BCSF - Earnings call 4 2023 | Bain Capital Specialty Finance, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning, ladies and gentlemen, and welcome to the Bain Capital -- Bain Capital Specialty Finance Fourth Quarter and Fiscal Year ended December 31, 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Katherine Schneider, Director of Investor Relations. Please go ahead.

Katherine Schneider

Thank you, Jenny. Good morning, everyone, and welcome to the Bain Capital Specialty Finance Fourth Quarter and Year Ended December 31, 2023 Conference Call.

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

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

future guarantee past does performance Lastly, not results.

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

Michael Ewald

good Joshi. Amit today Mike Officer, Boyle, by thank and you and earnings here joined Chief for morning Financial and Katherine, to everyone, our our Thanks, I'm joining us call. on our President;

Before welcome we begin, would I like to Amit.

company BDC accounting knowledge, decades a and have senior effective accounting across didn't excited to have X specifically of the Bain team. And X, Dornaus, the as as many a Capital years. new Officer, our platform. those of in We're seen January for if management her our Sally. credit the over would finance our announcement, leader private Thank contributions has appointed I I been to the brings He Chief who Sally Amit our and remains over and within For may experience. Amit landscapes last not place you, has CFO, remiss XXXX. predecessor thank Sally X be join greater Financial wealth

the and full for some an fourth provide environment with start our thoughts our results market XXXX year quarter the on In the our call, agenda then and overview and overall terms of I'll positioning. of performance,

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

per yield an yesterday market representing after So we results. quarter strong XXXX fourth year value first, income and delivered on share XX.X%. $X.XX, annualized close, QX net of full book was investment

covered reflecting quarter. income share XXX% QX return were the value on of per our by Our dividend during XX.X%. net earnings $X.XX, investment an annualized book

full investment share the year XXXX, to on XX% was a This year-over-year. was or $X.XX, XX.X% per up income $X.XX For return share per net equal equity.

year. during by the covered Our XXX% dividend NII our

per $X.XX, return earnings XXXX XX.X%. equity of share on total representing a were

Our for performance. year, third net demonstrating exceed continue our credit consecutive annual earnings a strong to our dividend consistently payout

Our across driven results and fourth throughout from middle by performance borrowers high-quality during stable credit quarter our the year. and the income earned our interest market portfolio were

from $XX.XX and of at $XX.XX up year per quarter Our from the net asset share, the strength. $XX.XX reflecting value XXXX, previous up portfolio underlying ended from the QX as

to XXXX $X.XX shareholders reflecting $X.XX first for payable per increase as end, per dividends XX% quarter holders Board a to were a our total XXXX. XX, record addition, dividend share share declared from of quarter to March date and In to XXXX, Subsequent our dividends. equal

BCSF's per installments the the attractive on our total earnings intend continuously Board an of our $X.XX BDC our growth a across investment value share our total throughout has to out in per been represents income As of calls, evaluating ending level yield pay team absolute annualized to an dividends we quarter Board our neared has we of prior XXXX. on and special current sector. earnings, trading investors strength book dividends for represents first levels, $X.XX believe At the our strong XX.X% each yield. payout In in as we management year. Together have company's and alongside our and quarter highlighted totaling recognition this declared of dividend QX with to relative And as for We additional XX.X% undistributed special any an net demonstrated declared our these is and dividend additional shareholders XXXX by dividend, continued share basis compelling both annualized regular shareholders value. the dividends excess for paying year-end. our the

providing and merited value, declining the market watch Over X our growth. companies risk borrowers of portfolio our is our fair on of only of a in inflation portfolio net credit at of economic and list, X.XXx, net debt of number Corporate new portfolio X to powder portfolio a median portfolio rating net between the our with macroeconomic of leverage or portfolio our quarter our ratio across X.XXx, X, at by across the with our the and solid investments The fundamentals dry the a at low net environment. ratings. We against leverage of of the backdrop EBITDA the year-end. target resiliency to current fair XXXX, at demonstrated us ample rate X% on ended to course moderate at nonaccrual end leverage diversified health stunted remain the our lowest and quality small middle fourth X% of value X.Xx capitalize strong both borrowers lower ratio our across reflected of

and market environment. macroeconomic are the believe higher with XXXX growth transaction throughout middle in LBO future we M&A outlook transaction a expected new from processes While clarity increased clear be XXXX, on to were and lower volumes rate

lately how $XX never private player of has $XX been million syndicated broadly and a may forward, the Importantly, the market companies in going while the our public have market million with markets much made middle credit to portend of market of of And underwriting changing decline a us segment return been set positions press selective. loan that highly in the it the in opportunities remaining relationships in don't new EBITDA. platform to opportunities edge. execution the of deep core while we source Furthermore, us and provides our with a in well incumbency Capital's and sourcing, see global from our middle long-standing dynamic broad future. Bain and advantage investment presence

an companies to As will allow them the been as our detail. to flow source to our portfolio over across the providing portfolio plans. I companies call new has new we've add-on activity has existing execute business turn their capital deal in greater slowed year, platform through portfolio volume increased now past existing investment Mike investment of supporting to over grow to Mike? our President, walk and Boyle, been

Michael Boyle

discussing our activity Thank morning, provide you, quarter in an I'll start everyone. and portfolio. and fourth Mike, and more update our investment then by the detail good on

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

of the year for us investment opportunities year-over-year, as Total $XXX a year, activity result XXXX. this size total positioned For course leaves X% activity, over sales with of the but the declined for were repayment fundings modestly $XXX And our portfolio were dry that and powder well million. million. the of full ample

new full to were mix portfolio and of of activities new the companies quarter Our year companies. and portfolio fourth comprised existing investing a for fundings

to During the companies. existing quarter, XX% represented versus fundings fourth companies total of new portfolio to XX%

incumbencies portfolio diligence to our year, For cornerstone our activity of XX% companies, industry new level. focused company a in muted existing to of XX% lending due importance with is investment and the the of LBO companies, investment the was fundamental at philosophy market rigorous the remaining full with on volumes. The highlighting

leverage During in-house our to the knowledge new investments. industry Bain quarter, across we continued Capital's

this with within cool sponsor from liquids. capital exchangers within products air-coolers, are sector. Our on X investment quarter who market a to of loan QX, investments to equipment which equity provided to companies were supplier well partnered are largest us high-quality end that a the AXH and also and lien the and air-cooled a we manufactured XXX this first secured heat industries has defense. In co-investment at used and SOFR We a are niche preferred gases sourced prior traffic, aerospace investments plus and senior less that knows

add-on provided Aerospace demand industry. Forward defense to Slope, defense continue our the this to and current in noncyclical drivers of to of solutions also surveillance a the sector capital nature We and exposure provider the industry. favor largest environment mission-critical that the is we software given in one and

Our add-on investment XXX structured lien first same loan points. our at as existing interest at plus the SOFR basis rate was

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

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

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

the resulting in to approximately investments joint prior portfolio. lien of held highlighted call, of of our XX% loans, XX% our lien of in a the first we've ventures earnings underlying shareholders overall consists As on first exposure look-through

across as on fair amortized a the weighted value have rate XX.X% rise the of December XXXX. floors as XX, investments at As XX.X%, bear yield respectively, XX% portfolio. interest our beyond and interest rate, of were and our compared to XX.X% XX, company average and positioning continued floating XXXX, loan as XX.X% September the investment to cost portfolio favorably of debt rates reference at

observed portfolio and Moving Fundamentals credit healthy, have portfolio. our remained migration quality trends. credit positive on across to we

to X.Xx leverage as to earlier, of September highlighted Mike XX. XX, median point detachment compared X.Xx As as the December of declined as

course come in companies were budgets. vintage declining older our of that we to the Over with have leverage the line pleased see across year, back

ownership back Gas. to and a were the investment by for business. shareholders investment in gain at investment our Oil of The in our our are drive and we exiting a we & multiple pleased net XXXX year-end. money to During demonstrate IRR This by & restructured gross that positive realized quarter, ability a was our was XX% outcome XXXX respectively vintage in BlackBrush Gas taking BlackBrush that for and Oil of X.Xx,

our line near our distribution or we scale, that than within underwriting. investments, performing have currently in indicates We our we company modest rating small that a near-term expectations which X risk to is value saw and internal rating original better our mark. Within risk in the or expect X at improvement residual relative

the these of with and value, at fair portfolio of December X.X% nonaccrual X low amortized compared consistent As investment XX. remained value relatively total portfolio and investments of comprise investments on represented quarter our value, unchanged XX% and to as portfolio Investments respectively, rating our X% as XX, of fair the end. Risk X.X%, and from prior of and end. December our XX, portfolio quarter across at as at X.X% September of cost X fair comprised prior X.X%

now review. financial will a Amit more provide detailed

Amit Joshi

XX% The September to compared income, million high-quality per increase quarter income in million of prior income. XXXX. fourth of with quarter. for to our you, represented $XX.X XX, results by for start contractual largely months income Thank investment Net good continues or income fourth income income other everyone. $XX.X investment X the driven benefit for compared BCSF compared QX. Total by quarter. share income the $XX.X statement. across primarily for Mike, I'll share income per total $XX Net to for for dividend XXXX as share dividend for XX, full $X.XX. was investment the ended investment was our million third as the our were investments. in cash million million million was the and $XX.X the driven year investment was X XXXX the income per and $XX.X months income XXXX, ended as morning, $X.XX of or investment quarter its in $X.XX from quarter December sources Interest to expenses review and Total fourth increase the

per highlighted realized by $X.X of net ended net earlier. unrealized million. during exit During Mike and $XX driven XXXX, million or million for as $X.XX the our income investment months primarily the company realized of Notably, XX, December in the was the had X $XX.X ended Oil losses an BlackBrush the a XX, gains X Net fourth company XXXX, quarter, December share. months of & Gas, had

our Moving balance over to sheet.

at quarter-over-quarter. $XX.XX as up portfolio $X.X from was the increase investment $X.X QX, As overearning of end of X.X% was totaled third billion. of XX, and of dividend. At our increase X.XXx for primarily representing December per net quarter, billion our our ratio assets fair compared the debt-to-equity of at Total of XX, were end assets by to $XX.XX, was The QX. driven XXXX. in $X.X a X.XXx as value December NAV our total share the billion NAV end of

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

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

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

on equivalents, and our facility, was debt our with of of million at $XXX prior as cash of and months million For outstanding quarter end of million receivables average XXXX, payables ended $XXX investments. compared including Liquidity revolving and capacity $X million, unsettled end. weighted X.X% including netted as of X.X% $XXX totaled payable was on rate undrawn the quarter December million XX, trade net liquidity the restricted X $XX to the credit cash interest of cash of

earlier, per of XXXX, highlighted record XXXX declared XX, Board stockholders March XXXX. quarter first payable April XX, dividend $X.XX to on our our Mike As on equal to share,

year-end, earnings income increase per in dividend quarterly currently throughout our 'XX reflecting represent spillover income undistributed our the strong an $X.XX over $X.XX our share and currently year, income. We Given in an XXXX, we paid spillover taxable at from per resulting approximately the that of share dividend. Xx of outearned or estimate totaled levels in regular our increase

additional equal alongside of dividend. per share share As per XXXX, totaling income declared a regular result installments dividend throughout expansion X of quarterly company's year, in Board spillover during will $X.XX be the which our our $X.XX paid

regular of on brings dividend dividend $X.XX ending this QX on XXXX, per per to an XX.X% share, distribution our NAV. equates XX, total our per of additional annualized of stockholders April quarterly payable Including record $X.XX is March first quarter share XXXX. The fourth on share based to XX, $X.XX to our dividend, which yield

our believe amount our considerations. call earnings having I'll that, income market continue over meaningful we turn capital against strong will We monitor to Ewald for conditions. With to stability undistributed prudent dividend of Overall, a the to is back management of varying the undistributed remarks. beneficial and through Mike closing

Michael Ewald

investment pleased earned In demonstrated and Amit. strategy the middle-market behalf performance Thanks, attractive levels during we our Great. with our of credit our on shareholders income investment our closing, fourth of are execution portfolio and the quarter borrowers. strong across We throughout of across XXXX.

forward questions. our newly on remain managing line we As shareholders to including growth capital. Jenny, thank of We open privilege producing our well-positioned XXXX, to through on please returns you and equity, by capitalize believe our special for for we committed we opportunities. into look attractive the announced dividends, the shareholders' attractive additional for delivering value are

Operator

from is Johnson question from first Your Instructions] Paul [Operator KBW.

Paul Johnson

wondered, credit. kind have like nonaccrual portfolio it maybe fewer on names, X rated Obviously, of give kind but the don't I in Yes. names that the of quarter. and BlackBrush quarter. looks just higher the one as talk level those I some commentary this well X movements this maybe about as new been there just there's of think would just

Michael Boyle

Sure. Thanks question. for the

portfolio. industries. we those are number X where nonaccrual of of close had representing to appropriately, names across portfolio. we've and on marked number across consumer have particularly now, highly the And to have think So say been more nonaccrual has Right the industries the think nonaccruals probably I'd varied about ultimate positions low, from as quite I recoveries our industries. we really we industrial different the highlighted, idiosyncratic stayed we've spanning X% have all

to positive I think some issues of been better. the COVID were that migration era start we've has names that companies seen perform

One reopen seen X. footing, was the as of that and to a to rating educational a we've take in that was move companies risk But up were dealing world company back specific back actually firm space that we the travel get COVID. of off travel the nonaccrual on able with during name reduction and in

So budget, idiosyncratic has in XX% has is on really at fact idiosyncratic. I been it been highlight portfolio spite really focusing some of stable fact the in think I'd issues. highly of above of credit the that that And the or these

Paul Johnson

the I today? world kind just mean And of it opportunity Europe? Is helpful. very are -- is today? That's how best you weigh looking somewhere you United then, guess, do of against at States, of you kind opportunities do the looking globally, at I else where it the internationally? What kind set of the set

Michael Ewald

fairly value I would the across today, relative is the say geographies different equivalent.

we As we've bit a geopolitical XXXX, Europe. the a U.S. probably Mike the overheated, more bit But in say flow for a as our companies. example, on given existing focused little deal our as that were on in XXXX with more bit some been Europe. say U.S. here focused past, or flow highlighted, we little relatively of we sit about of equivalent. The chunk in the a today, most one would XXXX, the has that, caveat is talked portfolio in I was they're so of I'd big concerns deal

new of So been geographies. across a there's just volume dearth

So Zealand little in so But in Australia either New at we're geography, the take a past as look year companies more in and it's to on bit a anything focused so. well. just existing or happy been portfolio

Operator

closing There will now Mike [Operator questions the at further for are to Ewald I back time. remarks. the Instructions] hand no call this

Michael Ewald

in news today, just very of the on your support bringing forward for much. We Great. more Thanks over BCSF Thanks, your time Jenny. but the the years. not upcoming phone, quarters. for And again, everyone to thanks, look

Operator

you conference Ladies has for all gentlemen, now joining. the you. ended. Thank and Thank

You may disconnect. all

Bain Capital Specialty Finance (BCSF) 28 Feb 242023 Q4 Earnings call transcript