UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 000-56126 Palmer Square Capital BDC Inc. (Exact name of registrant as specified in its charter) | Maryland | 84-3665200 | | --- | --- | | (State or other jurisdiction of | (I.R.S. ...

PART I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) The company operates as a BDC, maximizing total return by investing in private U.S. corporate debt and CLO structured credit - Palmer Square Capital BDC Inc. was organized on August 26, 2019, and commenced operations on January 23, 2020, electing to be regulated as a **BDC** and treated as a **RIC**[11](index=11&type=chunk)[392](index=392&type=chunk) - The company's investment objective is to **maximize total return**, comprising current income and capital appreciation, primarily by investing in corporate debt securities of privately held U.S. companies and CLO structured credit[13](index=13&type=chunk)[298](index=298&type=chunk)[393](index=393&type=chunk) - The Investment Advisor, Palmer Square BDC Advisor LLC, is a majority-owned subsidiary of Palmer Square, which had approximately **$13.9 billion in assets under management** as of December 31, 2020[12](index=12&type=chunk)[20](index=20&type=chunk) - The company has implemented **ESG guidelines** effective March 1, 2021, prohibiting direct purchase of 'Prohibited ESG Securities' related to speculative energy extraction, controversial weapons, and other specific sectors[84](index=84&type=chunk)[85](index=85&type=chunk) Portfolio Overview as of December 31, 2020 | Metric | Value | | :--- | :--- | | Number of Debt & Private Fund Investments | 202 | | Number of Portfolio Companies | 181 | | Aggregate Fair Value of Investments | ~$600.1 million | | Top Industry (Software) as % of Total Assets | 12.9% | | Top Portfolio Company (Playtika Holding Corp.) as % of Total Assets | 1.3% | [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from its limited operating history, advisor dependence, conflicts of interest, leverage, and regulatory constraints - The company has a **limited operating history**, having commenced operations on January 23, 2020, and neither Palmer Square nor the Investment Advisor has previously managed a BDC[172](index=172&type=chunk)[173](index=173&type=chunk) - Success is **highly dependent on the financial and managerial expertise** of the Investment Advisor and Palmer Square, with no assurance that key personnel will remain employed[174](index=174&type=chunk)[175](index=175&type=chunk) - The **incentive fee structure** may create a conflict of interest by encouraging investments in deferred interest securities that increase assets under management and fees[184](index=184&type=chunk)[190](index=190&type=chunk) - The use of **leverage magnifies potential gains or losses**, and the company must maintain an asset coverage ratio of at least **150%**[191](index=191&type=chunk)[193](index=193&type=chunk) - A significant portion of potential investments may be **'Covenant-Lite Loans,'** which offer fewer protections to lenders and increase the risk of loss[62](index=62&type=chunk)[212](index=212&type=chunk)[222](index=222&type=chunk) - The expected **discontinuation of LIBOR** by mid-2023 poses material risks due to operational challenges and uncertainty of successor rates[197](index=197&type=chunk)[198](index=198&type=chunk) - The company's ability to make distributions may be limited by the **150% asset coverage test** and covenants in credit facilities[264](index=264&type=chunk)[265](index=265&type=chunk) [Item 1B. Unresolved Staff Comments](index=58&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved comments from the SEC staff - There are **no unresolved staff comments**[269](index=269&type=chunk) [Item 2. Properties](index=58&type=section&id=Item%202.%20Properties) The company's office facilities in Mission Woods, Kansas are considered adequate for its business operations - The company's headquarters are located at 1900 Shawnee Mission Parkway, Suite 315, Mission Woods, Kansas 66205[270](index=270&type=chunk) - The office facilities are considered **suitable and adequate** for the business[270](index=270&type=chunk) [Item 3. Legal Proceedings](index=59&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently subject to any material legal proceedings - The company is **not currently subject to any material legal proceedings**[271](index=271&type=chunk) - No material legal proceeding is threatened against the company[271](index=271&type=chunk) - The company may be a party to certain legal proceedings in the ordinary course of business from time to time[271](index=271&type=chunk) [Item 4. Mine Safety Disclosures](index=59&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable as there are no mine safety disclosures - There are **no mine safety disclosures**[272](index=272&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=60&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock has no public market, with details provided on holders, distributions, and recent unregistered sales - There is currently **no public market** for the company's common stock, and no outstanding options, warrants, or convertible equity[275](index=275&type=chunk) - As of March 12, 2021, the company had **131 record holders** of its common stock[5](index=5&type=chunk)[276](index=276&type=chunk) - The company issued and sold **12,562,805 shares** of common stock for an aggregate purchase price of approximately **$238.6 million** during the year ended December 31, 2020, exempt from registration requirements[287](index=287&type=chunk)[450](index=450&type=chunk) Distributions Declared for Fiscal Year Ended December 31, 2020 | Declaration Date | Record Date | Per Share | Payment Date | Total Distributions Declared | | :--- | :--- | :--- | :--- | :--- | | 5/12/2020 | 5/12/2020 | $0.040 | 5/14/2020 | $488,608 | | 8/17/2020 | 8/17/2020 | $0.270 | 8/18/2020 | $3,325,960 | | 11/16/2020 | 11/16/2020 | $0.360 | 11/17/2020 | $4,472,622 | | 12/29/2020 | 12/31/2020 | $0.310 | 1/19/2021 | $3,894,469 | | **Total** | | | | **$12,181,659** | [Item 6. Selected Financial Data](index=62&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents key financial data for the initial operating period ending December 31, 2020 Selected Consolidated Financial Data (Jan 23, 2020 - Dec 31, 2020) | Metric | Amount | | :--- | :--- | | Total investment income | $25,468,576 | | Net expenses | $10,771,790 | | Net investment income | $14,696,786 | | Net realized gains (losses) on investments | $(1,018,741) | | Net unrealized gains (losses) on investments| $13,055,565 | | Net increase in net assets from operations | $26,733,610 | | Net investment income per share | $1.32 | | Net increase in net assets per share | $1.13 | | Total assets | $667,490,101 | | Net assets | $253,144,971 | | Total return based on net asset value | 4.29% | | Number of portfolio company investments | 181 | | Total portfolio investments | 202 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=63&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's 2020 financial results, portfolio activity, liquidity, and critical accounting policies - The company generates revenue primarily from **interest and fee income** on debt investments and capital gains, with debt investments generally bearing floating interest rates[299](index=299&type=chunk) - As of December 31, 2020, the company had 202 debt and private investments in 181 portfolio companies with an aggregate fair value of approximately **$600.1 million**[300](index=300&type=chunk)[301](index=301&type=chunk)[305](index=305&type=chunk) - The weighted average total yield to maturity of debt and income producing securities at fair value was **4.96%**[300](index=300&type=chunk)[301](index=301&type=chunk)[305](index=305&type=chunk) - The company's asset coverage ratio was **164%** as of December 31, 2020, exceeding the 150% requirement for BDCs[315](index=315&type=chunk) Operating Results (Jan 23, 2020 - Dec 31, 2020) | Metric | Amount | | :--- | :--- | | Total investment income | $25,468,576 | | Less: Net expenses | $10,771,790 | | Net investment income | $14,696,786 | | Net realized gains (losses) on investments | $(1,018,741) | | Net change in unrealized gains (losses) on investments| $13,055,565 | | Net increase in net assets from operations | $26,733,610 | Investment Income Breakdown (Jan 23, 2020 - Dec 31, 2020) | Source | Amount | | :--- | :--- | | Interest from investments | $24,956,907 | | Dividend income | $228,092 | | Other income | $283,577 | | **Total investment income** | **$25,468,576**| Operating Expenses Breakdown (Jan 23, 2020 - Dec 31, 2020) | Expense Category | Amount | | :--- | :--- | | Interest expenses | $4,739,682 | | Management fees | $3,947,575 | | Professional fees | $992,352 | | Directors fees | $80,000 | | Offering costs | $503,292 | | Initial organization | $122,199 | | Other general and administrative expenses | $880,137 | | Less: Management fee waiver | $(493,447) | | **Net expenses** | **$10,771,790**| Financing Arrangements as of December 31, 2020 | Facility | Aggregate Principal Committed | Outstanding Principal | Amount Available | | :--- | :--- | :--- | :--- | | Bank of America Credit Facility | $475,000,000 | $395,000,000 | $80,000,000 | | Wells Fargo Credit Facility | $150,000,000 | $0 | $150,000,000 | [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=78&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk exposure is to interest rate changes, with additional risk from foreign currency fluctuations - The company's net investment income is affected by the difference between investment rates and borrowing rates, making it **sensitive to interest rate changes**[351](index=351&type=chunk) - Investments denominated in foreign currencies are subject to risks from changes in currency exchange rates, which the company may hedge using standard instruments[354](index=354&type=chunk)[355](index=355&type=chunk) Annualized Impact of Hypothetical Base Rate Changes on Net Investment Income (as of Dec 31, 2020) | Change in Interest Rates | Increase (Decrease) in Interest Income | Increase (Decrease) in Interest Expense | Net Increase (Decrease) in Net Investment Income | | :--- | :--- | :--- | :--- | | Down 25 basis points | $(1,507,147) | $(987,500) | $(519,647) | | Up 100 basis points | $6,028,588 | $3,950,000 | $2,078,588 | | Up 200 basis points | $12,057,176 | $7,900,000 | $4,157,176 | | Up 300 basis points | $18,085,764 | $11,850,000 | $6,235,764 | [Item 8. Consolidated Financial Statements and Supplementary Data](index=79&type=section&id=Item%208.%20Consolidated%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's audited consolidated financial statements for the period ending December 31, 2020 - The consolidated financial statements for the period from January 23, 2020 through December 31, 2020 have been **audited by PricewaterhouseCoopers LLP**[359](index=359&type=chunk)[360](index=360&type=chunk) Consolidated Statement of Assets and Liabilities (as of Dec 31, 2020) | Asset/Liability Category | Amount (Dec 31, 2020) | | :--- | :--- | | Non-controlled, non-affiliated investments, at fair value | $653,156,200 | | Cash and cash equivalents | $682,579 | | Total Assets | $667,490,101 | | Credit facility, net | $393,152,103 | | Total Liabilities | $414,345,130 | | Total Net Assets | $253,144,971 | | Net Asset Value Per Common Share | $20.15 | Consolidated Statement of Operations (Jan 23, 2020 - Dec 31, 2020) | Income/Expense Category | Amount | | :--- | :--- | | Total Investment Income | $25,468,576 | | Total Expenses | $11,265,237 | | Less: Management fee waiver | $(493,447) | | Net expenses | $10,771,790 | | Net Investment Income (Loss) | $14,696,786 | | Total realized and unrealized gains (losses)| $12,036,824 | | Net Increase in Net Assets from Operations | $26,733,610 | | Basic and diluted net investment income per common share | $1.32 | | Basic and diluted net increase in net assets from operations | $2.40 | Consolidated Statement of Cash Flows (Jan 23, 2020 - Dec 31, 2020) | Cash Flow Category | Amount | | :--- | :--- | | Net cash used in operating activities | $(623,170,895) | | Net cash provided by financing activities | $623,851,974 | | Net increase in cash and cash equivalents | $681,079 | | Cash and cash equivalents, end of period | $682,579 | Investment Portfolio Composition (Fair Value as of Dec 31, 2020) | Investment Type | Fair Value | Percentage of Net Assets | | :--- | :--- | :--- | | First-lien senior secured debt | $566,459,850 | 223.8% | | Second-lien senior secured debt | $19,975,980 | 7.8% | | Collateralized securities and structured products - debt | $13,615,501 | 5.4% | | Short-term investments | $53,104,869 | 21.0% | | **Total Investments** | **$653,156,200** | **258.0%** | Industry Composition of Investments (Fair Value as of Dec 31, 2020) | Industry | Percentage of Total Investments | | :--- | :--- | | Software | 13.3% | | Healthcare Providers and Services | 12.0% | | Short-Term Investments | 8.1% | | Insurance | 7.7% | | Professional Services | 4.4% | | Media | 4.4% | | Diversified Financial Services | 3.7% | | Hotels, Restaurants and Leisure | 3.6% | | Independent Power and Renewable Electricity Producers | 3.2% | | Diversified Consumer Services | 3.2% | | IT Services | 3.1% | | Commercial Services and Supplies | 2.8% | | Specialty Retail | 2.4% | | Containers and Packaging | 2.4% | | Health Care Technology | 2.3% | | Diversified Telecommunication Services | 2.2% | | Construction and Engineering | 2.2% | | Structured Note | 2.1% | | Chemicals | 1.8% | | Oil, Gas and Consumable Fuels | 1.7% | | Interactive Media and Services | 1.5% | | Metals and Mining | 1.3% | | Food Products | 1.2% | | Healthcare Equipment and Supplies | 1.1% | | Building Products | 1.1% | | Pharmaceuticals | 1.0% | | Wireless Telecommunication Services | 0.9% | | Leisure Products | 0.8% | | Electric Utilities | 0.8% | | Aerospace and Defense | 0.7% | | Construction Materials | 0.6% | | Internet and Direct Marketing Retail | 0.5% | | Technology Hardware, Storage and Peripherals| 0.5% | | Capital Markets | 0.4% | | Energy Equipment and Services | 0.3% | | Real Estate Investment Trusts (REITs) | 0.3% | | Textiles, Apparel and Luxury Goods | 0.3% | | Transportation Infrastructure | 0.1% | | **Total** | **100.0%** | Financial Highlights (Jan 23, 2020 - Dec 31, 2020) | Metric | Value | | :--- | :--- | | Net Asset Value, Beginning of Period | $20.00 | | Net Investment Income | $1.32 | | Net Realized and Unrealized Gain (Loss) on Investments | $(0.19) | | Net Increase in Net Assets from Operations | $1.13 | | Distributions to Common Stockholders | $(0.98) | | Net Asset Value, End of Period | $20.15 | | Shares Outstanding, End of Period | 12,562,805 | | Total Return | 4.29% | | Ratio of operating expenses to average net assets with waiver | 5.44% | | Ratio of net investment income to average net assets with waiver | 7.43% | [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=110&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants - There are **no changes in and disagreements with accountants** on accounting and financial disclosure[481](index=481&type=chunk) [Item 9A. Controls and Procedures](index=110&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of the end of the fiscal year - Disclosure controls and procedures were evaluated as **effective** at a reasonable assurance level as of December 31, 2020[482](index=482&type=chunk) - The company did not include a report on management's assessment of internal control over financial reporting, as **permitted for newly public companies**[483](index=483&type=chunk) - **No material changes** in internal control over financial reporting occurred during the fiscal quarter ended December 31, 2020[484](index=484&type=chunk) [Item 9B. Other Information](index=110&type=section&id=Item%209B.%20Other%20Information) This section details the terms of the $150 million Wells Fargo Credit Facility established in December 2020 - On December 18, 2020, the company entered into a Loan and Security Agreement for a **Wells Fargo Credit Facility** through its wholly-owned subsidiary[485](index=485&type=chunk) - The WF Credit Facility has a facility amount of **$150.0 million**, matures on December 18, 2025, and the ability to draw terminates on December 18, 2023[486](index=486&type=chunk) - Loans under the WF Credit Facility bear interest at LIBOR or base rate plus **1.85%** for Broadly Syndicated Loans and **2.35%** for Middle Market Loans[487](index=487&type=chunk) - As of December 31, 2020, there was **no principal outstanding** and **$150 million** of available commitments under the WF Credit Facility[489](index=489&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=112&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section details the company's board of directors, executive officers, and key corporate governance policies - The Board of Directors includes both **independent and interested directors**, with Christopher D. Long and Jeffrey D. Fox identified as interested directors[492](index=492&type=chunk)[493](index=493&type=chunk) - Key executive officers not serving as directors include Angie K. Long (Chief Investment Officer) and Scott A. Betz (Chief Compliance Officer)[495](index=495&type=chunk) - The company's **Code of Ethics** applies to all directors and officers, restricting personal investments in securities that may be purchased or held by the company[504](index=504&type=chunk)[505](index=505&type=chunk) - The Audit Committee consists entirely of independent directors, with Ms. Webber recognized as an **'audit committee financial expert'**[507](index=507&type=chunk) [Item 11. Executive Compensation](index=118&type=section&id=Item%2011.%20Executive%20Compensation) Executive officers receive no direct compensation, while independent directors receive an annual fee - Executive officers receive **no direct compensation** from the company; however, some have indirect pecuniary interests in the advisory fees paid to the Investment Advisor[509](index=509&type=chunk) - Independent Directors receive an **annual fee of $25,000** and reimbursement for reasonable out-of-pocket expenses incurred for attending meetings[510](index=510&type=chunk) - The company does not have a compensation committee; the Board as a whole is responsible for reviewing Administrator reimbursements and director compensation[514](index=514&type=chunk) Director Compensation for Year Ended December 31, 2020 | Name | Aggregate Compensation from Palmer Square Capital BDC Inc. | | :--- | :--- | | Megan L. Webber | $25,000 | | James W. Neville Jr. | $25,000 | | Christopher C. Nelson | $25,000 | | Christopher D. Long | $— | | Jeffrey D. Fox | $— | [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=118&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section discloses beneficial stock ownership by major shareholders, directors, and executive officers - As of March 12, 2021, there were **12,776,672 shares** of common stock issued and outstanding[5](index=5&type=chunk)[516](index=516&type=chunk) Beneficial Ownership of Common Stock (as of March 12, 2021) | Name | Shares Owned | Percentage of Common Stock Outstanding | | :--- | :--- | :--- | | Christopher D. Long | 26,131 | * (less than 1.0%) | | Jeffrey D. Fox | 7,839 | * (less than 1.0%) | | Angie K. Long | 26,131 | * (less than 1.0%) | | Scott A. Betz | 3,920 | * (less than 1.0%) | | All directors and executive officers as a group (7 persons) | 37,890 | * (less than 1.0%) | | Excelsior Holdings D2 LLC | 2,613,051 | 20.5% | | Alaris Master Fund, LP | 1,478,675 | 11.6% | | Caravel Holdings LLC | 1,567,831 | 12.3% | | BFFV19, LLC | 783,915 | 6.1% | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=120&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company details its related party agreements and procedures for managing conflicts of interest - The company has an **Advisory Agreement** and **Administration Agreement** with its Investment Advisor, and a Resource Sharing Agreement and License Agreement with Palmer Square[521](index=521&type=chunk)[522](index=522&type=chunk)[523](index=523&type=chunk)[524](index=524&type=chunk) - Policies and procedures are in place to **manage conflicts of interest**, including screening transactions and seeking Board approval or SEC exemptive relief[525](index=525&type=chunk) - The company has obtained **exemptive relief from the SEC** to permit greater flexibility in co-investing with investment funds managed by Palmer Square[208](index=208&type=chunk)[528](index=528&type=chunk) - A **majority of the company's directors are independent**, as defined by the 1940 Act, and the Audit Committee is exclusively composed of independent directors[531](index=531&type=chunk) [Item 14. Principal Accounting Fees and Services](index=122&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) This section outlines fees paid to the independent accounting firm and the Audit Committee's pre-approval policy - The Audit Committee has a **pre-approval policy** for audit, audit-related, tax, and other services provided by the independent auditor to ensure independence[538](index=538&type=chunk)[539](index=539&type=chunk) Principal Accountant Fees and Services | Fee Type | Fiscal Year Ended Dec 31, 2020 | Fiscal Year Ended Dec 31, 2019 | | :--- | :--- | :--- | | Audit Fees | $240,000 | $20,000 | | Audit-Related Fees | - | — | | Tax Fees | $33,000 | — | | All Other Fees | - | — | | **Total** | **$273,000** | **$20,000** | PART IV [Item 15. Exhibits, Consolidated Financial Statements, and Schedules](index=124&type=section&id=Item%2015.%20Exhibits%2C%20Consolidated%20Financial%20Statements%2C%20and%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the annual report - The report includes **consolidated financial statements and supplementary data**, such as the Report of Independent Registered Public Accounting Firm and various financial statements[542](index=542&type=chunk)[543](index=543&type=chunk) - A list of exhibits is provided, including organizational documents, investment advisory and administration agreements, credit agreements, and certifications[544](index=544&type=chunk)[545](index=545&type=chunk)[547](index=547&type=chunk) [Item 16. Form 10-K Summary](index=125&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has elected not to provide a summary for its Form 10-K filing - The registrant has **elected not to provide summary information**[546](index=546&type=chunk) [SIGNATURES](index=126&type=section&id=SIGNATURES) The report is duly signed by the company's principal executive officer, financial officer, and directors - The report is signed by **Christopher D. Long**, Chief Executive Officer and President (Principal Executive Officer), **Jeffrey D. Fox**, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer), and other directors[551](index=551&type=chunk)[552](index=552&type=chunk) - The signing date for the report is **March 12, 2021**[551](index=551&type=chunk)[552](index=552&type=chunk)