Palmer Square Capital BDC Inc. 10-K

10-K 1 f10k2021_palmersquare.htm ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 000-56126 Palmer Square Capital BDC Inc. (Exact name of registrant as specified in its charter) Maryland 84-3665200 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 1900 Shawnee Mission Parkway, Suite 315, Mission Woods, KS 66205 (Address of Principal Executive Offices) (Zip Code) (816) 994-3200 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered None None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☐ Emerging growth company ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒ There were 22,810,727 issued and outstanding shares of the issuer’s common stock, $.001 par value per share, on March 11, 2022. Documents Incorporated by Reference TABLE OF CONTENTS Page PART I Item 1. Business 1 Item 1A. Risk Factors 28 Item 1B. Unresolved Staff Comments 47 Item 2. Properties 47 Item 3. Legal Proceedings 47 Item 4. Mine Safety Disclosures 47 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 48 Item 6. [Reserved] 49 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 50 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 62 Item 8. Consolidated Financial Statements and Supplementary Data F-1 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 63 Item 9A. Controls and Procedures 63 Item 9B. Other Information 63 PART III Item 10. Directors, Executive Officers and Corporate Governance 64 Item 11. Executive Compensation 67 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 67 Item 13. Certain Relationships and Related Transactions, and Director Independence 69 Item 14. Principal Accounting Fees and Services 71 PART IV Item 15. Exhibits, Consolidated Financial Statements, and Schedules 72 Item 16. Form 10-K Summary 74 SIGNATURES 75 i PART I Unless indicated otherwise in this Annual Report on Form 10-K or the context requires otherwise, the terms: ● “we,” “us,” “our,” and the “Company” refer to Palmer Square Capital BDC Inc.; ● “Palmer Square” or “PSCM” refers collectively to Palmer Square Capital Management LLC and its subsidiaries and other affiliated entities; ● “Investment Advisor” refers to Palmer Square BDC Advisor LLC, a majority-owned subsidiary of Palmer Square and our investment adviser; ● “Administrator” refers to the Investment Advisor, in its capacity as our administrator; and ● “stockholders” refers to holders of our common stock, par value $0.001 per share. Item 1. Business Overview We are a financial services company that primarily lends to and invests in corporate debt securities of companies, including small to large private U.S. companies. We were organized as a Maryland corporation on August 26, 2019 and are structured as an externally managed, non-diversified closed-end management investment company. We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). Beginning with our taxable year ended December 31, 2020, we have elected to be treated as a regulated investment company (a “RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and we expect to qualify as a RIC annually. We are externally managed by the Investment Advisor, an investment adviser that is registered with the Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940 (the “Advisers Act”), pursuant to an investment advisory agreement between us and the Investment Advisor (the “Advisory Agreement”). Subject to the supervision of our Board of Directors (the “Board”), a majority of which is made up of directors that are not “interested persons” as defined in Section 2(a)(19) of the 1940 Act (“Independent Directors”), our Investment Advisor manages our day-to-day operations and provides us with investment advisory and management services and certain administrative services. The Investment Advisor, in its capacity as Administrator, provides the administrative services necessary for us to operate pursuant to an administration agreement between us and the Administrator (the “Administration Agreement”). The Administrator has entered into a sub-administration agreement to delegate certain administrative functions to U.S. Bancorp Fund Services, LLC (the “Sub-Administrator”). Our Investment Advisor is a majority-owned subsidiary of Palmer Square, which is a privately-held firm specializing in corporate and structured credit. Our investment objective is to maximize total return, comprised of current income and capital appreciation. Our current investment focus is guided by two strategies that facilitate our investment opportunities and core competencies: (1) investing in corporate debt securities and, to a lesser extent, (2) investing in collateralized loan obligation (“CLO”) structured credit funds that typically own corporate debt securities, including the equity and junior debt tranches of CLOs. To a limited extent, we may enter into derivatives transactions, which may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates or to earn income and enhance our total returns. We may also receive or purchase warrants or rights to acquire equity or other securities in connection with making a debt investment in a company. We will continue to evaluate other investment strategies in the ordinary course of business with no specific top-down allocation to any single investment strategy. We have two wholly-owned subsidiaries (PS BDC Funding and PS BDC Funding II) that were established in connection with our obtaining credit facilities from third party lenders. The accounts of these subsidiaries are consolidated in the Company’s financial statements. We “look through” such subsidiaries to determine our compliance with the provisions of the 1940 Act, including provisions governing capital structure and leverage. Our Portfolio As of December 31, 2021, we had 240 debt and private fund investments in 212 portfolio companies with an aggregate fair value of approximately $1.1 billion. 1 Listed below are our top ten portfolio companies and industries represented as a percentage of total assets (excluding short-term investments) as of December 31, 2021: Portfolio Company 2021 Vision Solutions, Inc. 1.1 % Inmar, Inc. 1.1 % Idera, Inc. 1.1 % Peraton Corp. 1.0 % Acrisure, LLC 0.9 % Help/Systems Holdings, Inc. 0.9 % Quest Software US Holdings Inc 0.8 % Dotdash Meredith, Inc. 0.8 % Micro Holding Corp. 0.8 % Specialty Building Products Holdings, LLC 0.8 % Industry 2021 Healthcare Providers and Services 10.5 % Software 10.0 % IT Services 9.2 % Professional Services 6.3 % Insurance 5.6 % Media 3.8 % Hotels, Restaurants and Leisure 3.4 % Independent Power and Renewable Electricity Producers 3.1 % Oil, Gas and Consumable Fuels 2.9 % Building Products 2.9 % Listed below are our top ten portfolio companies and industries represented as a percentage of total assets (excluding short-term investments) as of December 31, 2020: Portfolio Company 2020 Playtika Holding Corp. 1.3 % ICH US Intermediate Holdings II, Inc. 1.0 % Bass Pro Group, LLC 0.9 % ECI Software Solutions, Inc. 0.9 % Amentum Government Services Holdings LLC 0.9 % AssuredPartners, Inc. 0.9 % OneDigital Borrower LLC 0.8 % Hamilton Projects Acquiror LLC 0.8 % Ultimate Software Group, The 0.8 % Alera Group Intermediate Holdings, Inc. 0.8 % Industry 2020 Software 12.9 % Healthcare Providers and Services 11.8 % Cash and cash equivalents 8.0 % Insurance 7.6 % Professional Services 4.4 % Media 4.3 % Diversified Financial Services 3.7 % Hotels, Restaurants and Leisure 3.6 % Independent Power and Renewable Electricity Producers 3.1 % Diversified Consumer Services 3.1 % 2 The Investment Advisor The Investment Advisor serves as our investment adviser pursuant to the Advisory Agreement and manages our day-to-day operations and provides us with investment advisory and management services and certain administrative services. The investment team (the “Investment Team”) of our Investment Advisor is responsible for identifying investment opportunities, conducting research and due diligence on prospective investments, structuring our investments and monitoring and servicing our investments. As of December 31, 2021, the Investment Team was comprised of 23 investment professionals, all of whom dedicate a substantial portion of their time to the Company. In addition, the team has five dedicated operations professionals. In addition, the Investment Advisor believes that it has best-in-class support personnel, including expertise in risk management, legal, accounting, tax, information technology and compliance, among others. The Investment Team employs a blend of top-down and bottom-up analysis. The senior members of the Investment Team have been actively involved in the alternative credit investing market for an average of 20 years and have built strong relationships with private equity sponsors, banks and financial intermediaries. The Investment Advisor has an investment committee (the “Investment Committee”) comprised of four members that is responsible for approving all of our investments and is responsible for the day to day management of the portfolio. See “ Item 1. Business—Investment Committee ” below for a discussion of the Investment Committee. The Investment Advisor has entered into a Resource Sharing Agreement (the “Resource Sharing Agreement”) with Palmer Square, pursuant to which Palmer Square provides the Investment Advisor with access to the resources of Palmer Square, including the Investment Team, so as to enable the Investment Advisor to fulfill its obligations under the Advisory Agreement. Through the Resource Sharing Agreement, the Investment Advisor capitalizes on the significant deal origination, credit underwriting, due diligence, investment structuring, execution, portfolio management and monitoring experience of Palmer Square’s investment professionals. Palmer Square Capital Management Palmer Square is a Delaware limited liability company formed in 2009 and had approximately $20.6 billion in assets under management as of December 31, 2021. Palmer Square manages portfolios of both corporate credit and structured credit as well as diverse strategies designed with the intent to achieve high risk-adjusted returns over market cycles. We believe Palmer Square’s experience in analyzing companies and investment structures provides a sustainable competitive advantage over other firms. Palmer Square is 100% management owned and led by Christopher D. Long and Angie K. Long. The firm is an SEC registered investment adviser. 3 Investment Advisory Agreement Subject to the overall supervision of our Board and in accordance with the 1940 Act, the Investment Advisor manages our day-to-day operations and provides investment advisory services to us. Under the terms of the Advisory Agreement, our Investment Advisor: ● determines the composition of our portfolio, the nature and timing of the changes to our portfolio and the manner of implementing such changes; ● identifies, evaluates and negotiates the structure of the investments we make; ● performs due diligence on prospective portfolio companies; ● executes, closes, services and monitors the investments we make; ● determines the securities and other assets that we purchase, retain or sell; and ● provides us with such other investment advisory, research and related services as we may, from time to time, reasonably require for the investment of our funds. Pursuant to the Advisory Agreement, we pay the Investment Advisor a fee for its investment advisory and management services consisting of two components—a base management fee and, subsequent to the listing of the Company’s common stock on a national securities exchange (a “Listing”), an incentive fee. The cost of both the base management fee and, subsequent to a Listing, the incentive fee, is ultimately borne by our stockholders. Base Management Fee In return for providing management services to the Company, the Company pays the Investment Advisor a base management fee, calculated and paid quarterly at an annual rate of 2.00% of the average value of the weighted average (based on the number of shares outstanding each day in the quarter) of the Company’s total net assets at the end of the two most recently completed calendar quarters. The base management fee for any partial quarter will be pro-rated based on the number of days actually elapsed in that quarter relative to the total number of days in such quarter. The Investment Advisor, however, has agreed to waive its right to receive management fees in excess of 1.75% of the total net assets during any period prior to a Listing. If a Listing does not occur, such fee waiver will remain in place through liquidation of the Company. The Investment Advisor will not be permitted to recoup any waived amounts at any time and the waiver may only be modified or terminated prior to a Listing with the approval of the Board. 4 Incentive Fee Pursuant to the Advisory Agreement, the Investment Advisor is not entitled to an incentive fee prior to a Listing. Following a Listing, the Investment Advisor will be entitled to an incentive fee (the “Income Incentive Fee”) based on the Company’s pre-incentive fee net investment income for the then most recently completed calendar quarter, as adjusted downward (but not upward) if over the most recently completed and three preceding calendar quarters aggregate net realized losses on the Company’s investments exceed the Company’s aggregate net investment income over the same period, excluding the most recently completed quarter, as described in more detail below. In this regard, if the Company’s net realized losses over the most recently completed and three preceding calendar quarters are greater than the Company’s net investment income over the same period, excluding the most recently completed quarter, then the pre-incentive fee net income used in the calculation of the Income Incentive Fee would be subject to a downward adjustment. The amount of the adjustment would be equal to the amount by which such net realized losses exceed such net investment income. On the other hand, if the Company’s net investment income over the most recently completed and three preceding calendar quarters is equal to or greater than the Company’s net realized losses over the same period, excluding the most recently completed quarter, then no adjustment to pre-incentive fee net investment income would be made. The Income Incentive Fee will be calculated and payable quarterly in arrears commencing with the first calendar quarter following a Listing. The Company will pay the Investment Advisor an Income Incentive Fee with respect to its “adjusted net investment income” in each calendar quarter as follows: ● no Income Incentive Fee in any calendar quarter in which the Company’s “adjusted net investment income” does not exceed an amount equal to a “hurdle rate” of 1.5% per quarter (6% annualized) of the Company’s total net assets at the end of that quarter (the “Hurdle Amount”); ● 100% of the Company’s “adjusted net investment income” with respect to that portion of such “adjusted net investment income,” if any, that exceeds the Hurdle Amount but is less than or equal to an amount (the “Catch-Up Amount”) determined on a quarterly basis by multiplying 1.6875% by the Company’s total net asset value for the immediately preceding calendar quarter. The Catch-Up Amount is intended to provide the Investment Advisor with an incentive fee of 12.5% on all of the Company’s “adjusted net investment income” when the Company’s “adjusted net investment income” reaches the Catch-Up Amount in any calendar quarter; and ● for any calendar quarter in which the Company’s “adjusted net investment income” exceeds the Catch-Up Amount, the Income Incentive Fee shall equal 12.5% of the amount of the Company’s “adjusted net investment income” for the calendar quarter. “Adjusted net investment income” means the Company’s “pre-incentive fee net investment income” during the then most recently completed calendar quarter minus the difference, if positive, between (i) the Company’s “net realized losses” over the then most recently completed and three preceding calendar quarters (or if shorter, the number of calendar quarters that have occurred since the Listing) and (ii) the Company’s “net investment income” over the three preceding calendar quarters (or if shorter, the number of calendar quarters that have occurred since the Listing). No adjustment (downward or upward) will be made to “pre-incentive fee net investment income” if the difference between clause (i) minus clause (ii) is zero or negative. “Pre-incentive fee net investment income” means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement, and any interest expense and dividends paid on any outstanding preferred stock, but excluding the Income Incentive Fee). “Pre-incentive fee net investment income” includes, in the case of investments with a deferred interest feature such as market discount, original issue discount (“OID”), debt instruments with payment-in-kind (“PIK”) interest, preferred stock with PIK dividends and zero-coupon securities, accrued income that the Company has not yet received in cash. 5 “Net realized losses” in respect of a particular period means the difference, if positive, between (i) the aggregate realized capital losses on the Company’s investments in such period and (ii) the aggregate realized capital gains on the Company’s investments in such period. “Net investment income” in respect of the particular period means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies but excluding fees for providing managerial assistance) accrued during the particular period, minus operating expenses for the particular period (including the base management fee, the Income Incentive Fee, any expenses payable under the Administration Agreement, and any interest expense and dividends paid on any outstanding preferred stock). “Net investment income” includes, in the case of investments with a deferred interest feature such as market discount, OID, debt instruments with PIK interest, preferred stock with PIK dividends and zero-coupon securities, accrued income that the Company has not yet received in cash. The Income Incentive Fee amount, or the calculations pertaining thereto, as appropriate, will be pro-rated for any period less than a full calendar quarter. The following is a graphical representation of the calculation of the Income Incentive Fee based on “adjusted net investment income” that will be in place subsequent to a Listing: 6 Example 1—Income Incentive Fee: Assumptions ● Hurdle rate (1) = 1.5% ● Base management fee (2) = 0.50% ● Other expenses (legal, accounting, custodian, transfer agent, etc.) (3) = 0.20% Alternative 1 Additional Assumptions ● Investment income (including interest, dividends, fees, etc.) = 1.25% ● Pre-incentive fee net investment income (investment income - (base management fee + other expenses)) = 0.55% ● Net realized losses (realized capital losses — realized capital gains) = 0.00% (4) ● Adjusted net investment income (pre-incentive fee net investment income — ([ if positive ] (net realized losses - net investment income))) = 0.55% (5) Adjusted net investment income does not exceed the hurdle rate, therefore there is no Income Incentive Fee. Alternative 2 Additional Assumptions ● Investment income (including interest, dividends, fees, etc.) = 2.30% ● Pre-incentive fee net investment income (investment income - (base management fee + other expenses)) = 1.60% ● Net realized losses (realized capital losses — realized capital gains) = 0.00% (4) ● Adjusted net investment income (pre-incentive fee net investment income — ([ if positive ] (net realized losses - net investment income))) = 1.60% (5) Adjusted net investment income exceeds hurdle rate, therefore there is an Income Incentive Fee. Income Incentive Fee = 100% × “Catch-Up” + the greater of 0% AND (12.5% × (adjusted net investment income — 1.6875%) = (100% × (1.6000% - 1.5000%)) + 0% = 100% × 0.1000% = 0.1000% (1) Represents a quarter of the 6.0% annualized hurdle rate. (2) Represents a quarter of the 2.0% annualized base management fee. (3) Excludes offering expenses. (4) The calculation of “realized capital losses” and “realized capital gains” are amounts over the four calendar quarters immediately preceding the payment date. (5) If the amount of net realized losses over the most recently completed and three calendar quarters preceding the payment date exceeds the amount of net investment income over the same period, excluding the most recently completed quarter, then the amount of adjusted net investment income is reduced by that amount. Otherwise, the amount of adjusted net investment income is not changed. 7 Alternative 3 Additional Assumptions ● Investment income (including interest, dividends, fees, etc.) = 2.70% ● Pre-incentive fee net investment income (investment income - (base management fee + other expenses)) = 2.00% ● Net realized losses (realized capital losses — realized capital gains) = 0.00% (4) ● Adjusted net investment income (pre-incentive fee net investment income — ([ if positive ] (net realized losses - net investment income))) = 2.00% (5) Adjusted net investment income exceeds hurdle rate, therefore there is an Income Incentive Fee. Income Incentive Fee = 100% × “Catch-Up” + the greater of 0% AND (12.5% × (adjusted net investment income - 1.6875%) = (100% × (1.6875% - 1.5000%)) + (12.5% × (2.0000% - 1.6875%)) = 0.1875% + (12.5% × 0.3125%) = 0.1875% + 0.0039% = 0.1914% Alternative 4 Additional Assumptions ● Investment income (including interest, dividends, fees, etc.) = 2.30% ● Pre-incentive fee net investment income (investment income - (base management fee + other expenses)) = 1.60% ● Net realized losses (realized capital losses — realized capital gains) = 9.00% (4) ● Adjusted net investment income (pre-incentive fee net investment income — ([ if positive ] (net realized losses - net investment income))) (5) (6) = 1.60% - (9.00% - 8.00%) = 1.60% - 1.00% = 0.60% Adjusted net investment income does not exceed the hurdle rate, therefore there is no Income Incentive Fee. (4) The calculation of “realized capital losses” and “realized capital gains” are amounts over the four calendar quarters immediately preceding the payment date. (5) If the amount of net realized losses over the most recently completed and three calendar quarters preceding the payment date exceeds the amount of net investment income over the same period, excluding the most recently completed quarter, then the amount of adjusted net investment income is reduced by that amount. Otherwise, the amount of adjusted net investment income is not changed. (6) The example assumes 8.00% net investment income over the three calendar quarters preceding the most recently completed quarter. 8 Payment of Our Expenses All professionals of the Investment Advisor, when and to the extent engaged in providing investment advisory and management services to us, and the compensation and routine overhead expenses of personnel allocable to these services to us, are provided and paid for by the Investment Advisor and not by us. We bear all other out-of-pocket costs and expenses of our operations and transactions. Duration and Termination The Advisory Agreement was approved by the Board on November 13, 2019 for an initial two-year term. Unless terminated earlier as described below, the Advisory Agreement will remain in effect from year to year if approved annually by our Board or by the affirmative vote of the holders of a majority of our outstanding voting securities, and, in either case, if also approved by a majority of our Independent Directors. Our Board most recently determined to re-approve the Advisory Agreement for an additional one-year term ending January 13, 2023 at a meeting held on November 10, 2021. The Advisory Agreement automatically terminates in the event of its assignment, as defined in the 1940 Act, by the Investment Advisor and may be terminated by either party without penalty upon not less than 60 days’ written notice to the other. The holders of a majority of our outstanding voting securities may also terminate the Advisory Agreement without penalty upon 60 days’ written notice. The Advisory Agreement provides that, absent criminal conduct, willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations under the Advisory Agreement, the Investment Advisor and its professionals and any other person or entity affiliated with it are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of our Investment Advisor’s services under the Advisory Agreement or otherwise as our investment adviser. Administration Agreement The Company has entered into the Administration Agreement with the Administrator. Pursuant to the Administration Agreement, the Administrator furnishes office facilities and equipment and provides clerical, bookkeeping, compliance, recordkeeping and other administrative services at such facilities. Under the Administration Agreement, the Administrator performs, or oversees the performance of, required administrative services, which include being responsible for the financial and other records that the Company is required to maintain and preparing reports to stockholders and reports and other materials filed with the SEC. In addition, the Administrator assists the Company in determining and publishing the Company’s net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports and other materials to stockholders, and generally overseeing the payment of expenses and the performance of administrative and professional services rendered to the Company by others. Under the Administration Agreement, the Administrator also provides managerial assistance on the Company’s behalf to those portfolio companies that have accepted the offer to provide such assistance. Under the Administration Agreement, the Company reimburses the Administrator based upon its allocable portion of the Administrator’s overhead (including rent) in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and the Company’s allocable portion of the cost of its officers (including the Company’s Chief Financial Officer and Chief Compliance Officer), and any of their respective staff who provide services to the Company, operations staff who provide services to the Company, and internal audit staff, if any, to the extent internal audit performs a role in the Company’s Sarbanes-Oxley internal control assessment. In addition, if requested to provide managerial assistance to portfolio companies, the Administrator is reimbursed based on the services provided. The Administration Agreement has an initial term of two years and may be renewed with the approval of the Board. Our Board most recently determined to re-approve the Administration Agreement for an additional one-year term ending January 13, 2023 at a meeting held on November 10, 2021. The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party. To the extent that the Administrator outsources any of its functions, the Company pays the fees associated with such functions on a direct basis without any incremental profit to the Administrator. In addition, the Administrator has, pursuant to the Sub-Administration Agreement, engaged the Sub-Administrator to act on behalf of the Company’s Administrator in the performance of certain other administrative services. The Company has also engaged U.S. Bank, National Association or its affiliates (“US Bank”) directly to serve as custodian, transfer agent, distribution paying agent and registrar. 9 Market Opportunity The Investment Team believes that existing market conditions, including those set forth below, have combined to create an attractive investment environment for us: Risk Adjusted Returns . Broadly-syndicated fixed and floating rate loans and corporate debt provides an opportunity set that the Investment Team believes offers an attractive, risk-adjusted return. Specifically, the Investment Team believes it can mitigate risk and achieve our investment objective by: (i) seeking the best relative value, which may equate to buying new loans or other corporate debt issuances at a discount or purchasing in the secondary market, and (ii) seeking to buy loans or other corporate debt issuances that the Investment Team believes have strong fundamentals and low default risk and are capable of withstanding significant downward pricing pressure. Expansion of Corporate Debt Market . The corporate debt market segment on which the Investment Team focuses is industry diverse and large, and includes small to large U.S. companies. In addition, we believe that private equity sponsors have a large pool of uninvested private equity capital. The Investment Team believes private equity firms are poised to deploy meaningful amounts of capital, thus creating ongoing investment opportunities for private lenders such as us. Regulatory Environment and Opportunity for Alternative Lenders . Traditional banks have reduced their lending activities to smaller private companies in recent years and bank stakeholders, including shareholders, lenders and regulators, continue to exert pressure to contain the amount of these types of assets held on bank balance sheets. Examples of this include continued investor focus on the amount of assets whose fair value cannot be determined by using observable measures, or “Level 3 assets,” held on bank balance sheets. As a result, of decreased lending by banks to smaller private companies, the Investment Team believes there are increased opportunities for alternative lenders such as us to fill the void. CLO Equity and Debt . The Investment Team believes that CLO equity and debt has been a tremendous source of returns for investors historically, and has the potential to offer investors high cash on cash returns with low credit risk and low correlation to traditional assets classes. Because CLO securities are floating rate instruments designed to mitigate interest rate sensitivity, investors may not directly suffer the same adverse effects that other asset classes may experience due to rising interest rates. The Investment Team has a strong track record of investing in CLO equity and debt, and believes that CLO investments continue to offer attractive relative value. Financing Arrangements Bank of America Credit Facility On February 18, 2020, the Company, through a special purpose wholly-owned subsidiary, Palmer Square BDC Funding I LLC (“PS BDC Funding” and 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. 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 the London Interbank Offered Rate (“LIBOR”) plus 1.30%. The “base rate” will be equal to the highest of (a) the federal funds rate plus 1/2 of 1%, (b) the prime rate and (c) 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). 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. 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. 10 As of December 31, 2021, we had approximately $552 million principal outstanding and $173 million of available Commitments under the BoA Credit Facility, and PS BDC Funding was in compliance with the applicable covenants in the BoA Credit Facility on such date. 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”), Wells Fargo Bank, National Association as the administrative agent (“WFB”) and U.S. Bank National Association (“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. 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 1/2 of 1% 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). 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. As of December 31, 2021, we had $100 million principal outstanding and $50 million of available Commitments under the WF Credit Facility, and PS BDC Funding II was in compliance with the applicable covenants in the WF Credit Facility on such date. Investment Criteria for Evaluating Investment Opportunities The Company’s investment objective is to maximize total return, comprised of current income and capital appreciation. However, no assurance can be given that the Company’s investment objective will be achieved, and investment results may vary substantially on a monthly, quarterly and annual basis. The Investment Advisor believes that the Company’s investment objective can be achieved by primarily investing in first and second lien secured loans of small to large private U.S. companies, and to a lesser extent CLO structured credit funds that typically own senior secured bank loans of public and private companies. First and second lien secured loans generally are senior debt instruments that rank ahead of unsecured debt of a given portfolio company. These loans also have the benefit of security interests on the assets of the portfolio company, which may rank ahead of or be junior to other security interests. A significant portion of the loans in which the Company may invest or obtain exposure to through its investments in structured securities may be deemed “Covenant-Lite Loans,” which means the loans contain fewer or no maintenance covenants than other loans and do not include terms which allow the lender to monitor the performance of the borrower and declare a default if certain criteria are breached. See “ Item 1A. Risk Factors—Risks Related to our Investments—Covenant-Lite Loans ” below. 11 We seek to maximize returns and minimize risk for our investors by applying detailed, fundamental credit analysis to make and monitor our portfolio investments. While the structure of our investments may vary, the Company can invest in senior secured debt, senior unsecured debt, subordinated secured debt, subordinated unsecured debt, convertible debt, convertible preferred equity, preferred equity, common equity, warrants and other instruments, many of which generate current yield. Structurally, CLOs are entities that are formed to hold a portfolio of senior secured loans made to companies whose debt is generally rated below investment grade or, in limited circumstances, unrated. The senior secured loans within a CLO are limited to senior secured loans which meet specified credit and diversity criteria and are subject to concentration limitations in order to create an investment portfolio that is diverse by senior secured loan, borrower, and industry, with limitations on the number of non-U.S. borrowers. In addition, to a lesser extent, portfolio investments may also include, but are not limited to, corporate structured credit, cash and synthetic CLOs, collateralized debt obligations (each, a “CDO”), swaps, asset backed securities, corporate bonds of large U.S. and non-U.S. companies, corporate bank loans, preferred stock, municipal bonds or loans and convertible securities. The Company seeks to invest in credit and other assets that the Investment Advisor believes have strong structural protections, limited downside, and low long-term beta to the broader credit and equity markets. While not our primary investment objective, our investments may include other equity investments, such as warrants, options to buy a minority interest in a portfolio company, or contractual payment rights or rights to receive a proportional interest in the operating cash flow or net income of such company. When determined by the Investment Advisor to be in our best interest, we may acquire a controlling interest in a portfolio company. Any warrants we receive with our debt securities may require only a nominal cost to exercise, and thus, as a portfolio company appreciates in value, we may achieve additional investment return from this equity interest. Our Investment Advisor may sell all or a portion of a position of the Company’s portfolio holdings when, in its opinion, one or more of the following occurs, among other reasons: (1) the deterioration of an issuer’s fundamentals; (2) changes in business strategy or key personnel; (3) rating agency downgrades or a decline in credit quality metrics; or (4) the Investment Advisor finds more attractive investment opportunities for the Company. The Investment Advisor has the ability to invest in both illiquid and less liquid securities. The Investment Advisor may employ leverage, including through borrowing funds or issuing senior securities, and use derivatives, both for hedging purposes and to earn income and enhance total returns. The Investment Advisor may employ techniques to hedge investment risk, including without limitation, the use of forward contracts, currency options and interest rate swaps, caps, collars and floors. The Investment Advisor may use derivatives to earn income and enhance total returns by investing in derivatives securities and monitoring such investments to ensure that each holding is maintaining its investment potential. Investment Approach We seek to achieve our investment objective by applying rigorous credit analysis and asset-based and cash-flow based lending techniques to make and monitor our investments. We are routinely pursuing multiple investment opportunities, including primary and secondary purchases of securities. The Investment Advisor employs a blend of top-down and bottom-up analysis. The top-down approach has three components: (1) macro analysis whereby the Investment Team undertakes frequent dialogues among its team members regarding macro items including the economic outlook, financial and credit markets, new and secondary issues, regulatory changes, M&A environment, and valuation levels; (2) cross-asset relative value analysis which consists of the Investment Team analyzing various asset classes across the credit spectrum for strong relative value opportunities (e.g., analysis of valuation metrics across loans, bonds, convertibles, CLOs and mortgage credits to identify and monitor optimal risk / reward opportunities); and (3) active monitoring by the Investment Team of the major sectors within corporate credit, such as software and technology, healthcare and business services. With regard to the bottom-up analysis, the Investment Team undertakes frequent dialogue discussing key analyses including items such as determining an issuer’s ability to service debt, measuring past performance and understanding the approach of the management team and their ability to meet goals, deal structure model analysis, document analysis and other financial modeling and scenario testing. Finally, the bottom-up analysis includes specific analysis. For example, within the credit spectrum, the team also seeks to evaluate many trade specifics including liquidity, position size, upside/downside, and relative versus absolute value. 12 We believe our vast experience in analyzing and investing in corporate and structured credit provides us with a strong competitive advantage over other lenders with more limited experience investing in these markets. The Investment Advisor has deep expertise in evaluating, underwriting, monitoring and trading senior secured first lien, second lien term loans and other corporate debt securities. In addition, the Investment Advisor also has deep expertise in evaluating the investment merits and structural considerations of CLO debt and equity investments. Our capital is generally used by our corporate borrowers to finance organic growth, acquisitions, recapitalizations and working capital. Our investment decisions are based on extensive analysis of potential portfolio companies’ business operations supported by an in-depth understanding of the quality of their recurring revenues and cash flow, variability of costs and the inherent value of their assets, including proprietary intangible assets and intellectual property. In making our CLO investments, we consider the indenture structure for that vehicle, its operating characteristics and compliance with its various indenture provisions, the collateral manager and its experience managing CLOs, as well as its corporate loan-based collateral pool. The Investment Advisor believes it can mitigate risk by: (i) seeking the best relative value, which may equate to buying new loans and CLO debt and equity in the primary market at a discount or purchasing in the secondary market, and (ii) seeking to buy loans and CLO debt and equity that the Investment Advisor believes have strong fundamentals and low default risk capable of withstanding significant downward pricing pressure. Investment Process – Senior Secured Loans The Investment Advisor’s senior secured loan investment strategy has been consistent throughout multiple credit environments and is predicated on the view that a conservative approach to investing in first lien and second lien senior secured loans is the optimal strategy over the course of a credit cycle. Given the idiosyncratic nature of secured loans, our Investment Team focuses on downside protection and overall credit quality when evaluating each and every loan borrower. The Investment Team evaluates many factors during the due diligence phase, including: company-specific risk, industry risk, balance sheet risk, cash flow generation, liquidity of the loan, in addition to other factors. The aggregate output of this information provides a building block for deeper financial analysis, including base-case financial projections, and more importantly, downside-case financial projections. Once the initial research process is completed, the Investment Team makes an informed decision on the quality of a particular loan and whether or not it meets our strict criteria for investment. Corporate credit analysts at the Investment Advisor are each responsible for coverage of specific industries. Our Investment Advisor believes that in order to appropriately analyze and underwrite senior secured loans, each analyst has to be an expert in their respective industry verticals. As a result, the Investment Advisor’s corporate credit analysts average over 12 years of experience in broadly syndicated and small to large company credit. As it relates to the due diligence process, each analyst draws not only on their personal analytical skillset, but also utilize their networks within the industry. This can include calls and visits with existing company management teams, former industry CEOs, industry experts, private equity sponsors and industry investment bankers. The aggregate of this initial information gathering then lays the groundwork for fundamental financial analysis and detailed financial modeling, whereby the credit analyst constructs a base case and downside case set of projections. At the conclusion of the due diligence process, the credit analyst presents a formal investment memorandum to the entire Investment Team, which includes the Investment Committee (which averages over 20 years of credit investing experience) and all industry credit analysts. Our Investment Advisor views this part of our process as unique across credit investment firms but believes that this more fulsome and collaborative process leads to better investment decisions. Ultimately the Investment Committee needs to have a unanimous vote in order to approve any of our investments, working in collaboration with our Chief Investment Officer and the Investment Advisor’s loan portfolio manager to size the position appropriately for the risk. 13 Of equal importance, the monitoring phase of each loan investment is critical to the ultimate success of the loan position. Detailed quarterly writeups and model updates are done for each credit after they report earnings. However, the monitoring process is not just a quarterly event as credit analysts are digesting daily information and news regarding our borrowers, their industries and their competitors. Investment Process – CLO Debt and Equity The Investment Advisor’s CLO debt and equity investment strategy has also been consistent throughout multiple credit environments and is focused on three main areas: structure and documentation of the CLO, the underlying portfolio of the CLO, and the collateral manager of the CLO. The structures of CLOs have become more robust since the pre-financial crisis era, with subordination of each rated tranche essentially improving by one rating category (i.e., a current BBB-rated tranche may have similar credit support from a subordination perspective as a pre-financial crisis A-rated tranche). CLO equity leverage is also lower from the pre-financial crisis era, with the equity tranche now representing approximately 9-10% of current structures versus approximately 7% in pre-crisis structures. The Investment Advisor believes that no two CLO structures are identical, thus it is critical to analyze the nuances of each structure and the underlying documentation. For example, CLOs with higher overcollateralization cushions can help protect CLO equity from future cash diversion in a stressed scenario. From a documentation standpoint, while post-financial crisis documents are more standardized, our Investment Team works to understand the nuances of each CLO, such as optional redemption rights, collateral quality limitations, reinvestment language optionality, and the ability to flush excess par to the equity holders. A second critical aspect of the CLO investment process is the Investment Advisor’s focus on the overall portfolio characteristics and underlying loans within a CLO. From a top-down perspective we focus on the weighted-average rating factor (“WARF”), diversity, spread, loan bid depth, facility size, rating distribution and price distribution of the entire portfolio. For example, two portfolios with a weighted-average price of $98.00 may have very different overall portfolio characteristics, such as a higher concentration in lower-rated loans, which could lead to issues during a downgrade cycle. In addition, given our strong corporate credit investment team, we focus on the individual names of the underlying portfolio, with great focus on any loans we perceive to have heightened credit risk. The collateral manager of the CLO is the third aspect the Investment Advisor spends a significant amount of its due diligence effort analyzing. The Investment Advisor tracks data compiled from third-party sources such as Intex, Moody’s Analytics and Bloomberg, as well as proprietary internal systems to create a detailed analysis of the CLO collateral manager universe. This process leads to rankings of collateral managers based on all of these criteria. In addition to the analytical and statistical process, the Investment Advisor also performs due diligence on collateral managers via in-person meetings and via telephone calls. Our goal is to meet the collateral managers we invest in at least twice per year. Investment Process – ESG Integration We believe that integrating environmental, social and corporate governance (“ESG”) criteria should be an important component of our investment philosophy and process. Effective March 1, 2021, we have implemented policies and procedures to screen for ESG criteria in our potential investments, and our Investment Committee is responsible for monitoring our investments to ensure that our ESG guidelines are met. Our ESG guidelines state that we will not directly purchase any “Prohibited ESG Security.” We define a “Prohibited ESG Security” as any debt obligation of, equity interest in, or credit default swap referencing a company where the consolidated group is a group whose Primary Business Activity (as defined below) at the time of purchase is: (i) the speculative extraction of oil and gas (commonly referred to as exploration and production); (ii) the speculative extraction of thermal coal or the generation of electricity using coal; (iii) the production of or trade in Controversial Weapons (as defined below); (iv) the production of or trade in components or services that have been specifically designed or designated for military purposes for the functioning of Controversial Weapons; or (v) the trade in (a) hazardous chemicals, pesticides and wastes, ozone depleting substances, endangered or protected wildlife or wildlife products, of which production or trade is banned by applicable global conventions and agreements; (b) pornography or prostitution; (c) tobacco or tobacco-related products; (d) subprime lending or payday lending activities; or (e) weapons or firearms. We define “Controversial Weapons” as any controversial weapons (such as cluster bombs, anti-personnel mines, chemical or biological weapons) which are prohibited under applicable international treaties or conventions. We define “Primary Business Activity” as, in relation to a consolidated group of companies, for the purposes of determining whether a security is a Prohibited ESG Security, where such group derives more than 50 percent of its revenues for the relevant business, trade or production (as applicable). Following its effectiveness on March 1, 2021, our ESG guidelines are followed by our Investment Committee on a go-forward basis, and certain of our investments held prior to March 1, 2021, including as set forth in the schedule of investments herein or in our prior quarterly reports on Form 10-Q and annual reports on Form 10-K, may not have satisfied our newly adopted ESG guidelines. Our Investment Committee is responsible for the execution and continued progress of integration of ESG criteria into our investment strategy, and will support efforts to collaborate with our investors and others in the investment industry to assess and prioritize the ESG topics that are most relevant to the Company and our investors. 14 Investment Committee The Investment Advisor’s Investment Committee is chaired by Angie K. Long, and the other members of the Investment Committee are Christopher D. Long, Matthew L. Bloomfield and Jeffrey D. Fox. The members of the Investment Committee are jointly responsible for the day to day management of the portfolio, and have equal rights with respect to the management of the portfolio. The extensive experience of the investment professionals serving on our Investment Committee includes expertise in privately originated and publicly traded leveraged credit, stressed and distressed debt, bankruptcy, mergers and acquisitions and private equity. This diverse skill set provides a range of perspectives in the evaluation of each investment opportunity. Competition Our primary competitors in investing in corporate debt and CLO securities include public and private funds, other business development companies, commercial and investment banks, commercial financing companies and, to the extent they provide an alternative form of financing, private equity and hedge funds. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, we believe some competitors may have access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or to the distribution and other requirements we must satisfy as a RIC. We use the expertise of the investment professionals of Palmer Square to which we have access pursuant to the Resource Sharing Agreement to assess investment risks and determine appropriate pricing for our investments in portfolio companies. In addition, we seek to use the relationships of the Investment Advisor to enable us to learn about, and compete effectively for, financing opportunities with attractive small to large private companies in the industries in which we seek to invest. For additional information concerning the competitive risks we face, see “ Item 1A. Risk Factors—Risks Relating to our Business and Structure—Operation in a Highly Competitive Market for Investment Opportunities .” Expenses Our primary operating expenses include the payment of fees to the Investment Advisor under the Advisory Agreement, our allocable portion of overhead and rental expenses under the Administration Agreement and other operating costs described below. We bear all other out-of-pocket costs and expenses of our operations and transactions, including: ● interest expense and other costs associated with our indebtedness; ● the cost of calculating our net asset value, including the cost of any third-party valuation services; ● the cost of effecting sales and repurchases of shares of our common stock and other securities; ● fees payable to third parties relating to making investments, including our Investment Advisor’s or its affiliates’ travel expenses, research costs and out-of-pocket fees and expenses associated with performing due diligence and reviews of prospective investments; ● transfer agent and custodial fees; ● operating costs incurred prior to the commencement of our operations; ● out-of-pocket fees and expenses associated with marketing efforts; ● federal and state registration fees and any stock exchange listing fees; ● U.S. federal, state and local taxes; ● Independent Directors’ fees and expenses; 15 ● brokerage commissions and markups; ● fidelity bond, directors’ and officers’ liability insurance and other insurance premiums; ● direct costs, such as printing, mailing, long distance telephone and staff; ● fees and expenses associated with independent audits and outside legal costs; ● costs associated with our reporting and compliance obligations under the 1940 Act and other applicable U.S. federal and state securities laws; and ● other expenses incurred by the Administrator or us in connection with administering our business, including payments under the Administration Agreement that will be based upon our allocable portion (subject to the review and approval of our Board) of overhead, including rental expenses. Employees We do not currently have any employees. Each officer of the Company is an employee of the Investment Advisor or its affiliates. See “ Item 10. Directors, Executive Officers, and Corporate Governance. ” Our day-to-day investment operations are managed by the Investment Advisor. Pursuant to its Resource Sharing Agreement with Palmer Square, the Investment Advisor has access to the individuals who comprise our Investment Advisor’s Investment Committee and Investment Team. The Investment Advisor may hire additional investment professionals to provide services to us, based upon its needs. See above “ Item 1. Business — The Investment Advisor .” Regulation as a Business Development Company We have elected to be regulated as a BDC under the 1940 Act. A BDC must be organized in the United States for the purpose of investing in or lending to primarily private companies and making significant managerial assistance available to them. We may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC unless authorized by vote of a majority of the outstanding voting securities, as required by the 1940 Act. A majority of the outstanding voting securities of a company is defined under the 1940 Act as the lesser of: (a) 67% or more of such company’s voting securities present at a meeting if more than 50% of the outstanding voting securities of such company are present or represented by proxy, or (b) more than 50% of the outstanding voting securities of such company. As with other companies regulated by the 1940 Act, a BDC must adhere to certain substantive regulatory requirements. A majority of our directors must be persons who are not interested persons, as that term is defined in the 1940 Act. Additionally, we are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect the BDC. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office. We are required to meet an asset coverage ratio, defined under the 1940 Act as the ratio of our total assets (less all liabilities and indebtedness not represented by senior securities) to our outstanding senior securities, of at least 150% after each issuance of senior securities. We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our directors who are not interested persons, as defined in Section 2(a)(19) of the 1940 Act, and, in some cases, prior approval by the SEC. As a BDC, we are limited in our ability to invest in any portfolio company in which our Investment Advisor or any of its affiliates currently has an investment or to make any co-investments with our Investment Advisor or its affiliates without an exemptive order from the SEC, subject to certain exceptions. 16 We do not intend to acquire securities issued by any investment company that exceed the limits imposed by the 1940 Act. Under these limits, except for registered money market funds, we generally cannot acquire more than 3% of the voting stock of any investment company, invest more than 5% of the value of our total assets in the securities of one investment company or invest more than 10% of the value of our total assets in the securities of investment companies in the aggregate. The portion of our portfolio invested in securities issued by investment companies ordinarily will subject our stockholders to additional expenses. Our investment portfolio is also subject to diversification requirements by virtue of our qualification as a RIC for U.S. tax purposes and our intention to continue to operate in a manner so as to qualify for the tax treatment applicable to RICs. We will generally not be able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if our Board determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders approve such sale. We will comply with the conditions set forth in Section 63(2) of the 1940 Act when selling our common stock at a price below net asset value. In addition, we may generally issue new shares of our common stock at a price below net asset value in rights offerings to existing stockholders, in payment of dividends and in certain other limited circumstances. We will be periodically examined by the SEC for compliance with the 1940 Act. Qualifying Assets Under the 1940 Act, a BDC may not acquire any assets other than assets of the type listed in section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s total assets. The principal categories of qualifying assets relevant to our business are the following: ● Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which: ● is organized under the laws of, and has its principal place of business in, the United States; ● is not an investment company (other than a small business investment company wholly owned by the Company) or a company that would be an investment company but for certain exclusions under the 1940 Act; and ● satisfies any of the following: ● does not have any class of securities that is traded on a national securities exchange; ● has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non- voting common equity of less than $250 million; ● is controlled by a business development company or a group of companies including a business development company and the business development company has an affiliated person who is a director of the eligible portfolio company; or ● is a small and solvent company having total assets of not more than $4.0 million and capital and surplus of not less than $2.0 million. 17 ● Securities of any eligible portfolio company that we control. ● Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements. ● Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company. ● Securities received in exchange for or distributed on or with respect to securities described above, or pursuant to the exercise of warrants or rights relating to such securities. ● Cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment. Limitations on Leverage We are required to meet an asset coverage ratio, defined under the 1940 Act as the ratio of our total assets (less all liabilities and indebtedness not represented by senior securities) to our outstanding senior securities, of at least 150% after each issuance of senior securities. Managerial Assistance to Portfolio Companies A BDC must be operated for the purpose of making investments in the types of securities described under “ —Regulation as a Business Development Company—Qualifying Assets ,” above. However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the BDC must either control the issuer of the securities or must offer to make available to the issuer of the securities significant managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does in fact provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company. Temporary Investments Pending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S. Government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, such that at least 70% of our assets are qualifying assets. Senior Securities We are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 150% immediately after each such issuance. In addition, while any senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage. 18 Code of Ethics We and our Investment Advisor have adopted codes of ethics pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, respectively, that establish procedures for personal investments and restrict certain transactions by our personnel. The codes of ethics generally do not permit investments by our employees or employees of our Investment Advisor in securities that may be purchased or held by us. We hereby undertake to provide a copy of the codes to any person, without charge, upon request. Requests for a copy of the codes may be made in writing addressed to Palmer Square Capital BDC Inc., Attention: Secretary, 1900 Shawnee Mission Parkway, Suite 315, Mission Woods, Kansas 66205, or by emailing us at: investorrelations@palmersquarecap.com. Compliance Policies and Procedures We and our Investment Advisor have adopted and implemented written policies and procedures reasonably designed to detect and prevent violation of the federal securities laws and are required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation and designate a chief compliance officer to be responsible for administering the policies and procedures. Exchange Act and Sarbanes-Oxley Act Compliance The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) imposes a wide variety of regulatory requirements on certain publicly held companies and their insiders. Assuming certain requirements are met, many of these requirements affect us. For example: ● pursuant to Rule 13a-14 of the Exchange Act, our chief executive officer and chief financial officer are required to certify the accuracy of the consolidated financial statements contained in our periodic reports; ● pursuant to Item 307 of Regulation S-K, our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls and procedures; ● pursuant to Rule 13a-15 of the Exchange Act, subject to certain assumptions, our management is required to prepare an annual report regarding its assessment of our internal control over financial reporting and, depending on our accelerated filer status, this report may be required to be audited by our independent registered public accounting firm; and ● pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the Exchange Act, our periodic reports must disclose whether there were material changes in our internal control over financial reporting or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. The Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated thereunder. We continue to monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith. Proxy Voting Policies and Procedures We have delegated our proxy voting responsibility to our Investment Advisor. The Proxy Voting Policies and Procedures of our Investment Advisor are set forth below. The guidelines are reviewed periodically by our Investment Advisor and our Independent Directors, and, accordingly, are subject to change. 19 An investment adviser registered under the Advisers Act has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, our Investment Advisor recognizes that it must vote client securities in a timely manner free of conflicts of interest and in the best interests of its clients. These policies and procedures for voting proxies for our Investment Advisor’s investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act. Our Investment Advisor intends to vote proxies relating to our securities in the best interest of the Company’s stockholders. It reviews on a case-by-case basis each proposal submitted for a stockholder vote to determine its impact on the portfolio securities held by the Company. Although our Investment Advisor will generally vote against proposals that may have a negative impact on the Company’s portfolio securities, it may vote for such a proposal if there exists compelling long-term reasons to do so. The proxy voting decisions of our Investment Advisor are made by the senior officers who are responsible for monitoring each of the Company’s investments. To ensure that its vote is not the product of a conflict of interest, it will require that: (a) anyone involved in the decision-making process disclose to its chief compliance officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (b) employees involved in the decision making process or vote administration are prohibited from revealing how our Investment Advisor intends to vote on a proposal in order to reduce any attempted influence from interested parties. You may obtain information without charge about how our Investment Advisor voted proxies by making a written request for proxy voting information to: Palmer Square Capital BDC Inc., 1900 Shawnee Mission Parkway, Suite 315, Mission Woods, Kansas 66205, Attention: Investor Relations. Privacy Principles The Company looks to protect nonpublic personal data. The Company’s privacy policy summarized below is intended to be compliant with the federal and state regulations as applied to the Company. From time to time nonpublic personal information of our stockholders may be collected as required for legitimate business purposes. The Company may share all of the information that we collect with our Investment Advisor and its affiliates in order to service stockholder accounts or provide stockholders with information about other products and services offered by the Company or the Investment Advisor or its affiliates that may be of interest to them. In addition, the Company may disclose all of the information that it collects about stockholders to certain third parties who are not affiliated with the Company or the Investment Advisor or its affiliates under one or more of the following circumstances: 1. As Authorized — if a stockholder requests or authorizes disclosure of the information. 2. As Required by Law — for example, to cooperate with regulators or law enforcement authorities. 3. As Permitted by Law — for example, sharing information with companies that maintain, process or service Company or stockholder accounts or financial products and services or who effect, administer or enforce Company or stockholder transactions is permitted. Among other activities, the Company and its Investment Advisor and its affiliates may share information with persons acting in a representative or fiduciary capacity on the Company’s or a stockholder’s behalf. The Company believes that sharing of information for these purposes is essential to providing stockholders with necessary or useful services with respect to their accounts. The Company and the Investment Advisor and its affiliates restrict access to nonpublic personal information about stockholders internally to those of their respective employees and agents who need to know the information to enable them to provide services to the stockholders. The Company and the Investment Advisor and its affiliates maintain physical, electronic and procedural safeguards to guard stockholder’s nonpublic personal information. 20 Reporting Obligations We are a reporting company under the Exchange Act and are required to comply with all periodic reporting, proxy solicitation and other applicable requirements under the Exchange Act. We will furnish our stockholders with annual reports containing audited consolidated financial statements, quarterly reports, and such other periodic reports as we determine to be appropriate or as may be required by law. As a BDC, we are required to file quarterly reports on Form 10-Q, annual reports on Form 10-K and current reports on Form 8-K with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements and other information filed electronically by us with the SEC which is available on the SEC’s Internet site at http://www.sec.gov. Certain U.S. Federal Income Tax Considerations The following discussion is a general summary of the material U.S. federal income tax considerations applicable to us and to an investment in our shares. This summary does not purport to be a complete description of the income tax considerations applicable to such an investment. For example, we have not described tax consequences that may be relevant to certain types of holders subject to special treatment under U.S. federal income tax laws, including stockholders subject to the alternative minimum tax, tax-exempt organizations, insurance companies, dealers in securities, pension plans and trusts, financial institutions, partnerships and other pass- through entities, U.S. stockholders (as defined below) whose functional currency is not the U.S. dollar, persons who mark-to-market our shares and persons who hold our shares as part of a “straddle,” “hedge” or “conversion” transaction. This summary assumes that investors hold our common stock as capital assets (within the meaning of the Code). The discussion is based upon the Code, Treasury regulations, and administrative and judicial interpretations, each as of the date hereof and all of which are subject to change, possibly retroactively, which could affect the continuing validity of this discussion. We have not sought and will not seek any ruling from the Internal Revenue Service (the “IRS”) regarding any matter discussed herein. Tax counsel has not rendered any legal opinion regarding any tax consequences relating to us or our stockholders. This summary does not discuss any aspects of U.S. estate or gift tax or foreign, state or local tax. It does not discuss the special treatment under U.S. federal income tax laws that could result if we invested in tax-exempt securities or certain other investment assets. For purposes of this discussion, a “U.S. stockholder” generally is a beneficial owner of shares of our common stock who is for U.S. federal income tax purposes: ● a citizen or individual resident of the United States; ● a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any political subdivision thereof; ● a trust if (a) a court in the United States has primary supervision over its administration and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person for federal income tax purposes; or ● an estate, the income of which is subject to U.S. federal income taxation regardless of its source. A “Non-U.S. stockholder” generally is a beneficial owner of shares of our common stock that is not a U.S. stockholder. If a partnership (including an entity treated as a partnership for U.S. federal income tax purposes) holds shares of our common stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A prospective stockholder that is a partner in a partnership holding shares of our common stock should consult his, her or its tax advisers with respect to the purchase, ownership and disposition of shares of our common stock. 21 Tax matters are complicated and the tax consequences to an investor of an investment in our shares will depend on the facts of the investor’s particular situation. We encourage investors to consult their own tax advisers regarding the specific consequences of such an investment, including tax reporting requirements, the applicability of federal, state, local and foreign tax laws, including the potential application of U.S. withholding taxes, eligibility for the benefits of any applicable tax treaty and the effect of any possible changes in the tax laws. Election to be Taxed as a RIC As a BDC, we have elected, and intend to qualify annually, as a RIC under Subchapter M of the Code, beginning with our initial taxable year ending December 31, 2020. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any income that we distribute to our stockholders from our earnings and profits. To qualify for and maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, to obtain RIC tax treatment, we must timely distribute to our stockholders, for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses (the “Annual Distribution Requirement”). Taxation as a RIC If we: ● qualify as a RIC; and ● satisfy the Annual Distribution Requirement, then we will not be subject to U.S. federal income tax on the portion of our investment company taxable income and net capital gain (generally defined as net long-term capital gains in excess of short-term capital losses) we distribute (or are deemed to distribute) to stockholders. We will be subject to U.S. federal income tax at regular corporate rates on any net income or net capital gain not distributed (or deemed distributed) to our stockholders. We will be subject to a nondeductible U.S. federal excise tax of 4% on certain undistributed income unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our net ordinary income for each calendar year, (2) 98.2% of our capital gain net income for the one-year period ending October 31 of that calendar year and (3) any income realized, but not distributed, in preceding years and on which we paid no federal income tax (“Excise Tax Distribution Requirement”). To qualify as a RIC for federal income tax purposes, we must, among other things: ● continue to qualify to be treated as a BDC under the 1940 Act at all times during each taxable year; ● derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities, loans, gains from the sale of stock or other securities, net income from certain “qualified publicly-traded partnerships,” or other income derived with respect to our business of investing in such stock or securities the (“90% Income Test”); and ● diversify our holdings so that at the end of each quarter of the taxable year: (i) at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of such issuer; and (ii) no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or in the securities of one or more “qualified publicly-traded partnerships,” (the “Diversification Tests”). 22 To the extent that we invest in entities treated as partnerships for U.S. federal income tax purposes (other than a “qualified publicly traded partnership”), we generally must include the items of gross income derived by the partnerships for purposes of the 90% Income Test, and the income that is derived from a partnership (other than a “qualified publicly traded partnership”) will be treated as qualifying income for purposes of the 90% Income Test only to the extent that such income is attributable to items of income of the partnership which would be qualifying income if realized by us directly. In addition, we generally must take into account our proportionate share of the assets held by partnerships in which we are a partner (other than a “qualified publicly traded partnership”) for purposes of the Diversification Tests. For federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with PIK interest or, in certain cases, increasing interest rates or debt instruments that were issued with warrants), we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock. We anticipate that a portion of our income may constitute original issue discount or other income required to be included in taxable income prior to receipt of cash. Further, we may elect to amortize market discount and include such amounts in our taxable income in the current year, instead of upon disposition, as an election not to do so may limit our ability to deduct interest expenses for tax purposes, which is subject to other limitations under U.S. federal income tax law. We intend to invest a portion of our net assets in below investment grade instruments (rated lower than “Baa3” by Moody’s Investors Service or lower than “BBB-” by Standard & Poor’s Corporation), which are often referred to as “junk” bonds. Investments in these types of instruments may present special tax issues for us. U.S. federal income tax rules are not entirely clear about issues such as when we may cease to accrue interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless instruments, how payments received on obligations in default should be allocated between principal and income and whether exchanges of debt obligations in a bankruptcy or workout context are taxable. We will address these and other issues to the extent necessary to seek to ensure that we distribute sufficient income so that we do not become subject to U.S. federal income or excise tax. Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount. As a result, we may have difficulty meeting the Annual Distribution Requirement necessary to qualify for and maintain RIC tax treatment under Subchapter M of the Code. We may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax. Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets to satisfy distribution requirements. However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. See “Regulation as a Business Development Company — Senior Securities.” Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the Diversification Tests. If we dispose of assets to meet the Annual Distribution Requirement or the Excise Tax Distribution Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous. 23 Failure to Qualify as a RIC If we were unable to qualify for treatment as a RIC, we would be subject to tax on all of our taxable income at regular corporate rates, regardless of whether we make any distributions to our stockholders. Distributions would not be required, and any distributions would be taxable to our stockholders as ordinary dividend income to the extent of our current and accumulated earnings and profits. Subject to certain limitations in the Code, such distributions may be eligible for the preferential maximum rate applicable to qualified dividend income of individual stockholders to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code, corporate distributees may be eligible for a dividends-received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain. To requalify as a RIC in a subsequent taxable year, we would be required to satisfy the RIC qualification requirements for that year and dispose of any earnings and profits from any year in which we failed to qualify as a RIC. Subject to a limited exception applicable to RICs that qualified as such under the Code for at least one year prior to disqualification and that requalify as a RIC no later than the second year following the nonqualifying year, we would be subject to tax on any unrealized net built-in gains in the assets held by us during the period in which we failed to qualify as a RIC that are recognized within the subsequent 5 years, unless we made a special election to pay corporate-level U.S. federal income tax on such built-in gains at the time of our requalification as a RIC. The remainder of this discussion assumes that we qualify as a RIC and satisfy the Annual Distribution Requirement. Taxation of U.S. Stockholders Distributions by us generally are taxable to U.S. stockholders as ordinary income or capital gains. Distributions of our “investment company taxable income” (which is, generally, our net ordinary income plus realized net short-term capital gains in excess of realized net long-term capital losses) will be taxable as ordinary income to U.S. stockholders to the extent of our current or accumulated earnings and profits, whether paid in cash or reinvested in additional common stock. To the extent such distributions paid by us to non-corporate stockholders (including individuals) are attributable to dividends from U.S. corporations and certain qualified foreign corporations, such distributions (“Qualifying Dividends”) may be eligible for a maximum tax rate of 20%, provided that we properly report such distribution as “qualifying dividend income” in a written statement furnished to our stockholders and certain holding period and other requirements are satisfied. In this regard, it is not anticipated that a significant portion of distributions paid by us will be attributable to qualifying dividends; therefore, our distributions generally will not qualify for the preferential maximum rate applicable to Qualifying Dividends. Distributions of our net capital gain (which is generally our realized net long-term capital gains in excess of realized net short-term capital losses) properly designated by us as “capital gain dividends” will be taxable to a U.S. stockholder as long-term capital gains that are currently generally taxable at a maximum rate of 20% in the case of individuals, trusts or estates, regardless of the U.S. stockholder’s holding period for his, her or its common stock and regardless of whether paid in cash or reinvested in additional common stock. Distributions in excess of our earnings and profits first will reduce a U.S. stockholder’s adjusted tax basis in such stockholder’s common stock and, after the adjusted basis is reduced to zero, will constitute capital gains to such U.S. stockholder. Although we currently intend to distribute any long-term capital gain at least annually, we may in the future decide to retain some or all of our long-term capital gain, but designate the retained amount as a “deemed distribution.” In that case, among other consequences, we will pay tax on the retained amount, each U.S. stockholder will be required to include his, her or its proportionate share of the deemed distribution in income as if it had been actually distributed to the U.S. stockholder, and the U.S. stockholder will be entitled to claim a credit equal to his, her or its allocable share of the tax paid thereon by us. The amount of the deemed distribution net of such tax will be added to the U.S. stockholder’s tax basis for his, her or its common stock. Since we expect to pay tax on any retained capital gain at our regular corporate tax rate, and since that rate is in excess of the maximum rate currently payable by individuals on net capital gain, the amount of tax that individual stockholders will be treated as having paid and for which they will receive a credit will exceed the tax they owe on the retained net capital gain. Such excess generally may be claimed as a credit against the U.S. stockholder’s other U.S. federal income tax obligations or may be refunded to the extent it exceeds a stockholder’s liability for U.S. federal income tax. A stockholder that is not subject to U.S. federal income tax or otherwise required to file a U.S. federal income tax return would be required to file a U.S. federal income tax return on the appropriate form to claim a refund for the taxes we paid. To utilize the deemed distribution approach, we must provide written notice to our stockholders prior to the expiration of 60 days after the close of the relevant taxable year. We cannot treat any of our investment company taxable income as a “deemed distribution.” 24 For purposes of determining (1) whether the Annual Distribution Requirement is satisfied for any year and (2) the amount of distributions paid for that year, we may, under certain circumstances, elect to treat a distribution that is paid during the following taxable year as if it had been paid during the taxable year in question. If we make such an election, the U.S. stockholder will still be treated as receiving the distribution in the taxable year in which the distribution is made. However, any distribution declared by us in October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during January of the following year, will be treated as if it had been received by our U.S. stockholders on December 31 of the year in which the distribution was declared. If an investor purchases shares of our common stock shortly before the record date of a distribution, the price of the shares will include the value of the distribution and the investor will be subject to tax on the distribution even though economically it may represent a return of his, her or its investment. A stockholder generally will recognize taxable gain or loss if the stockholder sells or otherwise disposes of his, her or its shares of our common stock. The amount of gain or loss will be measured by the difference between such stockholder’s adjusted tax basis in the common stock sold and the amount of the proceeds received in exchange. Any gain arising from such sale or disposition generally will be treated as long-term capital gain or loss if the stockholder has held the shares for more than one year. Otherwise, it will be classified as short-term capital gain or loss. However, any capital loss arising from the sale or disposition of shares of our common stock held for six months or less will be treated as long-term capital loss to the extent of the amount of capital gain dividends received, or undistributed capital gain deemed received, with respect to such shares. In addition, all or a portion of any loss recognized upon a disposition of shares of our common stock may be disallowed if other shares of our common stock or substantially identical position are purchased or acquired (whether through reinvestment of distributions or otherwise) within 30 days before or after the disposition. In general, individual U.S. stockholders currently are subject to a maximum federal income tax rate of 20% on their net capital gain (i.e., the excess of realized net long-term capital gains over realized net short-term capital losses), including any long-term capital gain derived from an investment in our shares. Such rate is lower than the maximum rate on ordinary income currently payable by individuals. In addition, an additional 3.8% Medicare tax will be imposed on certain net investment income (including ordinary dividends and capital gain distributions received from us and net gains from redemptions or other taxable dispositions of our common stock) of U.S. high-income individuals, and certain estates and trusts. Corporate U.S. stockholders currently are subject to federal income tax on net capital gain at the maximum 21% corporate income tax rate also applied to ordinary income. Non-corporate stockholders with net capital losses for a year (i.e., capital losses in excess of capital gains) generally may deduct up to $3,000 of such losses against their ordinary income each year; any net capital losses of a non-corporate stockholder in excess of $3,000 generally may be carried forward and used in subsequent years as provided in the Code. Corporate stockholders generally may not deduct any net capital losses for a year, but may carry back such losses for three years or carry forward such losses for five years. We (or if a U.S. stockholder holds shares through an intermediary, such intermediary) will send to each of our U.S. stockholders, as promptly as possible after the end of each calendar year, a notice detailing, on a per share and per distribution basis, the amounts includible in such U.S. stockholder’s taxable income for such year as ordinary income and as long-term capital gain. In addition, the federal tax status of each year’s distributions generally will be reported to the IRS (including the amount of distributions, if any, eligible for the preferential maximum rate). Distributions paid by us generally will not be eligible for the dividends-received deduction. Distributions may also be subject to additional state, local and foreign taxes depending on a U.S. stockholder’s particular situation. We are required to report adjusted cost basis information for covered securities which generally include shares of a RIC acquired after January 1, 2012 to the IRS and to taxpayers. The tax regulations require that we elect a default tax identification methodology to perform the required reporting. We have chosen the first-in-first-out (“FIFO”) method as the default tax lot identification method for our stockholders. This is the method we will use to determine which specific shares are deemed to be sold when a stockholder’s entire position is not sold in a single transaction and is the method in which “covered” share sales will be reported on a stockholder’s Form 1099. However, at the time of purchase or upon the sale of “covered” shares, stockholders may generally choose a different tax lot identification method. Stockholders should consult a tax advisor with regard to their personal circumstances as the Company and its service providers do not provide tax advice. Stockholders should contact their financial intermediaries with respect to reporting of cost basis and available elections for their accounts. 25 Backup Withholding . We may be required to withhold federal income tax (“backup withholding”), currently at a rate of 24%, from all distributions to any non-corporate U.S. stockholder (1) who fails to furnish us with a correct taxpayer identification number or a certificate that such stockholder is exempt from backup withholding or (2) with respect to whom the IRS notifies us that such stockholder has failed to properly report certain interest and dividend income to the IRS and to respond to notices to that effect. An individual’s taxpayer identification number generally is his or her social security number. Any amount withheld under backup withholding is allowed as a credit against the U.S. stockholder’s federal income tax liability, provided that proper information is provided to the IRS. Reportable Transactions Reporting . If a U.S. stockholder recognizes a loss with respect to shares of our common stock of $2 million or more for an individual stockholder or $10 million or more for a corporate stockholder, the stockholder must file with the IRS a disclosure statement on Form 8886. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. U.S. stockholders should consult their tax advisors to determine the applicability of these regulations in light of their specific circumstances. U.S. Taxation of Tax-Exempt U.S. Stockholders A U.S. stockholder that is a tax-exempt organization for U.S. federal income tax purposes and therefore generally exempt from U.S. federal income taxation may nevertheless be subject to taxation to the extent that it is considered to derive unrelated business taxable income (“UBTI”). The direct conduct by a tax-exempt U.S. stockholder of the activities we propose to conduct could give rise to UBTI. However, a BDC is a corporation for U.S. federal income tax purposes and its business activities generally will not be attributed to its stockholders for purposes of determining their treatment under current law. Therefore, a tax-exempt U.S. stockholder generally should not be subject to U.S. taxation solely as a result of the stockholder’s ownership of our stock and receipt of dividends with respect to such stock. Moreover, under current law, if we incur indebtedness, such indebtedness generally will not be attributed to a tax-exempt U.S. stockholder. Therefore, a tax-exempt U.S. stockholder should not be treated as earning income from “debt- financed property” and dividends we pay should not be treated as “unrelated debt-financed income” solely as a result of indebtedness that we incur. Proposals periodically are made to change the treatment of “blocker” investment vehicles interposed between tax-exempt investors and non- qualifying investments. In the event that any such proposals were to be adopted and applied to BDCs, the treatment of dividends payable to tax- exempt investors could be adversely affected. Taxation of Non-U.S. Stockholders The following discussion applies only to Non-U.S. stockholders. Whether an investment in our shares is appropriate for a Non-U.S. stockholder will depend upon that person’s particular circumstances. An investment in our shares by a Non-U.S. stockholder may have adverse tax consequences. Non-U.S. stockholders should consult their tax advisers before investing in our common stock. Distributions of our investment company taxable income to Non-U.S. stockholders (including interest income and realized net short-term capital gains in excess of realized long-term capital losses, which generally would be free of withholding if paid to Non-U.S. stockholders directly) will be subject to withholding of federal tax at a 30% rate (or lower rate provided by an applicable treaty) to the extent of our current and accumulated earnings and profits unless an applicable exception applies. If the distributions are effectively connected with a U.S. trade or business of the Non-U.S. stockholder, we will not be required to withhold federal tax if the Non-U.S. stockholder complies with applicable certification and disclosure requirements, although the distributions will be subject to federal income tax at the rates applicable to U.S. persons. (Special certification requirements apply to a Non-U.S. stockholder that is a foreign partnership or a foreign trust, and such entities are urged to consult their own tax advisers.) 26 In addition, with respect to certain distributions made by RICs to Non-U.S. stockholders, no withholding will be required and the distributions generally will not be subject to federal income tax if (i) the distributions are properly designated in a notice timely delivered to our stockholders as “interest-related dividends” or “short-term capital gain dividends,” (ii) the distributions are derived from sources specified in the Code for such dividends and (iii) certain other requirements are satisfied. No assurance can be given as to whether any of our distributions will be reported as eligible for this exemption from withholding tax. Actual or deemed distributions of our net capital gains to a Non-U.S. stockholder, and gains recognized by a Non-U.S. stockholder upon the sale of our common stock, generally will not be subject to federal withholding tax and will not be subject to U.S. federal income tax unless (i) the distributions or gains, as the case may be, are effectively connected with a U.S. trade or business of the Non-U.S. stockholder and, if an income tax treaty applies, are attributable to a permanent establishment maintained by the Non-U.S. stockholder in the United States, or such Non-U.S. stockholder in the United States or (ii) in the case of an individual stockholder, the stockholder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or the receipt of the distributions or gains and certain other conditions are met. If we distribute our net capital gains in the form of deemed rather than actual distributions, a Non-U.S. stockholder will be entitled to a U.S. federal income tax credit or tax refund equal to the stockholder’s allocable share of the tax we pay on the capital gains deemed to have been distributed. To obtain the refund, the Non-U.S. stockholder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return even if the Non-U.S. stockholder would not otherwise be required to obtain a U.S. taxpayer identification number or file a U.S. federal income tax return. For a corporate Non-U.S. stockholder, distributions (both actual and deemed), and gains realized upon the sale of our common stock that are effectively connected to a U.S. trade or business may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate (or at a lower rate if provided for by an applicable treaty). Accordingly, investment in the shares may not be appropriate for a Non-U.S. stockholder. Backup Withholding. A Non-U.S. stockholder who is a non-resident alien individual, and who is otherwise subject to U.S. federal withholding tax, may be subject to information reporting and backup withholding of federal income tax on dividends unless the Non-U.S. stockholder provides us or the dividend paying agent with an IRS Form W-8BEN (or an acceptable substitute form) or otherwise meets documentary evidence requirements for establishing that it is a Non-U.S. stockholder or otherwise establishes an exemption from backup withholding. Non-U.S. stockholders may also be subject to U.S. estate tax with respect to their investment in our common stock. Foreign Account Tax Compliance Act Legislation commonly referred to as the “Foreign Account Tax Compliance Act,” or “FATCA,” generally imposes a 30% withholding tax on payments of certain types of income to foreign financial institutions (“FFIs”) unless such FFIs either (i) enter into an agreement with the U.S. Treasury to report certain required information with respect to accounts held by U.S. persons (or held by foreign entities that have U.S. persons as substantial owners) or (ii) reside in a jurisdiction that has entered into an intergovernmental agreement (“IGA”) with the United States to collect and share such information and are in compliance with the terms of such IGA and any enabling legislation or regulations. The types of income subject to the tax include U.S. source interest and dividends. The information required to be reported includes the identity and taxpayer identification number of each account holder that is a U.S. person and transaction activity within the holder’s account. Depending on the status of a Non-U.S. stockholder and the status of the intermediaries through which they hold their shares, Non-U.S. stockholders could be subject to this 30% withholding tax with respect to distributions on their shares and proceeds from the sale of their shares. Stockholders may be requested to provide additional information to us to enable us to determine whether withholding is required, such as W-8BEN, W-8BEN-E or other applicable series W-8. Non-U.S. persons should consult their own tax advisers with respect to the U.S. federal income tax and withholding tax, and state, local and foreign tax consequences of an investment in the shares. 27 Legislative or Other Actions Affecting RICs The foregoing discussion is only a summary and is based upon existing federal income tax law. You should recognize that the federal income tax treatment of an investment in us may be modified at any time by legislative, judicial or administrative action. Any such changes may have a retroactive effect with respect to existing transactions and investments and may modify the statements made above. You are urged to consult with your own tax advisor with respect to the impact of recent legislation, including the Tax Act, on your investment in our shares. THE FOREGOING DISCUSSION SHOULD NOT BE CONSIDERED TO DESCRIBE FULLY THE FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN US. YOU ARE STRONGLY ADVISED TO CONSULT WITH YOUR TAX ADVISORS WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX CONSEQUENCES OF AN INVESTMENT IN US. Item 1A. Risk Factors Investing in our common stock involves a number of significant risks. The investor should be aware of various risks, including those described below. The investor should carefully consider these risk factors, together with all of the other information included in this Annual Report. The risks set out below are not the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us may also materially and adversely affect our business, financial condition and/or operating results. If any of the following events occur, our business, financial condition, results of operations and cash flows could be materially and adversely affected. In such case, the net asset value of our common stock could decline, and an investor may lose all or part of his or her investment. The following is a summary of the principal risks that you should carefully consider before investing in our securities. Further details regarding each risk included in the below summary list can be found further below. ● Dependence Upon Key Personnel of Palmer Square and the Investment Advisor — The success of the Company is highly dependent on the financial and managerial expertise of the Investment Advisor and, in turn, Palmer Square. ● Operation in a Highly Competitive Market for Investment Opportunities — The business of investing in assets meeting our investment objective is highly competitive. ● Financing Investments With Borrowed Money — The use of leverage magnifies the potential for gain or loss on amounts invested. ● Changes in Interest Rates May Affect Our Cost of Capital and Net Investment Income — Because we borrow money to make investments, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. ● Regulations Governing Our Operation as a BDC — Regulations governing our operation as a BDC affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative impact on our growth. ● Investments in Leveraged Portfolio Companies — Leveraged companies in which we invest may have limited financial resources and may be unable to meet their obligations under their loans and debt securities that we hold. ● Investments in Secured Loans — We cannot guarantee the adequacy of the protection of our interests in secured loans, including the validity or enforceability of the loan and the maintenance of the anticipated priority, and in the event of any default under a secured loan, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the secured loan. ● Investments in Mezzanine Debt and Other Junior Securities — Our investments in mezzanine debt and other junior securities are subordinate to senior indebtedness of the applicable company and are subject to greater risk. ● Investments in CLOs — CLO vehicles that we invest in are typically very highly levered, and therefore, the junior debt and equity tranches that we invest in are subject to a higher degree of risk of total loss. ● Investments in Covenant-Lite Loans — Our investments may include Covenant-Lite Loans, which may give us fewer rights and subject us to greater risk of loss than loans with financial maintenance covenants. ● Risks Regarding Distributions — We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. ● Risks Relating to Economic Recessions or Downturns — Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in our revenues, net income and assets. 28 Risks Related to our Business and Structure We have a limited operating history. We began operations on January 23, 2020 and have limited operating history. As a result, we are subject to all of the business risks and uncertainties associated with any new business, including the risk that it will not achieve its investment objectives and that the value of your investment could decline substantially or that the investor will suffer a complete loss of its investment in us. In addition, neither Palmer Square nor the Investment Advisor has previously managed a BDC. The 1940 Act imposes numerous constraints on the operations of BDCs that generally do not apply to other investment vehicles managed by Palmer Square. BDCs are required, for example, to invest at least 70% of their total assets primarily in securities of U.S. private or thinly traded public companies, cash, cash equivalents, U.S. government securities and other high-quality debt instruments that mature in one year or less from the date of investment. We, the Investment Advisor and Palmer Square have limited experience operating or advising under these constraints, which may hinder our ability to take advantage of attractive investment opportunities and to achieve our investment objective. We are dependent upon key personnel of Palmer Square and the Investment Advisor. Our success is highly dependent on the financial and managerial expertise of the Investment Advisor and, in turn, Palmer Square. The individuals may not necessarily continue to remain employed by Palmer Square. Although we have attempted to foster a team approach to investing, the loss of key individuals employed by Palmer Square or our Investment Advisor could have a material adverse effect on our financial condition, performance and ability to achieve our investment objectives. The Investment Advisor’s and Palmer Square’s investment professionals expect to devote such time and attention to the conduct of our business as such business shall reasonably require. However, there can be no assurance, for example, that the members of the Investment Advisor or such investment professionals will devote any minimum number of hours each week to our affairs or that they will continue to be employed by Palmer Square. In the event that certain employees of the Investment Advisor cease to be actively involved with us, we will be required to rely on the ability of Palmer Square to identify and retain other investment professionals to conduct our business. We are dependent on strong referral relationships. We depend upon our Investment Advisor and its affiliates to maintain their relationships with private equity sponsors, placement agents, investment banks, management groups and other financial institutions, and we expect to rely to a significant extent upon these relationships to provide us with potential investment opportunities. If our Investment Advisor and its affiliates fail to maintain such relationships, or to develop new relationships with other sources of investment opportunities, we will not be able to grow our investment portfolio. In addition, individuals with whom our Investment Advisor and its affiliates have relationships are not obligated to provide us with investment opportunities, and we can offer no assurance that these relationships will generate investment opportunities for us in the future. Our investment decisions may be expedited. Investment analyses and decisions by the Investment Advisor may frequently be required to be undertaken on an expedited basis to take advantage of investment opportunities. In these cases, the information available to the Investment Advisor at the time of making an investment decision may be limited. Therefore, no assurance can be given that the Investment Advisor will have knowledge of all circumstances that may adversely affect an investment. Our financial condition, results of operations and cash flows depend on our ability to manage our business effectively. Our ability to achieve our investment objective will depend on our ability to manage our business and to grow our investments and earnings. This will depend, in turn, on our Investment Advisor’s ability to identify, invest in and monitor portfolio companies that meet our investment criteria. The achievement of our investment objectives on a cost-effective basis will depend upon our Investment Advisor’s execution of our investment process, its ability to provide competent, attentive and efficient services to us and, to a lesser extent, our access to financing on acceptable terms. Any failure to manage our business and our future growth effectively could have a material adverse effect on our business, financial condition, results of operations and cash flows. 29 Our executive officers and directors, our Investment Advisor, Palmer Square and their affiliates, officers, directors and employees may face certain conflicts of interest. The employees of Palmer Square and our Investment Advisor serve, or may serve, as officers, directors, members, or principals of entities that operate in the same or a related line of business as we do, or of investment funds, accounts, or investment vehicles managed by it and/or its affiliates. Similarly, Palmer Square, the Investment Advisor and their affiliates may have other clients with similar, different or competing investment objectives. In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in the best interests of us or our stockholders. There is a potential that we will compete with these clients, and other entities managed by the Investment Advisor and its affiliates, for capital and investment opportunities. As a result, the Investment Advisor and, as applicable, the members of the Investment Committee may face conflicts in the allocation of investment opportunities among us and the investment funds, accounts and investment vehicles managed by the Investment Advisor and its affiliates. Our Investment Advisor intends to allocate investment opportunities among eligible investment funds, accounts and investment vehicles in a manner that is fair and equitable over time and consistent with its allocation policy. However, we can offer no assurance that such opportunities will be allocated to us fairly or equitably in the short-term or over time. Our Investment Advisor or its affiliates may, from time to time, possess material non-public information, limiting our investment discretion. Principals and other employees of our Investment Advisor, including members of the Investment Advisor’s Investment Committee, may serve as directors of, or in a similar capacity with, portfolio companies in which we invest, the securities of which are purchased or sold on our behalf. In the event that material nonpublic information is obtained with respect to such companies, or we become subject to trading restrictions under the internal trading policies of those companies or as a result of applicable law or regulations, we could be prohibited for a period of time from purchasing or selling the securities of such companies, and this prohibition may have an adverse effect on us. Our management and incentive fee structure with our Advisor may create incentives for our Investment Advisor that are not fully aligned with the interests of our stockholders and may induce our Advisor to make speculative investments. In the course of our investing activities, we will pay management and, subsequent to a Listing, incentive fees to the Investment Advisor. We have entered into an Advisory Agreement with the Investment Advisor. Under the incentive fee structure which will be in place subsequent to a Listing, our adjusted net investment income for purposes thereof will be computed and paid on income that may include interest income that has been accrued but not yet received in cash. This fee structure may give rise to a conflict of interest for the Investment Advisor to the extent that it encourages the Investment Advisor to favor debt financings that provide for deferred interest, rather than current cash payments of interest. The Investment Advisor may have an incentive to invest in deferred interest securities in circumstances where it would not have done so but for the opportunity to continue to earn the incentive fee even when the issuers of the deferred interest securities would not be able to make actual cash payments to us on such securities. This risk could be increased because, under our Advisory Agreement, the Investment Advisor is not obligated to reimburse us for incentive fees it receives even if we subsequently incur losses or never receive in cash the deferred income that was previously accrued. The valuation process for certain of our portfolio holdings may create a conflict of interest. We may make many of our portfolio investments in the form of loans and securities that are not publicly traded and for which no market based price quotation is available. As a result, our Board will determine the fair value of these loans and securities in good faith as described elsewhere in this Annual Report. In connection with that determination, investment professionals from our Investment Advisor may provide our Board with valuations based upon the most recent portfolio company consolidated financial statements available and projected financial results of each portfolio company. The participation of the Investment Advisor’s investment professionals in our valuation process could result in a conflict of interest as the Investment Advisor’s base management fee is based, in part, on the value of our total net assets. 30 We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses. The business of investing in assets meeting our investment objective is highly competitive. Competition for investment opportunities includes a growing number of nontraditional participants, such as hedge funds, senior private debt funds, including BDCs, and other private investors, as well as more traditional lending institutions and competitors. Some of these competitors may have access to greater amounts of capital and to capital that may be committed for longer periods of time or may have different return thresholds than us, and thus these competitors may have advantages not shared by us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or the source-of-income, asset diversification and distribution requirements we must satisfy to qualify and maintain our RIC status. Increased competition for, or a diminishment in the available supply of, investments suitable for us could result in lower returns on such investments. Moreover, the identification of attractive investment opportunities is difficult and involves a high degree of uncertainty. We may incur significant expenses in connection with identifying investment opportunities and investigating other potential investments which are ultimately not consummated, including expenses relating to due diligence, transportation, legal expenses and the fees of other third party advisors. With respect to the investments we make, we will not seek to compete based primarily on the interest rates we will offer, and we believe that some of our competitors may make loans with interest rates that will be lower than the rates we offer. In the secondary market for acquiring existing loans, we expect to compete generally on the basis of pricing terms. With respect to all investments, we may lose some investment opportunities if we do not match our competitors’ pricing, terms and structure. However, if we match our competitors’ pricing, terms and structure, we may experience decreased net interest income, lower yields and increased risk of credit loss. We may need to raise additional capital. We may need additional capital to fund new investments and grow our portfolio of investments. We intend to access the capital markets periodically to issue debt or equity securities or borrow from financial institutions in order to obtain such additional capital. Unfavorable economic conditions could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. A reduction in the availability of new capital could limit our ability to grow. In addition, we are required to distribute dividends for U.S. federal income tax purposes of an amount generally at least equally to 90% of the sum of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our stockholders to qualify and maintain our RIC status. As a result, these earnings will not be available to fund new investments. An inability on our part to access the capital markets successfully could limit our ability to grow our business and execute our business strategy fully and could decrease our earnings, if any, which would have an adverse effect on the value of our securities. Our investments in PIK interest income may expose us to risks. Certain of our debt investments may contain provisions providing for the payment of PIK interest. Because PIK interest results in an increase in the size of the loan balance of the underlying loan, the receipt by us of PIK interest will have the effect of increasing our total net assets. As a result, because the base management fee that we pay to the Investment Advisor is based on the value of our total net assets, the receipt by us of PIK interest will result in an increase in the amount of the base management fee payable by us. In addition, any such increase in a loan balance due to the receipt of PIK interest will cause such loan to accrue interest on the higher loan balance, which will result in an increase in our pre-incentive fee net investment income and, as a result, an increase in incentive fees that are payable by us to the Investment Advisor after a Listing. Our strategy involves a high degree of leverage. We intend to continue to finance our investments with borrowed money, which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us. The use of leverage magnifies the potential for gain or loss on amounts invested. The use of leverage is generally considered a speculative investment technique and increases the risks associated with investing in our securities. We have borrowed and intend to continue to borrow from, and may in the future issue debt securities to, banks, insurance companies and other lenders. Lenders of these funds will have fixed dollar claims on our assets that are superior to the claims of our common stockholders, and we would expect such lenders to seek recovery against our assets in the event of a default. We may pledge up to 100% of our assets and may grant a security interest in all of our assets under the terms of any debt instruments we may enter into with lenders. If the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged, thereby magnifying losses or eliminating our stake in a leveraged investment. Similarly, any decrease in our revenue or income will cause our net income to decline more sharply than it would have had we not borrowed. Such a decline would also negatively affect our ability to make dividend payments on our common stock. Our ability to service any debt will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures. In addition, our common stockholders will bear the burden of any increase in our expenses as a result of our use of leverage, including interest expenses. 31 As a BDC, we generally are required to meet a coverage ratio of total assets to total borrowings and other senior securities, which include all of our borrowings and any preferred stock that we may issue in the future, of at least 150%. If this ratio declines below 150%, we will not be able to incur additional debt when it is otherwise advantageous or necessary for us to do so. The amount of leverage that we employ will depend on the Investment Advisor’s and our Board’s assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us. We are subject to various covenants under our credit facilities which, if not complied with, could result in reduced availability and/or mandatory prepayments under our credit facilities. We are subject to various covenants under our credit facilities which, if not complied with, could result in reduced availability and/or mandatory prepayments under our credit facilities. In the event we default under our credit facilities or any other future borrowing facility, our business could be adversely affected as we may be forced to sell a portion of our investments quickly and prematurely at what may be disadvantageous prices to us in order to meet our outstanding payment obligations and/or support working capital requirements under our credit facilities, or such future borrowing facility, any of which would have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition, following any such default, the agent for the lenders under our credit facilities, or such future borrowing facility could assume control of the disposition of any or all of our assets, including the selection of such assets to be disposed and the timing of such disposition, which would have a material adverse effect on our business, financial condition, results of operations and cash flows. In addition to asset coverage ratio requirements, our credit facilities contain various covenants which, if not complied with, could accelerate repayment of the indebtedness under our credit facilities. This could have a material adverse effect on our business, financial condition and results of operations. Our borrowings under the BoA Credit Facility are collateralized by the assets in PS BDC Funding. The agreements governing the BoA Credit Facility require us to comply with certain financial and operational covenants. These covenants include a requirement to maintain a first-prior security interest in the collateral for the benefit of the lenders under the BoA Credit Facility, maintain various policies and procedures, and maintain a minimum borrowing base under the BoA Credit Facility. Our borrowings under the WF Credit Facility are collateralized by the assets in PS BDC Funding II. The agreements governing the WF Credit Facility require us to comply with certain financial and operational covenants. These covenants include a requirement to maintain a first-prior security interest in the collateral for the benefit of the lenders under the WF Credit Facility, maintain various policies and procedures, and maintain a minimum borrowing base under the WF Credit Facility. Our continued compliance with the covenants under our credit facilities depends on many factors, some of which are beyond our control. 32 Changes in interest rates may affect our cost of capital and net investment income Because we borrow money to make investments, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, we can offer no assurance that a significant change in market interest rates would not have a material adverse effect on our net investment income given that we use debt to finance our investments. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income. In addition, in a prolonged low interest rate environment, the difference between investment income earned on interest earning assets and the interest expense incurred on interest bearing liabilities may be compressed, reducing our net investment income and potentially adversely affecting our operating results. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. The expected discontinuation of LIBOR could have significant impact on our business. In July 2017, the head of the United Kingdom Financial Conduct Authority (the “FCA”) announced that it intends to phase out of the use of LIBOR by the end of 2021, and in December 2020, the ICE Benchmark Administration Limited, a wholly-owned subsidiary of Intercontinental Exchange, Inc. and the administrator of LIBOR, announced that it will extend the LIBOR transition deadline for most LIBOR settings to the end of June 2023. To identify a successor rate for U.S. dollar LIBOR, the Alternative Reference Rates Committee (“ARRC”), a U.S. based group convened by the Federal Reserve Board and the Federal Reserve Bank of New York, was formed. Similarly, financial regulators in the UK, the European Union, Japan, and Switzerland formed working groups with the aim of recommending alternatives to LIBOR denominated in their local currencies. The ARRC is comprised of a diverse set of private-sector entities and a wide array of official-sector entities, banking regulators, and other financial sector regulators. The ARRC has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. Although SOFR appears to be the preferred replacement rate for U.S. dollar LIBOR, it is unclear if other benchmarks may emerge or if other rates will be adopted outside of the U.S. The expected discontinuation of LIBOR could have a material impact on our business. We expect that the dollar amount of our debt investments and borrowings that will be linked to LIBOR with maturity dates after the anticipated discontinuation of LIBOR will be material. We anticipate operational challenges in connection with the transition away from LIBOR including, but not limited to, amending loan agreements with borrowers on investments that may have not included fallback language and adding effective fallback language to new agreements in the event that LIBOR is discontinued before maturity. Beyond these challenges, we anticipate there may be additional risks to our processes and information systems that will need to be identified and evaluated by us. Due to the uncertainty of the replacement for LIBOR, the potential effect of any such event on our business and results of operations cannot yet be determined. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit we may hold or may be due to us and could have a material adverse effect on our business, financial condition and results of operations. We may have uncertainty as to the value of certain portfolio investments. We expect that certain of our portfolio investments may take the form of securities that are not publicly traded. The fair value of loans, securities and other investments that are not publicly traded may not be readily determinable and we will value these investments at fair value as determined in good faith by the Board. Certain of our investments (other than cash and cash equivalents) may be classified as Level 3 assets under Topic 820 of the U.S. Financial Accounting Standards Board’s Accounting Standards Codification, as amended, Fair Value Measurements and Disclosures (“ASC 820”). This means that our portfolio valuations will be based on unobservable inputs and our own assumptions about how market participants would price the asset or liability in question. We expect that inputs into the determination of fair value of our portfolio investments will require significant management judgment or estimation. Even if observable market data are available, such information may be the result of consensus pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of such information. The types of factors that the Board may take into account in determining the fair value of our investments generally include, as appropriate, comparison to publicly-traded securities including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these loans and securities existed. Our net asset value could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such loans and securities. In addition, the method of calculating the base management fee may result in conflicts of interest between the Investment Advisor, on the one hand, and our stockholders on the other hand, with respect to valuation of investments. 33 We will adjust on a quarterly basis the valuation of our portfolio to reflect the Board’s determination of the fair value of each investment in our portfolio for which market quotes are not readily available. Any changes in fair value are recorded in our statements of operations as net change in unrealized appreciation or depreciation on investments. We may experience fluctuations in our quarterly operating results. We could experience fluctuations in our quarterly operating results due to a number of factors, including the interest rate payable on the loans and debt securities we acquire, the default rate on such loans and securities, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. In light of these factors, results for any period should not be relied upon as being indicative of performance in future periods. The Board may change our investment objectives, operating policies and strategies without prior notice or stockholder approval. The Board has the authority, except as otherwise provided in the 1940 Act, to modify or waive certain of our operating policies and strategies without prior notice and without stockholder approval. However, absent stockholder approval, we may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results and the market price of our common stock. Nevertheless, any such changes could adversely affect our business and impair our ability to make distributions to our stockholders. Our Advisor and Administrator each have the ability to resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations. The Investment Advisor has the right under the Advisory Agreement to resign as our Investment Advisor at any time upon not less than 60 days’ written notice, whether we have found a replacement or not. Similarly, our Administrator has the right under the Administration Agreement to resign at any time upon not less than 60 days’ written notice, whether we have found a replacement or not. If the Investment Advisor or Administrator were to resign, we may not be able to find a new investment adviser or administrator, as applicable, or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial condition, business and results of operations as well as our ability to pay distributions to our stockholders are likely to be adversely affected. We are highly dependent on information systems, and systems failures or cyber-attacks could significantly disrupt our business, which may, in turn, negatively affect the value of shares of our common stock and our ability to pay distributions. Our business relies on secure information technology systems. These systems are exposed to operational and information security risks resulting from cyberattacks that threaten the confidentiality, integrity or availability of our information resources (i.e., cyber incidents). Cyber incidents can result from unintentional events (such as an inadvertent release of confidential information) or deliberate attacks by insiders or third parties. These attacks could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing and unauthorized release of confidential information, corrupting data, denial of service attacks on our websites, “ransomware” that renders systems inoperable until ransom is paid, or various other forms of cybersecurity breaches. Such cyber incidents could result in disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our business relationships, any of which could have a material adverse effect on our business, financial condition and results of operations. As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those provided by the Investment Advisor and third-party service providers. Cyber incidents affecting us, our Investment Advisor, or third-party service providers may adversely impact us or the companies in which we invest, causing our investments to lose value. We, along with our Investment Advisor, have implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions. However, these measures may not be effective, and there can be no assurance that a cyber incident will not occur or that our financial results, operations or confidential information will not be negatively impacted by such an incident. In addition, the costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means. Furthermore, cybersecurity has become a top priority for regulators around the world, and some jurisdictions have enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal data. If we fail to comply with the relevant laws and regulations, we could suffer financial losses, a disruption of our businesses, liability to investors, regulatory intervention or reputational damage. 34 Failure to maintain our status as a business development company would reduce our operating flexibility. If we do not maintain our status as a business development company, we might be regulated as a closed-end investment company under the 1940 Act, which would subject us to substantially more regulatory restrictions and correspondingly decrease our operating flexibility. Our charter includes an exclusive forum selection provision, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or other agents. Our charter provides that, unless we consent in writing to the selection of a different forum, and except for any claims made under the federal U.S. securities laws, the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on behalf of the Company, (b) any action asserting a claim of breach of any duty owed by a director or officer or other employee of the Company to the Company or to the stockholders of the Company or asserting a claim of breach of any standard of conduct set forth in the Maryland General Corporation Law (the “MGCL”), (c) any action asserting a claim against the Company or any director or officer or other employee of the Company arising pursuant to any provision of the MGCL, the charter or our bylaws, or (d) any action asserting a claim against the Company or any director or officer or other employee of the Company that is governed by the internal affairs doctrine. There is uncertainty as to whether a court would enforce such a provision, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. In addition, this provision may increase costs for shareholders in bringing a claim against us or our directors, officers or other agents. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed, to the fullest extent permitted by law, to have notice of and consented to these exclusive forum provisions. The exclusive forum selection provision in our charter may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other agents, which may discourage lawsuits against us and such persons. It is also possible that, notwithstanding such exclusive forum selection provision, a court could rule that such provision is inapplicable or unenforceable. If this occurred, we may incur additional costs associated with resolving such action in another forum, which could materially adversely affect our business, financial condition and results of operations. Risks Related to the 1940 Act Our ability to enter into transactions with our affiliates is restricted. The 1940 Act prohibits or restricts our ability to engage in certain principal transactions and joint transactions with certain “First Tier” affiliates and “Second Tier” affiliates. For example, we are prohibited from buying or selling any security from or to any person who owns more than 25% of our voting securities or certain of that person’s affiliates (each is a “First Tier” affiliate), or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. We consider the Investment Advisor and its affiliates, including Palmer Square, to be “First Tier” affiliates for such purposes. We are prohibited under the 1940 Act from participating in certain principal transactions and joint transactions with a “Second Tier” affiliate without the prior approval of our Independent Directors. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities will be a “Second Tier” affiliate for purposes of the 1940 Act, and we are generally prohibited from buying or selling any security from or to such affiliate without the prior approval of our Independent Directors. We may, however, invest alongside Palmer Square’s investment funds, accounts and investment vehicles in certain circumstances where doing so is consistent with our investment strategy as well as applicable law and SEC staff interpretations. For example, we may invest alongside such investment funds, accounts and investment vehicles consistent with guidance promulgated by the SEC staff to purchase interests in a single class of privately placed securities so long as certain conditions are met, including that the Investment Advisor and Palmer Square, acting on our behalf and on behalf of such investment funds, accounts and investment vehicles, negotiate no term other than price. In situations where co-investment with investment funds, accounts and investment vehicles managed by the Investment Advisor and its affiliates, including Palmer Square, is not permitted or appropriate, such as when there is an opportunity to invest in different securities of the same issuer or where the different investments could be expected to result in a conflict between our interests and those of these other clients, the Investment Advisor and Palmer Square will need to decide which client will proceed with the investment. These restrictions will limit the scope of investment opportunities that would otherwise be available to us. 35 We, the Investment Advisor and Palmer Square have been granted exemptive relief from the SEC to permit greater flexibility to negotiate the terms of co-investments if our Board determines that it would be advantageous for us to co-invest with investment funds, accounts and investment vehicles managed by Palmer Square in a manner consistent with our investment objectives, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. We believe that co-investment by us and investment funds, accounts and investment vehicles managed by the Investment Advisor and its affiliates, including Palmer Square, may afford us additional investment opportunities and an ability to achieve greater diversification. Accordingly, our exemptive order permits us to invest with these investment funds, accounts and investment vehicles managed in the same portfolio companies under circumstances in which such investments would otherwise not be permitted by the 1940 Act. Our exemptive relief permitting co-investments applies only if our Independent Directors review and approve each co-investment. The exemptive order imposes other constraints on co-investments that limit the number of instances when we may rely on its protections. Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. Regulations governing our operation as a BDC affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative impact on our growth. We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as “senior securities,” up to the maximum amount permitted by the 1940 Act. We are generally able to issue senior securities such that our asset coverage, as defined in the 1940 Act, equals at least 150% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets decline, we may be unable to satisfy this test. If that happens, we may be required to sell a portion of our investments at a time when such sales may be disadvantageous to use in order to repay a portion of our indebtedness. Risks Related to our Investments Economic recessions or downturns could impair our portfolio companies, and defaults by our portfolio companies will harm our operating results. Many of the portfolio companies in which we have invested or expect to make investments are likely to be susceptible to economic slowdowns or recessions and may be unable to repay our loans during such periods. Therefore, the number of our non-performing assets is likely to increase, and the value of our portfolio is likely to decrease during such periods. Adverse economic conditions may decrease the value of collateral securing some of our loans and debt securities and the value of our equity investments. Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing our investments and harm our operating results. A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its assets, which could trigger cross-defaults under other agreements and jeopardize our portfolio company’s ability to meet its obligations under the loans and debt securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. We may hold the debt securities of leveraged portfolio companies. Portfolio companies may issue certain types of debt, such as senior loans, mezzanine or high yield in connection with leveraged acquisitions or recapitalizations in which the portfolio company incurs a substantially higher amount of indebtedness than the level at which it had previously operated. Leverage may have important consequences to these portfolio companies and us as an investor. For example, the substantial indebtedness of a portfolio company could (i) limit its ability to borrow money for its working capital, capital expenditures, debt service requirements, strategic initiatives or other purposes; (ii) require it to dedicate a substantial portion of its cash flow from operations to the repayment of its indebtedness, thereby reducing funds available to it for other purposes; (iii) make it more highly leveraged than some of its competitors, which may place it at a competitive disadvantage; or (iv) subject it to restrictive financial and operating covenants, which may preclude it from favorable business activities or the financing of future operations or other capital needs. 36 A leveraged portfolio company’s income and net assets will tend to increase or decrease at a greater rate than if borrowed money were not used. In addition, a portfolio company with a leveraged capital structure will be subject to increased exposure to adverse economic factors, such as a significant rise in interest rates, a severe downturn in the economy or deterioration in the condition of that portfolio company or its industry. If a portfolio company is unable to generate sufficient cash flow to meet all of its obligations, it may take alternative measures (e.g., reduce or delay capital expenditures, sell assets, seek additional capital, or seek to restructure, extend or refinance indebtedness). These actions may negatively affect our investment in such a portfolio company. Investment in leveraged companies involves a number of significant risks. Leveraged companies in which we invest may have limited financial resources and may be unable to meet their obligations under their loans and debt securities that we hold. Such developments may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of our realizing any guarantees that we may have obtained in connection with our investment. Smaller leveraged companies also may have less predictable operating results and may require substantial additional capital to support their operations, finance their expansion or maintain their competitive position. The lack of liquidity in our investments may adversely affect our businesses. We may acquire a significant percentage of our portfolio company investments from privately held companies in directly negotiated transactions. The lack of an established, liquid secondary market for some of our investments may have an adverse effect on the market value of our investments and on our ability to dispose of them. Additionally, our investments may be subject to certain transfer restrictions that may also contribute to illiquidity. Further, our assets that are typically traded in a liquid market may become illiquid due to events relating to the issuer, market events, economic conditions or investor perceptions. Therefore, no assurance can be given that, if we are determined to dispose of a particular investment held by us, it could dispose of such investment at the prevailing market price. Our investments in secured loans may nonetheless expose us to losses from default and foreclosure. While we may invest in secured loans, they may nonetheless be exposed to losses resulting from default and foreclosure. Therefore, the value of the underlying collateral, the creditworthiness of the borrower and the priority of the lien are each of great importance. We cannot guarantee the adequacy of the protection of our interests, including the validity or enforceability of the loan and the maintenance of the anticipated priority and perfection of the applicable security interests. Furthermore, we cannot assure you that claims may not be asserted that might interfere with enforcement of our rights. In addition, in the event of any default under a secured loan held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the secured loan, which could have a material adverse effect on our cash flow from operations. In the event of a foreclosure, we may assume direct ownership of the underlying asset. The liquidation proceeds upon sale of such asset may not satisfy the entire outstanding balance of principal and interest on the loan, resulting in a loss to us. Any costs or delays involved in the effectuation of a foreclosure of the loan or a liquidation of the underlying property will further reduce the proceeds and thus increase the loss. Our investments in mezzanine debt and other junior securities are subordinate to senior indebtedness of the applicable company and are subject to greater risk. The mezzanine debt and other junior investments in which we may invest are typically contractually or structurally subordinate to senior indebtedness of the applicable company, or effectively subordinated as a result of being unsecured debt and therefore subject to the prior repayment of secured indebtedness to the extent of the value of the assets pledged as security. In some cases, the subordinated debt held by us may be subject to the prior repayment of different classes of senior debt that may be in priority ahead of the debt held by us. In the event of financial difficulty on the part of a portfolio company, such class or classes of senior indebtedness ranking prior to the debt held by us, and interest thereon and related expenses, must first be repaid in full before any recovery may be had on our mezzanine debt or other subordinated investments. Subordinated investments are characterized by greater credit risks than those associated with the senior or senior secured obligations of the same issuer. In addition, under certain circumstances the holders of the senior indebtedness will have the right to block the payment of interest and principal on our mezzanine debt or other junior investment and to prevent us from pursuing its remedies on account of such non-payment against the issuer. Further, in the event of any debt restructuring or workout of the indebtedness of any issuer, the holders of the senior indebtedness will likely control the creditor side of such negotiations. 37 Many issuers of mezzanine debt or other junior securities are highly leveraged, and their relatively high debt-to-equity ratios create increased risks that their operations might not generate sufficient cash flow to service their debt obligations. In addition, many issuers of mezzanine debt or other junior securities may be in poor financial condition, experiencing poor operating results, having substantial capital needs or negative net worth or be facing special competitive or product obsolescence problems, and may include companies involved in bankruptcy or other reorganizations or liquidation proceedings. Adverse changes in the financial condition of an issuer, general economic conditions, or both, may impair the ability of such issuer to make payments on the subordinated securities and result in defaults on such securities more quickly than in the case of the senior obligations of such issuer. Mezzanine debt and other junior securities may not be publicly traded, and therefore it may be difficult to obtain information as to the true condition of the issuers. Finally, the market values of certain of mezzanine debt and other junior securities may reflect individual corporate developments. Our investments may include Covenant-Lite Loans, which may give us fewer rights and subject us to greater risk of loss than loans with financial maintenance covenants. A significant number of high yield loans in the market, in particular the broadly syndicated loan market, may consist of Covenant-Lite Loans. A significant portion of the loans in which we may invest or get exposure to through its investments in CDOs or other types of structured securities may be deemed to be Covenant-Lite Loans and it is possible that such loans may comprise a majority of our portfolio. Such loans do not require the borrower to maintain debt service or other financial ratios and do not include terms which allow the lender to monitor the performance of the borrower and declare a default if certain criteria are breached. Ownership of Covenant-Lite Loans may expose us to different risks, including with respect to liquidity, price volatility, ability to restructure loans, credit risks and less protective loan documentation, than is the case with loans that contain financial maintenance covenants. In addition, a significant portion of the loans in which we may invest may be Covenant-Lite Loans. Generally, Covenant-Lite Loans provide borrower companies more freedom to negatively impact lenders because their covenants are incurrence-based, which means they are only tested and can only be breached following an affirmative action of the borrower, rather than by a deterioration in the borrower’s financial condition. Accordingly, to the extent we invest in Covenant-Lite Loans, we may have fewer rights against a borrower and may have a greater risk of loss on such investments as compared to investments in or exposure to loans with financial maintenance covenants. Our prospective portfolio companies may prepay loans, which may reduce our yields if capital returned cannot be invested in transactions with equal or greater expected yields. The terms of loans we acquire or originate may be subject to early prepayment options or similar provisions which, in each case, could result in us realizing repayments of such loans earlier than expected, sometimes with no or a nominal prepayment premium. This may happen when there is a decline in interest rates, when the portfolio company’s improved credit or operating or financial performance allows the refinancing of certain classes of debt with lower cost debt or when the general credit market conditions improve. Additionally, prepayments could negatively impact our ability to pay, or the amount of, distributions on our common stock, which could result in a decline in the market price of our shares. Our inability to reinvest such proceeds may materially affect the overall performance. We may invest in high yield debt, which has greater credit and liquidity risk than more highly rated debt obligations. We may invest in high yield debt, a substantial portion of which may be rated below investment-grade by one or more nationally recognized statistical rating organizations or is unrated but of comparable credit quality to obligations rated below investment-grade, and has greater credit and liquidity risk than more highly rated debt obligations. High yield debt is generally unsecured and may be subordinate to other obligations of the obligor. The lower rating of high yield debt reflect a greater possibility that adverse changes in the financial condition of the obligor or in general economic conditions (including, for example, a substantial period of rising interest rates or declining earnings) or both may impair the ability of the obligor to make payment of principal and interest. Many issuers of high yield debt are highly leveraged, and their relatively high debt-to-equity ratios create increased risks that their operations might not generate sufficient cash flow to service their debt obligations. In addition, many issuers of high yield debt may be in poor financial condition, experiencing poor operating results, having substantial capital needs or negative net worth or be facing special competitive or product obsolescence problems, and may include companies involved in bankruptcy or other reorganizations or liquidation proceedings. Certain of these securities may not be publicly traded, and therefore it may be difficult to obtain information as to the true condition of the issuers. Overall declines in the below investment-grade bond and other markets may adversely affect such issuers by inhibiting their ability to refinance their debt at maturity. High yield debt is often less liquid than higher rated securities, and the market for high yield debt has recently experienced periods of volatility. The market values of certain of this high yield debt may reflect individual corporate developments. 38 Our investments in bank loans and financial institutions may be less liquid than our other investments and we may incur greater risk with respect to investments we acquire through assignments or participations of interests. We may invest a portion of our investments in loans originated by banks and other financial institutions. The loans invested in by us may include term loans and revolving loans, may pay interest at a fixed or floating rate and may be senior or subordinated. Purchasers of bank loans are predominantly commercial banks, investment funds and investment banks. As secondary market trading volumes for bank loans increase, new bank loans are frequently adopting standardized documentation to facilitate loan trading, which should improve market liquidity. There can be no assurance, however, that future levels of supply and demand in bank loan trading will provide an adequate degree of liquidity, that the current period of illiquidity will not persist or worsen and that the market will not experience periods of significant illiquidity in the future. In addition, we may make investments in stressed or distressed bank loans, which are often less liquid than performing bank loans. Compared to securities and to certain other types of financial assets, purchases and sales of loans take relatively longer to settle. This extended settlement process can (i) increase the counterparty credit risk borne by us; (ii) leave us unable to timely vote, or otherwise act with respect to, loans it has agreed to purchase; (iii) delay us from realizing the proceeds of a sale of a loan; (iv) inhibit our ability to re-sell a loan that it has agreed to purchase if conditions change (leaving us more exposed to price fluctuations); (v) prevent us from timely collecting principal and interest payments; and (vi) expose us to adverse tax or regulatory consequences. To the extent the extended loan settlement process gives rise to short-term liquidity needs, we may hold cash, sell investments or temporarily borrow from banks or other lenders. In certain circumstances, loans may not be deemed to be securities, and in the event of fraud or misrepresentation by a borrower or an arranger, lenders will not have the protection of the anti-fraud provisions of the federal securities laws, as would be the case for bonds or stocks. Instead, in such cases, lenders generally rely on the contractual provisions in the loan agreement itself, and common-law fraud protections under applicable state law. We may acquire interests in bank loans either directly (by way of sale or assignment) or indirectly (by way of participation). The purchaser of an assignment typically succeeds to all the rights and obligations of the assigning institution and becomes a lender under the credit agreement with respect to the debt obligation; however, its rights can be more restricted than those of the assigning institution. Participation interests in a portion of a debt obligation typically result in a contractual relationship only with the institution participating out the interest, and not with the borrower. In purchasing participations, we generally will have no right to enforce compliance by the borrower with the terms of the loan agreement, nor any rights of set-off against the borrower, and we may not directly benefit from the collateral supporting the debt obligation in which it has purchased the participation. As a result, we will assume the credit risk of both the borrower and the institution selling the participation. The bank loans acquired by us are likely to be below investment-grade. We may invest in structured products and such investments may involve significant risks . We may also invest, to a limited extent, in structured products, which may include CDOs, CLOs (including the equity tranches thereof), structured notes, and credit-linked notes. These investment entities may be structured as trusts or other types of pooled investment vehicles. They may also involve the deposit with or purchase by an entity of the underlying investments and the issuance by that entity of one or more classes of securities backed by, or representing interests in, the underlying investments or referencing an indicator related to such investments. CDOs and CLOs are types of asset-backed securities issued by special purpose vehicles created to reapportion the risk and return characteristics of a pool of assets. The underlying pool for a CLO, for example, may include domestic and foreign senior loans, senior unsecured loans, and subordinate corporate loans. Generally, these are not qualified as eligible portfolio companies. Investments in the equity tranche or any similarly situated tranche of a structured product involve a greater degree of risk than investments in other tranches, and such investments will be the first to bear losses incurred by a structured product. 39 Our CLO investments are typically highly levered and subject to a higher degree of risk of total loss. CLO vehicles that we invest in are typically very highly levered, and therefore, the junior debt and equity tranches that we invest in are subject to a higher degree of risk of total loss. We will generally have the right to receive payments only from the CLO vehicles, and will generally not have direct rights against the underlying borrowers or the entity that sponsored the CLO vehicle. The failure by a CLO vehicle in which we invest to satisfy certain financial covenants, specifically those with respect to adequate collateralization and/or interest coverage tests, could lead to a reduction in its payments to us. In the event that a CLO vehicle failed those tests, holders of debt senior to us may be entitled to additional payments that would, in turn, reduce the payments we would otherwise be entitled to receive. If any of these occur, it could materially and adversely affect our operating results and cash flows. In addition to the general risks associated with investing in debt securities, CLO vehicles carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) the fact that our investments in CLO tranches will likely be subordinate to other senior classes of note tranches thereof; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the CLO vehicle or unexpected investment results. Our net asset value may also decline over time if our principal recovery with respect to CLO equity investments is less than the price we paid for those investments. Investments in structured vehicles, including equity and junior debt instruments issued by CLO vehicles, involve risks, including credit risk and market risk. Changes in interest rates and credit quality may cause significant price fluctuations. Additionally, changes in the underlying leveraged corporate loans held by a CLO vehicle may cause payments on the instruments we hold to be reduced, either temporarily or permanently. Structured investments, particularly the subordinated interests in which we intend to invest, may be less liquid than many other types of securities and may be more volatile than the leveraged corporate loans underlying the CLO vehicles we intend to target. Fluctuations in interest rates may also cause payments on the tranches of CLO vehicles that we hold to be reduced, either temporarily or permanently. The accounting and tax implications of such investments are complicated. In particular, reported earnings from the equity tranche investments of these CLO vehicles are recorded under generally accepted accounting principles based upon an effective yield calculation. Current taxable earnings on these investments, however, will generally not be determinable until after the end of the fiscal year of each individual CLO vehicle that ends within our fiscal year, even though the investments are generating cash flow. In general, the tax treatment of these investments may result in higher distributable earnings in the early years and a capital loss at maturity, while for reporting purposes the totality of cash flows are reflected in a constant yield to maturity. Any interests we acquire in CLO vehicles will likely be thinly traded or have only a limited trading market and may be subject to restrictions on resale. Securities issued by CLO vehicles are generally not listed on any U.S. national securities exchange and no active trading market may exist for the securities of CLO vehicles in which we may invest. Although a secondary market may exist for our investments in CLO vehicles, the market for our investments in CLO vehicles may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods. As a result, these types of investments may be more difficult to value. We may be subject to lender liability and equitable subordination. In recent years, a number of judicial decisions in the United States have upheld the right of borrowers to sue lending institutions on the basis of various evolving legal theories (collectively termed “lender liability”). Generally, lender liability is founded upon the premise that an institutional lender has violated a duty (whether implied or contractual) of good faith and fair dealing owed to the borrower or has assumed a degree of control over the borrower resulting in creation of a fiduciary duty owed to the borrower or its other creditors or stockholders. Because of the nature of certain of our investments, we could be subject to allegations of lender liability. In addition, under common law principles that in some cases form the basis for lender liability claims, if a lending institution (i) intentionally takes an action that results in the undercapitalization of a borrower to the detriment of other creditors of such borrower, (ii) engages in other inequitable conduct to the detriment of such other creditors, (iii) engages in fraud with respect to, or makes misrepresentations to, such other creditors or (iv) uses its influence as a stockholder to dominate or control a borrower to the detriment of the other creditors of such borrower, a court may elect to subordinate the claim of the offending lending institution to the claims of the disadvantaged creditor or creditors, a remedy called “equitable subordination.” Because of the nature of certain of our investments, we could be subject to claims from creditors of an obligor that our investments issued by such obligor should be equitably subordinated. A significant number of our investments will involve investments in which we will not be the lead creditor. It is, accordingly, possible that lender liability or equitable subordination claims affecting our investments could arise without our direct involvement. 40 If we purchase debt securities of an affiliate of a portfolio company in the secondary market at a discount, (i) a court might require us to disgorge profit it realizes if the opportunity to purchase such securities at a discount should have been made available to the issuer of such securities or (ii) we might be prevented from enforcing such securities at their full face value if the issuer of such securities becomes bankrupt. Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio. Following an initial investment in a portfolio company, we may decide to provide additional funds to such portfolio company, in order to: ● increase or maintain in whole or in part our position as a creditor or equity ownership percentage in a portfolio company; ● exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or ● attempt to preserve or enhance the value of our investment. There is no assurance that we will make follow-on investments or that we will have sufficient funds to make all or any of such investments. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our concentration of risk, because we prefer other opportunities or because we are inhibited by compliance with BDC requirements of the 1940 Act or the desire to maintain our qualification as a RIC. Any decision by us not to make follow-on investments or our inability to make such investments may have a substantial adverse effect on a portfolio company in need of such an investment. Additionally, a failure to make such investments may result in a lost opportunity for us to increase our participation in a successful portfolio company or the dilution of our ownership in a portfolio company if a third party invests in the portfolio company. Our portfolio may include equity investments, which are subordinated to debt investments and are subject to additional risks. We expect to make select equity investments in the common or preferred stock of a company, all of which are subordinated to debt investments. In addition, when we invest in first lien secured debt, second lien secured debt or subordinated debt, we may acquire warrants to purchase equity investments from time to time. Our goal is ultimately to dispose of these equity investments and realize gains upon our disposition of such interests. However, the equity investments we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity investments, and any gains that we do realize on the disposition of any equity investments may not be sufficient to offset any other losses we experience. In addition, many of the equity securities in which we invest may not pay dividends on a regular basis, if at all. Because we generally do not hold controlling equity interests in our portfolio companies, we generally will not be able to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments. We do not generally intend to hold controlling equity positions in our portfolio companies. As a result, we will be subject to the risk that a portfolio company may make business decisions with which we disagree, and that the management and/or stockholders of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the potential lack of liquidity of the debt and equity investments that we expect to hold in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company and may therefore suffer a decrease in the value of our investments. In addition, we may not be in a position to control any portfolio company by investing in its debt securities. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors. 41 Our portfolio companies could incur debt that ranks equally with, or senior to, our investments in such companies and such portfolio companies could fail to generate sufficient cash flow to service their debt obligations to us. The characterization of certain of our investments as senior debt or senior secured debt does not mean that such debt will necessarily be repaid in priority to all other obligations of the businesses in which we invest. Furthermore, debt and other liabilities incurred by non-guarantor subsidiaries of the borrowers of senior secured loans made by us may be structurally senior to the debt held by us. In the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, the debt and other liabilities of such subsidiaries could be repaid in full before any distribution can be made to an obligor of the senior secured loans held by us. Finally, portfolio companies will typically incur trade credit and other liabilities or indebtedness, which by their terms may provide that their holders are entitled to receive principal payments on or before the dates payments are due in respect of the senior secured loans held by us. Where we hold a first lien to secure senior indebtedness, the portfolio companies may be permitted to issue other senior loans with liens that rank junior to the first liens granted to us. The intercreditor rights of the holders of such other junior lien debt may, in any liquidation, reorganization, insolvency, dissolution or bankruptcy of such a portfolio company, affect the recovery that we would have been able to achieve in the absence of such other debt. Additionally, certain loans that we may make to portfolio companies may be secured on a second priority basis by the same collateral securing senior secured debt of such companies. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations secured by first priority liens on the collateral will generally control the liquidation of, and be entitled to receive proceeds from, any realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds were not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company’s remaining assets, if any. Even where the senior loans held by us are secured by a perfected lien over a substantial portion of the assets of a portfolio company and its subsidiaries, the portfolio company and its subsidiaries will often be able to incur a substantial amount of additional indebtedness, which may have an exclusive lien over particular assets. For example, debt and other liabilities incurred by non-guarantor subsidiaries of portfolio companies will be structurally senior to the debt held by us. Accordingly, any such debt and other liabilities of such subsidiaries would, in the event of liquidation, dissolution, insolvency, reorganization or bankruptcy of such subsidiary, be repaid in full before any distributions to an obligor of the loans held by us. Furthermore, these other assets over which other lenders have a lien may be substantially more liquid or valuable than the assets over which we have a lien. The rights we may have with respect to the collateral securing the loans we make to our portfolio companies with senior debt outstanding may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of such senior debt. Under a typical intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens: ● the ability to cause the commencement of enforcement proceedings against the collateral; ● the ability to control the conduct of such proceedings; ● the approval of amendments to collateral documents; ● releases of liens on the collateral; and ● waivers of past defaults under collateral documents. We may not have the ability to control or direct such actions, even if our rights are adversely affected. We may also make unsecured debt investments in portfolio companies, meaning that such investments will not benefit from any interest in collateral of such companies. Liens on any such portfolio company’s collateral, if any, will secure the portfolio company’s obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the portfolio company under its secured debt agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds from, any realization of such collateral to repay their obligations in full before us. In addition, the value of such collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy our unsecured debt obligations after payment in full of all secured debt obligations. If such proceeds were not sufficient to repay the outstanding secured debt obligations, then our unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio company’s remaining assets, if any. 42 We may be subject to risk if we invest in non-U.S. securities. Our portfolio may include debt securities of non-U.S. companies, including emerging market issuers, to the limited extent such transactions and investments would not cause us to violate the 1940 Act. Investing in loans and securities of non-U.S. issuers involves many risks including economic, social, political, financial, tax and security conditions in the non-U.S. market, potential inflationary economic environments, less liquid markets and regulation by foreign governments. There may be less information publicly available about a non-U.S. issuer than about a U.S. issuer, and non-U.S. issuers may not be subject to accounting, auditing and financial reporting standards and practices comparable to those in the United States. In addition, with respect to certain countries, there is a possibility of expropriation, imposition of non-U.S. withholding or other taxes on distributions, interest, capital gains or other income, limitations on the removal of funds or other of our assets, political or social instability or diplomatic developments that could affect investments in those countries. An issuer of securities may be domiciled in a country other than the country in whose currency the instrument is denominated. The values and relative yields of investments in the securities markets of different countries, and their associated risks, are expected to change independently of each other. Bankruptcy law and process in non-U.S. jurisdictions may differ substantially from that in the United States, which may result in greater uncertainty as to the rights of creditors, the enforceability of such rights, reorganization timing and the classification, seniority and treatment of claims. In certain developing countries, although bankruptcy laws have been enacted, the process for reorganization remains highly uncertain, while other developing countries may have no bankruptcy laws enacted, adding further uncertainty to the process for reorganization. We may be subject to risks if we engage in hedging transactions. We are authorized to use various investment strategies to hedge interest rate or currency exchange risks. These strategies are generally accepted as portfolio management techniques and are regularly used by many investment funds and other institutional investors. Techniques and instruments may change over time as new instruments and strategies are developed or regulatory changes occur. We may use any or all such types of interest rate hedging transactions and currency hedging transactions at any time and no particular strategy will dictate the use of one transaction rather than another. The choice of any particular interest rate hedging transactions and currency hedging transactions will be a function of numerous variables, including market conditions. Investments or liabilities of ours may be denominated in currencies other than the U.S. dollar, and hence the value of such investments, or the amount of such liabilities, will depend in part on the relative strength of the U.S. dollar. We may be affected favorably or unfavorably by exchange control regulations or changes in the exchange rate between foreign currencies and the U.S. dollar. Changes in foreign currency exchange rates may also affect the value of dividends and interest earned as well as the level of gains and losses realized on the sale of securities. The rates of exchange between the U.S. dollar and other currencies are affected by many factors, including forces of supply and demand in the foreign exchange markets. These rates are also affected by the international balance of payments and other economic and financial conditions, government intervention, speculation and other factors. We are not obligated to engage in any currency hedging operations, and there can be no assurance as to the success of any hedging operations that we may implement. Although we intend to engage in any interest rate hedging transactions and currency hedging transactions primarily for hedging purposes and not for income or enhancing total returns, use of interest rate hedging transactions and currency hedging transactions involves certain inherent risks. These risks include (i) the possibility that the market will move in a manner or direction that would have resulted in gain for us had an interest rate hedging transaction or currency hedging transaction not been utilized, in which case it would have been better had we not engaged in the interest rate hedging transaction or currency hedging transaction, (ii) the risk of imperfect correlation between the risk sought to be hedged and the interest rate hedging transaction or currency hedging transaction utilized, (iii) potential illiquidity for the hedging instrument utilized, which may make it difficult for us to close-out or unwind an interest rate hedging transaction or currency hedging transaction and (iv) credit risk with respect to the counterparty to the interest rate hedging transaction or currency hedging transaction. In addition, it might not be possible for us to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those loans and securities would likely fluctuate as a result of factors not related to currency fluctuations. We may also enter into certain hedging and short sale transactions for the purpose of protecting the market value of an investment of ours for a period of time without having to currently dispose of such investment. Such defensive hedge transactions may be entered into when we are legally restricted from selling an investment or when we otherwise determine that it is advisable to decrease our exposure to the risk of a decline in the market value of an investment. Such defensive hedging transactions may expose us to the counterparty’s credit risk. There also can be no assurance that we will accurately assess the risk of a market value decline with respect to an investment or enter into an appropriate defensive hedge transaction to protect against such risk. Furthermore, we are in no event obligated to enter into any defensive hedge transaction. We may from time to time employ various investment programs, including the use of derivatives, short sales, swap transactions, currency hedging transactions, securities lending agreements and repurchase agreements. There can be no assurance that any such investment program will be undertaken successfully. 43 Our investments in OID and PIK interest income may expose us to risks associated with such income being required to be included in accounting income and taxable income prior to receipt of cash. Our investments may include OID and PIK instruments. To the extent OID and PIK interest income constitute a portion of our income, we will be exposed to risks associated with such income being required to be included in an accounting income and taxable income prior to receipt of cash, including the following: ● OID instruments and PIK securities may have unreliable valuations because the accretion of OID as interest income and the continuing accruals of PIK securities require judgments about their collectability and the collectability of deferred payments and the value of any associated collateral. ● OID instruments may create heightened credit risks because the inducement to the borrower to accept higher interest rates in exchange for the deferral of cash payments typically represents, to some extent, speculation on the part of the borrower. ● For accounting purposes, cash distributions to stockholders that include a component of accreted OID income do not come from paid-in capital, although they may be paid from the offering proceeds. Thus, although a distribution of accreted OID income may come from the cash invested by the stockholders, the 1940 Act does not require that stockholders be given notice of this fact. ● The higher interest rates on PIK securities reflects the payment deferral and increased credit risk associated with such instruments and PIK securities generally represent a significantly higher credit risk than coupon loans. ● The presence of accreted OID income and PIK interest income create the risk of non-refundable cash payments to the Investment Advisor in the form of incentive fees on income that will be payable subsequent to a Listing based on non-cash accreted OID income and PIK interest income accruals that may never be realized. ● Even if accounting conditions are met, borrowers on such securities could still default when our actual collection is expected to occur at the maturity of the obligation. ● PIK interest has the effect of generating investment income and increasing the incentive fees that will be payable subsequent to a Listing at a compounding rate. In addition, the deferral of PIK interest also reduces the loan-to-value ratio at a compounding rate. ● Market prices of OID instruments are more volatile because they are affected to a greater extent by interest rate changes than instruments that pay interest periodically in cash. ● The required recognition of OID, including PIK, interest for U.S. federal income tax purposes may have a negative impact on liquidity, because it represents a non-cash component of our taxable income that must, nevertheless, be distributed in cash to investors to avoid us being subject to corporate level taxation. Federal Income Tax and Other Tax Risks We will be subject to corporate-level income tax if we are unable to qualify as a RIC. In order to qualify and be subject to tax as a RIC under the Code, we must be a BDC at all times during each taxable year and meet certain source-of-income, asset diversification and distribution requirements. If we do not maintain our status as a BDC, we may fail to qualify as a RIC and, thus, may be subject to corporate-level income tax. The distribution requirement for a RIC is satisfied if we distribute dividends in respect of each taxable year of an amount generally at least equal to 90% of our investment company taxable income, determined without regard to any deduction for dividends paid, to our stockholders. We will be subject, to the extent we use debt financing, to certain asset coverage ratio requirements under the 1940 Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to enable us to be subject to tax as a RIC. If we are unable to obtain cash from other sources, we may fail to be subject to tax as a RIC and, thus, may be subject to corporate-level income tax. To qualify to be subject to tax as a RIC, we must also meet certain asset diversification requirements at the end of each quarter of our taxable year. Failure to meet these tests may result in our having to dispose of certain investments quickly in order to satisfy these requirements. Because most of our investments will be in private or thinly traded public companies, any such dispositions could be made at disadvantageous prices and may result in substantial losses. If we fail to qualify to be subject to tax as a RIC for any reason and become subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distributions to our stockholders and the amount of funds available for new investments. Such a failure would have a material adverse effect on us and our stockholders. 44 We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash representing such income. For U.S. federal income tax purposes, we will include in income certain amounts that we have not yet received in cash, such as the accretion of OID. This may arise if we receive warrants in connection with the making of a loan and in other circumstances, or through contracted PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such OID, which could be significant relative to our overall investment activities, or increases in loan balances as a result of contracted PIK arrangements, will be included in income before we receive any corresponding cash payments. We also may be required to include in income certain other amounts that we will not receive in cash. Since in certain cases we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement in a given taxable year to distribute at least 90% of our investment company taxable income, determined without regard to any deduction for dividends paid, as dividends to our stockholders in order to be subject to tax as a RIC. In such a case, we may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If we are not able to obtain such cash from other sources, we may fail to be subject to tax as a RIC and thus be subject to corporate-level income tax. If we are not treated as a “publicly offered regulated investment company,” as defined in the Code, U.S. stockholders that are individuals, trusts or estates could be subject to tax as though they received a distribution of some of our expenses. We cannot assure you that we will be treated as a publicly offered regulated investment company for all years. Unless and until we are treated as a “publicly offered regulated investment company” (within the meaning of Section 67 of the Code) by reason of either (i) shares of our common stock and our preferred stock (if any) collectively are held by at least 500 persons at all times during a taxable year, (ii) shares of our common stock are treated as regularly traded on an established securities market or (iii) shares of our common stock are continuously offered pursuant to a public offering (within the meaning of Section 4 of the Securities Act). For a calendar year, each U.S. stockholder that is an individual, trust or estate will be treated as having received a dividend from us in the amount of such U.S. stockholder’s allocable share of the management fees paid to our Investment Advisor and certain of our other expenses for the calendar year, and these fees and expenses will be treated as miscellaneous itemized deductions of such U.S. stockholder. For taxable years beginning before 2026, miscellaneous itemized deductions generally are not deductible by a U.S. stockholder that is an individual, trust or estate. For taxable years beginning in 2026 or later, miscellaneous itemized deductions generally are deductible by a U.S. stockholder that is an individual, trust or estate only to the extent that the aggregate of such U.S. stockholder’s miscellaneous itemized deductions exceeds 2% of such U.S. stockholder’s adjusted gross income for U.S. federal income tax purposes, are not deductible for purposes of the alternative minimum tax and are subject to the overall limitation on itemized deductions under Section 68 of the Code. We may be subject to withholding of U.S. federal income tax on distributions for non-U.S. stockholders. Distributions by a BDC generally are treated as dividends for U.S. tax purposes, and will be subject to U.S. income or withholding tax unless the stockholder receiving the dividend qualifies for an exemption from U.S. tax, or the distribution is subject to one of the special look-through rules described below. Distributions paid out of net capital gains can qualify for a reduced rate of taxation in the hands of an individual U.S. stockholder, and an exemption from U.S. tax in the hands of a non-U.S. stockholder. However, if reported by a RIC, dividend distributions by the RIC derived from certain interest income (such distributions, “interest-related dividends”) and certain net short-term capital gains (such distributions, “short-term capital gain dividends”) generally are exempt from U.S. withholding tax otherwise imposed on non-U.S. stockholders. Interest-related dividends are dividends that are attributable to “qualified net interest income” (i.e., “qualified interest income,” which generally consists of certain interest and OID on obligations “in registered form” as well as interest on bank deposits earned by a RIC, less allocable deductions) from sources within the United States. Short-term capital gain dividends are dividends that are attributable to net short-term capital gains, other than short-term capital gains recognized on the disposition of U.S. real property interests, earned by a RIC. However, no assurance can be given as to whether any of our distributions will be eligible for this exemption from U.S. withholding tax or, if eligible, will be reported as such by us. Furthermore, in the case of shares of our stock held through an intermediary, the intermediary may have withheld U.S. federal income tax even if we reported the payment as an interest-related dividend or short-term capital gain dividend. Since our common stock will be subject to significant transfer restrictions, and an investment in our common stock will generally be illiquid, non-U.S. stockholders whose distributions on our common stock are subject to U.S. withholding tax may not be able to transfer their shares of our common stock easily or quickly or at all. 45 A failure of any portion of our distributions to qualify for the exemption for interest-related dividends or short-term capital gain dividends would not affect the treatment of non-U.S. stockholders that qualify for an exemption from U.S. withholding tax on dividends by reason of their special status (for example, foreign government-related entities and certain pension funds resident in favorable treaty jurisdictions). Our business may be adversely affected if we fail to maintain our qualification as a RIC. To maintain RIC tax treatment under the Code, we must be a BDC at all times during each taxable year and meet the following minimum annual distribution, income source and asset diversification requirements. The minimum annual distribution requirement for a RIC will be satisfied if we distribute dividends to our stockholders in respect of each taxable year of an amount generally at least equal to 90% of our investment company taxable income, determined without regard to any deduction for dividends paid. In this regard, a RIC may, in certain cases, satisfy the 90% distribution requirement by distributing dividends relating to a taxable year after the close of such taxable year under the “spillback dividend” provisions of Subchapter M of the Code. We would be taxed, at regular corporate rates, on any retained income and/or gains, including any short-term capital gains or long-term capital gains. We must also satisfy an additional annual distribution requirement with respect to each calendar year in order to avoid a 4% excise tax on the amount of any under-distribution. Because we may use debt financing, we are subject to (i) an asset coverage ratio requirement under the 1940 Act and may, in the future, be subject to (ii) certain financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the distribution requirements. If we are unable to obtain cash from other sources, or chose or be required to retain a portion of our taxable income or gains, we could (1) be required to pay excise tax and (2) fail to qualify for RIC tax treatment, and thus become subject to corporate-level income tax on our taxable income (including gains). The income source requirement will be satisfied if we obtain at least 90% of our gross income each taxable year from dividends, interest, gains from the sale of stock or securities, or other income derived from the business of investing in stock or securities. The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year. To satisfy this requirement, at least 50% of the value of our assets at the close of each quarter of each taxable year must consist of cash, cash equivalents (including receivables), U.S. Government securities, securities of other RICs, and other acceptable securities; and no more than 25% of the value of our assets can be invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because a significant portion of our investments will be in private companies, and therefore may be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses. We may invest in certain debt and equity investments through taxable subsidiaries and the net taxable income of these taxable subsidiaries will be subject to federal and state corporate income taxes. We also may invest in certain foreign debt and equity investments which could be subject to foreign taxes (such as income tax, withholding, and value added taxes). If we fail to qualify for or maintain RIC tax treatment for any reason and are subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution, and the amount of our distributions. There is a risk that you may not receive distributions or that our distributions may not grow over time and a portion of our distributions may be a return of capital. We intend to make distributions on a quarterly basis to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. Our ability to pay distributions might be adversely affected by the impact of one or more of the risk factors described in this Annual Report. Due to the asset coverage test applicable to us under the 1940 Act as a BDC and certain limitations under Maryland law, we may be limited in our ability to make distributions. In addition, if we violate certain covenants under our credit facilities, or any future credit or other borrowing facility, our ability to pay distributions to our stockholders could be limited because we may be required by its terms to use all payments of interest and principal that we receive from our current investments as well as any proceeds received from the sale of our current investments to repay amounts outstanding thereunder. 46 Furthermore, the tax treatment and characterization of our distributions may vary significantly from time to time due to the nature of our investments. The ultimate tax characterization of our distributions made during a taxable year may not finally be determined until after the end of that taxable year. We may make distributions during a taxable year that exceed our investment company taxable income and net capital gains for that taxable year. In such a situation, the amount by which our total distributions exceed investment company taxable income and net capital gains generally would be treated as a return of capital up to the amount of a stockholder’s tax basis in the shares, with any amounts exceeding such tax basis treated as a gain from the sale or exchange of such shares. A return of capital generally is a return of a stockholder’s investment rather than a return of earnings or gains derived from our investment activities. Moreover, we may pay all or a substantial portion of our distributions from the proceeds of the sale of shares of our common stock or from borrowings in anticipation of future cash flow, which could constitute a return of stockholders’ capital and will lower such stockholders’ tax basis in our shares, which may result in increased tax liability to stockholders when they sell such shares. General Risk Factors Global capital markets could enter a period of severe disruption and instability. These conditions have historically affected and could again materially and adversely affect debt and equity capital markets in the United States and around the world and our business. Periods of market volatility have occurred and could continue to occur in response to pandemics or other events outside of our control. These types of events have adversely affected and could continue to adversely affect operating results for us and our portfolio companies. For example, in February 2022, Russia invaded Ukraine, which disrupted financial markets. Such war, any expansion of such war or any sanctions imposed on Russia, including exclusion from SWIFT, could lead to further disruptions in financial markets, which could adversely affect operating results for us and our portfolio companies. Furthermore, in December 2019, COVID-19, a novel strain of coronavirus, surfaced in China and has since spread to other countries, including the United States. This pandemic has led, and for an unknown period of time will continue to lead, to disruptions in local, regional, national and global markets and economies affected thereby, including the United States. With respect to U.S. credit markets, this outbreak has resulted in, and until fully resolved is likely to continue to result in, the following (among other things): (i) restrictions on travel and the temporary closure of many corporate offices, retail stores, and manufacturing facilities and factories, resulting in significant disruption to the business of many companies, including supply chains and demand, as well as layoffs of employees; (ii) increased draws by borrowers on revolving lines of credit; (iii) increased requests by borrowers for amendments or waivers of their credit agreements to avoid default, increased defaults by borrowers and/or increased difficulty in obtaining refinancing; (iv) volatility in credit markets including greater volatility in pricing and spreads; and (v) rapidly evolving proposals and actions by state and federal governments to address the problems being experienced by markets, businesses and the economy in general, which may not adequately address these problems. The pandemic is having, and any future continuation of the pandemic could have, an adverse impact on the markets and the economy in general. We continue to assess the impact of COVID-19 on portfolio companies. Although it is impossible to predict the precise nature and consequences of these events, or of any political or policy decisions and regulatory changes caused by emerging events or uncertainty on applicable laws or regulations that impact us, and our portfolio companies and investments, it is clear that these types of events are impacting and will, for at least some time, continue to impact us and our portfolio companies and investments and in many instances the impact may be adverse and profound. New or modified laws or regulations governing our operations could adversely affect our business. We and our portfolio companies will be subject to regulation by laws at the U.S. federal, state and local levels. These laws and regulations, as well as their interpretation, may change from time to time, and new laws, regulations and interpretations may also come into effect. Any such new or changed laws or regulations could have a material adverse effect on our business. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES Our headquarters are located at 1900 Shawnee Mission Parkway, Suite 315, Mission Woods, Kansas 66205. We believe that our office facilities are suitable and adequate for our business. ITEM 3. LEGAL PROCEEDINGS We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under loans to or other contracts with our portfolio companies. ITEM 4. MINE SAFETY DISCLOSURES None. 47 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information There is currently no public market for our common stock, nor can we give any assurance that one will develop. As of the date hereof, none of our shares of common stock are subject to outstanding options or warrants, nor do we have any outstanding equity that is convertible into shares of our common stock. In addition, as of the date hereof, we have not granted any registration rights to any of our stockholders. No stock has been authorized for issuance under any equity compensation plans. Holders As of March 11, 2022, we had 210 record holders of our common stock. Distributions The following table reflects the distributions declared on shares during the fiscal year ended December 31, 2021: Declaration Date Record Date Per Share Payment Date Total Distributions Declared 5/13/2021 5/18/2021 $ 0.31 5/19/2021 $ 4,050,180 8/12/2021 8/17/2021 0.25 8/18/2021 3,738,707 11/12/2021 11/16/2021 0.17 11/17/2021 3,713,626 12/30/2021 12/31/2021 0.65 1/19/2022 14,449,980 $ 25,952,493 The following table reflects the distributions declared on shares during the fiscal year ended December 31, 2020: Declaration Date Record Date Per Share Payment Date Total Distributions Declared 5/12/2020 5/12/2020 $ 0.040 5/14/2020 $ 488,608 8/17/2020 8/17/2020 0.270 8/18/2020 3,325,960 11/16/2020 11/16/2020 0.360 11/17/2020 4,472,622 12/29/2020 12/31/2020 0.310 1/19/2021 3,894,469 $ 12,181,659 Distribution Reinvestment Plan The Company has adopted a dividend reinvestment plan that provides for reinvestment of its dividends and other distributions on behalf of the Company’s stockholders, unless a stockholder elects to receive cash. As a result, if the Company’s Board authorizes, and the Company declares, a cash dividend or other distribution, then stockholders who do not “opt out” of the Company’s dividend reinvestment plan will have their cash dividends and distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving cash dividends and distributions. 48 Prior to a Listing, the Board will use newly-issued shares of the Company’s common stock to implement the dividend reinvestment plan. The number of shares of common stock to be issued to a participant prior to a Listing would be equal to the quotient determined by dividing the cash value of the dividend payable to such stockholder by the net asset value per share as of the date such dividend was declared. After a Listing, the Board intends to primarily use newly-issued shares to implement the dividend reinvestment plan, whether or not the shares are trading at a price per share at, below or above net asset value. However, the Board reserves the right to purchase shares in the open market in connection with the implementation of the dividend reinvestment plan. The Board will examine the full facts and circumstances of each such dividend to determine the approach (i.e., to use newly issued shares or effectuate open market purchases to implement the dividend reinvestment plan) that is in the best interests of stockholders taking into account the Board’s fiduciary duties to stockholders, including by weighing the potential dilution in connection with such issuance to be incurred by the Company’s stockholders against the Company’s need and usage of reinvested funds. The number of newly issued shares to be issued to a participant would be determined by dividing the total dollar amount of the dividend payable to such stockholder by the market price per share of the Company’s common stock at the close of regular trading on a national securities exchange on the dividend payment date. Shares purchased in open market transactions by US Bank, the plan administrator and the Company’s transfer agent, registrar and dividend disbursing agent, will be allocated to a participant based upon the average purchase price, excluding any brokerage charges or other charges, of all shares of the Company’s common stock purchased with respect to the dividend. A registered stockholder may elect to receive an entire distribution in cash by notifying US Bank in writing so that such notice is received by the plan administrator no later than the record date for distributions to stockholders. The plan administrator will set up an account for shares acquired through the plan for each stockholder who has not elected to receive dividends or other distributions in cash and hold such shares in noncertificated form. There will be no brokerage charges or other charges to stockholders who participate in the plan. The plan administrator’s fees are paid by the Company. Stockholders who receive dividends and other distributions in the form of stock are generally subject to the same U.S. federal, state and local tax consequences as are stockholders who elect to receive their distributions in cash. However, since a participating stockholder’s cash dividends will be reinvested, such stockholder will not receive cash with which to pay any applicable taxes on reinvested dividends. A stockholder’s basis for determining gain or loss upon the sale of stock received in a dividend or other distribution from the Company will generally be equal to the total dollar amount of the distribution payable to the stockholder. Any stock received in a dividend or other distribution will have a new holding period for tax purposes commencing on the day following the day on which the shares are credited to the U.S. stockholder’s account. Participants may terminate their accounts under the plan by so notifying the plan administrator by submitting a letter of instruction terminating the participant’s account under the plan to US Bank. The plan may be terminated by the Company upon notice in writing mailed to each participant at least 30 days prior to any record date for the payment of any dividend by the Company. If participants withdraw from the plan or the plan is terminated, the plan administrator will cause the shares held for the participant under the plan to be delivered to the participant. If an investor holds common stock with a brokerage firm that does not participate in the plan, such investor will not be able to participate in the plan and any dividend reinvestment may be affected on different terms than those described above. Stockholders can obtain additional information about the dividend reinvestment plan by contacting US Bank via telephone at 1-866-775-9668 or by mailing a request to U.S. Bank National Association, One Federal Street, 3rd Floor, Boston, Massachusetts 02110. Recent sales of Unregistered Securities During the year ended December 31, 2021, the Company issued and sold 10,007,526 shares of its common stock at an aggregate purchase price of approximately $206.6 million. The issuance of the shares of common stock was exempt from the registration requirements of the Securities Act, pursuant to Section 4(a)(2) and Rule 506(b) of Regulation D thereof. ITEM 6. [Reserved] Not applicable. 49 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K. Forward Looking Statements This annual report on Form 10-K contains forward-looking statements that involve substantial known and unknown risks, uncertainties and other factors. Undue reliance should not be placed on such statements. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our company, our current and prospective portfolio investments, our industry, our beliefs and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including: ● our future operating results; ● our business prospects and the prospects of our portfolio companies; ● changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, including changes from the impact of the novel coronavirus (SARS-CoV-2) and related respiratory disease (“COVID-19”) pandemic; ● the ability of the Investment Advisor to locate suitable investments for us and to monitor and administer our investments; ● the ability of the Investment Advisor and its affiliates to attract and retain highly talented professionals; ● risk associated with possible disruptions in our operations or the economy generally; ● the timing of cash flows, if any, from the operations of the companies in which we invest; ● the ability of the companies in which we invest to achieve their objectives, including as a result of the current COVID-19 pandemic; ● our ability to continue to effectively manage our business due to the disruptions caused by the current COVID-19 pandemic; ● the dependence of our future success on the general economy and its effect on the industries in which we invest; ● our ability to maintain our qualification as a BDC and as a RIC under the Code; ● the use of borrowed money to finance a portion of our investments; ● the adequacy, availability and pricing of our financing sources and working capital; ● actual or potential conflicts of interest with the Investment Advisor and its affiliates; ● our contractual arrangements and relationships with third parties; ● the current economic downturn, interest rate volatility, loss of key personnel, and the illiquid nature of our investments; and ● the risks, uncertainties and other factors we identify under “Item 1A. Risk Factors” and elsewhere in this annual report on Form 10-K. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of the assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this annual report on Form 10-K should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in the section entitled “Item 1A. Risk Factors” and elsewhere in this annual report on Form 10-K. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this annual report on Form 10-K. Moreover, we assume no duty and do not undertake to update the forward-looking statements. 50 Overview We are a financial services company that primarily lends to and invests in corporate debt securities of companies, including small to large private U.S. companies. We were organized as a Maryland corporation on August 26, 2019 and are structured as an externally managed, non-diversified closed-end management investment company. We have elected to be regulated as a BDC under the 1940 Act and, beginning with our taxable year ending December 31, 2020, we have elected to be treated as a RIC under Subchapter M of the Code, and we expect to qualify as a RIC annually thereafter. We are externally managed by the Investment Advisor, an investment adviser that is registered with the SEC under the Advisers Act, pursuant to the Advisory Agreement. Subject to the supervision of our Board, a majority of which is made up of Independent Directors, our Investment Advisor manages our day-to-day operations and provides us with investment advisory and management services and certain administrative services. The Investment Advisor, in its capacity as Administrator, provides the administrative services necessary for us to operate pursuant to the Administration Agreement. The Administrator has entered into the Sub-Administration Agreement to delegate certain administrative functions to the Sub-Administrator. Our Investment Advisor is a majority-owned subsidiary of Palmer Square, which is a privately-held firm specializing in global alternative (non-traditional) investments with a total return orientation. Our investment objective is to maximize total return, comprised of current income and capital appreciation. The Company’s current investment focus is guided by two strategies that facilitate our investment opportunities and core competencies: (1) investing in corporate debt securities and, to a lesser extent, (2) investing in CLO structured credit that typically owns corporate debt securities, including the equity and junior debt tranches of CLOs. To a limited extent, we may enter into derivatives transactions, which may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates and market interest rates or to earn income and enhance our total returns. We may also receive or purchase warrants or rights to acquire equity or other securities in connection with making a debt investment in a company. We may also invest in other strategies and opportunities from time to time that we view as attractive. We will continue to evaluate other investment strategies in the ordinary course of business with no specific top-down allocation to any single investment strategy. Revenues We generate revenue primarily in the form of interest and fee income on debt investments we hold and capital gains, if any, on investments. Our debt investments generally bear interest at a floating rate usually determined on the basis of a benchmark such as LIBOR. Interest on debt securities is generally payable quarterly or semi-annually. In some instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments is expected to fluctuate significantly from period to period. Our portfolio activity also reflects the proceeds of sales of securities. We may also generate revenue in the form of commitment, origination, amendment, structuring or due diligence fees, fees for providing managerial assistance and consulting fees. Expenses Our primary operating expenses include the payment of fees to the Investment Advisor under the Advisory Agreement, our allocable portion of overhead and rental expenses under the Administration Agreement and other operating costs described below. We bear all other out-of-pocket costs and expenses of our operations and transactions, including: ● interest expense and other costs associated with our indebtedness; ● the cost of calculating our net asset value, including the cost of any third-party valuation services; ● the cost of effecting sales and repurchases of shares of our common stock and other securities; ● fees payable to third parties relating to making investments, including our Investment Advisor’s or its affiliates’ travel expenses, research costs and out-of-pocket fees and expenses associated with performing due diligence and reviews of prospective investments; ● transfer agent and custodial fees; ● operating costs incurred prior to the commencement of our operations; ● out-of-pocket fees and expenses associated with marketing efforts; ● federal and state registration fees and any stock exchange listing fees; ● U.S. federal, state and local taxes; 51 ● Independent Directors’ fees and expenses; ● brokerage commissions and markups; ● fidelity bond, directors’ and officers’ liability insurance and other insurance premiums; ● direct costs, such as printing, mailing, long distance telephone and staff; ● fees and expenses associated with independent audits and outside legal costs; ● costs associated with our reporting and compliance obligations under the 1940 Act and other applicable U.S. federal and state securities laws; and ● other expenses incurred by the Administrator or us in connection with administering our business, including payments under the Administration Agreement that will be based upon our allocable portion (subject to the review and approval of our Board) of overhead, including rental expenses. Portfolio and Investment Activity As of December 31, 2021, our weighted average total yield to maturity of debt and income producing securities at fair value was 5.77%, and our weighted average total yield to maturity of debt and income producing securities at amortized cost was 5.91%. As of December 31, 2020, our weighted average total yield to maturity of debt and income producing securities at fair value was 4.96%, and our weighted average total yield to maturity of debt and income producing securities at amortized cost was 5.49%. As of December 31, 2021, we had 240 debt and equity investments in 212 portfolio companies with an aggregate fair value of approximately $1.1 billion. As of December 31, 2020, we had 202 debt and private investments in 181 portfolio companies with an aggregate fair value of approximately $600.1 million. Our investment activity for the year ended December 31, 2021 and the period January 23, 2020 (Commencement of Operations) through December 31, 2020 is presented below (information presented herein is at amortized cost unless otherwise indicated). For the Year Ended December 31, 2021 For the Period January 23, 2020 (Commencement of Operations) through December 31, 2020 New investments: Gross investments $ 926,351,937 $ 854,515,933 Less: sold investments (401,760,802 ) (268,256,929 ) Total new investments 524,591,135 586,259,004 Principal amount of investments funded: First-lien senior secured debt investments $ 829,591,637 $ 810,935,108 Second-lien senior secured debt investments 57,492,916 20,328,052 Corporate bonds 2,883,300 6,494,148 Convertible bonds 1,025,000 - Collateralized securities and structured products - debt 14,757,907 16,758,625 Collateralized securities and structured products - equity 20,101,177 - Common stock 500,000 - Total principal amount of investments funded 926,351,937 854,515,933 Principal amount of investments sold or repaid: First-lien senior secured debt investments 380,386,061 257,021,739 Second-lien senior secured debt investments 12,583,308 920,206 Convertible bonds 3,026 6,494,148 Collateralized securities and structured products - debt 8,788,407 3,820,836 Total principal amount of investments sold or repaid 401,760,802 268,256,929 52 Our investment activity for the year ended December 31, 2021 and the period January 23, 2020 (Commencement of Operations) through December 31, 2020 is presented below (information presented herein is at Par unless otherwise indicated). New investment commitment refers to funded commitments in new securities made during the year that remained outstanding as of December 31, 2021 and December 31, 2020 respectively. For the Year Ended December 31, 2021 For the Period January 23, 2020 (Commencement of Operations) through December 31, 2020 Number of new investment commitments 155 206 Average new investment commitment amount $ 4,521,355 $ 2,950,629 Weighted average maturity for new investment commitments 5.85 years 5.15 years Percentage of new debt investment commitments at floating rates 99.42 % 99.79 % Percentage of new debt investment commitments at fixed rates 0.58 % 0.21 % Weighted average interest rate of new investment commitments (1) 4.80 % 4.74 % Weighted average spread over LIBOR of new floating rate investment commitments (2) 4.39 % 4.15 % Weighted average interest rate on investment sold or paid down 4.40 % 3.94 % (1) New CLO equity investments do not have an ascribed interest rate (2) Weighted Average Spread over SOFR as of December 31, 2021 is included in this calculation for three of the Company’s new floating rate investment commitments in the year ended December 31, 2021 As of December 31, 2021 and December 31, 2020, our investments consisted of the following: December 31, 2021 December 31, 2020 Amortized Fair Amortized Fair Investments: Cost Value Cost Value First-lien senior secured debt $ 1,003,839,402 $ 1,007,407,474 $ 554,650,131 $ 566,459,850 Second-lien senior secured debt 64,317,453 64,658,512 19,407,847 19,975,980 Corporate Bonds 2,883,596 2,947,571 - - Convertible Bond 1,021,974 942,069 - - CLO Mezzanine 18,907,287 19,105,394 12,937,788 13,615,501 CLO Equity 20,101,177 20,253,800 - - Equity 500,000 800,000 - - Short-term investments 78,142,764 78,142,764 53,104,869 53,104,869 Total Investments $ 1,189,713,653 $ 1,194,257,584 $ 640,100,635 $ 653,156,200 53 The table below describes investments by industry composition based on fair value as of December 31, 2021 and December 31, 2020: December 31, 2021 December 31, 2020 Healthcare Providers and Services 10.8 % 12.0 % Software 10.2 % 13.3 % IT Services 9.4 % 3.1 % Cash and cash equivalents 6.5 % 8.1 % Professional Services 6.4 % 4.4 % Insurance 5.7 % 7.7 % Media 3.9 % 4.4 % Hotels, Restaurants and Leisure 3.5 % 3.6 % Independent Power and Renewable Electricity Producers 3.1 % 3.2 % Building Products 3.0 % 1.1 % Oil, Gas and Consumable Fuels 3.0 % 1.7 % Chemicals 2.2 % 1.8 % Healthcare Technology 2.1 % 2.3 % Healthcare Equipment and Supplies 2.0 % 1.1 % Containers and Packaging 1.8 % 2.4 % Diversified Financial Services 1.8 % 3.7 % Construction and Engineering 1.7 % 2.2 % Structured Subordinated Note 1.7 % - % Structured Note 1.6 % 2.1 % Metals and Mining 1.5 % 1.3 % Commercial Services and Supplies 1.5 % 2.8 % Auto Components 1.5 % - % Diversified Telecommunication Services 1.4 % 2.2 % Internet Software and Services 1.3 % - % Airlines 1.3 % - % Specialty Retail 1.2 % 2.4 % Food Products 1.1 % 1.2 % Electronic Equipment, Instruments and Components 1.1 % - % Aerospace and Defense 0.9 % 0.7 % Diversified Consumer Services 0.8 % 3.2 % Pharmaceuticals 0.8 % 1.0 % Industrial Conglomerates 0.8 % - % Electrical Equipment 0.6 % - % Real Estate Management and Development 0.6 % - % Road and Rail 0.6 % - % Wireless Telecommunication Services 0.6 % 0.9 % Technology Hardware, Storage and Peripherals 0.5 % 0.5 % Household Durables 0.4 % - % Leisure Products 0.4 % 0.8 % Machinery 0.3 % - % Electric Utilities 0.3 % 0.8 % Textiles, Apparel and Luxury Goods 0.1 % 0.3 % Interactive Media and Services - % 1.5 % Construction Materials - % 0.6 % Internet and Direct Marketing Retail - % 0.5 % Capital Markets - % 0.4 % Energy Equipment and Services - % 0.3 % Real Estate Investment Trusts (REITs) - % 0.3 % Transportation Infrastructure - % 0.1 % Total 100.0 % 100.0 % 54 The table below shows the weighted average yields and interest rate of our debt investments at fair value as of December 31, 2021 and December 31, 2020: December 31, 2021 December 31, 2020 Weighted average total yield of debt and income producing securities 5.77 % 4.96 % Weighted average interest rate of debt and income producing securities (1) 4.80 % 4.73 % Weighted average spread over LIBOR of all floating rate investments (2) 4.31 % 4.14 % (1) CLO equity securities are considered income producing securities but do not have an ascribed interest rate, and therefore are excluded from the calculation (2) Weighted Average Spread over SOFR as of December 31, 2021 is included in this calculation for three of the Company’s new floating rate investment commitments in the year ended December 31, 2021 Results of Operations The following table represents the operating results for the year ended December 31, 2021 and the period January 23, 2020 (Commencement of Operations) through December 31, 2020: For the Year Ended For the Period January 23, 2020 (Commencement of Operations) through December 31, 2021 December 31, 2020 Total investment income $ 39,685,653 $ 25,468,576 Less: Net expenses 16,851,412 10,771,790 Net investment income 22,834,241 14,696,786 Net realized gains (losses) on investments 4,753,263 (1,018,741 ) Net change in unrealized gains (losses) on investments (8,527,786 ) 13,055,565 Net increase (decrease) in net assets resulting from operations $ 19,059,718 $ 26,733,610 Investment Income Investment income for the year ended December 31, 2021 and the period January 23, 2020 (Commencement of Operations) through December 31, 2020, was as follows: For the Year Ended For the Period January 23, 2020 (Commencement of Operations) through December 31, 2021 December 31, 2020 Interest from investments $ 38,897,216 $ 24,956,907 Dividend income 9,597 228,092 Other income 778,840 283,577 Total investment income $ 39,685,653 $ 25,468,576 55 For the year ended December 31, 2021, total investment income was driven by interest income from our investments. For the period January 23, 2020 (Commencement of Operations) through December 31, 2020, total investment income was driven by our deployment of capital and interest income from our investments. The size of our investment portfolio at fair value increased from $0.00 as of January 23, 2020 to $600.1 million as of December 31, 2020. The size of our investment portfolio at fair value increased from $600.1 million as of December 31, 2020 to $1.1 billion as of December 31, 2021. All debt and short-term investments were income producing, and there were no loans on non-accrual status as of December 31, 2021. Expenses Operating expenses for the year ended December 31, 2021 and the period January 23, 2020 (Commencement of Operations) through December 31, 2020, was as follows: For the Year Ended For the Period January 23, 2020 (Commencement of Operations) through December 31, 2021 December 31, 2020 Interest and debt financing expenses $ 8,616,661 $ 4,739,682 Management fees 6,369,583 3,947,575 Other operating expenses 2,586,366 2,375,781 Initial organization - 122,199 Directors fees 75,000 80,000 Management fee waiver (796,198 ) (493,447 ) Net expenses $ 16,851,412 $ 10,771,790 Net expenses for the year ended December 31, 2021 were $16.9 million, which consisted of $8.6 million in interest and debt financing, $6.4 million in management fees, $2.6 million in other operating expenses, and $75 thousand in directors fees offset by $796 thousand in management fee waiver from the Investment Advisor. Interest expense increased during the year ended December 31, 2021 as a result of an increase in outstanding debt. Average debt outstanding increased from $247.5 million to $447.0 million for the period January 23, 2020 (Commencement of Operations) through December 31, 2020 and the year ended December 31, 2021, respectively. Management fees increased due to a higher value of total net assets during the period. Total net assets increased from $253.1 million to $452.8 million as of December 31, 2020 and December 31, 2021, respectively. Net expenses for the period from January 23, 2020 (Commencement of Operations) through December 31, 2020 were $10.8 million, which consisted of $4.7 million in interest and debt financing, $3.9 million in management fees, $122 thousand in initial organization expenses, $2.4 million in other operating expense, and $80 thousand in directors fees offset by $493 thousand in management fee waiver from the Investment Advisor. Net Change in Unrealized Gains (Losses) on Investments We fair value our portfolio investments quarterly and any changes in fair value are recorded as unrealized gains or losses. During the year ended December 31, 2021 and the period January 23, 2020 (Commencement of Operations) through December 31, 2020, net unrealized gains (losses) on our investment portfolio were comprised of the following: For the Year Ended For the Period January 23, 2020 (Commencement of Operations) through December 31, 2021 December 31, 2020 Unrealized gains on investments $ 6,224,196 $ 13,991,108 Unrealized (losses) on investments (14,751,982 ) (935,543 ) Net change in unrealized gains (losses) on investments $ (8,527,786 ) $ 13,055,565 56 The change in unrealized appreciation (depreciation) for the year ended December 31, 2021 totaled $(8.5) million and the change in unrealized appreciation (depreciation) for the period from January 23, 2020 (Commencement of Operations) through December 31, 2020 totaled $13.1 million. For the year ended December 31, 2021, this consisted of net unrealized depreciation of $864 thousand related to existing portfolio investments and unrealized appreciation of $2.7 million related to new portfolio investments, and net unrealized depreciation of $10.4 million related to exited portfolio investments (a portion of which has been reclassified to realized gains). The change in net unrealized appreciation for the period from January 23, 2020 (Commencement of Operations) through December 31, 2020 was related to the appreciation of our investments in Boxer Parent Company, Inc., CHG Healthcare Services, Inc, and Traverse Midstream Partners, LLC among other existing portfolio investments. Financial Condition, Liquidity and Capital Resources We anticipate cash to be generated from the private offering of our common stock and other future offerings of securities (including an initial public offering), and cash flows from operations, including interest earned from the temporary investment of cash in cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less. Additionally, we are permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 150% immediately after each such issuance. If we are unable to obtain leverage or raise equity capital on terms that are acceptable to us, our ability to grow our portfolio could be substantially impacted. Furthermore, while any indebtedness and senior securities remain outstanding, we may be required to prohibit any distribution to our stockholders or the repurchase of shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. In connection with borrowings, our lenders, including under the BoA Credit Facility and the WF Credit Facility, may require us to pledge assets, investor commitments to fund capital calls and/or the proceeds of those capital calls. In addition, such lenders may ask us to comply with positive or negative covenants that could have an effect on our operations. During the year ended December 31, 2021, we experienced a net increase in cash and cash equivalents of $411 thousand. During the period, net cash used in operating activities was $438 million, primarily as a result of fundings of portfolio investments (excluding investments in short-term money market funds) of $926.4 million, partially offset by proceeds received from sale of investments of $406.8 million. We invested in short-term money market funds during the period, and as of the end of the period we held $78.1 million in fair value of short-term money market funds. During the same period, net cash provided by financing activities was $438.4 million, primarily consisting of $256.6 million of net borrowing under the BoA Credit Facility and WF Credit Facility and proceeds from the issuance of common stock of $188.9 million, partially offset by distributions paid in cash of $6.3 million. During the period January 23, 2020 (Commencement of Operations) through December 31, 2020, we experienced a net increase in cash and cash equivalents of $681 thousand. During the period, net cash used in operating activities was $623.2 million, primarily as a result of fundings of portfolio investments (excluding investments in short-term money market funds) of $854.5 million, partially offset by proceeds received from sale of investments of $268.3 million. We invested in short-term money market funds during the period, and as of the end of the period we held $53.1 million in fair value of short-term money market funds. During the same period, net cash provided by financing activities was $623.9 million, primarily consisting of $395.3 million of net borrowing under the BoA Credit Facility and proceeds from the issuance of common stock of $233.7 million As of December 31, 2021 and December 31, 2020, we had cash and cash equivalents of $1.1 million and $683 thousand, respectively. As of December 31, 2021, we had $552 million principal outstanding under the BoA Credit Facility and $100 million principal outstanding under the WF Credit Facility. As of December 31, 2020, we had approximately $395 million principal outstanding under the BoA Credit Facility and no principal outstanding under the WF Credit Facility. During the year ended December 31, 2021 and the period January 23, 2020 (Commencement of Operations) through December 31, 2020, we had aggregate capital commitments and undrawn capital commitments from investors as follows: December 31, 2021 December 31, 2020 Capital Commitments Unfunded Capital Commitments (1) % of Capital Commitments Funded Capital Commitments Unfunded Capital Commitments(2) % of Capital Commitments Funded Common stock $ 193,511,571 $ 4,650,000 98 % $ 235,670,000 $ 2,000,000 99 % (1) 100% of the unfunded commitments were drawn down in January 2022. (2) 100% of the unfunded commitments were drawn down in January 2021. As a BDC, we are required to meet a coverage ratio of total assets to total borrowings and other senior securities, which include all of our borrowings and any preferred stock that we may issue in the future, of at least 150%. If this ratio declines below 150%, we cannot incur additional debt and could be required to sell a portion of our investments to repay some debt when it is disadvantageous to do so. As of December 31, 2021, our asset coverage ratio was 170%. Capital Contributions During the year ended December 31, 2021 and the period January 23, 2020 (Commencement of Operations) through December 31, 2020, the Company issued and sold 10,007,526 shares at an aggregate purchase price of $206.6 million and 12,562,805 shares at an aggregate purchase price of $238.6 million, respectively. These amounts include shares issued in reinvestment. 57 Financing Arrangements Bank of America Credit Facility On February 18, 2020, the Company, through a special purpose wholly-owned subsidiary, PS BDC Funding, entered into the Credit Agreement with the Lenders, BofA N.A. as the administrative agent and 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. 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. 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 LIBOR plus 1.30%. The “base rate” will be equal to the highest of (a) the federal funds rate plus 1/2 of 1%, (b) the prime rate and (c) 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). 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. 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. As of December 31, 2021, we had approximately $552 million principal outstanding and $173 million of available Commitments under the BoA Credit Facility, and PS BDC Funding was in compliance with the applicable covenants in the BoA Credit Facility on such date. Wells Fargo Credit Facility On December 18, 2020, the Company, through a special purpose wholly-owned subsidiary, PS BDC Funding II, entered into the Loan Agreement with the 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. 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. 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 1/2 of 1% 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). 58 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. As of December 31, 2021, we had approximately $100 million outstanding and $50 million of available Commitments under the WF Credit Facility, and PS BDC Funding II was in compliance with the applicable covenants in the WF Credit Facility on such date. Distribution Policy To the extent that we have income available, we intend to distribute quarterly dividends to our stockholders. Our quarterly dividends, if any, will be determined by our Board. Any dividends to our stockholders will be declared out of assets legally available for distribution. We have elected to be treated, and intend to operate in a manner so as to continuously qualify, as a RIC under the Code. To obtain and maintain RIC tax treatment, among other things, we must distribute dividends to our stockholders in respect of each taxable year of an amount at least equal to 90% of the sum of our net ordinary income and net short-term capital gains in excess of our net long-term capital losses (“investment company taxable income”), determined without regard to any deduction for dividends paid. In order to avoid certain excise taxes imposed on RICs, we currently intend to distribute dividends to our stockholders in respect of each calendar year of an amount at least equal to the sum of: (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for such calendar year; (2) 98.2% of our capital gains in excess of capital losses (“capital gain net income”), adjusted for certain ordinary losses, generally for the one-year period ending on October 31 of such calendar year; and (3) any net ordinary income and capital gain net income for preceding years that were not distributed during such years and on which we previously paid no U.S. federal income tax. Under certain applicable provisions of the Code and U.S. Treasury regulations, distributions payable in cash or in shares of stock at the election of the stockholders are treated as taxable dividends. The Internal Revenue Service has published guidance indicating that this rule will apply even where the total amount of cash that may be distributed is limited to no more than 20% of the total distribution. Under this guidance, if too many stockholders elect to receive their distributions in cash, the cash available for distribution must be allocated among the stockholders electing to receive cash (with the balance of the distribution paid in stock). If we decide to make any distributions consistent with this guidance that are payable in part in stock, taxable stockholders receiving such dividends will be required to include the full amount of the dividend (whether received in cash, shares of our stock, or a combination thereof) as ordinary income (or as long-term capital gain to the extent such distribution is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the value of our stock at the time of the sale. Furthermore, with respect to non-U.S. stockholders, the Company may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock. For these excise tax purposes, we will be deemed to have distributed any net ordinary taxable income or capital gain net income on which we have paid U.S. federal income tax. Depending on the level of taxable income earned in a calendar year, we may choose to carry forward taxable income for distribution in the following calendar year, and pay any applicable U.S. federal excise tax. We may not be able to achieve results that will permit the payment of cash distributions. We currently intend to distribute net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually out of the assets legally available for such distributions. However, we may decide in the future to retain such capital gains for investment, incur a corporate-level tax on such capital gains, and elect to treat such capital gains as deemed distributions to our stockholders. If this happens, our stockholders will be treated for U.S. federal income tax purposes as if they had received an actual distribution of the capital gains that we retain and reinvested the net after tax proceeds in us. In this situation, our stockholders would be eligible to claim a tax credit equal to their allocable share of the tax we paid on the capital gains deemed distributed to them. We may not be able to achieve operating results that will permit us to pay any cash distributions, and if we issue senior securities, we will be prohibited from making distributions if doing so would cause us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if such distributions are limited by the terms of any of our borrowings. We have adopted a dividend reinvestment plan that will provide for reinvestment of our dividends and other distributions on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our Board authorizes, and we declare, a cash dividend or other distribution, then stockholders who do not “opt out” of the Company’s dividend reinvestment plan will have their cash dividends and distributions automatically reinvested in additional shares of our common stock, rather than receiving cash dividends and distributions. Prior to a Listing, the Board will use newly-issued shares of the Company’s common stock to implement the dividend reinvestment plan. The number of shares of common stock to be issued to a participant prior to a Listing would be equal to the quotient determined by dividing the cash value of the dividend payable to such stockholder by the net asset value per share as of the date such dividend was declared. 59 After a Listing, the Board intends to primarily use newly-issued shares to implement the dividend reinvestment plan, whether or not the shares are trading at a price per share at, below or above net asset value. However, the Board reserves the right to purchase shares in the open market in connection with the implementation of the dividend reinvestment plan. The Board will examine the full facts and circumstances of each such dividend to determine the approach (i.e., to use newly issued shares or effectuate open market purchases to implement the dividend reinvestment plan) that is in the best interests of stockholders taking into account the Board’s fiduciary duties to stockholders, including by weighing the potential dilution in connection with such issuance to be incurred by the Company’s stockholders against the Company’s need and usage of reinvested funds. The number of newly issued shares to be issued to a participant would be determined by dividing the total dollar amount of the dividend payable to such stockholder by the market price per share of our common stock at the close of regular trading on a national securities exchange on the dividend payment date. Shares purchased in open market transactions by US Bank, the plan administrator and our transfer agent, registrar, and dividend disbursing agent, will be allocated to a participant based upon the average purchase price, excluding any brokerage charges or other charges, of all shares of our common stock purchased with respect to the dividend. A registered stockholder may elect to receive an entire distribution in cash by notifying US Bank in writing so that such notice is received by the plan administrator no later than the record date for distributions to stockholders. The plan administrator will set up an account for shares acquired through the plan for each stockholder who has not elected to receive dividends or other distributions in cash and hold such shares in noncertificated form. Critical Accounting Policies Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Critical accounting policies are those that require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. The preparation of these financial statements will require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. In addition to the discussion below, we have described our critical accounting policies in the notes to our consolidated financial statements. Valuation of Portfolio Investments Under procedures established by our Board, we value investments for which market quotations are readily available at such market quotations. Assets listed on an exchange will be valued at their last sales prices as reported to the consolidated quotation service at 4:00 P.M. eastern time on the date of determination. If no such sales of such securities occurred, such securities will be valued at the mean between the last available bid and ask prices as reported by an independent, third party pricing service on the date of determination. Debt and equity securities that are not publicly traded or whose market prices are not readily available are valued at fair value, subject at all times to the oversight and approval of our Board. Such determination of fair values may involve subjective judgments and estimates, although we will also engage independent valuation providers to review the valuation of each portfolio investment that constitutes a material portion of our portfolio and that does not have a readily available market quotation at least once annually. With respect to unquoted securities, our Investment Advisor, together with our independent valuation advisors, and subject at all times to the oversight and approval of our Board, will value each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public and other factors. With respect to Level 3 assets, we intend to retain one or more independent providers of financial advisory services to assist the Investment Advisor and the Board by performing certain limited third-party valuation services. We may appoint additional or different third-party valuation firms in the future. 60 When an external event such as a purchase transaction, public offering or subsequent equity sale occurs with respect to a fair-valued portfolio company or comparable company, our Board will use the pricing indicated by the external event to corroborate and/or assist us in our valuation. Because we expect that there will not be a readily available market for many of the investments in our portfolio, we expect to value many of our portfolio investments at fair value as determined in good faith by our Board using a documented valuation policy and a consistently applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had readily available market quotations existed for such investments, and the differences could be material. With respect to investments for which market quotations are not readily available, our Investment Advisor will undertake a multi-step valuation process each quarter, as described below: ● Securities for which no such market prices are available or reliable will be preliminarily valued at such value as the Investment Advisor may reasonably determine, which may include third party valuations; ● The audit committee of our Board (the “Audit Committee”) will then review these preliminary valuations; ● At least once annually, the valuation for each portfolio investment that constitutes a material portion of our portfolio and that does not have a readily available market quotation will be reviewed by an independent valuation firm; and ● Our Board will then discuss valuations and determine the fair value of each investment in our portfolio in good faith, based on the input of our Investment Advisor, the respective independent valuation firms and the Audit Committee. All values assigned to securities and other assets by the Board will be binding on all stockholders. Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized. Realized gains and losses from securities transactions and unrealized appreciation and depreciation of securities are determined using the identified cost basis method for financial reporting. Related Party Transactions We have entered into the Advisory Agreement with the Investment Advisor and the Administration Agreement with the Investment Advisor (in such capacity, the Administrator). Mr. Christopher D. Long and Jeffrey D. Fox, each an interested member of our Board, have an indirect pecuniary interest in the Investment Advisor. The Investment Advisor is a registered investment adviser under the Advisers Act that is majority-owned by Palmer Square. See “ Note 3. Agreements and Related Party Transactions – Administration Agreement ” and “ – Investment Advisory Agreement ” in the notes to the accompanying consolidated financial statements. Contractual Obligations We have certain contracts under which we have material future commitments. We have entered into the Advisory Agreement with the Investment Advisor in accordance with the 1940 Act. Payments for investment advisory services under the Advisory Agreement are equal to (a) a base management fee calculated at an annual rate of 2.0% of the average value of the weighted average of our total net assets at the end of the two most recently completed quarters and (b) an incentive fee based on our performance. The Investment Advisor has agreed to waive its right to receive management fees in excess of 1.75% of the total net assets during any period prior to a Listing. We have entered into an Administration Agreement with the Administrator to serve as our administrator. Pursuant to the Administration Agreement, the Administrator furnishes us with office facilities and equipment, provides us with clerical, bookkeeping and recordkeeping services at such facilities, and provides us with other services necessary for us to operate or has engaged a third-party firm to perform some or all of these functions. A summary of our significant contractual payment obligations related to the repayment of our outstanding indebtedness at December 31, 2021 is as follows: Payments Due by Period Total Less than 1 year 1-3 years 3-5 years After 5 years BoA Credit Facility, Net $ 550,262,297 $ - $ - $ 550,262,297 $ - WF Credit Facility, Net $ 99,648,200 $ - $ - $ 99,648,200 $ - Total contractual obligations $ 649,910,497 $ - $ - $ 649,910,497 $ - 61 Off-Balance Sheet Arrangements Unfunded commitments to provide funds to portfolio companies are not recorded on our consolidated statements of assets and liabilities. Our unfunded commitments may be significant from time to time. Unfunded commitments may expire without being drawn upon and the total commitment amount does not necessarily represent future cash requirements. As of December 31, 2021 and December 31, 2020, we had nine unfunded commitments totaling $11.3 million, and three unfunded commitments totaling $1.3 million, respectively. See “Note 8. Commitments and Contingencies” in the notes to the accompanying consolidated financial statements for specific identification of the unfunded commitments. We believe we maintain sufficient liquidity in the form of cash (including restricted cash, if any), receivables and borrowing capacity to fund these unfunded commitments should the need arise. See Financial Condition, Liquidity and Capital Resources above. Other than contractual commitments and other legal contingencies incurred in the normal course of our business, we do not have any off- balance sheet financings or liabilities. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are subject to financial market risks, including changes in interest rates. Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. Because we fund a portion of our investments with borrowings, our net investment income will be affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. Assuming that the consolidated statement of assets and liabilities as of December 31, 2021 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rate. Change in Interest Rates Increase (Decrease) in Interest Income Increase (Decrease) in Interest Expense Net Increase (Decrease) in Net Investment Income Down 25 basis points $ (8,852 ) $ (1,630,000 ) $ 1,621,148 Up 100 basis points 6,235,032 6,520,000 (284,968 ) Up 200 basis points 17,322,137 13,040,000 4,282,137 Up 300 basis points 28,358,909 19,560,000 8,798,909 The data in the table is based on the Company’s current statement of assets and liabilities. As of December 31, 2021, the Company had $86.9 million in net purchases that had not yet settled and $11.3 million in unfunded commitments. After settlement of these purchases, the change in interest expense will be larger as a result of the increase in the amount borrowed under the BoA Credit Facility or WF Credit Facility, as applicable. The table does not include any change in dividend income from the Company’s money market investments. In addition, any investments we make that are denominated in a foreign currency will be subject to risks associated with changes in currency exchange rates. These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls, and potential illiquidity in the secondary market. These risks will vary depending upon the currency or currencies involved. We measure exposure to interest rate and currency exchange rate fluctuations on an ongoing basis and may hedge against interest rate and currency exchange rate fluctuations by using standard hedging instruments such as futures, options, swaps and forward contracts and credit hedging contracts, such as credit default swaps, in each case, subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. 62 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Statement of Assets and Liabilities as of December 31, 2021 and December 31, 2020 F-3 Consolidated Statement of Operations for the year ended December 31, 2021 and the Period January 23, 2020 (Commencement of Operations) through December 31, 2020 F-4 Consolidated Statement of Changes in Net Assets for the year ended December 31, 2021 and the Period January 23, 2020 (Commencement of Operations) through December 31, 2020 F-5 Consolidated Statement of Cash Flows for the year ended December 31, 2021 and the Period January 23, 2020 (Commencement of Operations) through December 31, 2020 F-6 Consolidated Schedule of Investments as of December 31, 2021 and 2020 F-7 – F-22 Notes to Consolidated Financial Statements F-23 – F-39 F- 1 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Palmer Square Capital BDC Inc. Opinion on the Financial Statements We have audited the accompanying consolidated statements of assets and liabilities, including the consolidated schedules of investments, of Palmer Square Capital BDC Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, changes in net assets and cash flows for the year ended December 31, 2021 and for the period from January 23, 2020 (commencement of operations) to December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations, changes in its net assets and its cash flows for the year ended December 31, 2021 and for the period from January 23, 2020 (commencement of operations) to December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our procedures included confirmation of securities owned as of December 31, 2021 and 2020 by correspondence with the custodian, brokers and agent banks; when replies were not received from brokers or agent banks, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Kansas City, Missouri March 11, 2022 We have served as the Company’s auditor since 2019. F- 2 Palmer Square Capital BDC Inc. Consolidated Statement of Assets and Liabilities December 31, 2021 December 31, 2020 Assets: Non-controlled, non-affiliated investments, at fair value (amortized cost of $1,189,713,653 and $640,100,635, respectively) $ 1,194,257,584 $ 653,156,200 Cash and cash equivalents 1,093,503 682,579 Receivables: Receivable for sales of investments 17,393,877 11,762,002 Receivable for paydowns of investments 227,548 121,391 Due from investment adviser 280,740 155,353 Dividend receivable 833 345 Interest receivable 3,836,068 1,612,231 Prepaid expenses and other assets 195,996 - Total Assets $ 1,217,286,149 $ 667,490,101 Liabilities: Credit facilities, net (Note 6) $ 649,910,497 $ 393,152,103 Payables: Payable for investments purchased 104,278,958 15,553,450 Distributions payable 5,874,681 3,894,470 Management fee payable 2,245,918 1,242,821 Directors fee payable 5,000 5,000 Accrued other general and administrative expenses 2,173,507 497,286 Total Liabilities $ 764,488,561 $ 414,345,130 Commitments and contingencies (Note 8) Net Assets: Common Shares, $0.001 par value; 450,000,000 shares authorized; 22,570,331 and 12,562,805 as of December 31, 2021 and December 31, 2020, respectively issued and outstanding $ 22,570 12,563 Additional paid-in capital 444,739,748 238,204,363 Total distributable earnings (accumulated deficit) 8,035,270 14,928,045 Total Net Assets $ 452,797,588 $ 253,144,971 Total Liabilities and Net Assets $ 1,217,286,149 $ 667,490,101 Net Asset Value Per Common Share $ 20.06 $ 20.15 The accompanying notes are an integral part of these consolidated financial statements. F- 3 Palmer Square Capital BDC Inc. Consolidated Statement of Operations For the Year Ended December 31, 2021 For the Period January 23, 2020 (Commencement of Operations) through December 31, 2020 Income: Investment income from non-controlled, non-affiliated investments: Interest income $ 38,897,216 $ 24,956,907 Dividend income 9,597 228,092 Other income 778,840 283,577 Total investment income from non-controlled, non-affiliated investments 39,685,653 25,468,576 Total Investment Income 39,685,653 25,468,576 Expenses: Interest expense 8,616,661 4,739,682 Management fees 6,369,583 3,947,575 Professional fees 758,435 992,352 Directors fees 75,000 80,000 Offering costs - 503,292 Initial organization - 122,199 Other general and administrative expenses 1,827,931 880,137 Total Expenses 17,647,610 11,265,237 Less: Management fee waiver (Note 3) (796,198 ) (493,447 ) Net expenses 16,851,412 10,771,790 Net Investment Income (Loss) 22,834,241 14,696,786 Realized and unrealized gains (losses) on investments and foreign currency transactions Net realized gains (losses): Non-controlled, non-affiliated investments 4,753,263 (1,018,741 ) Total net realized gains (losses) 4,753,263 (1,018,741 ) Net change in unrealized gains (losses): Non-controlled, non-affiliated investments (8,527,786 ) 13,055,565 Total net change in unrealized gains (losses) (8,527,786 ) 13,055,565 Total realized and unrealized gains (losses) (3,774,523 ) 12,036,824 Net Increase (Decrease) in Net Assets Resulting from Operations $ 19,059,718 26,733,610 Per Common Share Data: Basic and diluted net investment income per common share $ 1.47 1.32 Basic and diluted net increase in net assets resulting from operations $ 1.23 2.40 Weighted Average Common Shares Outstanding – Basic and Diluted 15,494,614 11,156,932 The accompanying notes are an integral part of these consolidated financial statements. F- 4 Palmer Square Capital BDC Inc. Consolidated Statement of Changes in Net Assets For the Year Ended December 31, 2021 For the Period January 23, 2020 (Commencement of Operations) through December 31, 2020 Increase (Decrease) in Net Assets Resulting from Operations: Net investment income (loss) $ 22,834,241 $ 14,696,786 Net realized gains (losses) on investments and foreign currency transactions 4,753,263 (1,018,741 ) Net change in unrealized gains (losses) on investments, foreign currency translations, and foreign currency exchange contracts (8,527,786 ) 13,055,565 Net Increase (Decrease) in Net Assets Resulting from Operations 19,059,718 26,733,610 Decrease in Net Assets Resulting from Stockholder Distributions Dividends and distributions to stockholders (17,845,775 ) (12,181,659 ) Distributions declared from realized gains (8,106,718 ) - Net Decrease in Net Assets Resulting from Stockholder Distributions (25,952,493 ) (12,181,659 ) Increase in Net Assets Resulting from Capital Share Transactions Issuance of common shares 188,861,571 233,670,000 Reinvestment of distributions 17,683,821 4,921,520 Net Increase in Net Assets Resulting from Capital Share Transactions 206,545,392 238,591,520 Total Increase (Decrease) in Net Assets 199,652,617 253,143,471 Net Assets, Beginning of Period 253,144,971 1,500 Net Assets, End of Period $ 452,797,588 $ 253,144,971 The accompanying notes are an integral part of these consolidated financial statements. F- 5 Palmer Square Capital BDC Inc. Consolidated Statement of Cash Flows For the Year Ended For the Period January 23, 2020 (Commencement of Operations) through December 31, 2021 December 31, 2020 Cash Flows from Operating Activities: Net increase (decrease) in net assets resulting from operations $ 19,059,718 $ 26,733,610 Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities: Net realized (gains)/losses on investments (4,753,263 ) 1,018,741 Net change in unrealized (gains)/losses on investments 8,527,786 (13,055,565 ) Net accretion of discount on investments (286,282 ) (1,755,502 ) Purchases of short-term investments (662,604,311 ) (664,542,585 ) Purchases of portfolio investments (926,351,937 ) (854,515,933 ) Proceeds from sale of short-term investments 637,566,416 611,437,715 Proceeds from sale of portfolio investments 406,800,208 268,256,929 Amortization of deferred financing cost 909,269 (395,540 ) Increase/(decrease) in operating assets and liabilities: (Increase)/decrease in receivable for sales of investments (5,631,875 ) (11,762,002 ) (Increase)/decrease in interest and dividends receivable (2,224,325 ) (1,612,576 ) (Increase)/decrease in due from investment adviser (125,387 ) (155,353 ) (Increase)/decrease in receivable for paydowns of investments (106,157 ) (121,391 ) (Increase)/decrease in prepaid expenses and other assets (195,996 ) - Increase/(decrease) in payable for investments purchased 88,725,508 15,553,450 Increase/(decrease) in management fees payable 1,003,097 1,242,821 Increase/(decrease) in directors fee payable - 5,000 Increase/(decrease) in accrued other general and administrative expenses 1,676,221 497,286 Net cash used in operating activities (438,011,310 ) (623,170,895 ) Cash Flows from Financing Activities: Borrowings on credit facility 256,629,745 395,273,776 Payments on credit facility - - Payments of debt issuance costs (780,621 ) (1,726,133 ) Distributions paid in cash (6,288,461 ) (3,365,669 ) Proceeds from issuance of common shares, net of change in subscriptions receivable of $ - 188,861,571 233,670,000 Net cash provided by financing activities 438,422,234 623,851,974 Net increase in cash and cash equivalents 410,924 681,079 Cash and cash equivalents, beginning of period 682,579 1,500 Cash and cash equivalents, end of period $ 1,093,503 $ 682,579 Supplemental and Non-Cash Information: Interest paid during the period $ 7,313,093 $ 4,465,906 Distributions declared during the period $ 25,952,493 $ 12,181,659 Reinvestment of distributions during the period $ 17,683,821 $ 4,921,520 Distributions payable $ 5,874,681 $ 3,894,470 The accompanying notes are an integral part of these consolidated financial statements. F- 6 Palmer Square Capital BDC Inc. Consolidated Schedule of Investments As of December 31, 2021 Acquisition Maturity Principal / Amortized Fair Percentage Portfolio Company (3) Industry Interest Rate Date Date Par Cost (1)(6) Value of Net Assets Debt Investments First Lien Senior Secured (2) AAdvantage Loyalty IP Ltd. (4)(7) Airlines 5.50% (L + 4.75%) 3/10/2021 4/20/2028 $ 3,500,000 $ 3,466,993 $ 3,632,808 0.7 % AccentCare, Inc. (7) Healthcare Providers and Services 4.18% (L + 4.00%) 9/14/2021 6/22/2026 6,030,750 6,033,232 6,019,443 1.2 % Acrisure, LLC (7) Insurance 3.63% (L + 3.50%) 1/31/2020 2/12/2027 5,902,424 5,887,108 5,846,351 1.2 % Acrisure, LLC (7) Insurance 4.75% (L + 4.25%) 11/9/2021 2/15/2027 5,050,000 5,012,608 5,056,313 1.0 % AHP Health Partners, Inc. (7) Healthcare Equipment and Supplies 4.00% (L + 3.50%) 8/5/2021 8/4/2028 2,992,500 2,978,139 2,997,183 0.6 % AI Aqua Merger Sub, Inc., (5)(7)(8) Food Products 4.50% (L + 4.00%) 6/17/2021 6/16/2028 6,993,333 6,996,036 7,021,412 1.6 % Aimbridge Acquisition Co., Inc. (7) Hotels, Restaurants and Leisure 3.84% (L + 3.75%) 10/13/2021 2/2/2026 4,987,245 4,873,305 4,887,500 1.1 % Air Methods Corporation (7) Aerospace and Defense 4.50% (L + 3.50%) 9/2/2021 4/12/2024 4,973,958 4,912,811 4,737,695 1.0 % Alliant Holdings Intermediate LLC (7) Insurance 4.00% (L + 3.50%) 10/20/2021 11/5/2027 5,985,000 5,977,585 5,986,077 1.3 % Allied Universal Holdco LLC (7) Professional Services 4.25% (L + 3.75%) 5/5/2021 4/7/2028 6,982,500 6,976,936 6,968,570 1.5 % Alterra Mountain Company (7) Hotels, Restaurants and Leisure 4.00% (L + 3.50%) 5/13/2020 8/31/2028 1,992,263 1,979,085 1,992,263 0.4 % Amentum Government Services Holdings LLC (7) Aerospace and Defense 3.60% (L + 3.50%) 3/19/2020 2/26/2027 4,432,500 4,208,252 4,375,720 1.0 % Amentum Government Services Holdings LLC (7) Aerospace and Defense 5.50% (L + 4.75%) 10/29/2020 1/29/2027 1,488,750 1,463,719 1,491,541 0.3 % American Airlines, Inc. (4)(7) Airlines 2.11% (L + 2.00%) 7/14/2021 12/15/2023 1,979,167 1,934,458 1,943,403 0.4 % American Airlines, Inc. (4)(7) Airlines 1.85% (L + 1.75%) 7/14/2021 6/27/2025 2,000,000 1,900,671 1,901,250 0.4 % American Rock Salt Company LLC (7) Metals and Mining 4.75% (L + 4.00%) 6/4/2021 6/9/2028 4,975,000 4,963,324 4,968,781 1.1 % Amynta Agency Borrower, Inc. (7) Insurance 4.60% (L + 4.50%) 2/13/2020 2/28/2025 8,929,545 8,774,227 8,912,847 2.0 % AP Gaming I, LLC (7) Hotels, Restaurants and Leisure 4.50% (L + 3.50%) 9/14/2021 2/15/2024 6,831,409 6,817,784 6,803,639 1.5 % Applovin Corporation (4)(7) Software 3.50% (L + 3.00%) 10/21/2021 10/20/2028 2,493,750 2,487,556 2,492,964 0.6 % Aptean Inc (5)(7)(8) Software 4.35% (L + 4.25%) 5/17/2021 4/23/2026 7,886,443 7,889,119 7,865,505 1.7 % AQA Acquisition Holding, Inc. (7) Software 4.75% (L + 4.25%) 11/20/2020 11/19/2027 2,985,000 2,971,382 2,988,119 0.7 % ARC Falcon I Inc. (7) Chemicals 4.25% (L + 3.75%) 9/22/2021 8/31/2028 4,363,057 4,338,582 4,363,232 1.0 % Arches Buyer Inc. (7) Leisure Products 3.75% (L + 3.25%) 2/25/2021 12/6/2027 4,950,000 4,906,378 4,923,419 1.1 % Aristocrat International PTY Ltd (4)(5)(7)(8) Hotels, Restaurants and Leisure 4.75% (L + 3.75%) 5/14/2020 10/31/2024 4,949,874 4,923,279 4,979,276 1.1 % Aruba Investments Holdings, LLC (7) Chemicals 4.75% (L + 4.00%) 10/28/2020 10/28/2027 1,488,769 1,476,015 1,492,491 0.3 % Ascend Learning, LLC (5)(7) Professional Services 4.00% (L + 3.50%) 11/18/2021 11/18/2028 7,500,000 7,462,500 7,498,463 1.7 % AssuredPartners, Inc. (7) Insurance 4.00% (L + 3.50%) 5/29/2020 2/12/2027 6,461,337 6,451,803 6,460,336 1.4 % Athenahealth, Inc. (7) Healthcare Equipment and Supplies 4.40% (L + 4.25%) 2/20/2020 2/11/2026 5,272,356 5,244,158 5,279,606 1.2 % Autokiniton US Holdings, Inc. (7)(8) Auto Components 5.00% (L + 4.50%) 3/26/2021 3/27/2028 8,216,855 8,226,508 8,239,739 1.8 % Avaya Inc. (4)(7) Diversified Telecommunication Services 4.11% (L + 4.00%) 2/17/2021 12/15/2027 1,600,000 1,600,000 1,601,304 0.4 % Avaya Inc. (4)(5)(7) Diversified Telecommunication Services 4.36% (L + 4.25%) 4/20/2020 12/15/2027 4,939,059 4,800,270 4,960,174 1.1 % Aveanna Healthcare LLC (4)(7) Healthcare Providers and Services 4.25% (L + 3.75%) 6/30/2021 6/30/2028 3,237,170 3,232,811 3,225,054 0.7 % Azalea TopCo, Inc. (7) Healthcare Technology 3.63% (L + 3.50%) 2/26/2020 7/23/2026 3,922,262 3,885,223 3,910,005 0.9 % Barracuda Networks, Inc. (7) IT Services 4.50% (L + 3.75%) 3/2/2020 1/10/2025 3,979,022 3,978,706 3,996,430 0.9 % F- 7 Palmer Square Capital BDC Inc. Consolidated Schedule of Investments As of December 31, 2021 Acquisition Maturity Principal / Amortized Fair Percentage Portfolio Company (3) Industry Interest Rate Date Date Par Cost (1)(6) Value of Net Assets BCP Raptor, LLC (5)(7) Oil, Gas and Consumable Fuels 5.25% (L + 4.25%) 7/21/2021 6/7/2024 5,968,265 5,915,310 5,970,354 1.3 % BCP Renaissance Parent L.L.C. (5)(7) Oil, Gas and Consumable Fuels 4.50% (L + 3.50%) 10/5/2021 10/31/2024 7,648,566 7,629,890 7,642,600 1.7 % Belfor Holdings Inc. (7) Commercial Services and Supplies 3.85% (L + 3.75%) 3/18/2020 3/31/2026 2,945,882 2,837,141 2,953,247 0.7 % Boxer Parent Company, Inc. (7) Software 3.88% (L + 3.75%) 2/24/2021 10/2/2025 2,992,266 2,713,403 2,977,304 0.7 % Caesars Resort Collection, LLC (4)(7) Hotels, Restaurants and Leisure 3.60% (L + 3.50%) 6/19/2020 7/31/2025 2,962,500 2,895,715 2,968,425 0.7 % Castle US Holding Corporation (8) Professional Services 3.88% (L + 3.75%) 9/17/2021 1/27/2027 1,991,579 1,981,844 1,976,642 0.4 % Castle US Holding Corporation (8) Professional Services 4.75% (L + 4.00%) 4/16/2021 1/31/2027 2,981,250 2,926,408 2,978,761 0.7 % CCI Buyer, Inc. (5)(7)(8) Wireless Telecommunication Services 4.50% (L + 3.75%) 12/16/2020 12/31/2027 6,864,444 6,856,831 6,880,369 1.5 % CCS-CMGC Holdings, Inc. (7) Healthcare Providers and Services 5.63% (L + 5.50%) 1/24/2020 10/1/2025 5,411,500 5,342,101 5,349,781 1.2 % CHG Healthcare Services, Inc (7) Healthcare Providers and Services 4.00% (L + 3.50%) 9/22/2021 9/22/2028 7,980,000 7,941,694 7,990,973 1.8 % Connectwise LLC (7) IT Services 4.00% (L + 3.50%) 9/24/2021 9/29/2028 8,000,000 7,986,895 7,991,440 1.8 % Consolidated Communications, Inc. (4)(7) Diversified Telecommunication Services 4.25% (L + 3.50%) 9/18/2020 10/2/2027 1,428,009 1,409,815 1,427,788 0.3 % ConvergeOne Holdings Corp. (7)(8) IT Services 5.10% (L + 5.00%) 2/11/2021 3/31/2026 9,941,326 9,736,805 9,758,058 2.2 % Corelogic, Inc. (7) Internet Software and Services 4.00% (L + 3.50%) 4/14/2021 4/14/2028 7,980,000 7,973,450 7,983,990 1.8 % CP Atlas Buyer, Inc (7) Building Products 4.25% (L + 3.75%) 2/4/2021 11/23/2027 4,962,827 4,921,475 4,947,939 1.1 % Creation Technologies, Inc. (8) Electronic Equipment, Instruments and Components 6.00% (L + 5.50%) 9/24/2021 9/14/2028 5,000,000 4,927,276 4,968,750 1.1 % Curia Global, Inc. (7) Healthcare Providers and Services 4.50% (L + 3.75%) 2/20/2020 8/30/2026 4,899,295 4,880,965 4,911,543 1.1 % DCert Buyer, Inc. (7) IT Services 4.10% (L + 4.00%) 1/28/2020 8/7/2026 7,916,022 7,916,047 7,911,075 1.7 % Deerfield Dakota Holding, LLC (7) Diversified Financial Services 4.75% (L + 3.75%) 3/6/2020 2/25/2027 4,925,000 4,862,889 4,936,943 1.1 % Delek US Holdings, Inc. (4)(7) Oil, Gas and Consumable Fuels 6.50% (L + 5.50%) 5/18/2020 3/31/2025 2,358,000 2,239,637 2,366,253 0.5 % Delta Topco, Inc. (7) IT Services 4.50% (L + 3.75%) 10/7/2020 10/29/2027 6,972,481 6,966,632 6,988,692 1.5 % Digi International Inc. (5)(8) Technology Hardware, Storage and Peripherals 5.50% (L + 5.00%) 12/16/2021 12/22/2028 6,250,000 6,125,000 6,199,219 1.4 % DIRECTV Financing, LLC (7) Media 5.75% (L + 5.00%) 7/22/2021 8/2/2027 5,865,000 5,816,327 5,877,962 1.3 % Dotdash Meredith, Inc. (7) Media 4.50% (C + SCA + 4.00%) 11/23/2021 11/23/2028 10,000,000 9,991,795 10,018,750 2.2 % EAB Global, Inc. (7) Professional Services 4.00% (L + 3.50%) 6/28/2021 6/28/2028 5,000,000 4,975,872 4,979,175 1.1 % ECI Software Solutions, Inc. (7) Software 4.50% (L + 3.75%) 9/17/2020 9/30/2027 6,934,975 6,907,467 6,946,903 1.5 % ECL Entertainment, LLC (8) Hotels, Restaurants and Leisure 8.25% (L + 7.50%) 9/3/2021 3/31/2028 1,990,000 2,033,092 2,029,800 0.4 % EFS Cogen Holdings I LLC (5)(7)(8) Independent Power and Renewable Electricity Producers 4.50% (L + 3.50%) 9/24/2020 10/29/2027 7,700,229 7,708,062 7,603,977 1.7 % Endurance International Group, Inc. (7) Professional Services 4.25% (L + 3.50%) 1/27/2021 2/10/2028 3,233,750 3,219,247 3,211,017 0.7 % Ensemble RCM, LLC (7) Healthcare Technology 3.88% (L + 3.75%) 4/14/2020 7/24/2026 5,748,280 5,659,044 5,753,654 1.3 % Enterprise Development Authority (8) Hotels, Restaurants and Leisure 5.00% (L + 4.25%) 12/1/2021 2/18/2028 1,974,359 1,974,359 1,975,188 0.4 % Epicor Software Corporation (7) Software 4.00% (L + 3.25%) 7/23/2020 6/1/2022 3,950,000 3,930,702 3,952,034 0.9 % Excelitas Technologies Corp. (7) Industrial Conglomerates 4.50% (L + 3.50%) 7/21/2021 12/2/2024 1,989,637 1,989,637 1,999,585 0.4 % Filtration Group Corporation (7) Industrial Conglomerates 4.00% (L + 3.50%) 10/19/2021 10/20/2028 3,990,000 3,980,185 3,990,838 0.9 % Flexera Software LLC (7)(8) Software 4.50% (L + 3.75%) 2/28/2020 1/26/2028 8,959,368 8,935,714 8,976,794 2.0 % F- 8 Palmer Square Capital BDC Inc. Consolidated Schedule of Investments As of December 31, 2021 Acquisition Maturity Principal / Amortized Fair Percentage Portfolio Company (3) Industry Interest Rate Date Date Par Cost (1)(6) Value of Net Assets Generation Bridge Acquisition, LLC (5)(8) Electric Utilities 5.75% (L + 5.00%) 8/23/2021 8/6/2028 196,262 196,262 197,243 0.0 % Generation Bridge Acquisition, LLC (5)(8) Electric Utilities 5.75% (L + 5.00%) 8/23/2021 8/6/2028 2,803,738 2,803,738 2,817,757 0.6 % Getty Images, Inc. (7)(8) Media 4.63% (L + 4.50%) 6/10/2021 2/13/2026 7,961,137 7,984,386 7,982,711 1.8 % GFL Environmental Inc. (4)(7) Commercial Services and Supplies 3.50% (L + 3.00%) 2/20/2020 5/30/2025 2,596,036 2,521,808 2,605,771 0.6 % Global Medical Response, Inc. (7) Healthcare Providers and Services 5.25% (L + 4.25%) 9/24/2020 9/24/2025 8,938,653 8,882,000 8,914,071 2.0 % Grab Holdings Inc (4)(5)(7) IT Services 5.50% (L + 4.50%) 1/20/2021 2/27/2026 4,962,488 5,027,425 4,989,359 1.1 % Great Outdoors Group, LLC (7) Specialty Retail 4.50% (L + 3.75%) 2/26/2021 3/6/2028 7,078,634 7,045,910 7,095,587 1.6 % Grinding Media Inc. (8) Metals and Mining 4.75% (L + 4.00%) 9/22/2021 9/21/2028 4,987,500 4,963,517 4,990,617 1.1 % HAH Group Holding Company LLC (7) Healthcare Providers and Services 6.00% (L + 5.00%) 10/22/2020 10/20/2027 3,525,086 3,479,561 3,526,549 0.8 % HAH Group Holding Company LLC (7) Healthcare Providers and Services 6.00% (L + 5.00%) 10/22/2020 10/22/2027 446,034 440,286 446,220 0.1 % Hamilton Projects Acquiror LLC (7)(8) Independent Power and Renewable Electricity Producers 5.50% (L + 4.50%) 6/11/2020 6/11/2027 9,794,600 9,741,768 9,807,872 2.2 % Harbor Freight Tools USA, Inc. (7) Specialty Retail 3.25% (L + 2.75%) 10/14/2020 10/19/2027 3,465,000 3,435,680 3,462,176 0.8 % Help/Systems Holdings, Inc. (7) Software 4.75% (L + 4.00%) 9/16/2020 11/19/2026 6,919,736 6,874,074 6,909,633 1.5 % HUB International Limited (7) Insurance 4.00% (L + 3.25%) 4/22/2020 4/25/2025 3,940,125 3,892,565 3,944,834 0.9 % Hyland Software, Inc. (7) Software 4.25% (L + 3.50%) 9/25/2020 7/1/2024 4,956,580 4,955,729 4,981,363 1.1 % Hyperion Refinance S.a.r.l. (4)(7) Insurance 4.00% (L + 3.25%) 1/27/2021 11/12/2027 6,162,429 6,103,569 6,143,171 1.4 % Idera, Inc. (7) IT Services 4.50% (L + 3.75%) 2/14/2020 6/28/2028 9,899,189 9,852,953 9,903,841 2.2 % IMA Financial Group, Inc. (8) Insurance 4.25% (L + 3.75%) 10/14/2021 10/16/2028 5,000,000 4,975,043 4,991,650 1.1 % Infinite Bidco LLC (7) Electronic Equipment, Instruments and Components 4.25% (L + 3.75%) 2/24/2021 3/2/2028 4,975,000 4,956,124 4,967,239 1.1 % Inmar, Inc. (7)(8) Professional Services 5.00% (L + 4.00%) 1/24/2020 5/1/2024 7,925,407 7,891,920 7,929,568 1.8 % IRB Holding Corporation (7) Hotels, Restaurants and Leisure 4.25% (L + 3.25%) 11/19/2020 11/19/2027 6,952,443 6,947,309 6,962,212 1.5 % Ivanti Software, Inc. (7) Software 4.75% (L + 4.00%) 2/17/2021 12/1/2027 992,500 990,203 988,987 0.2 % Ivanti Software, Inc. (5)(7) Software 5.00% (L + 4.25%) 11/20/2020 12/1/2027 6,975,000 6,921,420 6,994,600 1.5 % Jack Ohio Finance LLC (8) Hotels, Restaurants and Leisure 5.50% (L + 4.75%) 9/30/2021 10/31/2028 5,000,000 5,002,417 4,996,900 1.1 % Kestrel Acquisition LLC (7) Independent Power and Renewable Electricity Producers 5.25% (L + 4.25%) 2/25/2020 5/2/2025 6,914,055 6,212,084 6,347,967 1.4 % Kleopatra Finco S.a.r.l (4)(7) Containers and Packaging 5.25% (L + 4.75%) 2/4/2021 2/4/2026 1,985,000 1,976,611 1,937,856 0.4 % Landry’s Finance Acquisition Co Hotels, Restaurants and Leisure 13.00% (L + 12.00%) 6/12/2020 10/4/2023 18,875 18,450 20,291 0.0 % LBM Acquisition LLC (5)(7)(8) Building Products 4.50% (L + 3.75%) 12/9/2020 12/31/2027 5,472,028 5,436,335 5,431,425 1.2 % Life Time, Inc. (4)(7) Hotels, Restaurants and Leisure 5.75% (L + 4.75%) 1/28/2021 12/10/2024 1,451,838 1,451,195 1,463,337 0.3 % Lifescan Global Corporation (5)(7) Healthcare Equipment and Supplies 6.13% (L + 6.00%) 8/20/2021 10/1/2024 6,744,535 6,702,882 6,607,857 1.5 % Lightstone Holdco, LLC Independent Power and Renewable Electricity Producers 4.75% (L + 3.75%) 4/7/2020 1/30/2024 1,609,237 1,379,571 1,367,304 0.3 % Lightstone Holdco, LLC Independent Power and Renewable Electricity Producers 4.75% (L + 3.75%) 4/7/2020 1/30/2024 90,763 77,809 77,118 0.0 % F- 9 Palmer Square Capital BDC Inc. Consolidated Schedule of Investments As of December 31, 2021 Acquisition Maturity Principal / Amortized Fair Percentage Portfolio Company (3) Industry Interest Rate Date Date Par Cost (1)(6) Value of Net Assets Lions Gate Capital Holdings LLC (4)(7) Media 2.35% (L + 2.25%) 4/1/2020 3/19/2025 976,423 951,495 971,136 0.2 % LogMeIn, Inc. (7) IT Services 4.86% (L + 4.75%) 8/14/2020 8/31/2027 6,444,950 6,365,479 6,418,074 1.4 % Lucid Energy Group II Borrower, LLC (7) Oil, Gas and Consumable Fuels 5.00% (L + 4.25%) 11/22/2021 11/22/2028 7,000,000 6,930,663 6,926,500 1.5 % Magenta Buyer LLC (7) Software 5.75% (L + 5.00%) 5/3/2021 5/3/2028 5,486,250 5,436,630 5,480,243 1.2 % McAfee, LLC (4)(7) Software 3.84% (L + 3.75%) 2/26/2020 9/30/2024 3,040,646 3,031,471 3,046,910 0.7 % Medical Solutions L.L.C. (8) Healthcare Providers and Services 4.00% (L + 3.50%) 10/7/2021 10/6/2028 4,200,000 4,175,369 4,200,900 0.9 % MetroNet Systems Holdings, LLC (7)(8) Diversified Telecommunication Services 4.50% (L + 3.75%) 5/26/2021 5/26/2028 4,975,031 4,969,084 4,983,738 1.1 % Michael Baker International, LLC (8) Construction and Engineering 5.75% (L + 5.00%) 11/2/2021 11/2/2028 6,250,000 6,187,892 6,312,500 1.4 % Micro Holding Corp. (7) IT Services 4.75% (L + 3.75%) 6/11/2020 9/13/2024 9,962,265 9,905,089 9,995,490 2.2 % Midwest Veterinary Partners, LLC (5)(7) Healthcare Providers and Services 4.75% (L + 4.00%) 10/29/2021 4/27/2028 9,987,500 9,888,421 9,962,531 2.2 % Milano Acquisition Corporation (7) Healthcare Providers and Services 4.75% (L + 4.00%) 8/17/2020 8/31/2027 4,953,722 4,905,503 4,972,917 1.1 % Minotaur Acquisition, Inc. (7)(8) Diversified Financial Services 4.84% (L + 4.75%) 1/24/2020 3/27/2026 9,060,468 9,048,923 9,026,491 2.0 % Mitchell International, Inc. (7) Professional Services 4.25% (L + 3.75%) 10/1/2021 10/16/2028 10,000,000 9,926,431 9,956,250 2.2 % MLN US HoldCo LLC (7) Diversified Telecommunication Services 4.60% (L + 4.50%) 11/15/2021 12/31/2025 4,069,042 3,993,846 3,942,352 0.9 % Moneygram International, Inc. (4)(7) Diversified Consumer Services 5.00% (L + 4.50%) 7/19/2021 7/21/2026 7,200,000 7,175,766 7,211,268 1.6 % National Mentor Holdings, Inc. (7) Healthcare Providers and Services 4.50% (L + 3.75%) 2/18/2021 2/18/2028 9,227,133 9,201,152 9,136,594 2.0 % National Mentor Holdings, Inc. (7) Healthcare Providers and Services 4.50% (L + 3.75%) 2/18/2021 2/18/2028 291,993 291,126 289,256 0.1 % Navicure, Inc. (7) Healthcare Technology 4.10% (L + 4.00%) 9/15/2020 10/22/2026 4,673,381 4,675,564 4,675,320 1.0 % Nexus Buyer LLC (7) Professional Services 3.85% (L + 3.75%) 3/10/2020 10/30/2026 6,996,379 6,924,176 6,973,886 1.5 % NMSC Holdings, Inc. (7) Healthcare Providers and Services 6.00% (L + 5.00%) 5/14/2021 4/19/2023 8,442,209 8,421,850 8,444,319 1.9 % NorthStar Group Services, Inc. (5)(7)(8) Commercial Services and Supplies 6.50% (L + 5.50%) 11/9/2020 11/9/2026 8,879,759 8,843,367 8,910,306 2.0 % NSM Top Holdings Corp. (7) Healthcare Equipment and Supplies 5.35% (L + 5.25%) 10/18/2021 11/12/2026 4,987,277 4,962,950 4,987,277 1.1 % OneDigital Borrower LLC (7) Insurance 4.75% (C + SCA + 4.25%) 10/30/2020 11/16/2027 9,970,938 9,852,427 9,964,706 2.2 % Orchid Merger Sub II, LLC (5)(7) Software 5.25% (L + 4.75%) 11/12/2021 5/12/2027 3,500,000 3,290,000 3,360,000 0.7 % Oregon Clean Energy, LLC (7) Independent Power and Renewable Electricity Producers 4.75% (L + 3.75%) 2/25/2020 3/2/2026 4,887,891 4,779,206 4,503,850 1.0 % Pactiv Evergreen Group Holdings Inc. (4)(7) Containers and Packaging 4.00% (L + 3.50%) 9/17/2021 9/22/2028 2,992,500 2,978,041 2,992,500 0.7 % Padagis LLC (7) Pharmaceuticals 5.25% (L + 4.75%) 6/30/2021 7/31/2028 6,588,235 6,550,008 6,567,647 1.5 % Pathway Vet Alliance LLC (7) Healthcare Providers and Services 3.85% (L + 3.75%) 1/29/2021 3/31/2027 4,941,089 4,876,527 4,931,824 1.1 % PECF USS Intermediate Holding III Corporation (5)(8) Professional Services 4.75% (L + 4.25%) 11/4/2021 11/6/2028 5,000,000 4,987,500 5,011,625 1.1 % Peraton Corp. (7)(8) IT Services 4.50% (L + 3.75%) 2/23/2021 2/1/2028 8,952,437 8,951,088 8,971,595 2.0 % F- 10 Palmer Square Capital BDC Inc. Consolidated Schedule of Investments As of December 31, 2021 Acquisition Maturity Principal / Amortized Fair Percentage Portfolio Company (3) Industry Interest Rate Date Date Par Cost (1)(6) Value of Net Assets PetVet Care Centers, LLC (7) Healthcare Providers and Services 4.25% (L + 3.50%) 2/18/2021 2/14/2025 6,938,175 6,923,597 6,945,980 1.5 % Phoenix Guarantor Inc. (7) Healthcare Providers and Services 3.60% (L + 3.50%) 10/2/2020 3/5/2026 4,950,094 4,910,625 4,936,481 1.1 % PODS, LLC (7) Road and Rail 3.75% (L + 3.00%) 3/19/2021 3/31/2028 1,985,025 1,975,873 1,980,747 0.4 % PQ Performance Chemicals (7) Chemicals 4.25% (L + 3.50%) 4/30/2021 4/28/2028 5,000,000 4,997,651 5,012,500 1.1 % Prairie ECI Acquiror LP (7) Oil, Gas and Consumable Fuels 4.85% (L + 4.75%) 11/12/2021 3/11/2026 7,182,326 6,969,074 6,962,870 1.5 % Presidio Holdings, Inc. (7) Professional Services 3.61% (L + 3.50%) 2/28/2020 1/31/2027 2,364,000 2,334,043 2,366,222 0.5 % Pretium PKG Holdings, Inc. (8) Containers and Packaging 4.50% (L + 4.00%) 9/22/2021 9/22/2028 5,000,000 4,976,019 4,997,200 1.1 % Prime Security Services Borrower, LLC (4)(7) Diversified Consumer Services 3.50% (L + 2.75%) 4/20/2020 5/2/2022 1,782,584 1,771,416 1,782,985 0.4 % Project Alpha Intermediate Holding, Inc. (7) Software 4.11% (L + 4.00%) 2/10/2021 4/26/2024 5,916,866 5,897,864 5,933,522 1.3 % Project Boost Purchaser, LLC (7) Professional Services 4.00% (L + 3.50%) 6/21/2021 6/1/2026 5,970,000 5,955,902 5,977,463 1.3 % Proofpoint, Inc. (7) IT Services 3.75% (L + 3.25%) 6/10/2021 6/9/2028 5,000,000 4,976,654 4,987,125 1.1 % PS Holdco, LLC (8) Road and Rail 5.00% (L + 4.25%) 9/23/2021 10/31/2028 4,987,500 4,963,067 4,996,852 1.1 % PT Intermediate Holdings III LLC (8) Machinery 6.25% (L + 5.50%) 11/10/2021 10/15/2025 2,320,000 2,296,800 2,308,400 0.5 % PT Intermediate Holdings III LLC (8) Machinery 6.25% (L + 5.50%) 11/10/2021 11/1/2028 1,536,150 1,520,799 1,528,469 0.3 % Quest Software US Holdings Inc (7) Software 4.38% (L + 4.25%) 2/5/2020 5/16/2025 6,934,002 6,926,135 6,936,637 1.5 % Radiate Holdco, LLC (7) Media 4.00% (L + 3.25%) 10/22/2021 9/25/2026 3,000,000 2,992,599 2,993,760 0.7 % Radiology Partners, Inc. (7) Healthcare Providers and Services 4.35% (L + 4.25%) 2/26/2020 7/9/2025 6,000,000 5,991,169 5,924,190 1.3 % RC Buyer, Inc. (7) Auto Components 4.25% (L + 3.50%) 7/26/2021 7/28/2028 2,094,750 2,089,576 2,093,450 0.5 % RealPage, Inc. (5)(7) Real Estate Management and Development 3.75% (L + 3.25%) 2/18/2021 2/18/2028 6,982,500 6,971,036 6,970,525 1.5 % Red Planet Borrower, LLC (7) Internet Software and Services 4.25% (L + 3.75%) 9/23/2021 10/2/2028 7,980,000 7,940,911 7,948,080 1.8 % Redstone Holdco 2 LP (7)(8) IT Services 5.50% (L + 4.75%) 4/16/2021 4/14/2028 7,980,000 7,924,198 7,645,838 1.7 % RegionalCare Hospital Partners Holdings, Inc. (5)(7) Healthcare Providers and Services 3.85% (L + 3.75%) 2/11/2020 11/14/2025 5,028,873 5,019,995 5,031,363 1.1 % Rocket Software, Inc. (7) Software 4.75% (L + 4.25%) 9/2/2021 11/28/2025 4,982,481 4,956,315 4,983,104 1.1 % Rodan & Fields, LLC (7) Textiles, Apparel and Luxury Goods 4.11% (L + 4.00%) 3/4/2021 6/16/2025 1,732,051 1,524,775 974,279 0.2 % Rohm Holding GMBH (4)(7)(8) Chemicals 4.90% (L + 4.75%) 2/2/2021 7/31/2026 8,936,606 8,917,170 8,940,314 2.0 % RSC Acquisition, Inc. (8) Insurance 6.25% (L + 5.50%) 11/1/2021 10/30/2026 1,731,928 1,714,630 1,729,763 0.4 % RSC Acquisition, Inc. (8)(10) Insurance 6.25% (L + 5.50%) 11/1/2021 10/30/2026 527,108 489,464 522,402 0.1 % RSC Acquisition, Inc. (8) Insurance 6.25% (L + 5.50%) 11/1/2021 9/30/2026 753,012 745,646 752,070 0.2 % Runner Buyer Inc. (8) Household Durables 6.25% (L + 5.50%) 10/13/2021 10/20/2028 5,000,000 4,950,645 4,950,000 1.1 % Ryan Specialty Group LLC (4)(7) Insurance 3.75% (L + 3.00%) 7/23/2020 9/1/2027 1,975,000 1,962,730 1,978,209 0.4 % Sabert Corporation (7)(8) Containers and Packaging 5.50% (L + 4.50%) 2/26/2020 11/26/2026 7,122,923 7,125,462 7,131,862 1.6 % Severin Acquisition, LLC (7) Diversified Consumer Services 3.10% (L + 3.00%) 2/26/2020 8/31/2025 3,721 3,599 3,708 0.0 % Shearer’s Foods, LLC (7) Food Products 4.25% (L + 3.50%) 9/15/2020 9/23/2027 1,691,137 1,680,722 1,688,312 0.4 % Sophia, L.P. (7) Software 4.25% (L + 3.50%) 9/23/2020 10/7/2027 4,950,094 4,918,451 4,954,425 1.1 % Sotera Health Holdings, LLC (7) Healthcare Equipment and Supplies 3.25% (L + 2.75%) 1/15/2021 12/11/2026 4,000,000 4,000,000 3,990,620 0.9 % Sovos Compliance, LLC (8) Software 5.00% (L + 4.50%) 7/29/2021 7/28/2028 3,410,959 3,402,432 3,426,279 0.8 % Specialty Building Products Holdings, LLC (5)(7)(8) Building Products 4.25% (L + 3.75%) 10/5/2021 10/5/2028 10,000,000 10,016,507 9,986,537 2.2 % Springer Nature Deutschland GmbH (4)(7) Media 3.75% (L + 3.00%) 2/26/2021 8/14/2026 2,086,931 2,082,809 2,091,167 0.5 % F- 11 Palmer Square Capital BDC Inc. Consolidated Schedule of Investments As of December 31, 2021 Acquisition Maturity Principal / Amortized Fair Percentage Portfolio Company (3) Industry Interest Rate Date Date Par Cost (1)(6) Value of Net Assets Summer BC Holdco B LLC (4)(8) Media 5.25% (L + 4.50%) 9/2/2021 12/4/2026 4,987,500 4,993,734 4,990,617 1.1 % Surf Holdings, LLC (7) IT Services 3.69% (L + 3.50%) 4/16/2020 1/15/2027 1,970,012 1,881,892 1,957,700 0.4 % Surgery Center Holdings, Inc. (7) Healthcare Providers and Services 4.50% (L + 3.75%) 4/30/2021 9/3/2026 4,714,375 4,692,584 4,718,807 1.0 % Talen Energy Supply, LLC (7) Independent Power and Renewable Electricity Producers 3.85% (L + 3.75%) 4/9/2020 6/26/2026 3,866,834 3,675,471 3,450,086 0.8 % Tecta America Corp. (7)(8) Construction and Engineering 5.00% (L + 4.25%) 4/20/2021 4/6/2028 6,172,249 6,180,294 6,183,822 1.4 % The Edelman Financial Engines Centre, LLC (7) Diversified Financial Services 4.25% (L + 3.50%) 4/13/2020 4/7/2028 7,939,714 7,850,378 7,945,193 1.8 % Thryv, Inc. (4)(7) Professional Services 9.50% (L + 8.50%) 2/18/2021 2/18/2026 6,011,096 6,022,690 6,116,290 1.4 % TIBCO Software Inc (7) Software 3.85% (L + 3.75%) 2/13/2020 6/30/2026 2,955,000 2,948,675 2,936,530 0.6 % Tidal Power Holdings, LLC (4)(7) Independent Power and Renewable Electricity Producers 4.75% (L + 3.75%) 4/1/2021 4/1/2027 4,252,248 4,229,645 4,300,086 0.9 % Tiger Acquisition, LLC (7) Industrial Conglomerates 3.75% (L + 3.25%) 10/12/2021 5/19/2028 2,992,500 2,981,347 2,978,076 0.7 % Titan US Finco, LLC (4)(8) Media 4.50% (L + 4.00%) 10/7/2021 10/6/2028 6,000,000 5,985,062 5,994,990 1.3 % Torrid, LLC (4)(8) Specialty Retail 6.25% (L + 5.50%) 10/12/2021 5/19/2028 2,000,000 2,022,001 2,017,500 0.4 % Tory Burch LLC (7) Specialty Retail 3.50% (L + 3.00%) 4/15/2021 4/14/2028 1,990,000 1,971,658 1,990,000 0.4 % Tosca Services, LLC (7) Containers and Packaging 4.25% (L + 3.50%) 2/19/2021 8/18/2027 2,970,000 2,957,856 2,968,159 0.7 % Traverse Midstream Partners LLC (7) Oil, Gas and Consumable Fuels 5.25% (C + SCA + 4.25%) 8/20/2020 9/27/2024 5,673,975 5,385,313 5,659,819 1.2 % Triton Water Holdings, Inc. (7) Food Products 4.00% (L + 3.50%) 3/17/2021 3/31/2028 4,975,001 4,958,709 4,928,360 1.1 % Truck Hero, Inc. (7) Auto Components 4.00% (L + 3.25%) 1/20/2021 1/20/2028 7,051,725 7,041,693 7,028,066 1.6 % U.S. Renal Care, Inc. (7)(8) Healthcare Providers and Services 5.13% (L + 5.00%) 4/8/2020 6/26/2026 8,911,817 8,759,285 8,690,180 1.9 % U.S. Renal Care, Inc. (7) Healthcare Providers and Services 6.50% (L + 5.50%) 4/23/2021 6/26/2026 498,750 492,009 490,022 0.1 % U.S. Silica Company (4)(7) Metals and Mining 5.00% (L + 4.00%) 3/9/2021 4/25/2025 7,945,544 7,762,054 7,786,633 1.7 % Ultimate Software Group, The (7) Software 3.85% (L + 3.75%) 2/28/2020 4/8/2026 4,411,006 4,392,996 4,403,727 1.0 % United Airlines, Inc. (4)(7) Airlines 4.50% (L + 3.75%) 9/2/2021 4/21/2028 7,967,400 8,034,531 8,014,009 1.8 % Univision Communications Inc. (7) Media 4.00% (L + 3.25%) 6/15/2020 3/13/2026 4,121,311 4,008,960 4,135,798 0.9 % US Radiology Specialists, Inc. (5)(7) Healthcare Providers and Services 6.00% (L + 5.25%) 12/11/2020 12/10/2027 8,970,000 8,862,961 8,976,997 2.0 % VeriFone Systems, Inc. (7) Commercial Services and Supplies 4.18% (L + 4.00%) 3/4/2020 8/20/2025 2,976,982 2,936,772 2,930,095 0.6 % Verscend Holding Corp. (7) Healthcare Technology 4.10% (L + 4.00%) 3/6/2020 8/27/2025 6,126,073 6,110,295 6,132,199 1.4 % Vision Solutions, Inc. (7) IT Services 4.75% (L + 4.00%) 3/19/2021 4/24/2028 9,975,000 9,944,077 9,975,000 2.2 % Watlow Electric Manufacturing Company (5)(7) Electrical Equipment 4.25% (L + 3.75%) 4/19/2021 3/2/2028 5,101,525 5,115,092 5,103,132 1.1 % Whatabrands LLC (7) Hotels, Restaurants and Leisure 3.75% (L + 3.25%) 7/21/2021 7/21/2028 2,400,000 2,388,461 2,394,948 0.5 % White Cap Buyer LLC (5)(7)(8) Building Products 4.50% (L + 4.00%) 10/8/2020 10/8/2027 6,959,924 6,949,443 6,974,923 1.5 % Wilsonart LLC (7)(8) Building Products 4.50% (L + 3.50%) 3/19/2021 12/18/2026 7,949,623 7,945,181 7,958,765 1.8 % Zelis Cost Management Buyer, Inc. (7) Healthcare Technology 3.60% (L + 3.50%) 2/1/2021 9/30/2026 4,792,714 4,784,986 4,767,408 1.1 % Total First Lien Senior Secured 1,012,130,228 $ 1,003,839,402 $ 1,007,407,474 222.4 % Second Lien Senior Secured (2) Almonde, Inc. (5) Software 8.25% (L + 7.25%) 11/4/2021 4/28/2025 3,000,000 3,003,750 3,000,345 0.7 % ARC Falcon I Inc. (7) Chemicals 7.50% (L + 7.00%) 9/22/2021 9/24/2029 2,000,000 1,980,393 1,980,000 0.4 % Artera Services, LLC (7) Construction and Engineering 8.25% (L + 7.25%) 5/12/2020 3/6/2026 7,810,000 7,423,359 7,731,900 1.7 % Aruba Investments, Inc. (7) Chemicals 8.50% (L + 7.75%) 10/28/2020 10/27/2028 2,350,000 2,316,709 2,373,500 0.5 % F- 12 Palmer Square Capital BDC Inc. Consolidated Schedule of Investments As of December 31, 2021 Acquisition Maturity Principal / Amortized Fair Percentage Portfolio Company (3) Industry Interest Rate Date Date Par Cost (1)(6) Value of Net Assets Asurion, LLC (5)(7) Insurance 5.35% (L + 5.25%) 7/15/2021 1/19/2029 6,000,000 5,960,590 5,983,140 1.3 % Curium BidCo S.a r.l. (4)(5) Pharmaceuticals 8.50% (L + 7.75%) 11/9/2021 10/27/2028 3,000,000 3,052,500 3,033,750 0.7 % DCert Buyer, Inc. (7) IT Services 7.10% (L + 7.00%) 2/16/2021 2/19/2029 1,500,000 1,496,858 1,506,248 0.3 % Energy Acquisition LP (5) Electrical Equipment 8.50% (L + 8.50%) 11/16/2021 6/25/2026 2,812,400 2,720,196 2,624,320 0.6 % Epicor Software Corporation (5)(7) Software 8.75% (L + 7.75%) 7/23/2020 7/31/2028 3,000,000 3,041,862 3,077,505 0.7 % Help/Systems Holdings, Inc. Software 7.50% (L + 6.75%) 11/16/2021 11/19/2027 3,656,217 3,665,199 3,657,752 0.8 % Idera, Inc. IT Services 7.50% (L + 6.75%) 11/4/2021 2/5/2029 3,000,000 3,029,512 3,007,500 0.7 % Infinite Bidco LLC (5)(7) Electronic Equipment, Instruments and Components 7.50% (L + 7.00%) 2/24/2021 2/24/2029 2,743,333 2,738,086 2,760,479 0.6 % Inmar, Inc. (7) Professional Services 9.00% (L + 8.00%) 7/15/2021 5/1/2025 5,000,000 5,007,347 5,012,500 1.1 % Ivanti Software, Inc. (5) Software 7.75% (L + 7.25%) 12/1/2021 12/1/2028 2,000,000 2,000,000 2,005,010 0.4 % Magenta Buyer LLC Software 9.00% (L + 8.25%) 11/4/2021 5/3/2029 3,000,000 2,985,021 2,987,820 0.7 % Peraton Corp. IT Services 8.50% (L + 7.75%) 11/1/2021 2/26/2029 3,000,000 3,066,820 3,048,750 0.7 % Pretium PKG Holdings, Inc. (7) Containers and Packaging 7.25% (L + 6.75%) 9/22/2021 9/21/2029 2,000,000 1,980,887 1,998,750 0.4 % Quest Software US Holdings Inc (7) Software 8.38% (L + 8.25%) 2/11/2020 5/18/2026 3,347,000 3,331,490 3,351,535 0.7 % TIBCO Software Inc (5) Software 7.35% (L + 7.25%) 11/2/2021 2/28/2028 2,500,000 2,509,375 2,513,013 0.6 % Vision Solutions, Inc. IT Services 8.00% (L + 7.25%) 11/4/2021 4/23/2029 3,000,000 3,007,499 3,004,695 0.7 % Total Second Lien Senior Secured 64,718,950 64,317,453 64,658,512 14.3 % Corporate Bonds Diebold Inc (4) Diversified Consumer Services 8.50% 11/5/2021 4/15/2024 1,000,000 1,002,202 1,000,071 0.3 % KOBE US Midco 2 Inc Chemicals 9.25% 11/8/2021 11/1/2026 1,900,000 1,881,394 1,947,500 0.4 % Total Corporate Bonds 2,900,000 2,883,596 2,947,571 0.7 % Convertible Bonds Dish Network Corp (4) Media 3.38% 4/21/2021 8/15/2026 1,000,000 1,021,974 942,069 0.2 % Total Convertible Bonds 1,000,000 1,021,974 942,069 0.2 % Total Debt Investments 1,080,749,178 $ 1,072,062,425 $ 1,075,955,626 237.6 % CLO Mezzanine (2) 522 Funding CLO 2020-6, Ltd. (4) Structured Note 8.17% (L + 8.04%) 11/9/2021 10/23/2034 2,800,000 2,717,549 2,738,208 0.6 % Barings CLO Ltd (4) Structured Note 6.88% (L + 6.75%) 1/24/2020 1/20/2028 2,000,000 1,922,263 1,892,175 0.4 % Carlyle US CLO 2020-2, Ltd (4) Structured Note 8.66% (L + 8.53%) 11/5/2021 1/25/2035 4,000,000 3,880,576 3,911,604 0.9 % Elmwood CLO III Ltd. (4) Structured Note 7.86% (L + 7.74%) 10/28/2021 10/20/2034 2,000,000 1,921,030 1,905,811 0.4 % GoldenTree Loan Management US 2020-7A (4) Structured Note 7.88% (L + 7.50%) 11/17/2021 4/20/2034 2,000,000 1,886,090 1,900,494 0.4 % GoldenTree Loan Management US 2021-10A (4) Structured Note 7.92% (L + 7.79%) 6/28/2021 7/20/2034 1,250,000 1,213,704 1,187,520 0.3 % GoldenTree Loan Management US 2021-9A (4) Structured Note 6.88% (L + 6.75%) 11/4/2021 1/20/2033 2,000,000 1,886,518 1,877,447 0.4 % HPS Loan Management Series 15A-19 (4) Structured Note 6.73% (L + 6.60%) 8/26/2020 7/22/2032 1,500,000 1,409,524 1,485,842 0.3 % Magnetite CLO Ltd 2015-16A (4) Structured Note 6.62% (L + 6.50%) 8/11/2020 1/18/2028 1,000,000 810,847 946,886 0.2 % Thayer Park CLO, Ltd. (4) Structured Note 9.00% (L + 8.87%) 12/15/2021 4/20/2034 1,300,000 1,259,186 1,259,407 0.3 % Total CLO Mezzanine 19,850,000 18,907,287 19,105,394 4.2 % F- 13 Palmer Square Capital BDC Inc. Consolidated Schedule of Investments As of December 31, 2021 Acquisition Maturity Principal / Amortized Fair Percentage Portfolio Company (3) Industry Interest Rate Date Date Par Cost (1)(6) Value of Net Assets CLO Equity Ares CLO LTD 2021-62A (4) Structured Subordinated Note NA 11/18/2021 1/25/2034 5,000,000 4,620,000 4,619,794 1.0 % Dryden 86 CLO, Ltd. (4) Structured Subordinated Note NA 11/16/2021 7/17/2030 6,000,000 4,695,000 4,734,172 1.0 % Long Point Park CLO, Ltd. (4) Structured Subordinated Note NA 11/17/2021 1/17/2030 6,358,000 4,332,977 4,430,826 1.0 % Regatta XII Funding Ltd. (4) Structured Subordinated Note NA 11/17/2021 10/15/2032 6,000,000 4,710,000 4,714,852 1.0 % Stratus CLO Series 2021-1A (4) Structured Subordinated Note NA 11/15/2021 12/29/2029 2,000,000 1,743,200 1,754,156 0.5 % Total CLO Equity 25,358,000 20,101,177 20,253,800 4.5 % Number of Fair Percentage Shares Cost Value of Net Assets Equity Investments Custom Truck One Source Inc (4) Commercial Services and Supplies NA 4/1/2021 NA 100,000 500,000 800,000 0.2 % Total Equity Investments 100,000 500,000 800,000 0.2 % Total Equity and Other Investments 45,308,000 39,508,464 40,159,194 8.9 % Number of Fair Percentage Shares Cost Value of Net Assets Short-Term Investments Fidelity Investments Money Market Government Portfolio - Institutional Class, 0.01% (9) 78,142,764 78,142,764 78,142,764 17.3 % Total Short-Term Investments 78,142,764 $ 78,142,764 $ 78,142,764 17.3 % Total Investments $ 1,189,713,653 $ 1,194,257,584 263.8 % Liabilities in Excess of Other Assets (741,459,996 ) (163.8 )% Net Assets $ 452,797,588 100.0 % (1) The amortized cost represents the original cost adjusted for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method. (2) Loan contains a variable rate structure, subject to an interest rate floor. Variable rate loans bear interest at a rate that may be determined by reference to either a) the London Interbank Offered Rate (“LIBOR” or “L”) (which can include one-, two-, three- or six-month LIBOR) or b) the CME Term Secured Overnight Financing Rate (“SOFR” or “S”) (which can include one-, three-, or six-month SOFR), which resets periodically based on the terms of the loan agreement. At the borrower’s option, loans may instead reference an alternate base rate (which can include the Federal Funds Effective Rate or the Prime Rate), which also resets periodically based on the terms of the loan agreements. Loans that reference SOFR may include a Credit Spread Adjustment (“CSA”), where the CSA is a defined additional spread amount based on the tenor of SOFR the borrower selects (making the reference rate S+CSA). For the holdings as of 12/31/21 that have S+CSA as the base rate, the CSA is 10bp for 1M SOFR, 15bp for 3M SOFR, and 25bp for 6M SOFR. For the avoidance of doubt, loan floors apply to S+CSA, not S. (3) As of December 31, 2021, all investments are non-controlled, non-affiliated investments. Non-controlled, non-affiliated investments are defined as investments in which the Company owns less than 5% of the portfolio company’s outstanding voting securities and does not have the power to exercise control over the management or policies of such portfolio company. (4) Non-qualifying investment as defined by Section 55(a) of the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company’s total assets. As of December 31, 2021, 13.3% of the Company’s total assets were in non-qualifying investments. (5) Investments or a portion of investments are unsettled as of December 31, 2021. (6) As of December 31, 2021, the tax cost of the Company’s investments approximates their amortized cost. (7) Security or portion thereof held within Palmer Square BDC Funding I, LLC (“PS BDC Funding”) and is pledged as collateral supporting the amounts outstanding under a revolving credit facility with Bank of America, N.A. (“BofA N.A.”) (see Note 6 to the consolidated financial statements). (8) Security or portion thereof held within Palmer Square BDC Funding II, LLC (“PS BDC Funding II”) and is pledged as collateral supporting the amounts outstanding under a revolving credit facility with Wells Fargo Bank, National Association (“WFB”) (see Note 6 to the consolidated financial statements). (9) 7-day effective yield as of December 31, 2021. (10) Of the $3,765,060 commitment to RSC Acquisition, Inc., $3,237,952 was unfunded as of December 31, 2021. The accompanying notes are an integral part of these consolidated financial statements. F- 14 Palmer Square Capital BDC Inc. Consolidated Schedule of Investments As of December 31, 2020 Interest Acquisition Maturity Principal / Amortized Fair Percentage of Portfolio Company (3) Industry Rate Date Date Par Cost (1)(6) Value Net Assets Debt Investments First Lien Senior Secured (2) Academy, Ltd. (4)(7) Specialty Retail 5.75% (L + 5.00%) 10/28/2020 10/28/2027 2,500,000 $ 2,475,456 $ 2,499,375 0.9 % Acrisure, LLC (7) Insurance 3.65% (L + 3.50%) 1/31/2020 2/12/2027 4,962,500 4,952,070 4,882,902 1.8 % AI Convoy (Luxembourg) S.a.r.l. (7) Aerospace and Defense 4.50% (L + 3.50%) 4/14/2020 1/29/2027 4,367,000 4,228,081 4,370,275 1.6 % Albany Molecular Research, Inc. (7) Healthcare Providers and Services 4.25% (L + 3.25%) 2/20/2020 8/28/2024 4,949,493 4,925,181 4,976,320 1.9 % Alera Group Intermediate Holdings, Inc. (7) Insurance 4.50% (L + 4.00%) 2/3/2020 8/1/2025 5,453,360 5,396,423 5,412,460 2.0 % AlixPartners, LLP (7) Diversified Financial Services 2.65% (L + 2.50%) 4/13/2020 4/30/2024 2,475,542 2,415,423 2,453,695 0.9 % Alliant Holdings Intermediate LLC (7) Insurance 3.40% (L + 3.25%) 1/27/2020 5/9/2025 3,703,695 3,430,767 3,651,214 1.3 % Alliant Holdings Intermediate LLC (7) Insurance 4.25% (L + 3.75%) 10/8/2020 10/8/2027 996,731 989,410 999,228 0.3 % Alphabet Holding Company, Inc. (7) Food Products 3.65% (L + 3.50%) 1/24/2020 9/26/2024 2,971,847 2,841,691 2,950,584 1.1 % Alterra Mountain Company (7) Hotels, Restaurants and Leisure 5.50% (L + 4.50%) 5/13/2020 8/31/2026 2,007,369 1,990,823 2,024,933 0.7 % Alterra Mountain Company (7) Hotels, Restaurants and Leisure 2.90% (L + 2.75%) 4/13/2020 6/28/2024 2,976,982 2,825,365 2,944,727 1.1 % Amentum Government Services Holdings LLC (7) Construction and Engineering 3.65% (L + 3.50%) 3/19/2020 2/26/2027 4,477,500 4,213,933 4,477,500 1.7 % Amentum Government Services Holdings LLC (7) Construction and Engineering 5.50% (L + 4.75%) 10/29/2020 1/29/2027 1,500,000 1,470,381 1,515,000 0.5 % American Rock Salt Company LLC (7) Metals and Mining 4.50% (L + 3.50%) 2/28/2020 3/21/2025 4,766,715 4,744,813 4,776,844 1.8 % AmWINS Group, Inc. (7) Insurance 3.75% (L + 2.75%) 3/2/2020 2/28/2024 4,458,648 4,410,908 4,469,014 1.7 % Amynta Agency Borrower, Inc. (7) Insurance 4.65% (L + 4.50%) 2/13/2020 2/28/2025 4,996,250 4,795,887 4,846,363 1.8 % APLP Holdings Limited Partnership (4)(7) Independent Power and Renewable Electricity Producers 3.50% (L + 2.50%) 3/25/2020 4/13/2023 1,336,736 1,251,155 1,336,736 0.4 % Applovin Corporation (7) Software 3.65% (L + 3.50%) 3/2/2020 8/15/2025 4,957,013 4,889,288 4,952,056 1.9 % Arches Buyer Inc. (7) Interactive Media and Services 4.50% (L + 4.00%) 11/24/2020 11/24/2027 5,000,000 4,950,488 5,016,250 1.9 % Aristocrat International PTY Ltd (4)(7) Hotels, Restaurants and Leisure 4.75% (L + 3.75%) 5/14/2020 10/31/2024 2,487,500 2,443,638 2,502,276 1.0 % Aruba Investments, Inc. (7) Chemicals 4.75% (L + 4.00%) 10/28/2020 10/28/2027 1,500,000 1,485,176 1,504,223 0.6 % Ascend Learning, LLC (7) Diversified Consumer Services 4.00% (L + 3.00%) 4/16/2020 7/29/2024 3,919,615 3,756,423 3,908,836 1.5 % AssuredPartners, Inc. (7) Insurance 5.50% (L + 4.50%) 5/29/2020 2/12/2027 992,500 973,932 996,227 0.4 % AssuredPartners, Inc. (7) Insurance 3.65% (L + 3.50%) 2/11/2020 2/12/2027 4,950,000 4,938,511 4,885,403 1.9 % Asurion, LLC (7) Diversified Consumer Services 3.40% (L + 3.25%) 12/23/2020 1/29/2027 1,987,249 1,958,010 1,969,860 0.8 % Athenahealth, Inc. (7) Healthcare Providers and Services 4.65% (L + 4.50%) 2/20/2020 2/11/2026 3,962,198 3,927,936 3,967,150 1.6 % Avaya Inc. (4)(7) Diversified Telecommunication Services 4.41% (L + 4.25%) 4/20/2020 12/15/2024 1,560,941 1,490,031 1,572,218 0.6 % Avaya Inc. (4)(7) Diversified Telecommunication Services 4.39% (L + 4.25%) 4/20/2020 12/15/2027 1,939,059 1,764,355 1,943,093 0.8 % Azalea TopCo, Inc. (7) Healthcare Providers and Services 3.71% (L + 3.50%) 2/26/2020 7/23/2026 3,962,387 3,917,453 3,923,595 1.5 % Barracuda Networks, Inc. (7) IT Services 4.50% (L + 3.75%) 3/2/2020 1/10/2025 4,019,316 4,015,168 4,018,311 1.6 % Bass Pro Group, LLC (7) Specialty Retail 5.75% (L + 5.00%) 7/28/2020 9/25/2024 6,071,202 6,066,031 6,100,495 2.4 % Bausch Health Companies Inc. (4) Pharmaceuticals 3.15% (L + 3.00%) 3/18/2020 6/30/2025 3,905,458 3,738,642 3,896,319 1.5 % Belfor Holdings Inc. (7) Commercial Services and Supplies 4.15% (L + 4.00%) 3/18/2020 3/31/2026 2,976,096 2,844,878 2,983,685 1.2 % Bioscrip, Inc. (4)(7) Healthcare Providers and Services 4.40% (L + 4.25%) 3/5/2020 5/29/2026 5,089,512 4,901,157 5,088,469 2.0 % F- 15 Palmer Square Capital BDC Inc. Consolidated Schedule of Investments As of December 31, 2020 Interest Acquisition Maturity Principal / Amortized Fair Percentage of Portfolio Company (3) Industry Rate Date Date Par Cost (1)(6) Value Net Assets Blackstone CQP Holdco LP (7) Energy Equipment and Services 3.74% (L + 3.50%) 2/28/2020 6/7/2024 1,979,900 1,942,728 1,977,425 0.8 % Boxer Parent Company, Inc. (7) Software 4.40% (L + 4.25%) 4/7/2020 9/1/2025 3,394,243 3,006,431 3,387,064 1.3 % Brookfield Property REIT Inc. (7) Real Estate Investment Trusts (REITs) 2.65% (L + 2.50%) 4/17/2020 5/4/2025 2,144,701 1,777,242 2,039,847 0.8 % Brookfield WEC Holdings Inc. (7) Commercial Services and Supplies 3.75% (L + 3.00%) 2/25/2020 8/1/2025 4,455,798 4,390,350 4,451,031 1.8 % Buzz Merger Sub Ltd. (7) Leisure Products 2.90% (L + 2.75%) 1/24/2020 1/22/2027 3,473,750 3,387,888 3,460,723 1.4 % Caesars Resort Collection, LLC (4)(7) Hotels, Restaurants and Leisure 4.65% (L + 4.50%) 6/19/2020 7/31/2025 2,992,500 2,908,415 3,002,315 1.2 % Camelot U.S. Acquisition 1 Co. (4)(7) Professional Services 3.15% (L + 3.00%) 4/14/2020 10/28/2026 3,969,925 3,901,437 3,957,936 1.6 % CCI Buyer, Inc. (5)(7) Wireless Telecommunication Services 4.75% (L + 4.00%) 12/16/2020 12/31/2027 2,400,000 2,376,000 2,401,992 0.9 % CCS-CMGC Holdings, Inc. (7) Healthcare Providers and Services 5.71% (L + 5.50%) 1/24/2020 10/1/2025 3,959,596 3,899,353 3,850,707 1.5 % Change Healthcare Holdings, Inc. (4)(7) Healthcare Providers and Services 3.50% (L + 2.50%) 4/1/2020 3/1/2024 2,326,036 2,225,791 2,319,209 0.9 % CHG Healthcare Services, Inc (7) Healthcare Providers and Services 4.00% (L + 3.00%) 3/19/2020 6/7/2023 2,967,965 2,650,461 2,956,375 1.2 % Cincinnati Bell Inc. (4)(7) Media 4.25% (L + 3.25%) 3/19/2020 10/2/2024 3,965,775 3,814,313 3,971,347 1.6 % Citadel Securities LP (7) Diversified Financial Services 2.90% (L + 2.75%) 3/20/2020 2/6/2026 4,054,286 3,758,583 4,062,719 1.6 % Consolidated Communications, Inc. (4)(7) Diversified Telecommunication Services 5.75% (L + 4.75%) 9/18/2020 10/31/2027 1,995,000 1,965,667 2,007,808 0.8 % CP Atlas Buyer, Inc (7) Building Products 5.25% (L + 4.50%) 11/20/2020 12/31/2027 3,750,000 3,712,996 3,762,656 1.5 % CP Atlas Buyer, Inc (7) Building Products 5.25% (L + 4.50%) 11/20/2020 11/19/2027 1,250,000 1,237,610 1,254,219 0.5 % Creative Artists Agency, LLC (7) Media 3.90% (L + 3.75%) 3/2/2020 11/20/2026 1,980,000 1,980,000 1,961,853 0.8 % Crestwood Holdings LLC Oil, Gas and Consumable Fuels 7.66% (L + 7.50%) 6/5/2020 2/28/2023 488,751 346,400 381,226 0.2 % F- 16 Palmer Square Capital BDC Inc. Consolidated Schedule of Investments As of December 31, 2020 Interest Acquisition Maturity Principal / Amortized Fair Percentage of Portfolio Company (3) Industry Rate Date Date Par Cost (1)(6) Value Net Assets Dcert Buyer, Inc. (5)(7) Software 4.15% (L + 4.00%) 1/28/2020 8/7/2026 4,962,500 4,953,855 4,965,602 2.0 % Deerfield Dakota Holding, LLC (7) Diversified Financial Services 4.75% (L + 3.75%) 3/6/2020 2/25/2027 4,975,000 4,901,828 5,003,780 2.0 % Delek US Holdings, Inc. (4)(7) Oil, Gas and Consumable Fuels 6.50% (L + 5.50%) 5/18/2020 3/31/2025 2,382,000 2,231,776 2,368,613 0.9 % Delta Topco, Inc. (7) IT Services 4.50% (L + 3.75%) 10/7/2020 10/29/2027 4,000,000 3,980,258 4,005,840 1.6 % The Dun & Bradstreet Corporation (4)(7) Professional Services 3.90% (L + 3.75%) 1/24/2020 3/31/2026 4,962,500 4,896,041 4,974,212 2.0 % EAB Global, Inc. (7) Professional Services 4.75% (L + 3.75%) 2/21/2020 9/27/2024 2,974,516 2,893,045 2,958,721 1.2 % ECI Software Solutions, Inc. (7) Software 4.50% (L + 3.75%) 9/17/2020 9/30/2027 6,000,000 5,970,754 6,001,230 2.4 % EFS Cogen Holdings I LLC (7) Independent Power and Renewable Electricity Producers 4.50% (L + 3.50%) 9/24/2020 10/29/2027 2,963,385 2,948,910 2,954,954 1.2 % Elanco Animal Health Incorporated (4)(7) Healthcare Providers and Services 1.90% (L + 1.75%) 3/20/2020 2/26/2027 45,572 40,158 45,235 0.0 % Endo Luxembourg Finance Company I S.a.r.l. (4)(7) Pharmaceuticals 5.00% (L + 4.25%) 4/13/2020 4/29/2024 2,480,720 2,325,276 2,449,711 1.0 % Ensemble RCM, LLC (7) Healthcare Providers and Services 3.96% (L + 3.75%) 4/14/2020 7/24/2026 3,807,085 3,704,542 3,807,561 1.5 % Epicor Software Corporation (7) Software 5.25% (L + 4.25%) 7/23/2020 6/1/2022 3,990,000 3,926,731 4,020,962 1.6 % Everi Payments Inc. (4) Professional Services 11.50% (L + 10.50%) 4/14/2020 5/9/2024 348,250 342,071 362,180 0.1 % Everi Payments Inc. (4)(7) Professional Services 3.75% (L + 2.75%) 4/9/2020 5/1/2024 1,000,000 879,949 991,530 0.4 % Evertec Group LLC (4)(7) Professional Services 3.65% (L + 3.50%) 4/14/2020 12/31/2024 2,430,502 2,341,762 2,430,502 1.0 % Flexera Software LLC (5)(7) Software 4.50% (L + 3.75%) 12/16/2020 1/16/2028 2,500,000 2,496,250 2,503,125 1.0 % Flexera Software LLC (5)(7) Software 4.25% (L + 3.25%) 2/28/2020 2/26/2025 1,519,710 1,480,336 1,521,336 0.6 % Garda World Security Corporation (7) Diversified Consumer Services 4.99% (L + 4.75%) 3/13/2020 10/23/2026 5,000,000 4,848,904 5,013,750 2.0 % GFL Environmental Inc. (4)(7) Commercial Services and Supplies 3.50% (L + 3.00%) 2/20/2020 5/9/2025 2,622,258 2,528,578 2,628,617 1.0 % Global Medical Response, Inc. (7) Healthcare Providers and Services 5.75% (L + 4.75%) 9/24/2020 9/24/2025 4,500,000 4,413,785 4,480,313 1.8 % Guggenheim Partners Investment Management Holdings, LLC (7) Diversified Financial Services 3.50% (L + 2.75%) 2/28/2020 7/21/2023 1,482,852 1,475,112 1,485,017 0.6 % Guidehouse LLP (7) Professional Services 4.65% (L + 4.50%) 4/14/2020 3/14/2025 4,024,967 3,953,955 4,031,669 1.6 % HAH Group Holding Company LLC (7) Healthcare Providers and Services 6.00% (L + 5.00%) 10/22/2020 10/20/2027 3,551,724 3,492,899 3,534,224 1.4 % Hamilton Projects Acquiror LLC (7) Electric Utilities 5.75% (L + 4.75%) 6/11/2020 6/11/2027 5,457,587 5,389,828 5,482,611 2.2 % Harbor Freight Tools USA, Inc. (7) Specialty Retail 4.00% (L + 3.25%) 10/14/2020 11/30/2027 3,500,000 3,465,751 3,506,370 1.4 % Helix Gen Funding, LLC (7) Independent Power and Renewable Electricity Producers 4.75% (L + 3.75%) 1/31/2020 3/8/2024 4,419,559 4,366,931 4,280,254 1.7 % Help/Systems Holdings, Inc. (7) Software 5.75% (L + 4.75%) 9/16/2020 11/13/2026 4,974,937 4,926,250 4,966,654 2.0 % Hostess Brands, LLC (4)(7) Food Products 3.00% (L + 2.25%) 3/18/2020 8/1/2025 1,438,207 1,326,162 1,432,929 0.6 % HUB International Limited (7) Insurance 5.00% (L + 4.00%) 4/22/2020 4/25/2025 3,979,925 3,918,865 3,997,536 1.6 % Hyland Software, Inc. (7) Software 4.25% (L + 3.50%) 9/25/2020 7/1/2024 2,992,347 2,981,598 3,003,568 1.2 % Hyperion Refinance S.a.r.l. (7) Insurance 4.50% (L + 3.50%) 3/2/2020 12/13/2024 3,962,981 3,911,850 3,958,582 1.6 % ICH US Intermediate Holdings II, Inc. (7) Healthcare Providers and Services 6.75% (L + 5.75%) 2/28/2020 12/24/2026 6,748,077 6,617,263 6,754,420 2.7 % Idera, Inc. (7) Software 5.00% (L + 4.00%) 2/14/2020 6/28/2024 4,456,406 4,417,886 4,456,428 1.8 % Informatica LLC (7) Software 3.40% (L + 3.25%) 2/14/2020 2/15/2027 1,975,025 1,942,614 1,962,533 0.8 % Inmar, Inc. (7) Professional Services 5.00% (L + 4.00%) 1/24/2020 5/1/2024 2,969,231 2,938,868 2,927,083 1.2 % IRB Holding Corporation (5)(7) Hotels, Restaurants and Leisure 4.25% (L + 3.25%) 11/19/2020 11/19/2027 1,850,000 1,831,500 1,855,495 0.7 % Iridium Satellite LLC (4)(7) Diversified Telecommunication Services 4.75% (L + 3.75%) 3/6/2020 10/18/2026 4,716,862 4,690,701 4,747,003 1.9 % Ivanti Software, Inc. (7) IT Services 5.75% (L + 4.75%) 11/20/2020 11/22/2027 5,000,000 4,925,621 4,996,875 2.0 % Jane Street Group, LLC (7) Diversified Financial Services 3.23% (L + 3.00%) 1/31/2020 1/31/2025 1,470,069 1,447,558 1,470,437 0.6 % Kestrel Acquisition LLC (7) Independent Power and Renewable Electricity Producers 5.25% (L + 4.25%) 2/25/2020 5/2/2025 1,979,695 1,790,719 1,733,471 0.7 % F- 17 Palmer Square Capital BDC Inc. Consolidated Schedule of Investments As of December 31, 2020 Interest Acquisition Maturity Principal / Amortized Fair Percentage of Portfolio Company (3) Industry Rate Date Date Par Cost (1)(6) Value Net Assets Klockner-Pentaplast of America, Inc. (4)(7) Containers and Packaging 5.25% (L + 4.25%) 9/10/2020 6/29/2022 3,730,720 3,689,267 3,728,388 1.5 % Landry’s Finance Acquisition Co Hotels, Restaurants and Leisure 13.00% (L + 12.00%) 6/12/2020 10/4/2023 18,875 18,252 21,518 0.0 % LBM Acquisition LLC (5)(7) Construction Materials 4.50% (L + 3.75%) 12/9/2020 12/31/2027 1,227,273 1,212,273 1,229,148 0.5 % LCPR Loan Financing LLC (7) Diversified Telecommunication Services 5.16% (L + 5.00%) 3/13/2020 10/22/2026 4,000,000 3,941,122 4,022,500 1.6 % Lightstone Holdco LLC Independent Power and Renewable Electricity Producers 4.75% (L + 3.75%) 4/7/2020 1/30/2024 1,609,237 1,288,637 1,499,833 0.6 % Lightstone Holdco LLC Independent Power and Renewable Electricity Producers 4.75% (L + 3.75%) 4/7/2020 1/30/2024 90,763 72,681 84,593 0.0 % Limetree Bay Terminals, LLC (5)(7) Oil, Gas and Consumable Fuels 5.00% (L + 4.00%) 4/22/2020 2/15/2024 2,284,783 2,023,325 2,150,552 0.8 % Lions Gate Capital Holdings LLC (4)(7) Media 2.40% (L + 2.25%) 4/1/2020 3/19/2025 1,980,572 1,869,480 1,959,529 0.8 % LogMeIn, Inc. (7) IT Services 4.90% (L + 4.75%) 8/14/2020 8/31/2027 3,500,000 3,415,896 3,495,643 1.4 % Mauser Packaging Solutions Holding Company (7) Containers and Packaging 3.48% (L + 3.25%) 4/13/2020 4/3/2024 1,488,432 1,366,428 1,441,918 0.6 % McAfee, LLC (4)(7) IT Services 3.90% (L + 3.75%) 2/26/2020 9/30/2024 3,570,079 3,556,203 3,575,220 1.4 % Meredith Corporation (4)(7) Media 5.25% (L + 4.25%) 6/25/2020 1/31/2025 3,482,500 3,355,696 3,512,101 1.4 % Michaels Stores, Inc. (4)(7) Specialty Retail 4.25% (L + 3.50%) 9/2/2020 10/1/2027 1,995,000 1,953,730 1,986,900 0.8 % Milano Acquisition Corporation (7) Health Care Technology 4.75% (L + 4.00%) 8/17/2020 8/31/2027 3,500,000 3,466,538 3,508,015 1.4 % Minotaur Acquisition, Inc. (7) Diversified Financial Services 5.15% (L + 5.00%) 1/24/2020 3/27/2026 5,125,443 5,123,960 5,042,155 2.0 % Mitchell International, Inc. (7) Software 4.75% (L + 4.25%) 7/6/2020 11/29/2024 3,241,875 3,128,166 3,250,790 1.3 % MPH Acquisition Holdings LLC (7) Healthcare Providers and Services 3.75% (L + 2.75%) 4/13/2020 5/25/2023 2,591,513 2,463,356 2,584,438 1.0 % National Mentor Holdings, Inc. (7) Healthcare Providers and Services 4.40% (L + 4.25%) 2/7/2020 2/5/2026 3,794,103 3,761,808 3,795,697 1.5 % National Mentor Holdings, Inc. (7) Healthcare Providers and Services 4.40% (L + 4.25%) 2/7/2020 2/5/2026 169,724 168,243 169,795 0.1 % Navicure, Inc. (7) Health Care Technology 4.75% (L + 4.00%) 9/15/2020 10/22/2026 2,705,719 2,699,303 2,709,101 1.1 % New Arclin US Holding Corp. (7) Chemicals 4.50% (L + 3.50%) 8/25/2020 2/14/2024 1,989,525 1,966,566 1,990,778 0.8 % Newport Group Holdings II, Inc. (7) Diversified Financial Services 3.72% (L + 3.50%) 8/25/2020 9/12/2025 2,984,733 2,900,441 2,966,078 1.2 % Nexus Buyer LLC (7) Professional Services 3.90% (L + 3.75%) 3/10/2020 10/30/2026 4,048,687 3,955,471 4,027,613 1.6 % Nielsen Finance LLC (4)(7) Media 4.75% (L + 3.75%) 5/7/2020 6/6/2025 1,492,500 1,477,234 1,506,179 0.6 % NorthStar Group Services, Inc. (7) Commercial Services and Supplies 6.50% (L + 5.50%) 11/9/2020 11/9/2026 3,000,000 2,941,128 2,977,500 1.2 % Numericable U.S. LLC (7) Media 4.24% (L + 4.00%) 3/31/2020 8/14/2026 3,972,139 3,814,159 3,965,108 1.6 % F- 18 Palmer Square Capital BDC Inc. Consolidated Schedule of Investments As of December 31, 2020 Interest Acquisition Maturity Principal / Amortized Fair Percentage of Portfolio Company (3) Industry Rate Date Date Par Cost (1)(6) Value Net Assets OneDigital Borrower LLC (7) Insurance 5.25% (L + 4.50%) 10/30/2020 10/29/2027 5,460,938 5,336,244 5,483,438 2.2 % Oregon Clean Energy, LLC (7) Independent Power and Renewable Electricity Producers 4.75% (L + 3.75%) 2/25/2020 3/2/2026 5,078,751 4,943,404 5,066,055 2.0 % Pathway Vet Alliance LLC (7) Healthcare Providers and Services 4.15% 6/23/2020 3/31/2027 262,760 257,672 263,055 0.1 % Pathway Vet Alliance LLC (7) Healthcare Providers and Services 4.15% (L + 4.00%) 6/23/2020 3/31/2027 3,216,904 3,154,690 3,220,523 1.3 % PCI Gaming Authority (7) Hotels, Restaurants and Leisure 2.65% (L + 2.50%) 4/21/2020 5/15/2026 2,756,538 2,615,321 2,732,736 1.1 % Petco Animal Supplies, Inc. Specialty Retail 4.25% (L + 3.25%) 6/17/2020 1/26/2023 1,492,167 1,236,450 1,432,898 0.6 % PetVet Care Centers, LLC (7) Healthcare Providers and Services 5.25% (L + 4.25%) 8/14/2020 2/15/2025 3,482,368 3,474,303 3,504,133 1.4 % Phoenix Guarantor Inc. (7) Healthcare Providers and Services 4.25% (L + 3.75%) 10/2/2020 3/31/2026 5,000,000 4,951,532 5,004,150 2.0 % Pike Corporation (7) Construction and Engineering 4.12% (L + 3.97%) 8/19/2020 7/24/2026 1,875,952 1,867,058 1,877,622 0.7 % Playtika Holding Corp. (7) Hotels, Restaurants and Leisure 7.00% (L + 6.00%) 2/28/2020 12/31/2024 8,659,461 8,717,061 8,728,865 3.4 % PODS, LLC (7) Building Products 3.75% (L + 2.75%) 2/26/2020 12/6/2024 1,956,928 1,952,700 1,964,873 0.8 % Pre-Paid Legal Services, Inc. (7) Diversified Consumer Services 4.75% (L + 4.00%) 9/11/2020 5/1/2025 1,496,250 1,474,767 1,503,731 0.6 % Pre-Paid Legal Services, Inc. (7) Diversified Consumer Services 3.40% (L + 3.25%) 2/26/2020 5/1/2025 1,638,513 1,592,272 1,622,807 0.6 % Presidio Holdings, Inc. (7) Professional Services 3.72% (L + 3.50%) 2/28/2020 1/31/2027 2,388,000 2,352,280 2,389,122 0.9 % Pretium PKG Holdings, Inc. (7) Containers and Packaging 4.75% (L + 4.00%) 10/29/2020 11/30/2027 2,500,000 2,463,389 2,503,125 1.0 % Prime Security Services Borrower, LLC (4)(7) Diversified Consumer Services 4.25% (L + 3.25%) 4/20/2020 9/14/2026 1,796,054 1,754,890 1,809,803 0.7 % Project Alpha Intermediate Holding, Inc. (7) Software 4.50% (L + 3.50%) 1/30/2020 4/19/2024 3,961,519 3,928,048 3,935,095 1.6 % ProQuest LLC (7) Internet and Direct Marketing Retail 3.65% (L + 3.50%) 4/17/2020 10/16/2026 3,310,911 3,256,718 3,310,911 1.3 % Quest Software US Holdings Inc (7) Software 4.46% (L + 4.25%) 2/5/2020 5/16/2025 2,977,215 2,977,215 2,935,534 1.2 % Rackspace Hosting, Inc. (7) Technology Hardware, Storage and Peripherals 4.00% (L + 3.00%) 4/17/2020 11/3/2023 2,976,864 2,867,228 2,977,236 1.2 % Radiate Holdco, LLC (7) Media 4.25% (L + 3.50%) 2/25/2020 9/11/2026 5,121,868 5,069,220 5,137,054 2.0 % Radiology Partners, Inc. (7) Healthcare Providers and Services 4.40% (L + 4.25%) 2/26/2020 7/9/2025 3,500,000 3,488,400 3,450,423 1.4 % Redstone Buyer, LLC (7) Software 6.00% (L + 5.00%) 7/1/2020 9/1/2027 4,999,000 4,969,348 5,027,119 2.0 % RegionalCare Hospital Partners Holdings, Inc. (7) Healthcare Providers and Services 3.90% (L + 3.75%) 2/11/2020 11/14/2025 3,028,873 3,015,138 3,026,799 1.2 % Renaissance Holding Corp (7) Diversified Consumer Services 3.40% (L + 3.25%) 3/4/2020 7/31/2025 1,979,695 1,944,213 1,950,614 0.8 % Ryan Specialty Group LLC (7) Insurance 4.00% (L + 3.25%) 7/23/2020 9/1/2027 1,995,000 1,980,621 1,995,000 0.8 % Sabert Corporation (7) Containers and Packaging 5.50% (L + 4.50%) 2/26/2020 11/26/2026 4,830,392 4,819,800 4,832,397 1.9 % F- 19 Palmer Square Capital BDC Inc. Consolidated Schedule of Investments As of December 31, 2020 Interest Acquisition Maturity Principal / Amortized Fair Percentage of Portfolio Company (3) Industry Rate Date Date Par Cost (1)(6) Value Net Assets Samsonite International S.A. (4)(7) Textiles, Apparel and Luxury Goods 5.50% (L + 4.50%) 4/30/2020 4/25/2025 1,791,000 1,743,626 1,787,651 0.7 % Scientific Games International, Inc. (4)(7) Leisure Products 2.90% (L + 2.75%) 4/9/2020 8/14/2024 1,984,694 1,758,771 1,943,760 0.8 % SCIH Salt Holdings Inc. (7) Metals and Mining 5.50% (L + 4.50%) 4/13/2020 3/3/2027 3,980,000 3,915,034 3,992,438 1.6 % Shearer’s Foods, LLC (7) Food Products 4.75% (L + 4.00%) 9/15/2020 9/14/2027 1,708,219 1,695,921 1,711,558 0.7 % SmartBear Software Inc. (5)(7) Software 4.46% (L + 4.25%) 11/20/2020 11/19/2027 3,000,000 2,970,000 2,990,625 1.2 % Sophia, L.P. (7) Software 4.50% (L + 3.75%) 9/23/2020 10/31/2027 5,000,000 4,963,358 5,024,100 2.0 % Sotera Health Holdings LLC (4)(7) Healthcare Equipment and Supplies 5.50% (L + 4.50%) 3/2/2020 11/20/2026 4,163,466 4,148,686 4,185,157 1.7 % Springer Nature Deutschland GmbH (5)(7) Media 4.50% (L + 3.50%) 11/17/2020 8/14/2024 2,279,964 2,274,264 2,283,293 0.9 % Surf Holdings, LLC (7) Software 3.73% (L + 3.50%) 4/16/2020 1/15/2027 1,990,000 1,885,497 1,975,573 0.8 % Syncsort Incorporated (7) Software 7.00% (L + 6.00%) 4/13/2020 8/16/2024 4,262,440 4,109,093 4,269,110 1.7 % Talen Energy Supply, LLC (7) Independent Power and Renewable Electricity Producers 3.90% (L + 3.75%) 4/9/2020 6/26/2026 3,866,834 3,638,489 3,812,041 1.5 % TecoStar Holdings, Inc. (7) Healthcare Equipment and Supplies 4.50% (L + 3.50%) 2/25/2020 5/1/2024 2,969,109 2,956,997 2,924,573 1.2 % The Edelman Financial Center, LLC (7) Diversified Financial Services 3.15% (L + 3.00%) 4/13/2020 6/26/2025 1,984,810 1,880,143 1,958,759 0.8 % TIBCO Software Inc (7) Software 3.90% (L + 3.75%) 2/13/2020 6/30/2026 2,985,000 2,977,336 2,937,419 1.2 % Tosca Services, LLC (7) Containers and Packaging 5.25% (L + 4.25%) 7/28/2020 8/31/2027 3,000,000 2,985,819 3,021,255 1.2 % Traverse Midstream Partners LLC (7) Oil, Gas and Consumable Fuels 6.50% (L + 5.50%) 8/20/2020 9/27/2024 5,342,482 4,954,097 5,259,833 2.1 % Tronox Finance LLC (4)(7) Chemicals 3.15% (L + 3.00%) 4/17/2020 9/14/2024 1,779,361 1,748,333 1,773,364 0.7 % UGI Energy Services, LLC (7) Oil, Gas and Consumable Fuels 3.90% (L + 3.75%) 4/27/2020 8/7/2026 992,443 918,793 996,165 0.4 % Ultimate Software Group, The (7) Software 4.75% (L + 4.00%) 6/18/2020 5/31/2026 997,500 983,667 1,004,243 0.4 % Ultimate Software Group, The (7) Software 3.90% (L + 3.75%) 2/28/2020 4/8/2026 4,456,131 4,433,707 4,460,075 1.8 % Univision Communications Inc. (7) Media 4.75% (L + 3.75%) 6/15/2020 3/13/2026 4,197,268 4,059,519 4,214,455 1.7 % UOS, LLC (7) Commercial Services and Supplies 4.40% (L + 4.25%) 2/19/2020 4/18/2025 4,593,053 4,584,727 4,605,018 1.8 % US Radiology Specialists, Inc., (7) Healthcare Providers and Services 6.25% (L + 5.50%) 12/11/2020 12/10/2027 4,000,000 3,920,333 3,983,740 1.6 % U.S. Renal Care, Inc. (7) Healthcare Providers and Services 5.15% (L + 5.00%) 4/8/2020 6/26/2026 3,969,849 3,776,648 3,957,126 1.6 % U.S.I., Inc. (7) Insurance 4.25% (L + 4.00%) 4/23/2020 12/2/2026 4,972,381 4,903,442 4,973,425 2.0 % USIC Holdings, Inc. (7) Construction and Engineering 4.00% (L + 3.00%) 2/26/2020 12/8/2023 1,980,066 1,972,057 1,989,144 0.8 % Venator Materials LLC (4)(7) Chemicals 3.15% (L + 3.00%) 4/17/2020 6/28/2024 1,984,615 1,814,166 1,957,327 0.8 % VeriFone Systems, Inc. (7) Commercial Services and Supplies 4.22% (L + 4.00%) 3/4/2020 8/20/2025 496,203 474,275 481,316 0.2 % Verscend Holding Corp. (7) Health Care Technology 4.65% (L + 4.50%) 3/6/2020 8/27/2025 4,162,491 4,133,385 4,168,735 1.6 % VFH Parent LLC (4)(7) Capital Markets 3.15% (L + 3.00%) 3/20/2020 6/1/2026 2,532,966 2,363,333 2,533,751 1.0 % VM Consolidated Inc. (4)(7) Transportation Infrastructure 3.40% (L + 3.25%) 2/28/2020 2/28/2025 967,824 961,310 960,972 0.4 % WebMD Health Corp. (7) Interactive Media and Services 4.75% (L + 3.75%) 6/11/2020 9/13/2024 4,979,987 4,917,305 4,979,987 2.0 % White Cap Buyer LLC (7) Construction Materials 4.50% (L + 4.00%) 10/8/2020 10/8/2027 3,000,000 2,970,582 3,003,120 1.2 % Xplornet Communications Inc (7) Wireless Telecommunication Services 4.90% (L + 4.75%) 5/29/2020 5/31/2027 3,482,500 3,319,234 3,501,218 1.4 % Zelis Cost Management Buyer, Inc. (7) Health Care Technology 4.90% (L + 4.75%) 3/2/2020 10/30/2026 4,841,125 4,831,550 4,860,296 1.9 % Total First Lien Senior Secured 568,173,986 $ 554,650,131 $ 566,459,850 223.8 % F- 20 Palmer Square Capital BDC Inc. Consolidated Schedule of Investments As of December 31, 2020 Acquisition Maturity Principal / Amortized Fair Percentage of Portfolio Company (3) Industry Interest Rate Date Date Par Cost (1)(6) Value Net Assets Second Lien Senior Secured (2) Alphabet Holding Company, Inc. (7) Food Products 7.90% (L + 7.75%) 5/14/2020 9/26/2025 2,050,000 1,920,126 2,046,925 0.8 % Aptean Inc Software 8.65% (L + 8.50%) 7/23/2020 4/23/2027 1,400,000 1,334,785 1,375,500 0.5 % Aruba Investments, Inc. (7) Chemicals 8.50% (L + 7.75%) 10/29/2020 10/27/2028 2,350,000 2,315,519 2,369,094 0.9 % Asurion, LLC (7) Diversified Consumer Services 6.65% (L + 6.50%) 3/31/2020 7/14/2025 2,939,394 2,895,326 2,968,053 1.2 % Epicor Software Corporation (7) Software 8.75% (L + 7.75%) 7/23/2020 7/31/2028 1,000,000 985,486 1,046,565 0.4 % Informatica LLC (7) Software 7.13% 2/14/2020 2/14/2025 1,000,000 995,486 1,020,750 0.4 % Mitchell International, Inc. Software 7.40% (L + 7.25%) 7/1/2020 11/20/2025 447,667 415,895 434,516 0.2 % New Arclin US Holding Corp. Chemicals 9.75% (L + 8.75%) 9/14/2020 2/14/2025 1,928,999 1,835,183 1,856,662 0.7 % PowerTeam Services, LLC (5) Construction and Engineering 8.25% (L + 7.25%) 5/12/2020 3/6/2026 4,810,000 4,351,841 4,457,259 1.8 % Quest Software US Holdings Inc Software 8.46% (L + 8.25%) 2/11/2020 5/18/2026 1,597,000 1,578,688 1,523,538 0.6 % SK Invictus Intermediate II S.a.r.l. (7) Software 6.90% (L + 6.75%) 8/27/2020 2/13/2026 911,765 779,512 877,118 0.3 % Total Second Lien Senior Secured 20,434,825 19,407,847 19,975,980 7.8 % Collateralized Securities and Structured Products - Debt (2) Barings CLO Ltd (4) Structured Note 6.97% (L + 6.75%) 1/24/2020 1/20/2028 2,000,000 1,909,424 1,722,977 0.6 % Babson CLO Ltd 2019-3A (4) Structured Note 7.92% (L + 6.78%) 8/11/2020 4/20/2031 1,500,000 1,373,460 1,491,304 0.6 % Beechwood Park CLO, Ltd (4) Structured Note 7.72% (L + 7.50%) 7/27/2020 1/17/2033 1,750,000 1,699,298 1,767,605 0.7 % Eaton Vance CLO 2019-1, Ltd. (4) Structured Note 6.99% (L + 6.75%) 9/1/2020 4/15/2031 1,500,000 1,470,929 1,502,993 0.6 % HPS Loan Management Series 15A-19 (4) Structured Note 7.07% (L + 6.86%) 8/26/2020 7/22/2032 1,500,000 1,400,957 1,433,815 0.6 % Magnetite XIV-R, Limited (4) Structured Note 8.15% (L + 7.93%) 1/24/2020 10/18/2031 1,500,000 1,448,204 1,333,180 0.5 % Magnetite Clo LTD (4) Structured Note 2.37% (L + 2.15%) 4/2/2020 1/18/2028 1,000,000 832,569 972,288 0.4 % Magnetite CLO Ltd 2015-16A (4) Structured Note 6.72% (L + 6.50%) 8/11/2020 1/18/2028 1,000,000 779,579 890,000 0.4 % Newark BSL CLO 1 Ltd (4) Structured Note 3.22% (L + 3.00%) 4/6/2020 12/21/2029 500,000 382,142 498,394 0.2 % Riserva CLO, LTD. (4) Structured Note 5.85% (L + 3.45%) 4/2/2020 10/18/2028 1,000,000 829,883 997,964 0.4 % TCI-Flatiron CLO Ltd (4) Structured Note 3.91% (L + 3.70%) 4/2/2020 1/29/2032 1,000,000 811,343 1,004,981 0.4 % Total Collateralized Securities and Structured Products - Debt 14,250,000 12,937,788 13,615,501 5.4 % Total Debt Investments 602,858,811 $ 586,995,766 $ 600,051,331 237.0 % F- 21 Palmer Square Capital BDC Inc. Consolidated Schedule of Investments As of December 31, 2020 Number of Fair Percentage of Shares Cost Value Net Assets Short-Term Investments Fidelity Investments Money Market Government Portfolio - Institutional Class, 0.01% (8) 53,104,869 53,104,869 53,104,869 21.0 % Total Short-Term Investments 53,104,869 $ 53,104,869 $ 53,104,869 21.0 % Total Investments $ 640,100,635 $ 653,156,200 258.0 % Liabilities in Excess of Other Assets (400,011,229 ) (158.0 )% Net Assets $ 253,144,971 100.0 % (1) The amortized cost represents the original cost adjusted for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method. (2) Loan contains a variable rate structure, subject to an interest rate floor. Variable rate loans bear interest at a rate that may be determined by reference to either the London Interbank Offered Rate (“LIBOR” or “L”) (which can include one-, two-, three- or six-month LIBOR) or an alternate base rate (which can include the Federal Funds Effective Rate or the Prime Rate), at the borrower’s option, and which reset periodically based on the terms of the loan agreement. (3) As of December 31, 2020, all investments are non-controlled, non-affiliated investments. Non-controlled, non-affiliated investments are defined as investments in which the Company owns less than 5% of the portfolio company’s outstanding voting securities and does not have the power to exercise control over the management or policies of such portfolio company. (4) Non-qualifying investment as defined by Section 55(a) of the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company’s total assets. As of December 31, 2020, 15.5% of the Company’s total assets were in non-qualifying investments. (5) Investments or a portion of investments are unsettled as of December 31, 2020. (6) As of December 31, 2020, the tax cost of the Company’s investments approximates their amortized cost. (7) Security or portion thereof held within Palmer Square BDC Funding I, LLC (“PS BDC Funding”) and is pledged as collateral supporting the amounts outstanding under a revolving credit facility with Bank of America, N.A. (“BofA N.A.”) (see Note 6 to the consolidated financial statements). (8) 7-day effective yield as of December 31, 2020. The accompanying notes are an integral part of these consolidated financial statements. F- 22 Palmer Square Capital BDC Inc. Notes to Consolidated Financial Statements Note 1. Organization Organization Palmer Square Capital BDC Inc. (the “Company”) is a financial services company that primarily lends to and invests in corporate debt securities of companies, including small to large private U.S. companies. The Company was organized as a Maryland corporation on August 26, 2019 and is structured as an externally managed, non-diversified closed-end management investment company. The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). Beginning with its taxable year ending December 31, 2020, the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1985, as amended (the “Code”) and expects to qualify as a RIC thereafter. The Company commenced operations on January 23, 2020. Palmer Square BDC Funding I, LLC (“PS BDC Funding”) was formed on January 21, 2020 and entered into a senior, secured revolving credit facility with BofA N.A. Palmer Square BDC Funding II LLC (“PS BDC Funding II”) was formed on September 8, 2020 and entered into a senior, secured credit facility with Wells Fargo, National Association. The Company’s investment objective is to maximize total return, comprised of current income and capital appreciation. The Company’s current investment focus is guided by two strategies that facilitate its investment opportunities and core competencies: (1) investing in corporate debt securities and, to a lesser extent, (2) investing in collateralized loan obligation (“CLO”) structured credit funds that typically own corporate debt securities, including the equity and junior debt tranches of CLOs. To a limited extent, the Company may enter into derivatives transactions, which may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of the Company’s portfolio positions from changes in currency exchange rates and market interest rates or to earn income and enhance the Company’s total returns. The Company may receive or purchase warrants or rights to acquire equity or other securities in connection with making a debt investment in a company. During the year ended December 31, 2021 and the period January 23, 2020 (Commencement of Operations) through December 31, 2020, the Company did not invest in any derivative contracts. The Company is externally managed by Palmer Square BDC Advisor LLC (the “Investment Advisor”), an investment adviser that is registered with the Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, pursuant to an investment advisory agreement between the Company and the Investment Advisor (the “Advisory Agreement”). The Investment Advisor, in its capacity as administrator (the “Administrator”), provides the administrative services necessary for the Company to operate pursuant to an administration agreement between the Company and the Administrator (the “Administration Agreement”). The Company’s fiscal year ends on December 31. The Company has two wholly-owned subsidiaries: PS BDC Funding, a special purpose wholly-owned subsidiary established for utilizing the Company’s revolving credit facility with BofA N.A., and PS BDC Funding II, a special purpose wholly-owned subsidiary established for utilizing the Company’s credit facility with Wells Fargo, National Association. These subsidiaries are consolidated in the financial statements of the Company. Note 2. Significant Accounting Policies The Company is an investment company and applies specific accounting and financial reporting requirements under Financial Accounting Standards Board (“FASB”) Accounting Standards Topic 946, Financial Services-Investment Companies . The Company’s functional currency is U.S. dollars (“USD”) and these consolidated financial statements have been prepared in that currency. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to Regulation S-X. F- 23 Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates. Indemnifications In the normal course of business, the Company enters into contracts that contain a variety of representations which provide general indemnifications. The Company’s maximum exposure under these arrangements cannot be known; however, the Company expects any risk of loss to be remote. Cash and Cash Equivalents Cash is comprised of cash on deposit with major financial institutions. Cash equivalents consist of highly liquid investments with original maturities of three months or less. The Company places its cash with high credit quality institutions to minimize credit risk exposure. Debt Issuance Costs The Company records origination and other expenses related to its debt obligations as deferred financing costs. These expenses are deferred and amortized over the life of the related debt instrument. Debt issuance costs are presented on the consolidated statement of assets and liabilities as a direct deduction from the debt liability. In circumstances in which there is not an associated debt liability amount recorded in the consolidated financial statements when the debt issuance costs are incurred, such debt issuance costs will be reported on the consolidated statement of assets and liabilities as an asset until the debt liability is recorded. As of December 31, 2020, the balance of deferred financing costs was $2.1 million, included in BoA Credit Facility (as defined below), net of $393.2 million on the consolidated statement of assets and liabilities. As of December 31, 2021, the balance of debt issuance costs was $2.1 million, representing deferred financing costs of $3.4 million less accrued interest of $1.3 million, included in BoA Credit Facility and WF Credit Facility (each as defined below), net of $649.9 million on the consolidated statement of assets and liabilities. Income Taxes The Company has elected to be treated as a RIC under Subchapter M of the Code. So long as the Co