating-rate debt.

Across the broader portfolio, 97% of long-term investments were senior secured and 98% were floating rate. The weighted average yield to maturity on debt and other income-producing securities was 11.99% at fair value and 8.38% at amortized cost.

The portfolio remained diversified, with the 10 largest positions accounting for 10.9% of income-producing securities at fair value. Software was the largest industry exposure at 11%, followed by professional services at 9% and healthcare providers and services at 8%.

Credit quality and balance sheet

One portfolio company was on non-accrual status at September 30, representing less than 0.01% of total investments at fair value. Payment-in-kind interest income accounted for 2.18% of total investment income.

The weighted average internal portfolio rating was 3.6 on PSBD’s five-point scale, where higher scores indicate stronger performance or more compelling relative value. About 63.6% of rated corporate debt and equity investments carried a rating of 4, while 7.5% were rated 2.

Among first-lien borrowers, weighted average last-12-month EBITDA increased to $483 million from $463 million in the second quarter. Weighted average first-lien leverage was 5.7 times, compared with 5.6 times in the prior quarter, while weighted average interest coverage was 2.4 times, down from 2.5 times.

Total assets were $1.11 billion and net assets were $403.4 million at quarter-end. Net debt outstanding was $656.6 million, and the debt-to-equity ratio declined to 1.63 times from 1.71 times at June 30. The company reported approximately $195 million of available liquidity and $19.4 million of unfunded investment commitments.

Distributions and management priorities

PSBD declared $0.38 per share of cash distributions for the third quarter, matching net investment income per share. On November 4, the board declared a regular fourth-quarter distribution of $0.36 per share, payable January 13, 2027, to shareholders of record on December 28, 2026. The company expects to announce an additional supplemental fourth-quarter distribution in December but did not specify an amount.

Management continues to emphasize senior secured, floating-rate loans, higher-quality borrowers and portfolio liquidity. The presentation indicated that refinancing activity should support near- and medium-term leveraged-loan supply, while future deployment of private-equity capital could contribute to longer-term issuance.

The company cautioned that results remain exposed to changes in interest and foreign-exchange rates, inflation, economic and capital-market conditions, geopolitical instability, financing availability and the performance of portfolio companies. Other risks include the use of leverage, the illiquid nature of investments and PSBD’s ability to maintain its status as a business development company and regulated investment company.