BBDC - Earnings call transcript Q4 2021

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Operator

Greetings. At this time, I would like to welcome everyone to the Barings BDC, Inc. Conference Call for the Quarter and Year Ended December 31, 2021. [Operator Instructions] Today's call is being recorded, and a replay will be available approximately 2 hours after the conclusion of the call on the company's website at www.baringsbdc.com under the Investor Relations section. Please note that this call may contain forward-looking statements that include statements regarding the company's goals, beliefs, strategies, future operating results and cash flows.

these those reasonable, projected believes differ results company from materially in the statements actual are could Although forward-looking statements. based Exchange uncertainties year XX, with those report on are subject ended Forward-Looking Statements titled December statements on XX-K Commission. company's assumptions and Securities underlying the These annual the and Risk to Factors numerous filed under for and XXXX, disclosed including Form as in risks, and the section various are the fiscal to update required obligation revise any Barings unless no BDC or forward-looking statements by undertakes law. Chief call At Officer this turn will BDC. time, Barings I over the to Eric Lloyd, of Executive

Eric Lloyd

healthy. Thank for note call, today's be morning, today's Investor you, and is that everyone. referring us I we'll fourth of quarter the on to and that you Relations staying hope website. presentation you joining section doing good XXXX our Please Hilary, call, posted are earnings your throughout We and families our appreciate and well

and Barings Co-Portfolio Manager; On the Barings' Bock. and U.S. Situations call BDC's President Bryan Special Fowler; Finance, Head today, of by of High, and I'm BDC's Private Ian Global Financial Barings' Jonathan Officer, Chief joined the Co-Head

results typically I'll comments portfolio Jon of and As and quarter. Ian, moment, the start about a will details fourth review do, we off Bryan with high-level quarter in but our some

first to originations, XXXX our this to filings, increase and first you'll into from you of dividend greater the Year. month. Corporation an may of Income visibility into us issued to close As bond the work the and have New -- extremely experienced guessed, issuance, towards continues acquisition opportunity dividend end Sierra provide public this increase of affords it And investment-grade XXXX, was that yesterday's finish of the timing record a also the strong call see the quarter. quarter with the by February X our reported continued on announced our active first We private

as broadly Slide on and spreads The strengthening these market the competitive tighter expect Let's the intensify the quarter a remained backdrop largely of particularly Net in begin $XX.XX X on prior loan competitive, shown same rate asset BDC Slide of Markets backdrop elevated presentation. environment. result credit of with the interest remain rising we assets rate to as for the increases, syndicated with prices, the prices. Come quarter equity quarter to share highlights was forces a share value and floating to compared demand fourth fourth a share. X. $XX.XX per

remain from and as share, hurdle structure is driven income as exceed catch-up. the as by Our net accelerated well investment our of deployments fees our X% incentive our to note, enhanced further capital by underlying and important remained $X.XX our to interest per strong net continue investment income the OID repayments. stability earnings fee It's in

result Board of a share, trends, X.X% to increase our an value dividend of asset As yield $X.XX per elected equating our these net to on quarter our fourth $XX.XX. to

million of in we was $XXX $XXX $XXX million the which new and sales was JVs. to This Regarding of sold the by of offset million fourth originations one investments, had of prepayments, quarter.

investment the continued depreciation portfolio and X.X% associated to had Our at approximately of new the to net investment was on and portfolio, above original valued and portfolio nonaccrual equating unrealized fourth to Ian dividend investment perform associated new income loans both cost. Barings with MVC quarter on outlines activity, $X.X in investment drive Slide one financial investment no and the select leverage, maximize protection was total net remains nonaccrual costs. MVC the million fourth foreign Net X.X will credit in X added to we to absolute select is the distributions asset acquired primarily was X.XXx. well currency portfolio, target as for the Net We acquired our shareholder marks on higher, from and of agreement. by leverage focus heightened our portfolio which our on sales income increased and remained support realized by above of quarter. totaled summary value the benefiting hedges. while investment transactions, continue later highlights million, the and In an highlight which restructurings continued velocity X.XXx per-share with basis. quarter, unsettled driven range $X.X cash, losses and short-term investments from

outline said, and reference we of was markets The BDC transaction wide with we not on scheduled the -- forma extremely our us proxy will is filed to that is forces will leverage call track that XX. transaction and core the interested an quarter, to any globally. for of statement on in selective time be the Barings with growth period I Our frame opportunities direct have transaction, inside that approximately details have to discussed, close announced this advances be strong October Xx. leader it We that when merger on net of Sierra remain we pro this with investors and details a our close outline Sierra allows this I'll competitive towards today, to further increase. Barings

when now yields nonaccrual a investors Our commitment exceeds would assets by our call hurdle over to earnings insulating refinance Ian investor those our X.XX% having decline unforeseen or an increased first market exhibited provide on restructure loans Recall, alignment in our rate. I'll caused update items. lower to incentive an net provides investment earnings our from result at and cushion soon-to-be in to a lower turn fee, investment the portfolio. by events the against income negative to incentive

Ian Fowler

and everyone. good morning, Eric, Thanks,

additional to X, mentioned. that turn on see Slide the Eric details you can investment you If activity

basis by $XXX portfolio in million the $XXX million. a quarter by of million, net on $XX gross increased of middle-market sales fundings with repayments Our and offset

New middle-market totaling million and and fundings. XX included investments follow-on platform investments loan investments delayed-draw million $XXX of $XXX new term

We also quarter. new had $XXX cross-platform the million investments of net in

and fourth increase with with quarter, along income was partial repayments increase while full repayments middle-market middle-market in at associated XX million diversification $XX prepayments, experienced million remain will Recall, repayments the Slide a the the portfolio believe across venture joint across we quarter. to BDC show spreads leverage sales. in and elevated fee Barings sales our to the $XXX this maintaining remaining BDC. data acceleration. million in portfolio $XXX associated each an profile the and was on updates market from were enable prudent continue structure. million us capital quarter Barings $X sales Of you We paydowns

rising to an mentioned, leads As for potential rate credit Eric private rate the assets. interest a floating demand for environment increased

terms leverage levels, credit expect, would all experienced higher as competitive market evidenced the compression, record private one while remain conditions As loosening originations. markets by investment spread and

Turning to XX. Slide

we to key inflows investment capital don't shown to September executions is On outlined quarter, traditional in XX. As lien, spread A symptom into all-time last a record. of on private when see problem credit, will the XX portfolio breakdown XX. anytime components compared of an substantial a on Slide slow the to you I to investment down continuing and portfolio December unitranche our all-time of associated structures, Slide from it and level quarter lien bridge was Cov-Lite our This December second the XX, the with tights expect first near wider unitranche simply of again soon. XX is and fourth volume remain

contribution. portfolio, details the of the and on middle-market portfolio, are our MVC the at portfolio legacy past, this investments portfolio remains grow. value Capital fair The portfolio in cross-platform As total of portfolio continues provide It we middle-market is categories to XX% and XX% of have investments. focus our terms our goal in our slide of of X key of our now which core revenue to makes the terms in discussed up and

X.Xx diversification U.S., on a and middle-market weighted regions. Europe is exposure companies diversified to the Underlying our middle-market XXX credit. heavily portfolio boring-is-beautiful portfolio across obligors approach investment Our average X.X% first remain reflective of yields our leverage amongst lien of of APAC and with of geographic

In our of investments, portfolio and frame with Capital complement million which X.X%, to middle-market XX.X% continue we reference of $XXX and the respectively. legacy have our million of wide fair $XXX in addition portfolio at upon investments cross-platform core of draw and investment yields to Barings' exposure, value MVC

end. legacy at MVC As X assets quarter were of mentioned the earlier, on nonaccrual

will quarter assets Additionally, results here. included Sierra first we report that be

some me of on points had Recall, of However, million June investments. $XXX give high-level data as XX, the Sierra portfolio. Sierra you let

by total As subsequently The eliminate to a $XXX result fair is spread across of for The $XX obligors, million $XXX CSA. in transaction. million spread average X.X%. experienced of since XXXX, and $XXX is total value the lien. current of repayments XXX cash first million used and of balance. The nonaccrual we acquired The which yield approximately total announced the elevated debt portfolio at the supported portfolio the had M&A points outstanding be added to first majority activity on will basis portfolio were all a repayments is million Sierra XX

No directly terms our Barings Barings originated cash the nonaccrual, material are debt Turning the payment to loans had and portfolio to investments the total of during modifications quarter. no portfolio. on

down first of of investment debt portfolio, portfolio lien Slide XX further made largely of a down up comprised driven investments, XX% originated XX% investments our equity, makes up Our component investments, which the is the core perspective. XX%. brings MVC funded of second portfolio equity seniority lien primarily lien. the XX% assets. into portfolio The joint and now of ventures. is to first XX% a portfolio is breakdown mezzanine provides from is quarter, The and first by last total from income-producing This lien Barings which

on Our top XX investments are XX. Slide shown

portfolio. loans remains XXX for largest perspective the spread large of the XX industries. drive deployed net overall XXXX, geographies I'll represent investments laurels. into of our our Our investments say as to particularly the with of in largest ability well from total liquidation That's $X.X originated we investment, backed X.X% top the XXXX, an simply investments are and to our proud by middle-market isn't will want is across investment to inside of the of diverse scaled considers one XX achievement summarize XX% conservatively transaction nonaccruals. we forma total my portfolio saying returns. portfolio, pressures billion by this attractive credit, with Sierra market Pro portfolio. Recall, on the value. structured but further XX% The we Barings a COVID-related rest our top portfolio represent is XX acquisition, asset-backed broad when the platform of Barings' collateral transactions the BDC estimate the scope an Business Eclipse of across lending no formation Since investment origination direct has Barings generate and comments industry

elevates, return investments Barings allow private lending BDC our We investing continue will inside the drive cross-platform value direct our our collateral competition asset of to cross-platform we with and or unique Furthermore, As risk-adjusted complement investments. and not to unique our a is is [ph] strong unique drive returns. the portfolio an market. with not this to that structure create shareholder optimal asset current fee replica in aligned mix

platform, achieving I've unique a to and is it before, believe Jon? additional ingredient our Jon said success. call I'll is being to on now results. long-term endemic culture turn over provide color and As I the to key our financial to our

Jonathan Bock

XX, net And Thanks, movement here's in per third turning value bridge Ian. full share to asset Slide of quarter. a the

and share. Our by our investment dividend share, income totaled $X.XX a foreign depreciation our losses on and investment unrealized while portfolio $X.XX outpaced net our $X.XX per per gains transactions drove decrease of share, per net currency realized

on Slide this shown on depreciation are details unrealized Additional appreciation, net XX.

price the credit and $X portfolio, appreciation. performance million netted of On to a middle-market appreciation

that very Thompson And and valuation associated based by the the cost. and our the benefits in effort owned lender. saw different driven despite credit to price of is million The restructuring MVC view of income CSA investments results while of those investments $X longer-term in these value on the appreciation to did Eclipse, legacy to Recall, net Slide which The chooses XX, determined CSA potential $XX but legacy expected current of saw our the Barings the logical X unrealized valuations bottom Slide dividend nonaccrual. of level, CSA earning last why of debt million outcome. joint depreciation the approximately this you offset from performance and we see view distribution a takes any would X% end, portfolio? an target increased $X unrealized the X the lead can could only in operating agreement MVC last agreement to million support cross-platform our of question the restructure, and into of Near equity income $X could outcomes appreciation, with the both the total in of support be, not appreciation the million a on portfolio have for on Our drive A to ROE intended realization NAV MVC for wholly investments the strong dividend above approximately and quarter. balance quarter well MVC on above largely Rivers as account of investments quarters. portfolio. show $XX losses is both NAV particularly asset-based long-term value plan legacy we of The on venture million, portfolio investments, in and portfolio an legacy appreciation. fluctuate, depreciation the positions the at statement current the XX quarter valuation of that a the of future sheet of also XX total only credit

levels. on investment fourth offset a income income million dividend increase to of fees drove incentive December income was associated increase as per as our venture The payment increased fee total quarter increase investments, Slide as this the to our Capital the OID From investment the and on by also driven as repayments $X.XX perspective higher increased of income, Eclipse $X.X in by with total investment income at investment of quarter, for accelerated well share borrowing fees, debt-to-equity hurdle in The sheet we've higher was XX, a our pre-incentive fee Business in in which joint X manager our and exceeded a increase. an total As X% investment X.XXx and rose net discussed, net balance financing XX. interest result rate. the saw partially

level although after equivalents timing certain unsettled Now X.XXx and given the was artificially was adjusting and for asset of cash, this high cash sales transactions.

portfolio over on our to Turning XXXX, increases has Slide with XX, on borrowings Slide sheet Details the match placements, both as and last our over on debt debt which our bank unsecured private asset now could asset you of are of to funding coinciding the to $XXX we've reliance in evolution of mix, continued our seniority each of quarters. XX, our shows of Compared end to how the X profile shown see mix diverse million and balance ties to terms to diversify class. assets. which our decreased, secured are debt our the

to using available as BDC $XXX portfolio well million to loan currently capital leverage leverage commitments Barings of our delayed-draw our [ph] million raising the commitments available public our of while credit these the We its continue companies $XXX November to our term on XX, shows commitment to venture million up $XX plus our additional a And T how first investments. have senior $XXX Jumping the liquidity you furthermore, XX, can has fund Barings commitments BDC unused called issued to commitments. joint we have we spread. meet raise upon capacity cushion unsecured unsecured regulatory million of our This million $XX secured against Slide to impact debt, have if to entirety capacity limit. table to of an at investment-grade maintaining XXX borrowing facility. under plus bond, see to net as our available

took XX Slide based our announced Now around end on X.XXx. equity, for of brings pro quarter, as to XXXX additional the the leverage of the outstanding, to continued no of debt would merger over since to this sheet we million And an dividends expect issuance from adviser and updates additional the which Xx. Sierra, forma in quarter first with net balance and $XXX as paid on BDC. cash XX/XX fall X.XXx leverage activity deal the with our Barings

$X.XX X.X% be on announced distribution increase As quarter share, will our value. per our asset of the quarter $X.XX compared an second XXXX share per Eric and to net an previously first mentioned, we dividend

the investments sizes excess XX, investors earlier. B in liquid or now classes. outlined large of depiction the Ian is effects that and which with Now With relative asset This drives across outlined tights, BBB, value dollar private to shows unit turn to of me rightly Slide per increasingly spread which the marketplace, spectrum graphical the risk the find. of to negative their X-year near BB across at spreads hard

three, competitive focus point XX, results credit Barings ensure this illiquidity relative pricing which $XXX which investments the asset to attractive actual differentiated often remain: in a premium one, all of core seeking basis outlines that We premium to mitigants core lending our new shown alignment risk; Now premium an the at maintain points, of liquid averaged our an pressures Europe middle-market indices across premiums our a basis at value, relative Slide spread wide asset-based the to the the to approximately out basis to same North right per inside to continued investments the market is relative for Diving liquid XXX the which deeper direct investment points BDC of shareholder credit, cross-platform benchmarks. frame can business, we loans; of liquid best-in-class risk. on operate and unit price into indices. investments the speak comparable represents XXX all-in best liquid and two, our in invest profile. spread translates and credit risk million at XXX make America, the and market manager environments segment right spread of across on into deployed discipline

XXX basis spread the market investments, points. indices was greater relative cross-platform For liquid to even at

Barings $XXX the to compared We remarks million are I'll Asia the average committed have believe and of Barings investment shareholder new is excess and questions. key rates weighted The funded. quarter new for XX, investment deals new the wrap BDC our The lien, of investment platforms current average illiquidity XX% billion on investment this this with summarizes last remained so loans. cycle. term The expected activity European to pipeline in first with a are and reminder, continue via to ability XX% invest our our are X return pipeline. prepared XXXX funded And those origination Hilary, our weighted premiums originations. be of approximately during all closed far will complexity in and upcoming delayed-draw commitments, million Finance as generate basis $X a margin commitments, which a lien across Slide and Pacific line $XXX of with and We've And quarters Private approximately new secured steady based first investments million first which of also pipeline. pace And or previously like cross-platform XX% pipeline closing of in Global or that, was to open our X.X%. our $X.X senior up for for on predominantly is investments. we'd estimated DM-X is differentiator

Operator

first of [Operator Ryan Instructions] Lynch Our question KBW. is from

Ryan Lynch

and has than The one been the that to this grow Obviously, really has Those quarter your just a pretty and growing it over investments a have last percentage yield significantly investments. your your year, investment. really first as middle-market cross-platform do core saw different portfolio. overall of you meaningfully with profile

long-term your year investments exposure. going portfolio of kind this of cross-platform But core thoughts the is, any these of in kind of that expect longer just portfolio percentage middle-market have do is to any guys of like investments have that on exposure term, closing you'd So know on percentage cross-platform sort you market. your I portfolio? core preference my middle Now what a as your of kind versus reduce question preferences of versus to

Jonathan Bock

and for my dollar of a off Bryan. is prosecutes I'd of Barings is, investments illiquidity how vary. to current really But grow. what you very colleague, premium. close This on exists scaled interplay actual origination that as There's market around the you think where XX%, can I'll we're It in Ryan. comes a the premium complexity the that The in amount also a cross-platform of lateral as of premiums. always or increases a types both of investments environment. at then But cross-platform And investments today, right? X size, level But could And take say each a has that right, premium, basis say of and the platform Sure, see it to truly can Bock. give clearly, complement, these depends types it's book level X to take, other. now. on stab

of to oftentimes, be to that, so value you investment it I'll strategy lateral asset complementary. my colleague, type find inside And for And Bryan. just the very

Bryan High

Thanks, Yes. Jon.

pretty other to was add that than episodic. think have said. it lot I well don't is I a

marketplace opportunities where we more investment them looking with value, lot sense We can premium was that at well, find premium effort these a believe and are capital down, in interesting if some spend of that's time asset we're that an paid than of turning a as generate of solution we'll that lot But inside a that actually up investing makes deals. said, we we a the to pursuing for Jon and coming complexity get particular by issuer, Jon referencing. but where complexity can

Ryan Lynch

interest you your sense. multiple-billion just Obviously, into holding Okay. for a I Rivers. Thompson and color. diving That on largest your second guys Mae makes would one Rivers dollars of provide of so those And Thompson then Ginnie investments, love is last little to the sheet cross-platform has that balance several and loans, in we should that environment? talk significantly mortgage over to increased expectation may thinking rates rising the the are perform Can rate you to continue expectations they portfolio be how about and for how about a that rise. months just have

Jonathan Bock

loan Ginnie What and program frame is this long-term rate particularly not one the And status back risk. you're it time is essentially, get and the inside into that's to home Mae loans, effectively effectively explanation. originated run mortgage home for try effectively about And go they program across years servicer. managed government-guaranteed a paying And and be affiliates market, these you're attractive EBO workout taking FHA large it those one to the the and Mae then under But government-guaranteed they have program. of what's brief platform. to right, default, our by out have into I'll mortgage program. mortgage, many a the from invested Sure. Ginnie effectively think We of get to are as servicers. by the on kicked taking when the return

And velocity with effectively so on of on long and a collect FHA the that limited you're owning the a can degree guarantee there not that high those loss to turn there alone, was significant principal return of value. event assets, mortgage generate periods. because on default the is a Or in those for you government

really, the is so focus And return generates here collateral paper government-guaranteed short-duration, investment. that our on high and a

notice, you'll that an that rate dividend program we hence Now NAV as Ryan, the fair what investment result that program environment, pulled of increase. of finding right? the can And of on X% is out our value see the a rising distribution as that you program, you're continues our to increase, far even distribution, return the exceeds investment

complement, you a that right, So attractive portfolio. about number the with illiquidity it's brief and I explanation, that? a complement of premiums that hope, our Does complexity very think different start you markets give to as

Ryan Lynch

No, [federal] Jon, that. that's a appreciate explanation, the really today. time great Appreciate I so

Operator

James. is question of Raymond next Robert Dodd from Our

Robert Dodd

to of kind is a Ryan. follow-up This

within Jocassee, I it, cross-platform those like target just X/X and said the it's that where make mix cross-platform that But mean X/X, kind I ones going adding you'd the are be Rivers, the currently you be think you to to to settled business. XX%. you Or of On would you'll verticals call say Eclipse, than between investments, move in the more have maybe obviously, already. between to the they're up X mean, a ones while legs them about, do that are you going around the be over within of it'll Thompson expanding the these more them that stool? time? legs number you got Would be

Jonathan Bock

Yes.

also, a broadly. The as also ABL lateral on more what I'd could risk makeup financings So that verticals are Bryan Robert, vast vehicles franchise. can those of of I [crack] a think, I'll of shot our each give specialty of as one fairly, that cross-platform in make would is complement as type investments situations kind we has investment return. a of then our some the additional and to I have, addition to What majority we'll result of consider say a we say, cross-platform and different you episodic

asset-based have right, our You in Eclipse. lender,

of mortgage a very have investment Waccamaw. that's That's And consumer frame, -- exists that ensuring of you hobby, asset focus type outlined, value is on called investment in to on wide listed not or Rivers. Eric of SPV, but inside that we're type is, Thompson of The invest be underlying effectively, are very course, but you our any You investments there focused unit don't type a complexity as then actively here. answer that see inside additional originated some premium investment.

cross-platform investments nicely so enterprise is inside origination very a the on wide-reaching very our we Barings But investments dollar as very, see on of we the has and grow parent to matches discussion match them a for Eclipse course, as to a And complexity illiquidity lending. here our that really goal well of pleased the lateral it and, basis. does how premium value nicely, with capability Bryan? and can continue range I'll or investments. these premium this to And we're have, Bryan

Bryan High

Yes. Thanks, Jon.

the if and the with of certainly stick I investment vehicles, along those we're to knitting. think as our market referenced, will, pivot that ourselves with it relates key to to you core you going will some pillars

we analogy the I've value already we've think is, not hobby the universe, enterprise where to we're can the is going predict is As of impacted level and Jon in from are. if looking we in to investing where expertise an we a opportunity there about of And past to of kind is way try being about kind some value right, opportunity, that's you is of of, in of the these said, volatility enterprise volatility is. if and less top volatile. that you the today, of there move. it new, can't overall something weather, volatile go how value session the in if a of has there's the perspective, the surface, to market where where moving markets lot But water an stability ocean, underneath a where of control. of stability. terms the you used the wind, think we'll the But where profile some described of we're into And kind by but entities lot particularly investment things Barings stay ocean, It's more and there's that provides the a like particularly like an play, asset investment

at of be. we do You bit silos a kind complement different portfolio, where within in the of as Barings where little to on team interesting and middle-market his can we reference a that's in see more this across we that to opportunities our looking what predict are outcomes investment what that again, we're side. leverage move have building frame can Ian go the And Barings, can

Robert Dodd

didn't move assessment the probability that it for Barings with fair this the was that appreciate that reading between nonaccrual, little my that CSA long-term outcome of Jon, comment, weight while on about second I in long-term not helpful. asset reflect does It's then the The color. asset can, CSA very question, the got versus, this bit -- to new I there obviously, say much. your lines the probability Is markdown quarter. a a your had one they it a quarter, particular? I if -- weighted marked mean down

Jonathan Bock

I That's of Robert. try a think to it, CSA. great the state way to

to not what as to time we opportunity for term, be we and do. journey. patient to the is The intend do Barings' CSA investors a over will in to that provides proxy and effectively intend that at the the to try to value entire restructuring maximum have be something careful So measure for will and which point ensure to long we a are

move still mark-to-market a number businesses see the you exist returns to we're impacted force, see appreciation potential potential or start find always of view, offset which that your long-term to control -- our with And that likely of you in future, you very continue COVID by or look strong what in that in at equity might reason investments, a a some as so depreciation. our that while But have can can the point point in underlying reasons to there time strong as perspective, long-term forward great geopolitical take asset develop have to time. we also a exist are to one see out as you'll then

the outlined, fetched analysts see have those providing profiles best type BDCs are that and patience underlying terms And have volatility we BDCs both our of do steady values. this because and investor that to end and is CSA valuation in by a that think, the of are number the without of as right I intact. or to of net NAV benefit the stable dividend we asset stable So have increasing any

Operator

closing remarks. end to the now I We turn Lloyd question-and-answer the over have call reached the for session. will back Eric of

Eric Lloyd

for Thank positive joining. again out healthy And you, Thanks there. everybody, stay Hilary. and everybody

Operator

This concludes today's conference.

lines your your You may time. a and at this disconnect day. great Thank for participation, you have

Barings BDC (BBDC) 26 Feb 222021 Q4 Earnings call transcript