Earnings call transcript Q1 2023

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Operator

Good morning, ladies and gentlemen, and welcome to the Bain Capital Specialty Finance First Quarter ended March 31st, 2023 Earnings Conference Call. At this time, all lines are in listen-only mode.

Following the presentation, we will conduct a question-and-answer session [Operator Instructions] This call is being recorded on Wednesday, May 10th, 2023.

I would now like to turn the conference over to Katherine Schneider. Please go ahead.

Katherine Schneider

Colin. Thanks, and March Bain XXst, everyone, First Specialty to ended Quarter XXXX welcome morning, Capital the Finance Good Conference Call.

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

call we are hold available question-and-answer is a of will be session webcast our Specialty any being analysts and Following Finance and webcast will any unauthorized remarks for our and website. Bain Capital broadcast This on today, prohibited. property form call a the investors. This and strictly is replay in

and made statements which the in Factors statements forward-looking from actual based results are results section guarantee differ Risk Form XX-Q materially differ of today actual Any those risks future cause are performance indicated. expectations, and that uncertainties, do not to management could on identified These materially. current our may include which

statements Capital Specialty time assumes to to no unless obligation Bain any Finance so law. at required this do by forward-looking update

guarantee does Lastly, past future results. performance not

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

Michael Ewald

joined Chief Katherine. today our and thanks to also us today Mike all by Thanks, Financial our on Officer, our Good Sally President; call. I'm you and for Boyle, earnings of morning, joining here Dornaus.

an our the overall performance, quarter with ended and then on thoughts positioning. March overview first start of our and market I'll some XXst, XXXX provide results our environment

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

portfolio income strong driven our during high investment per $X.XX, income close, from by quarter. Yesterday net delivered investment share of we first quarter the after QX results. market levels was earned

yield covered dividend income by our value on investment book XX.X% return of Our represented XXX%. an annualized net and

other XX% by grown from these continued dividend was up higher earned income year-over-year. income. income greater time driven in of our growth per and over investment our as investments joint benefits the have higher Net rates, NII was The interest quarter-over-quarter and XX% significant share ventures

QX across driven during by stable $X.XX quality earnings per credit investments portfolio quarter. our share were the

annualized on value an net return book XX.X%. produced of Our income

to as June equal Net a NAV XXst. holders XXst. as per XXXX. $XX.XX, an to was X.X% This end, per reflecting declared Board from payable March share December asset XXst yield record Subsequent book value of a of to dividend our our second increase date X.X% quarter $XX.XX share of as quarter value and XXth, $X.XX annualized on ending of as represents March

positioned earnings by excess regular to We income believe during generate out in our continue net well our of strong QX. the demonstrated as rate company investment is to dividend

income stability. which undistributed a Our is share $X.XX, for spillover per approximately we increased provides of and dividend is healthy believe income amount

interest team, Our evaluate retaining potential versus and future our thoughtful alongside management approach earnings a rate continues under rate to various taking scenarios. the while macroeconomic excess to increases Board, dividend

environment. the commercial market, by to lower and observed LBO and the of challenges lower quarter. in from We increased now new driven volumes volatility Turning stemming levels activity market the market the during bank middle M&A

can more create of to banks value as greater set like market us pull capital, lending which a averse and increased from general volatility. events, these periods Following back during lenders likely be of opportunity activities, private especially in for are certainty risk borrowers

and companies enjoy we investment fundings underwriting backdrop, versus new to of this to the our advantage we incumbency our across opportunities. of portfolio portfolio. our from strategy on The benefiting continue new Against long-standing market companies, execute sourcing majority middle were investment existing

issue produced XX.X% basis current rates discounts. loan weighted our yield as weighted to observe for vintages. amortization was of base in points, We original a to investments when originated newly lien debt average of on prior spread structures compared new continue portfolio of average and The and company terms XXX favorable which loans factoring first

source new to Our global Private Credit Group middle-market platform investments. approach a takes

the presence global the to us of ones of based with provides we that selective on new remain and attractiveness choose large pursue regarding a long-standing opportunities Our relative investment we each pipeline investment.

recent increased and increasingly Europe. in of have the years, US Europe XXXX, attractive we in to view our be and ebbed out given market competitiveness In In flowed investment in markets. activities the the

than given While of region conversely, our US the back in slowed hold last on Europe investing we activities our recessionary view took in volatility Europe concerns and between value relative parity. that year broader and increased that Today, is earlier elsewhere.

our deal new our our to borrowers one-third approximately attractive of quarter, to During and opportunities comprised the identify shareholders. further footprint were to risk-adjusted enhances two-thirds and North companies that flow borrowers. global investments of American for first European diversifies to Having returns

portfolio in light perform far rate high be pressures related to headwinds companies thus to and and continue well of proven the defensive interest inflationary of Our macro environment. to the have

quarter, stable has relatively across our decline status investments on and added investments list demonstrated portfolio, the This by investments been credit nonaccrual quality no the quarter-over-quarter. stable to nonaccrual metrics remaining a watch including our new during with

At quarter-end, fair nonaccrual on status, at in is of lowest X.X% which believe of the portfolio two the the we had representing one levels BXC entire only we companies value, sector.

the I walk over President, to will Boyle, Mike through our our greater investment in to now call detail. portfolio turn

Michael Boyle

first quarter Good Thanks, provide our on update detail then investment and portfolio. I'll Mike. for start everyone. and with morning, more activity our an the

companies, companies companies first including portfolio of the six million $XXX million in loan were partnership. million $XX quarter senior and the fundings new across in in XX New XX $XXX during $XXX million existing

of $XXX million, growth quarter-over-quarter. in repayment resulting totaled portfolio activity and Sales net funded $XX million approximately

result the of activities, was a these of our size investment portfolio As relatively stable.

portfolio fundings with vast investments in quarter our companies new of first activity majorities Our the first was new structures. lien existing of investing new for and comprised of companies to the

approximately existing excluding XX% investments joint in fundings, businesses XX% of to ventures, Our comprised were our new to new and businesses.

existing call, broader earlier and this As activities portfolio in M&A were with given of new middle Mike highlighted of slowdown in companies quarter active the the we LBO the market.

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

Our in capital in the investing first lien downside of of management portfolio primarily consists and given secured loans, top our on investments senior focus structures.

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

exposure shareholders the quarters, have we investment down highlighted our decline to given the previous As lien growth come first of our vehicles. stated our in has in

the of first underlying investments of look the resulting of in investment consist loans vehicles of XX% lien Importantly, portfolio. through a in held lien exposure XX% these first

debt and strong with XX% are XX% tied structured outcomes control. discretion. at in investing have our control focused positions in structures debt containing to allowing management that our forecast, drive eventual remain with documentation of We of us our to majority we covenants provide on us financial lender investments debt tranches,

weighted respectively, XXst, March XX.X% yields XXst, portfolio, of amortized cost of as XXXX. XX.X%, were the XXXX, as value compared As average and the to fair and and December XX.X%, of respectively XX.X%

The was our by on increase driven primarily higher rates loans. reference

basis XXX year-over-year. up also Our approximately meaningfully portfolio of yields higher on and basis points a are year-over-year

been spread new spread our on points, approximately our from investments reference widening basis yields While been debt have over higher year in originating we modest XX total spreads. up is period loans quarters as has from we points ago. the recent seen XXX have across approximately rates, increase weighted this average basis at portfolio our primary one to The

our XX% debt rate of rates reference the positioning bear interest a beyond interest at loans. our rise favorably rate across floors have investments to as floating company continued

secured we quarter, to the in senior our strategies continued ventures During joint within investment execute loans. middle-market our of investing on

We through of investments as of see benefits the continue are higher interest rates rate our the floating loans. to nearly flowing JVs all

value, XX% in of in SLP. the investments at portfolio fair JV Our ISLP X% including overall XX% represented our and

performance nearly During a position demonstrated SLP our our on in quarter, We investment with line the increased the target in expectations. our JVs to X% X%. size strong from

Over the XX%. return and on an of income ISLP an annualized SLP of generated annualized the quarters, equity on trailing income return XX% XX equity generated

incremental investment company. growth can the time we Our earnings investment SLP the attractive for in the identify driving over potential grow opportunities, for as

XX ISLP's in loans of the secured Difficulty] investment senior value in was different [Technical interest. March industries. $XXX XX fair X% of at across comprised portfolio was of rate operating investments and of portfolio investment XX% equity portfolio XXst approximately floating in as million, companies

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

the company our risk stable better and on fair quality scale, value performing credit portfolio XXst than line to was X in trends. of quarter-over-quarter. of relative as comprised March of to Within internal portfolio Moving initial X They that at our expectations rating indicating of investments rating risk XX% were underwriting. or was our

investments value. have X% watching three investments remain rating Risk These interest on inflationary these by reflect fair of companies portfolio comprised that We companies been and our rates. rising impacts focused impacted closely. at

at to than No new include Risk two quarter. nonaccrual. our value of portfolio companies for fair comprised rating added of investments, on were less and portfolio the X% nonaccrual investments during

Overall, we solid. fundamentals believe remain credit our

is from point XXst, median of X.X% Our December as down of March attachment XXst. X.X% leverage as

more financial Sally review. detailed will a now provide

Sally Dornaus

I'll Thank everyone. with Mike, results review XXXX our start of income morning, quarter you, first and the our good statement.

months as interest rate for March of secured $XX.X the compared floating income rates in XXXX, for ended million rising benefit three our of large XXXX. the income Total was portfolio ended by December million primarily driven XXst, $XX.X was investment three increase The months loans. across investment senior the to XXst,

total PIK investment investment income X% driven on XX% investment income BCSF Payment-in-kind dividend of new prepayment-related our Interest income cash remains of and comprised less largely by representing has income. X% across originations. fees sources income in driven of total total high-quality our than income, of QX, income X%. onetime Other with or was investment its income certain our low by income income contractual represented and at investments.

$XX interest rates structures quarter on was higher for fees. $XX.X expenses was for million to prior million and share quarter. compared debt the Total the were our fourth or floating quarter million driven expenses per share $X.XX to the higher financing greater as in by as increase the in incentive The and expenses for Net income $XX.X or investment compared to quarter. per first rate $XX.X base $X.XX debt million due

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

Moving our sheet. over to balance

our assets $X.X $X.X total Total XXst, billion. March value were March of net As $X.X portfolio totaled billion assets at XXst. of investment fair billion of as and

with the The increase quarter-over-quarter. basis increase NAV the $XX.XX, the fourth relative representing quarter, from during of driven point our share per the XX the of coupled out in in quarter. end our the by investments at value stability NAV was earning $XX.XX of our dividend, up a was

of At relatively the of X.XX end QX, ratio unchanged from was QX. our times end debt-to-equity the

ratio, outstanding our net leverage the leverage end X.XX as times X.XX the We're debt which in between X.XX times middle was of QX. net at of less cash times times. compared Our principal the operating at of to X comfortable and represents QX target ratio end

We the remain strategy company, of capital on which focuses the structures. for financing on focused continued long-term execution our and durable

As of of floating outstanding debt approximately rate in our rate March XXst, fixed in and debt XX% debt. XX% was

was quarter, Capital first of significant adviser XXXX. a provided volatility a Credit the in at This during end March. period the our Bain BCSF three-year that loan loan to elevated of During matured

maturity until was XXXX average ahead, at debt Looking company maturities March the and not XXXX. the debt years our XXst, commitments weighted does any five across have total

million included million Liquidity $XX credit cash undrawn quarter-end trades facility, our of restricted and of unsettled on capacity net revolving investments. including $XX of $XXX of million of cash cash receivables and payables and at and million equivalents, $XX

For quarter rate prior the of driven X% XXst, structures. three as increase SOFR end. average debt months weighted XXXX, outstanding as the our rate compared was ended The floating on our by to higher March X.X% was debt interest on rates the

remarks. With that, will I turn for closing Mike over the to back call

Michael Ewald

Sally. a lot, Thanks

be a believe we close, BCSF very believe that offers valuation we to we in should price to a market. the warranted shareholders, value and wanted compelling higher stock we highlight Before

XX dividend solid yielding our quality inception. is experience a brings stock middle and rate lien our since BCSF of rates has largely of low and the loans. with years losses floating yield, on market current Credit demonstrated in nonaccrual portfolio Bain first senior credit investing on secured Based XX% Capital

the producing value strong our shareholders As of through levels prepared remarks, company well demonstrated privilege ROEs investment our income attractive our expectations. believe you dividend generate capital. positioned the we committed well we this as during We net mentioned confident we with earnings and thank quarter excess of exceeding remain to and for to shareholders' consensus earlier is of managing in for our delivering our

Colin, questions. please the for open line

Operator

now O'Shea Ladies Fargo. conduct we and will And question-and-answer ahead. session. first gentlemen, [Operator you. your from Finian comes Thank Wells go a from question Instructions] Please

Finian O'Shea

Hey, everyone. morning. Good

The type item returns. quarter? improvement that that venture question policy, joint reflect one-off returns or there in example, the sort a elevated first distro the any rate for or run Does on of this was change

Michael Boyle

driven So ventures. activity origination by there slight new is those a increase joint for

that economics. is help through So origination the do there flow fees and improve

teens of look we we ventures. a that we'll forward fees. for As XX%, high level joint the continue couple improvement basis the able the points run be from was think But say at is in hundred those origination teens, example, I'd to those of driven SLP returns going rate return, of at to by and the do generate there

Finian O'Shea

helpful. us what is of amount BCSF downs? And were origination material of this drop your --is I it exits And remind amount of the your function to independent if so, JVs? you a from quarter the that's think number can or percent dropdowns

Michael Ewald

That's good Sure. question. a

drop-downs So balance the majority sheet. are from the of BCSF's the originations

So dropping quarter, the XX% down activity this look ventures. joint about that for assets was if at into repayment number sales and you our of

Finian O'Shea

mix? is or that newer a older And stuff or stuff

Michael Ewald

newer primarily are It's assets that originated.

Finian O'Shea

Okay. least of touch can money for sub the in much, portfolio didn't notes. And like the was the at It SLP much the on addition Thanks. idea to in. look how put grew that you more too context

the was So what idea there?

Michael Boyle

Sure.

and notes equity. a that BCSF investment combination sub the in SLP of common the is So makes

strip the routinely we're contributing through when and and will notes, incremental income are on both pro so sub out increasing interest exposure, notes income to both the paid drive that rata then it equity. through be the dividends assets of subordinated and a the And the equity, that but helps current

Finian O'Shea

have little constant effectively right? was is that structure leverage given capital bit of practice. I so that I But a equity is, in coming sort guess, Okay. and down Do

Michael Boyle

think to Yes, that's right the way about it.

Finian O'Shea

just Okay. know final guess I And me. I for a asked few. question a I've

not to thought sort As Can repurchases? of stock the book trading to us the close on update give an on you your industry. on closing remarks for share the enough

Michael Ewald

basis, shares Fin. on constant how is and we really value below that NAV of It's at evaluate kind or terms of something much a Sure, there NAV accretion otherwise we look in buying of terms in have from generate to is know, versus And it today's share we how to much not repurchases, in you'll any our made market evaluate can continue something but environment. we investing as Board. date, we with

Finian O'Shea

Great. Thanks so much.

Michael Ewald

Thanks, Finian.

Operator

it are there turn further time. questions And Okay. Instructions] no one [Operator at this just -- actually back in. popped I'll

Okay.

question We ahead. please have a from from of go America. Derek, Bank Derek Hewett

Derek Hewett

incentive I morning, about late, little look-back will Good fee talk it begin hopped and to could everyone. given normalize deferrals? but on a the you the when

Sally Dornaus

couple that expect would and of Sure. protect I quarters. -- would normalize

Derek Hewett

Okay. Great. Thank you.

Operator

no Okay. turn to are this at I'll There further Michael. time. questions it back

Michael Ewald

to for we more do everyone, future. and mornings out, the We please the of here certainly, reach to extent bringing Great. to look there's questions, out listen joining today. time on thanks, busy the the your again, And taking efforts very more Thanks and to forward any in much. news you appreciate Bye-bye. our Thanks, Colin, call us.

Operator

Ladies concludes today. your conference We that you for and disconnect this your for gentlemen, participating you thank please and lines. call ask

Bain Capital Specialty Finance (BCSF) 10 May 232023 Q1 Earnings call transcript