Pearl Diver Credit Company (NYSE:PDCC) Q3 2025 Earnings Call November 18, 2025 11:00 AM ET Company ParticipantsEmma Little - Head of Investor RelationsIndranil Basu - CEO, Founder, and Managing PartnerChandrajit Chakraborty - CIO and Managing PartnerConference Call ParticipantsGaurav Mehta - Managing Director and Senior Equity Research AnalystEric Zweck - AnalystOperatorThanks, and welcome to the Pearl Diver Credit Company third quarter 2025 earnings call. At this time, all participants are in a listen-only ...

Pearl Diver Credit Company (NYSE:PDCC) Q3 2025 Earnings Call November 18, 2025 11:00 AM ET Speaker2Thanks, and welcome to the Pearl Diver Credit Company third quarter 2025 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conferen ...

Financial Data and Key Metrics Changes - The company reported a net investment income (NII) of $0.26 per share, consisting of $0.39 per share of net investment income offset by $0.13 of realized capital losses [4] - Recurring cash flows totaled $17 million or $0.67 per share, consistent with the prior quarter [4] - NAV increased to $14.21 per share as of September 30, up from $14.08 per share at the end of June [5] - GAAP return on equity for the third quarter was 3% [5] - The company recorded GAAP net income of $11.43 per share for the third quarter, with investment income of $16 million and unrealized gains of $5 million [16][17] Business Line Data and Key Metrics Changes - The company deployed $60 million into new investments during the quarter, with a weighted average effective yield of 16.6% on new CLO equity purchased [5] - Three resets and four refinancings of CLO equity positions were completed, lowering debt costs and extending reinvestment periods [6] - The company repurchased $21 million of common stock at an average discount to NAV of 8.3%, resulting in NAV accretion of $0.07 per share [7][8] Market Data and Key Metrics Changes - The S&P UBS Leveraged Loan Index returned 1.6% for the quarter, with a trailing 12-month default rate of 1.5%, up from 1.1% as of June 30 [11] - CLO new issuance volume was $53 billion during the quarter, slightly up from $51 billion in the second quarter [13] - The company had $52 million of cash and undrawn revolver capacity available for investment as of September 30 [14] Company Strategy and Development Direction - The company aims to capitalize on opportunities in the CLO investing market, leveraging its scale and experience [4] - The board increased the common share repurchase authorization to $60 million, reflecting a commitment to enhancing shareholder value [8] - The company plans to continue aggressive share buybacks when shares are trading at a discount to NAV [8] Management's Comments on Operating Environment and Future Outlook - Management noted that the Fed's rate cuts have impacted earnings power, leading to a reduction in monthly distributions to $0.11 per share for the first quarter of 2026 [9] - The company believes junior CLO debt continues to offer compelling risk-adjusted returns compared to comparably rated corporates [9] - Management expressed optimism about credit quality, citing positive revenue and EBITDA trends among below investment-grade companies [24][26] Other Important Information - The company announced the scheduled redemption of 100% of its 7.75% Series B Term Preferred Stock to optimize capital structure [6] - As of October month-end, the company's NAV was estimated to be between $13.94 and $14.04 per share [18] Q&A Session Summary Question: Future expectations for credit quality given recent revenue and EBITDA trends - Management indicated that positive revenue and EBITDA trends among below investment-grade companies are credit positives, and defaults are not expected to increase materially [24][26] Question: Drivers behind the increase in annual trading volume - Increased recognition of premium yields and low credit expenses in CLOs has driven trading volume, along with the advent of ETFs [28][29] Question: Impact of dividend reduction on earnings power - Management acknowledged that the reduction in dividends is primarily due to Fed rate cuts affecting earnings power, but they are making rotations within the CLO equity portfolio to offset some of that [31] Question: Activity regarding asset rotation and cash holdings - The company has seen paydowns in investments due to refinancings and resets, leading to a build-up in cash, which will be used for both paying down preferred stock and buying back common shares [35][40] Question: Industry concentration in software and technology - Most of the concentration is in enterprise software, which is considered stickier and has performed well historically [43] Question: Investment focus in CLOs - The company generally follows market trends in industry concentrations, with technology and healthcare being the highest [44]

Financial Data and Key Metrics Changes - For Q3 2025, the company reported recurring cash flows of $77 million or $0.59 per share, down from $85 million or $0.69 per share in Q2 2025 [5] - The net investment income less realized losses was $21 million or $0.16 per share, compared to $0.16 per share in the previous quarter and $0.23 per share in Q3 2024 [10] - The company's NAV as of September 30 was $7 per share, a decrease of 4.2% from $7.31 per share as of June 30 [5] - GAAP net income for Q3 2025 was $16 million or $0.12 per share, down from $0.47 per share in the previous quarter [10] Business Line Data and Key Metrics Changes - The company deployed nearly $200 million into new investments during the quarter, focusing on both primary and secondary markets [4][12] - The weighted average remaining reinvestment period (WARP) ended at 3.4 years, which is 26% above the market average of 2.7 years [6] - The company completed 16 refinancings and 11 resets during the quarter, enhancing the earning power of its CLO equity portfolio [4] Market Data and Key Metrics Changes - The S&P UBS Leveraged Loan Index returned 1.6% for Q3 2025, with a trailing 12-month default rate of 1.5%, up from 1.1% as of June 30 [15] - The CLO market saw $53 billion in volume during the quarter, with significant increases in reset and refinancing activity [17] - The company's CCC-rated exposures within its CLO equity portfolio stood at 4.6%, lower than the broader market average of 4.8% [18] Company Strategy and Development Direction - The company is focused on portfolio rotation and optimization to enhance cash flows and earning power [6] - Management highlighted a robust pipeline of additional resets and refinancings planned into 2026 [4] - The company aims to maintain a competitive advantage through its attractive cost of capital and proactive management of its CLO equity investments [8] Management's Comments on Operating Environment and Future Outlook - Management noted that loan fundamentals remain strong despite recent pressures from loan repricings [15] - The company expects to see a return of repricing activity as 42% of loans are trading above par [7] - Management expressed optimism about the near-term investment pipeline, citing stabilizing market conditions [19] Other Important Information - The company utilized its at-the-market program, issuing $26 million of common stock at a premium to NAV [7] - The board declared regular monthly distributions of $0.14 per share for the first quarter of 2026 [8] - The company recorded a comprehensive loss of $2.5 million for Q3 2025 [11] Q&A Session Summary Question: Can you provide more color on the timeline for portfolio resets and refinancings? - Management anticipates actions on another 20% of the portfolio over the next one to two quarters, depending on market conditions [22] Question: What are the near-term investment opportunities in the primary and secondary markets? - The primary market remains active with plenty of issuance opportunities, while the secondary market has selective opportunities for investment [25] Question: How have loan spreads changed in October compared to September? - Loan spread compression has slowed, with the weighted average spread on loans down approximately 50 basis points over the last year [30] Question: What factors drove the decline in recurring cash flows? - The principal factor was spread compression, which fell by about eight basis points this quarter [38] Question: Is there a plan to refinance the Series F preferreds soon? - The call date for the Series F preferreds is January 18, 2026, and management is considering refinancing options [44] Question: How does the decline in NAV relate to market pricing and spreads? - The largest component of the NAV decline was the excess of distributions over net investment income [56]

Financial Data and Key Metrics Changes - For Q3 2025, the company's net investment income was approximately $5.6 million, or $0.07 per share, compared to approximately $5.5 million, or $0.08 per share, in the prior quarter [4] - The net asset value per share decreased to $1.95 from $2.06 in the prior quarter [4] - Total investment income for the third quarter was approximately $10.2 million, up from approximately $9.5 million in the prior quarter [4] - The company recorded combined net unrealized and realized losses on investments of approximately $7.5 million, or $0.09 per share, compared to losses of approximately $1.1 million, or $0.01 per share, in the prior quarter [4] Business Line Data and Key Metrics Changes - Investment activity included purchases of approximately $58.1 million and repayments of approximately $31.3 million during the quarter [5] - The company issued approximately 5.4 million shares of common stock, resulting in net proceeds of approximately $11.8 million [5] - Issued $74.8 million of 7.75% unsecured notes due July 2030 and fully repaid $34.8 million of 6.25% unsecured notes due April 2026 [5] Market Data and Key Metrics Changes - U.S. loan market performance was stable, with loan prices slightly decreasing from 97.07% of par to 97.06% of par [6] - The 12-month trailing default rate for the loan index increased to 1.47% from 1.11% at the end of June [6] - The distress ratio ended the quarter at 2.88%, down from 3.06% at the end of June [7] - U.S. leveraged loan primary market issuance was $133.7 billion, representing a 22% increase compared to the same quarter in the previous year [7] Company Strategy and Development Direction - The company focuses on portfolio management strategies designed to maximize long-term total return, taking a longer-term view towards investment strategy [7] - The company is considering additional purchases in CLO equity and junior debt tranches, which will be accompanied by appropriate levels of sales [16] Management's Comments on Operating Environment and Future Outlook - Management noted that the cash and equivalents balance increased to $51 million, primarily due to timing from ATM issuances [17] - The company is running a relatively lightly leveraged portfolio, which is a consideration for improving net investment income [19] Other Important Information - The board of directors declared monthly distributions of $0.035 per share for January, February, and March of 2026 [5] Q&A Session Summary Question: What types of investments were found attractive during the quarter? - The company purchased CLO equity pieces from top-tier managers, focusing on steady, predictable cash flow [12] - On the loan side, the focus was on higher quality credits with lower spreads and opportunistic trades in less liquid names [13][16] Question: What is the outlook for potential new additions in Q4? - The company anticipates focusing more on the secondary market for leveraged loans, capturing opportunities at par or below [16] Question: What is the reason for the increase in cash and equivalents? - The increase is primarily attributed to timing related to ATM issuances [17] Question: Has there been consideration for a reverse stock split? - The company is continuously considering viable ideas, including a reverse stock split [18] Question: What levers are available to improve the run rate of net investment income? - The company is considering its lightly leveraged portfolio as one element to improve net investment income [19]

Core Viewpoint - Carlyle Credit Income Fund reported its third quarter financial results for the period ending June 30, 2025, highlighting resilience in a complex market environment and a stable dividend for shareholders [2][3]. Financial Performance - Net investment income was $0.19 per common share, adjusted net investment income was $0.22 per common share, and core net investment income was $0.35 per common share for Q3 2025 [3]. - Net asset value per common share was $6.51 as of June 30, 2025, with a total fair value of investments amounting to $200.4 million [3]. Dividends - The Fund is maintaining a monthly dividend of $0.1050 per share for September, October, and November 2025, equating to an annualized dividend yield of 22.07% based on the share price as of August 15, 2025 [4][8]. - The Fund also declared dividends on its 8.75% Series A Term Preferred Shares of $0.1823 per share for the same months [5][6]. Investment Activities - The Fund funded $28.1 million in new CLO investments with a weighted average GAAP yield of 14.56%, while the aggregate portfolio weighted average GAAP yield was 15.11% as of June 30, 2025 [8]. - The Fund sold 1,400,000 common shares in connection with the ATM offering program at a premium to NAV for net proceeds of $9.2 million [8]. - Additionally, $5.0 million of the remaining $8.5 million 7.125% Series B Convertible Preferred Shares were converted into common shares at a premium to NAV [8]. Company Overview - Carlyle Credit Income Fund is an externally managed closed-end fund focused on investing primarily in equity and junior debt tranches of collateralized loan obligations (CLOs), which are backed by U.S. senior secured loans across various industry sectors [11].

Financial Data and Key Metrics Changes - The company generated net investment income and realized gains of $0.39 per share in Q2 2025, compared to $0.44 per share in the previous quarters [19] - Recurring cash flows were $18 million or $0.67 per share, down from $16 million or $0.71 per share in Q1 2025 [6] - The NAV as of June 30 was $14.08 per share, slightly down from $14.16 per share as of March 31 [7][21] - The company recorded a non-annualized GAAP return of 3.5% for the second quarter [7] Business Line Data and Key Metrics Changes - The company opportunistically deployed $40 million into discounted CLO debt and equity securities during the quarter [8] - The company repurchased over 488,000 shares of common stock for a total of $6.5 million, resulting in NAV accretion of $0.02 per share [21] Market Data and Key Metrics Changes - The S&P UBS Leveraged Loan Index had a total return of 2.3% in Q2 and was up almost 3% year-to-date as of June 30 [14] - The trailing twelve-month default rate increased to 1.1% as of June 30, remaining below the historical average of 2.6% [14] - New CLO issuance was $51 billion in Q2, with reset and refinancing activity at $44 billion and $9 billion, respectively [15][16] Company Strategy and Development Direction - The company plans to continue buying back stock as market opportunities arise, viewing this as a strong investment [24] - The management emphasized the importance of maintaining a strong liquidity position to capitalize on attractive investment opportunities [16][24] Management's Comments on Operating Environment and Future Outlook - Management noted that market volatility in April created attractive buying opportunities for discounted CLO securities [7][24] - The company remains confident in its ability to generate strong returns and is well-positioned to deploy capital into investments offering compelling risk-adjusted returns [16][24] Other Important Information - The company declared three monthly distributions of $0.13 per share for Q4 2025, maintaining the distribution level from the previous quarter [12][20] - As of July month-end, the company's NAV was estimated to be between $14.34 and $14.44 per share, indicating a recovery from June [22] Q&A Session Summary Question: Can you elaborate on the all-in yield from the debt portion of your CLO portfolio? - Management explained that CLO debt is sensitive to short-term rates and that a Fed rate movement could lead to lower income in the fall, while CLO equity is less affected by rate changes [28][30] Question: Is the push out of loan maturities indicative of credit distress? - Management clarified that issuers are refinancing their debt due to a strong market, allowing them to extend maturities without indicating distress [38] Question: How is the pipeline for new investments shaping up? - Management indicated a strong pipeline for both CLO BB debt and equity, with plenty of opportunities in the market [48] Question: What is the status of the share buyback program? - Management noted that the buyback program has been effective in reducing the discount to NAV and that they plan to continue this strategy [50][52] Question: Is there a possibility of a special distribution at the end of the year? - Management stated that while recurring cash flows are currently in line with expenses and distributions, the potential for a special distribution depends on taxable income exceeding distributions [62] Question: Why hasn't the coupon on the BB CLO debt changed dramatically? - Management explained that while spreads have tightened, the overall yield or coupon of CLO BBs has remained stable due to various market factors [66] Question: What is the status of the OC cushion? - Management noted that the OC cushion has declined slightly but remains robust, with plenty of cushion available [70]

Financial Data and Key Metrics Changes - The company generated net investment income less realized losses from investments of $0.16 per share, consisting of $0.23 of net investment income offset by $0.07 of realized losses from investments [5][14] - The NAV as of June 30 was $7.31 per share, up 1.1% from $7.23 as of March 31 [6] - The company recorded GAAP net income of $58 million or $0.47 per share for the second quarter, compared to GAAP net losses of $0.84 per share in the previous year [16] Business Line Data and Key Metrics Changes - Recurring cash flows for the second quarter were $85 million or $0.69 per share, exceeding quarterly aggregate common distributions and total expenses by $0.08 per share [6][12] - The company deployed $86 million into new investments during the quarter, taking advantage of market dislocation to acquire CLO equity positions at attractive levels [7][19] Market Data and Key Metrics Changes - The S&P UBS Leveraged Loan Index experienced a total return of 2.3% for the second quarter, recovering from a decline in April [20] - The trailing twelve-month default rate for loans stood at 1.1% as of June 30, well below the long-term average of 2.6% [21] Company Strategy and Development Direction - The company is focused on refinancing and reset activities to reduce CLO financing costs and enhance net investment income [9][25] - A second strategic CLO collateral manager partnership was established, which is expected to enhance shareholder returns over time [11][62] Management's Comments on Operating Environment and Future Outlook - Management expressed a positive outlook for the portfolio, citing strong recurring cash flows and a robust pipeline of refinancing opportunities [26] - The company believes that the market dislocation presents opportunities for CLO equity investors with the right positioning and patience [25] Other Important Information - The company issued $41 million of common stock at a premium to NAV, resulting in an accretion of NAV by $0.02 per share during the quarter [10] - The company's asset coverage ratios for preferred stock and debt were 243% and 525%, respectively, exceeding statutory requirements [17] Q&A Session Summary Question: What drove the realized losses this quarter? - Realized losses included $0.02 from trading losses and $0.05 from the reclassification of three CLO equity positions that were past their reinvestment period [35][36] Question: Can you shed light on the significant sell-off in CLO equity recently? - The sell-off was primarily driven by more sellers than buyers, with concerns about tariff-related increases in defaults contributing to market sentiment [82][83] Question: How sensitive are repayments to lower rates? - Repayments are driven by bullish or bearish sentiment on spreads rather than interest rates, with higher repayments typically occurring in strong debt markets [68][70]

Financial Data and Key Metrics Changes - The company generated net investment income (NII) and realized gains of $0.44 per share in Q1 2025, down from $0.54 per share in Q4 2024, comprised of $0.40 of NII and $0.04 of realized capital gains [5][20] - The NAV per share decreased to $14.16 as of March 31, 2025, from $14.99 as of December 31, 2024, representing a 5.5% decline [7][22] - Recurring cash flows for Q1 2025 were $16,500,000 or $0.71 per share, compared to $16,100,000 or $0.82 per share in Q4 2024 [8][9] Business Line Data and Key Metrics Changes - The decline in NII was primarily due to a significant drop in SOFR and spread compression on syndicated loans, adversely impacting earnings from the CLO equity portfolio [6][15] - The company deployed approximately $120,000,000 of gross capital across 27 CLO debt purchases and nine CLO equity purchases during Q1 2025 [13] - The trailing twelve-month default rate decreased slightly to 80 basis points as of March 31, remaining well below the historical average of 2.6% [16][17] Market Data and Key Metrics Changes - CLO issuance in Q1 2025 was $49,000,000,000, down from $59,000,000,000 in Q4 2024, but still healthy by historical standards [18] - The S&P UBS Leveraged Loan Index generated a total return of 60 basis points during Q1 2025, with a recent increase of 1.8% for the year as of May 23 [14] Company Strategy and Development Direction - The company is focused on capitalizing on market volatility by purchasing CLO debt and equity at discounted prices, which is expected to yield positive returns over time [11][24] - The management aims to extend the weighted average remaining reinvestment period of the CLO equity portfolio and seeks longer reinvestment period opportunities [18] Management's Comments on Operating Environment and Future Outlook - Management indicated that the decline in NII is largely driven by the drop in short-term rates, and the new distribution rate reflects the company's near to medium-term earnings potential [24] - The company believes it is well-positioned to continue generating strong returns for shareholders despite current market conditions [25] Other Important Information - The company declared three monthly distributions of $0.13 per share for the third quarter of 2025, a decline from previous distributions [9][21] - As of April 30, 2025, the company had $33,000,000 of cash and undrawn revolver capacity available for investment [19][22] Q&A Session Summary Question: About the reduction in dividend distribution - Management clarified that the reduction in dividend distribution is due to changes in SOFR and not related to capital losses, emphasizing that the majority of the portfolio is CLO BBs which fluctuate with rates [26][36] Question: Clarification on CLOs and default rates - Management confirmed that the change in distribution rate is principally driven by the change in SOFR, with no credit-related issues affecting the portfolio [35][37]

Financial Data and Key Metrics Changes - The company generated net investment income and realized capital gains of $0.33 per share for Q1 2025, consisting of $0.28 of net investment income and $0.05 of realized capital gains [7] - The NAV as of March 31 was $7.23 per share, a 13.7% decrease from $8.38 per share at year-end [8] - The company's first quarter GAAP net loss was $97.5 million, with total investment income of $52.3 million and realized capital gains of $5.3 million [16] Business Line Data and Key Metrics Changes - The company priced three new CLO equity investments and reset nine positions in its portfolio, lengthening reinvestment periods to five years [5] - During Q1, sales and paydowns of CLO debt in the portfolio totaled $48.5 million, generating $0.05 per share of realized gains [10] - Approximately 18% of the CLO equity portfolio based on fair value are new investments or recently reset CLOs, scheduled to make initial payments in subsequent quarters [12] Market Data and Key Metrics Changes - The S&P UBS Leveraged Loan Index generated a total return of 0.6% during Q1, with a trailing twelve-month default rate of 82 basis points, well below the long-term average of 2.6% [20][21] - The weighted average spread of the CLO's underlying loan portfolios stood at 3.36% as of March 31, down from 3.49% at year-end [22] - The percentage of loans trading below 80 within the CLOs stood at 2.9%, more favorable than the market average of 4.6% [26] Company Strategy and Development Direction - The company has completed its planned portfolio rotation from CLO debt into CLO equity and other investments prior to the recent market volatility [10] - The focus remains on enhancing net investment income and cash flow through proactive investment strategies, particularly in resetting and refinancing CLOs [29] - The company maintains 100% fixed-rate financing with no maturities prior to 2028, providing protection from future interest rate rises [27] Management's Comments on Operating Environment and Future Outlook - Management views the recent market price fluctuations as short-term and not indicative of concerns specific to the portfolio [9] - The company believes that current discounted loan opportunities will benefit it in the medium term, similar to past periods of volatility [10] - Management remains optimistic about the stability of cash flows and the potential for increased CLO refinancing and reset activity as markets stabilize [28] Other Important Information - The company utilized its at-the-market program to issue $66 million of common stock at a premium to NAV, resulting in NAV accretion of $0.02 per share [13] - The company declared common regular monthly distributions for Q3 2025 of $0.14 per share [14] Q&A Session Summary Question: What will it take for the market to recognize the stability of CLO cash flows? - Management noted that cash flows have historically been stable and continue to come in despite market fluctuations [32][34] Question: Will the pace of resets and refinancings continue? - Management indicated that while the pace may slow, they expect single to double-digit resets per quarter under current market conditions [48][50] Question: What accounts for the difference between gross and net capital deployed? - The difference is due to significant rotation from CLO debt into CLO equity, which reduces the net capital figure [54] Question: Why was the pace of deployment slower in April? - Management explained that market volatility led to a slowdown in CLO equity trading, affecting deployment speed [60][62] Question: How does the company handle loan loss reserves compared to banks? - Management clarified that while they do not reserve for loan losses like banks, their effective yields account for future losses, and they focus on cash generation [90][92]