BCSF - Earnings call transcript Q4 2019 | Bain Capital Specialty Finance, Inc.

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Operator

Greetings. Welcome to the Bain Capital Specialty Finance Fourth Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. A question answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.

the to turn Nagarkar, host, now Relations. Investor will conference your over Kyle I Mr. begin. may you Nagarkar

Kyle Nagarkar

Good to Full Specialty Bain and release a for night morning copy welcome website. issued Finance's and the Conference Specialty we is our Fourth Investor Call investor Finance of presentation Relations Quarter quarterly earnings which Capital and our Year of Last the XXXX. press Bain results, Capital on available

performance investors. answer remarks call are today in actual materially. differ hold session call Capital any webcast This forward-looking we webcast for results a is This and Specialty broadcast strictly and available is and any future our prohibited. Any being unauthorized Following do Bain on be a and of form analysts today statements may and will Finance will property the made question and website. replay our guarantee not

These factors indicated. report to time statements to uncertainties actual forward-looking current Specialty identified do and any on could those that differ are in results assumes so no expectations Finance law. this by of Capital update risks statements include cause to section unless materially management which are at Form XX-K based from the Bain required our risk which obligation and annual

performance not Lastly, past does guarantee results. future

that I'd call over Executive Ewald. to turn with like And the Chief to Michael our President Officer and

Michael Ewald

earnings morning you for our all XXXX good quarter joining thank and and for Kyle, call. Thanks fourth us

name President Sally our my Officer Ewald mentioned Chief today Vice and and Kyle As Boyle our I'm Dornaus. is Mike Michael and joined Treasurer by Financial

and Sally give our on investment some and review brief both some additional of Mike thoughts and and with quarter will usual As start Then I book on strategy our market. will provide detail results. the the a the

for us. Let was by solid that XXXX saying year a me start

full returns take company continued During shareholders. to I long-term for fiscal to achieve sustainable we necessary public company the a the year to believe our first as steps our have position

investment selective first approach investments highly current senior and secured the disciplined our maintained in lien on by have We focusing cycle. economic

side right the flexibility an and towards We eye long-term cost. low of with sheet balance have the further stability, bolstered overall

positioned of well growth following ABCS growth such strategic for have the partnerships yield future joint we consolidation the the enhancing allowing as venture the spoke investment for as Lastly, of finance. as aviation strategies further company

of year All actions and we in continued of a at success. end these the believe for position us poised put the strong

dividend In share. illustration base consistency our is first an board our of declared per of a $X.XX quarter

March on dividend will XXXX. XX, XXXX April XX, record to This be as quarter's payable of stockholders of

the %. in invested industries of tranches. unit current invested end yield XX represented the portfolio first including of average and of first companies risk dollar XX billion lien Approximately year portfolio loans across $X.X traditional different our portfolio % a the At and X.X XXX weighted with is

During of the origination million we or fiscal new experienced and brought investments This of sales year new fourth for originated $X.XXX billion. sales entire billion quarter repayments to against of $X.XXX repayments million. or $XXX $XXX the

top end range. continue operate third our to of we Similarly to of the near the the end quarter leverage

the continue at times and conservative X.XX from remain end focused at book times the X.XX fourth thoughtful comfortable quarter core We X.XX to of the through investment construction. this company quarter earnings of the the third debt-to-equity given expanding of net level to during quarter. we on our the be portfolio leverage and at end our reduced times proactively cash the we However, of gross

that nor the view market and choppiness M&A fourth perspective a we new was quarter the distinguished From in the fourth quarter volume last during experienced high by of neither year. deal our

investments to weighted We objectives. with new lender equity backed with investment experienced points have The whom in of long-standing XXX our made commitments it LIBOR quarter Simply with fine rather such plus sponsors had five we new by a line relationships. said ourselves. was companies an portfolio basis for as average private spread

by exhibited highly current opportunity with are selective and set. remain the we pleased the in activity As quarter our

As markets broadly performance individual continue company we specifically. we investing an year the events myriad impacting in portfolio of are XXXX mindful current

the well have going for that result in could an potentially instance but industries. in regulations growth the election impact presidential U.S. only new multiple For across also market in not forward

to expansion existing as to going In to forward. China our week do beyond any event, portfolio of as prompted The we Europe companies impacts the expect months. this also a us next few Corona as to our over flow in potential virus and concerns review recently well has adjustments slowdown deal underwriting

note advisors we as will the willingness to profitability that company growth. orient our support Lastly last over further shown continue to dividend a year the I the for

waivers management the minimum of at incentive fourth the are pleased in and/or a were fees voluntary We quarter.

majority the ABCS fact, the quarter waivers of the earlier related the year. announced previously In in from fourth to consolidation actions

this going forward. that hope be advisors trend will our as present needed we While is expectation will support continue it that

provide financial Sally detailed more will a review. now

Sally Dornaus

was morning everyone. start review the our income fourth XXXX. with with $X.XX XXXX income quarter and investment good Mike I'll or million for third quarter of share you per Thank consistent the $XX.X was Net the quarter our results of statement. which

XX For year-over-year. investment the we year ended net had increase December XXXX income of million, XX, of $XX.X % an total

December three three compared XXXX. for ended XXXX GAAP to months $X.XX the per months share the XX, XX, was September earnings share $X.XX share per for per ended

and XXXX compared for $X.XX $X.XX year per share had $X.XX a a to net XXXX for fiscal of to investment income per XXXX. compared we GAAP of $X.XX earnings For share

compared million the waivers increased for third fourth the $XX.X net of expenses quarter. quarter to million $XX.X million $X in approximately quarter the Total in to

associated first fourth expenses income fee waiver fee due in our incentive of interest quarter with quarter. XXXX-X in debt a primarily expense the to no and full Our increased

assets for and quarter incremental associated and that the waivers $X.X a waived impact ABCS fourth voluntary For fee receive the December advisor three waiver months quarter XXXX our the million the of of was net to with voluntarily transaction, its our respectively. right management management $X.X ended XX, with $X.X million million. Similar incentive last base to on fee the

In addition, $XXX,XXX adviser voluntarily related an our fee. additional also management to waived

and demonstrate a adviser shareholders the the past our we As waiver stated dividend. continue and commitment our and that stable with to our we have of interest aligns in believe to the fee

Now at moving $X.X balance fair sheet, value our of our assets investment as to and December $X.X totaled XX portfolio total billion over of billion.

During the offset quarter of by fundings $XXX $XXX and of had downs million fourth quarter. we million the pay in sales

had third ABCS The was consistent is portfolio amortized joint X.X%, distribution impact $XXX balance net costs weighted sheet QX, yield total Excluding during venture in the at growth we year the which million. of of portfolio the average quarter. with the on

the sheet, total assets of end was compared were of year. share side the right as of quarter. $X net $XX.XX the billion $XX.XX the third balance to in Moving per the NAV to

had XX, total we credit are that facilities with that us the our to our XXXX-X notes to of from amendments Subsequent debt. our provided shareholders principal year-end debt Goldman December recent and of of billion Morgan and of announce $X.X our outstanding comprised will and beyond. Sachs improved both and benefit pricing As JP pleased we to XXXX-X along facilities credit JP flexibility in Morgan and Goldman Sachs XXXX

that our Goldman January facility. will facility the to which facility and extended Sachs LIBOR The maximize us amendment [indiscernible] covenants better improved credit to allow LIBOR to maturity Morgan our date XXXX. alleviated plus plus pricing to JP from The various amendment to XXX credit

X.XX times was QX. to ratio equity to times in in debt QX X.XX compared Our

leverage cash principal times consistent ratio QX. which Our X.XX was debt in net represents is which outstanding with QX left

line the we per Finally, declared our with share a is which announce that dividend dividend of are in throughout pleased paid $X.XX to board XXXX. fourth quarter amount

of on The first payable is XX, March record XXXX XX, XXXX. stockholders dividend quarter on to April

as some more President the Treasurer recent you investments investment in call will detail. always Boyle, to Mike and Thank and through to walk now portfolio our I turn over Vice

Mike Boyle

I'll update on our an credit kick portfolio more origination it and this on Sally. Thanks provide quality off the quarter. of detail our also with

is investments line X the underwriting across XX, fair these billion diversified of placed performing investment of ahead is one in non-accrual XX the in our or between X. of December NPC and of of value fourth fair split our the portfolio operating value we International. on performance of companies ratings case portfolio industries. In XX% XXX As issuer quarter our X.X

XX and by with factors performance involved results business driven idiosyncratic in and a the our The were As issues the cost of actively that were non-accrual the portfolio and percentage points. basis business. restructuring amortized that of

lien EBITDA times. leverage covenants. level loans represent Our secured contained portfolio. investments which at first of yields million our senior investment an XX% is costs % maintenance of X.X%. with the comprised The of these X.X amortized primarily average is $XX of are financial XX weighted average of investments median

the at and consideration range. end is nature sectors have cycle We economy of in and the including alongside not investments aerospace should high-tech macro key been our of a to defense. The choosing operate defensive favoring our leverage that high

includes invested quarter. new companies $XXX fourth-quarter million across which the to $XXX of Shifting we origination the five portfolio course million over

$XXX period same average sales. the in plus The weighted XXX and the at XXX. spread new versus plus with investments During [indiscernible] LIBOR of experienced portfolio repayments LIBOR million

hospitality a of the of fixtures lead sponsor. living due we our based extended well resistant and in the to We the is the provider and due furniture with financing to end as and investment the student housing equipment student high were the example margin relationship the and hospitality experience unit the and market company customer business housing recession the property light quarter company living support asset diversified space our housing student We tranch exposure specific The serving LVO well as One to to in model. an company. is market. to like positioned leading its the strong

the presence to in Credit a to book. highlighting brief long-standing our through in aviation investing structures. I'd securities aviation has progress cycles, also made Bain and spend various like we moment Capital have date a

with by believe long-term objectives strategy downside year portfolio aviation investments at offered leasing stood is provided Capital income At leasing collateral by assets end the assets offering Bain a our and of current strong investment protection well hard in at the amortized we yield our cost of high the aligned company. total Given XX.X%. Credits of X% aviation contracts aviation

and industry our for infancy our company. income are serve investments source is portfolio building much aviation will it's in exposure the a of our currently included the very our aerospace and Well that differentiated This aviation we expectation over defense classification. in company's diversified creative, time still as

new our investment. Mike for and In closing in good current feel With turn that to back summary the the ability and identify the to invest over we I'll remarks. portfolio call state about of

Michael Ewald

Mike. Thanks

Operator their support the and As of for investors like to always our I'd today. continued for you your thank questions. for time open with please that all line

Operator

answer this be [Operator question. we Our O'Shea, At question a is with conducting proceed Wells Fargo. from Instructions] time Fin your session. Please question will first

Fin O'Shea

Thanks good Hi, question. morning. for taking my

pointed here amendments leverage. mentioned that start Can context up. expands facility out you are be into you to ability that to you it consideration your rotate and some advanced tranche the little rates on difficult give and marginal typical today may Just given a those fill that to unit where to more those

Michael Ewald

Sure.

can I contemplate Morgan reducing both on the bit we Both our we successfully often. thought amendment. process did against the predetermined the unit tranche revolving structures fact a JP on Really the we facilities talk on that first those cost rates advance that originate of focused about we and tranche were and and do So facilities, unit that foremost amendment. have assets

tranche So both advance our to in structures unit rates. lower have through without the continue meaningfully loans to different flexibility we do invest revolving

Fin O'Shea

that I able just disclose Is that position? out to something was involved the couple to post in then were that incremental you move of and you in you're an acquisition Thank or on portfolio of [indiscernible] if there's able you're on involved questions quarter. a Okay. saw

Michael Ewald

and the are after acquisition We still the an happened was was there situation in of correct quarter. are you that involved happening, the that end had that

Fin O'Shea

of up And grid any, this loan depot, rate or to is saw the rearrangement? this with with the there medical form was I due something tick there. Was leverage

Michael Ewald

or that was performance uptick of a structure It's we anything related fundamental to completed business. involved up that interest that capital of that. and to in loan So year the amendment were really facilitating. driven like by in The the there step rate not last the was price an which is

Fin O'Shea

all for That's Great. thank me Okay. and you.

Michael Ewald

Fin. Thanks

Operator

is with proceed Lynch, Please KBW. next Our question. Ryan from question your

Ryan Lynch

morning good Hey, guys.

question you that. had capital kind now you First to I one pools obviously your of of BDC, component up have BDC max is, other just leverage within across the are guys of guys point

given speak maybe you how both and other guys well capital as still constraints your relevant the partners that active with at now to could lending sponsors So BDC. as [BDC] your like the staying are you -- right

Michael Ewald

Thanks Sure. Ryan.

is end since One that still we portfolio so the started BDC I of perspective two the and into of the see from last talked so repayment seen terms we've and really it's book so whole our before the million. and things it's fairly some really and that think at our to million where the three somewhere period we've in across years XXXX weighted hit that about up to are and of last life that low you've continue XXXX, that quarter quarters is quarter average pick a been immature investing $XXX $XX in was expecting had we between like number

then think about commingled So the that book which other going and of itself generates see churn do of point our a your range across BDC to managed you're continued $X to billion a we fair appetite in the platform. up still and I amount accounts I and think within spanning have end in of accounts

million million have that growth our range We appropriate our stay on of because purpose relevant really to explosive So certainly on it’s $XX we and and much to AUM there's that EBITDA million] focused to $XXX very that's capital to level still $XX really to had us target appetite well. we the think in there range within haven't allowing EBITDA million segment. [$XX we are continue

Ryan Lynch

sense. Makes Okay.

You know still it's comments. prepared on mentioned it's early the an situation. extremely very in your fluid I coronavirus

like just the pieces we're ask So how it's impacting we currently but monitor even I you to something situation. ask you the and the to is am and should from want you like have processes guys to this potentially as and in with look to virus of a steps that me going evaluation do process through think a I you happens this, borrowers? walk such think know How a fluid of going necessarily when we now impacting like not to for a impact portfolio can I a the or the moving credit how that take your kind because platform about month it that it's it's going about

Michael Ewald

of kind Sure let just me picture. start a big

that industries in investments on and We're UFC control it's see well. it's we're % our XX We're at appreciate think investment on highly majority risk dollar defensive in Look being everything first I in view. still are in presentation. positioned can focused from that conservative our That's covenants. and we fluid documented point well and all documentation you as investor I primarily. that of website of our that across book certainly

risk due So a we have and been as perceived to in we proceeded positioning the portfolio out that what the market few we've way cycle economic primarily for years.

across I feel Now whether COVID-XX, the portfolio catalyst for slower being and growth happy and/or done up positioned companies we still it more way. now even we've like appropriately that higher our way that our think cost we're ends that

especially portfolio beyond In and has expanded China company terms monitoring performance of into Italy. especially the as Europe more virus

basis. conversations company on of actually we all week a pretty time regular in this sponsors fair far We're recalibrating this fairly amount company active our So of portfolio sent week management portfolio a with now. performances and our

those going the supply you the the to tying tried as these know impact the of for if out, U.S. China American not revenue since U.S. in the saying last selling to and chain up other or we've simplistic example. have to that that what's are simple don't understand therefore the they worry and back a as U.S. portfolio. lot might are tell only to communication it's whether on will think overly middle the companies don't selling impact weeks portfolio within here of is here as happen companies couple in market or just how going nothing that so across that's on as there's virus about we because I point the you % to companies issues XX yet us picked even of I companies is is

a to So you second out think particular it management perspective won't actively that reported from until see see a first monitoring companies. that individual actually this something reported to are we're lot portfolio by I week quarter numbers that's in talking in shake quarter numbers those of is been them teams how to or we've probably going

Ryan Lynch

context for that. all helpful and and really color That's Okay.

all So my those I are appreciate time the today. questions.

Michael Ewald

Great. Thanks Ryan.

Operator

America. next question. Bank Derek is of Our with proceed from Please question Hewett your

Derek Hewett

earlier everyone. international? this Are The the versus Europe said there spreads prior as think morning Mike a seeing adjusted Good longer-term about as size point? I you And international at of about target of overall better for risk represents, quarter. portfolio portfolio in XX% more is importantly XX% a the percentage

Michael Ewald

just qualifying part Look there room in with the growth Derek. has the think of of consolidation Thanks the -- ABCS. I been bucket. There's been more

I thesis when a international of that relative expanded our within BDC last that in investment of it from raised that XXXX there's been BCSF. tenant example. we value will It's really in the value year say was first fact can we exposure interesting the play So we've our was prudently get-go relative some we globally. the Europe attractive more than that found clearly for

is there opportunities the natural That'd be more set point. there some interesting. we've the growth first seen be because just So

we from % the we're what The - of point not certainly international realm XX% I XX XX is class but in our is - limited second guess so or of in is think see range perspective XX% XX% outside not portfolios including across terms % Australia what the possibility. certainly obviously to you'll a Europe asset

Derek Hewett

if Okay. % heard I on I may. the correctly exercise Great. I And quarter. then spread X.X one was on this Spread if, believe before

quarter. was the company at I It defend seems quarter. this X.X yield least helped portfolio that's past think to last the like

So yielding that investments what potentially these quarters? couple of the still spread higher percentage could types be more into over investments rotated has of the lower of portfolio next

Michael Ewald

X% coming to range spread that on about that lower we end of is XX% be rotated think that's broadly the left quarters. our could there's in I'd Sure, portfolio of say the

Derek Hewett

me. That's all you. for Thank Great. Okay.

Michael Ewald

you. Thank

Operator

of session. the now the Ewald turn have end Michael remarks. back [Operator over for call reached question Instructions] and the I We closing to answer will

Michael Ewald

for I the reach look upcoming appreciate Thanks and we to Thanks us Omar to results and get time time everyone out questions feel sharing further much. and really able again to future to the to thanks free today. forward your certainly be calls. very support in

Operator

concludes This teleconference.

disconnect this participation. lines may time. Thank for your you You at your

Bain Capital Specialty Finance (BCSF) 28 Feb 202019 Q4 Earnings call transcript