BCSF - Earnings call transcript Q3 2021 | Bain Capital Specialty Finance, Inc.

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Operator

Good day, and welcome to the Bain Capital Specialty Finance Third Quarter Ended September 30, 2021 Earnings Conference Call. Today’s conference is being recorded. And at this time, I would like to turn the conference over to Katherine Schneider, Investor Relations. Please go ahead, ma’am.

Katherine Schneider

Thanks, Emma. everyone. welcome and morning, Good Investor Yesterday after and copy earnings release Specialty issued which closed, presentation of we Finance’s Capital investor Bain a available our website. our is press on market Relations quarterly of results,

Risk unauthorized These property to time a risks Finance website. Following indicated. our Form Factors analysts in session Any the results materially. This broadcast statements being and obligation may call and actual will be include based XX-Q and will that are is for expectations, and a do call and future could question-and-answer on differ update to replay forward-looking unless today those is at are our of required law. current This from performance, any available form assumes cause differ which we by materially Specialty Finance no which strictly remarks statements webcast, the actual forward-looking today, section any management do Bain uncertainties, this hold Capital so investors. results guarantee Bain on statements not any of webcast and are in our to Specialty prohibited. Capital made identified

guarantee not past performance that, our to I’d like over results. Lastly, does the Executive Michael future Ewald. With Officer, turn Chief to call

Michael Ewald

President; positioning. market environment September Dornaus. on overall call Thanks, Chief some XXXX, our Katherine, provide our earnings also joining the today. of here and Boyle, and relative our and thoughts good morning on I’m our to Sally results our by third an all with XX, for of you. Financial us Thanks quarter joined ended I'll start Officer, of overview Mike the and then

Sally portfolio results discuss will greater and Thereafter, detail. financial investment and Mike in our

$X.XX. with our was income QX beginning share investment third So per net results. quarter

a quarter advisor our fee pleased in power. not we end, Subsequent XX. by modest declared we've points growing our as value XXXX. Board an per basis XX quarter a NAV $XX.XX bubble over the asset quarter $X.XX of XX. year to that to of dividend earnings investment as yield by ending the equal on of was value share fourth quarter. our net covered a XX, income increase that XX, September waivers was and of result NII reliant September represents as another progress for per are our on December June this from consecutive share as date made to record of as approximately of Our XXX% past payable X% annualized NII dividend This And holders book Net the coverage our dividend

we and backdrop So the gross volumes were see of during elevated by in middle the origination driven than XX% approximately QX gross million, $XXX new higher activity. favorable quarter, origination volumes. market, originations sponsored loan high macro M&A continue to QX environment

portfolio Our totaling continued in and a and also of quarter. exhibit line activity repayment $XXX the to prior healthy with sales amount million

of this net activity, activity a million. result $XX totaled As investment our

record of remains partners Group Bain developed track and middle XX this years in with which BCSF investing Credit’s Capital environment over from market time. Private current sourcing has global over Credit the While relationships the platform, for our competitive, market a longstanding benefits has

activity out in here European our into Capital uncover relationships with being investing and Capital presence Credit’s maintain U.S. the has relative when levels value two-thirds originations persisted offices. platform the of which and is companies trends a new us frothiness Bain research have broader team These with the Bain and can competitive quarter have resources given of comprised approximately leading firm, third throughout new BCSF insights investment global Capital’s further choosing being of continued offices two discipline where leverage Europe, the Europe, Recently, our the of to within their selectivity companies there domiciled to diligence. in across the leading attractive higher expertise more its we are to of opportunities return to the market allowed providing allowed and has year performing we when tradeoffs. the relative to greater outside of us as deep industries in with edge augmented uncover North underwrite. more platform viewed in Our longstanding and a players local America. across of we niche the Bain risk attractive niche Having team industry as industry markets, finding utilize a team

amendments XXX% XX% our financial Importantly, of no trends being quarter competition XXXX covenants, has portfolio, the in our new also of remain we non-accrual quality stable. status company performance is about better portfolio our expected overall majority in of covenants. as with and diminished where to end. companies credit originations in vast as there, underwriting not standards during consistent investments have by our our demonstrated despite debt Similarly, which investment or than the new of have the The with the been from quarter again, increase witnessed a not wave of defaults on second space. our benefited have

our We've on hard remained to at liabilities. improving work structure. now our Turning liabilities

our weighted debt debt issued average expires notes of maturing the also to opportunity reduce In to tighter expensive October to we advantage grade the approximately quarter-end, opportunity price to side prior to for as forma as of of basis the this a million our levels balance improvement to is significant $XXX.X During to markets. points notes non-call matures a that we interest portion further unsecured September X.XX% premium debt and the we are maturity. make-whole rate a the demand average than issuance the This right XXXX. cost as aggregate on improvement debt debt took an our the unsecured weighted us March It quarter, institutional X.X%, June year. our advantage balance sheet XX% of to XX rates relatively company quarter-over-quarter. in continue low XXXX million our sheet investment period an investor at XXXX XX, we of of outstanding company's These notes in enhance this October, representing this Subsequent this discounted X.X% from of XXX debt. as XX treasury and Pro notes strong of of to XX% in XX reduce the which one earlier of of unsecured represents enhances points debt we basis of XX% remaining the approximately able reduce company's X.XX% September that worth issued $XXX flexibility. XXXX, allowed mentioning million take outstanding repurchased in were an and

call to look optimize cost financing Mike accretion further for our We to President I'll ways through our turn flexibility over earnings to to walk continue drive for now shareholders. greater and our in the to Boyle, investment order portfolio detail. our in

Michael Boyle

start $XXX for XX then morning, the activity and companies, third with million repayment on Good and an I'll XX in portfolio $XX fundings $XXX companies totaled our million. quarter Mike. million companies, existing new in everyone. investment our ISLP. Sales update million million in provide $XX the QX $XXX including across new portfolio. activity Thanks, were and XX

approximately Bain from capabilities Europe. call, origination Mike sourced new earlier our investment as XX% from were quarter As Credit’s of activity our the new source Capital global our benefited offices during this highlighted and in

of office. the Israel-based from our technology for on-the-move provider sports was and The company reporters. source commitment an investment during Our quarter an is global largest London broadcasting an news new investment

investment broadcasting in ability driven Credit’s the investment to our private retain financing the industry this equity to insights ongoing insights us the was very able team the buyer Capital of outset early in the Our management knowledge Bain as to was recently company research obtain diligence and our team during early our the valuable were another win relationship with the sector. at to our company leveraging by enables sold successfully however and quarter. in through These incumbency

we levels of of investing the size quarter. European from Senior ISLP International our or higher Given activity during offices, the the for investment Loan Program, our the increased

X.X% company's approximately X.X%. ISLP quarter quarter an earned during portfolio The represents annualized the increase the at the from fair at total largest end this end, XX% investment on quarter. investment prior company at third of of return the As value,

in coming greater objective, is investment company's ramp total based allows with quarters return for the equity While the over The portfolio. line, ISLP end to commitment this the double-digit to BCSF. in this continued of estimate our time on this of income we but to drive the also on to improve to grow potential net lower the investment the

the Turning of set third size of At the the $X.X fair companies portfolio quarter, our different highly diversified industries. billion across investment value investment XX operating across a of was at to XXX the portfolio. end

Our comprised market of lien middle largely sponsor-backed loans investments to first businesses.

debt, X% Portfolio subordinated were stable in second and the of fair X% XX% XX, X% value invested at debt, was Senior in interest yields lien investment of debt, As portfolio first Program. quarter-over-quarter. Loan September International in lien X% equity in relatively the in

As September maintaining X% value to on XXXX, X.X% target, our and while senior remain XX, loans. at as the X.X% June and yields improving X.X% the weighted the yields XX, XXXX. of fair investment to portfolio were X.X% secured focus average cost as portfolio our We respectively respectively yield amortized compared total an of and of of focused on

due $XX deals continue quarter a fair XX. down credit investments it continues modestly stable. credit improvement terms million risk scale, The The metrics to credit our that the of of of a X.Xx, rating trends were of performance. at portfolio no in value, from comprised driven X, in classified XX% as The Credit our which was investments investment credit rating pricing from of rating capabilities to risk from is core end. on relationships diligence in fair an through There Within of as positive risk rating win portfolio with that sponsor on investments quarter-over-quarter. as leverage middle to borrowers X our of rating Moving credit internal solely quarter terms end quality. based underlying our percentage highlighting rating rating competing XX% median of lowest market X at as our reduction be focus median EBITDA positive up our can and comprised the of market. portfolio highest portfolio number terms. was X our the X portfolio risk prior stable a in segment favor trends. June Risk XX% rather XX% and was by of This risk prior risk and the companies we quality at being to was performance. than on on X.Xx value quality were

X investments quarter-over-quarter. have X improvement dollar, a of average rating of from continued value a basis a weighted reflecting risk points $X.XX gradual Our mark approximately XX and fair approximately

end quarter value a $X.XX investments at par. X flat prior have rating approximately average XX.X% par, relatively of risk and weighted Our was of fair valuations mark this to of

While liquidity COVID support forecast more a names adjust the have Many again, handful due to strong Delta of return companies amend for to these variant, to levels. has rebound to demand impacts these and to these importantly, we companies continue see starting had sponsor of been of and are normalized not an issue. the see

the our portfolio this were appreciation We believe these to to continue investment quarter-over-quarter. we original our stable Non-accrual to thesis have favorable potential as as NAV was to within remain intact. metric expect contribute investments trends

will As of more on non-accrual Sally no detailed we now financial September review. investments provide XX, a had status.

Sally Dornaus

waivers September compared and third investment the income The was ended of our for million advisor Mike, months in statement. was as prepayment-related June million in review to due $XX.X the income income. our XXXX to increase increase the increase and compared net third during primarily quarter. was morning, for Total the expenses start three XX. as results an by investment fees million everyone. income income were XX, other for the quarter the investment ended as no three an result fee Thank of second in increase $XX.X $XX.X good The the months advisory to quarter. million a I'll with $XX.X Total in XXXX, driven you, quarter by

fee for our quarters, discussed have we higher shareholders on to previous have regular we focused income driving with without investment the in net waivers been need cover dividend. As our

prior or our This quarter, The share share ability very $X.XX or $XX.X to this achieve per the per investment $X.XX net pleased to shareholders we for with our million for million continued the compared income our given $XX.X as quarter are focus. quarter. for was

investments XX, for our XXXX per by was realized ended share months net three XX, of of of XXXX the million and in million, This realized is ended million the partial the across X.X% our During the from gains notes. $X.X $X.X income gains GAAP financing share. to extinguishment had unrealized the impact September future quarters. offset months one-time including company $X.X $X.XX XXXX, net and three September loss costs improvement per

Moving over sheet. our to balance

totaled and quarter, $X.X representing of portfolio $XX.XX total the XX, billion. fair As quarter-over-quarter. compared $X.X NAV second at assets $X.X value investment our of billion share were net was at of to XX. as a $XX.XX September per end increase the X.X% assets as Total billion of September

gains based of end mentioned from gains offset the Our debt portfolio net debt-to-equity earlier. attributed were At our QX, realized to partially the our by loss at was compared X.XXx the as the across X.XXx broad end extinguishment on ratio the to of QX. and

the ratio, principle was X.XXx to as compared cash the less X.XXx represents which of end outstanding Our of debt net leverage at at QX, end QX.

line our in stated net of ratio Xx and between range target to Our X.XXx. continues with leverage be

X.Xx Pro to on compared credit Xx consisting cash liquidity. XXXX million coverage undrawn offering, of of was Available and as September XX. investment of facilities for and commitments. coverage over forma $XXX June our capacity our our notes back our September against of undrawn capitalization to to Xx. This October XX, Turning liquidity as represents our million XX of $XXX as as of is

the months three our debt outstanding XXXX, at the repurchased. our interest weighted ended prior average the was from improvement by X%, For on driven rate notes an quarter XX, end September X.X%

to to mentioned our on drive in further focused As ways earlier, shareholders. for order our the of remains Mike cost value liability team our improve structure

call credit back under was With Mike will September with for I the company of compliance its to XX, As turn secured remarks. all the over XXXX, that, in terms closing facilities.

Michael Ewald

Sally. Thanks,

our deep this remaining believe opportunities remains global while improving well We are We and new lending shareholders have through then demonstrated expertise, our to higher in quarter middle interest the given pleased structure positioned to and progress for selection. order to disciplined some credit liability income market higher very source footprint our in company earnings. industry drive

questions. you open please the always, for line As managing Thanks. our of we privilege thank for the Emma, capital. shareholders

Operator

[Operator first Instructions] Keefe, our go Paul Woods. from & take Johnson Please from We question will now Bruyette, ahead.

Your line open. is

Paul Johnson

Thanks guys. taking Yes. for questions. morning, Good my

potentially at said. a couple, to those on the during Just repurchase a able that would again it of opportunity but buy to more the to that a the Or back that look was thing a to like be good X.X% of quarter, advantage discount, is future was period? one-off that think you in I you Is of? curious opportunity bonds as of took prior type you at you something doing quarters non-call

Michael Ewald

Thanks for Yes. the question.

opportunistically always capital So in we our are looking debt to buyback that more expensive structure.

going say So in forward. the is able when opportunistic we to the we'll summer now between what to try will of non-call do XXXX. But it's exactly be and be hard up to

Paul Johnson

Have it prepayments space, play And that carryover – just something as out just a do But couple the to to heightened as then continue over question. the that's sponsor next well? broad on the of you robust expect would right is we're quarters? seeing the quarter you Okay. obviously And fourth on into of think kind across the activity, seen and a just activity. very you now

Michael Ewald

certainly Yes. just to well by that be is think up shaping around ahead taxes because that also trying recovery, year but potentially of increasing Look, the here a to some economic fairly quarter fourth I as concerns of end. busy whether not are and get sellers the

well. as think fairly the be fourth quarter busy So I will

Paul Johnson

are a time see remains in well see But obviously to in And markets at versus bit of highest or on curious, and counterparts? produce in have competition opportunities maybe its it. time up Or for to I'm still an that helped Got there? those lot you make sourcing seeing as it do place possibly to maybe attractive and the opportunities at when has a potentially do Europe the goes that already international able is for you as U.S. traveled competition or obviously deal here space a pick quite as you be and expect invest you its to less a you harder that find you U.S.

Michael Ewald

a Yes. good Look, it's question.

certainly market, what point monolithic you obviously, I’d is think I right. one isn't to Europe just

the different middle XXXX. picked up. lending where is open focused direct would had We've an competitions since pockets office on I say market there, So there

tell looking market, had especially in UK say, fairly And move to longstanding an and a over there understand, the let's which probably I'd for we've American you to the example, same is language, so trip, cetera. easiest compete presence for, origin et is there. players easy to easy and legal it's

of that cetera And it's seeing be potentially to those more today. sure, there's there. market, Benelux, they're definitely that break going we're But harder little into signs less markets a because smaller. et Nordics, say competition I'd a also other think travel are some lot So I whole we of certainly increased to regions think just

it think really I within at on So region Europe. particular country you're looking or depends which

Paul Johnson

it. for Got my questions. all Thank it. taking you Appreciate for That's me today.

Michael Ewald

Thanks. Great.

Operator

We Please O'Shea Finian will Fargo from question now [Operator Instructions] go take our ahead. from next Wells Securities.

Your is open. line

Finian O'Shea

guys. morning. much international versus ISLP? and how into you this again U.S. quarter go the Hi dropped Can breakdown Good you over the

Michael Boyle

Sure.

to highlighted of from So Europe sitting X.X%. of the our position out in the about we combination directly as up XX% our overall sitting ended of we the about new sitting went portfolio sheet size of ISLP so net down But on ISLP, the of at the the European balance so exposure well originations U.S. new up loans between made into the our were X.X% dropping XX% some ISLP as and – is loans outside assets

where well XX% sheet the position can our grow the have constrain that we room ample to of assets as as a ISLP on outside balance U.S? in basket to the are relative we So both within

Finian O'Shea

to decisions it than of with it seems core some the make non-U.S. origination, not you the did – decide sheet is… or to on that of you normal some balance all more fully for ISLP keep was grow That

Michael Boyle

Sure.

through go on versus the and sheet look we in basket vis-à-vis portfolio. that yield ISLP loans at and quarter every the sitting optimization XX% So balance the

stay between that continue ISLP seek level into that I test loans move the to ISLP loans. and on opportunities would to Europe. that we anticipate that the see sheet have we And the as across But so would XX% we we program chosen at to XX% and balance manage

Finian O'Shea

it Okay. ISLP – up for portfolio ISLP some the the correct like looks in were earnings looks like a similar retaining you pretty up wrong, went me size. earlier? Did go I'm the what return And earnings or if then way from just

Michael Ewald

Sure.

have X and drop targeted there drove BCSF the to some range. similar actually up at up between we’re which X.XX the is leverage the when And we lower to as So yields And gone the we because originally the ISLP the run complex. overall. ISLP, that leverage at in, increased leverage earnings end of the across assets level structured we leverage,

Finian O'Shea

Okay. That's me. so Thanks much. all for

Michael Ewald

Fin. you, Thank Great.

Operator

your Thank host. There [Operator in back call turn you. are I currently Instructions] will queue. to questions no the the

Michael Ewald

Great. joining thanks again, everyone today. Well for us

I past you day. said, As much. performance this Have a we'll Thanks quarter, next the very good look we're more very forward and pleased with bringing news to quarter.

Operator

today's and gentlemen, conclude Ladies will that conference.

all now disconnect. may You

Bain Capital Specialty Finance (BCSF) 7 Nov 212021 Q3 Earnings call transcript