BBDC - Earnings call transcript Q1 2024

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Operator

At this time, I would like to welcome everyone to the Barings BDC, Inc. conference call for the quarter ended and year end March 31, 2024. [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. At this time, I will turn the call over to Joe Mazzoli, Head of Investor Relations for Barings BDC.

Joseph Mazzoli

Good morning, and thank you for joining today's call. 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.

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

Eric Lloyd

that good appreciate be for Thanks, we'll website. joining Relations quarter Joe, referring to We everyone. our our of morning, Investor earnings on and the today's posted throughout presentation first section that's call, Please you note XXXX us today's call.

call Officer, portfolio Matt High. by today, and BBDC's Barings manager, On and joined Global Finance President, of Murray; Head Elizabeth BDC's I'm Private the Financial Bryan Chief Freund; Baring's

share We to in of have also March our Barings a But will to variety of at during be for occurred a quarter. LLC, quarter. I position performance the the of the speaking developments are some moment spend BBDC positive at happy that metrics manager, a

the results First, March let me begin XX. with exhibited stability quarter ended during BBDC's strong operating performance. and BBDC

sponsor-backed serve issuers Our focus to and on the continues investments the top well. structure of investors capital

investments. by selection Our predominantly portfolio of nonsponsored is is and platform and a sponsor-backed complemented

quarterly market was prior increase compared guiding highest greater of per year-over-year successfully this continue light the shareholders. Net returns has strategy dividend outearned the is X. our during of X as level $XX.XX, portfolio importantly, a Our economic invest most we and our of nonaccruals a by quarter $XX.XX in NAV This in share we to compelling best-in-class to to was in and Net the reflecting especially value $X.XX the be that outlined to our X.X%. of the and Slide we and a of, our the the income investment declined quarter for proud on years. deliver value metric portfolio, X.X% asset X.X% strategy Perhaps market is to quarter past light the and of portfolio inconsistent throughout particularly consider the detail fair as the are backdrop. serves exhibited

the We Our in going volatility further defensive and a remains of any of forward. market capital our for more the positioned is performance the uncertainty and believe focus industries. result within on top BBDC structure well

know, Sierra legacy we positions. maximize and As our value MVC the the shareholders are Income Capital from acquired and compelling into Barings to them actively rotate working originated holdings in

assets down beginning XX% support downside agreements, now XXXX, from potential only the BBDC at assets losses these investors. the originated and amount at XX% limiting Non-Barings risk from fair value, of protected to portfolio are of by credit for

as down X.X% MVC on basis fair XXXX. value reflected There portfolio which the cost cost are to fair credit of of in on investment Barings portfolio our style as Sierra nonaccruals a the XX, X.X% This on fundamental early the first basis. basis in substitute for and X.X% today. since Including and value December assets, industry-leading the and core well of Our a portfolio underwriting to is is a quarter. X.X% the analysis, has total a perform from no BBDC basis health the acquired XXXXs been continued on

the basis figures. in substantially portfolio. yields base the Turning prior largely comparable XX.X%, stabilizing a The reflected quarter's the increase earnings power rates of within to been on has average value portfolio with the to weighted fair at

an annualized performance, consistent $XX.XX. value net on a measure asset remain the asset strength fourth the to a $X.XX moment share, dividend dividend quarter. quarter ahead. I quarter would a of our equates the declared We best with per developments Board We our in basis, of of On the level March value conservative on policy, and dividend X.X% recent portfolio's the anticipate and our to base the yield nonaccruals, now Barings. compelling NII believe quarters and like continued net for to take were the acknowledge at prior extremely

by do want so, I points. I key Before begin to highlighting several

of is global $XXX than under firm March billion First, XX, management a as assets with more XXXX. Barings of management asset

than more long-term for our in employs strategies directly investing Barings to our core value and dedicated and X,XXX driving Second, clients professionals sponsors.

private want part the MassMutual, to decades. to in credit Third, just of its when and emphasize on private investing have a for of remains we been subsidiary also than private behalf in. it that global entire credit and BDCs wholly its investing and more X specifically, are BBDC which to other business Barings includes Barings owned committed assets which also platform, I X is and actively fully is comes the

received were of be Barings may of the team investment of American North members Global of North you within a on investment Six resignations total organization. strategy, focused of these XXXX, March X, of number American on individuals aware, Finance the XX. As the team a Private out

We strategy entirety remaining have successfully global the a investment retention across team. the of executed

regulated and always strategies status investments investments, investment assets. sponsored development as Act BBDC under investors know American nonsponsored a portfolio towards the the tilt necessitated primarily has company that business investments. the the North for platform XXXX BBDC's BDC principal that Furthermore, include portfolio

assets overwhelming BBDC focus variety North the uninterrupted of American the Global we believes that deliver compelling team, BBDC shareholders within investment the well investment from the in of investment in of for teams Barings, result management returns risk-adjusted opportunities Private an stability are a with North to Finance American positioned ahead. and quarters combination other on the a resource As fact

to quarters team offered stability by the augment is but The plan strategic this come. important, by team in we making the also to hires current

We onboard hires credit forward the sharing will MassMutual who takes quarters we and it us, fundamental existing efforts a long-term to in to maintain come. Like the comes many more to sector, actively asset hiring origination to a the that asset to approach. Our with look experienced changes. personnel possess in in and invest view when reflecting direct middle these as relationships class our continue intends business. the strong target of questions ongoing the professionals sponsor class said, their the we know confidence of have you in that and Barings the performance regarding both market out capabilities. With lending and value MassMutual reached with recruit

of As private the we and ahead, resources leveraging of we our support billion skilled incredible investments. leverage that credit opportunity look to $XXX strength more credit than franchise the see

continues capital consistent with process ever and network the stated origination now deploy investors to commitment Our unchanged, deep Matt. philosophy strong strategy. and our it's been. I'll our and over our call remains unwavering of investment is leverage as importantly, our is as turn to our and Most bench talent to

Matthew Freund

that update Thanks, give received months, experienced volumes line past resignations Eric. discussing I To inbound March to deal in post volume inbound received begin X. market an the on first happy the we I'm have like over historically. deal on levels that activity, X to with were would share the

meaningfully Activity gross the the net the offset million $XXX during million, Moving on their unchanged quarters. to a quarters have basis is during quarter. last during portfolio immediately expectation the expected of increased quarter LBO to quarter of in by on broadly to to fundings conversations, $XXX repayments. with increase activity investment based and from million BBDC's that recent quarter, $XX come. tempered Much preceding comparable the remained specifics directionally reiterated but bankers

have Our expressed anticipated clients sponsor issuer the in transactions. uptick same

issuers already transactions early-stage close the are trending as multiples However, have lows. Sponsors number conversion their rates hedge compression within historic BDC bases makes exit by provides while the Investors add-on to in purchase for the their in to any which in benefit platform of we to prices, companies reduce a in logical against enabling opportunities, having original are opportunities portfolio to seen we below do already sponsors Barings portfolios, well. capital continue effect an add-ons deploy uptick know towards sense execute seasoned multiples. that cost into and

which refinancing broadly solely below refinancing While XXXX. the liquid isolated historical markets. in The averages, markets recent in not the activity is are syndicated has of to increased, started LBOs wave new early

We and the of dynamics with most it direct have though the at witness issuers appears moment. started competitive million EBITDA for the as in well, lending $XX above ecosystem to acute

Barings' markets, of and syndicated is terms serve issuers to anticipated well to large as of by investors able offered what core the of the some market broadly to the terms we're focus the pricing core middle on. gravitate commitment in preserve towards the protection we

quarter. fourth our portfolio. a -- a coverage to to investments consist XX% portfolio, Turning X.Xx, our lien weighted interest being approximately investments with quarter line BBDC quarter of experienced and interest of first finished XX% secured XX% the in of during the coverage stabilization with current the of the securities. current with average turning which

within It's the now strong full the metrics reflected the increase ranging of coverage fair and rates our the interest interest to high of say at that of stabilization the cash data quality point an impact guidance, the as the of Xx X.XXx serves end book. of the has credit rate flow another in between within previous portfolio. The been

various to strategy has and less oil a prone backdrop avoidance restaurants, against gas, economic industries of Our sound a them, predictability. be to of volatility, proven retail, economic among metals,

at pushing in Finance year in with margin Combined XX%, portfolio one similar through the portfolio, the set to North confidence were Private earlier what XX% businesses. leverage from price believe us for unchanged a period. American gives and going sample Adjusted our multiples, successfully were combat pressures stood Global BBDC, reasonable we gross increases their the median are margins up to prior year's in same and the XX% issuers that inflationary EBITDA from

Holdings, Capital diversified, issuers investments Eclipse that highly X positions Recall fair of XX loans. value. remains the composition a Rocade of Business for within number underlying portfolio These the middle-market platform portfolio, have top and positions the issuers. The market XX.X% with originating top the our accounting

structured acquired that Assets originated new certain issue other forward. going be materials on positions included classification in include not and basis will a our the within positions

a of were on to experienced as while of we risk suited movement classified conventional is for to Eric portfolio an the these over underwriting and assets. provide of combined our issuers the BBDC As delivering basis the We value out basis of outperformed quarters rotating X% allow during not value minimal quarter. at Rocade additional quality expectations portfolio. The investments term. uncorrelated with confident lending have attractive consistent long performing in the issuers shareholders to industries and loans. exposure markets to cash points continue in stress quarter remain exhibiting of positions million risk-adjusted return exhibited credit underlying recent the Encouragingly, positive movement accounted flow within ratings we Eclipse in the also in come. Risk certain quarter-over-quarter the the committed highlighted, market within some as middle-market associated well X to and as and nature only market to $X anticipate fair nonaccruals X conditions XX as ratings most

We market are investors in middle companies.

our Our to classes goal, call ability across return global a managers. do. I'll to our Elizabeth. compared reach select at turn we over now gives scale BBDC market significant is other core, credit middle But risk asset what and and the to unique

Elizabeth Murray

you of over in the see per Thanks, of share full increase $XX.XX X.X% quarter. XX, which first Matt. and X.X% year-over-year. an can On of bridge quarter NAV XX, share the March per of movement the as prior an Slide NAV is increase was

loss $X.XX, of and and Our The predominantly the offset dividend share realized $X.XX by exceeded investments, our on net the portfolio restructuring by unrealized the realized CSA by per share. was the share FX Scientific and lifted in per to the $X.XX decreased income NAV Investment due net unrealized FX by primarily by was depreciation. The reclassified depreciation which portfolio Managers, support from March X.X%. portfolio per Core the applicable was net in investments agreement from investment million credit million and $XX.X of losses million XX. from on Net appreciation increase Resolute was during by unrealized CSA decreased the value in The $X.X quarter of fair $XX.X in the discount as underlying rates the fourth driven to quarter. of approximately the valuation which an Sierra which

of and the million, our remaining of the first in quarter year. and to the fair this value XX have the we $XX.X half with decreased million of approximately repayments CSA the and had year, remaining MVC positions second sales During in $XX.X Auto in million The sale the from anticipate portfolio portfolio. $XX of this X portfolio MVC positions

by for the and calculation. quarter Our per in income quarter Sierra earned $X.XX in in driven from through higher of the share the NAV, XXXX. incentive the the the Eclipse Capital partially quarter portfolio share an fee base compared for $X.XX rates, of per our incentive and increase driven was JV. by offset appreciation by look was to share investments quarter net primarily back The lower manager by the income in investment prior by fees continued increase $X.XX per in benefit dividends was first Investment accompanied

as at X.XXx. the XX Our X.XXx and of net cash unsettled leverage of at long-term net ratio, within up end, which and quarter regulatory from is X.XXx net defined transactions unrestricted quarter to sits leverage, currently modestly X.Xx December our ended was target

remains debt the our support class, and our provided including our equated outstanding $X March mix defensible, and of of for capital of level in our funding seniority asset funding XX% highly At Our unsecured of in both billion by accounted XX, significant the debt structure. unsecured debt balances. terms to

note enhance The quarters the XXXX, issuance a you significantly Barings operating of BDC come. $XXX BBDC quarter oversubscribed with senior issued capital has to unsecured and was our million in As significant may to first structure. flexibility the note flexibility positioned during new recall, of the

to in currently our next structure portfolio as of of a and second significant commitments $XXX in half to our commitments as joint million maintain ladder has unfunded to with maturity continue maintain venture of companies outstanding out XXXX bond We capital million $XX our flexibility XXXX. Barings well of BDC investments. to the maturities the

cushion available entirety against if called upon. meet limit We of have commitments our to leverage the these

a value X.X% dividend. dividend of and net per first XXXX As declared share, our quarter consistent asset mentioned with the a quarter second distribution is earlier, Board $X.XX on

plan a During XXXX. the our authorized repurchase in share call disclosed million February, for earnings we Board $XX

users active plan. repurchase be share We our continue of to

The was and XXXX. in repurchase repurchased million after than quarter no during we as quarter XXX,XXX exhibited the X.X activity continued more momentum first exception of shares purchasing shares

BBDC's operator, in the we we interest of Thus for quarter, investment on questions. our million with $XX new Our thoughtful note funded our have $X focus second of and on to wrap approach will share far shareholders. I'll aligning up open prepared our that, repurchases to example is a X commitments the remarks made pipeline. million. With line

Operator

Instructions]. [Operator

Our from first is Fargo. with line the question Wells coming Finian of O'Shea

Finian O'Shea

on you was to Eric, remarks investing you opening the update voluntarily strategic the funds a LP think there. I changes, business? the it on couple reported halted of or that can us

with case. still lending And ultimately, going and I LPs direct the think or the the for new how business? that's conversations in are -- GPF existing

Eric Lloyd

Happy to, Fin.

So we did.

made money, those investing leadership, have So accounts. in decided executive ourselves, accounts here when right, the the at in that pause certain decision other it's pause the Friday, to money people's But leadership investing came perspective. didn't to Barings that resignations that to we from at not because in we it's remind our investing do we always an

we of that investors. There's and And of then different are funds LPs really we counterparty. perspective. commingled X couple X -- pause make of SMAs the communications have that or that have to then bespoke those kind things a There's from So X funds. are discussions that there's with more with decided that buckets

that and and the consistent number different other to in of that allowed things person is today there XX represent in generally I or us of might a point represent would continue X. have times from level to it investors of like North have And things funds to that through our cure X have what kind to things manage that have our key events we you invest in March prior to is hold I XX, you that to time. America at was also SMAs perspective. What can that can this timelines XX, funds with of a So we have LPACs

far process and between vehicles deals continuing or continue base market are hold those level EBITDA. core lead their to to with through as franchise million our X in with and of that normal a running other periods persons again, the of number continue million But $XX us key as LP we're cure Certain go SMAs, $XX of invest in. to middle allows And along that to lines. we funds

Finian O'Shea

throw It Is small in that for a Jocassee slowed like has or down And helpful. stopped to That's I in forgot BDC? follow-up, the investing. the case looks there. Jocassee

Eric Lloyd

constructive, Jocassee the them, of is. we that relationship feel we've believe that's and Our Partners that and an part about good where but continue it's will to discussion X kind we with be of relationship BDC, very important is with had

Finian O'Shea

investment if forth actually for the sorry. staffing if part, originators do thus me. have permanent. that's hiring repositioning announced the And X or that sounded all leadership I'll It focus like to BDC more, Okay. committee so be be may, seeing the on the adding I just far in would implies is expected and that of and and the

Eric Lloyd

Yes.

a that is So permanent committee. stated the investment investment committee have we

expect we that investment individuals that stated North committee it add has sits The committee as investment also American time. to have We over to X today.

along we was lines The X. time would at could committee prior Our as be we over people. look add those number something

the I fill today. to back gap deliberate our find, to rush and to most culture don't some that need step don't highlighted, of origination of in the want of existing And that then of type and to thing that make fit, we all. second right some hires I sure is shortfall is have are we we We additive sponsor relationships have kind the want higher we our conscious, something of a would here. on bring a, say, the fit first make all, making philosophy, hiring say important any but I perspective credit cultural that to platform that hires or hires. We us for the just into and take kind origination

that's has constructive. been we'll think the the And announce. be platform. short over people us seen some mean, relationships in order a this here months sponsors. of I that able of hires And deals platform in things that who the of see from number the think course have joining you'll incredibly last the As amount the X -- have past of been in to Elizabeth highlighted, have I Those the been humbling process to reached out one of I interest that of strength because we've

Matthew Freund

to on of the we unchanged where whenever months. majority the change in say kind that been may, team it overwhelming investment light our fact The management is we ago, investment I today, the no strategy strategy substantially team, from of that BDC put refined for that of go-forward a unchanged, past place consistent Eric. is that's as basis. I would If reason XX in we the sits has the a were go-forward year and have

And it's management manager, the throughout so while have shareholders. place to change that one there may is some we respect don't our to be strategy strategy in we modifications to important and feel reason productive note an incredibly put our our with like

Operator

question Joseph with from next is Kyle Our coming Jefferies.

Kyle Joseph

there Kind back like was you looked wanted income that some dividend well. of you mention and stable. in that talk Eclipse I repayments? quarter. Elizabeth, the did income as think yields impacting just think about driven? but timing growth, were in kind to I it to of just investment portfolio mentioned know this, decline that income model, shifting fee the then deployments And Is I Is the of

Elizabeth Murray

Thanks, had we fourth repayments those first Yes, really repayments, then and quarter related was in redeployed interest that was late we income quarter sales Sure. fact the quarter. and down and that first slightly later quarter-over-quarter, the Kyle. to early

perspective. timing interest that from of the So income was issue more a

income Eclipse. quarter-over-quarter due dividend was to addition, In down

lower JV. income Sierra have dividend also We at

investment and we pay part we and income JV, there. of Sierra the leverage proceeds the repayments facility to take down the of decided from have For some

can expect XXXX. the the be So Sierra more throughout remainder of normalized you should dividend that

Eric Lloyd

strong It is of a It's timing Eclipse. to anything an of lack dividend the Eclipse just I off just like distributions. want to decrease of performer for related continues be us. incredibly not of performance in

Elizabeth Murray

second at Yes, normalized the see a quarter. you more it level should back for

Kyle Joseph

Endgame And seeing Helpful. from you for via you've breakdown banks commentary quarters. in a in give headlines just recently and space probably appreciate side, been BSL. stable, from back for gave. yields the then it. But different competitive for about But rates talked Matt. me, or exiting our of getting been Got Basel I seeing a between follow-up market us the recent you've III but give we've base -- seeing us we been a kind sense in spreads the being trends about

Matthew Freund

it. Yes, comment happy to on

we're marketplace think of the I is based observing bifurcation in so that size. a what on And kind

issuers would have have impacted substantively the of robust And the so years. over are the competitors you I And who more been more frankly, against the competing a be think that I to first our squarely the is an past that institutions they into set larger than group perspective issuance few ecosystem. has banking opportunity tell larger from going just are

terms to few over we million broadly $XXX a as so closer parity your think solution, a syndicated $XXX experience, between they are or EBITDA platform of looking about is placed those the privately kind And and million, that our years. past execution than deciding closer in have

the whenever it portfolio competitive start to core million same of a but really at that of threat the markets looking Now which $XX banks $XX sub a the in is median provide just isn't degree. call the we the issuer over in threat, we competitive participate, don't think I the EBITDA, million,

very be you, with although more private are we fund credit seeing To candid formation.

very in experienced quarter, encouraged. so are feel competitive that, particular what provide quarters that But we may aware here headwind during based on the And this come. we to we some

price see highly as bit core were for so what we environment competitive forward end market. path set stability the balance define we're on And of anticipating is our middle we it as to the think and kind more what that as ecosystem respect to the with kind of the XXXX, the of of a larger I of little a perhaps

Eric Lloyd

occur that of investors kind some couple and just of some to time, of return we're because Eric, of form generally spread kind what period an reasonable right, you lower stability But needs of if than That there's years absolute X activity of time. ago. overall. think private for years, to demand, credit private over lead supply credit it what was seeing increase there's is just spread level over the in an kind in it's of shorter-term managers compression general that to going M&A Kyle, last of in is is

Operator

coming Our next Raymond with is Dodd James. question Robert from

Robert Dodd

quick one or drivers the you valuation Just conversion Is asks that failures there? Is because a rates us diligence the minute? Can lows. in historic any give you one towards as color it last on for Matt, for mean rates are sufficiently bid transactions it on the due for give you of close there? mentioned color trending more closing not driver can transactions imbalanced? get on I you us what's the me. any

Matthew Freund

Yes. The most common I anticipated a response have folks that we're getting a is in that rates there lot differential bid-ask bridge. helped of reduction just a interest seems to that be would think

when sure middle or I'm actually beginning you these so of And the somewhere between beginning it. everyone launch middle X the process. the take that by and to X the the knows We're to somewhere months close of the a processes transaction time between and you

creates generally some values. And that of as comfortable of enterprise the impacts that, XXx ultimately so paying, capital think recognize of pretty but of the budgeted we call on is your isn't obviously downward sell-side these revisions evolved, it, had it, regardless or I XXx. kind you think And for. through, about transactions cost and that that feel someone pretty equity what whether you you substantially, way have as And get we part

expectations there don't respect with below cost change, that has obviously the so credit underlying ultimately, often but is when us revisions EVs. changed, And to view and capital on to of creates some profiles our capital

our now. leading right that's So contender

over of going course, think where a credit or cost apart fall other But expectations discussion spread. to I on of Of performance kind it's they bid-ask transactions ultimately overwhelmingly, misalignment the be and are been a capital metrics. of there

Operator

at We questions this additional time. have no

over the like closing comments. pass management floor back I'd to to So for

Eric Lloyd

sure and to To or want conversations I first, to make have, like much. communicated we're to us and in the out you'd Thanks please what next you report want listen to so sure transparent time have team. taking for the today. quarters. the course the of and We we you to we to questions communicative you make as to over dialing follow-up reach go extent Well, everybody thank the to

Operator

does thank disconnect you participation, conclude Ladies this may at and your time. and gentlemen, We this teleconference. lines today's your you for

Barings BDC (BBDC) 8 May 242024 Q1 Earnings call transcript