Borrowings

9 Months Ended

Sep. 30, 2022

Debt Disclosure [Abstract]

Borrowings

Note 6. Borrowings

In accordance with the 1940 Act, with certain limitations, BDCs are permitted to borrow amounts such that their asset coverage ratios, as defined in the 1940 Act, are at least 150% after such borrowing. As of September 30, 2022, the Company’s asset coverage ratio was 159%.

Bank of America Credit Facility

On February 18, 2020, the Company, through a special purpose wholly-owned subsidiary, PS BDC Funding (together with the Company, the “Borrowers”) entered into a Credit Agreement (the “Credit Agreement”) with certain financial institutions as lenders (“Lenders”), Bank of America N.A. as the Administrative Agent (“BofA N.A.”) and BofA Securities, Inc. (“BofA Securities”), as Lead Arranger and Sole Book Manager, pursuant to which the Lenders agreed to provide the Company with a revolving line of credit (the “BoA Credit Facility”).

Under the BoA Credit Facility, which matures on February 18, 2025, the Lenders have agreed to extend credit to PS BDC Funding in an aggregate amount up to the Commitment (as defined in the Credit Agreement) amount. The Commitment amount for the BoA Credit Facility was $200.0 million as of the closing date of the Credit Agreement, increased to $400.0 million on the one-month anniversary of the closing date, further increased to $475.0 million on October 12, 2020, and further increased to $725 million on September 29, 2021. The Borrowers’ ability to draw under the BoA Credit Facility is scheduled to terminate on February 11, 2025. All amounts outstanding under the BoA Credit Facility are required to be repaid by February 18, 2025. As the Company raises additional capital, we may enter into additional credit agreements to expand our borrowing capacity.

Debt obligations under the BoA Credit Facility consisted of the following as of September 30, 2022:

	September 30, 2022
	Aggregate Principal Committed		Outstanding Principal		Amount Available(1)		Net Carrying Value(2)
BoA Credit Facility	$	725,000,000	$	511,000,000	$	214,000,000	$	509,843,995
Total debt	$	725,000,000	$	511,000,000	$	214,000,000	$	509,843,995

(1) The amount available reflects any limitations related to the BoA Credit Facility’s borrowing base.

(2) The carrying value of the BoA Credit Facility is presented net of deferred financing costs of $1.518 million and accrued interest of $362 thousand.

Debt obligations under the BoA Credit Facility consisted of the following as of December 31, 2021:

	December 31, 2021
	Aggregate Principal Committed		Outstanding Principal		Amount  Available(1)		Net Carrying Value(2)
BoA Credit Facility	$	725,000,000	$	552,000,000	$	173,000,000	$	550,262,297
Total debt	$	725,000,000	$	552,000,000	$	173,000,000	$	550,262,297

(1) The amount available reflects any limitations related to the BoA Credit Facility’s borrowing base.

(2) The carrying value of the BoA Credit Facility is presented net of deferred financing costs of $1.993 million and accrued interest of $255 thousand.

Average debt outstanding under the BoA Credit Facility during the nine months ended September 30, 2022 and September 30, 2021, was $554.8 million and $411.7 million, respectively.

The loans under the BoA Credit Facility may be base rate loans or eurocurrency rate loans. The base rate loans will bear interest at the base rate plus 1.30%, and the eurocurrency rate loans will bear interest at 1-month or 3-month LIBOR plus 1.30%. The “base rate” will be equal to the highest of (a) the federal funds rate plus ½ of 1%, (b) the prime rate, and (c) 1-month or 3-month LIBOR. The Credit Agreement includes fallback language in the event that LIBOR becomes unavailable. Interest pursuant to base rate loans is payable quarterly in arrears, and interest pursuant to eurocurrency loans is payable either quarterly or monthly, as specified by the Borrowers in a loan notice pertaining thereto. The Credit Agreement requires the payment of a commitment fee of 0.50% for unused Commitments until the four-month anniversary of the Second Amendment to the Credit Agreement. Thereafter, the commitment fee is 0.50% on unused Commitments up to 30% of the BoA Credit Facility, and 1.30% on unused Commitments in excess of 30% of the BoA Credit Facility. Such fee is payable quarterly in arrears. The advance rate for PS BDC Funding’s Eligible Collateral Assets ranges from 40% for Second Lien Bank Loans to 70% for First Lien Bank Loans that are B Assets to 100% for Cash (excluding Excluded Amounts) (as each such term is defined in the Credit Agreement).

For the three and nine months ended September 30, 2022 and September 30, 2021, the components of interest expense with respect to the BoA Credit Facility were as follows:

	For the Three Months Ended September 30						For the Nine Months Ended September 30
	2022			2021			2022			2021
Interest expense	$	5,242,606		$	1,570,083		$	10,627,543		$	4,632,862
Amortization of debt issuance costs		160,138			130,581			475,193			389,178
Total interest expense	$	5,402,744		$	1,700,664		$	11,102,736		$	5,022,040
Average interest rate		3.58	%		1.38	%		2.36	%		1.40	%

PS BDC Funding has pledged all of its assets to BofA N.A., in its capacity as Administrative Agent, to secure its obligations under the BoA Credit Facility. Both the Company and PS BDC Funding have made customary representations and warranties and are required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities. Borrowing under the BoA Credit Facility is subject to the leverage restrictions contained in the 1940 Act and PS BDC Funding complies with 1940 Act provisions relating to affiliated transactions and custody. The custodian of the assets pledged to BofA N.A. pursuant to the BoA Credit Facility is U.S. Bank National Administration (“US Bank”). The obligations under the Credit Agreement may be accelerated upon the occurrence of an event of default under the Credit Agreement, including in the event of a change of control of PS BDC Funding or if the Investment Advisor ceases to serve as investment adviser to the Company.

Wells Fargo Credit Facility

On December 18, 2020, the Company, through a special purpose wholly-owned subsidiary, Palmer Square BDC Funding II LLC (“PS BDC Funding II” and together with the Company, the “WF Borrowers”) entered into a Loan and Security Agreement (the “Loan Agreement”) with certain financial institutions as lenders (“WF Lenders”), WFB as the administrative agent and U.S. Bank, as Collateral Agent and Custodian, pursuant to which the WF Lenders agreed to provide the Company with a line of credit (the “WF Credit Facility”).

Under the WF Credit Facility, which matures on December 18, 2025, the WF Lenders have agreed to extend credit to PS BDC Funding II in an aggregate amount up to the Facility Amount (as defined in the Loan Agreement). The Facility Amount for the WF Credit Facility was $150.0 million as of the closing date of the Loan Agreement. The WF Borrowers’ ability to draw under the WF Credit Facility is scheduled to terminate on December 18, 2023. All amounts outstanding under the WF Credit Facility are required to be repaid by December 18, 2025.

Debt obligations under the WF Credit Facility consisted of the following as of September 30, 2022:

	September 30, 2022
	Aggregate Principal Committed		Outstanding Principal		Amount  Available(1)		Net Carrying Value(2)
WF Credit Facility	$	150,000,000	$	126,750,000	$	23,250,000	$	127,234,719
Total debt	$	150,000,000	$	126,750,000	$	23,250,000	$	127,234,719

(1) The amount available reflects any limitations related to the WF Credit Facility’s borrowing base.

(2) The carrying value of the WF Credit Facility is presented net of deferred financing costs of $1.136 million and accrued interest of $1.621 million.

Debt obligations under the WF Credit Facility consisted of the following as of December 31, 2021:

	December 31, 2021
	Aggregate Principal Committed		Outstanding Principal		Amount  Available(1)		Net Carrying Value(2)
WF Credit Facility	$	150,000,000	$	100,000,000	$	50,000,000	$	99,648,200
Total debt	$	150,000,000	$	100,000,000	$	50,000,000	$	99,648,200

(1) The amount available reflects any limitations related to the WF Credit Facility’s borrowing base.

(2) The carrying value of the WF Credit Facility is presented net of deferred financing costs of $1.4 million and accrued interest of $1.048 million.

Average debt outstanding under the WF Credit Facility during the nine months ended September 30, 2022 and September 30, 2021, was $122.3 million and $0, respectively.

The loans under the WF Credit Facility may be Broadly Syndicated Loans or Middle Market Loans and shall be eurocurrency rate loans unless such rate is unavailable, in which case the loans shall be base rate loans until such rate is available. Broadly Syndicated Loans will bear interest at the LIBOR or base rate, as applicable, plus 1.85%, and Middle Market Loans will bear interest at LIBOR or base rate, as applicable, plus 2.35%. The “base rate” will be equal to the highest of (a) the federal funds rate plus 0.50% and (b) the prime rate. The Loan Agreement includes fallback language in the event that LIBOR becomes unavailable. Interest is payable quarterly, as determined by the WFB as the administrative agent. Following the Second Amendment of the WF Credit Facility, the Loan Agreement requires the payment of a non-usage fee of (x) during the first thirteen months following the closing of the WF Credit Facility, 0.50% multiplied by daily unused Facility Amounts, (y) between thirteen and sixteen months following the closing of the WF Credit Facility, 0.50% multiplied by the lesser of (1) daily unused Facility Amounts and (2) 50% of the Facility Amount plus 2.00% multiplied by the greater of (i) the difference between the daily unused Facility Amount and 50% of the Facility Amount and (ii) zero and, (z) thereafter, 0.50% multiplied by the lesser of (1) daily unused Facility Amounts and (2) 20% of the Facility Amount plus 2.00% multiplied by the greater of (i) the difference between the daily unused Facility Amount and 20% of the Facility Amount and (ii) zero. Such fee is payable quarterly in arrears. The WF Credit Facility includes the option to downsize the facility by paying a Commitment Reduction Fee. The Fee is equal to 2.00% of the facility reduction amount prior to the one year anniversary of the closing of the WF Credit Facility, and 1.00% thereafter. The applicable percentage for PS BDC Funding II’s Eligible Loans ranges from 67.5% for Middle Market Loans to 70% for Broadly Syndicated Loans (as each such term is defined in the Loan Agreement).

The WF Credit Facility was not drawn upon for the three months ended September 30, 2021 and no average interest rate applied during that period. For the three and nine months ended September 30, 2022 and September 30, 2021, the components of interest expense with respect to the WF Credit Facility were as follows:

	For the Three Months Ended September 30					For the Nine Months Ended September 30
	2022			2021		2022			2021
Interest expense	$	1,524,071		$	191,667	$	3,228,319		$	568,750
Amortization of debt issuance costs		88,953			51,186		263,959			151,890
Total interest expense	$	1,613,024		$	242,853	$	3,492,278		$	720,640
Average interest rate		4.53	%				3.35	%

PS BDC Funding II has pledged all of its assets to U.S. Bank, in its capacity as Collateral Agent, to secure its obligations under the WF Credit Facility and U.S. Bank acts as the custodian of such assets. Both the Company and PS BDC Funding II have made customary representations and warranties and are required to comply with various covenants, reporting requirements, and other customary requirements for similar credit facilities. Borrowing under the WF Credit Facility is subject to the leverage restrictions contained in the 1940 Act and PS BDC Funding II complies with 1940 Act provisions relating to affiliated transactions and custody. The obligations under the Loan Agreement may be accelerated upon the occurrence of an event of default under the Loan Agreement, including in the event of a change of control of PS BDC Funding II, if the Investment Advisor ceases to serve as investment adviser to the Company, or if Palmer Square or its affiliates cease to directly or indirectly own a majority of the membership interests of the Investment Advisor.