Palmer Square BDC Navigates Market Headwinds with Strong Credit Quality

MISSION WOODS, Kan. – February 26, 2026 – Palmer Square Capital BDC Inc. (NYSE: PSBD) today announced its fourth-quarter and full-year 2025 financial results, presenting a complex picture of a company navigating a challenging market with disciplined execution. While key income and valuation metrics saw a decline compared to the prior year, the business development company underscored its portfolio's robust health, evidenced by a remarkably low rate of non-performing loans.

For the fourth quarter ending December 31, 2025, the company reported net investment income of $13.1 million, or $0.41 per share. This represents a decrease from the $14.8 million, or $0.45 per share, recorded in the same period of 2024. The firm’s net asset value (NAV) per share also trended downward, closing the year at $14.85, a drop from $15.39 at the end of the third quarter and $16.50 at the close of 2024. The decline in NAV was driven largely by $18.4 million in total net realized and unrealized losses during the fourth quarter, a significant increase from the $2.9 million loss reported in Q4 2024.

Despite these pressures, the company’s leadership pointed to underlying strength and stability within its investment portfolio.

“We are pleased with Palmer Square Capital BDC’s steady execution throughout 2025 amid dynamic market conditions,” said Christopher D. Long, Chairman and Chief Executive Officer of PSBD. “We believe our credit performance within the portfolio remains solid, reflected in our low non-accrual rate in a normalizing environment.”

A Tale of Two Metrics: Income Pressures vs. Portfolio Health

The full-year results mirrored the quarterly trend, with total investment income for 2025 coming in at $124.4 million, down from $143.5 million in 2024. This pressure on income reflects a broader market environment shaped by shifting interest rates and heightened competition.

However, the story behind the headline numbers is one of resilient credit quality. A key indicator of portfolio health, the value of investments on non-accrual status, stood at just 0.09% of the total portfolio's fair value. This figure not only represents a very low level of underperforming loans but is also a notable improvement from the 0.40% reported at the end of the previous quarter. This suggests that the company’s underwriting and risk management have successfully insulated its core assets from widespread distress, even as valuations fluctuated.

Further bolstering this narrative is the composition of the company's income. In the fourth quarter, recurring payment-in-kind (PIK) interest, where borrowers pay interest with more debt rather than cash, accounted for a mere 1.45% of total investment income. This is a positive sign, as a rising reliance on PIK income across the industry has been viewed as a potential indicator of borrower stress. PSBD's low exposure suggests its portfolio companies remain financially healthy and capable of servicing their debt in cash.

Navigating a Shifting Private Credit Landscape

Palmer Square’s 2025 performance did not occur in a vacuum. The results reflect a year of significant transition for the private credit market. After a period of aggressive rate hikes, the Federal Reserve began a cycle of modest rate cuts in late 2024 and 2025, altering the landscape for floating-rate lenders like PSBD. While base rates remained elevated, the market also saw a resurgence of competition from traditional banks.

This increased competition, particularly in the large-cap and upper-middle markets, led to a compression of credit spreads throughout 2025. This tightening of risk premiums put downward pressure on the yields available for new investments, directly impacting the investment income potential for BDCs across the sector. PSBD’s portfolio yield, however, increased in the fourth quarter to 11.30%, up from 10.07% in the prior quarter, indicating a proactive approach to portfolio management.

At the same time, after a sluggish period, M&A activity began to rebound significantly in late 2025. This resurgence supports management's optimism about the future. “While it appears the market remains some distance from a sustained increase in transaction volumes, sponsor engagement continues to build, and pipelines across both the broadly syndicated and private credit markets are healthier than a year ago,” Long noted in the company's release.

Shareholder Returns and a Cautiously Optimistic Outlook

In a sign of confidence in its cash-generating ability, PSBD’s board declared a first-quarter 2026 regular base dividend of $0.36 per share. This follows a total fourth-quarter 2025 distribution of $0.43 per share, which was composed of a $0.36 base dividend and a $0.07 supplemental dividend. The company stated it expects to announce another supplemental dividend for Q1 2026 in March, continuing its policy of returning excess earnings to shareholders. The fourth quarter NII of $0.41 per share comfortably covered the base dividend, reinforcing the sustainability of its shareholder return policy.

Looking ahead, Palmer Square is positioned with a highly diversified and defensively structured portfolio. As of year-end, its $1.2 billion in assets were spread across 264 investments in 205 portfolio companies and 42 different industries. Critically, approximately 95% of its long-term investments are senior secured loans, occupying a safer position in the capital structure, and 98% of these carry floating interest rates, allowing the portfolio to benefit from changes in base rates.

With total available liquidity of approximately $311.3 million against unfunded investment commitments of just $21.5 million, the company has significant capacity to deploy capital. This financial flexibility will be crucial as it seeks to capitalize on the healthier deal pipelines management anticipates in the coming year. By adhering to a strategy of disciplined underwriting and focusing on high-quality, senior secured debt, Palmer Square aims to continue delivering strong long-term outcomes for its shareholders.