Welcome to Palmer Square Capital BDC's Fourth Quarter and Year-End 2025 Earnings Call. This conference call is being recorded. At this time, I'd like to turn the call over to Jeremy Goff, Managing Director. You may begin.

Welcome to Palmer Square Capital BDC's Fourth Quarter and Year-end 2025 Earnings Call. Joining me this afternoon are Chris Long, Chairman and Chief Executive Officer; Angie Long, Chief Investment Officer; Matt Bloomfield, President; and Jeff Fox, Chief Financial Officer and Director. Palmer Square Capital BDC's fourth quarter and fiscal year ended 2025 financial results were released earlier today and can also be accessed on Palmer Square's Investor Relations website at palmersquarebdc.com. We have also arranged for a replay of today's event that can be accessed on our website. During this call, I want to remind you that the forward-looking statements we make are based on current expectations. The statements on this call that are not purely historical are forward-looking statements. These forward-looking statements are not a guarantee of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements including and without limitation, market conditions caused by uncertainty surrounding interest rates, changing economic conditions and other factors we identified in our filings with the SEC. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions can be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements made during this call are made as of the date hereof, and Palmer Square Capital BDC assumes no obligation to update the forward-looking statements unless required by law. To obtain copies of SEC related filings, please visit our website at palmersquarebdc.com. With that, I will turn the call over to Chris Long.

Good afternoon, everyone. Thank you for joining us today for Palmer Square Capital BDC's Fourth Quarter and Year-end 2025 Conference Call. On today's call, I will provide an overview of our fourth quarter results and full year highlights, touch on our market outlook and competitive positioning and then turn the call to the team to discuss the current industry dynamics at play, our portfolio activity and financial results. During the fourth quarter, our team deployed $91.4 million of capital and generated total and net investment income of $29.8 million and $13.1 million, respectively. We delivered net investment income of $0.41 per share, covering our $0.36 per share fourth quarter base dividend and paid a $0.43 per share total dividend, which includes a $0.07 supplemental distribution. As we previously emphasized, we follow a distribution strategy that maximizes cash returns to our investors. In that spirit, we continue to aim to pay out nearly all of our excess earnings in the form of a supplemental dividend. Additionally, we recently announced our January NAV per share of $14.48. As the only publicly traded BDC to disclose NAV on a monthly basis, we believe we provide a unique level of transparency and accountability, giving shareholders regular insight into our performance in the evolving market. Throughout 2025, uncertainty was the norm, shaped by tariff policy, evolving geopolitical dynamics and a heightened focus on the trajectory of rate cuts. We also saw reasons to be optimistic toward the end of the year, including an improvement in deal momentum and increasing sponsor engagement, most notably, the $55 billion take private of Electronic Arts, which will require approximately $20 billion in debt financing and the approximately $18 billion take private of Hologic. Before I hand it over to Angie, I want to spend some time discussing why we feel confident in our software portfolio despite the heightened concerns around AI-driven disruption in recent weeks. For background, our investment preference in software has skewed towards mission-critical enterprise platforms in areas such as cybersecurity, IT infrastructure and ERP systems. Within these subsectors, we are lending to large, highly scaled and deeply embedded providers that have meaningful profitability and cash flow. We found that these large enterprise platforms tend to be backed by large sophisticated private equity sponsors and believe their capital structure provides a meaningful equity cushion below our senior secured loans. We are most comfortable with these mission-critical enterprise platforms given they are ingrained across entire organizations have a high cost of failure with tangible failure risk, in many cases, our systems of record and require nearly 100% uptime in accuracy levels. Given there is little room for margin of error in these types of platforms, we believe they have a very large moat surrounding them regardless of the trajectory of AI. Additionally, in our experience, these providers frequently have a higher incumbency advantage and a longer lead time to develop in-house AI solutions and react to market changes, most of which are already in advanced stages. We believe another advantage is the fact that all of the data these software companies have collected across industries will, in theory, make their AI better than their more nascent peers as data quality underpins all AI inference. Further, as it relates to sector exposure, I'd like to reiterate that PSBD's portfolio is highly diversified by industry and size with 42 different industries represented and our 10 largest investments comprising just 10.9% of the overall portfolio. At present, software comprises less than 11% of our overall portfolio. As we kick off 2026, our investment strategy and approach to portfolio management that has served us well for nearly 2 decades remains unchanged. We believe that active credit management when executed properly can generate attractive total returns in excess of yield alone and that our focus on credit selection combined with our core competency of locating relative value will drive strong outcomes. With that, I will hand the call over to Angie.

Thank you, Chris. We are pleased with PSBD's fourth quarter results and our broader positioning entering the new year. While market activity improved modestly through the end of 2025, January and February of 2026 have served as reminders that volatility and uncertainty remain elevated throughout financial markets. Despite that backdrop, we believe PSBD's portfolio continues to be resilient and deliver strong results across shifting environments. In terms of deal volume, M&A activity is beginning to show signs of the gradual improvement we alluded to last quarter, though the recovery remains uneven. Activity has been much more prevalent at the upper end of the market, while sponsor to sponsor deals and the $1 billion to $5 billion enterprise value range have been slower to reemerge. Spread compression continued through the fourth quarter across many parts of the market. On the private credit side, it appears to be moderating while tightening in the broadly syndicated market has continued. In light of this, we are maintaining our defensive posture while staying invested. However, we believe the recent volatility may present high-quality opportunities at attractive entry points. And in those cases, we would actively look to rotate into those opportunities. As expected, activity slowed entering the first quarter, which is typically the shortest and seasonally weakest period and January has tracked in line with historical patterns. That said, our team's engagement with sponsors and capital market debts continues to increase. And pipelines in both the private credit and broadly syndicated markets feel healthier than earlier in 2025. However, we believe the market is still some distance away from a sustained and meaningful increase in overall transaction volumes. Recent transactions continue to highlight the evolving relationship between the broadly syndicated loan and private credit markets. With the recent Hologic take private serving as a prime example of these dynamics at play. As has been reported, Palmer Square's comprehensive platform participated as a private credit provider in the second lien tranche. Initially committing $100 million and ultimately funding $75 million after the transaction was resized following a strong first lien syndication process. More importantly, the Hologic transaction demonstrates the breadth of our platform. We were able to support the sponsors with early and sizable commitments and ultimately participate across both the private second lien and the syndicated first lien tranches in U.S. dollars and euros. We applied a similar approach with the MacLean Power System transaction. We believe our platform's flexibility will serve as an important competitive advantage for PSBD as we continue to see transactions move between public and private markets, often within the same capital structure. As referenced previously, volatility has returned meaningfully since the beginning of the year. While this has been driven by a number of factors, including macro uncertainty and geopolitical developments, the past few weeks have been defined by renewed concerns around the pace and scope of AI-driven disruption, which has weighed on sentiment across both equity and credit markets. Since there's been scrutiny around BDCs through this lens, we believe it's worth providing some additional context for our investors while reiterating that approximately 11% of PSBD's portfolio was invested in software-related credits as of quarter end, which is substantially lower than the 20% average BDC exposure level reported in the press. Our average position size in software is approximately $4.6 million. And to echo Chris, our exposure is intentionally skewed towards mission-critical enterprise platforms that tend to be backed by very large, sophisticated private equity sponsors and that we believe have meaningful equity cushions below our senior secured loans. We intentionally avoid lending to fast-growing but negative cash flow businesses, or companies in more commoditized subsectors, such as customer marketing automation, for example, which we believe are more vulnerable to disintermediation by AI. Although recent market sentiment has been pronounced, we believe the genesis of the concern is not necessarily that current credit fundamentals are deteriorating or at risk, but rather the underlying question of what the terminal value of some of these software businesses will be 5, 10 or 20 years down the line. There are undoubtedly going to be winners and losers in the software space, which was also the case before AI. As we have seen in past bouts of volatility over the years and decades, tremendous opportunities can arise to invest in great companies at meaningful discounts to their intrinsic value. We believe the current backdrop in certain pockets of loans and high-yield bonds may help our investment team uncover opportunities to generate attractive returns as some credits have traded down 5 to 10 points or more, with no apparent fundamental changes to the underlying business performance. As always, we will continue to be diligent in our deployment as we monitor each corner of the market and leverage our platform's flexibility to rotate into the most appealing risk-adjusted opportunities as they emerge. Turning to our portfolio, credit performance remains solid across the board. As discussed during our last call, First Brands represented the most notable credit-specific development. Given some uncertainty around the sales process and deteriorating customer sentiment, we reduced most of our exposure in January and chose not to commit any additional capital. We retain a small residual position as option value, should conditions improve. In terms of our balance sheet, we refinanced our private credit facility with Wells Fargo during the fourth quarter, reducing the spread by approximately 55 basis points and increasing the overall capacity of the facility. We will continue to evaluate additional right side balance sheet optimization opportunities in the first half of 2026, including a potential CLO refinancing and other initiatives. As a reminder, we also put in place a new $5 million open market share repurchase authorization during the fourth quarter. While we have not yet utilized this authorization due to blackout restrictions, we continue to believe PSBD's valuation represents an attractive opportunity, and we will judiciously deploy capital to support the stock. Additionally, we expect to continue discussions with the Board regarding future use of the 10b5-1 program following the full utilization of the prior plan. For added context, PSBD shares were yielding 15.7% as of February 2026, a significant premium to the 11.6% on NAV. Given the quality and conservative positioning of PSBD's portfolio, we believe this is a compelling yield, even while taking into consideration the volatile market environment we've experienced as of late. As we look forward to the rest of 2026, we remain discerning, but cautiously optimistic. While near-term sentiment across certain sectors remains fragile, we believe the long-term fundamentals supporting the credit markets remain intact, particularly for platforms with disciplined underwriting and conservative portfolio construction. PSBD's ability to invest across both liquid and private markets allows us to remain flexible and patient as conditions evolve and opportunities arise. With that, I'll turn the call over to Matt to discuss our portfolio and investment activity in more detail.

Thank you, Angie. Turning to our portfolio and investment activity for the fourth quarter. Our total investment portfolio as of December 31, 2025, had a fair value of approximately $1.2 billion across 42 industries that demonstrate strong credit quality, industry and company-specific tailwinds and a diverse mix of end markets. This compares to a fair value of $1.26 billion at the end of the third quarter of 2025, reflecting a decrease of approximately 4.4%. In the fourth quarter, we invested $91.4 million of capital, which included 24 new investment commitments at an average value of approximately $3.4 million. During the same period, we realized approximately $148.3 million through repayments and sales. As you will notice, we continue to think about diversification as we allocate new capital in the portfolio. To recap key portfolio highlights, at the end of the fourth quarter, our weighted average total yield to maturity of debt and income-producing securities at fair value was 11.30% and our weighted average total yield to maturity of debt and income-producing securities at amortized cost was 8.15%. We believe our focus on first lien loans and diversification by industry and size contribute to a strong credit profile, with 42 different industries represented in our investment mix. Further, our 10 largest investments account for just 10.9% of the overall portfolio, and our portfolio is 95% senior secured, with an average hold size of approximately $4.7 million. Again, we believe this position sizing is an important risk management tool for PSBD. On a fair value basis, our first lien borrowers have a weighted average EBITDA of $436 million, senior secured leverage of 5.5x and interest coverage of 2.6x. Additionally, new private credit loans comprised 14.7% of overall new investments and were funded at a weighted average spread of 453 basis points over the reference rate. While credit quality is a focus across the sector, non-accruals continue to be low at PSBD. On a fair value basis, it is only 9 basis points and on an at-cost basis, only 134 basis points. Our PIK income as a percentage of total investment income remains well below our largest peers and below the industry at approximately 1.45%. We believe this will give our shareholders greater confidence in the quality of our disclosed investment income. We've maintained an average internal rating of 3.6 on a fair valuated basis for all loan investments. Our ratings derived from a unique relative value-based scoring system. We believe credit performance within the portfolio remains strong. Our non-accruals remain very low by industry standards and the underlying credit metrics of our borrowers appear encouraging. We continue to see stability in both leverage levels and loan-to-value ratios across our portfolio of companies. As both Chris and Angie mentioned, we believe our portfolio is well diversified for the dynamic markets that we participate in. As we've talked about many times in the past, we believe larger borrowers provide for better credit outcomes for myriad reasons. We think this will apply to AI as well and that larger companies may be able to invest in and ultimately benefit from the tools and efficiencies that AI can provide. As previously disclosed, during the quarter, we took further strides in optimizing the right side of our balance sheet by refinancing the Wells Fargo credit facility, tightening the spread by 55 basis points. Additionally, we extended the maturity of the facility to November 2030 and increased the facility amount to $200 million from $175 million. We believe this exemplifies our focus on driving earnings power to the BDC through active balance sheet management, in addition to active portfolio management. Lastly, as discussed on our third quarter earnings call, our Board has approved an additional $5 million of open market share repurchases at PSBD we have not yet utilized the program due to an ongoing lockup period. Given the market level discounts to NAV in the BDC space, we believe this could be an accretive tool to further shareholder return in the future. As we navigate current market dynamics, we remain aligned with the priorities of our shareholders, and we'll continue to provide transparent visibility into our performance. Now I'd like to turn the call over to Jeff, who will review our fourth quarter 2025 financial results.

Thank you, Matt. Total investment income was $29.8 million for the fourth quarter of 2025, down 14.5% from $34.9 million for the comparable prior year period. Income generation during the quarter reflected a mix of contractual interest income, paydown related income and select fee income from the new deal activity. Total net expenses for the fourth quarter were $16.8 million compared to $20.1 million in the prior year period. Net investment income for the fourth quarter of 2025 was $13.1 million or $0.41 per share compared to $14.8 million or $0.45 per share for the comparable period last year. During the fourth quarter of 2025, the company had total net realized and unrealized losses of $18.4 million compared to the total net and unrealized losses of $2.9 million in the fourth quarter of 2024. This consisted of net unrealized depreciation of $20 million related to the existing portfolio investments and net unrealized appreciation of $2 million related to exited portfolio investments. At the end of the fourth quarter, NAV per share was $14.85 compared to $15.39 at the end of the third quarter of 2025. Moving to our balance sheet, total assets were $1.2 billion and total net assets were $464.1 million as of December 31, 2025. At the end of the fourth quarter, our debt-to-equity ratio was 1.54x, very slightly up from the 1.53x at the end of the third quarter of 2025. Available liquidity, consisting of cash and undrawn capacity on our credit facilities was approximately $311.3 million. This compares to approximately $252.8 million at the end of the third quarter of 2025. Finally, on February 26, the Board of Directors declared a first quarter 2026 base dividend of $0.36 per share, in line with our formalized dividend policy. Furthermore, our policy continues to be distributing excess earnings in the form of a quarterly supplemental distribution. With that, I'd now like to open the call up for questions.

Our first question will come from Rick Shane with JPMorgan.

You've mentioned the potential purchase. I'm looking at the leverage levels. As you consider capital deployment, and you've noted that there may be some marginal opportunities, will you keep some cash on hand, or given the current stock price, would it make more sense to buy back stock since it may be challenging to find investments that yield similar returns?

Rick, it's Matt. Thanks for the question. I think from the management team's perspective and the Board, we're certainly looking at all avenues in front of us. To your point, it's certainly accretive from a stockholder standpoint, given where the discount is trading. Undoubtedly. We also mentioned some of the dislocations in the market that we've seen are likely going to provide some great opportunities in the secondary investing side as well. All that being said, we do think from a new underwriting origination standpoint, spreads should be more conducive than they've been in quite some time. So we're really trying to look across all the avenues of opportunity set in front of us and maybe not just the best near term but obviously the best long-term decision for shareholders. So taking a look at everything that's on the table and there's certainly a lot to investigate at this stage. So I think we'll try to be as prudent as we can across all those facets. But undoubtedly, to your point, the shares look really attractive to us at this level.

Got it. And look, obviously, in the equity markets, we're seeing similar dislocations. In some ways, what we've seen is sectors move from being potentially at the high end of their valuation range potentially into a more normal sort of average range. Generally speaking, things don't just sort of mean revert, they typically overcorrect and we're thinking about that in terms of stocks more broadly. Where do you think we are in the cycle on the credit side? And if we're just sort of moving back to normal pricing as opposed to really, really tight spreads. Is it really the time to weigh in? Or do you actually think we're approaching historically attractive pricing?

Another valid point. Credit conditions certainly vary by sector. Recently, the focus has been on software and AI-related risks in certain industries. The credit markets are distinctly divided in this regard. There hasn't been significant spread widening outside of industries concerned about AI. In comparing public and private credit, private credit has reacted more slowly in terms of spreads. Therefore, I don't anticipate a significant opportunity with much wider spreads across all credit unless we experience broader macro uncertainty. It's clear that in the software credit sector, spreads have indeed widened. This presents interesting opportunities, particularly among deeply embedded software companies, especially in light of recent comments from the NVIDIA CEO regarding the integration of AI products with embedded software, which aligns with current discussions in the credit space. There are indeed opportunities where valuations have reached levels that many would agree don't make sense. We need to be cautious, but I believe there are promising avenues in those areas. Outside of these sectors, I hope to see more normalized spreads, which is reasonable considering the general macro uncertainty. However, those spreads may adjust slowly due to the substantial capital still waiting to be invested. Overall, it may take longer for spreads to widen uniformly to levels that surpass long-term averages.

Our next question will come from the line of Doug Harter with UBS.

Just kind of piggybacking on Rick's question. How do you weigh kind of the opportunity to maybe buy some of those software loans where you might feel comfortable in it versus, obviously, the perception of increasing risk and the potential volatility that comes with that before kind of markets settle down?

Yes. It's a balanced process. I think we definitely don't necessarily just want to outright increase exposure holistically to the sector. There's just obviously enough noise going on. And quite frankly, I think we just need to be really fundamentally sound and kind of how we're analyzing these specific businesses on a company-by-company basis. But I think we've done enough work and have had enough conversations with management teams, with sponsors with others in the industry where we do think there's going to be some opportunities. And our whole relative value process within PSBD, being differentiated from just kind of traditional private credit BDCs. We do want to be able to take advantage of those opportunities in the liquid secondary market. It's something we've done really well historically across a lot of different strategies. So we're not going to be scared per se, just because something's labeled software if we think it exhibits a very strong total return opportunities, but also want to be cognizant of, and I think everybody needs to be somewhat humble in that AI is moving very, very quickly. And there's a lot of unknown, unknowns 3, 5, 10 years down the road. So we want to make the best decisions we can, but definitely I think there's some interesting opportunity sets that we're taking a look at.

Could you share your thoughts on deal activity? Do you believe that the current market volatility and the uncertainties you mentioned could potentially limit deal and lending activity, causing people to remain cautious? Or do you see the market managing to navigate through these challenges?

Yes. I mean, volatility never helps dealmaking in general, whether that's M&A, IPO activity, which obviously all those things felt like they were starting the year off on the right foot finally. And I think we all were kind of thinking the same thing that to start 2025 and then we had the tariff issues. A couple of years back with some of the regional banking issues. So it doesn't take a lot for, I think, at least things to slow down. But I do think we're far enough along in a prolonged M&A drought. We've had 175 basis points of rate cuts over the past 1.5 years. So I think there's still a lot of those reasons why we felt M&A was going to pick up, still exist. And maybe in the software sector, that's probably going to slow down. So I think it will be maybe a near-term slowdown, but we're still having conversations still seeing deals, talked about it early to middle stages. So maybe we don't see an acceleration from here per se, but it definitely feels like there's still appetite for things to get done. And certainly outside of software AI-related issues, other industries are still, I think, pretty ripe for transacting. And just in general, in the sponsor private equity-backed community, I think it's been a dry patch for so long. And I think naturally, you're just going to see transaction activity pick up. All that being said, I would be surprised, too, if we don't see some transactions in the software space, as valuations have rerated immensely in the public markets. I'll be surprised if we don't see some sponsor activity to take advantage of some of these levels that, quite frankly, from evaluation just haven't been seen in quite some time. So that was a long-winded way of saying we'll see. But I think it will continue, maybe just not at the pace people were anticipating coming out of 2025 and into early 2026.

Our next question will come from Kenneth Lee with RBC Capital Markets.

Just given the prepared remarks around spreads, timing within the liquidity side versus being a little bit more steep on the private side. How do you view the relative attractiveness between the liquid and the private side? And what's your preference for the marginal investment going forward more in the private or more on the liquid side?

Ken, it's Matt. Thanks for the question. I think it's more balanced than we've seen. I think there definitely was some of the volatility in the broadly syndicated market. Probably the opportunity set there, specifically on the secondary loan side is more attractive than it has been in quite some time. Our comments around spread tightening in that market were certainly true through the end of 2025 and to start 2026, I do think just in the past few weeks with the broader volatility in software that that's going to negate any spread tightening on new issue loans coming to the market, at least for a little while. We'll see if that's a meaningful widening or not, but I think there's definitely still a big appetite in capital to deploy in liquid credit. And on the private credit side, I think that activity is a little steadier. I think spreads to our comment earlier, move a little bit slower there. But as you've seen this quarter, we deployed another 14.5-plus percent into private credit transactions. And I think it's been a good way for us to kind of defend spread in the portfolio and a spread tightening environment in general. So I think the opportunity set is going to be good on both sides of the fence, but I definitely think there's more opportunity now in the secondary loan market than we've seen in quite some time.

Got you. Very helpful there. And just one follow-up, if I may. In terms of distributions, any updated outlook around the distribution framework and how you think about dividends going forward?

Yes. Like we have in the past, the Board kind of continues to evaluate what we're seeing from income generation and other facets of the business. Certainly, we've absorbed 175 basis points of base rate reductions, so those have flown through NII here as of late. We'll see where the Fed goes from here. Obviously, we can see what the forward curve is saying, but that tends to move around quite a bit, which is the economic data that comes out. So as of now, we've continued to put out the base dividend that we've had, and we'll continue to reevaluate at the Board level as we move through this quarter and beyond. But again, hopeful on our conversations on spread that we've seen tightening feels a little bit better than it has in some time.

At this time, I'd like to turn the call back to Chris Long for closing remarks.

Thank you, operator. Thank you all for your time and thoughtful questions. We look forward to updating you on our first quarter 2026 financial results in May. Have a good rest of your day.

This concludes today's call. Thank you all for joining. You may now disconnect.