BCSF - Earnings call 3 2023 | 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, 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Katherine Schneider. Please go ahead.

Katherine Schneider

Thanks, Ciko. Good morning, everyone, and welcome to the Bain Capital Specialty Finance Third Quarter ended September 30, 2023, conference call. Specialty we our earnings of quarterly available Bain closed, investor release which market website. on of Relations presentation results, Capital after issued press our and is Yesterday Investor Finance's a copy

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

performance does test future results. not guarantee Lastly,

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

Michael Ewald

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

by quarter and strong continued will in benefits higher portfolio. discuss results market detail. Yesterday rates QX $X.XX per investment interest of Thereafter, Mike income third net close, driven greater our was financial share we Sally across investment the after our portfolio delivered results. and

per quarter. share return quality portfolio book our stable by by were on earnings credit income during value annualized $X.XX, yield across represented dividend investment the XXX%. net covered and QX driven Our an our of XX.X% investments

an led a as to another on Our NAV value value Board declared shareholders $XX.XX dividend our XXXX. from on fourth XX, We to net quarter to share $XX.XX equal record ending holders attractive June per dividend income an growth Subsequent XX. return at payable as as regular September annualized X.X% amount increase asset of XX. produced quarter our to a to yield book of December XX-basis-point net of for book annualized $X.XX reflecting our represents consecutive of believe our yield a end, in quarter our date XX.X%. These results of and value

or stability. income quarterly our per share NAV dividend. is for $X.XX We healthy increased amount provides is dividend believe spillover and of Our undistributed X.Xx this and income approximately regular a

additional continues Board our any year. for alongside team, evaluate management as Our the we end to distributions near the potential the of

market the to environment. Turning

in loan in credit the a private Driving activity overall. levels, New but QX remain during higher this the low the periods continues ] particularly is the dependent largely CLO credit private market [ as from take markets, share this. as loans to tranche BSL away where the syndicated modest of return third volumes from increase unit during loan on levels with quarter remains challenged quarter volumes broadly creation market new large saw

as tenants core market market, corporate sized borrowers trends companies many we the the of that credit we for value direct versus lenders. private large these favor we in While to continue observe place our taking middle

positions documentation view. market having in prefer within and Particularly, lender in For containing through this small segment control investing benefit from we our covenants lender direct debt provides controls the that lenders a credit group. of structures greater strong value among financial loan

portfolio, the XX% allows we tranches. these on lender positions covenants. of XX% discretion in debt minimize majority at our financial our outcomes have documentation structured containing our and And drive invested with eventual structures our of are control debt investments Within to us focus consensus Our risk.

the were the in and continues investor in-house by For new Group structure lead we with lender-friendly. for terms as driving partner middle-market attractive, investing platform the and structures and our as we sponsors. companies quarter, which leveraged Credit terms invested more be third are environment The industry favorable during our expertise to high-quality lenders Private demonstrated that

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

companies Our perform stable far to rate have across be in environment higher of thus by and our to light the durable proven demonstrated portfolio credit trends portfolio. continue the interest well quality as

list we watch rates team for higher particularly slowdown. I'll our in nonaccrual within overall for portfolio interest turn ratings. Notwithstanding our investment greater call the of fair Boyle, now had the our environment solid metrics, low, our and portfolio and sustained economic given expectation a Our detail. risk an to continue over in just to at President, companies our improvement through be portfolio more walk monitoring potential rate vigilant to closely, Mike any these value, with the our investments an remains portfolio X%

Michael Boyle

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

totaled new in companies were $XX of portfolio $XXX million $XX funded million, quarter-over-quarter. across New Sales including growth to XX third investments. net quarter existing add-ons $XXX approximately million investment in repayment $X during in million fundings a X million the companies resulting and portfolio activity approximately and

investment investments. secured within investing of remain we X% quarter, fundings XX% first focused in loans lien with This new our and in senior lien first structures, on equity

between new Bain fundings and XX% our quarter, companies knowledge and Our a respectively. Across industry new and expertise. investment comprised Capital's this companies, new we existing were mix XX%, of portfolio representing leverage in-house

aerospace surveillance defense industry. first secured with experience lien this investment provider mission-critical source has approach senior in the a from loan value-oriented a solutions to investment software the a slope, new Our was sponsor who with to forward who We sector prior largest and strong and favor given of generally them this and experience defense current the not working Aerospace and our defense, our in it sector. to does exposure continue valued with the cycle and we macro one environment, largest that is in economy.

loan a Another patients facilities. services quarter investment skilled a of medical was secured suite this in senior drive, on-site first notable new the to lien nursing to provider equity of help co-investment comprehensive and

health many in focused in now have from sector. we roll-ups of While the years, shied on care we care recent are attractive practice spots the management away physician health finding

health with Our The on by retention solid centered company's well-capitalized the care-focused sponsor. industry fundamental profile, which and partnering are thesis drive financial for underpinned rates health a higher investment attractive demonstrating dynamics, nondiscretionary services.

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

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

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

of joint XX% XX% driven the highlighted first in the decline As Notably, by first lien exposure vehicles exposure we in of a consists is underlying our growth have earnings our lien our through in stated approximately prior held loans, resulting ventures. investments the to calls, the in shareholders these first of of investment in lien portfolio. look

at cost As fair by of The of primarily yield reference and and investments XX, amortized loans. on driven XX.X%, value a average at bear as and were on XX.X% September higher our respectively, rates compared the XX.X% as XX% investment as rate. increase debt floating our And XX% XXXX, a portfolio of to reminder, XX, XXXX. was weighted June the interest

quality credit X to were or company within stable quarter-over-quarter. in They which X that rating scale, indicates better investments. and performing portfolio initial to than our Within on internal risk an improvement line we our relative was expectations risk rating Moving underwriting. saw a our trends.

detailed fundamentals We As remain rating portfolio portfolio June from investments compared at September comprised fair XX. solid respectively, as XX, of total at value, financial level Credit provide as our of as the rates X.Xx to X.Xx to X.X% and on lowest X% believe our investment of of across X.X% are our value, in and portfolio investments XX% the median QX. Investments among a XX. Sally fair as as sector. fair as now our of portfolio BDC XX. compared of the comprise of X amortized down leverage review. these will a with are more as from June of nonaccrual prior of and of X.X% and X% X nonaccrual Risk up end. the value, September cost XX% at quarter X.X%

Sally Dornaus

quarter Thank to a of result The as from with income results was related everyone. income XX, statement. as X continues million as were a $X.XX investment and of the dividend I'll income quarter. Net quarter. XXXX share this interest our quarter months the XX, for quarter investment income benefit morning, the XXXX. sources expenses by investment Interest $XX.X quarter. the third in total ended Other compared prior $XX.X and start $X.XX total September decrease June investment comprised to income high-quality XXXX, share X% income income months cash income. BCSF the $XX.X you, as driven prepayment driven income to $XX.X and third for in primarily X contractual in income QX largely million million million or decrease Total was the Mike, million only for was good across income, ended to XX% the compared or other investments. of million Total second investment per for $XX.X of by per review interest compared for $XX.X no in our of income. income its investment income our with represent lower income our

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

our Moving sheet. balance over to

$X.X of our of $XX.XX X.XXx fair stability $X.X debt-to-equity totaled of by value As assets our in Total of our end the as driven billion billion. increase our the quarter. At ratio investment the at coupled of the compared XX. quarter-over-quarter. was September earnings a over September per as the of end assets was quarter, relative to The up in was XX, total NAV increase net dividend at the the of $XX.XX, investments the X.XXx representing $X.X during value and second from from with X.X% share QX, of our end QX. billion were NAV portfolio

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

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

to continues on unsecured our access X.XX%. funding debt notes unsecured debt rates. is structures low we of during average period interest as low Our markets fixed rate benefit The the weighted a from rate interest

$XXX For the on our $XXX was ended the September rate to was quarter by floating The of rates SOFR weighted million including end. turn rate XX, of back trades cash X and debt totaled outstanding average and million over debt compared structures. Liquidity and investments. With end the undrawn payables the increase our $XXX months of on million, at prior on closing million for X.X% than quarter less cash X.X% higher Mike driven credit as interest remarks. restricted as of $X cash will million our including of unsettled capacity equivalents, net receivables call $XX that, I revolving facility, of to of XX,

Michael Ewald

shareholders, execute of growth pleased continue our Capital platform's excess open borrowers on expertise, that line resources you in shareholders' remain and to on perform quarter strong by earnings as remains of capital. Ciko, net years for XX the its committed the positioned of Thanks, thank well strategy, managing core Sally. well. Bain middle shareholders, value delivering underlying given direct our and to demonstrated that investing well for and of We closing, we're for are lending built questions. modest the market. our our high In another Credit have to levels investment been NAV in privilege to our for income our dividend relationships please of deliver experience

Operator

Thank you. Instructions] [Operator

with The question Citi. first Cyganovich Arren comes from

Arren Cyganovich

You talk bit about a investing little environment. the

mentioned today. You attractive characteristics

new is and your You're you investments? seeing from seeing days kind pickup leverage? wider And spreads pipeline what these lower in sponsors? for like activity of any Are

Michael Ewald

to Arren. might month not of continue week us motions so trying not maybe pre-COVID are month. a maybe We as Look, seeing see current, just through necessarily varies from months, a not to have a there months. But XXXX. that some little of it's busy think perspective. Sponsors a level. Yes, I it to be from can kind depressed and up flow maybe value pick great the to busy we're do and little qualified of bit I'd say, deal whether showing the they a bit, or certainly stable things fine, kind wholesale but plays, going That's definitely from bit not change week little

Arren Cyganovich

U.S. Okay. an And versus from how perspective international does it the look

Michael Ewald

probably with XXXX. in we're a balanced were little kind I'd still of XXXX. now. smaller and just steady. and being It's more pretty Zealand that a right year, bit We this we piece balanced say New in more Australia definitely heavy, year, U.S. heavy say were more Europe And last I being

any differences I don't now. between the markets So think there's notable right two

Operator

Our with KBW. Paul next from question comes Johnson

Paul Johnson

I I EBITDA was that what's international, guess, as growth internationally. kind just both as hard it's you of general, maybe trends U.S., portfolio, in know like wondering been guess, of Europe in of kind seeing portfolio? the the your of to if generalize domestically comment in I you're performance the on, can well just but versus kind all I

Michael Boyle

Sure.

in. quite held selected to Europe markets, I in So performance invest and U.S. industries do strong particularly has been both we've across top referring lines to the think have in, broadly.

of original EBITDA as XX% the those on is the we EBITDA our of XX% so XX% noted, And sort growth include our underwriting. some in most underwrites original with portfolio of sort line. of to line CAGRs And in

of by, of much EBITDA cyclical that to chosen seen year-over-year type able away environment. we've this driven growth. perform same sectors we've with to again, for that's portfolio been in show largely market of really shy many growth But to the we've So or invest the that the sort and XX% not amount in, XX% -- might more sectors disturb line of in

Paul Johnson

X.Xx as And target higher just a in we're where into is the your quarter the or kind standpoint, the where have the obviously, are BDC longer run any believe where third of around generally, kind I leverage what on within, portfolio I of today levels thoughts of guess, scenario. you next leverage the But from the kind uncertainty Do running with. that like year, potentially just the BDC. guys around range you'd guys of be for given you to gross thoughts

Michael Boyle

Sure.

when at we're activity and that as the commented So leverage level, than the look that we pipeline specifically interest of do little about is better great. be our leverage our to And wait new center to range. likely back good Ewald think go I for higher at earlier, operating the get deal which are I lower a that for longer, pick range net up. fact think the to right market the end in bit where while of to running more do given really the versus I rates X.XXx, environment,

leverage we trend our in the I think the that range we dry think advantage future towards back near do opportunity. we'd think about term, market have lower up. of bringing powder end I of take to probably the But so

Paul Johnson

or jump sort portfolio anything that? the markups Was quarter, last guess, to any the in category Was from helpful. that any of activity in a to credit, sort the due of or of there internal there's rating X that for one And That's specific markdowns the the during credit XX% driving, sort I me. drove rated increase XX%. big

Michael Boyle

They It years driven on our we were recover had COVID two earnings by that levels. pre-COVID impacted to really had companies few really previously been a by companies It were and list. took had recovering. that watch is back to

performed it off so companies change. And list the drove we're that was really that that taking that two better watch

Operator

The with Bank next of from is question Derek America. Hewett

Derek Hewett

fee mechanics prospectively? basis? it the a to normalize since should of expect about Could you bit little we the incentive declined on talk it And a like quarter-over-quarter

Sally Dornaus

Thanks for Yes. question. the

of the of quarters. or about that lower normal of because We the mechanics fee of think the COVID and X I last had our to calls versus dropped this quarters' go back should lower level incentive levels couple talked that of the caused off kind incentive but we in quarter next the on fee prior. X

expect would rate than I a run So to bit be higher that.

Derek Hewett

Okay. And then significantly you're in regards dividends, earning to the over it.

are the supplemental additional you dividend an for you're increase type dividend. your the fee, thoughts What implementing adjust over-earning of kind materially of If the a in special lower -- core versus or formulaic dividend. potentially on incentive still

Sally Dornaus

with often. have our gives Yes. those and And about spillover the increase are this some but about Both stability, talked the possibly additional management we've us That's an something or talk do dividend good we we either being ability to team NAV of obviously, a dividend. our Board, that do things considered.

Operator

the session. concludes question-and-answer This would Instructions] for our remarks. to [Operator like conference over to Ewald I closing Mike back turn

Michael Ewald

I time good again. support everyone news to Thanks, we strategy I hope executing your more today, continued future. middle wanted look a Thanks just has investing for Ciko. appreciate everyone thank and our to your market around again through forward the day. in BCSF bringing you Great. certainly and

Operator

has for presentation. conference now today's concluded. The attending you Thank

disconnect. You may now

Bain Capital Specialty Finance (BCSF) 7 Nov 232023 Q3 Earnings call transcript