Financial Data and Key Metrics Changes - For Q3 2025, the company reported invested income of $5.4 million or $0.80 per share, a slight decrease from $5.5 million in the prior quarter [14] - Total expenses remained stable at $2.4 million or $0.35 per share, consistent with the previous quarter [14] - The net unrealized losses on investments were $6.9 million or $1.02 per share, alongside a modest net realized loss of $424,000, leading to a net loss of $4.3 million or $0.64 per share [14] - Recurring cash flows from the CLO portfolio totaled $8.7 million or $1.28 per share, exceeding distributions and expenses by $0.26 per share, up from $8 million or $1.18 per share in the prior quarter [14][15] Business Line Data and Key Metrics Changes - The portfolio's average junior OC cushion stands at 4.5%, with deals exposed to First Brands having a slightly higher cushion of 4.6% [6] - The weighted average gap yield of the portfolio increased from 12.75% to 13.07% due to refinancing activities [10] Market Data and Key Metrics Changes - The broader CLO equity market faced headwinds, primarily due to spread tightening in the broadly syndicated loans market [5] - The company noted a significant uptick in leveraged buyout (LBO) activity, with approximately $200 billion in deals announced during the first three quarters of 2025, surpassing the $164 billion recorded for all of 2024 [9] Company Strategy and Development Direction - The company remains focused on disciplined portfolio management and long-term total return, viewing market dislocations as opportunities [5][10] - The investment platform combines machine learning and natural language processing with traditional credit analysis, providing a competitive advantage in sourcing opportunities and managing the portfolio [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed a constructive outlook for CLO equity performance in a gradually easing monetary environment, anticipating that lower rates will stimulate LBO activity and enhance portfolio diversification [9][19] - The company believes that CLOs provide an efficient way to access senior secured corporate loans and can offer an attractive risk-return profile across various credit cycles [19] Other Important Information - As of September 30, 2025, total assets were $157.5 million, and total net assets were $114.9 million, resulting in a net asset value per share of $16.89 [15][16] - The company has started to utilize its at-the-market equity issuance program, issuing approximately 26,600 shares for net proceeds of approximately $0.4 million [16][17] Q&A Session Summary Question: Insights on the primary CLO market and investment opportunities - Management indicated that current arbitrage returns in the primary CLO equity market are not adequate for large-scale participation, with expected returns in the 10%-12% range, while secondary CLO markets offer more attractive opportunities [21][22] Question: Impact of resets and refinancings on expected yields - Management preferred not to comment on intra-quarter activities but confirmed that recent resets and refinancings contributed significantly to yield improvements [23][24] Question: Mix of opportunities between U.S. and European CLOs - The majority of the portfolio is focused on the U.S. CLO market, with occasional consideration of European CLOs, particularly single B positions that can provide stronger NAV protection [29] Question: Future ATM issuance versus share repurchase - Management is evaluating both ATM issuance and share repurchase options but considers it too early to prioritize one over the other [30] Question: Potential portfolio growth and leverage management - Management stated that leverage levels will be modulated based on market conditions, with ongoing monitoring of opportunities to increase leverage when costs are attractive [31][32]
PEARL DIVER CREDIT COMPANY INC.(PDCC) - 2025 Q3 - Earnings Call Transcript