Palmer Square Capital BDC Inc. (PSBD) stock intrinsic value fair value estimate & owner earnings analysis

Palmer Square Capital BDC is a lender that makes floating-rate, first-lien loans to established U.S. (and some European) companies, and also invests in the debt and equity tranches of collateralized loan obligations (CLOs) - pools of similar loans assembled by third parties. It listed on Nasdaq in January 2024 after several years operating as a non-traded fund. Its income comes from the interest spread it earns over its own cost of borrowing, and that income (not accounting gains or losses on the portfolio's market value) is what this analysis treats as the recurring earnings available to shareholders. Credit quality has been good: only three portfolio companies were on non-accrual status at the end of 2025, representing roughly 0.1% of the portfolio at fair value, and there were none at all a year earlier. Interest income per share has come down over the past two years, from $2.26 in 2023 to $1.93 in 2024 to $1.66 in 2025, as the Federal Reserve's rate cuts reduced what the floating-rate loan book earns; the two most recent quarterly reports suggest that decline is leveling off rather than continuing at the same pace. Against that, book value per share has kept falling - from $16.50 at the end of 2024 to $14.85 at the end of 2025 to $13.21 by mid-2026 - a decline that has run for most of the fund's six-year life and is driven by realized and unrealized losses on individual holdings, including at least one currently stressed loan (a healthcare-services borrower where a large share of the interest is being paid in kind rather than cash, a sign the borrower is under strain). This is the key risk: recurring income looks stable for now, but continued credit losses could shrink the pool of assets generating that income. The base case assumes income eases modestly further and then holds near its current level for the long run, reflecting a lending business that keeps doing what it has done - making loans, earning a spread, funding itself within regulatory borrowing limits - without assuming any benefit from raising new capital, since the fund raised no net new equity in 2025. That case is worth about $26 a share. A more cautious case assumes the recent pace of book-value erosion continues for a few more years before leveling off, which is worth about $18 a share; that is the relevant downside if the stressed loan and others like it in the CLO equity tranches (which absorb losses first) produce more write-downs, especially given the fund is only 15 percentage points above the minimum borrowing cushion required by law. A more favorable case assumes credit quality simply stays as good as it has been the last two years, worth about $28. Given the real, ongoing decline in book value even through a period without a broad recession, and the leverage inherent in lending businesses and CLO equity, the margin-of-safety price is set meaningfully below both the cautious and base-case figures - around $14 a share - and assumes credit quality (non-accruals, the borrowing-cushion ratio) has not deteriorated further. One thing we tried to break: whether recent income is genuinely stabilizing rather than still falling. The two most recent quarters (roughly $11.0 million then $12.0 million) do show a sequential increase, which supports treating the decline as easing rather than continuing at its prior pace - but book value fell faster over the same six months than in all of 2025, so the income and book-value signals currently point in different directions, and we have weighted the book-value trend more heavily in the cautious case.