BBDC - Earnings call transcript Q2 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 June 30, 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 the call. call company's forward-looking operating goals, cash this statements that results that flows. the regarding beliefs, note may statements contain include and Please strategies, future

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

Eric Lloyd

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

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

and quarter, the performance stability fueled strength the results, credit second BBDC best-in-class and In our delivered another of strong by set of franchise.

portfolios covenant issuance, BSL not banks generally larger present ours. a structure to cap for the not the meaning lending, stronger and well. you continues of of focus middle-market direct this capital want have we in are and heard serve style investments I may direct some lenders other in see of market, note on moment of in top the we take Our with investors broadly syndicated to end sponsor-backed are documentation investment that unlike loan to issuers the package competing

and of segment the of which lower is core platform we higher BBDC believe be attractive investments market is portfolio the leverage returns core in of form levels the and middle by nonsponsored why the we more and of benefit reflective best risk-adjusted diversification. for That a our returns, the of our market and potential to is selection shareholders shareholders. on that focus Our this complemented find

detail portfolio in Our strategy X. is outlined Slide greater on

and We our returns market shareholders. continue successfully the deliver to to throughout invest compelling

strong several appears As we the reflect half while against across relatively to of performance idiosyncratic of on economic Interest safe elevated, benign quarters. holding the been Credit BBDC be up industry, for examples. XXXX, stable been first a performance rates, broadly backdrop. has a have few for the

changes transaction stable These past in impact the have in shift the While have ecosystem. this positive our week foot which market overall environment, drive in metrics additional deal further a may the fees. which spreads higher further sponsors and a as think in decrease economic the include business among done it credit we interest rates, and lending activity spur suggests interest rate on well activity, may maybe change we a sentiment of and existing a turn an may portfolio and sparks improves in will

investment year to percent as per the was meaningfully of were prior importantly, testament per of, are share stability. a an income asset of we outearned Perhaps unchanged our of quarter-over-quarter $X.XX the that X.X%. share. some per and the nonaccruals Net a in a $X.XX particularly was our end, at to value fair and X.X% share dividend $XX.XX to quarter proud most $XX.XX, compared for of for BBDC. Turning value increase fiscal portfolio specifics Net reflecting metric

wide landscape more deliver valued industries. confident capital stability is economic on at strong ahead thorough With across are more of top for focus and results conservative suited of a a result the market know, the defensive our a well portfolio the investors underwriting and of our us, our shareholders to BBDC performance our As strategy and of of uncertain range that are within and we structure, conditions.

Digging to actively acquired legacy Capital the continue maximize bit Sierra. holdings portfolio, into the deeper we in a and MVC value from

remind for Our assets from to at protected are by at BBDC from did investors. XX% the the credit potential these these portfolio Barings the XX% risk divest assets of you agreements of this now value, originated beginning as XXXX. valuations losses just at of goal up quarter. remains Also, attractive portfolio we downside positions are limiting support to all, fair

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

Turning On quarter the The to yield policy, per a on weighted level share, We basis, our a declared an base value the $XX.XX. value prior of to XX.X%. our earnings dividend annualized Board with X.X% conservative remain power at dividend and our fair net of was quarter. dividend consistent equates third the average asset of yields on the portfolio. $X.XX

the portfolio's NII believe value June the net the nonaccruals, ahead. continued for were and and anticipate strength of performance, in the quarters asset quarter measures best compelling extremely We

that teams the I team asset the North want here I in to have across coupled with operating highlight capabilities to we long-tenured the Finance American may sourcing business, Global Private environment while of also underwriting. future will uncertain, be Before contribute turn the and over call Barings Matt, our to

value confident ability extremely shareholders. our our We continue to compelling in are delivering to

we believe our second the attractive middle-market the have half will what lending We in call portfolio the now be weather more turn to to over for economic direct year. liquidity and Matt. an play have resiliency of to even stress expertise in have offense I'll designed the and to environment to

Matthew Freund

credit-focused LLC, sales manager XX. assets than an positions $XXX management the bulk to strategies, capital determined value I'm million. to sourced is a million towards an market by skewed resulting high-quality, with of organization is Thanks, million from Repayment team, private equity of million investment by this repayments, top-tier providing market-leading, $XXX sorry, more by million globe, professionals experiencing around global and middle-market and Recall The June of nearly solutions managed in portfolio under asset Eric. of noncore finance private of assets financing as net XXX the firms. BBDC the that Barings $XXX with fair deployments deployments BBDC located in our sponsored of of deployed activity billion be companies -- $XXX offset sales quarter-on-quarter. quarter, net with $XX noncore acquired $XX to reduction

telegraphing executing direct noted, most the are the the have been for lending opportunities selectively market. what we and we portfolio strategy the Eric years, compelling believe we X.X As are simplifying middle-market in the past investing in

EBITDA with our of Consistent during what deployment, to the $XX muted on a bifurcated continue sponsor-backed of lending second sponsor $XX with platforms quarter. markets activity tale observed to LBO as we size. largely quarter markets, remained million to X defined million core in we see discussing when ago, a

We levels at broadly our level significantly syndicated lower the some counterparts. than refinancing have but experienced of within portfolio, activity

optimistic a will long on in activity. rate interest the we have approach we awaited rate cutting a cycle, that change transaction the are catalytic As environment effect

as half busy touch Our team second of well. consistent a constantly middle for echoed of a bankers and in is optimism number sponsors which market been year, with of drumbeat significant has heard investment have by the

continued and of to within range in said, for borrowers more support June the a wide through to the in of existing companies but our of long-standing executing have an We acquisitions, continue the add-ons number were early-stage of demonstrating relationships conversion see focus. our strategic increase platform, their core portfolio incumbency we rates and modest. That on area benefit relatively opportunities

coverage the Turning a thoroughly economic to weather weighted XX% conditions. their of average experienced our lien to the investments of with focusing stabilization investments of companies the constituting BBDC XX% on XXXX above of leading demonstrating and industry finished and portfolio underwriting approach secured coverage to securities. quarter a consists portfolio, range first interest in approximately the with ability and of has sectors X.Xx, interest during averages merits a of defensive of

portfolio Given benefit going cash and the the the current negative believe of forward impact forward. decline now base credit shape to rates elevation an in curve, SOFR reflects we are of the likely from any and full rates flow of metrics

mining companies portfolio, for up and demonstrate cyclical merits hurdle BBDC The restaurants, combat set at successfully market avoidance up to in in gross median the as from in demonstrating we rate and Private portfolio stood them. the positions, sample leverage our increase X defensive among with our the American prior of These companies Global from similar decline, pressure. XX%, enabling retail, demonstrating results period. were our focus manager. a market our Furthermore, XX%, same rates structure have industries year earlier, alignment that leaders portfolio adjusted gas, to our EBITDA invest shareholder lending industries, the metals XX%, continue from in margins prices to on reasonable year's North levels Furthermore, XX% margin to strong at Finance will oil of inflationary them and

solutions, X of we return shareholders especially fair and broader in differentiating the with the invest lack within that and of BBDC markets. to litigation correlation Recall market remains our portfolio, positions Business funding Rocade attractive and for financial areas composition specialized the top diversified, and value. diversification provide provide Capital accounting to highly Rocade own opportunities to that investments believe asset-backed portfolio we platform compelling benefits, top strategic The total with Holdings, given issuers access loans XX% X Eclipse XX

ratings assets, X and as X% Nonaccruals combined ratings one accounted a of portfolio the during stress believe lowest million classified in exhibited X.X% in market X% the of value and portfolio. to the quarter. the to the of preceding on of we We quarter exhibited quality. across the as compared remain industry. basis issuers quarter-over-quarter Risk for confident credit X underlying quality our and immediately movement $X risk portfolio of which the the minimal fair most the Turning the nonaccruals levels is of were

in to BBDC of differentiated the our and BBDC shareholders continue this We both as the align outlined with outcomes levels. of coupled scale, portfolio XX. prevailing withstand for interest variety performance hurdles positive credit reach and a and end, come. on to the a market fees middle portfolio quarters expect to structured economic The core environments is to Slide To driving focus rate designed BBDC's was through-the-cycle on

out fallen past experienced distinction With effectively X of earnings levels in delivered have base of BDCs their between years, increase listed the focus. rates the hurdle over rate publicly in has relative excess rates, the all hurdle

value shareholders fall, of return, base hurdle to quarters extent, BBDC relative fee managers experience in the BBDC's a As hurdle of will would benefit fee other net X.XX% X.XX% To industry this expect returns rate for high hurdle the returns same returns. BBDC's rate to our lower managed with stability at come. fall XX.X%, X.XX% impact the from lower receive industry X.XX% will can will rates pre-incentive the peers to shareholders begin lower again pre-incentive an rate BBDC while and an BDCs rates differentiate anticipate to the compares of average among between We some hurdle of participants. significantly hurdles. compared investors having externally public BBDC

the referred is The the Barings align back designed fees to on component of sometimes incentive fee back. to as I hurdle look credit return second want manager, LLC. BBDC's The with BBDC look total comment to is to performance structure a paid to

than a credit to covering best among publicly return of credit all and less the market. focus Elizabeth. hurdle with our feel As assets, we When XX% are the a of back call foundational a our at portion strong have incorporates to the managed program buyback look Barings traded I'll rate know, over is into is in that combined their a performance that structures externally BDC, we stock losses BDCs shareholder hurdle. support turn but agreements now

Elizabeth Murray

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

investment, by per share. primarily our by depreciation. core our exit investments, Highland, was share share realized was from $X.XX The the which offset in equaled $X.XX the investment gains the covered XX%. portfolio income offset Sierra on net unrealized per FX was net from $X.XX $X.XX or and to predominantly a exceeded in gain portfolio is by exit the FX investment partially share depreciation per of dividend net due CSA Net per CSAs scientific realized in and reclassed and partially unrealized Our the by of

first our You the $X.X million into may Scientific recognized recall, debt the of equity. we in during investment a on loss quarter, Core restructuring of

second the mentioned, a recognized quarter, of During and Scientific exited $X the previously fully our we sale Core the equity as I of gain in investment million. on

plus $XX.X are full June exit. to experienced as million gain of pleased $XX.X agreements investment of to approximately support million this a of the valuation We quarter on say The the first CSA Sierra par we in the fair recovery million. of The $X.X XX. decreased from value $X.X decreased by credit million

XX from $XX as portfolio and quarter, second the the During of the March had approximately Sierra of million positions remaining in XX. down sales and XX portfolio positions repayments had

MVC as portfolio the $XX.X driven in the unrealized remaining. positions X XX, with CSA from by June of value $XX fair of increased million underlying million to depreciation The

Our quarter, XXXX. share net per $X.XX the quarter for to $X.XX per second share $X.XX compared income the investment was in and the quarter share of prior for per

income unrealized fee depreciation was investments and platform was by primarily expense by acquired incentive joint the to our lower venture and due quarter fueled Investment quarter-over-quarter positions incentive dividends in fee from and cap. driven

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

in opportunities to quarters come. and Our seize current opportunities deployment capacity to attractive the leverage pursue provides ample

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

our of maturity structure maturities to We continue second out with the to maintain in in bond maintain flexibility capital and XXXX. next significant of the ladder XXXX half a

million our investments. to $XXX venture has commitments $XX currently as BDC companies commitments as well Barings portfolio joint outstanding to of million of unfunded our

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

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

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

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

a as repurchased and first period exception more the no XXX,XXX of than shares total shares XXX,XXX the almost of was quarter XXXX. half in second The we during have repurchased

focus with share approach Our repurchases BBDC's is of on one thoughtful shareholders. example to aligning interest our

our in open I'll the our have on up Thus million quarter, third funded With pipeline. wrap prepared for $XX that, and with questions. we new the million. commitments far $XX the net operator, will of remarks we investment made line

Operator

question comes first Raymond Your Instructions] from Dodd Robert [Operator with James.

Robert Dodd

drumbeat then half. disruption you in the which obviously there's mean about I about talked about talked over the you the a week. were last And market, seeing second in of you Matt, activity optimism

would market slowdown those X activity, of you kind So in things and a think things last can week, the on where -- been thought disruptions the -- result reconcile like the activity generally half volatility activity the second the go that thought -- in has can how in rebound, much and that changed had you but of could but year? in the the you

Bryan High

Bryan. is this Robert,

credit, and syndicated one day. some the better just market, we've is private the of at end deals the benefits pulled In volatility market of some of terms I the the that week, do broadly of of execution that from think the of volatility given seen this

be raise for private tension liquidity of markets ends sponsor to ideal we've determined, that a they're but to because looking the they activity. anecdotally I a a is of in maybe need but of and platforms new ultimately an to there pipeline, about ultimately time, strategic. in is seen So looking being a if at the sell sort new fund, folks think monetize, in to deals to not I or Whether to closed natural that do definitely sort talk not our increase want

that again, seeing perspective, pipeline we'll we to whether a activity So and are ultimately wait or see. more have from closes, not

Matthew Freund

Yes.

should Robert, add, specific would I I that maybe been comment have prepared in more my other remarks. The

think a we're the we ever expect would that consistently that I with, all now of as I just that is think the happens, think activity we capital the to about capital up. firm going think we and that start to cycle we when And them, we're to for cost going of while we're feel interacting test debt told I cut as cost to rate that that that actually more closer to pick come structure been. the private than for have they've because us overall down, sponsor-to-sponsor theory the capital LBO move reset, rates doesn't equity needle

Robert Dodd

be then accruals on cost is good kind fair, rate would rates been and good XX well. mean, say, [indiscernible] for mean, the it. over is coverage, cetera. credit. Got question long low the it. are gut-feel you a on months. a next much your loan I mean time. how Got that to as this just the the value interest And and next, -- very to I high et But over fair softer of really on evolve may be on I have -- which economy cuts, base little expect is a Any there XX,

portfolio at smaller might they were. companies So liquidity reserves be than

particular of that can like you years, portfolio, So how expect evolve couple but... us kind the you question, your to of give over on answer credit you any in next thoughts

Matthew Freund

asked you honestly, way that then were of to Look, the and it. think your answer the kind, question give part I'll Bryan. Yes. turn you us start to in that I it to over

think feel today. we're our so good like quality, a in very -- position we And projecting as credit about we

may weakness, and/or events volatility reduction of causes what accompany about be. or rate economic any know sort perhaps we uncertainty the we As of a think just don't that might that catalytic

portfolio feel hard where so a you a diversification in implemented thoughts, perspective prognosticate the different -- constitution past very now, And as It's set today. we we've macro. from Bryan, I with really feel -- think portfolio different from of know are positioned to while to quality perspective several as don't very have well we comfortable we portfolio. that it's if a over the creating any But the I resulted years. well a have underwriting I of the that is scenarios, we

Bryan High

I I probably various have the the there portfolios in more the seen mean, all with think of have deal obviously, we've do sort a but said, uptick market, broader when the time. that in macro-wise, our has than unavoidable And marketplace. an the relatively and like certainly got being stress That softening we portfolio held issues is from you that if across Robert, at to resources it feels is in well. there's macro

Eric Lloyd

too, mean in is I would really we I said which base what over the earlier, Yes. interest rates, on Matt still is coverage about. feel despite our highlight just which increase great Xx,

borrowing credits, specific very of event an overall kind health idiosyncratic the on portfolio And remains strong. so

Operator

O'shea Your Finian Wells next with from Fargo. comes question

Finian O'Shea

forget now seeing like question in which on is that? appetite I is And an your where to public price period public update precedence A one that us you it to some or the, is whatnot? NAV the do seems private merge BDC, its on which, these to of into investment give can there regardless but the to that

Bryan High

anticipation, can't least specifics at BBDC of Yes. Thanks, in to this provide BBDC have don't consider currently private on at doing time. we or funds, I asking anything any shareholders Fin. anything but

Operator

Point. from with Casey question next Your Compass comes Alexander

Casey Alexander

what into kind is would end one in rates current it's for Matt question. maybe a what here. of and this base extent Matt, And tricky that the I of protect bring got a for hurdle kind degree of high the to or play, of math would the dividend? decline fully At for because Elizabeth you

Matthew Freund

is portfolio I between, be equal else of Casey, related I from that. credit thank we've Yes. perspective, the make that that of quality leverage the of feel the we call lower of start about the think a X% appreciate prepared I and numbers then high been kind personally I that that being attractive math you it, the questions, anticipation kind we the math more as all rate starts think Xs. to But how to X.X% your impact BBDC the to preserved. assuming with and where might composition we than that look with running it, kind think somewhere approach, so that hurdle significantly hurdle for those respect call of it's for rates And

see where I a differentiation. think lot more is you

Casey Alexander

And fee you current think hurdle Is to model when when but net starts that investment at level income, you right? a instead away the of rate take that -- incentive preserves dividend? that the out still

Matthew Freund

Yes. that case. the that's We anticipate

Casey Alexander

Okay. Great.

kind or the this, Secondly, on year, Can I given discuss this earlier got you -- of missed personnel origination it you updates X personnel turnover relates maybe can a any late. team? to and I as the minute

Bryan High

it's senior and Yes, he that We call, here used a platform -- the when brought in of Bryan. Casey, Co-Head mentioned I had be the think Eric a before. was America of last part on North to was individual we had that

that including made we've X join in we're the managing not fourth us hires, to new Two scheduled directors early done. quarter. are and So person, other

XX middle we years. So market who been to in middle focus for core XX the the where have --

Eric Lloyd

Chairman our brought important North guy American North we a think the in America Investment on was also [indiscernible] of business I in that years. the back number co-headed Committee Casey, for the who of

hiring, So we prudent, but our making right people. also consistency the wanted be fit timely right the there's but there. in the And and we got to sure

Casey Alexander

a amount Lastly, venture And fair across software. been debt software I there's when Services at at guessing growing of that -- I'm your in look Business your and the the space, mix, difficulties both vertical. is cash BDCs, flow

curious might particular the And spending software and about others? if than that software I'm verticals hearing interest investments from is with edgier you're what faring any there's coverage plans? how be your them So

Matthew Freund

that's Casey, Yes, great a question.

folks some kind Business wouldn't businesses foundationally it for Business now. industry Services. you I really think think of There's I Services, around what software limit for a of about apparatus. but even and time moated that as a built to software that to has some variety tech-enabled we industry, the services are tech-enabled as focus other referring And been are

as of I lending flow about very examples the is majority where not of our conventional few the portfolio portfolio. case. so can portfolio I cash And a overwhelming think today, the think that's

trying different to think loans portfolio because apart I ARR industry-wide parse would a almost the are facilities were or portfolios, I be not ARR-based ARR all ask -- that ARR loans, I If software loans. is I would but question mean, all around often software loans or

that so are cash issuers from I of divergence levels. And a ARR converted little that perspective think to a where of flow not we've cash that bit have coverage style the reporting flow some seen are facilities

SOI, kind terms any encouraged, the so of software specifically it as of And differently we're than of our relates very is portfolio issuers feeling whenever how performing, to portfolio performing software, nonportfolio not is But you're in our example. at easily and of question, looking discernible I -- it's that, an nonportfolio that issuers. portfolio something do that's very fair isn't think for a

Operator

there further turn questions At are back to Lloyd. the over like to this in Eric time, no call queue. I'd

Eric Lloyd

update dialing Thanks strong very thank I your and to listening on finishing to everybody want to our just look we the year much. this quarter, in, forward behalf. for for

Operator

Call. attending, your Barings Second of concludes the wonderful you and day. Earnings rest a XXXX have Thank This BDC Quarter for

Barings BDC (BBDC) 8 Aug 242024 Q2 Earnings call transcript