Q1 2021 Barings BDC Inc Earnings Call
[music].
Greetings at this time I would like to welcome everyone to the Barings BDC, Inc Conference call for the quarter ended March 31st 2021 on.
All participants on a listen only mode. A question and answer session will follow the company's formal remarks, if you would like to ask a question. During today's event you May press star one on your telephone keypad.
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Today's call is being recorded and a replay will be available approximately two hours. After the conclusion of the call on the company's website at Www Dot Barings BDC Dot com under the Investor Relations section.
Please note that this call may contain forward looking statements that include statements regarding the company's goals beliefs strategies future operating results and cash flows of.
The company believes these statements are reasonable.
Actual results could differ materially from those projected in forward looking statements.
These statements are based on various underlying assumptions and are subject to numerous risks and uncertainties, including those disclosed under the sections titled risk factors and forward looking statements of the company's annual report on form 10-K for the fiscal year ended December 31 2020.
Quarterly report on form 10-Q for the quarter ended March 31 2021.
Each is filed with the security and Exchange Commission.
During the D. C undertakes no obligation to update or revise any forward looking statements unless required by law.
At this time I will turn the call over to Eric Lloyd Chief Executive Officer of Barings BDC. Thank you Sir Please go ahead.
Thank you Donna and good morning, everyone. We appreciate you joining us for today's call.
We hope you on your families are doing well staying safe as the country continues to open up please.
Please note the throughout today's call, we'll be referring to our first quarter 'twenty 'twenty. One earnings presentation that is posted on the Investor Relations section of our website on.
On the call today, I'm joined by Barings, Bdc's, President and Barings co head of global private Finance, Ian Fowler, Brian Hi, Barings head of U S special situations and co portfolio manager at the BDC is cheaper.
Jonathan Bock.
For Ian and John review details of our portfolio first quarter results I'll begin with some high level comments about the quarter.
Given that our fourth quarter 2020 earnings call was on March 23rd we were able to provide a pretty good preview of the strong deployments we saw on the first quarter as.
As expected the first quarter remained very active.
Given that the first quarter has historically been the least active quarter across the industry.
These deployments along with continued strong portfolio performance helped drive the earnings and dividend increases we will walk you through today.
Let's begin with the macro backdrop shown on slide five of the presentation.
Fourth quarter trends, we outlined on our last call generally continued in the first quarter with rising broadly syndicated loan prices and BDC equity prices through the first three months of of the year.
While not back to pre COVID-19 levels. The active market for direct lending has helped BDC equity prices trend in the right direction I believe these positive trends we saw across the industry were magnified the barings BDC as performance with the highlights summarized on slide six of the presentation.
The net asset value per share increased one 4% or 15 cents per share in the quarter to $11.14 for the increased driven in part by our net investment income exceeded our dividend.
Net investment income increased from 19 to 22 per share on the back of new deployments and a full quarter's impact of the M. D C capital acquisition.
That's what line more detail later the same drivers of created a more stable earnings stream given the earnings now has exceeded the hurdle rate for incentive fees and allowed us to increase our second quarter dividend to <unk> 20 per share.
Regarding the investments, we had new originations of $275 million of the first quarter, while down from the 566 billion level of the fourth quarter keep in mind that our guidance has always been debt. We would generally expect to see deployments of around 100 volume per quarter.
Clearly this can vary based on market conditions and this quarter of the team was able to capitalize on quality opportunities. We saw in the current market.
Our investment portfolio continued to perform well on the first quarter and remains value did above original cost and our one non accrual assets that was acquired through the NBC capital transaction was restructured and returned to cash paying cash interest. So we had no non accrual assets at the end of the first quarter.
Slide seven outlines additional financial highlights for the quarter for you can see how the growth of our investment portfolio has translated into increasing total investment income and net investment income both on an absolute and per share basis.
Net leverage of 1.14 times remain well within our target range and while not shown on the slide our secured debt as a percentage of total assets decreased to 35, 4% at March 30 force highlighting the continued evolution of our capital structure with the $375 million of unsecured debt outstanding.
Well it could've been easy the slowdown after such enacted and the 'twenty 'twenty. The first quarter of 2021 of the number of significant accomplishments, including the new deployments I outlined above.
February is unsecured debt issuance and integrating the NBC portfolio through our portfolio management process.
While the already mentioned the briefly I think it is important to recognize that our earnings stream should be more predictable going forward as our earnings of feed the eight per cent hurl rate recall of decline in earnings would first result in the lower incentive fee, thereby insulating investors from the negative effects of items, such as non accruals or refinancing at lower yields. This is the natural evolution of our earnings for awhile.
All of that started with the rotation out of the broadly syndicated loans to a more mature primarily middle market portfolio.
Which should in turn result in the stable predictable dividend I'll now turn the call over to Ian Fowler to provide an update on the market and our investment portfolio.
Thanks, Eric and good morning, everyone. If you turn to slide nine you can see additional details on the investment activity the Eric mentioned.
Net moving middle market investments totaled 86 million with gross fundings of 239 million, partially offset by sales and repayments of $153 million.
New investments included 16, new platform investments totaling 165 million and $73 million of follow on investments and delayed draw term loan fundings.
We also had 5 million of net new cross platform investments with $36 million of new originations, partially offset by $31 million of sales and repayments the.
MPC portfolio saw the full redemption of one equity position totaling $6 million and now has the cost basis of the $181 million.
Last quarter, we outlined the market data trends point to a high likelihood of increased prepayment velocity in 2021 relative to past cycles.
With the $153 million of sales and repayments in our middle market loan portfolio of this quarter.
You might think the expectation has definitely come to pass this.
This quarter, however, approximately $130 million of our sales and repayments were selected the sales of portions of investments, including sales to our joint venture debt enabled us to manage our exposure to non qualifying assets and create a more diverse portfolio of smaller hole sizes.
These sales also allowed us to participate in the current active market for quality investments, while maintaining a conservative leverage profile.
We continue to believe that repayments will be a significant market factor in 2021.
The barings platform and wide investment frame of reference will create a strong competitive position for barings BDC as the need to redeploy capital into attractive transactions escalators.
Slide 10 updates the data we show you each quarter on middle market spreads across the capital structure. We saw a continued tightening in the first quarter across the board and single B liquid spreads remain inside of middle market levels pricing continues to be extremely competitive for quality transactions and the ability to differentiate.
Across the risk spectrum will be critical for success of this market.
A bridge of our investment portfolio from December 31 to March 31st of as shown on slide 11.
Both realized and unrealized depreciation drove an increase in portfolio of fair value as did the accrual of Pik interest tied to acquired NBC investments.
Zone of the key components of our investment portfolio at March 31st is on slide 12.
As we have discussed in the past the goal of this slide is to provide details on three key components of our portfolio.
Which are now our middle market portfolio, the legacy N V seed capital portfolio and our cross platform investments the.
The middle market portfolio remains our core focus and makes up 75% of of our portfolio in terms of total investments and commitments.
<unk> 68 per cent of our portfolio in terms of revenue contribution.
This portfolio of complemented by the 17 investments from the legacy N V seed capital portfolio.
And 25 cross platform investments, which have use of fair value of the 13, 9% and eight 1% respectively.
We had no non accrual investments that we're in and one loan agreement Amendment that included the feature to allow a minority portion of the interest to convert to pick accounting for 3% of total revenue for the quarter.
Otherwise we've had no material modifications to the cash payment terms of our debt investments.
For our middle market portfolio weighted average first lien leverage was five two times consistent with what we reported last quarter.
Our total investment portfolio. Excluding short term investments is now made up of 81% first lien assets generally consistent with the 81, 9% and at the end of the fourth quarter slide.
Slide 13 provides a further breakdown of the portfolio from the seniority perspective.
Core barings originated portfolio, which makes up over 88% of our funded investments is 91% for sling.
This is down from 93% last quarter driven by further investments in our joint ventures continue to enhanced portfolio of diversification.
The MPC portfolios comprised primarily of equity second lien and mezzanine debt investments, which brings the first lien component of the total portfolio down to 81 per cent.
As we have outlined while we believe the MPC portfolio can initially serve as an attractive complement to the barings originate portfolio.
We will continue to drive towards the exit of non core Laurie yielding equity equity investments and increasing core earnings by redeploying this capital into higher yielding assets.
This strategy was exemplified by the 6 million of equity sale I referenced earlier.
Our top 10 investments are shown on slide 14, our largest investments of two 7% total portfolio in the top 10 investments represented 19, 3% of the total portfolio the.
The two largest investments were acquired as part of the M. D C capital transaction.
Remember that these investments are supported by the credit support agreement in place with Barings, LLC, thus, reducing the potential downside risk the.
Overall, the portfolio remains diverse from the industry perspective.
As well with 150 investments spread across 29 industries.
Overall summarize by saying that while both of the market and portfolio of company performance remained strong now is not the time to be complacent.
Active portfolio management and staying ahead of issues remain violate important in income.
On pricing spread environment.
Given the depth and breadth of the barings platform across many private asset classes, we remain confident in our ability to deploy capital at attractive rates of return and strong risk profiles.
I'll now turn the call over to John to provide additional color on our financial results.
Thanks, Ian and jumping to slide 16 here.
Here's the full bridge of the 15 cent increase in NAV per share to $11.14 as of March 31.
Our net investment income outpaced our dividend by <unk> <unk> per share net unrealized gains on our investment portfolio and foreign currency transactions drove an increase of three cents per share of net unrealized depreciation on our investment portfolio of foreign currency transactions and credit support agreement drove an increase of roughly 10 cents per share.
Additional details on this net unrealized depreciation of shown on slide 17.
The 10 cents per share of net unrealized depreciation, which equates to approximately $6 million isn't included depreciation of approximately $3 million on our current middle market investment portfolio and of this $3 million of appreciation of 5 million was attributable to lower spreads in the broader market for middle market debt.
And roughly 400000 was attributable to the net impact of improved credit across the portfolio depreciation was offset by roughly $3 million of depreciation attributable to the impact of the strong dollar on our middle market investments held in foreign currencies are cross platform investments that totals of appreciation of approximately.
$8 million, while the legacy M. D C portfolio of soft total net depreciation of roughly 5 million. This net depreciation for the legacy M. D. C portfolio was almost entirely driven by two equity positions that had been impacted by COVID-19, but we continue to feel good about the long term prospects for both investments.
Near the bottom of slide 17, you can see that the credit support agreement with Barings had unrealized depreciation of $1.6 million. So a logical question would be why do we have unrealized depreciation on both the legacy M. D C portfolio and the credit support agreement as the CSA is intended to offset the losses in the legacy M D.
C portfolio.
The value of the CSA determined based on a long term view of potential outcomes for the legacy M. D C portfolio and while at any quarter end the value of those investments fluctuate, particularly the equity positions the longer term view of the portfolio could lead to a different valuation outcome. The valuation of the CSA this quarter not only takes into account the.
Current valuations, including the depreciating Oh depreciation on equity investments, but also the impact of portfolio of repayments and lower downside risk on the based on circumstances of certain debt investments. So unrealized depreciation on the CSA is a reflection of an improved longer term outlook for the legacy N V C.
Portfolio as a whole now slide 18 of 19 will show our income statement and balance sheets for the last five quarters. We've discussed our net investment income per share increased 22 cents for the quarter and that was driven by roughly $10 7 million an increase in total investment income.
A full quarter of the investment income from our new investments in the fourth quarter of 2020, and the N V. The investment portfolio as well as the impact of our net growth in the first quarter that drove that increase the increase in total investment income was partially offset by higher interest and financing fees, which rose as a result of our increased borrowing.
Levels and the higher interest costs associated with our unsecured debt issuance.
The first quarter also saw the first payment of an incentive fee to the manager as pre incentive fee net investment income exceeded our 8% hurdle right now from a balance sheet perspective on slide 19 total debt to equity was 1.35 times at March 31st Although this level was artificially high given the timing of certain of.
Asset sales.
And was roughly 1.14 times after adjusting for cash on cash equivalents of unsettled transactions.
We also issued unsecured debt for the third consecutive quarter, bringing the total principal amount outstanding to $375 million turning to slide 20, you can see how our funding debt mix relates to our assets both in terms of seniority and asset class and compare to the end of 2020, our reliance on senior debt.
Decreased as we've continued to diversify our balance sheet to match our diverse portfolio of assets details on each of our borrowings are shown on slide 21, and that shows the evolution of our debt profile over the last three quarters. The first quarter includes the new 150 million of unsecured debt private placement we completed in February.
Which included $80 million of five year notes with the coupon of three point for 1% and $70 million of seven year notes with a coupon of 4.06% or of blended coupon of roughly 3.71%. We continue to have an additional commitment to raise up to 20, some $25 million of unsecured debt and available borrowing capacity.
Under our 800 million dollar senior secured credit facility jump to slide 22.
You can see the potential impact of using the available liquidity on our net leverage including the impact of funding our unused capital commitments Barings BDC currently has $121 million of delayed draw term loan commitments to our portfolio of companies as well as $45 5 million of remaining commitments to our joint venture inverse.
The table shows here, how we have the available capacity to meet the entirety of these commitments if called upon one of my maintaining cushion against our regulatory leverage limit.
Twenty-three updates our paid and announced dividends since barings took over barings took over as the investment adviser to the BDC and as Eric mentioned, we announced yesterday that our second quarter 2021 dividend will be 20 cents per share an increase of five per cent compared to the last quarter for them.
With me now to slide 25, and this shows the a graphical depiction of relative value across the triple B double B and single B asset classes and we continue the study this concept to evaluate relative value opportunities that exist for investors of different levels of credit risk and how the value of choice of cross markets provides a meaningful.
Benefits of BDC investors the.
This translates into the actual results shown on slide 26, which outlines the premium spread on our new investments in the first quarter relative to liquid credit benchmarks as we saw attractive illiquidity and complexity premium spread barings.
Barings BDC deployed 275 million at an all in spread of 739 basis points, which represents a 303 basis point spread premium to comparable liquid market indices at the same risk profile diving deeper into our core middle market segment across Europe, and North America.
The average roughly 296 basis points spread relative to liquid market indices for cross platform investments the spread relative to the liquid market indices was even greater at 572 basis points and we continue to believe.
Our ability to invest across platforms and generate excess shareholder return via illiquidity and complexity of premium is a key differentiator for barings BDC in this upcoming cycle and I'll wrap our prepared remarks with slide 27, and the summarizes new investment activity. So far during the second quarter of 2020.
One and our investment pipeline.
The pace of new investments slowed slightly compared to the last few quarters, but remains strong compared to historical norms with approximately $156 million of new commitments of which of $106 million of closed and funded.
Of these new commitments 78 per center in first lien senior secured loans to per center and joint ventures, and the weighted average origination margin or D. M. Three was roughly 8.2%. We've also funded approximately $5 million of previously committed delayed draw term loans. The current barings global private for.
The investment pipeline is approximately $1.7 billion on a probability weighted basis and is predominantly first lien senior secured investments as a reminder of this pipeline is estimated based on our expected closing rates for all deals on our investment pipeline and with that let's get the questions. Operator, we can open the line for Q&A.
Yeah.
Thank you ladies and gentlemen on the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.
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First question is coming from Finian O'shea of Wells Fargo Securities. Please go ahead.
Hi, everyone. Thank you.
Eric I first wanted to ask about your your earnings profile here, you're making some incentive fee.
On an 8% NOI return, which which you set out to do initially so congrats on that.
But but the.
You know the M. D. C assets will will eventually move off originations will will come back to Earth. As you seem to say and then I think there was some good could repay fee income I'm not sure of that.
As you know normal going forward or it was especially high this quarter.
But the you know with all of that the question is do you think.
Do you feel comfortable that where we're at the destination in terms of earnings for.
Or has it just been hot lately or perhaps do you think theres more ups.
Outside to go just.
Want to know on on how Youre thinking about this today now that you're you've arrived to a pretty good place and earnings.
Yeah. So we're just trying to get to the the sustainability. The question I think film is that right.
Oh, Yeah, yeah yeah.
Yeah, So listen I mean, I think the N B C assets I think it's a mix right. So you got the you got the equity that's earning zero from a current income perspective, and if you look at it the second largest asset is one of those.
All she has pumped on which we highlighted in there like custom alloy, which is of higher earning asset.
So the combination of those two I think.
As an example, when we win one rotates off versus the other could have a marginal impact, but we look at the portfolio across the board the single largest asset increase of 2.7% I mean, we've got a lot of diversification.
The across the board, we have over 100 200 basis points of cushion to that 8%. If you look at the gross return of we had it was over 100 basis points higher than the eight per cent and so we feel good about that cushion there and so we actually think there's more upside.
What we've done on the cross platform investments now I think of it.
It's probably I don't know 18 months ago, we introduced those to the shareholders of the other things we can do at Barings.
While we have like Brian Hi on the phone as an example, so I think theres more upside there, but we feel confident that the 8% is the return for shareholders is also a very sustainable.
Okay great.
That's helpful and then just of a follow on.
I missed the the pipeline number at the end with the John if he could.
Give us that but also perhaps for Ian as well.
On the on the quality of the pipeline.
You know what we're hearing both the competition is fiercely back but also that there is a lot of on demand.
Demand for.
From sponsors for their for their M&A plans. So just some.
Some high level.
It sounds like Theres quantity, there, but some high level on the on the quality of.
How how the things are things better than are they totally back to pre pandemic or or how is that.
Evolved in terms of where we are today and that'll be all for me. Thank you.
And maybe I'll start just with the market and then John can cover the pipeline for you.
And just taking a step back.
The fourth quarter was incredible.
Unlike anything I've ever seen in my career in terms of the volume of high quality assets and and I think looking at the economy today, the monetary and fiscal support is definitely and stabilize the economy is really fueling growth in the economy.
I think it has allowed some of managers that were maybe kicking the can on some of the portfolio of issues to deal with those and potentially shore up their balance sheets log capital has been raised so yes first quarter like we said in our in our prepared statements are extremely act.
Dave.
On a comparative on a relative basis, two first quarters of of other years. It was a much busier than than one would expect just given the seasonality of our of our business.
But I, but I think when you start looking at Theres sort of of two things here I think when you start looking at new platforms.
Probably going to see.
And I think we've started to see some deterioration in the quality of some of the things coming to market you know usually the the better quality assets.
Through the first after after the cycle followed by a lower quality assets. So I think youre starting to see that you're definitely seeing the.
The pricing and structure in terms of.
<unk> become much more competitive just given all of the money out there and the managers that have been able to rebound from their portfolio issues.
And so we expect that the continue doesn't mean, you can't find good opportunities in the market, which which we are finding.
Unfortunately for US we have a pretty.
Young portfolio and so we don't expect the other.
Other than just sort of normal recycling, we don't expect that we're gonna have to.
Ramped significantly going into a more competitive market.
John.
Yeah. Thanks, and then just that number of the that's in the portfolio was $1 $7 billion on a probability weighted basis. So.
Thanks for that day.
Thank you. Our next question is coming from Kyle Joseph of Jefferies. Please go ahead.
Yeah.
Hey, good morning, congratulations on a really strong start for the year I wanted to dig into the credit performance of debt. Obviously, it's been strong no non accruals, but just wanted to get your sense for kind of underlying trends in your portfolio of companies in terms of revenue and EBITDA on road and your.
<unk> for 'twenty one.
As copies and I guess, the debate and the the Big question Harry.
Or are we really through the thick of it and.
Things get easier from here from a credit perspective.
Yes, so there's the.
The end.
So I.
I guess I would I would start.
By by saying that.
Just again with the.
The monetary and fiscal support.
You know the economy, obviously is doing better it's headed in the right direction and we fully recovered now we haven't is there of risks that are you know.
We could.
The rail somewhat yes, that's true.
That's possible.
But we're certainly within our portfolio and again.
Were fortunate going into COVID-19, because we generally avoid and or deemphasize consumer facing on a discretionary businesses. So a lot of the industries that were cigna.
Significantly impaired by COVID-19 retail restaurants, gyms travel and leisure on where all areas that we generally avoid for us from a portfolio of perspective and again most of the portfolio was deemed essential businesses. So even with the shutdowns in place they they rebounded very quickly and so.
We've seen all of those numbers headed in the right direction I would say going forward I think you have to and we're certainly seeing it within the portfolio input costs are rising and so we definitely see inflation out there. So the question really is you know how.
How long does the fed fight.
The rates and keep pumping liquidity into the market and at some point do we start to see.
Some of some rates are rising and there's no question. There's some companies out there of what of the companies. They are still really from being impacted by COVID-19.
The balance sheet, so I think those debt.
Our end markets, we will have some some issues.
I appreciate that and then just one follow up on the on the N V. The portfolio I just want to make sure I understand the strategy. There obviously high yield component to the fixed income assets and then.
But obviously, yet and equity of high equity content there.
Yeah, it's really just.
Monetizing the equity and holding on to the fixed income assets as long as possible or is that how youre thinking about it.
Yeah.
I mean are your debt.
Please.
Go ahead Mark.
I would say that the the the goal is to make sure that we're maximizing kind of the profitability you would find that over and that can come bolt on the appreciation side of things as well as the income side, Eric mentioned, the stability of the earnings profile and the stability of the earnings profile can comp even as investments that are higher spread.
Kim can be repaid just given the breadth and depth of the platform. So I'd say you know that the <unk>.
He's going to focus on ensuring that you don't you don't rush you always make sure you do what's right for your investors as it relates to net asset value and income.
And the probably say that over time, you'll see a level of cycling out of the proper price because the current market environment with liquidity is the leading asset prices. It's just the being a bit deliberate in making sure we maximize it given the income profile now remains very strong.
Got it thanks very much for answering my questions.
Thank you. Our next question is coming from Robert Dodd of Raymond James. Please go ahead.
Hi, guys and.
Congratulations on all of a good quarter on getting into that incentive and catch up.
So that's the first question John you actually preempted the first part of it but on the CSA.
The comments of improved long term outlook can you give us any color there is that a higher expectations long term for equity and maybe neutral for debt or is it just across the board.
Debt the the outlook has improved and drove that she has shaped up.
The question Robert I'd argue that if you look at the the debt profile just given the improvement of liquidity there just as general across the board improvement.
And what.
The equity values. If you think about how the CSA is longer term in nature and it's the valued based on the series of outcomes right you'd find that equity volatility has less of the near term impact on the CSA valuation until it's realized because you have of a number of options of going higher or lower right and if you were going to run them. The the model.
Simulation. So so it really is a general debt focus are in terms of the calculation of that CSA from from today's vantage point.
Okay. Thank you on.
I think page 12, I like this every quarter on the middle market segment, I mean I see the.
The spreads flat.
Versus last quarter on leverage flat with last quarter on average interest coverage down about half of it.
Is there anything obviously generally speaking lower interest coverage is.
Slightly worse than the time is there anything going on there with that of consequence of repayments of halve interest companies loans or the transfers to the jv's or what's the dynamic that with spreads and leverage the same the interest coverage and debt.
Well I'll start and then I'll kick it over to Eric and.
John and Robert just from a from a market perspective in terms of.
The deal so we're doing the comparing fourth quarter the first quarter.
Really not any change when you look at the key metrics of.
Leverage and spreads and L. T be none of that has materially changed I think like we've said going forward we expect.
Well we are seeing.
Yeah.
Yields tightened and spreads compress.
And leverage going up a bit so I think we will see some deterioration there.
But there hasnt been much change quarter over quarter and just from a historical perspective, when you look at interest coverage today compare to like say the great financial crisis.
Significantly much better than it was back in 2007, and 2008, now I'll, let john or or talk about the the jv's or.
I'd come to of at times are at times, Robert what you'll find is there can be a little bit of noise in our in some of those quarterly numbers, but at the end of the day. The general trend that Ian speaks to is the one that we are the the one that we see in the one that we're continuing to operate under the.
Correct me if I'm on page 12, as the total portfolio.
Rich nations so anything.
Correct.
That's correct.
Robert mistake.
And you know the three five times interest coverage, we feel really good about that number.
And on the middle market debt point, it's not a bad number of tall, that's just type of staff.
Yeah, Yeah got it thank you.
Yep.
Thank you. Our next question is coming from Casey Alexander of Compass point. Please go ahead.
Hi, good morning.
I'll give you both of my questions at the same time and you can address them. However, you want to.
Looking at slide 14.
The two largest positions in the portfolio of both from N V. C. So I think it would be helpful. If you could give us some color on those two companies custom alloy and security Holdings and then secondly, if you could you.
Give us some definition as to the differentiation between the two jv's and why there are two how they're structurally different how they're strategically different I think that would be very helpful. Also.
Casey the city minefield of course.
Oh go ahead.
Jonathan.
Yes.
I think when you asked two questions at one time, you get to people trying to answer.
It's exactly exactly right case, he says well what will what we'll start with terms of the high level trends. So we we don't you know.
Comment on individual portfolio company performance, we'll try to make sure that we give it to you since in the aggregate Casey, but we try to stay along the lines of the.
End of the day of week, we look at it things that context and are finding that the general performance of those loans is is effectively reflected in both of the marks and so while we say we've seen very strong trends of crosses the the portfolio group. We tried to make sure that at the end of the day, we stick to the process the number of our peers and others go about not coming on commenting on.
Portfolio of companies in specific but the question as it relates to the joint ventures is a structural one and we can answer kind of the difference.
You'll start to see debt and you're very familiar with the joint venture as it relates to our South Carolina that has an ability on a very wide investment mandate across the the credit investment spectrum, that's called for Cassie partners.
In addition, there are other J D with a specific asset or industry focus that allowed the bdcs to own the specific type of asset class that can be very attractive from a risk adjusted return standpoint, which in that case would be another joint venture referred to here as the pumps and rivers.
We can discuss a number of those debt strategies over time, but what you'll find is our our goal is to make sure that we have a broad investment frame of reference that the built by very large private asset franchise in a number of attractive asset classes and the goal is to also make sure that many of those attractive asset classes of port over to the <unk>.
D C and there is a way to do so using the joint venture structure. So it's a it's a good question, but if you think of one large global joint venture of its work with the state of South Carolina and then two additional ones also very close with our partners at the state of South Carolina, you can see in both Thomson rivers and the smaller one referred to as whack him on.
Okay.
Okay. Thank you.
Thank you. Our next question is coming from Paul Johnson of Kw. Please go ahead.
Hey, good morning, everybody. Thanks for taking my questions.
My first question I was actually similar to fans I'll just ask it.
Wei I'm curious.
Is it your goal to over time increase earnings above the 8% hurdle or a.
Do you sort of consider or I guess it is the goal to generate sort of earnings of around that.
8% hurdle and just a just a very stable fashion.
Is there from a long term after the last one day you can go back.
I'd say I think of it this way.
I hate to say it the both Ann.
But we've said all along that our strategy is kind of boring predictable highly diversified mixture, we consistently generate that that eight plus per cent and first quarter, we've gotten there from.
We bought the portfolio that being said right you saw the lift we got just in the last quarter or two and so when we see opportunities where the risk adjusted return makes sense to deploy that capital absolutely. The goal is to increase earnings well above that number.
But we're not going to do it the.
While compromising on the rest of side. So the the goal isn't to chase of 10 or chasing the 11.
On the goal is to make sure we consistently generate the eight plus per cent for shareholders and then when the opportunities are there just like we did in the fourth quarter, we're going to step in and we will step in aggressively to deploy capital when the risk adjusted returns there and I believe that will help us continue to kind of get those.
Of those earnings increases, where it makes sense, John I'm, sorry, I cut you off what would your debt the debt.
No. That's that's the exactly the way you you you expect and always want to maximize return, but you don't do so well compromise of compromising the risk profile of Paul So it's the it's a good question hopefully that provides additional context.
Got it Yep that's.
It's a very good answer and then the last time I follow up on.
On the JV for Jackson Partners I don't believe you can correct me if I'm wrong debt you earned any income from the JV. This quarter I believe it's it's.
It's been retained and I think that's been the same for the last two.
Again, correct me, if I'm wrong, but so are the plans there to eventually distribute earnings down to the BDC or do you kind of intend to to retain earnings as you have been and maybe what the advantages of doing that.
The good question, what kind of start with maybe it's just the higher level of concept, where at times joint ventures, and the and the the BDC space became the tail that wags the dog.
And there was a point when if you're overly reliant on effectively over leveraging credit spread asset to generate a higher return to maintain them on.
On improper pay out or that's just the strategy that is not one that the that makes sense to us and so what we what we look at it is every every quarter on the opportunity set and whether or not investment can be retained and and you know we work very closely with our partner in determining that youre right Theres been no dividend off that.
That doesn't mean that it can't change, but our our view is it's pretty simple debt overtime.
Building in a V for Bdcs can be a very difficult task and it seems in certain circumstances and when you have the opportunity to retain cash and grow net asset value properly you do so whenever process of possible. It if it's if it's prudent and it has been here given the earnings profile of the the rest of the portfolio and we're very thankful for.
For it to our partners as we continue to reinvest those proceeds and grow net asset value on that venture.
Thanks, I appreciate that and those are all of those are all my questions.
Thank you at this time I'd like to turn the floor back over to Mr. Boyd for closing comments.
Well just for US I know, it's a busy time for everybody. So thanks for taking the time to actually invest the time to listen to us and hear about our quarter.
We remain grateful for your support out there and I hope everybody stays healthy and positive during these times and look forward to of summer, where if the hopefully people can open up a little bit more and start together with loved ones. The brands. So stay healthy and stay positive out there and if we do anything let us know thanks so much.
Ladies and gentlemen, thank you for your participation and interest in Barings BDC you may disconnect. Your lines at this time of log off the webcast and have a wonderful day.
Yeah.
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Uh huh.
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