BCSF - Earnings call transcript Q1 2022 | Bain Capital Specialty Finance, Inc.

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Operator

Good day, and welcome to the Bain Capital Specialty Finance First Quarter Ended March 31, 2022 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Katherine Schneider, Investor Relations. Please go ahead.

Katherine Schneider

Jennifer. Thanks, morning. Good the XX, to Specialty first Finance And conference Bain call. March XXXX quarter welcome Capital Yesterday, closed, a investor Finance's presentation are after release on Investor of press market available our we Relations issued website. quarterly Capital results, Bain copy which earnings of Specialty our and

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

not does guarantee performance past Lastly, results. future

that, Michael with over Ewald. like call I'd CEO, So to our to the turn

Michael Ewald

Chief in President; our call [indiscernible] financial our Thanks our I'm Katherine. and detail. And with a good Officer, joined Boyle, morning. an greater everyone I'll for this start morning. earnings our of by And us on Sally you results joining overview thank today Dornaus. Mike Financial

NAV investment by by $X.XX, of portfolio net December to close quarter market investment income was our X.X% $X.XX, [Indiscernible] XX. as we driven first after solid results So share our investments. a from net shareholders. QX per strong increase income reflecting earned our yesterday delivered

investment our shareholders. pleased first NAV investment market QX after the to are portfolio delivered quarter $X.XX, share consecutive income closed, net was strong we earned continued our gradual in driven income for by per demonstrate improvement quarter. results to a our solid We seventh Yesterday net by investment.

our the income $X.XX covered and at across investment portfolio. increase as in driven reflecting investment March from per Net realized X.X% NAV XX. was as QX our share net $XX.XX, unrealized earnings of Our share value by gains dividend by were XX per net December a our XXX%.

Board a to of March NAV are We to dividend continued Subsequent for represents improvement second equal quarter book date record and quarter. demonstrate annualized as to per consecutive XX, our $X.XX on our of pleased X.X% XXXX. June the value payable declared in gradual to holders quarter ending This as seventh a end share yield XX. a

in with quarter geopolitical rates, During the growing activity middle interest a market tension. slow against of rising levels the backdrop we and the growth witnessed lower economy inflation increasing first overall

has the of our given in of the While XXXX, U.S. to platform saw we actively been the course investing Europe, relative this particularly attractiveness over market, increase

We result from activity war in European the a of in have levels our slowdown volatility stemming from a Ukraine. offices seen the new as

Eastern in or in risk as the direct decrease continue to quality exposure located credit gains investments. credit no or our healthy the to have during through remain across or as Importantly, portfolio significant a net Overall, watch our companies Russia, fundamentals we quarter improve across Ukraine and rating portfolio reflected Europe in portfolio. our list

a number our impacts result increases supply disruptions. the of we in particular, on Notwithstanding and sector demand price has premium COVID-XX end, over another and investments In and trade for quarter watchful of imbalances pandemic consecutive has portfolio portfolio, year last industries. supply confluence the were across inflationary on and of status a over unprecedented across our no The non-accrual created have transportation. which impact acute the as companies seen chain of transportation we've as industry year remained of strength heavily and increases large As an health observed of quarter. and transportation the the freight rely price last a

in the defensive labor staff increases businesses. we the benefit cyclical, while addition, healthcare rising underscores as labor to sectors, to or our technology, observed businesses interest across increased to service-based services, environment have and This is tightness market such and rate noncritical positioned shortages from commodity longstanding market due investing cost In current approach company believe avoiding well environment. demands. business from We

of are consists As of debt. our our assets portion floating six of large a while the in rate majority debt invested loans, capital rate

middle focused our manageable our joint prior as program observed focused on the debt. interest flow senior our We rates gradual ratios of borrowers. remain February, of the there This for be to typically most Furthermore, coverage of ensure second to also interest We market rising interest recently a during has XXXX. environment. rising believe XXXX is withstand period the increase impact and to in middle two investments coverage and loan is market underwrite through our we times, of Capital our current senior announced SLP. in to on borrowers, companies or cash rates the formation rates this the borrowers three to in between can sufficient secured portfolio venture, In base loans U.S. proven we program

our capacity during senior we in which SLP with enhance in environment. the earnings market middle the quarters’ sheet scale and current shareholders our to last balance call, discussed and we invest believe should conference with loans, As market us flexibility capabilities provides briefly increased

CLO first facility, Based BCSF. initial SLP our [ph] investment portfolio During the portfolio Seed as to in from of place the allowing March loans primarily the SLP benefited The return we find attractive senior financing The of and existing investment investment were our total we as produce opportunities. in to the current that lean the to secure BCSF’s the commitments the X% investment XX. of by investment SLP shareholders investment XXXX-X through attractive represented on return contributed SLP our an this investment on grow key investment BCSF. the portfolio XX% first SLP as our for quarter, the an acquired is mid-teens. on time. SLP interest the higher new BCSF capital in can we income of and the one of to to benefits target believe initial that portfolio size of can is dividend almost in BCSF’s over We of drive this levels grow the

greater active of detail, an resulted balance originations sheet has platform quarter our balance quarter-over-quarter. contribution our declining assets SLP that the from discuss sheet of we'll While in to BCSF’s new in

gross X.XX times XX, was debt and from net ratio March X.XX equity leverage of on cash. a quarter. of This was of of equity our as to As the a debt down fourth times to X.XX net times basis ratio

is remain within company capital continue execute target with range focused as Looking on well operating forward, times. middle positioned leverage to and market our longstanding on X.X strategy companies. we to we loans the liquidity our originating We of believe of directly X.XX dated to

the breadth the from April is benefits. lean received diversified Lastly, credit we Fitch Capital across demonstrated including grade company from of a have the that the in Bain access rating Ratings. we our investment agencies, two now investment grade reflection of portfolio which announced credit broader which loans resources, company of first to believe and capabilities, platform, We and an performance expertise leading from the rating ratings

typically coming from seasonality totaled active, million companies, the fundings in remained our to fundings $XX notwithstanding a and $XXX companies, is end perspective in approximately million XX $XX quarter, were busy a XX companies, million the QX of slower Sales investment new including first $XX and quarter $XXX a existing last in in SLP. repayment XX of $XXX new resulting activity million what million. net During $XXX million, million in off year. across investment platform very portfolio and ISLP,

of quarter-over-quarter. addition, portfolio by SLP, million company resulting net in the investments our In contributed million $XXX declining $XXX to funded

set broad of Aerospace industries, Services, Our of of market over market Defense, In environment, defensive XX focused were in remain Technology. middle new comprised as: on across borrowers originations investing & current such a range Business diversified and the industries. we a

recent in Europe last relative call to activity mentioned Mike our investing new earlier in year. levels As the quarters slowed

first Credit well The in investments new attractive quarter, were say on North new XX% of remains American XX% market opportunities borrowers, – positioned the Capital source in this During Australia. investment companies in our shareholders. of XX% behalf and to our Bain platform new comprised Europe

opportunities Our of enhances competition pursue seen to longstanding of source U.S. from given global the diversifies investment we recent presence further in flow, Having and especially in years. to global and we've choose attractiveness increased pipeline footprint investment remain a selective within provides the our us a with relative each investment. we the large that based deal opportunities on

control EBITDA, define middle EBITDA million ability covenant structures these to and as set middle level market broadly compared companies market plans within middle our core portfolio. favor middle to as with that appropriate a $XX financial to the loan which million evidenced to budgeted our of lender to $XX continue of and market, reasonable syndicated Serving the covenants prevalent with million at we companies of markets. businesses We as are of a this the light $XX in median upper trance market provides in us and the the

loans of set Turning in the We across $X.X different at portfolio focused investing billion market industries. to at back of portfolio; investment middle the a companies on highly first value now XXX lien end of sponsor investment fair secured businesses. senior diversified the our the across quarter was first to XX size to remained

in fair equity in second joint ISLP debt, X% in As X% debt, and of the the X% investment March X% in portfolio interest in between and preferred into XX% SLP. X% X% was common XXst, the first invested lien across split value equity, our debt, lien XX% ventures of in coordinated at

at to XXXX. of rate as of on interest investment rates the our investment we bear beyond company as floating operating X.X% X% as of invested the and portfolio of fair December and senior at first and favorably XXX% second a portfolio in floors XX March weighted XXst XX% lien. in ISLP's average was floating fair in lien portfolio different the investment our as and X.X% in across was debt amortized industries. the XXXX positioning XX% comprised XX, across rising X.X% in March cost companies at approximately of interest witnessed million respectively, investments investments yield compared loan, the portfolio value were value X.X% recently rate XX, reference As including XX loans. rate $XXX secured respectively

XXst lien. in secured investment, approximately March value companies XXX% XX in of of investments rate portfolio floating loans, was at in pardon XX invested industries. different comprised across $XXX senior X% and in operating portfolio SLPs million second investment XX% lien me, first fair including was investment SLPs As the

portfolio trends quality to credit quality rating scale, quarter-over-quarter. on risk our improved internal credit Moving trends within

investments. XX% With XX.X% being was be XXst, continued selective risk investments comprised improvement our investments performance. risk March The at There terms In risk of within the terms risk investments As positive in rating positive comprised a Aerospace one we rating of at two one & continued our a rating in portfolio contributed value, Defense sectors. our growth three value to classified as particular, risk X.X% of down as Travel fair rating three and of saw investments from of this positive XXst. to and four in our rating NAV highest fair of December quality. of rating quarter. of from lowest credit rating the no credit risk portfolio Risk our improvements

volumes as headwinds air XXXX in travel. and increase have traffic due recovery result in international expected to variants, was in gradual travel slower air to continued from of than the increase business a various COVID-XX While

risk March value at a approximately par. had XXst of mark of rating As one investments XX% two fair and our average weighted

value par. of risk mark investments of rating approximately three average XX% have fair a Our weighted

No We NAV invest to rating potentials remain investments to remaining non-accrual XXst. continue to appreciation our more investments will Sally as on expect believe financial now of contribute thesis our March as provide a impact. have were future detailed the we review. three risk to original

Sally Dornaus

quarter prior XXXX. income for million due March investment The $XX.X XX, in were income due statement. quarter results decrease $XX debt fourth Credit was Mike, fourth for resulting to to in the $X.XX income share the you, three-month and and the $XX.X to The prepayment lower the quarter. for lower driven Total decrease end XX, per total the put improvement in to million $XX.X the primarily outstanding XXXX and of quarter with interest decrease principle dividend first was at from by Sumitomo Net million million compared our review that of to XXXX we expenses and Total compared in December first the income expenses million share for in three-month as investment our an related primarily as quarter. place income. Facility everyone. expenses $XX.X compared our were or debt income financing overall in good Thank as cost-to-debt million the per quarter. ended the the investment new $XX.X morning, I'll ended was start for or a $X.XX

income our investment covered XXX% on advisor. dividend not be waivers by fee continues net Our to by and our reliant

three the XXXX the $X.XX During company March million. net per and months share gains XXst months realized March had for the three ended $XX XX, of was ended GAAP unrealized per share. income

increase billion. balance were of portfolio of assets and total billion investment value of QX X.X% of our quarter-over-quarter. at per ratio X.XX times total as was sheet, at assets fourth the $X.X net totaled at QX. $XX.XX times, XXst XXst. net from down a Moving debt-to-equity $X.X March representing our to our $X.X the of the quarter, up as $XX.XX fair NAV billion was March from The of X.X – end At end end share the

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

of of ratios cash credit represents of of mentioned first and as was the of earlier Available leverage we undrawn million facilities $XX March times primary investment call, balance against with $XXX quarter undrawn decreasing BCSF senior was million sheet liquidity our investments XXst. quarter-over-quarter. capacity of and formed our a Mike commitments. coverage driver approximately million As This during This program our value. on X.X contributing consisting loan the at the fair during $XXX

prior the months and March rate end. X.X% interest ended XXXX quarter weighted For average three XX, the outstanding debt as our the was on of unchanged

we near-term of our provides debt reduce a maturities, of This June. further overall par notes opportunity Looking with cost $XXX.X callable value at million that across unsecured remaining our our are have principle in us debt. to XXXX

environment. we and a rising invested reference have The are of to to position interest floor debt Lastly, spend the company's These majority loans. wanted rate typically rate investments floating a minute our on XXX rate vast in XX of toward an now year, basis X%. we're our three this with our would points, to of live half lag expect portfolio the income the in across reset given We increase interest above months loans. second periods see on timing loans of

debt. mix a fixed and are liabilities Our of floating of comprised rate

rate rate the was our XXst, typically Unlike XX% assets, March rate majority and our of of outstanding of As XX% our liabilities floating debt percent in had fixed floating in debt. floors. zero

could March calculate of in XXX As XXst holding we all rates earnings basis per that out constant increases $X.XX by our quarterly increase approximately point share.

Our our remarks. closing interest to to will that in various I call over provides further back detail changes the turn With Form sensitivity XX-Q for on Mike rates

Michael Ewald

well credit of pleased – trends diversified Sally, quality portfolio was middle In quarter earnings believe and thanks some Mike of improving our I Boyle shareholders, strong Thanks, the growth maintaining to we We borrowers. on the some notwithstanding our We new the and the opportunities, environment capitalize selectivity in Jennifer, managing please choosing shareholders and company remain backdrop. And positioned our questions. discipline We focused open thank capital. for geopolitical underwrite. line investments current macroeconomic to you our for the driven covering issues and technical technical for NAV experiencing to for earlier. by attractive market are of privilege deliver closing, to a broader to the on across when is

Operator

to Finian with Thank O'Shea you. Instructions] We'll [Operator go first Fargo. Wells

Finian O'Shea

take that was And Good what color Sorry, across there the yields remarks quarter to Mike, on the a based everyone. given your you mute. to NAV portfolio? forth? this bit LIBOR there higher spreads, on on due so seen takes and expectations if improvement, add can most discount –due and I down puts were morning. higher market closing to NAV to BDCs Hi some drove we've any

Michael Ewald

Sure.

companies market improvement quarter-over-quarter, well flat driver the for as as So round marks mid-XXs quarter X% investment. up the at Defense was mark, NAV Those in XXst. standard They Aerospace seen those of – primary $X.XX first last meaningfully as those pick-up of & been increase quarter-over-quarter, in had about our improvement as the to March investments. lien and we've north well and that so both across our Travel were as moved marked NAV the contributing

we yields So NAV from holding perspective. up ended those a flat

Finian O'Shea

market, can presumably us LIBOR. And the follow-on setups So given a and expensive more impacted remind that today much immediately Thanks. leverage and that's by today's what helpful. your just will more dropdown with obviously is be leverage on venture you will with be being joint the complete, target complete bank lines funding are change the unsecured does

you're current any just with conditions? about market on updated leverage So thoughts how thinking

Michael Ewald

targeting the level. leverage still at one-and-a-quarter sheet one We're between Sure. and balance

We of the in forward. take to grow quite at funding times If March room liabilities X are and now pleased right the majority of we fixed that looking of for advantage market the that balance of plenty south there's our sheet. that are opportunity are that XXst, just we're the so have current rate bond us

have do we to top that to revolver And – so end do to of grow capacity we but range that one-and-a-quarter. up leverage the

we investment at environment in where one to as to target the where ahead invest one-and-a-quarter that and decide new much to we'll – end look to So range. how up

Michael Ewald

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

Operator

We go Lynch KBW. next Ryan with to

Ryan Lynch

morning. Good

was; question quarter, was to back trends. interesting you Even different FLT the fourth your at that when third funding quarter up very looking was [indiscernible] versus First of the it It kind I your when was the XXXX. for the investment had pretty was the out of I and meaningfully in cash quarter. than

fundings in we third saw I of were BC space after down QX a fourth robust and very in the where broader XXXX. think quarter

versus kind down? in think [ph] cost when of you I QX overall ramp market can was to the what So QX activity speak up

Michael Ewald

for question. thanks Ryan the Yes.

a little bit think I idiosyncratic. it's

but have quarter deals did we pipeline. for there, great about you that number be I into the our little with bit – were leaked when happened in deals the think committed to a that that to us quarter think and first the it that it's we that a in answer a the of fourth just

we of BCs of market other are side core segment middle ours larger that in the there the different And tend are number point slower true cap bit argue in other that market. dynamics to on than in is the things more participate market the from participate. think a that that little rather were slightly that I they I were a somewhat where just think than middle would there a I

Ryan Lynch

Okay. it. response, but of but down similar And maybe is just later talked ISLP on you a it of Got a happened slow again, grew in Maybe the you Europe. in kind the sort about in quarter. opportunities quarter, seen this guys actually portfolio across the because the

was So was I to of over slowdown that there, surprised little growth. there it see on and given also growth that your what's going bit was commentary that a actually the

So behind started you first with more I'm that sure that? all growth the driver not half can that or that was was kind what before the reconcile of, issues

Michael Ewald

a I that's, timing. again, bit think Yes,

the stress had pulled bit forward pressure of I you in pocket an time. given lot of will. the to or accident also air same some the bit QX, deals concerns taxes led in fourth Which around at activity think a if you Europe recall wasn't of U.S. in that in led U.S. of If being the flurry that a quarter, a that capital a increasing to gains

seen in the to ones tended close so back last to quarter the and had And year. that we committed did that deals be

here of example, deals as what of in come we're look There's out not new terms the talking So March, began. war forward have a Ukraine for lot in you since April, that's that February, about in really Europe.

Ryan Lynch

But those in level trickle over trying to to it on you ramifications bit And direct your from the to be companies how had, fine you even which you even comments there. do sort still you a And geopolitical is yet down impact in set issues Europe. mentioned up the probably Europe then through countries, feel some if guess, this uncertainties much area. the what's the what and other work plays there's we so your of in your for of process going like of this? know are how in really won't on of or many that feels continue out Russia, we're have perform don't early countries everything or the you exposure through, meaningful your and have exposure ramifications. evaluation knowing months about alternate to to all going have all that have there you're Eastern are you out confident in just how prepared Obviously Ukraine, to talked confidence do that still discovery I so company, going those effects,

Michael Ewald

exporter is two there. at more obvious certainly is think gas effects is and the right is is a ways. as sorts think, what and energy there seen effects, obviously large is And to lot come of the on on talking look, and I One you're across we about. you're Yes, fairly prices, a one lot oil knock assets. there, the of knock I those a that board one prices look way the which, have direct we've increase of Ryan, exposure, really Russia's But it increase

I really specifically. So a is Europe global to opposed that one impacts everybody effect targeted that's that be to to going as think

the even to terms of particularly that effects, turns prior has war other exacerbated isn't the the trading something obviously global partner smaller that's it's mean, you marketplace. in as Russian anybody economy I economy with about than dealing it a knock isn't of state we've Russia large war, Texas, really, I but The the And been out in to big on So entire that. just think that the is. relative mean, world. actually of

that. like important terms elsewhere. metals are some really that's mine there sanctions that of in hard effects think find that are very are certain around things to mitigate I So They helped immediate and

company in exposure. on a keeping certainly we spend immediate did eye at an individual I of effects, think, that. So terms then And lot of we're looking time

either sales companies from offices generally We Ukraine, had quite or to there book And who Russia there, Belarus, handful three that might have of or our so X% think I understood. a X% or Ukraine two one, like in even but the they pretty range. overall sales in is the, sales or Russia well or in on impact where European had representatives contribution X% frankly the was

components that that be. can the have But direct down, effects mind company that the the How are my know of in back make actually to that that impacted they me case two may within actually that the factory is happening midst for have made. In to and we that's their getting Poland is up aren't up one folks do personally. they are work being case manage a the workers whatever identified up end plant that be has still We Western in most war to company and amazingly a showing going does So actually goes sub-assembly alternative in a one big. Ukraine. instance, still in Ukraine, blowing happening. off hat in in the to of sub-assembly sites components Amazingly, just and that factory shut is running, bombed

the So I good think median on impacts. pretty got we've handle a

Ryan Lynch

details me. the Okay, impacts helpful direct are limited. are determined, color all is still but on sounds really like of a appreciate it that I thanks. of ramifications lot and to this for that, be morning. the it time kind That's knowing That's pretty the

Michael Ewald

Thanks Ryan.

Operator

And Instructions] are there at no further time questions. [Operator this

Michael Ewald

well. questions as the Well listening thanks, today. everyone appreciate Jennifer. And I thanks for in

the hard in to those forward due second you look working of during results quarter delivering and course. We in to are the Thanks obviously midst everyone.

Operator

We thank concludes you does for This participation. conference. your today's

Bain Capital Specialty Finance (BCSF) 6 May 222022 Q1 Earnings call transcript