Second Quarter 2026 Earnings Conference Call

Act investor sentiment, we remain confident in the performance of our software portfolio. As we've discussed on prior earnings calls, we have been deliberate in allocating capital to software businesses operating in areas such as cybersecurity, IT infrastructure, and ERP system segments we believe are well positioned to benefit from increased AI adoption and are led by management teams with a demonstrated ability to adapt and innovate. While AI has become a dominant narrative shaping investor sentiment for both the broader market and the BDC sector specifically, we believe the underlying market dynamics are more nuanced. We are seeing the effects of 2021 and 2022 loan vintages reaching maturity in a more constrained exit environment with a higher interest rate backdrop. As these loans mature, outcomes are likely to become increasingly company specific many businesses will likely refinance successfully albeit at a higher cost of capital while others may face more meaningful challenges these dynamics are highly dependent on individual borrower profiles and should not be used to paint whole sectors or the broader bsl and private credit markets are structurally weak we believe this environment reinforces the value of disciplined credit selection and active portfolio management. Given the breadth of our platform and the flexibility of our investment approach, we believe we are well positioned to navigate this period of increased dispersion and identify attractive opportunities as they emerge. With that, I will hand the call over to Angie.

Thank you, Craig. During the second quarter, PSPD's portfolio continued to perform steadily despite another period of elevated macro uncertainty. While markets navigated the conflict in Iran, ceasefire discussions, and continued scrutiny around software and AI exposure, we believe the portfolio's underlying credit quality remain resilient, as evidenced by PSBD's 0.29% non-accrual rate. With muted activity across both private credit and the broadly syndicated market, we remain discipline in our capital allocation, prioritizing opportunities that we believed offered the strongest risk-adjusted returns. As Chris mentioned, that included expanding our share repurchase program, which we viewed as an attractive and accretive use of capital, while near-term market opportunities remained more limited. At the same time, we generated solid net income during the quarter and believe our disciplined approach leaves us well-positioned to capitalize on a healthier investment environment as market activity and refinancing volumes improve over time. Stepping back, the second quarter included several mini-cycles, driven by geopolitical and macroeconomic factors. Federal Reserve policy remains a subject of active debate, creating continued uncertainty around the interest rate outlook. While we are not macro forecasters, persistent inflation, driven in part by the Iran war's impact on energy prices, remains an important consideration for our portfolio companies. Turning to software, despite signs of stabilization earlier in the quarter, loans weakened meaningfully toward quarter end as sentiment deteriorated. With fewer market transactions available to help inform valuations, it has become increasingly challenging for investors to benchmark private assets. We believe this dynamic has contributed to the disconnect between public market sentiment and the underlying performance of our portfolio. We expect that in the coming quarters, increased refinancing activity will be a catalyst to help establish valuation and spread benchmarks. Even with the current dynamics, we continue to believe many of these businesses are well positioned, although individual outcomes will vary and ultimately depend on how effectively companies incorporate AI into their products to enhance value. We are increasingly seeing discounted opportunities in the broadly syndicated market, whether in software or certain cyclicals, but we remain disciplined and prudent in underwriting them. As Chris mentioned, with dispersion elevated across credit, many of these situations involve layered capital structure complexity, which places a premium on the kind of idiosyncratic credit-by-credit analysis our broad investment platform enables. Looking more closely at our portfolio, this quarter we focused on optimizing the right side of our balance sheet to enhance financial flexibility while reducing our overall cost of capital. As part of these efforts, we successfully reset and extended our VDC CLO, lowering the weighted average cost of debt to SOFR plus 1.39% from SOFR plus 1.72% while extending the reinvestment period to July 2031 and maturity to July 2039. The transaction, which closed on July 15th, is expected to be fully accretive after refinancing costs beginning in the fourth quarter. Given the lower cost of our term finance CLO, which is currently a more efficient funding source for BSL investments, we have reduced the excess capacity on our Bank of America BSL funding facility to lower associated unused fees. These actions reduce carrying costs while preserving liquidity should M&A activity accelerate. We've maintained availability under our Wells Fargo facility, which we intend to deploy primarily towards private credit opportunities where we currently see more attractive spreads. Overall, we are very pleased with our strong balance sheet position. As we look towards the remainder of 2026, we are constructive about the outlook for portfolio and we remain focused on maintaining our prudent approach to underwriting in the face of uncertain macro conditions we believe improving refinancing activity greater pricing transparency and a strong balance sheet position pspd well to identify attractive opportunities as they emerge across both the broadly syndicated and private credit markets i'll now turn the call over to matt to discuss our portfolio and investment activity in more detail thank you angie to To echo Chris and Angie, current market valuations across the BDC sector imply a more pessimistic

outlook for portfolio performance than we believe is warranted. In our view, the fundamentals tell a different story. Credit performance remains healthy and we believe has a strong outlook for earnings in 2026. Furthermore, current trading discounts are implying default expectations that we believe are disconnected from underlying portfolio performance. At the same time, media coverage has often conflated unrelated market developments into a single, broader narrative, further weighing on investor sentiment, specifically as it relates to private credit. In that context, private credit loans comprise approximately 14% of our portfolio at PSPD as of last quarter, with a median revenue and EBITDA growth of approximately 9% each, respectively. We think these are healthy growth levels in any market environment. To that end, during the second quarter, we maintained a solid portfolio performance, delivering net investment income of $0.39 per share. Borrowers continue to meet our expectations, and we remain confident in our ability to navigate the current environment through disciplined underwriting and active portfolio management. Our total investment portfolio as of June 30, 2026, had a fair value of approximately $1.11 billion, diversified across 45 industries that demonstrate strong credit quality, industry and company-specific tailwinds, and a variety of end markets. This compares to a fair value of $1.15 billion at the end of the first quarter of 2026, reflecting a decrease of approximately 3.6%. In the second quarter, we invested $72.4 million of capital, which included 21 new investment commitments at an average value of approximately $3.3 million. During the same period, we realized approximately $109.8 million through repayments and sales. Importantly, we remain focused on diversification as we allocate new capital across the portfolio, as we believe the recent market turbulence has reinforced the importance of risk management. To recap key portfolio highlights, at the end of the second quarter, our weighted average total yield to maturity of debt and income-producing securities at fair value was 11.95%, and our Our weighted average total yield to maturity of debt and income producing securities at amortized cost was 8.43%. We believe our focus on first lien loans, combined with diversification across industries and company size, contributes to a strong credit profile with exposure to 45 different industries. Further, our 10 largest investments account for just 10.74% of the overall portfolio, And our portfolio is 96% senior secured, with an average hold size of approximately $4.2 million. On a fair value-weighted basis, our first-name borrowers have a weighted average EBITDA of $463 million, senior secured leverage of 5.6 times, and interest coverage of 2.5 times. Additionally, new private credit loans comprise 24.1% of overall new investments at a weighted average spread of 534 basis points over the reference rate. On a fair value basis, non-appruals represent approximately 29 basis points, and on an at-cost basis, only 149 basis points. Our PIC income represents approximately 1.37% of total investment income, well below our peers and the industry average. We believe this underscores 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 rating is derived from a unique relative value-based scoring system. As Angie highlighted, we focused our attention to the right side of the balance sheet in the quarter in order to lower our overall cost of capital and to reduce our associated financing expenses, all of which should help drive additional earnings power for shareholders starting in fourth quarter 26. We also believe the increased share buyback program of $30 million is another key mechanism to drive shareholder value going forward. While we do expect the M&A environment to improve at some point in the future, it is always difficult to predict when, and thus we have focused our attention on these other tools to help drive value for PSBD. Now, I'd like to turn the call over to Jeff, who will review our second quarter 2026 financial results.

Thank you, Matt. Total investment income was 27.3 million dollars for the second quarter of 2026, down 13.8 percent from the 31.7 million dollars for the comparable prior year period. Income generation during the quarter reflected contractual interest income from our investments, which was impacted by lower base rates versus the prior year, as well as a modest amount of pay down related income and fee income. Total net expenses for the second quarter were $15.3 million, compared to $17.8 million in the prior year period. Net investment income for the second quarter of 2026 was $12 million, or $0.39 per share, compared to $13.8 million, or $0.43 per share, for the comparable period last year. During the second quarter of 2026, the company had total net realized and unrealized losses of $3.6 million compared to total net realized and unrealized losses of $6.7 million in the second quarter of 2025. This consisted of net unrealized depreciation of $6.3 million related to existing portfolio investments and net unrealized appreciation of $6 million related to exited portfolio investments. At the end of the second quarter, NAV per share was $13.21 compared to $13.30 at the end of the first quarter of 2026. Moving to our balance sheet, total assets were $1.1 billion and total net assets were $406.2 million as of June 30, 2026. At the end of the second quarter, our debt-to-equity ratio was 1.71 times compared to the 1.70 times at the end of the first quarter of 2026. Available liquidity consisting of cash and undrawn capacity on our credit facilities was approximately $331 million. This compares to approximately $325.3 million at the end of the first quarter of 2026. Finally, on August 3rd, the Board of Directors declared a third quarter 2026 base dividend of 36 cents per share in line with our dividend policy. Furthermore, our policy continues to distribute excess earnings in the form of a quarterly supplemental distribution. With that, I'd now like to open the call up for questions.

At this time, if you would like to ask a question, press star, sending number one on your telephone keypad. To withdraw your question, simply press star one again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Kenneth Lee with RBC Capital Markets. Please go ahead.

Hey, good afternoon, and thanks for taking my question. Just one on the share repurchase program, the recent expansion there. Wondering how active you could be with repurchases just given the current valuations and some of the opportunities you talked about in your term.

Hey, Ken. Thank you for the question. You know, certainly I think by the quantum that we announced here during the quarter of $30 million, which, you know, as a percentage of market cap we think is pretty meaningful, I think we see a lot of value in utilizing that program. You know, we used about $4 million pretty much of the existing program through the second quarter, so have, you know, essentially the full availability of that $30 million going forward. So I think when we look across the landscape, there's certainly a lot of gives and takes that you have to analyze, whether it's share buybacks versus deploying capital. But I think the size of that program should speak to our view that at these levels of discount, we think it's a very, very strong return on equity for investors. And so I would envision, at least here in the near term, we'll, you know, look to deploy, you know, a fair amount of that. But also, you know, one way, you know, maintaining the appropriate levels of leverage, you know, making sure we're comfortable from a balance sheet standpoint as well.

But in light of, you know, you know, what's transpiring from an M&A standpoint or, you know, kind of still lack thereof, you know, we certainly feel like those share buybacks, you know, are a very accretive tool to utilize. very helpful there uh and then one follow-up uh if i may you you mentioned um in the prepared remarks seeing some uh discounted opportunities i assume within the liquid loan markets um what what would make you more positive in terms of uh potentially taking advantage of some of these opportunities um you know what would make you feel a little bit more constructive on that Thanks.

I mean, I think, you know, the size of the secondary loan market, you know, well north of 1.5 trillion gives us a lot of things to look at. You know, certainly there's, you know, a lot going on from a macro standpoint. You know, so we certainly take that into consideration. But, you know, obviously, even more importantly, you know, at each company level, you know, what our view is on those underlying credits. Traditionally, if things are trading at much of a discount, there's usually a reason for that. Certainly within the software sector, there's still a lot of lack of clarity on where some of these play out. But for us, take a sub-industry such as cybersecurity, we're very constructive there, and there are some interesting opportunities. You know, as we take a look at some of these credits that are trading at discounts that have, you know, rather near-term maturities, there can certainly be some interesting opportunities, you know, to take advantage of that as you think about, you know, any sort of refinancing, you know, in some cases, additional equity coming into some of these businesses to help facilitate refinancings. We think, you know, there's certainly going to be some interesting opportunities there. So I think on the broadly syndicated side of things, that's probably where more interesting opportunities lie. But then, you know, on the flip side from private credit transactions, while again, you know, deal activity has been relatively muted, you know, we have seen spreads widen, you know, in that market. So I do think there's going to continue to be some interesting opportunities. And, you know, as you saw this past quarter where we did deploy new capital, you know, an increasing allocation of that has gone to, you know, the private credit space just given spreads there have widened out more so than we've seen for, you know, a relatively new issue in the syndicated markets.

Gotcha. Very helpful there. Thanks again.

Your next question comes from the line of Melissa Waddell with UBS.

Please go ahead. uh good afternoon uh good to talk to you guys thanks for taking my questions i think you've answered a lot of them right off the bat i i did want to revisit though the idea of portfolio leverage remaining a bit elevated um you know i think when you guys talk about the relatively liquid positions in your portfolio versus other more traditional direct lending BVC. The idea was that maybe you would be able to manage that leverage and be a little bit more nimble and opportunistic as you saw fit. I'm curious why is that not the case and then are you choosing to keep leverage a little bit higher? Thanks.

Thanks, Melissa. Nice to hear your voice again and congrats on the new role. Yeah, I think, look, we're certainly comfortable with where leverage is at. It's, you know, definitely on the higher end of where we would traditionally target. I think, you know, the majority of that has just been with, you know, some of the NAV movement we saw in first quarter, you know, with predominantly where, you know, syndicated software loans went, was kind of the biggest reason for that. Given the underlying liquidity in the vast majority of the portfolio, you know, we can manage that, you know, really on day-to-day basis and so it's something we monitor daily and feel pretty comfortable at um you know certainly as we think about share buybacks and how that impacts leverage that's you know one piece of the equation um and then to to the other part of your question you know how we think about deployment so um you know it's something we're we're continuing to look at and want to balance accordingly um you know and to the extent um we want to pay down debt and de-leverage we can do do that, but with kind of what we've seen in July and first week, I guess, of August, we still feel very comfortable with that and certainly think share buybacks should continue to be a big piece of that puzzle, but the leverage is something we can manage on our end pretty well.

Okay, got it. And then I guess the follow-up question on that would just be around any expected repayment activity. Of course, there's always some every quarter, but do you have any line of sight to anything outsized more in the near term? Appreciate it.

So I think we have seen a bit, and towards the back end of the quarter, did see a pickup in refinancing activity, predominantly on the broadly syndicated side. So you obviously saw some portfolio shrinkage this quarter, which we thought made a lot of sense. You know, a big piece of the syndicated market has continued to be, you know, relatively tight on spread, and borrowers have been able to come back to the market, you know, and reprice or refinance their debt at tighter spreads. And quite frankly, in a lot of cases, tighter spreads than we thought made sense for this portfolio. So we did see, you know, a bit more elevated repayment activity in the second quarter. that trend has continued, I'd say, into the third quarter. We are seeing a little bit of a pickup in some new activity, some of which is some refinancing activity for credits we had not been involved in in the past. But a little bit to Ken's earlier question even, as we think about some of those loans that have traded at discounts with a bit shorter maturity profile, we've seen some interesting opportunities here in the back half of July and into August. I think that continues as capital markets are pretty open, but I think some of these companies, which had very tight cost of debt from a historical basis, are going to have to pay a spread premium to push out some of these maturities. And so I think there's some opportunities that we'll continue to take a look at there, which should be good for the portfolio.

Thank you. Your next question comes from the line of Rick Shane with J.P. Morgan. Please go ahead.

Thanks for taking my questions this afternoon. Just quickly, so year to date, you guys have realized about $14 million in net realized losses. Can you help us understand two things? Roughly how many positions would that be scattered over? And then more importantly, where have realizations come in versus your prior quarter carrying values? And the reason I ask is that, you know, for the last two quarters, you've realized loss is totally sort of par for the course in terms of where we are on the cycle. But even when the losses have been large, they haven't sort of fully netted out against the additional unrealized losses. And so we're trying to understand sort of where the marks are.

Yeah, thanks for the question, Rick. I'd say for, you know, the first part of the year, you know, it's really concentrated in really a handful or less positions. You know, those that had kind of been or moved to non-accrual, you know, certainly the first brands, what was a big one for us coming out of the end of last year. So it's been, you know, relatively concentrated across, you know, the majority of those non-accruals that we've had over the past few quarters. I think from where those sit relative to Mark's, I think they've been, you know, pretty accurate, given those have been in the broadly syndicated market and have had pretty active quotes on the vast majority of them, if not all of them. So I think as we look across the liquid and the entirety of the portfolio, we haven't really seen much dispersion from where we see those marks and where things have been traded or quoted on the secondary markets.

Got it. That's helpful. And then, again, obviously, you know, I'm still getting up to speed a little bit on the company, but is that sort of the strategy, take advantage of the liquidity in your core markets and sort of take a first loss, best loss approach if it's a non-accrual move to exit quickly so you don't tie up too much capital in that way and just take the loss and move on? um not necessarily i think you know we try to look at every situation on a company by company basis and really try to determine you know where we think the ultimate value and recovery of those businesses are um to the extent we can be early and identify those and and sell out um before

there's a you know a bigger issue yes i mean we we definitely you know try to do that and i think have done a really nice job historically of doing that. But to the extent we think things are trading, you know, below or well below their intrinsic value, you know, we'll certainly go through, you know, through restructuring and own the business on the, you know, outside of that if we have to. And I think we've also done a nice job of that historically. You know, we had a relatively decent sized position last year in LifeScan that went through, you know, that sort of restructuring and then ultimately um you know we realized a par plus recovery on that so we have the ability and then and the team with with a lot of you know decades of experience doing um doing just that uh but certainly when um when we're underwriting credits and then and you know actively monitoring these businesses we we try to do our best to to avoid those situations um you know as best we can so we look at it you know company by company and really try to make the best decision we can at any point in time on on um you know where we think that outcome is going to going to go got it i i really appreciate the context thank you guys your next question comes

from the line of ethan kay with lucid capital markets please go ahead hey guys uh just a quick one for me can you just remind us how kind of like flexible or strategic you're able to be on repurchases, right? Like how much of it is formulaic versus discretionary?

Hey, Ethan. Yeah, thanks for the question on that. So with the new program or the upsized program that we just announced of the $30 million, $10 million of that is in the 10B51 program. So classify that as formulaic. And the additional $20 million is in an open market, which we have a bit more discretion on when and how we deploy those repurchases. Great. Thank you.

Your next question comes from the line of Derek Hewitt with Bank of America. Please go ahead.

Good afternoon, everyone. So, could you talk about your supplemental dividend policy since the total payout has exceeded the core earnings, I think in aggregate the last 12 months, especially given kind of leverage is a little elevated, although granted it's due to some market-to-market issues that will likely reverse over time. And then just given the either kind of discount BSL opportunities or buybacks in terms of ways to deploy incremental capital.

Yeah. Thanks, Derek. Yeah. So, I mean, for this quarter, our, our, you know, dividend at 39 cents was, was the 36 cents base and 3 cents supplemental. So it matched our, our NII for the quarter in a previous quarter. So I think we did have some spillover income where, you know, we, we caught that up and so had a little bit outside dividend relative to where NII came in, but for the most part, over the long term, we've tried to match it as close as we can in order to, you know, kind of pay out as much or nearly all income generated that we can, and so that's, I think, kind of been the policy since, you know, since we've been public and kind of look at that independently of how we think about, you know, capital deployment in any given quarter.

Okay, thank you.

That concludes our question and answer session. I would now like to turn the call back to Jeremy Goff for closing remarks.

Thank you, and thank you, everyone, for taking the time to join our call today. We look forward to revisiting with everybody else on third quarter results in November.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.