KBDC - Earnings call transcript Q3 2024 | Kayne Anderson BDC, Inc.

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Operator

Hello, and welcome to Kayne Anderson BDC, Inc.'s Third Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to turn the conference over to Frank Karl, Senior Vice President of KBDC.

Frank Karl

Good morning, and welcome to Kayne Anderson BDC, Inc.'s Third Quarter 2024 Earnings Call. Today, I'm joined by Doug Goodwillie and Ken Leonard, Co-CEOs of KBDC; as well as Terry Hart, CFO and Treasurer of KBDC.

we available remarks, questions. take prepared our will to be your Following call statements. include Today's forward-looking may involve and placed statements undue Such known reliance factors, and should and other not be thereon. unknown risks, uncertainties historical opinions These forward-looking current estimates and our and our projections and industry, but current are the our portfolio based assumptions. expectations, company, facts, about prospective statements on rather our not are investments, beliefs and which other are and are our are future subject factors, not some uncertainties risks, statements difficult of These and performance and beyond control to guarantees to of predict. forward-looking expressed Actual results from materially may differ or those forecasted in the statements.

that should to risk any filings factors. ask be company The not performance do obligation company's important with statements forward-looking most future made today placed update at thereon. We recent statements you no any refer forward-looking Any not time. assumes for reliance the to undue SEC guarantee the and

I'd section call the Our website at earnings available are release, that, on to presentation XX-Q supplemental our of to earnings Doug. like turn Financial and kaynebdc.com. With over the

Douglas Goodwillie

Frank. you, Thank

of an reminder I quick quarter, to Before at want I the during a our our performance provide strategy KBDC. on provide overview

this you those yields winners can focus as ability industry Within leverage on the strong the invest generally First, direct attractive risk-reward lender-friendly industries still and segment million in in later. slower-growing chart to that segment includes the where summarized our lending. have market represents generally most size in and been investments. we in lower borrowers more which documentation of We million to the believe area lend diversification mid-market, ranging stable, including to $XX core at mid-market this market define in $XX see as maintaining losers in from EBITDA. This the decided, we while

an BDCs. From structuring shown Within these approximately If portfolios that that perspective, pursue survived it. have these lower to creates ratios with will have results across of modest have that industries, successfully our identify of Consequently, specific credit interest be a factors below of credit average multiple other been have cycles. does the attributes, companies attractive well we investment investment selection that traded not a not these high weighted portfolios leverage average in risk-adjusted in The process that present to all industry publicly companies exhibit leads platform. below combination average vehicles attributes XX%. we loan-to-value within most our Xx, coverage

our XXXX and economics. an to activity discuss our the to We XXXX. that of market the of a remainder before continuation am quarter are us of position quarter groups. lending the This the of of of these or bank to a private and risk it investments co-lead club represents to overview the and with believe approximately I small we provide best and Hart turn Finally, in consensus obtain financial puts for then market as pleased results third group agent structure vast third avoid covers lead investments in XX% strategy, the KBDC's investment recent portfolio, part middle back this of a large proactively, manage Terry Frank

portfolio approximately September of fair representing investments. XXX $X.XX As funded portfolio of XX, individual value KBDC's includes companies, billion

is total unfunded XXXX, or environments KBDC purposefully We $XXX of KBDC unfunded on closing XX, draw and weeks closed portfolio evidencing process in instability was September through in economic of another plus in interest of constructed excess XXXX. uncertainty. approximate an The of strong defensive quarter, revolvers million continued comprised in commitments Since manner periods final million in commitments have origination high billion. to a in with volumes order left outperform X and loans mix commitments additional the the $X.X $XXX a term rate another delayed of for has of or in

on structuring. handful approximately watch think in a interest loan Investments average and our again, statistics conservatism these loan-to-value to elevated coverage similar XX%, all and of are have KBDC's statistics of our of portfolio, weighted a environment an material We of evidencing list, excluding us. compare X.Xx, credit these X.Xx leverage positive to factor for BDCs that virtually our particularly other in outlook, public favorable favorably a rate interest portfolio scale in

We of approximately top our only also built fair our a diversified an of portfolio. represent of and average size have investments XX% where portfolio position with XX X.X% value

our XX% are specific and is backed structured. securities Outside of associated portfolio middle of market sponsors. investments of private equity are the investments first by lien our portfolio, with statistics credit invested XX% our in well our

private financial invest structure this that capital in in portion Additionally, all supported market. represents way are lien first core committed our that our investments have most think attractive in of capital risk financial being the the businesses of combination by to middle market equity with private covenants the maintenance of covenants. We lowest

with We borrowings. also rate. of being floating the mirrors our for This utilizes where vast believe debt that the our rate positioned interest environment XXX% in majority of debt funding rate portfolio floating liabilities our is potential appropriately investments our also changes

well portfolio investments on by only represented value X% of date Our nonaccrual positions XXX. X very only fair performed to with at also has out debt of total

upside yield of This of have portfolio XX% approximately conservative healthy securities, spreads broadly out rotate spread we lastly, built for been positioned approximately of these portfolio to the in And as portfolio investments. over in such have syndicated with XX.X% broadly we with we syndicated value investments. weighted this few next on has yield lower the our our that quarters relative achieved a of average fair competitors

stable, U.S. a the market end of is economy. and slower portfolio with Our diversified on industry focus segments growing by

and and leverage conservative better portfolio. industries growth see only enterprise earnings can the representing X range largest and XXx with packaging industries allows the distribution, with total portfolios lower our values these interest typical largest businesses to food services to are containers presentation, in of with in our products, XX.X% the you us in coverages. business/industrial stable, As Financing build more

XXXX, investment different quarter total of XX Turning the across was million $XXX middle we million to market our which of period, private during activity the made funded. of businesses commitments third in $XXX

did or were funded This where quarter, $XX fundings the a slight relative our funded fundings were gross average activity investments. We In to XXXX, a unfunded private third $XX in addition, but the was the million million. see uptick X.X% the XXXX, of during only period, $XX repayments in gross QX partially million $XXX in of quarter activity million. of $XX meaningful combined funded of still a uptick of commitments repayment million totaling during amount existing market up representing from of gross middle

million hold approximately $XXX fundings We these privately loan in quarters, we currently broadly generate to expect broadly enough During maintaining target XX of syndicated repayments. our to mid-market loan still broadly inside rotate the no while quarter, investments ratio third of X.XXx. $X our coming out loan of leverage volume syndicated new loans X.Xx In originated million across portfolio syndicated experienced to and borrowers.

back I turn Frank will the Now discuss to it to market.

Frank Karl

Thanks, declines Doug. resiliency financings. months half somewhat. M&A second terms when depressed substantial have And a lender-friendly it were somewhat period, as in market. over said, in during changed exhibit and increased turning financing to XX middle last for activity continues has XXXX, That comes to operating the of somewhat to environment X the the market leading has the M&A Since there macroeconomic picture that volumes. been to That to we pricing and activity

a of middle substantially a XX% sponsored the transact private have X believe volumes after as X community been years. has with a market period the whole, period of the this over through to volumes the the uptick commitments in moving first XXXX, equity market versus prior substantial loan quarters driver to in lower same M&A XXXX. We increasing activity X For increased approximately in

Additionally, transaction instances, we through supporting financing part a the activity same flow with of private our both from in acquisition equity as certain see and portfolio change substantial control of sponsors. different investments, existing company

flow support regardless points. portfolio over KBDC's an XXX investment market new average basis SOFR private portfolio XXX over of activity. help of of Our existing approximately investments has platform of investments investment middle spread new

have and some middle points. XXX in our reviewing the spread While of XXXX of year-to-date approximately spread investments over private average compression, we SOFR XXX market new most have we've are transactions approximately an market points basis period seen of today the a basis

will spreads with accelerating cannot have volumes. to coupled predict go spreads that we stabilize, the loan future, While begun seen have in signs where we

on a longer-term we to new as investments see historical nearly our still of expected yields XX%, compared view. healthy, particularly Regardless, incredibly which remains

the We credit private case have an believed remains that always platforms today. in all-weather the capital seasoned represents of market particularly our we investment that believe for portions structure, and lower-risk product,

over results. that, to XXXX quarter turn discuss financial it I'll Terry third KBDC's to With Hart

Terry Hart

our with Starting Frank. Thanks, income statement.

quarter. by primarily share portfolio It's compared $X.XX prior the the the quarter, Total compared income offset during million quarter the third compared share the was our related the decrease decrease quarter. to to driven per per was in worth income $XX.X lower portfolio during net average the million we net yield a to slightly reference portfolio was the the $X.XX as that third investment was increase the noting by During to quarter, $X.XX in all yield. of additions The to for substantially of income prior in $XX.X to to second rates. third quarter $X.XX investment and earned income

on million from investment prior Total during the quarter our expense fund resulting $XX.X higher The expenses quarter. primarily activity for to compared facilities the interest increase $XX.X to borrowings was additional were third for the quarter. million credit from

XXXX. connection in point IPO, full our management through instituted XXXX, with May basis a income-based incentive fee and Kayne reminder, Anderson end fees of XX, fee XX of As waiver on through a base our a the waiver

of result During quarter. in gains $X.X the were of the portfolio to unrealized gains third some a of $X.X the activity the extent, third losses no realized unrealized quarter quarter, on recognized compared or changes we during in to investments. of the gains the The lesser our origination million unrealized the had losses prior fair and during of quarter. There were million value

and September assets were total XX, assets of $X.XX billion. $X.X were billion net As

$X.XX of was dividend $X.XX related X.XXx, quarter, was net million, that quarter. is unrealized base well debt-to-equity as which during to end the quarter. generating our the of end asset to of As in per ratio $XX.XX gains value is end the debt compared increase third of the At our increase the our and of share, an at attributable from the The had the date, an as the of second at second outstanding quarter. excess income $XX.XX X.XXx $XXX to we net increase investment the increase

the achieve our to as our of debt-to-equity range the to over continue off coming fourth portfolio to And mentioned, is good X.XXx. a target the start. X.Xx to expect quarter quarters of We growth Doug

of and our in lenders facility. and are the corporate During to credit facility utilization continued our the to third borrowings, with maturity in increase credit the pricing improving facility dialogue we extend quarter, facilities of the improve active that

over facilities evaluating and credit balance our on capital of stack. the leverage notes our and increase unsecured the we to as be enhance we'll XXXX, opportunities other and XXXX monitoring forward, Looking into debt market reviewing

X.X% related our I'll our fourth shareholders conclude On per to was dividends. XX.X%. on quarter dividend Directors based of and of regular investment income with share The our yield the for Board net declared dividend quarter annualized XXXX. declared November at on per XX, represents on few December end, record share for X, a a items dividend $X.XX based quarter NAV regular to yield dividend the of a

estimated per As was income of XX, spillover our of share. investment September net $X.XX

just X in December Directors dividends and XXXX reminder, be XXXX, of March declared per to paid our XXXX. share our to June As prior Board IPO, special a $X.XX

XXXX. a record has The of date payments X, first December these of

payment the distribute any special dividend. With excess special annual distribute and our questions. operator, we plan dividends, dividend earnings our excess earnings basis, for portion quarterly of on that, a to line dividend will regular and these an through to please above Following the over policy a open be it of

Operator

question O'Shea [Operator Instructions] take first Fargo. our will from And with Wells we Finian

Finian O'Shea

middle It I some enhanced shorter forth, better. against of opening like getting definitely looks tenure lower your the on to you're wanted the even so and about spreads, peer remarks set. OID, ask being market

a challenge are your is So them of EBITDA are some of you describe going -- go sort might the $XX flavor the and companies you of Or would or you'll maybe million? abstract work returns? market, perhaps Or how through out? very like higher lower middle

Kenneth Leonard

This Finian. Thanks, Yes. is Leonard. Ken

able financing of XX. I if north you is we're doing is median are look how platform platform are that think a we XXs. significant from nimble are what companies the that in the of our we we we're again, what high be buy-and-build in market, at stratify to we're while the benefiting to do. The majority middle And But select strategies. average enough to EBITDA want

turn platform-wide the we at by below, So and $XX do on not market averages. and the you below scale priced. focusing in if necessarily And a at leverage we're look the on market of buying below commensurately selectivity million focusing this broad Xx and and

combination being we a position. scale more build to it's and an agency of to strategy focusing terms the time tend of being So and and get larger and selective able in long-term sponsors buy lender, a compression really value-oriented over in of very spread a on to be where and with you business diversified our then work continue benefit from less up

component of what fact And are to being that influence co-agent, priced. deal to the an and fees do X/X other is have the so highest how is better benefit we're or paid that we a agent from in we the position over

Finian O'Shea

people didn't of there -- par. just want much complex these area was and a -- a in that It's at here, you but does That's some just one Or guess discount. at go? level Okay. of go helpful. means syndicated, it how some I little -- bought -- it this lot more deeper it at style But of MXS That there's asking are big roll-up to to quarter looked you far press is not it too name, a -- a complexity? just it like is

Douglas Goodwillie

Yes. hit can you start Ken, then, can Fin. that, on and Doug is specific This deal. I Frank, Goodwillie, that

mentioned, it call when everything but the it's Ken really is think we comes what I value strategy, to lending. it

an growth that maybe of fund. over said, stable, on again, Ken are looked lower get industries. in some competitors we're And not So staying index that growth, focus like industries higher our versus staple,

doing to And ton XX can unitranche. new price. disciplined we're platforms year. a on we're of not stay We doing So XX a very

So way. we're keeping that leverage multiples low

looking high dig a get level, I well. in up. can instance at all. that and as stressed instances, that And if will, you embrace paid Finn that can, We you By Frank, it at in complexity. maybe will instances, into means, we is cover certain But a companies is brought some no there Fin, then, think certain for complexity, at specific

Frank Karl

Yes.

I think look to how about we curve think at just Fini, approach to cover Doug, that, bell a pricing. we

approach. So we market think going sponsor going And the to or things above above going handle that returns of majority be you'll risk-adjusted is any dip the and to or market. do do into then portfolio way. look going be that's that And other it's below strong there's we the be well of to And down Xs. there's you it we're deals going things be, going go some find going are we've BDC And are the just on to the pricing. at to very the relationships X that really things And done sort we're to broadly of if vehicles consistent. what think, a for bell or our we're curve at to opportunistically very some that that have always

relationships, the to portfolio also down see of -- up very we're to sponsor not trading of good the you opportunities trade well-priced as want different XXX market do the dipping advantage in we take us also but few particularly trying passing out deals, quarters. over BSL often, next won't So this and

Finian O'Shea

Okay.

more. lot you're one getting good call Is On a these, OID. component? a there Just meaningful also protection of

Kenneth Leonard

X, in X X I can. all would call getting less recent first wherever core commonplace and been and almost would occasion, seeing majority the in extensions, renewing the and in X. And deals, X year protection we're quarters. year. there's we we'll in our we're Yes. if I But say market, our second say X are then we That's of On the get of the in transactions middle X. in that

Finian O'Shea

How and X? right X above now, the is that market like

Kenneth Leonard

market. on say pretty I'd that's much

hard call a off it's protection. go on to market think little I

sponsors less some sensitive it. to think are I

aggressive Some lenders less it. asking are for about

that's I on trying is pretty providing it. would So the the to it's margin, it. But say obtain part, for for we're aggressive about market giving most the when what

Operator

will we And next UBS. Harter with question from take our Doug

Douglas Harter

good start. think when being quarter updated target to off you about you the achieve talk about leverage? you and can just timeframe fourth talked a You your Can

Kenneth Leonard

Sure. Thanks, Doug.

our specificity closed Obviously, repayment already the typically challenge. with on new and opportunities given gross for the feel that always such activity of the closing I north substantial of million we a nature a business bit activity. whole, environment projecting of in quarter to beyond That to the for in pipeline offsetting be you're IPO our some in previously origination the new quarter-over-quarter active us, that plan is the in will seasonally fourth think mentioned, accelerating with ratio we're and we've originating upticks and that continued and commitments of an said, be where as we're any to some aware, will Doug a execute that, of quarter quarter, is the of quarter seeing while continued quarter. that's we have recognition following debt-to-equity or on increased fund total which a that of is fee $XXX an that portfolio growth. fourth income expect realizations, which of offset fourth

feel without I current really in growth our total, good about of philosophy. the we portfolio think trajectory investment sacrificing

really dialogue we the view committee recent we our screens reviewed, weeks really slowing hearing now deals outlook see others. from with deals very, seen investment in very on bullish that in busy We're activity sponsors bankers and of closing. given pipeline. in signs share we've don't Additionally, And same terms and of of the you're the on and right

is should drive going a from including drive which expiration M&A, a view that cap by some factors, strong economy, settling XXXX, Our potential a acceleration. -- in into in which outlook political XXXX rates with demand driven level post-election, this of along now the lower spreads, and gain is XXXX, should combination being all and is right pent-up activity a this slower a

additionally, this 'XX. that setup spreads compression of under floor should a the and really the a put for you're spread And see nice a of talk as robust all hearing. that We

too feel coming without that on being the we bullish achieve quarters. So specific, able in to being

Operator

Kenneth move RBC will to with next Lee we And Capital Markets.

Kenneth Lee

one Just yields. the portfolio on

the to the of across You if remarks base that prepared us Wonder or was debt have due remind in again could what investments rate portfolio most of the you you mentioned typical of lower rates. in floating adjustments terms terms impact the just lag there.

Kenneth Leonard

Ken. thanks, yes, So

pricing. do M&A, First about pricing of X to Obviously, outside in out is feel of nothing subject of very so stability you XX had only changes good proactive all, everyone terms of of like we've that. -- about SOFR, the

I we've I on modest it's commented terms relatively and compression, market of -- what's others we to think spread the on some that, compared larger In and have reported. been, think, in going

So -- and question your of if -- I of are was think in CFOs in. in around SOFR, locking then terms terms

relatively And And so changes X depending or a on there's going be new in slower whether X within that's obviously and as a months you each X well. months, they some to as they're locking don't as complicated a there prime come lock normal be some the month, to even -- into get X formula they're because if lapse month, X off. rate, for in a benefit roll-off those SOFR locking loan, months, X decline some months may the some

Kenneth Lee

potentially I KBDC And the just Very could terms you. in you could prepayments prepayment near-term. fee pick obviously, there. of to difficult forecast. again over activity and of us then wonder how remind helpful as the up income more benefit Got terms if in

Kenneth Leonard

cover if that, mind. don't why won't you Terry, you Yes.

Terry Hart

sure. Yes,

of there income. just all way any those current is OID remaining accelerated then at accelerations that's we the be into that prepayment, that's of account of if So that would the time the for

of portfolio, in We was $X or OID $X.XXX. So accelerated was in the this that. there bit had of about a repayments there X million fact, quarter,

X just paydown approximately refi $X $XXX,XXX and So then due the was was course accelerated normal that to and those kind activity. of rest of million exits then of

Operator

we And take Hewett from question next America. of Derek our will with Bank

Derek Hewett

notes Terry, you XXXX. potentially your unsecured in So mentioned opening that remarks had were you exploring in

do agencies? sized deal? one And the think rating institutionally on any obtaining then progress do it an how So you long a from would to major take of

Terry Hart

Yes, sure, Derek.

you As from KBRA. the rating have do know, we

believe larger we agencies would so would with we're of forward time. of this. But to Right that one $XXX million a can now, with rating And that private said, those additional million at is a or we deal closer have institutional placement. were I any forward the the But a still private strategy do get probably us another exploring we of I do -- to think as mark If placement, it an do move type I that public of notes need $XX type deal. to that outstanding. we go you

time. have leg $XXX that would do And would think larger likely amount over deal. so million, of that then closer I to matures, that into total we a whenever time, size at And we we that whenever

that's strategy. leg So to current thinking we how as our into that

Operator

I or further will the And no that it remarks. additional turn this for to now appears we have at questions program closing Ken time. back

Kenneth Leonard

we're Great. quarter progress, nonaccruals, participating as call. being as and restructuring. pricing public and velocity stability the Well, the the sponsors appreciate in we Thank We're very as nature seeing strength and low and about in very sponsors particular, portfolio, the of the well proud the minimal everybody excited the you. the in new of the from XXXX in our here of

before, quarter, to current and very you we're appreciate going So excited activity talk And to we're Thank again mentioned -- as you we're well very next into much. your activity as bullish XXXX. about we've the support. as

Operator

your Thank conclude you you. today's presentation. participation. Thank This does for

You disconnect time. at may any

Kayne Anderson BDC (KBDC) 14 Nov 242024 Q3 Earnings call transcript