Earnings call transcript Q2 2023

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Operator

Good morning, ladies and gentlemen, and welcome to the Bain Capital Specialty Finance Second Quarter Ended June 30, 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, August 9, 2023.

to Investor conference Relations. like Schneider, to now of Director would turn over the Katherine I Please ahead. go

Katherine Schneider

Thanks, Sindu. XX, available which Good issued of Bain Finance's Call. Capital our morning, Specialty after on our and welcome, Finance Yesterday Relations a and Investor Quarter Bain everyone, earnings Second quarterly press Capital ended investor closed, results, is June market XXXX, release Conference Specialty Earnings website. we to presentation our of copy

for will will we investors. hold our today, analysts remarks session webcast, replay and call question-and-answer a website. our be being is Following This a on and available

This future are broadcast materially call webcast in those performance, may materially. differ Risk and of in today Any identified property current that unauthorized could is results on Specialty form which which cause made our XX-Q Bain management prohibited. the actual strictly uncertainties, results Capital and include and Form from the based any actual forward-looking These any indicated. differ guarantee Finance, statements risks not are and Factors of section statements expectations, to are do

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

future does performance Lastly, past results. not guarantee

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

Michael Ewald

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

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

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

share income higher XX% increase by of continued quarter-over-quarter, $X.XX, across earnings Yesterday of results. after strong an we market QX was rates portfolio. benefit net the our driven investment interest closed, per delivered

excess represented NII yield annualized dividend, our was value book and return XX.X% well investment XXX% dividend net of coverage. on of income in QX Our an demonstrating

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

to growth on These produced the June NAV point share March Net NAV modest $XX.XX, XX-basis of quarter. value net income reflecting a of turn of return per an XX. XX.X%. from annualized $XX.XX during as our as Our was XX value book led results in increase asset

that, of of to to announce annualized XX% June that September by yield record as at all of $X.XX BCSF's of very regular levels. This increased share, per XX.X% we're X.X% quarterly with book trading as ending our And share, represents an Board on value pleased per shareholders to our XX, annualized current and up $X.XX yield an XXXX. XX dividend

in increase Importantly, the represents this past the months. XX our regular dividend in the third rate for increase shareholders

seeks attractive an Our seeking our growth. rate future appropriate shareholders return NAV while for stability to provide dividend and level of also with cushion of framework an

in the rate higher to the earn past various policy scenarios. dividend level and in to our higher rate remaining our generating, regular evaluating benefit been light throughout dividend interest Board have while shareholders company we is is income under can setting the important we prudent earnings, a that company the economic of the As of year, provide our with that believe the it

consistent growth current over of achieving the excess dividend our to in newly remains investment net of In income while rate, the stability and positioned we NAV company environment, generate well staying announced our believe time. with objective

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

end potential evaluate distributions We for the near we year. expect of to as any additional the the

environment. market the to now Turning

volumes picked bit New during market first from quarter the loan up a second quarter middle levels.

struggle and environment. to LBO current continue value muted their market overall recent However, sellers compared volumes activity remain the equilibrium to buyers low enterprise as given find in years, as

of through side the work complex not years, only both markets direct to expertise the credit situations. value recent important a have lending increasingly but resources platform source to of continued investments, long-standing diligence and As and grow is with demand the and relationships equation, in attractive the private also supply to deep well-established on have

For second quarter, the expertise such in-house continue the Private platform in which industry Credit with our invested aerospace niche more sponsors companies given and past middle-market Group be working new lender-friendly. as believe our relationship favorable partner who we to that during defense, leveraged and environment within top-tier on terms to We lending for value and them attractive continues our with prior lenders investments. structures the are verticals,

begun for seeing a recent still quarters, amount small first spread in XXX spread to levels term have between see XXX we to lien basis While and pricing new market peak are points. we of compression loans relative

EBITDA In fact, and was amortization X.Xx, investments new of leverage in original our portfolio approximately the a base basis lien new weighted structures. the yield debt when current weighted of points, was loans average quarter XX.X% these reflecting net conservative discounts. factoring which average rates to first company average the capital second on produced in weighted spread And XXX on issue

addition which foreign investment an to LLC, equity also into a company created middle-market portfolio the to first ABL In lien in initial invested quarter, Corporate the Legacy during loans we made loans. newly second invest new HoldCo in we Lending

Lending, and American compelling growing announced Corporate of ABL it the with attractive risk-adjusted differentiated focused company middle-market the By the partnership background with and independent profiles. return this way Bain penetration Legacy space needs lending nonbank of recently formed benefits Capital new returns investment, volumes of is deal an asset-based serving that North on Credit as asset class provides We believe for increased from borrowers. a

and to the platform, opportunities we're a talented ABL partner to who with have we an ABL fortunate past and build team, and evaluated organically. experienced leadership brings commercial years buy of the acquisition Over few whether various experience to in build or lending years, business

we over and differentiated our investment complementary growth attractive BCSF us and the it While is for existing in our market, core which tangential corporate is initial the market deal provides be believe with to focus. could in modest, investment company time an a flow middle

nonaccrual well a good period Almost a we were year. be operating as investments of expectations the Overall, continue and added status with when the during the by of metrics borrowers companies slowdown to health and this our were environment, our to complex about XX% have feel of across January an more light credit investment of economic XXXX, portfolio far, no portfolio portfolio demonstrated X, decision. much very after quarter. higher to underlying largely our stable originated in rates rising quality proven as central to defensible, thus investments quality Our our perform

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

Mike Boyle

and Mike, you, morning, everyone. Thank good

for on update and then provide quarter portfolio. an investment our with the start activity second our I'll

Sales investment repayment quarter-over-quarter. million resulting New into activity million, portfolio companies, $XX a approximately $XXX across second funded including totaled quarter during the million fundings million new net portfolio of were companies. $XXX X in $XXX decline and XX

secured on that driven $XX This of comprised X% investing vehicles, Legacy our funding lien Ewald senior loans million contribution just lien Mike Senior XX% first to first Lending in within in with by new we primarily Loan our an investment remained of quarter, highlighted. Corporate comprised equity investments, was focused Program. new remaining additional to investment which our XX% structures and The

expertise leverage sponsors to our to financing paired continue many who our deal, risk when ability execution private deep across minimize long-standing value we niche with their originations, new verticals. relationships industry With with equity our

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

portfolio the our number since inception, We to year-over-year. company of borrowers XX% have portfolio within with continued by highest grow our diversification growing

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

joint of debt, lien X% in X% at value was preferred in June second and in ventures. and in lien XX% and of investment the As fair other subordinated XX% debt, XX, in in equity XX% invested first interests equity debt, portfolio X% our

loans, a in we But decline in investments prior lien have our shareholders approximately XX% portfolio. lien first lien XX% resulting exposure entire first the given notably, vehicles of calls, consist these down highlighted the investment the As our of stated first of the of vehicles. look-through held earnings has our growth come underlying in across exposure in to

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

floors. at to rates compared company average across increase bear fair XX%, As XX, cost of higher weighted XX, by driven of rise favorably and of XX.X% respectively, the floating investments primarily XX.X% amortized debt XX.X%, was and interest to at yield reference June a the our continued respectively, of portfolio, XXXX, have interest This reference as rate, beyond positioning value XXXX. the rate the XX% as rates March portfolio were and as

During to the ventures. our execute on continue joint quarter, we our strategies investment within

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

$XXX of portfolio portfolio of investments companies. June XX loans. approximately XX of the floating senior was in million, comprised investment ISLP's invested as XX% in was secured rate

portfolio comprised XX, XX loans. of June senior $XXX invested was approximately of different that of SLP's portfolio in companies. As in portfolio was investments investment million, investment secured XXX%

indicating impacted interest was expectations risk investments X our watching of rating have was reflect X% rating been We value. rising to rating risk of portfolio line comprised the These of rates. by company closely. that on companies as underwriting. investments, scale, remain our our and portfolio X Credit to quality XX% than impacts Moving trends. focused companies inflationary stable and investments internal was or on relative fair these Risk Within initial our quarter-over-quarter. that at in XX performing X portfolio of June comprised better

X% investments comprised during X companies the fair added Risk ratings No on for were and portfolio included portfolio quarter. nonaccrual. new investments our at to of value nonaccrual

credit our fundamentals solid across Overall, remain our we believe portfolio.

leverage of June as of portfolio the March our as XX Our $XX X.Xx of X.Xx And XX. EBITDA was million. median to compared median is as

financial a over I'll to review. Sally, it detailed will who turn provide now more

Sally Dornaus

Thank good morning, you, and Mike, everyone.

income. of ended XX, million benefit senior other was for rates our as to across months XXXX, The our X our interest results by in the of million second driven ended investment lower XXXX quarter March the review partially Total the start statement. was $XX.X loans, the increase portfolio investment with compared rising XX, offset for June rate by I'll months primarily income X income income secured floating large XXXX. of $XX.X

and largely by prepayment-related contractual to income of its Other benefit investment high-quality from of with income comprised continues driven income XX% total of total QX, X%. investment representing BCSF income income. across investment investments. less than sources income, only X% in income represented our Interest dividend income cash our

investment Net Total $XX.X expenses $X.XX quarter first fees. decrease prior was per $XX million in million share income expenses or to $X.XX by was share the million per for as for compared compared the for were or $XX.X million The to second in the lower quarter. driven the quarter as quarter. incentive $XX.X

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

sheet. over to Moving balance our

As NAV of stability per up end quarter, share totaled of in at assets $X.X the our $X.X June XX, total the our of increase the assets a was relative increase with value outearning our investment dividend, at of quarter-over-quarter. and were $X.X during was billion quarter. the Total of coupled the our driven the $XX.XX, net $XX.XX X.X% value first XX. The billion of as from investments representing portfolio billion. fair by in NAV June

of ratio end was of the X.XXx compared QX. QX, the debt-to-equity to from end as X.XXx At our

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

We comfortable of ratio net and the are in operating X target X.XXx. leverage our middle between

not approximately XX, The XX% and floating across and total rate. the June until weighted any at XX% debt outstanding June XXXX, debt XX. our was does debt in debt maturities our years maturity have of As commitments rate was average fixed in of company X.X

rates. interest continues debt structures to unsecured benefit access Our from rate we a the fixed period during of debt markets as low low funding

The notes is interest on our unsecured rate X.XX%. weighted average

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

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

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

Michael Ewald

Sally. Thanks,

also well of the shareholders regular growth another as We're dividend continue perform strong deliver to with we closing, to excess earnings in quarter deliver increase, another NII pleased earnings underlying growth in So and and well. for NAV are of our dividend delighted continued company's to our stability. borrowers our reflecting

well its thank this remains on producing committed relationships And value managing middle have shareholders' expertise, to the platform's investing in given shareholders execute been Bain ROEs. you our strategy, delivering that privilege XX Capital and for on resources built our capital. market. experience for attractive of to Credit positioned direct remain We lending years through our of

open please for Sindu, the line questions.

Operator

[Operator first question Lynch Ryan Please ahead. Instructions] Our from KBW. from comes go

is line open. Your

Ryan Lynch

morning. Good questions and Thanks my quarter. taking really nice for a

that portfolio had Or any I will Lending go company? vehicle, sheet? show Will any those that all in that Corporate balance investments as investment. on will investments Legacy just directly the that one be you investments your of are in those from was on First making team? investments up The made

Mike Boyle

morning, Thanks Ryan. question. for Good Hi. the

end so they the be on entity, sheet. of all that directly So in investments balance up won't our will

Ryan Lynch

Okay.

I kind of kind of new kind is year growth a goal what X? at over it's business of what So your I a that for the formation mean, a of or is sort know strategy next the team the new of of expectation? company. a investment, and

Mike Boyle

Sure.

we evolves a the of number on scenarios market modeled different X. the or depending year next So how over

X% larger we be but be to I there we the over position there continues think time. see upside X% compelling growing portfolio, a is case, could to market base the be opportunity from think in our slightly that to than if potential in

Ryan Lynch

guess, what as of I sort it going equipment from receivable which on investments machine Bain this Are making scaled, leverage when entity? it going are I guess because be capital sure the that, there'll as then are have like But things. from do specific can I then financed, combination what of expectation full or of team a does return that overall the of probably to are investments? depends well generate hope or accounts to those those is of that sort ultimately, gets not that I'm what assuming on before return on sounds they're And that, And investment a expected like different that a in be a Okay. sounds entity lot that, it of of you is I'm period than time financing investment? a timeframe returns financing. assume like sort the to but this it scale

Mike Boyle

Sure.

to slightly and at for the baseline on we about investment than So We we're diversification. of that income should portfolio do equity highly that do cash-generative be nice investments, returns ramp we the investment an are that looking the XX%. the And that X But XX%, lower that think net over producing build level some have we mid-teens be XX over those operating it they'll as be expectation given think of months, return. for time. next BCSF at will nature

Ryan Lynch

as in well? How also will fund with leverage be financed they the

Mike Boyle

combination. a It's

some loan. be be the time every we'll we new equity contributing make leverage will also at then a So there company, but

Ryan Lynch

to of expect would that entity sort operate roughly leverage that run What and at? you

Mike Boyle

Yes.

Xx So Xx probably and leverage. about

Ryan Lynch

Okay. the appreciate I All comments right. that. all on

platforms terms uncommon you deals? had the structures starting the mind new is you kind a and I question that of the overall starting bit still. deals of but in I'm mentioned in we've good marketplace, tightening, other little outside the which sort Still quality Whether a or still a any environment little keeping other pressure Mike, you're deploying something very other spreads besides see there not tightening to was, on while are there, out to just for see just from a of to today. are attractive any that tightening, in starting in of are bit see for are little the out bit spreads sort heard deals changes you The other of spread of any still of curious, spreads of mentioned, is really there capital?

Michael Ewald

point I necessarily. Yes, points. Not we definitely XX, call really some on XX We're on pressure out, percent not that's seeing that that it, a really, like big as short basis the XX, returns you the kind think, answer. asset Ryan. level, at move But spread, XX is of said,

another point our for last quarter average the leverage times. you X.Xx. pinch about that's saw, But front, at On as was

math, So not that alter that's going base afford. driven conservative. the how are, XX tech still really really out pretty by much. much how company is points the the given And spread that's rates And cutting to can basis

seen pressure haven't So we there.

pressure just third then point would The general like things be documentation, covenants.

As philosophy focused in of very covenants over our much deals. financial know, our you on getting XX% is

we at would and tight like certainly And term like in give lender still, pretty documentation So other least pretty things definitions that that our terms not are friendly. EBITDA that's and a on. estimation,

where So it seen been bit really little the competition. spread has side a on the just we've

Ryan Lynch

Okay. quarter Thanks all appreciate. Nice for me. Understood. That's from and I that.

Operator

Hewett Our Derek Please next Bank from ahead. from of question comes America. go

open. line Your is

Derek Hewett

Good morning, on everyone bit a the little It incentive lower the congrats was good than quarter. about first fee. is question My and expected.

impacted was incentive So we during the expect normalize fee to was that calculation, the should the third And quarter? quarter? realized beginning the in by losses the

Sally Dornaus

Yes.

So a the this to When what of with quarter then cumulative you It's you our basis, do look-back the quarter. a calculation bit do and of you doesn't on it causing COVID take noise. entire. because take have

quarter last quarter rate. and we're sort of noticed at have would You elongated the before, an

the going out. math quarter start to and slightly cause to to it's shakes of again, and normalize kind will just this it lower the So be quarter next then

Derek Hewett

JVs the aggregate Okay. remain attractive. That makes sense. And really then on the in yield international

roughly it keep there's where more we for you that portfolio Do kind Or the do room overall growth? it's about growth forward? at, going JV international of XX% want should in how think a of little bit at So like a portfolio? to the you think

Mike Boyle

But will growth, couple percentage in of room Derek. function growth. not for a terms points, is don't There think I be some of step it a

particularly would has that there We new assets. harvesting with are interesting continuing where been But opportunities, are able to we're some note, as to well, churn assets see replace I internationally. that portfolio in

the there, pleased with growth both been profile limited So we out yield but very have coming ventures. of joint

Derek Hewett

recently, And last another or I bonds Okay. the due the of the bonds are is of all given then years seen some some due just but in do maturities? in mean, because the time bond funding staggering terms within BDCs kind have question overall strategy markets XXXX. of just we've aren't for And so, is Great. what few funding the unskewed you your other around my what strategy.

Mike Boyle

We maturities are focused on market unsecured that and at recognize laddering the open looking today. is

We are managing securities. the existing the of plenty to do we have fact that runway

always market vis-à-vis the when we're is stack. So needs open liability of managing the the existing

Operator

question from Citi. Arren ahead. next comes Cyganovich Our from go Please

line now open. Your is

Arren Cyganovich

your you timeframe activity of have you do with mentioned In get of time muted equilibrium. up? sellers commentary, buyers do a think Thanks. and hard idea a And LBO any back when open to on? could move you that them kind having will reaching What kind of

Michael Ewald

question. look, it's good a Arren, Yes.

there's of I bit little sponsored right, probably powder dry that's market, that pent-upness, plenty happening there's the obviously think a in of there.

understanding So like, be if what I while more a a about you the think actually so we matter and once growth invest. economic I also and there's vectors. confidence be took to can to recession some recovery pressure looks to get But getting a there's of a we going recession, start little a going there's think different stability pause, whether there's increasing

be they going pay certainly willing to sponsors potentially now. than point, forward-looking to more basis be that a right assets at on might for think I

part and that's it. think with I So parcel all

that uptick kind several to couple an transaction an an the there. space, advisers to of talking spear actual seems there in of weeks tip that pitch later. the of translates a then months be in volume or into And In or increase the

seem some it get perspective, timing a Labor out the there rush fresh Day post deals a from into like could So be does to market.

of So the more. the sort better up we're fourth bit guess, picking of second of picking up the little I year a hopeful up half a quarter ends the than, that little year

Operator

for you. Thank I to back appear will further to conference questions. Instructions]. [Operator Michael no Ewald closing be the remarks. There turn

Michael Ewald

attention Thanks, here Sindu. the of share again for look very And second results again you pleased Thanks to very soon. and today. thanks we you with We're everyone's and Great. talking quarter to much. with the time forward

Operator

does for This today's conclude Thank you. Thank you attending. call. all conference

You may disconnect your now lines.

Bain Capital Specialty Finance (BCSF) 9 Aug 232023 Q2 Earnings call transcript