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Item 1A. Risk Factors

2023-03-10 compared with 2022-03-11 · 394 added, 299 removed, 1023 unchanged (40% of the section changed)

in our common stock involves a number of significant risks.

The investor should be aware of various risks, including those described

The investor should carefully consider these risk factors, together with all of the other information included in this Annual

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.

the following events occur, our business, financial condition, results of operations and cash flows could be materially and adversely

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.

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.

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.

in a Highly Competitive Market for Investment Opportunities —

The business of investing in assets meeting our investment

objective is highly competitive.

Investments With Borrowed Money —

The use of leverage magnifies the potential for gain or loss on amounts invested.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Investing in our common

stock involves a number of significant risks.

The investor should be aware of various risks, including those described below.

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.

Risks Related to our Business and Structure

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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

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.

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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

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

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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.

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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.

done so but for the opportunity to continue to earn the Income 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,

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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

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

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.

As a result, we will determine the fair value of these loans and securities in good faith by the Board or its designee as described elsewhere

in this Annual Report.

Our Board has designated the Investment Advisor as the valuation designee pursuant to Rule 2a-5 under the 1940

In connection with its fair value determination, investment professionals from our Investment Advisor may determine 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.

We operate in a highly competitive market

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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

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.

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including interest expenses.

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.

assure you that we will be able to obtain credit at all or on terms acceptable to us.

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

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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,

and the administrator of LIBOR, announced that it will extend the LIBOR transition deadline for most LIBOR settings to the end of

To identify a successor rate for U.S.

dollar LIBOR, the Alternative Reference Rates Committee (“ARRC”),

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.

Inflation could adversely affect the business,

results of operations and financial condition of our portfolio companies.

Certain of our portfolio companies

are in industries that could be impacted by inflation.

If such portfolio companies are unable to pass any increases in their costs of

operations along to their customers, it could adversely affect their operating results and impact their ability to pay interest and principal

on our loans, particularly if interest rates rise in response to inflation.

In addition, any projected future decreases in our portfolio

companies’ operating results due to inflation could adversely impact the fair value of those investments.

Any decreases in the fair

value of our investments could result in future realized or unrealized losses and therefore reduce our net increase (decrease) in net

assets resulting from operations.

We are subject to risks associated with

the discontinuation of LIBOR.

On March 5, 2021, the Financial

Conduct Authority (the “FCA”) confirmed its intention to cease publication of (i) one-week and two-month U.S.

tenors after December 31, 2021 and (ii) remaining U.S.

dollar LIBOR tenors after June 30, 2023.

As of January 1, 2022, USD LIBOR is available

in five settings (overnight, one-month, three-month, six-month and 12-month).

The ICE Benchmark Administration (“IBA”) has

stated that it will cease to publish all remaining USD LIBOR settings immediately following their publication on June 30, 2023.

January 1, 2022, all non-USD LIBOR reference rates in all settings ceased to be published.

As an alternative to LIBOR,

Federal Reserve, in conjunction with the Alternative Reference Rates Committee (“ARRC”), a U.S.

convened by the Federal Reserve Board and the Federal Reserve Bank of New York, supports replacing U.S.-dollar LIBOR with the Secured

Overnight Financing Rate (“SOFR”).

SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S.

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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 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.

Similarly, other jurisdictions have

also proposed their own alternative to LIBOR, including the Sterling Overnight Index Average for Sterling markets, the Euro Short Term

Rate for Euros and Tokyo Overnight Average Rate for Japanese Yens.

Although SOFR appears to be the preferred replacement rate for U.S.

LIBOR, it is unclear if other benchmarks may emerge or if other rates will be adopted outside of the U.S.

Some regulators have prohibited

the use of any LIBOR benchmarks in new contracts and have required that regulated entities transition existing contracts to another benchmark

prior to June 30, 2023.

Although settings of such LIBOR benchmarks may continue to be available, such prohibitions and requirements may

adversely affect the value of floating-rate debt securities in our portfolio or issued by us.

Moreover, at this time, no consensus exists

as to what rate or rates will become accepted alternative to LIBOR.

The transition away from LIBOR

to alternative base rates is complex and could have adverse impacts on our business, financial condition and results of operations, including

as a result of any changes in the pricing of our investments, changes to the documentation for certain of our investments, disputes and

other actions regarding the interpretation of current and prospective loan documentation or modifications to processes and systems.

addition, while some debt investments that are linked to LIBOR may contemplate a scenario where LIBOR is no longer available by providing

or an alternative rate setting methodology, not all instruments may have such provisions and there is significant uncertainty regarding

the effectiveness of any such alternative methodologies.

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

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

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.

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 Investment Advisor (subject to the Board’s oversight).

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 (“ASC”), as amended, Fair Value Measurements and Disclosures (“ASC 820”).

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.

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.

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.

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.

basis the valuation of our portfolio to reflect the Investment Advisor’s determination (subject to the Board’s oversight)

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

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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.

We are subject to risks related to our management

of ESG activities.

Our business faces increasing public scrutiny related to ESG activities.

We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, such as environmental stewardship, corporate

governance and transparency and considering ESG factors in our investment processes.

Adverse incidents with respect to ESG activities

could impact the value of our brand, the cost of our operations and relationships with investors, all of which could adversely affect

our business and results of operations.

Additionally, new regulatory initiatives related to ESG could adversely affect our business.

Our Investment 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’

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.

at any time upon not less than 60 days’ written notice, whether we have found a replacement or not.

If the Investment Advisor

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of operations as well as our ability to pay distributions to our stockholders are likely to be adversely affected.

Moreover, pursuant to the Resource Sharing Agreement, Palmer Square

provides the Investment Advisor with experienced investment professionals and services so as to enable the Investment Advisor to fulfill

its obligations under the Advisory Agreement, and such Resource Sharing Agreement may itself be terminated on 60 days’ notice.

Palmer Square were to so terminate the Resource Sharing Agreement, the Investment Advisor may be required to seek to find an alternate

means of fulfilling its obligations under the Advisory Agreement, or to resign.

We are highly dependent on information systems,

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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.

the costs related to cyber or other security threats or disruptions may not be fully insured or indemnified by other means.

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.

Cyber security incidents and cyber-attacks

have been occurring more frequently and will likely continue to increase.

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, and we may be required to expend

additional resources to modify our protective measures and to investigate and remediate vulnerabilities or other exposures arising from

operational and security risks.

Furthermore, cybersecurity continues to be a key 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.

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.

Failure to maintain our status as a business

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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

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.

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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

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stock will be deemed, to the fullest extent permitted by law, to have notice of and consented to these exclusive forum provisions.

exclusive forum selection provision in our charter may limit our stockholders’

ability to obtain a favorable judicial forum for

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.

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The 1940 Act prohibits or restricts

our ability to engage in certain principal transactions and joint transactions with certain “First Tier”

affiliates and “Second

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

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.

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

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

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.

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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.

which we refer to collectively as “senior securities,” up to the maximum amount permitted by the 1940 Act.

We are generally

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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.

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which may preclude it from favorable business activities or the financing of future operations or other capital needs.

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.

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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

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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.

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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

The underlying pool for a CLO, for example, may include domestic and foreign senior loans, senior unsecured loans, and subordinate

corporate loans.

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.

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.

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.

Our CLO investments are typically highly

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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

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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

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.

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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

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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

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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.

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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

unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio company’s

remaining assets, if any.

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value of an investment.

Such defensive hedging transactions may expose us to the counterparty’s credit risk.

There also can be no

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program will be undertaken successfully.

We may invest in derivatives or other assets

that expose us to certain risks, including market risk, liquidity risk and other risks similar to those associated with the use of leverage.

We may invest in derivatives

and other assets that are subject to many of the same types of risks related to the use of leverage.

In October 2020, the SEC adopted

Rule 18f-4 under the 1940 Act regarding the ability of a BDC to use derivatives and other transactions that create future payment or delivery

Under Rule 18f-4, BDCs that use derivatives are subject to a value-at-risk leverage limit, a derivatives risk management

program and testing requirements and requirements related to board reporting.

These requirements apply unless the BDC qualifies as a “limited

derivatives user,” as defined under Rule 18f-4.

Under Rule 18f-4, a BDC may enter into an unfunded commitment agreement (which may

include delayed draw and revolving loans) that will not be deemed to be a derivatives transaction, such as an agreement to provide financing

to a portfolio company, if the BDC has, among other things, a reasonable belief, at the time it enters into such an agreement, that it

will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each

case as it becomes due.

Collectively, these requirements may limit our ability to use derivatives and/or enter into certain other financial

We have adopted updated policies

and procedures in compliance with Rule 18f-4.

We expect to qualify as a “limited derivatives user.” Future legislation or

rules may modify how we treat derivatives and other financial arrangements for purposes of our compliance with the leverage limitations

of the 1940 Act and, therefore, may increase or decrease the amount of leverage currently available to us under the 1940 Act, which may

be materially adverse to us and our stockholders.

Our investments in OID and PIK interest

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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.

to meet these tests may result in our having to dispose of certain investments quickly in order to satisfy these requirements.

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.

We are subject 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.

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.

We may have difficulty paying our required

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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.

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

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.

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.

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.

years beginning in 2026 or later, miscellaneous itemized deductions generally are deductible by a U.S.

offered pursuant to a public offering (within the meaning of Section 4 of the Securities Act), each 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

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.

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.

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.

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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

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

withholding tax otherwise imposed on non-U.S.

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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)

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.

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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.

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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

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.

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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.

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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,

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.

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and equity capital markets in the United States and around the world and our business.

and global capital

markets have, from time to time, experienced periods of disruption characterized by the freezing of available credit, a lack of liquidity

in the debt capital markets, significant losses in the principal value of investments, the re-pricing of credit risk in the broadly syndicated

credit market, the failure of major financial institutions and general volatility in the financial markets.

During these periods of disruption,

general economic conditions deteriorated with material and adverse consequences for the broader financial and credit markets, and the

availability of debt and equity capital for the market as a whole, and financial services firms in particular, was reduced significantly.

These conditions may reoccur for a prolonged period of time or materially worsen in the future.

We may in the future have

difficulty accessing debt and equity capital markets, and a severe disruption in the global financial markets, deterioration in credit

and financing conditions, uncertainty between the United States and other countries with respect to trade policies, or uncertainty regarding

government spending and deficit levels or other global economic and political conditions, including future recessions, political

instability, geopolitical turmoil and foreign hostilities, and disease, pandemics and other serious health events, could have a material

adverse effect on our business, financial condition and results of operations.

Events outside of our control, including

public health crises, could negatively affect our portfolio companies, our Investment Advisor and the results of our operations.

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.

could continue to occur in response to pandemics or other events outside of our control.

We, the Investment Advisor, and the portfolio

companies in which we invest in could be affected by force majeure events (i.e., events beyond the control of the party claiming that

the event has occurred, such as acts of God, fire, flood, earthquakes, outbreaks of an infectious disease, pandemic or any other serious

public health concern, acts of war, terrorism, labor strikes, major plant breakdowns, pipeline or electricity line ruptures, failure of

technology, defective design and construction, accidents, demographic changes, government macroeconomic policies, social instability,

Some force majeure events could adversely affect the ability of a party (including us, the Investment Advisor, a portfolio company

or a counterparty to us, the Investment Advisor, or a portfolio company) to perform its obligations until it is able to remedy the force

majeure event or could lead to the unavailability of essential equipment and technologies.

These risks could, among other effects, adversely

impact the cash flows available from a portfolio company, damage property, cause personal injury or loss of life, or instigate disruptions

Certain events causing catastrophic loss could be either uninsurable, or insurable at such high rates as to adversely impact

us, the Investment Advisor, or our portfolio companies, as applicable, and insurance proceeds received, if any, could be inadequate to

completely or even partially cover any loss of revenues or investments, any increases in operating and maintenance expenses, or any replacements

or rehabilitation of property.

Force majeure events that are incapable of or are too costly to cure could have permanent adverse effects.

In addition, certain force

majeure events (such as events of war or an outbreak of an infectious disease) could have a broader negative impact on the world economy

and international business activity generally, or in any of the countries in which we invest or in which our portfolio companies operate.

Such force majeure events could result in or coincide with:

increased volatility in the global securities, derivatives and currency markets;

a decrease in the reliability of market prices and difficulty in valuing assets;

greater fluctuations in currency exchange rates;

risk of default (by both government and private issuers);

further social, economic, and political instability;

nationalization of private

greater governmental involvement in the economy or in social factors that impact the economy;

less governmental regulation

and supervision of the securities markets and market participants and decreased monitoring of the markets by governments or self-regulatory

organizations and reduced enforcement of regulations;

limited, or limitations on, the activities of investors in such markets;

or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital;

inability to purchase and

sell investments or otherwise settle security or derivative transactions (i.e., a market freeze);

unavailability of currency hedging techniques;

substantial, and in some periods extremely high, rates of inflation, which can last many years and have substantial negative effects on

credit and securities markets as well as the economy as a whole;

and difficulties in obtaining and/or enforcing legal judgments.

Additionally, a major governmental

intervention into industry, including the nationalization of an industry or the assertion of control over one or more portfolio companies

or its assets, could result in a loss to us, including if the investment in such portfolio companies is canceled, unwound or acquired

(which could result in inadequate compensation).

Any of the foregoing could therefore have an adverse effect on our business and results

of operations.

The COVID-19 pandemic resulted in a period

of capital markets disruption and economic uncertainty.

capital markets experienced

extreme volatility and disruption following the global outbreak of COVID-19.

Some economists and major investment banks have expressed

concern that the continued spread of the virus globally could lead to a prolonged period of world-wide economic downturn.

in the capital markets have in the past increased the spread between the yields realized on risk-free and higher risk securities, resulting

in illiquidity in parts of the capital markets.

Such disruptions and/or illiquidity adversely effected our business, financial condition,

results of operations and cash flows, and future market disruptions and/or illiquidity may again negatively impact us.

Such unfavorable

economic conditions also would be expected to 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 limit our investment originations, limit our ability to grow and have a material

negative impact on our operating results and the fair values of our debt and equity investments.

We also face an increased risk of investor,

creditor or portfolio company disputes, litigation and governmental and regulatory scrutiny as a result of the effects of COVID-19, including

multiple variants thereof, on economic and market conditions.

Global economic, political and market conditions,

including downgrades of the U.S.

credit rating, may adversely affect our business, results of operations and financial condition.

The current global financial

market situation, as well as various social and political tensions in the United States and around the world (including the bilateral

relationship between the U.S.

and China and the conflict between Russia and Ukraine), may contribute to increased market volatility, may

have long-term effects on the United States and worldwide financial markets and may cause economic uncertainties or deterioration in the

and worldwide.

The impact of downgrades by rating agencies to the U.S.

government’s sovereign credit rating or its perceived

creditworthiness as well as potential government shutdowns and uncertainty surrounding transfers of power could adversely affect the U.S.

and global financial markets and economic conditions.

In addition, there will likely

continue to be considerable uncertainty as to the United Kingdom’s post-transition and post-withdrawal framework following its withdrawal

from the European Union (“Brexit”), in particular as to the arrangements which will apply to its relationships with the European

Union and with other countries.

The new Trade and Cooperation Agreement reached between the European Union and the United Kingdom in late

2020 is untested and may lead to ongoing political and economic uncertainty and periods of exacerbated volatility in both the United Kingdom

and in wider European and global markets for some time.

The Russian invasion of Ukraine may have

a material adverse impact on us and our portfolio companies.

The conflict between Russia

and Ukraine could lead to disruption, instability and volatility in global markets, economies and industries that could negatively impact

our business, results of operations and financial condition.

The conflict has already resulted in significant volatility in certain equity,

debt and currency markets, material increases in certain commodity prices, and economic uncertainty.

The conflict may escalate and its

resolution is unclear.

government and other governments have imposed severe sanctions against Russia and Russian interests and

threatened additional sanctions and controls.

Sanctions and export control laws and regulations are complex, frequently changing, and

increasing in number, and they may impose additional legal compliance costs or business risks associated with our operations.

New or modified laws or regulations governing

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors