10-Q: PGIM Private Credit Fund Q3 2025: Strong Income Growth

PGIM Private Credit Fund reports significant growth in investment income and net assets for Q3 2025, driven by new investments and effective expense management.

Summary

• Net assets increased to $182,755 thousand as of September 30, 2025, from $121,588 thousand at December 31, 2024.
• Total investment income for the nine months ended September 30, 2025, was $20,308 thousand, up from $12,515 thousand for the same period in 2024.
• Net investment income for the nine months ended September 30, 2025, was $14,635 thousand, compared to $10,446 thousand in 2024.
• Net increase in net assets from operations for the nine months ended September 30, 2025, was $14,892 thousand, up from $10,774 thousand in 2024.
• The company acquired $91.9 million in new investments (aggregate principal amount) for the nine months ended September 30, 2025.
• The asset coverage ratio improved to 319.5% as of September 30, 2025, from 229.1% at December 31, 2024.
• The Manager contractually waived management and incentive fees in their entirety through December 31, 2025.
• The company maintains a quarterly share repurchase program, repurchasing 11,952 shares for $296 thousand in Q3 2025.

Sentiment

Score: 8

Explanation: The company demonstrates strong growth in investment income and net assets, significantly improved asset coverage, and continued fee waivers from the manager, indicating robust operational performance and financial health despite some unrealized losses on currency contracts and a slight dip in NAV per share.

Positives

• Total investment income for the nine months ended September 30, 2025, significantly increased to $20,308 thousand, up from $12,515 thousand in the prior year.
• Net investment income for the nine months ended September 30, 2025, rose to $14,635 thousand, compared to $10,446 thousand in the prior year.
• Net assets grew substantially to $182,755 thousand as of September 30, 2025, from $121,588 thousand at December 31, 2024, indicating strong capital growth.
• The asset coverage ratio improved to 319.5% as of September 30, 2025, well above the 150% regulatory requirement, demonstrating enhanced financial stability.
• The Manager continues to contractually waive management and incentive fees in their entirety through December 31, 2025, reducing expenses for shareholders.
• The company reported a positive net change in unrealized appreciation on investments of $750 thousand for the three months ended September 30, 2025.
• The portfolio turnover rate increased to 14.85% for the nine months ended September 30, 2025, suggesting active and potentially effective portfolio management.

Negatives

• Net asset value per share for Class I, Class S, and Class D shares slightly decreased from December 31, 2024, to September 30, 2025 (e.g., Class I from $24.93 to $24.83).
• The company reported a net realized loss on non-controlled/non-affiliated transactions of $(995) thousand for the nine months ended September 30, 2025.
• There was a net change in unrealized depreciation on forward foreign currency contracts of $(2,681) thousand for the nine months ended September 30, 2025.
• Cash used in operating activities was $35,810 thousand for the nine months ended September 30, 2025, primarily due to significant investment purchases.
• The weighted average yield on debt and income producing investments, at cost, decreased to 10.41% as of September 30, 2025, from 11.11% at December 31, 2024.

Risks

• Future operating results are uncertain and subject to various factors.
• Business prospects and the prospects of the companies in which the company may invest are subject to change.
• The ability to raise sufficient capital and repurchase common shares is crucial for executing the investment strategy.
• General economic, logistical, and political trends, including inflation and supply chain and labor market disruptions, can impact performance.
• The ability of portfolio companies to achieve their objectives is not guaranteed.
• Current and expected financing arrangements and investments carry inherent risks.
• Changes in the general interest rate environment can affect net investment income.
• The adequacy of cash resources, future financing sources, and working capital is a continuous concern.
• The timing and amount of cash flows, distributions, and dividends from portfolio companies are uncertain.
• Contractual arrangements and relationships with third parties involve risks.
• Risks are associated with the demand for liquidity under the share repurchase program and the Board of Trustees' continued approval of quarterly tender offers.
• Actual and potential conflicts of interest exist with PGIM Investments LLC (the Manager) or any of its affiliates.
• Elevating levels of inflation and its impact on portfolio companies and industries pose a risk.
• Future success depends on the general economy and its effect on the industries in which the company invests.
• The ability of the Manager to source suitable investments and to monitor and administer investments is critical.
• The impact of future acquisitions and divestitures is uncertain.
• The ability of the Manager or its affiliates to attract and retain highly talented professionals is important for sustained performance.
• General price and volume fluctuations in the stock market can affect investment values.
• Maintaining qualification as a regulated investment company (RIC) and a business development company (BDC) is subject to specific requirements.
• The business is impacted by U.S. and international financial reform legislation, rules, and regulations.
• Changes to tax legislation and the company's tax position can have an effect.
• The tax status of the enterprises in which the company may invest is a consideration.
• Valuation risk exists due to investments primarily in illiquid debt securities of private companies, where fair value determinations involve subjective judgments and estimates.
• Interest rate risk affects net investment income, particularly with floating rate debt instruments and borrowings, as significant changes in market rates could have an adverse effect.
• Currency risk from foreign currency fluctuations on non-U.S. investments, despite hedging efforts, means the full risk may not be eliminated and additional loss exposure is possible.

Future Outlook

The company intends to continue investing primarily in privately placed floating rate leveraged debt, including senior secured, first lien debt issuances, in U.S. middle market companies. Up to 30% of its total assets may be invested in other countries (primarily Canada, Europe, Australia, and Latin America). The investment objective is to generate current income and, to a lesser extent, long-term capital appreciation. Management believes that cash flows from operations, existing cash on hand, and net proceeds from the continuous offering of Common Shares will be sufficient to meet anticipated cash requirements for the next twelve months and the foreseeable future.

Management Comments

• "The Company currently invests and intends to continue investing primarily in privately placed floating rate leveraged (below investment grade) debt, including, but not limited to, senior secured, first lien, debt issuances in middle market companies primarily in the United States as well as up to 30% of its total assets in investments in other countries."
• "The Company elected to be regulated as a business development company (BDC) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the 1940 Act), effective May 5, 2023."
• "The Company also elected to be treated, and intends to qualify each taxable year, as a regulated investment company (RIC) for U.S. federal income tax purposes under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code)."
• "The Companys investment objective is to seek to generate current income and, to a lesser extent, long-term capital appreciation."
• "We believe that cash flows from operations and existing cash on hand, together with net proceeds of the offering of the Common Shares, will be sufficient to satisfy our anticipated cash requirements for the next twelve months and foreseeable future."

Industry Context

The company operates within the private credit market, specializing in direct lending to U.S. middle market companies. Its investment strategy focuses on privately originated and negotiated senior secured, first lien debt, with a smaller allocation to second and third lien/unsecured loans. This approach aligns with the broader industry trend of institutional investors seeking higher yields and direct exposure to private debt, particularly in a floating-rate environment. The company also diversifies its portfolio geographically, including investments in Canada, Europe, Australia, and Latin America, reflecting a global perspective on private credit opportunities.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• The company is not currently subject to any material legal proceedings, nor are any material legal proceedings threatened against it.

Related Party Transactions

• The company is majority-owned by Pruco Life Insurance Company, a wholly-owned subsidiary of Prudential Insurance Company of America (PICA), which is an affiliate of the company and PGIM Investments LLC (the Manager).
• PGIM Investments LLC (the Manager) is an indirect, wholly-owned subsidiary of Prudential Financial, Inc. (Prudential).
• PGIM, an indirect, wholly-owned subsidiary of Prudential, serves as the company's subadviser.
• Deerpath Capital Management, LP, an indirect, majority-owned subsidiary of Prudential, serves as a sub-subadviser for a portion of direct lending investments.
• PGIM Fixed Income, a unit of PGIM, is engaged to invest in broadly syndicated loans for liquidity purposes.
• The Manager pays a portion of its management and incentive fees to PGIM and Deerpath.
• Select investments were purchased from a wholly-owned subsidiary of Prudential in March 2023.
• Entertainment Earth, LLC, a controlled/affiliated investment, was purchased from a wholly-owned subsidiary of Prudential in March 2023.
• Prudential Investment Management Services, LLC (PIMS), an affiliate of the Manager, acts as the principal underwriter and distributor of the company's Common Shares.
• Prudential Mutual Fund Services LLC (PMFS), an affiliate of the Manager, serves as the transfer and dividend disbursing agent.
• The company has received exemptive relief allowing it to co-invest in certain transactions with affiliates of the Manager.
• The company previously used the PGIM Core Ultra Short Bond Fund, an affiliated money market fund managed by PGIM Investments, for its overnight cash sweep vehicle.

Stakeholder Impact

• Shareholders: Benefit from increased net assets, strong investment income, and continued fee waivers from the Manager, which enhance returns. The quarterly share repurchase program offers liquidity, though NAV per share saw a slight decrease.
• Portfolio Companies: Receive direct lending investments, primarily senior secured first lien debt, and access to delayed draw and revolving credit facilities, supporting their growth and operations.
• Manager/Subadvisers (PGIM Investments, PGIM, Deerpath Capital Management, PGIM Fixed Income): Benefit from management and incentive fees (though currently waived), and opportunities for co-investment, aligning their interests with the company's performance.
• Creditors (Sumitomo Mitsui Banking Corporation): Benefit from a senior secured revolving credit facility, backed by substantially all of the company's assets, providing a secure lending arrangement.

Next Steps

• Continue investing primarily in privately placed floating rate leveraged debt in U.S. middle market companies, with up to 30% of total assets in other countries.
• Maintain qualification as a Regulated Investment Company (RIC) and Business Development Company (BDC) for tax and regulatory purposes.
• Make monthly distributions to shareholders, with capital gains distributed at least annually, subject to Board discretion and financial condition.
• Conduct quarterly share repurchase offers, subject to Board approval and liquidity, to provide shareholder liquidity.
• The Manager will continue to waive management and incentive fees in their entirety through December 31, 2025, to support shareholder returns.
• Continue to utilize the Revolving Credit Facility for financing, with potential to expand commitments via the accordion feature.

Key Dates

Recommendation

The company demonstrates strong financial performance with significant increases in total investment income and net investment income, leading to substantial growth in net assets. The asset coverage ratio is robust at 319.5%, well above regulatory requirements, indicating strong financial health and capacity for future growth. The continued waiver of management and incentive fees by the Manager through December 31, 2025, directly benefits shareholders by reducing expenses. While there was a slight decrease in NAV per share and some unrealized foreign currency depreciation, the overall operational and financial trajectory is positive, supported by active investment in middle market private credit. The continuous offering of shares and expanded credit facility provide ample capital for future investment opportunities. These factors suggest a favorable outlook for long-term investors seeking exposure to private credit.

Keywords

Private Credit, BDC, Regulated Investment Company, RIC, Senior Secured Loans, Middle Market, Floating Rate Debt, Investment Income, Net Assets, Asset Coverage Ratio, Share Repurchase, Foreign Currency, Portfolio Investments, PGIM