Q2 2024 Bain Capital Specialty Finance Inc Earnings Call

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Operator: Good day, everyone. And welcome to today's Bain Capital Specialty Finance second quarter ended June 30th, 2024 earnings conference call. At this time, all participants are in a listen-only mode.

Operator: Good day, everyone, and welcome to today's Bain Capital Specialty Finance second quarter and the June 30, 2024 earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask a question during the question-and-answer session. You may register to ask a question at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing stars and 2. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Ms. Katherine Schneider. Please, go ahead.

Speaker Change: Good day, everyone, and welcome to today's Bain Capital Specialty Finance second quarter and the 20...

Operator: Later, you will have the opportunity to ask a question during the question-and-answer session. You may register to ask a question anytime by pressing the star and one on your telephone keypad. You may withdraw yourself from the queue by pressing star and two. I will be standing by if you should need any assistance.

Speaker Change: The star and 1 on your telephone keypad, you may withdraw yourself from the queue by pressing star and 2. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Ms. Katherine Schneider. Please go ahead.

Katherine Schneider: It is now my pleasure to turn the conference over to Ms. Katherine Schneider. Please go ahead.

Katherine Schneider: Thank you, Marjorie. Good morning and welcome, everyone, to the Bain Capital Specialty Finance second quarter ended June 30, 2024 conference call. Following our remarks today, we will hold a question and answer session for analysts and investors. However, any forward-looking statements made today do not guarantee future performance, and actual results may differ materially. These statements are based on current management expectations, which include risks and uncertainties, which are identified in the risk factor section of our Form 10-Q.

Katherine Schneider: Thank you, Marjorie. Good morning. And welcome, everyone, to the Bain Capital Specialty Finance second quarter ended June 30th, 2024, conference call.

Katherine Schneider: Yesterday, after market closed, we issued our earnings press release and investor presentation of our quarterly results, a copy of which is available on Bain Capital Specialty Finance's Investor Relations website. Following our remarks today, we will hold a question-and-answer session for analysts and investors. This call is being broadcast, and a replay will be available on our website.

Katherine Schneider: Yesterday, after market closed, we issued our earnings press release and investor presentation of our quarterly results, a copy of which is available on Bain Capital Specialty Finance's investor relations website.

Speaker Change: Following our remarks today, we will hold a question and answer session for analysts and investors.

Katherine Schneider: This call and the webcast are property of Bain Capital Specialty Finance, and any unauthorized broadcast in any form is strictly prohibited. Any forward-looking statements made today do not guarantee future performance, and actual results may differ materially. These statements are based on current management expectations, which include risks and uncertainties, which are specified in the risk factor section of our Form 10-Q that could cause actual results to differ materially from those indicated. Bain Capital Specialty Finance assumes no obligation to update any forward-looking statements at this time unless required to do so by law.

Speaker Change: This call and the webcast are property of Bain Capital Specialty Finance, and any unauthorized broadcast in any form is strictly prohibited.

Speaker Change: Any forward-looking statements made today do not guarantee future performance, and actual results may differ materially.

Speaker Change: These statements are based on current management expectations, which include risks and uncertainties, which are identified in the risk factor section of our Form 10-Q that could cause actual results to differ materially from those indicated.

Katherine Schneider: Lastly, past performance does not guarantee future results.

Michael Ewald: So, with that, I would like to turn the call over to our CEO, Michael Ewald. Thanks, Catherine, and good morning, everyone, and thank you for joining us here on our earnings call. I'm joined today by Mike Boyler, President, and our Chief Financial Officer, Amit Jojee.

Katherine Schneider: That could cause actual results to differ materially from those indicated. Bain Capital Specialty Finance assumes no obligation to update any forward-looking statements at this time unless required to do so by law. Lastly, past performance does not guarantee future results.

Michael Ewald: Thanks, Katherine, and good morning, everyone, and thank you for joining us here on our earnings call. I'm joined today by Mike Boyle, our President, and our Chief Financial Officer, Amit Joshi. As usual, we'll also leave some time for questions at the end.

Michael Ewald: In terms of the agenda for the call, I'll start with an overview of our second quarter and the June 30th, 2024 results, and then provide some thoughts on our performance, the overall market environment, and our positioning. Thereafter, Mike and Amit will discuss our investment portfolio and financial results in greater detail. As usual, we'll also leave some time for questions at the end.

Speaker Change: Thereafter, Mike and Amit will discuss our investment portfolio and financial results in greater detail. As usual, we'll also leave some time for questions at the end.

Michael Ewald: So starting with yesterday, after market closed, we delivered solid second quarter results. Q2, net investment income per share was 51 cents as we continued to benefit from high base rate interest rates across our portfolio. Our net investment income return represented an annualized yield of 11.6% on book value and covered our regular dividend by 121%. Q2 earnings per share were 45 cents, or an annualized return on equity of 10.2%, as credit fundamentals remain healthy across our entire portfolio. As of June 30th, our net asset value per share was $17.70, unchanged from the prior quarter end. Subsequent to quarter end, our board declared a third quarter dividend equal to 42 cents per share and failed to record date holders as of September 30th, 2024.

Michael Ewald: Starting with yesterday, after the market closed, we delivered solid second quarter results. Q2 net investment income per share was $0.51, as we continued to benefit from high base rate interest rates across our portfolio. The board also declared an additional dividend of three cents per share for shareholders of record as of June 30th, as we previously announced back in February. This brings total dividends for the third quarter to $0.45 per share, or a 10.2% annualized rate on ending book value as of June 30th.

Speaker Change: So, starting with yesterday, after market closed, we delivered solid second quarter results. Q2 net investment income per share was $0.51, as we continued to benefit from high base rate interest rates across our portfolio.

Speaker Change: Q2 earnings per share were $0.45, or an annualized return on equity of 10.2%, as credit fundamentals remain healthy across our entire portfolio.

Michael Ewald: The board also declared an additional dividend of $3 cents per share for shareholders of record as of June 30th, as we previously announced back in February. This brings total dividends for the third quarter to 45 cents per share, or a 10.2% annualized rate on ending book value as of June 30th, which we believe represents an attractive yield for our shareholders.

Michael Ewald: Turning now to the market environment, we continue to see healthy transaction levels during the second quarter, driven by both refinancing and new LBO activity, although new deal activity still remains at lower levels relative to historical periods. In spite of this lower activity level for new M&A, we believe the private credit market remains well-positioned for future growth, given the large amount of private equity, dry powder, earmark for new deal activity on the one hand, and the mounting pressure for sponsors to return capital investors to portfolio company sales on the other. Furthermore, market expectations for future rate cuts have increased in recent weeks on the back of software economic data, which could continue to drive new activity levels into this year and into 2025 as well.

Michael Ewald: Turning now to the market environment, we continue to see healthy transaction levels during the second quarter, driven by both refinancing and new LBO activity, although new deal activity still remains at lower levels relative to historical periods. Furthermore, market expectations for future rate cuts have increased in recent weeks on the back of softer economic data, which could continue to drive new activity levels into this year and into 2025 as well. Our gross originations during Q2 were $307 million, up 55% year-over-year, though down approximately 24% from Q1 levels of $403 million.

Speaker Change: Turning now to the market environment, we continue to see healthy transaction levels during the second quarter driven by both refinancing and new LBO activity, although new deal activity still remains at lower levels relative to historical periods.

Speaker Change: In spite of this lower activity level for new M&A, we believe the private credit market remains well positioned for future growth, given the large amount of private equity dry powder earmarked for new deal activity on the one hand, and amounting pressure for sponsors to return capital to investors through portfolio company sales on the other.

Speaker Change: Furthermore, market expectations for future rate cuts have increased in recent weeks on the back of softer economic data, which could continue to drive new activity levels into this year and into 2025 as well.

Michael Ewald: Against this backdrop, Bain Capital's private credit group remained active in the middle market, sourcing new investment opportunities from our broad and deep set of relationships, while still remaining highly selective. Our gross originations during Q2 were $307 million, of 55% year over year, though down approximately 24% from Q1 levels of $403 million. During the quarter, we were active providing capital to new companies and add-on capital to existing portfolio companies to support their growth through our platform and company advantage. Our Q2 originations were split nearly half and half between new and existing borrowers. We continued to see attractive terms in the core middle market, which we define as companies with between $25 and $75 million of EBITDA, and where Bain Capital's platform has consistently invested over its 25-plus year history.

Speaker Change: Against this backdrop, Bain Capital's private credit group remained active in the middle market, sourcing new investment opportunities from our broad and deep set of relationships, while still remaining highly selective.

Speaker Change: Our gross originations during Q2 were $307 million, up 55% year over year, though down approximately 24% from Q1 levels of $403 million.

Michael Ewald: Our Q2 originations were split nearly half and half between new and existing borrowers. We continue to see attractive terms in the core middle market, which we define as companies with between $25 and $75 million of EBITDA and where Bain Capital's platform has consistently invested over its 25-plus year history. While we have seen some recent spread compression, terms and structure continue to be attractive, with a weighted average yield of 11.6 percent and median leverage levels of 4.6 times on these new originations.

Speaker Change: We continue to see attractive terms in the core middle market, which we define as companies with between $25 and $75 million of EBITDA, and where Bain Capital's platform has consistently invested over its 25-plus year history.

Michael Ewald: Across our direct originations to new platforms during the second quarter, the median EBITDA of our borrowers was approximately $45 million. While we have seen some recent spread compression, terms and structure continue to be attractive, with a weighted average yield of 11.6% and median leverage levels of 4.6 times on these new originations. We also remained focused on investing in debt structures that provide us with strong lender controls. 95% of our Q2 originations to new companies were structured with documentation, containing financial covenants, tied to management's forecasts, and we have majority control in nearly 80% of these debt tranches, allowing us to drive eventual outcomes at our discretion.

Speaker Change: While we have seen some recent spread compression, terms and structure continue to be attractive, with a weighted average yield of 11.6% and median leverage levels of 4.6 times on these new originations.

Michael Ewald: We also remain focused on investing in debt structures that provide us with strong lender controls. These statistics are consistent with our broader portfolio, showing our continued focus on these core tenants. Investments in non-accrual status declined quarter over quarter and are below industry averages. Credit risk rating trends were also stable during the quarter, with only a small percentage of our portfolio underperforming and on our watch list. We increased the commitments under our Secured Revolving Credit Facility by nearly 30 percent and extended the maturity to mid-2029 from 2026.

Speaker Change: We also remain focused on investing in debt structures that provide us with strong lender controls. 95% of our Q2 originations to new companies were structured with documentation containing financial covenants tied to management's forecast.

Michael Ewald: These statistics are consistent with our broader portfolio, showing our continued focus on these core tenants.

Speaker Change: These statistics are consistent with our broader portfolio, showing our continued focus on these core tenets.

Michael Ewald: Moving on to credit quality, our portfolio companies continue to perform well in the current market environment. Investments on non-a-cruel status decline quarter over quarter and are below industry averages. Our non-a-cruel is represented 1.2% and 1.0% at amortized cost and fair value, respectively, as of June 30th. Credit risk rating trends were also stable during the quarter, with only a small percentage of our portfolio underperforming and on our watch list. We've been very pleased with the performance of our borrowers operating in a higher interest rate environment in recent years, and we believe this is a testament to being capital-disciplined and highly selective underwriting process.

Speaker Change: Moving on to credit quality, our portfolio companies continue to perform well in the current market environment.

Speaker Change: Investments on non-accrual status declined quarter over quarter and are below industry averages. Our non-accruals represented 1.2% and 1.0% at amortized cost and fair value, respectively, as of June 30.

Speaker Change: Credit risk rating trends were also stable during the quarter, with only a small percentage of our portfolio underperforming and on our watch list.

Michael Ewald: Lastly, we also enhance our capital position during the quarter by attracting new lenders to our platform. We increase the commitments under our secured revolving credit facility by nearly 30% and extended the maturity to mid-2029 from 2026. We position as well with ample drive powder to capitalize on new investment opportunities in the current market environment.

Speaker Change: Lastly, we also enhance our capital position during the quarter by attracting new lenders to our platform.

Michael Ewald: At the end of the second quarter, our gross and net leverage ratios were 1.03 times and 0.95 times, respectively, which are at the lower end of our target leverage ratio of 1.0 to 1.25 times and position us well with ample dry powder to capitalize on new investment opportunities in the current market environment. I will now turn the call over to Mike Boyle, our president, to walk through our investment portfolio in greater detail.

Speaker Change: which are at the lower end of our target leverage ratio of 1.0 to 1.25 times and position us well with ample dry powder to capitalize on new investment opportunities in the current market environment.

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

Speaker Change: I will now turn the call over to Mike Boyle, our president, to walk through our investment portfolio in greater detail. Mike.

Michael Boyle: Thank you, Mike, and good morning, everyone. We'll start with our investment activity in the second quarter and then provide an update on trends in our portfolio. New investments made during the second quarter were $307 million into 77 portfolio companies, including $143 million into 11 new companies and $164 million in incremental funding to existing companies. Sales and repayment activity totaled approximately $474 million in the quarter, although $271 million of the sale activity was into our joint ventures. All of this activity resulted in a net harvesting of our investments of $167 million quarter over quarter. Our new fundings were split between new and existing portfolio companies as we leveraged our long-standing relationships with private equity sponsors who valued our industry expertise to help them grow and execute on their longer-term business plans.

Mike Boyle: New investments made during the second quarter were $307 million into 77 portfolio companies.

Mike Boyle: Including $143 million dollars into 11 new companies and $164 million dollars in incremental funding to existing companies.

Michael Boyle: Sales and repayment activity totaled approximately $474 million in the quarter, although $271 million of the sale activity was into our joint venture. All of this activity resulted in a net harvesting of our investments of $167 million quarter over quarter.

Mike Boyle: Sales and repayment activity totaled approximately $474 million in the quarter, although $271 million of the sale activity was into our joint ventures.

Michael Boyle: Our new funding was split between new and existing portfolio companies as we leveraged our longstanding relationships with private equity funds. This quarter, we remain focused on investing in first lien senior secured loans, with 86% of our new funding going into first lien structures. 9% of our investment activity was into investment vehicles, which included an additional contribution to the Senior Loan Program.

Mike Boyle: Our new fundings were split between new and existing portfolio companies as we leveraged our longstanding relationships with private equity sponsors who valued our industry expertise to help them grow and execute on their longer-term business plans.

Michael Boyle: This quarter we remained focused on investing in first-line senior secured loans, with 86% of our new fundings into first-line structures. 9% of our investment activity was into investment vehicles, which included an additional contribution to the Senior Loan Program. Sales and repayment activity across the portfolio was elevated relative to prior periods as we continued to ramp our joint venture investment into the SLP, which has been producing attractive return on equities for our shareholders with an inception-to-date return of about 16%. Turning now to the investment portfolio, at the end of the second quarter, the size of our investment portfolio at fair value was approximately $2.2 billion across the highly diversified set of 150 portfolio companies operating across 32 industries.

Michael Boyle: Turning now to the Investment Portfolio. At the end of the second quarter, the size of our investment portfolio at fair value was approximately $2.2 billion across a highly diversified set of 154 portfolio companies operating across 32 industries. As of June 30th, 63% of the investment portfolio at fair value was in first lien debt, 5% in second lien or subordinated debt, and 9% in equity and other interests. The remaining 17% of the portfolio is invested in our joint venture. As of June 30th, 2024, the weighted average yield on the investment portfolio amortized cost and current value was 13.1% and 13.2%, respectively, as compared to 12.9% and 13%, respectively, as of March 30th, 2024.

Michael Boyle: Our portfolio primarily consists of investments in first-line senior secure loans given our focus on downside management and investing in the top of the capital structure. As of June 30th, 63% of the investment portfolio at fair value was in first-line debt, 5% in second-line or subordinated debt, and 9% in equity and other interests. The remaining 17% of the portfolio is invested in our joint ventures, including 11% in the international senior loan program and 6% in the senior loan program, both of which are primarily invested in first-line loans. As of June 30th, 2024, the weighted average yield on the investment portfolio amortized cost and fair value for 13.1% and 13.2%, respectively, as compared to 12.9% and 13%, respectively, as of March 30th, 2020.

Mike Boyle: As of June 30th, 63% of the investment portfolio at fair value was in first lien debt, 5% in second lien or subordinated debt, and 9% in equity and other interests.

Mike Boyle: The remaining 17% of the portfolio is invested in our joint ventures, including 11% in the International Senior Loan Program and 6% in the Senior Loan Program, both of which are primarily invested in first lien loans.

Mike Boyle: As of June 30, 2024, the weighted average yield on the investment portfolio amortized cost and fair value for 13.1% and 13.2% respectively, as compared to 12.9% and 13% respectively as of March 30, 2024.

Michael Boyle: 94. 93% of our debt investments bear interest at a floating rate, positioning the company favorably in today's higher interest rate environment. Moving on to portfolio credit quality trends, our credit fundamentals remain very healthy. As Mike highlighted earlier, we saw stable trends within our internal risk rating scale quarter of a quarter. Risk rating 1 and 2 investments, which indicates that a company is performing in line or better than expectations relative to our underrate. Total 97% of the portfolio is of June 30th, unchanged from the prior quarter. Risk rating 3 and 4 companies are underperforming investments comprised only 3% of our portfolio bear value.

Amit Joshi: Ninety-three percent of our debt investments bear interest at a floating rate, positioning the company favorably in today's higher interest rate environment. Moving on to portfolio credit quality trends, our credit fundamentals remain very healthy. As Mike highlighted earlier, we saw stable trends within our internal risk rating scale quarter over quarter. Risk rating one in two investments, which indicates that a company is performing in line or better than expectations relative to our underwrite, totaled 97% of the portfolio as of June 30th, unchanged from the prior quarter.

Mike Boyle: As Mike highlighted earlier, we saw stable trends within our internal risk rating scale quarter over quarter.

Mike Boyle: Risk rating 3 and 4 companies are underperforming investments comprised only 3% of our portfolio fair value.

Amit Joshi: Investments on non-accrual improved quarter over quarter to 1.2% and 1% of the total investment portfolio, an amortized cost and fair value respect, respectively, from last quarter. As a reminder, Bain Capital's platform has deep restructuring and workout capabilities to utilize, if needed, to maximize value for our shareholders. We believe this deep bench of expertise positions us and our platform well in various market environments, especially today's higher interest rate environment. We would also mention that performance across our 100-plus companies within our underlying JVs continues to perform well, consistent with the trends in our broader portfolio.

Michael Boyle: Investments on non accrual improved quarter of a quarter to 1.2% and 1% the total investment portfolio and amortized cost and fair value respectively, down from 1.7 and 1.0% respectively in the prior quarter. This was primarily driven by the realization of one non-accrual in the quarter, exited at the fair value from last quarter. As a reminder, Bain Capital platform has deep restructuring and workout capabilities to utilize if needed to maximize value for our shareholders. We believe this feet bench of expertise positions us and our platform well throughout various market environments, especially today's higher interest rates environment.

Mike Boyle: down from 1.7% and 1.0% respectively in the prior quarter. This was primarily driven by the realization of one non-accrual in the quarter, exited at the fair value.

Michael Boyle: We would also mention that performance across our 100 plus companies within our underlying JVs continues to perform well, consistent with the trends in our broader portfolio.

Speaker Change: We would also mention that performance across our 100-plus companies within our underlying JVs continue to perform well, consistent with the trends in our broader portfolio.

Amit Joshi: Amit will now provide a more detailed financial view.

Speaker Change: Amit will now provide a more detailed financial review.

Amit Joshi: Thank you, Mike, and good morning, everyone. I'll start that review of our second quarter 2024 results with our income statement. Total investment income was 72.3 million for the three months ended June 30th, 2024, as compared to 74.5 million for the three months ended March 31st, 2024. The decrease in investment income was primarily driven by the decrease in other income. Our investment income continues to benefit from high quality sources of investment income, largely driven by contractual cash income across its investments. Interest income and dividend income represented 96% of our total investment income in Q2. Total expenses before Texas for the second quarters were 38 million, as compared to 39.5 million in the first quarter.

Amit: Total investment income was $72.3 million for the three months ended June 30, 2024, as compared to $74.5 million for the three months ended March 31, 2024. The decrease in investment income was primarily driven by the decrease in other income.

Speaker Change: Our investment income continues to benefit from high-quality sources of investment income, largely driven by contractual cash income across its investments.

Adam Schmeichel: and Adam Schmeichel.

Adam Schmeichel: Interest income and dividend income represented 96% of our total investment income in Q2.

Amit Joshi: Total expenses before taxes for the second quarter were $38 million as compared to $39.5 million in the first quarter. Net investment income for the quarter was $33.1 million or $0.51 per share as compared to $34 million or $0.53 per share for the prior quarter. During the three-month-ended June 30, 2024, the company had a net realized and unrealized losses of $4 million.

Adam Schmeichel: Total expenses before taxes for the second quarter was $38 million, as compared to $39.5 million in the first quarter.

Amit Joshi: Net investment income for the quarter was 33.1 million, or 51 cents per share, as compared to 34 million of 53 cents per share for the prior quarter. During the three months ended June 30th, 2024, the company had net realized and unrealized losses of 4 million. Net income for three months ended June 30, 2024, was 29.1 million or 45 cents per share. Moving over to our balance sheet, as of June 30th, our investment portfolio at fair value total 2.2 billion and total assets of 2.4 billion. Total net assets were 1.1 billion as of June 30th. Net per share was $17.70, unchanged from $17.70 at the end of first quarter, as we demonstrated strong coupled with stable credit quality across our portfolio.

Amit Joshi: As of June 30th, our investment portfolio at fair value totaled $2.2 billion, and total assets of $2.4 billion. Net income per share was $17.70, unchanged from $17.70 at the end of the first quarter. As we demonstrated strong NII over-earning, coupled with stable credit quality across us. At the end of Q2, our debt-to-equity ratio was 1.03 times as compared to 1.19 for the end of. Our net leverage ratio, which represents principal debt outstanding, less cash, and unsettled trades, was 0.095 times at the end of Q2 as compared to 1.09 times at the end of Q1.

Adam Schmeichel: Coupled with stable credit quality across our portfolio.

Amit Joshi: At the end of Q2, a debt-to-equity ratio was 1.03 times as compared to 1.19 times for the end of Q1. As Mike highlighted earlier, we further strengthened our capital position through increasing the commitment under the Sumitomo Revolver Credit Facility to 8.55 million, up from 6.65 million, and extending the maturity date to May 20, 29, from December 20, 26. We were pleased with our ability to attract new lenders to the facility, and we were able to hold the terms on our existing facility constants. As of June 30, approximately 49% of our outstanding debt was in floating-rate debt and 51% was in fixed-rate debt.

Adam Schmeichel: At the end of Q2, our debt-to-equity ratio was 1.03 times as compared to 1.19 times for the end of Q1.

Adam Schmeichel: Our net leverage ratio, which represents principal debt outstanding, less cash, and unsettled trades, was 0.095 times at the end of Q2 as compared to 1.09 times at the end of Q1.

Amit Joshi: We were pleased with our ability to attract new lenders to the facility, and we were able to hold the terms on our existing facility contract. As of June 30th, approximately 49% of our outstanding debt was in floating rate debt, and 51% was in fixed rate debt. The weighted average maturity across our debt commitment was approximately 4.8 years as of June 30, 2024. Subsequent to quarter end, our board declared a third quarter 2024 dividend equal to $0.42 per share and a special dividend, as previously announced, of $0.03 per share, bringing the total Q3 dividend to $0.45 per share. We currently estimate that our spillover income totaled approximately $0.99 per share, representing over two times our quarterly regular... With that, I'll turn the call back to Mike Ewald for closing.

Adam Schmeichel: We were pleased with our ability to attract new lenders to the facility and we were able to hold the terms on our existing facility contract.

Adam Schmeichel: As of June 30th, approximately 49% of our outstanding debt was in floating rate debt and 51% was in fixed rate debt.

Amit Joshi: Our debt funding continues to benefit from low fixed-rate debt structures. For the three months ended June 30, 2024, the weighted average interest rate on our debt outstanding was 5.1%, as compared to 5.2% as of the prior quarter end. The weighted average maturity across our debt commitment was approximately 4.8 years as of June 30, 2024.

Adam Schmeichel: Our debt funding continues to benefit from low fixed rate debt structures.

Adam Schmeichel: For the three month ended June 30, 2024, the weighted average interest rate on our debt outstanding was 5.1% as compared to 5.2% as of the prior quarter end.

Adam Schmeichel: The weighted average maturity across our debt commitment was approximately 4.8 years as of June 30, 2024.

Adam Schmeichel: Liquidity at quarter end totaled $712 million.

Adam Schmeichel: Including $617 million of undone capacity on a revolving credit facility, $98 million of cash and cash equivalents, including $67 million of restricted cash, and negative $3 million of unsettled trade, net of receivables and payables of investments.

Amit Joshi: Subsequent to quarter end, both declared a third quarter 2024 dividend equal to 42 cents per share and a special dividend, as previously announced, of 0.03 cents per share, bringing total Q3 dividend to 45 cents per share. Both dividends are table on October 31, 2024, to stock holders of record on September 30, 2024. As a reminder, we both declared a total of 12 cents per share additional dividend driven by our strong over earnings in 2023. We intend to pay these special dividend installments of three cents per share each quarter throughout the current year. We currently estimate that our spillover income total approximately 99 cents per share, representing over two times of our quarterly regular dividend.

Adam Schmeichel: Subsequent to quarter end, our board declared a third quarter 2024 dividend equal to $0.42 per share and a special dividend, as previously announced, of $0.03 per share, bringing total Q3 dividend to $0.45 per share.

Adam Schmeichel: As a reminder, our board declared a total of $0.12 per share additional dividend driven by our strong over-earnings in 2020.

Adam Schmeichel: We intend to pay these special dividend installments of $0.03 per share each quarter throughout the current year.

Adam Schmeichel: We currently estimate that our spillover income totaled approximately $0.99 per share, representing over two-times of our quarterly regular dividend. We will continue to monitor our undistributed earning against prudent capital management considerations. Thank you.

Amit Joshi: We will continue to monitor our undistributed earnings against student capital management considerations.

Michael Ewald: With that, I turn the call back to my e-wall for closing remarks. Thanks, Amit. In closing here, we are pleased to deliver another quarter of attractive earnings for our shareholders of NII, well in excess of our dividend and stable NAV as our underlying borrowers continue to perform well.

Adam Schmeichel: With that, I'll turn the call back to Mike Ewald for closing remarks.

Michael Ewald: Thanks, Amit. So, in closing here, we are pleased to deliver another quarter of attractive earnings for our shareholders of NII, well in excess of our dividend, and StableNav, as our underlying borrowers continue to perform well. We remain committed to delivering value for our shareholders through producing attractive ROEs, and thank you for the privilege of managing our shareholders' capital. Thank you very much. At this time, if you'd like to ask a question, please press

Michael Ewald: Being Capital Credit remains well positioned to execute on its direct lending strategy given our platform's expertise, resources, and relationships that have been built on 25 plus years of experience, investing in the core metal market. We remain committed to delivering value for our shareholders through producing attractive ROEs, and thank you for the privilege of managing our shareholders' capital.

Operator: Marjorie, please open the line for questions. Thank you very much. At this time, if you'd like to ask a question, please press the star 1 on your telephone keypads. You may remove yourself from the queue at any time by pressing Star 2. Once again, that is star 1 to ask a question. We'll pause for a moment to allow questions to enter the queue.

Derek Hewett: And again, ladies and gentlemen, if you would like to ask a question, that is star 1. We'll take our first question from Derek Hewett from Bank of America. Good morning, everyone.

Mike Ewald: And again, ladies and gentlemen, if you would like to ask a question, that is star 1. We'll take our first question from Derek Hewett from Bank of America.

Michael Ewald: I'm not sure if you addressed this in your opening comments, could you, but could you talk about the 20 basis point increase in the overall portfolio yield seems to be an outlier relative to what we were seeing the discerning season? Sure. Thanks for the question, Derek. The key component of the increased yield is the fact that we sold the number of our investments down into the senior loan program joint venture. As a reminder, that's a joint of many of the lower yielding assets off balance sheet rather than keeping them on our balance sheet and give us the flexibility to operate seamlessly in a market where spreads are tightening.

Derek Hewitt: Good morning, everyone. I'm not sure if you addressed this in your opening comments, but could you talk about the 20 basis point increase in the overall portfolio yield? Seems to be an outlier relative to what we were seeing this earnings season.

Michael Ewald: Sure, thanks for the question, Derek. A key component of the increased yield is the fact that we sold a number of our investments down into the senior loan program joint venture. As a reminder, that's a joint venture that's intended to hold many of the lower yielding assets off balance sheet rather than keeping them on our balance sheet and give us the flexibility to operate seamlessly in a market where spreads are tightening.

Michael Ewald: And so, really, that optimization of assets between a balance sheet and the SLP is a key part of what drove that increase in the yield quarter over quarter, because, as a reminder, both the SLP and our balance sheet focus on those personally investments that are in a market where there is some spread tightening, as we noted in our remarks, but we think we've set up a structure that works really well for this type of looking environment. Okay.

Michael Ewald: And so really, that optimization of assets between the balance sheet and the SLP is a key part of what drove that increase in yield quarter over quarter. Because, as a reminder, both the SLP and our balance sheet focus on those porcelain investments that are in a market where there is some spread tightening, as we noted in our remarks, but we think we've set up a structure that works really well for this type of market environment.

Speaker Change: In the yield quarter over quarter, because as a reminder, both the SLP and our balance sheet focus on those porcelain investments that are, we're in a market where there is some spread tightening, as we noted in our remarks, but we think we've set up a structure that works really well for this type of market environment.

Michael Ewald: And then, in terms of the interest covers, did you mention what interest coverage was for the second quarter? We did not highlight that specifically across the portfolio, but it is still north of two times when we look at the median interest coverage across the portfolio. And we've run, as we've talked about in prior quarters, a number of stress tests really looking at prolonged interest rates floating rate up at this level as well as interest rate improvement from here or increased from here, excuse me, and that we feel like anything that has any meaningful interest coverage segregation is in our risk rating three and four basket.

Speaker Change: Okay, and then in terms of the

Speaker Change: Did you mention what interest coverage was for the second quarter?

Michael Ewald: Or for the second quarter?

Michael Ewald: We did not highlight that specifically across the portfolio, but it is still north of two times when we look at the median interest coverage across the portfolio. And we've run, as we've talked about in prior quarters, a number of stress tests really looking at prolonged interest rates floating right up at this level, as well as interest rate improvement from here, or increase from here, excuse me, and we feel like anything that has any meaningful interest coverage degradation is in our risk rating three and four basket. So, I think the results of our interest rate sensitivities on an asset-by-asset basis are reflected in both the marks and the risk ratings of the portfolio.

Speaker Change: And we've run, as we've talked about in prior quarters.

Speaker Change: a number of stress tests,

Michael Ewald: So, I think the results of our interest rate sensitivity on the asset basis are reflected in both the marks and the risk ratings of the portfolio. Okay. Thank you for that.

Speaker Change: on the asset by asset basis are reflected in both the marks and the risk ratings of the portfolio.

Derek Hewett: Okay, thank you for that. And then my last question is just about PIC income. It's about 8% of total investment revenue right now, and it's only up about 1% quarter over quarter, but at what level would you start to get a little bit concerned about PIC, and then kind of how would you characterize it? Is it kind of structured into the – was it structured into the original investment, or was this – is the PIC mainly related to amendments and other Thank you for your time.

Michael Ewald: And then my last question is just pick in comments about 8% of total investment revenue right now. It's only up about 1% quarter over quarter, but at what level would you start to get a little bit concerned about pick, and then kind of how would you characterize it? Is it kind of structured into the, was it structured into the original investment or was this is the pick mainly related to amendments and other credit deterioration issues? Sure, so the vast majority of the pick really comes from structures in the original investment thesis. And those come from opportunities where we were more junior in the capital stack.

Michael Ewald: Sure. So, the vast majority of the PIC really comes from structures in the original investment thesis, and those come from opportunities where we were more junior in the capital stack. So, on occasion, we are doing a more second-lean or kind of PIC junior capital investment. And so, we do have a large portion of the PIC comes from those original underwritten PIC streams. There are some situations where we're doing amendments and adding PIC to the portfolio as well, in terms of getting increased yield on an underperforming company. But again, the majority really comes from the original underwritten investment that we're making.

Speaker Change: credit deterioration issues.

Michael Ewald: So, on occasion, we are doing a more second lean or kind of pick junior capital investment. And so we do have a large portion of the pick comes from those original underwritten and pick streams. There are some situations where we are doing amendments and adding pick to the portfolio as well in terms of getting increased yield on an underperforming company, but again the majority really comes from the original underwritten investment that we are making.

Speaker Change: opportunities where we were more junior in the capital stack. So on occasion, we are

Speaker Change: Again, that is the definition of what is a PIC stream. There are some situations where we're doing amendments and adding PIC to the portfolio as well, in terms of getting increased yield on an underperforming company. But again, the majority really comes from the original underwritten investment that we're making.

Derek Hewett: Thank you.

Operator: And again, ladies and gentlemen, that is star one for a question.

Speaker Change: Thank you. And again, ladies and gentlemen, that is star one for a question. We'll next move to Paul Johnson from KBW.

Paul Johnson: We will next move to Paul Johnson from KBW. Good morning, thanks for taking my question. I am curious, for the loans that go into the J.B., do any of those loans, let me give them a pick, it is kind of an option, no at the underwriting thesis, do are any of those loans in the J.B., pick loans and are you able to kind of get right so much of the income in spite of the J.B. since currently. Sure, so the pick level of the joint ventures is very low. Those are not structurally pick loans that end up being traded down into the ISLP or the SLP.

Paul Johnson: Yeah, good morning. Thanks for taking my questions. I'm curious, for the loans that go into the JV, do any of those loans

Paul Johnson: I mean, given that the PIC is kind of an option, you know what the underwriting pieces do, are any of those loans in either of the JVs, PIC loans, and are you able to kind of characterize how much of the income

Derek Hewett: Pick loans, and are you able to kind of characterize how much of the income?

Speaker Change: inside of the J-Beats, it's currently picking up.

Michael Ewald: Yeah, sure. So, the PIC level of the joint ventures is very low. Those are not structurally PIC loans that end up being traded down into those, down into the ISLP or the SLP. So, I would note that the interest income that's PIC in both joint ventures is very, very low, particularly lower than compared to what's

Speaker Change: Sure. So the PIC level of the joint ventures is very low. Those are not structurally PIC loans that end up being traded down into those.

Michael Ewald: So I would note that the interest income that is picked in both joint ventures is very, very low, particularly lower than convertible from balance sheet.

Speaker Change: down into the ISLP or the SLP. So I would note that the interest income that's picked in both joint ventures is very, very low, particularly lower than compared to what's on balance sheet.

Michael Ewald: That is not helpful. And then just on the performance of the J.B., it is wondering if you can maybe talk to high level how those are performing not of rules and such. I mean, they have been obviously performing very well for you so far, but I look at 18 percent trailing return on the SLP fund. That is obviously a very strong return for any kind of J.B., so you just kind of talk to that and what is really driven that strong performance. Sure, so starting with the SLP, I would say non-acooled have been lower than what we've seen on our balance sheet, and so they are closer to kind of one and a half to two percent versus the three percent of our risk rating trees and fours on balance sheet.

Speaker Change: That's helpful. And then just on the performance of the JVs, you know, I was wondering if you can kind of maybe talk to high level how those are performing, you know, non accruals and such. I mean, they've, they've been.

Derek Hewett: Obviously, it's performing very well for you so far. But, you know, when I look at the 18% trailing return on the SLP fund, that's obviously a very strong return for any kind of JV. So, you need to kind of talk about that and what's really driving that strong performance.

Speaker Change: Sure. So starting with the SLP, I would say non-accruals have been

Michael Ewald: So it is a very healthy portfolio in the SLP, and that again is driven by the fact that those assets are lower risk, lower spread originated in North America, and so that has been a very healthy portfolio today. In terms of the ISLP where we are focused on international exposures, we've seen a slight uptick in non-acool, but again, still in line with what we're seeing on balance sheet. We've seen that the trailing return out of the ISLP has been about 12 percent since inception, reflecting the fact that there is a solid underlying credit health there.

Speaker Change: originated in North America. And so that has been a very healthy portfolio to date.

Speaker Change: In terms of the ISLP, where we are focused on international exposures, we've seen a slight uptick in non-accruals, but again, still in line with what we're seeing on balance sheet.

Michael Ewald: We have seen a couple of new non-acool, one in particular need non-acool come up in the ISLP that is not yet defaulted or had a covenant breach, but we are keeping our eye on what the ultimate outcome will be for that investment. And so some of the decrease in the ISLP mark this quarter was actually from that one new non-acrool held primarily in the ISLP because it is alone in the UK.

Speaker Change: We have seen a couple of...

Speaker Change: So, we have seen a number of new non-accruals, or one in particular new non-accrual come up in the ISLP that has not yet defaulted or had a covenant breach, but we are keeping our eye on what the ultimate outcome will be for that investment. And so, some of the decrease in the ISLP mark this quarter was actually from that one new non-accrual held primarily in the ISLP because it is a loan in the UK.

Michael Ewald: But even in spite of that, one name on non-acrool, we're still seeing that strong performance in the ISLP continuing.

Speaker Change: But even in spite of that one name on nonaccrual, we're still seeing that strong performance in the ISLP continuing.

Michael Ewald: Got it. That's a very helpful commentary. And then just kind of in terms of like the relative value, you know, currently, and the spreads have obviously come in very meaningfully in the U.S. middle market. Do you have any kind of preference in terms of relative value between, you know, the international market versus the United States?

Paul Johnson: That's a very helpful commentary. And then just kind of in terms of like the relative value, you know, currently, and spreads, obviously coming very meanfully in the, in the US middle market.

Michael Ewald: Do you have any kind of preference in terms of relative value between kind of the international market versus the United States? Yeah, thanks, Paul. Look, I think at this point, there's still pretty equivalent. Yeah, certainly doesn't change, really. Day to day or week to week, it's more kind of quarter to quarter. We obviously have seen some rate cutting happen in Europe already, which we haven't seen in the US, so we're certainly mindful of that. But from an overall credit, worry in its perspective, things like relative spreads or new count for currency, hedging. When you think about leverage levels, when you think about competitive positioning of the underlying portfolio companies, I'd say today, it's pretty equivalent between US and Europe.

Speaker Change: middle market, or do you have any kind of preference in terms of relative value between

Speaker Change: International market versus the United States.

Speaker Change: Yeah, thanks Paul. Look, I think at this point, they're still pretty equivalent. You know, it certainly doesn't change really.

Paul Johnson: And Australia has always been kind of a steady, you know, five-ish percent plus or minus contributor. Got it. Appreciate it.

Paul Johnson: That's all the questions for me. Thanks, Paul.

Operator: Thank you.

Michael Ewald: And I'd like to turn the call back over to our speakers for any additional or closing remarks. Great, thanks, Marjorie. And thanks everyone again for your time today and your attention as we went through our second quarter results here. We look forward to speaking with you again once we've got our third quarter results ready to go. Thanks again, and have a good day. Cheers.

Speaker Change: Thank you and I'd like to turn the call back over to our speakers for any additional or closing remarks.

Operator: This thus concludes today's program. Thank you for your participation. You may disconnect at any time. Thank you. ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶ ¶

Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time.

Speaker Change: This does conclude today's program. Thank you for your participation. You may disconnect at any time.