Pearl Diver Credit Company Inc. (“PDCC”) is an externally managed closed‐end investment company to invest primarily in collateralized loan obligation (CLO) tranches. It is externally managed by Pearl Diver Capital LLP, a specialist credit manager founded in 2008. PDCC’s strategy is to generate high recurring current income by acquiring junior CLO securities (equity and sub‐debt tranches) secured by pools of floating‐rate senior secured corporate loans by mainly U.S. issuers. The portfolio is diversified across 50 CLOs with 1,700+ underlying obligors and industries with 100% U.S.D exposure. The top industry exposures include Software (9.0%), Healthcare (5.2%), and Chemicals (4.3%). The underlying loans are typically non‑investment‑grade (predominantly BB/B‐rated) secured loans. As of April 30, 2025, PDCC held ~$149 million (fair value) of CLO assets, and that included financing by issuing $34.5 million (liquidation preference) of 8% Series A preferred stock (due 2029) and modest reverse‐repo borrowings. Net assets were about $124.6 million as of March 31, 2025, with net asset value (NAV) of $18.33 per share. NAV declined by $1.56 from the previous quarter due to increased market risk that affected the risk premiums on CLO equity tranches.
Markets have been extremely volatile following the Trump administration’s imposition of tariffs on Liberation Day (April 2,2025), which caused several U.S. trading partners–including China, Canada and the EU–to adopt retaliatory and countermeasures. A subsequent period of negotiations stabilized the credit markets; however, uncertainty and downside risks remain, resulting in bond market volatility and a spike in credit spreads across non‐investment grade high yield bonds. Despite these headwinds, we estimate PDCC will continue to pay $0.22/share in monthly dividends in the medium‐term range, representing a current yield of approximately 15%. Our estimate is based on current CLO yields, the credit outlook for U.S. credits, and management’s strategy of active credit and loss management, generating total returns in the mid‐teens range.
PDCC’s stock is trading around $17.50, and we are initiating with a $20 price target and a Buy rating. We are basing our target price at 1.09 x NAV.
The volatility in the credit markets post the April 2025 spike in credit spreads has mitigated significantly. We expect the portfolio NAV to stabilize and improve based on current market conditions and the near‐term outlook on credit.
