Palmer Square Capital BDC(PSBD) - 2022 Q2 - Quarterly Report

Filing Information Key administrative details of the quarterly report, including company classification and outstanding shares - The document is a Quarterly Report on Form 10-Q for Palmer Square Capital BDC Inc. for the quarterly period ended June 30, 2022[2][3] - The registrant is classified as a non-accelerated filer and an emerging growth company[5] - As of August 12, 2022, the registrant had 23,062,349 shares of common stock outstanding[5] Table of Contents Outlines the report's structure, detailing financial information and other disclosures within each part - The report is structured into two main parts: PART I. FINANCIAL INFORMATION and PART II. OTHER INFORMATION[7] - PART I includes Consolidated Financial Statements (Statements of Assets and Liabilities, Operations, Changes in Net Assets, Cash Flows, Schedules of Investments, and Notes), Management's Discussion and Analysis, Market Risk Disclosures, and Controls and Procedures[7] - PART II covers Legal Proceedings, Risk Factors, Unregistered Sales of Equity Securities, Defaults Upon Senior Securities, Mine Safety Disclosures, Other Information, and Exhibits[7] PART I. FINANCIAL INFORMATION Presents comprehensive financial data, including statements, management's analysis, market risk, and controls Item 1. Consolidated Financial Statements (Unaudited) Presents unaudited consolidated financial statements, including assets, operations, cash flows, and investment schedules Consolidated Statements of Assets and Liabilities Total assets and net assets decreased significantly, primarily due to lower non-controlled investments | Metric | June 30, 2022 | December 31, 2021 | Change | | :----------------------------------- | :-------------- | :---------------- | :----- | | Non-controlled, non-affiliated investments, at fair value | $1,072,518,293 | $1,194,257,584 | -$121,739,291 | | Cash and cash equivalents | $99,026 | $1,093,503 | -$994,477 | | Total Assets | $1,094,803,841 | $1,217,286,149 | -$122,482,308 | | Credit facility, net | $668,320,091 | $649,910,497 | +$18,409,594 | | Total Liabilities | $709,370,508 | $764,488,561 | -$55,118,053 | | Total Net Assets | $385,433,333 | $452,797,588 | -$67,364,255 | | Net Asset Value Per Common Share | $16.71 | $20.06 | -$3.35 | Consolidated Statements of Operations Net assets from operations decreased significantly due to unrealized losses, despite increased investment income | Metric | 3 Months Ended Jun 30, 2022 | 3 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2022 | 6 Months Ended Jun 30, 2021 | | :------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Investment Income | $16,497,241 | $7,869,228 | $30,752,200 | $17,544,103 | | Total Expenses | $7,222,437 | $3,841,350 | $13,089,071 | $7,639,260 | | Net Investment Income (Loss) | $9,549,533 | $4,196,204 | $18,220,103 | $10,233,952 | | Net realized gains (losses) | $(486,754) | $2,712,837 | $(856,624) | $3,845,495 | | Net change in unrealized gains (losses) | $(74,394,896) | $(1,871,880) | $(86,126,397) | $(3,698,294) | | Net Increase (Decrease) in Net Assets from Operations | $(65,332,117) | $5,037,161 | $(68,762,918) | $10,381,153 | | Basic and diluted net investment income per common share | $0.42 | $0.32 | $0.80 | $0.79 | | Basic and diluted net increase (decrease) in net assets from operations | $(2.85) | $0.38 | $(3.01) | $0.80 | Consolidated Statements of Changes in Net Assets Net assets decreased significantly due to unrealized losses and stockholder distributions | Metric | 3 Months Ended Jun 30, 2022 | 3 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2022 | 6 Months Ended Jun 30, 2021 | | :------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net investment income (loss) | $9,549,533 | $4,196,204 | $18,220,103 | $10,233,952 | | Net realized gains (losses) on investments | $(486,754) | $2,712,837 | $(856,624) | $3,845,495 | | Net change in unrealized gains (losses) on investments | $(74,394,896) | $(1,871,880) | $(86,126,397) | $(3,698,294) | | Net Increase (Decrease) in Net Assets from Operations | $(65,332,117) | $5,037,161 | $(68,762,918) | $10,381,153 | | Dividends and distributions to stockholders | $(8,439,969) | $(4,067,209) | $(8,439,969) | $(4,067,209) | | Issuance of common shares | - | $6,293,374 | $4,823,801 | $8,321,074 | | Reinvestment of distributions | $5,014,831 | $2,362,492 | $5,014,831 | $4,644,713 | | Net Assets, End of Period | $385,433,333 | $272,424,702 | $385,433,333 | $272,424,702 | Consolidated Statements of Cash Flows Net cash and cash equivalents decreased due to operating activities and portfolio purchases | Metric | 6 Months Ended Jun 30, 2022 | 6 Months Ended Jun 30, 2021 | | :------------------------------------------------- | :-------------------------- | :-------------------------- | | Net increase (decrease) in net assets from operations | $(68,762,918) | $10,381,153 | | Purchases of portfolio investments | $(221,385,705) | $(277,427,052) | | Proceeds from sale of portfolio investments | $204,224,871 | $224,133,758 | | Net cash used in operating activities | $(14,018,459) | $(25,063,996) | | Borrowings on the credit facility | $84,500,000 | $20,395,666 | | Payments on the credit facility | $(67,000,000) | - | | Distributions paid in cash | $(9,299,819) | $(3,316,966) | | Proceeds from issuance of common shares | $4,823,801 | $8,321,074 | | Net cash provided by financing activities | $13,023,982 | $25,399,774 | | Net increase (decrease) in cash and cash equivalents | $(994,477) | $335,778 | | Cash and cash equivalents, end of period | $99,026 | $1,018,357 | Consolidated Schedules of Investments Investment portfolio primarily comprised First Lien Senior Secured Debt, totaling $1.07 billion across 227 investments Investment Portfolio Composition (Fair Value) | Investment Type | June 30, 2022 (Fair Value) | Percentage of Total Investments (June 30, 2022) | December 31, 2021 (Fair Value) | Percentage of Total Investments (Dec 31, 2021) | | :-------------------------- | :--------------------------- | :---------------------------------------------- | :--------------------------- | :---------------------------------------------- | | First-lien senior secured debt | $932,605,888 | 86.95% | $1,007,407,474 | 84.35% | | Second-lien senior secured debt | $67,477,047 | 6.29% | $64,658,512 | 5.41% | | Corporate Bonds | $1,700,500 | 0.16% | $2,947,571 | 0.25% | | Convertible Bond | $3,627,490 | 0.34% | $942,069 | 0.08% | | CLO Mezzanine | $15,042,935 | 1.40% | $19,105,394 | 1.60% | | CLO Equity | $25,526,674 | 2.38% | $20,253,800 | 1.70% | | Equity | $560,000 | 0.05% | $800,000 | 0.07% | | Short-term investments | $25,977,759 | 2.42% | $78,142,764 | 6.54% | | Total Investments | $1,072,518,293 | 100.00% | $1,194,257,584 | 100.00% | Industry Composition of Investments (Fair Value) | Industry | June 30, 2022 | December 31, 2021 | | :------------------------------------------ | :------------ | :---------------- | | Software | 13.0% | 10.2% | | Healthcare Providers and Services | 10.4% | 10.8% | | IT Services | 8.7% | 9.4% | | Insurance | 5.9% | 5.7% | | Professional Services | 5.9% | 6.4% | | Hotels, Restaurants and Leisure | 3.6% | 3.5% | | Media | 3.6% | 3.9% | | Building Products | 3.4% | 3.0% | | Chemicals | 2.8% | 2.2% | | Independent Power and Renewable Electricity Producers | 2.5% | 3.1% | | Cash and cash equivalents | 2.4% | 6.5% | | Aerospace and Defense | 2.4% | 0.9% | | Construction and Engineering | 2.4% | 1.7% | | Structured Subordinated Note | 2.4% | 1.7% | | Containers and Packaging | 2.3% | 1.8% | | Oil, Gas and Consumable Fuels | 2.3% | 3.0% | | Diversified Financial Services | 2.3% | 1.8% | | Healthcare Technology | 1.9% | 2.1% | | Metals and Mining | 1.9% | 1.5% | | Auto Components | 1.8% | 1.5% | | Diversified Telecommunication Services | 1.4% | 1.4% | | Structured Note | 1.4% | 1.6% | | Internet Software and Services | 1.3% | 1.3% | | Food Products | 1.2% | 1.1% | | Healthcare Equipment and Supplies | 1.2% | 2.0% | | Electronic Equipment, Instruments and Components | 1.2% | 1.1% | | Specialty Retail | 1.2% | 1.2% | | Commercial Services and Supplies | 1.1% | 1.5% | | Airlines | 1.0% | 1.3% | | Diversified Consumer Services | 0.9% | 0.8% | | Industrial Conglomerates | 0.8% | 0.8% | | Electrical Equipment | 0.8% | 0.6% | | Road and Rail | 0.6% | 0.6% | | Real Estate Management and Development | 0.6% | 0.6% | | Machinery | 0.6% | 0.3% | | Wireless Telecommunication Services | 0.6% | 0.6% | | Pharmaceuticals | 0.6% | 0.8% | | Technology Hardware, Storage and Peripherals | 0.4% | 0.5% | | Household Durables | 0.4% | 0.4% | | Energy Equipment and Services | 0.4% | -% | | Electric Utilities | 0.3% | 0.3% | | Textiles, Apparel and Luxury Goods | 0.1% | 0.1% | | Leisure Products | -% | 0.4% | | Total | 100.0% | 100.0% | - As of June 30, 2022, the Company held 227 debt and equity investments in 191 portfolio companies, a decrease from 240 investments in 212 companies as of December 31, 2021[187][188] - The weighted average total yield to maturity of debt and income producing securities at fair value increased significantly to 10.07% as of June 30, 2022, from 5.77% as of December 31, 2021[186][196] Notes to Consolidated Financial Statements (Unaudited) Details BDC/RIC structure, investment objectives, accounting policies, advisor agreements, debt, and commitments - The Company is structured as an externally managed, non-diversified closed-end management investment company, regulated as a BDC and elected to be treated as a RIC[79][181] - Investment objective is to maximize total return (current income and capital appreciation) by investing in corporate debt securities and CLO structured credit funds[80][183] - The Investment Advisor has agreed to waive management fees in excess of 1.75% of total net assets until the Company's common stock is listed on a national securities exchange[111][244] Debt Obligations (Net Carrying Value) | Credit Facility | June 30, 2022 | December 31, 2021 | | :-------------------- | :-------------- | :---------------- | | BoA Credit Facility | $540,817,207 | $550,262,297 | | WF Credit Facility | $127,502,884 | $99,648,200 | | Total Debt | $668,320,091 | $649,910,497 | - As of June 30, 2022, the Company had $6.3 million in unfunded commitments to portfolio companies, a decrease from $11.3 million as of December 31, 2021[165][167][246] - The Company's asset coverage ratio was 158% as of June 30, 2022, meeting the 1940 Act requirement of at least 150%[135][212] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, decreased net assets, portfolio activity, liquidity, and financing - Total investment income increased for both the three and six months ended June 30, 2022, compared to the prior year, primarily driven by interest income from investments[198][200] - Net expenses increased for the six months ended June 30, 2022, primarily due to increased leverage and management fees[203] Investment Activity (6 Months Ended June 30) | Metric | 2022 | 2021 | | :------------------------------------------ | :----------- | :----------- | | Gross investments | $221,385,705 | $277,427,052 | | Sold investments | $204,224,871 | $224,133,758 | | Total new investments (net) | $17,160,834 | $53,293,294 | | Number of new investment commitments | 37 | 80 | | Weighted average interest rate of new investment commitments | 6.02% | 4.57% | | Percentage of new debt investment commitments at floating rates | 96.71% | 99.62% | - The Company experienced a net decrease in cash and cash equivalents of $994 thousand for the six months ended June 30, 2022, compared to a net increase of $336 thousand in the prior year[208][209] - As of June 30, 2022, the Company had $541.5 million outstanding under the BoA Credit Facility and $128.0 million outstanding under the WF Credit Facility, with available commitments of $183.5 million and $22.0 million, respectively[218][224] Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses market risks, primarily interest rate sensitivity impacting net investment income and foreign currency risks Annualized Impact of Hypothetical Base Rate Changes on Net Investment Income (as of June 30, 2022) | 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 | $(2,739,919) | $(1,673,750) | $(1,066,169) | | Up 100 basis points | $11,001,658 | $6,695,000 | $4,306,658 | | Up 200 basis points | $21,861,188 | $13,390,000 | $8,471,188 | | Up 300 basis points | $32,574,273 | $20,085,000 | $12,489,273 | - The Company is subject to risks associated with changes in currency exchange rates for investments denominated in foreign currency and may use hedging instruments to mitigate these risks[252][253] Item 4. Controls and Procedures Management confirmed effective disclosure controls and no material changes in internal control during the quarter - Disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2022[254] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2022[255] PART II. OTHER INFORMATION Presents other required disclosures, including legal proceedings, risk factors, equity sales, defaults, and exhibits Item 1. Legal Proceedings No material legal proceedings are currently pending or threatened against the Company - No material legal proceedings are currently pending or threatened against the Company[258] Item 1A. Risk Factors No material changes to risk factors since the December 31, 2021 annual report on Form 10-K - No material changes to risk factors since the December 31, 2021 annual report on Form 10-K[259] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Issued and sold 492,018 common shares for $9.8 million under registration exemption - Issued and sold 492,018 shares of common stock for $9.8 million during the six months ended June 30, 2022[260] - Sales were exempt from registration under Section 4(a)(2) and Rule 506(b) of Regulation D of the Securities Act[260] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities during the period - No defaults upon senior securities[261] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Not applicable[262] Item 5. Other Information No other information to report - No other information to report[263] Item 6. Exhibits Lists exhibits filed with Form 10-Q, including organizational documents and CEO/CFO certifications - Includes Articles of Amendment and Restatement, Bylaws, and certifications from CEO and CFO (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act)[266] Signatures The report was signed on August 12, 2022, by the Chief Executive Officer and Chief Financial Officer - The report was signed on August 12, 2022, by Christopher D. Long, Chief Executive Officer and Director, and Jeffrey D. Fox, Chief Financial Officer and Director[270]