Q4 2024 Bain Capital Specialty Finance Inc Earnings Call
Operator: Good day, everyone, and welcome to the Bain Capital Specialty Finance 4th Quarter and Fiscal Year Ended December 31, 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during a question and answer session.
Good day, everyone and welcome to the Bain capital Specialty finance fourth quarter and fiscal year ended December 31st 2024 earnings Conference call.
Speaker Change: At this time all participants are in a listen only mode. Later, you'll have the opportunity to ask questions. During a question and answer session to register to ask a question you may do so by pressing the star and one on your Touchtone telephone. Please note todays call maybe recorded and I'll be standing by if you should need any assistance and it's now my pleasure to turn the conference over to Katherine.
Operator: To register to ask a question, you may do so by pressing the star and 1 on your touchtone telephone. Please note today's call may be recorded and I will be standing by if you should need any assistance.
Katherine Schneider: It is now my pleasure to turn the conference over to Katherine Schneider. Please go ahead, ma'am. Thanks, Erica.
Katherine: Snyder. Please go ahead ma'am.
Katherine Snyder: Thanks, Erika good morning, everyone and welcome to the Bain capital Specialty finance fourth quarter and year ended December 31, 2024 conference call.
Katherine Schneider: Good morning, everyone, and welcome to the Bain Capital Specialty Finance fourth quarter and year ended December 31st, 2020. Yesterday after market close, we issued our earnings press release and investor presentation of our quarterly results, a copy of which is available on Bain Capital Specialty Finances Investor Relations.
Katherine Snyder: Yesterday after market close we issued our earnings press release and Investor presentation of our quarterly results a copy of which is available on Bain capital specialty finance its investor Relations website.
Katherine Schneider: Following our remarks today, we will hold a question and answer session for analysts and investors.
Katherine Snyder: Our remarks today, we will hold a question and answer session for analysts and investors.
Katherine Schneider: This call is being webcast and a replay will be available on our 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 identified in the risk factor section of our Form 10-K 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.
Katherine Snyder: This call is being webcast and a replay will be available on our website.
Katherine Snyder: This call and the webcast are property of Bain capital specialty finance and any unauthorized broadcast in any form is strictly prohibited.
Katherine Snyder: Any forward looking statements made today do not guarantee future performance and actual results may differ materially.
Katherine Snyder: These statements are based on current management expectations, which include risks and uncertainties, which are identified in the risk factors section of our Form 10-K that could cause actual results to differ materially from those indicated.
Speaker Change: Being capital, especially finance assumes no obligation to update any forward looking statements at this time unless required to do so by law.
Katherine Schneider: Lastly, past performance does not guarantee future results.
Michael: Lastly, past performance does not guarantee of future results, so with that I'd like to turn the call over to our CEO Michael <unk>.
Michael Ewald: So, with that, I'd like to turn the call over to our CEO, Michael Ewald. Thanks, Katherine. Good morning, and thanks to all of you for joining us here on earnings call this morning. I'm joined today by Mike Boyle, our president, and our chief financial officer, Amit Joshi.
Speaker Change: Yeah.
Speaker Change: Thanks, Catherine good morning, and thanks to all of you for joining US Yeah earnings call. This morning, I'm joined today by Mike Boyle, Our President and Chief Financial Officer Joshi.
Michael Ewald: In terms of the agenda for the call, I'll start with an overview of our fourth quarter and 2024 full-year results, and then provide some thoughts on our performance, the overall market environment, and our position. 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.
The agenda for the call I'll start with an overview of our fourth quarter and 2020 for full year results.
Speaker Change: Provide some thoughts on our performance the overall market environment and our positioning.
Speaker Change: Thereafter, Mike and Nick will discuss our investment portfolio and financial results in greater detail.
Speaker Change: As usual will also leave some time for questions at the end.
Michael Ewald: So yesterday after market closed, we delivered strong fourth quarter and full year 2024 results. Q4 net investment income per share was $0.52, representing an annualized yield on book value of 11.8%. Our net investment income continued to be well in excess of our regular dividend with 124% dividend coverage. Q4 earnings per share were $0.34, reflecting an annualized return on book value of 7.8%. For the full year 2024 net investment income per share was $2.09, equal to an 11.8% return on equity. Our NII covered our regular dividend by 124% during the full year. 2024 earnings per share were $1.85, representing a total return on equity of 10.9%.
Speaker Change: So yesterday after market close we delivered strong fourth quarter and full year 2024 results.
Speaker Change: Q4, net investment income per share was 52 cents, representing an annualized yield on book value of 11, 8%.
Speaker Change: Our net investment income continued to be well in excess of our regular dividend with 124% dividend coverage.
Speaker Change: Q4 earnings per share were 34, seven reflecting an annualized return on book value of seven 8%.
Speaker Change: For the full year of 2024 net investment income per share was $2 a day.
Speaker Change: Equal to 11, 8% return on equity.
Speaker Change: NII covered our regular dividend by 124% during the full year.
Speaker Change: 224 earnings per share were $1.85, representing a total return on equity at some 0.9%.
Michael Ewald: Our annual net earnings continue to exceed our dividend payout for the fourth consecutive year, demonstrating our consistently strong credit performance. Our results were driven by high-quality interest income earned from our middle market borrowers and that stable credit performance across our portfolio during the fourth quarter and throughout the year. Our net asset value ended the year at $17.65 per share, down from $17.76 from the previous quarter and up from $17.60 as of Q4 2023, reflecting the underlying portfolio strength. We also paid out record dividends to our shareholders during the year, totaling $1.80 per share for 2024, an increase of 13% from 2023's dividends.
Speaker Change: Our annual net earnings continued to exceed our dividend payout for the fourth consecutive year, demonstrating our consistently strong credit performance.
Speaker Change: Our results were driven by high quality interest income earned from our middle market borrowers and stable credit performance across our portfolio during the fourth quarter and throughout the year.
Speaker Change: Our net asset value ended the year at $17.65 per share down from $17.76 from the previous quarter and up from $17 60 as of Q4 2023, reflecting the underlying portfolio strength.
Speaker Change: We also paid a record dividend to our shareholders during the year totaling $1.80 per share for 2024, an increase of 13% from 2023 is dividends.
Michael Ewald: Subsequent to quarter end, our board declared the first quarter dividend equal to 42 cents per share to record date holders as of March 17th, 2025. We very much value the dialogue and feedback from our existing shareholders when considering our dividend framework and setting an appropriate and attractive dividend level, including in a higher interest rate environment like we've experienced the past two years. As our 2024 earnings continue to produce strong levels of net investment income in excess of our regular dividend amount, our board declared additional dividends to shareholders totaling $0.12 per share for 2025 to be distributed in four consecutive quarterly payments of $0.03 per share per quarter, consistent with our approach last year.
Speaker Change: Subsequent to quarter end, our board declared a first quarter dividend equal to 42 cents per share to record date holders as of March 17 2025.
Speaker Change: We very much value the dialogue and feedback from our existing shareholders.
Speaker Change: Considering our dividend framework, and setting an appropriate and attractive dividend level, including in a higher interest rate environment like we've experienced the past two years.
Speaker Change: Our 2024 earnings continued to produce strong levels of net investment income in excess of our regular dividend about.
Speaker Change: Our board declared additional dividends to shareholders totaling 12 cents per share for 2025 can be distributed in four consecutive quarterly payments of three cents per share per quarter.
With our approach last year.
Michael Ewald: In conjunction with feedback from our shareholders, our board also approved a change in the record date and payment date timing of our quarterly dividend, such that the record date and payment date will occur during the same month. This will accelerate the payment of our dividend by approximately 30 days each quarter compared to our prior KD. This change has no material impact on our financial results. First quarter dividends are payable on March 31st, 2025 to stockholders of record as of March 17th, 2025. Including both the regular and additional dividend, total dividends for the first quarter are $0.45 per share, or a 10.2% annualized rate on ending book value as of December 31st, which we believe represents an attractive level for our shareholders.
Speaker Change: In conjunction with feedback from our shareholders. Our board also approved a change in the record date and payment date timing of our quarterly dividend.
Speaker Change: The record date and payment date will occur during the same month.
Speaker Change: This will accelerate the payment of our dividend by approximately 30 days each quarter compared to our prior cadence.
Speaker Change: This change has no material impact on our financial results.
Speaker Change: First quarter dividends are payable on March 31, 2025 to stockholders of record as of March 17 2025.
Speaker Change: Putting both the regular and additional dividends total dividends for the first quarter or <unk> 45 per share or 10, 2% annualized rate on ending book value as of December 31, which we believe represents an attractive level for our shareholders.
Michael Ewald: So turning now to the market, 2024 was marked by a more active year of middle market loan volumes, although broader M&A activity still remains due. Despite this backdrop, both our private credit group platform and BCSF had their highest levels of calendar year origination. In 2024, our broader platform and BCSF originated over $6 billion and $1.7 billion, respectively, which were more than double 2023 volume. Nonetheless, we remain selective in our underwriting approach and, importantly, continue to see attractive terms in the core middle market. Many of the base tenants that we value for direct lending activity are much more attainable within the segment of the market, in our view.
Speaker Change: So turning now to the market.
Speaker Change: 24 was marked by a more active year of middle market loan volumes, although broader M&A activity still remains subdued. Despite this backdrop, both our private credit group platform. MPC also are their highest levels of the calendar year originations in 2020 for a broader platform in D. C. S F originated over $6 billion and one.
Speaker Change: $7 billion, respectively, which were more than double 2023 volumes.
Speaker Change: Nonetheless, we remain selective in our underwriting approach and importantly continue to see attractive terms on the core middle market.
Speaker Change: Many of the base tenants that we value for drug lending activity or much more attainable with them as a segment of the market overview and Bain capital's long standing presence and scale in this market segment positions us well.
Michael Ewald: And Bain Capital's longstanding presence and scale in this market segment positions as well. We favor attributes such as higher spread premiums and stronger lender controls through credit agreement documentation containing financial covenants. And we also seek out investments where we can and have control positions by being the majority holder within a tighter lender contract. Across our new direct originations to platforms during the fourth quarter, the median EBITDA of our borrowers was approximately $36 million. While we have seen some recent spread compression, terms and structure continue to be attractive with a weighted average spread of approximately 560 basis points, bringing the yield to 10.2% and median leverage levels of 4.4 times on these new originations.
Speaker Change: We deliver attributes such as higher spread premiums and stronger lending controls through credit agreement documentation containing financial covenants and we also seek out investments, where we can and have control positions by being the majority holder within a tighter lender group.
Speaker Change: Across our new original direct originations to platforms during the fourth quarter.
Speaker Change: Median EBITDA of our borrowers was approximately $36 million.
Speaker Change: While we have seen some recent spread compression in terms and structure continues to be attractive with a weighted average spread of approximately 560 basis points, bringing the yield to 10, 2% and median leverage levels of 4.4 times on these new originations.
Michael Ewald: We also remain focused on investing in debt structures that provide us with strong lending controls. Nearly 100% of our Q4 originations to new portfolio companies were structured with documentation containing financial covenants tied to management's forecast. And we have majority control positions in nearly 80% of these debt tranches, allowing us to drive eventual outcomes at our discretion. These statistics are consistent with our broader portfolio and exhibit our continued focus on these core tenets. Credit quality and fundamentals continue to be strong across our portfolio. Investments on non-accruals decreased quarter over quarter and represented 1.3% and 0.2% at amortized cost and fair value, respectively, as of December 31st.
Speaker Change: We also remain focused on investing in debt structures that provide us with strong lender controls.
Nearly 100% of our Q4 originations to new portfolio companies restructure with documentation containing financial covenants tied to management's forecast.
Speaker Change: And we have a majority control positions and nearly 80% of your debt tranches, allowing us to drive eventual outcomes our discretion.
These statistics are consistent with our broader portfolio and exhibit our continued focus on these core tenants.
Speaker Change: Credit quality and fundamentals continue to be strong across our portfolio investments.
Speaker Change: Investments on non accruals investment on non accrual decreased quarter over quarter and represented one 3% and 0.2% at amortized cost and fair value respectively as of December 31.
Michael Ewald: Since BCSS inception in 2016, our average amount of cool rates have remained low at approximately 1% of cost, demonstrating the consistency of our long-term performance. These averages are below the BDC sector current and long-term averages of approximately 4%. PIC income is also less than 10% of our overall investment income, and notably, the vast majority of our PIC was structured at the outset of the investment versus being the result of later amendment activity.
Speaker Change: Since <unk> inception in 2016, our average nonaccrual rates have remained low at approximately 1% of cost demonstrating the consistency of our long term performance. These averages are below the BDC sector of current and long term averages of approximately 4%.
Speaker Change: Taking from its also less than 10% of our overall investment income and notably the vast majority of our cost structure at the outset of the investment versus being the result of later had amendment activity.
Michael Ewald: Lastly, we remain active with the right-hand side of our balance sheet in 2024 and thus far into 2025. In Q2 2024, we strengthened our liability structure by increasing the commitments and attracting new lenders to our revolving credit facility while also extending the charity day. And earlier this year, the company issued $350 million of unsecured notes maturing in March 2030 at a spread of 190 basis Bring the all in coupon to 5.95%. We swapped these notes to floating at SOFR plus 190 basis points, which is close to parity with the weighted average spread on our floating rate debt of 187.5 basis points as of December 31st.
Speaker Change: Lastly, we remained active with the right hand side of our balance sheet in 2024, and thus far into 2025.
Speaker Change: In Q2, 2024, we strengthened our liability structure by increasing the commitments and attracting new lenders to our revolving credit facility, while also extending the maturity date.
Speaker Change: And earlier this year the company issued $350 million of unsecured notes maturing in March 'twenty 30 at a spread of 190 basis points, bringing the all in coupons to $5 95 per cent.
Speaker Change: We swap these notes to floating at SOCAR, plus 190 basis points, which is close to parity with the weighted average spread on our floating rate debt of 187 five basis points other December 31st.
Michael Ewald: We are pleased to see strong investor demand levels for this paper in the institutional debt markets and, as a result, benefited from a tight new issue spread. This debt issuance positions us well ahead of our debt maturities in 2020. Our overall liquidity is strong with $870 million of total available liquidity across undrawn capital on our revolving credit facility, cash, net settled trades, and pro forma for our recent unsecured notes issue. At the end of the fourth quarter, our gross and net leverage ratios were 1.22 times and 1.13 times, respectively, which falls in the middle of our target range of 1.0 to 1.25 times on a net-based basis.
Speaker Change: We were pleased to see strong investor demand levels for this paper in the institutional debt markets and as a result benefited from the tightened new issue spreads.
Speaker Change: This debt issuance positions us well ahead of our debt maturities in 2026.
Speaker Change: Our overall liquidity is strong with $870 million of total available available liquidity across Undrawn capital on our revolving credit facility cash not settled trades and pro forma for our recent unsecured notes issuance.
Speaker Change: At the end of the fourth quarter, our gross and net leverage ratios were one point to two times and 1.13 times, respectively, which falls in the middle of our target range of 1.0 to 1.25 times on a net basis.
Michael Ewald: With the outlook for increased M&A activity in 2025, we are optimistic for middle market loan volumes to increase as well. And we believe we are well positioned in the current market environment to execute on these opportunities and drive further value for our investors.
Speaker Change: With the outlook for increased M&A activity in 2025, we are optimistic for middle market loan volumes to increase as well and we believe we are well positioned in the current market environment to execute on these opportunities and drive further value for our investors.
Mike Boyle: I'll now turn the call over to Mike Boyle, our president, to walk through our investment portfolio in greater detail. Thanks, Michael. Good morning, everyone. I'll start with our investment activity for the fourth quarter and then provide an update in more detail on our portfolio. New funding during the fourth quarter were $547 million in 88 portfolio companies, including $317 million into 15 new companies and $230 million into 73 existing companies. Sales and repayment activity totaled approximately $505 million, resulting in net investment fundings of $42.7 million quarter over quarter. For the full year, fundings were $1.7 billion and more than double our volumes in 2020.
Speaker Change: I will now turn the call over to Mike Boyle, our president to walk through our investment portfolio in greater detail.
Mike Boyle: Thanks, Michael Good morning, everyone.
Mike Boyle: I'll start with our investment activity for the fourth quarter, and then provide an update and more detail on our portfolio.
Mike Boyle: New fundings during the fourth quarter were $547 million in 88 portfolio companies, including $317 million into 15, new companies and $230 million into 73 existing companies.
Mike Boyle: Sales and repayment activity totaled approximately $505 million, resulting in net investment fundings of 42 $27 million quarter over quarter.
Mike Boyle: For the full year fundings were one $7 billion and more than double our volumes in 2023.
Mike Boyle: Total sales and repayment activity for the year were $1.5 billion. As a result of this activity, the size of our total investment portfolio increased 6% year over year. Our new investing activities for the fourth quarter and full year were comprised of a mix of fundings to new portfolio companies and existing portfolio companies. During the fourth quarter, new investment fundings to new portfolio companies represented 58% of total fundings versus 42% to existing companies. And for the full year, 62% were to existing portfolio companies and 38% to new companies. In 2024, our platform benefited from its strong sponsor relationships to source new investments and our incumbency advantage from our existing portfolio companies to help them grow.
Mike Boyle: Total sales and repayment activity for the year or one $5 billion as a result of this activity the size of our total investment portfolio increased 6% year over year.
Mike Boyle: Our new investing activities for the fourth quarter and full year were comprised of a mix of fundings to new portfolio companies and existing portfolio companies during the fourth quarter, new investment fundings to new portfolio companies represented 58% of total fundings versus 42% to existing companies for the full year.
Mike Boyle: <unk> 62 per se.
Mike Boyle: Two existing portfolio companies and 38% to new companies.
Mike Boyle: In 2020 for our platform benefited from its strong sponsor relationships to source new investments at our incumbency advantage from our existing portfolio of companies to help them grow.
Mike Boyle: During the quarter, we remain focused on investing in first lien senior secured loans with 95% of our new investment fundings into first lien structure. 1% into subordinated debt structures and 4% in preferred and common equity. Turning now to the investment portfolio, at the end of the fourth quarter, the size of our portfolio at fair value was approximately $2.4 billion across a highly diversified set of 168 portfolio companies operating across 30 different industries. Our portfolio primarily consists of investments in first lien senior secured loans given our focus on downside management and investing in the top of capital structure.
Mike Boyle: During the quarter, we remain focused on investing in first lien senior secured loans with 95% of our new investment fundings into first lien structures, 1% into subordinated debt structures and 4% in preferred and common equity.
Mike Boyle: Turning now to the investment portfolio.
Mike Boyle: At the end of the fourth quarter the size of our portfolio at fair value was approximately $2 $4 billion across a highly diversified set of 168 portfolio companies operating across 30 different industries.
Mike Boyle: Our portfolio primarily consists of investments in first lien senior secured loans, given our focus on downside management and investing in the top of capital structures.
Mike Boyle: As of December 31st, 64% of the investment portfolio at fair value was invested in first-line debt, 1% in second-line debt, 2% in subordinated debt, 7% in preferred equity, 10% in equity and other interests, and 16% across our joint ventures, including 10% in the ISLP and 6% in the SLP, both of which the vast majority of our underlying investments in those joint ventures are first-line. As of December 31st, 2024, the weighted average yield on the investment portfolio at amortized cost and fair value were 11.7% and 11.8%, respectively, as compared to 12.1% and 12.1%, respectively, as of September 30th, 2024.
Mike Boyle: As of December 31, 64% of the investment portfolio at fair value was invested in first lien debt, 1% in second lien debt, 2% in subordinated debt, 7% in preferred equity, 10% in equity and other interests and 16% across our joint ventures, including 10% in the <unk>.
Mike Boyle: L P and 6% in the S. L P.
Mike Boyle: Of which the vast majority of our underlying investments in those joint ventures are first lien loans.
Mike Boyle: As of December 31, 2024, the weighted average yield on the investment portfolio at amortized cost and fair value were 11, 7% and 11, 8%, respectively as compared to 12.1% and 12, 1% respectively as of September 32024.
Mike Boyle: This decline in yields was primarily driven by a decrease in base rates, and to a lesser extent, spread compression from renewables. 92% of our debt investments bear interest at a floating rate, positioning the company favorably in today's higher interest rate environment.
Mike Boyle: This decline in yields was primarily driven by a decrease in base rates and to a lesser extent spread compression from our new investments.
Mike Boyle: 92% of our debt investments bear interest at a floating rate positioning the company favorably in today's higher interest rate environment.
Mike Boyle: Moving on to Portfolio Credit Quality Trends, are credit fundamentals remain healthy? Median net leverage ratios were 4.8 times across our borrowers, unchanged from the prior quarter-end and year-end 2023. The median EBITDA across our portfolio of companies was $40 million as of December 31. We saw stable trends within our internal risk rating scale, quarter over quarter, risk rating one and two investments, which indicate the company was performing in line or better than expectations relative to our initial underwrite, total 96% of the portfolio as of December 31st.
Mike Boyle: Moving onto portfolio credit quality trends, our credit fundamentals remain healthy.
Mike Boyle: Net leverage ratios were four eight times across our borrowers unchanged from the prior quarter end and year end 2023.
Mike Boyle: Median EBITDA across our portfolio of companies was $40 million as of December 31.
Mike Boyle: We saw stable trends within our internal risk rating scale quarter over quarter risk rating, one and two investments, which indicate the company was performing in line or better than expectations relative to our initial underwrite totaled 96% of the portfolio as of December 31, no change from the prior quarter end.
Mike Boyle: No change from the prior quarter end. Risk rating 3 and 4 are underperforming investments comprised 4% of our portfolio at fair value. Investments on non-accrual represented 1.3% and 0.2% of the total investment portfolio amortized cost and fair value, respectively, as of December 31st, a decrease from 1.9% and 1.1%, respectively, as of September 31st. We did add one name to non-accrual this quarter and wrote down this position to a level consistent with our expected recovery. The Ambridge Hospitality second lien loan was impacted by meaningful company underperformance within the third-party hotel management industry. And this was the primary driver of BCSF's modest NAV decline in the fourth quarter.
Mike Boyle: Risk rating three and four are underperforming investments comprised 4% of our portfolio at fair value.
Mike Boyle: Investments on nonaccrual represented one 3% and zero to 2% of the total investment portfolio at amortized cost and fair value respectively as of December 31.
Mike Boyle: Decrease from one 9% and one 1% respectively as of September 30th.
Mike Boyle: We did add one named to non accrual this quarter and wrote down this position to a level consistent with our expected recovery.
Mike Boyle: The Ambridge hospitality second lien loan was impacted by a meaningful company underperformance within the third Party Hotel management industry and this was the primary driver of BCS modest NAV decline in the fourth quarter.
Mike Boyle: Subsequent to quarter end, we exited this name slightly above the fair mark, fair value mark as of December 31st. Given the substantial diversity in the portfolio, underperformance of any individual portfolio company has a minimal impact on the performance of the portfolio overall. Subsequent to Quarter End, we did exit this name slightly above the fair borrowing mark as of December. We would also mention that performance across our 100 percent, 100 plus companies within our underlying JVs continue to perform well, consistent with our broader portfolio.
Mike Boyle: Subsequent to quarter end, we exited this ne and slightly above the fair remark failed out fair value Mark as of December 31.
Mike Boyle: Given the substantial diversity in the portfolio underperformance of any individual portfolio company has a minimal impact on the performance of the portfolio overall.
Mike Boyle: Subsequent to quarter end, we did exit this name slightly above the February Mark as of December 31.
Mike Boyle: We would also mentioned that performance across a 100 per se 100, plus companies within our underlying JV has continued to perform well consistent with our broader portfolio.
Amit Joshi: Amit will now provide a more detailed financial report. Thank you, Mike, and good morning, everyone. I'll start the review of our fourth quarter 2024 results with our income statement. Total investment income was $73.3 million for the three months ended December 31st, 2024, as compared to $72.5 million for the three months ended September 30th, 2024. The increase in investment income was primarily driven by an increase in the investment portfolio size, which was partially offset by decrease in portfolio yield, driven primarily by the lower B's. Our investment income continues to benefit from high quality sources of investment income, largely driven by contractual cash income across its investments.
Mike Boyle: I will now provide a more detailed financial review.
Mike Boyle: Thank you, Mike and good morning, everyone I'll start that a view of our fourth quarter, Tony Tony Florida without income statement.
Mike Boyle: Total investment income was $73 3 million for the three months ended December 31st 2024, as compared to $72 5 million for the treatments ended September 30th 2024, the increase in investment income less primarily driven by an increase in the investment portfolio.
Mike Boyle: Phase, which was partially offset by a decrease in portfolio Devon.
Mike Boyle: Given primarily by the lower base rate.
Mike Boyle: Our investment income continues to benefit from high quality sources of investment income largely driven by contractual cash income crossfit and investment.
Amit Joshi: Interest income and dividend income represented 94% of our total investment income in Q4. Total expenses before taxes for the fourth quarter were $38.4 million as compared to $37.5 million in the third quarter. Net investment income for the quarter was $33.6 million or $0.52 per share as compared to $34 million or $0.53 per share for the prior quarter. Net investment income for the full year 2024 was $2.09 per share. During the three-month-ended December 31st, 2024, the company had a net realized and unrealized losses of $11.5 million. Net losses were primarily driven by our markdown in Ambridge Hospitality, which Mike mentioned earlier.
Mike Boyle: Interest income and dividend income represented 94% of our total investment income in Q4.
Mike Boyle: Total expenses before taxes for the fourth quarter were $38 4 million as compared to $37 5 million in the third quarter.
Mike Boyle: Net investment income for the quarter was $33 6 million or <unk> 52 cents per share as compared to 34 million or <unk> <unk> per share for the prior quarter.
Mike Boyle: Net investment income for the full year 2024, less $2.09 per share.
Mike Boyle: During the three months ended December 31st 2024, the company had net realized and unrealized losses of $11 5 million.
Mike Boyle: Net losses were primarily driven by a markdown and Ambridge hospitality this mark of which Mike mentioned earlier.
Amit Joshi: Net income for the three months ended December 31, 2024 was $22.1 million or $0.34 per share.
Mike Boyle: Net income for the three months ended December 31st 2024 was 22 1 million or 34 cents per share.
Amit Joshi: Moving over to our balance sheet, as of December 31st, our investment portfolio at fair value total $2.4 billion and total assets of $2.6 billion. Total Net Assets were $1.1 Billion as of December 30, 2019. NAP per share was $17.65, a slight decrease of $0.11 per share from $17.76 at the end of third quarter. At the end of Q4, our debt-to-equity ratio was 1.22 times as compared to 1.14 times from the end of Q3. Our net leverage ratio, which represents principal debt outstanding, less cash, and unsettled trades, was 1.13 times at the end of Q4 as compared to 1.09 times at the end of Q3.
Mike Boyle: Moving over to our balance sheet as of December 31st our investment portfolio at fair value totaled $2 4 billion and total assets of $2 6 billion.
Mike Boyle: Total net assets were $1 1 billion as of December 31st.
Mike Boyle: <unk> question was $17 65, a slight decrease of 11 cents per share from $17 76 at the end of third quarter.
Mike Boyle: At the end of Q4, our deck to equity ratio was one five to two times as compared to 1.14 times from the end of Q T.
Mike Boyle: Our net leverage ratio visit represents principal debt outstanding less cash and unsettled trades was $1. One three times at the end of Q4 as compared to 1.09 times at the end of Q3.
Amit Joshi: As of December 31st, approximately 57% of our outstanding debt was in floating rate debt and 43% in fixed rate debt. For the three months ended December 31st, 2024, the weighted average interest rate on our debt outstanding was 5.1%, unchanged from prior quarter end. The weighted average maturity across our total debt commitment was approximately 4.3 years at December 31st, 2024. Based on our current debt outstanding and assuming holding base rates constant, we do not expect our recent unsecured note issuance to materially impact the weighted average interest rate on our debt outstanding as the notes ratio near parity to our borrowing on our secured facility.
Mike Boyle: As of December 31st approximately 57% of our outstanding debt was in floating rate debt and 43% in fixed rate debt.
Mike Boyle: For the three months ended December 31st 2024 that weighted average interest rate on our debt outstanding was $5 one person unchanged from prior quarter.
Mike Boyle: He did average maturity across our total debt commitments was approximately four three years at December 31st 2024.
Mike Boyle: Based on our current debt outstanding and assuming holding base rates base rates constant we do not expect our recent unsecured note issuance to materially impact the weighted average interest rate on that debt outstanding as of the note.
As the notes issued near parity to our borrowing on a secured facility and we converted to a fixed rate exposure on new issuances, the floating rate at silver plus 190 basis point.
Amit Joshi: And we converted our fixed rate exposure on new issuances to floating rate at SOFR plus 190 basis. Liquidity at quarter end total $520 million, including $412.3 million of undrawn capacity on a revolving credit facility, $99.1 million of cash and cash equivalent, including $45.5 million of restricted cash, and $8.3 million of unsettled trade, net of receivables and tables of investment. Proforma, for the note issuance, total liquidity is $870 million.
Mike Boyle: Liquidity at quarter end totaled $5 8 million, including $412 3 million of Undrawn capacity on our revolving credit facility $99 1 million of cash and cash.
Including $45 $5 million of restricted cash and $8 $3 million of unsettled trade net of receivables and payables of investment.
Mike Boyle: Pro forma for the note issuance total liquidity is $870 million.
Amit Joshi: Given the company's strong earnings throughout the year, we out-earned the dividend paid in 2024, resulting in an increase in our undistributed taxable income or spillover income. We currently estimate that our spillover income totaled approximately $1.36 per share at EREC, reflecting an increase of 49 cents per share from the 2023 levels, and currently represents over three times of our quarterly regular debit. As Mike highlighted earlier, our board declared an additional 2025 dividend totaling $0.12 per share to be distributed in four equal consecutive quarterly payments as a result of company spillover income expansion in 2025. Overall, we believe having a strong and meaningful amount of undistributed income is beneficial to the stability of a dividend through varying market conditions, and we will continue to monitor our undistributed earnings against prudent capital management considerations.
Mike Boyle: Given the company's strong learning throughout the year, we out earned the dividend paid in 'twenty 'twenty four is there anything in an increase in undistributed taxable income or spillover income.
Mike Boyle: We currently estimate that our spillover income totaled approximately $1.36 per share at year end, reflecting an increase of 49 cents per share, but from the 'twenty two 'twenty three levers and currently the present or three times of our quarterly regular dividend.
Mike Boyle: As Mike highlighted earlier, our board declared an additional 20 to 25 dividend totaling 12 cents per share to be distributed in four equal quarterly.
Mike Boyle: Quarterly payments as it is very tough company spillover income expansion in 'twenty to 'twenty four.
Mike Boyle: Overall, we believe having a strong and meaningful amount of undistributed income is beneficial to the stability of our dividend to wedding market condition, and we will continue to monitor our undistributed earnings against prudent capital management considerations.
Michael Ewald: With that, I turn the call back over to Mike Ewald for closing remarks. Thanks, Amit. And thanks, Mike, as well.
Mike Boyle: With that I turn the call back over to Mike <unk> for closing remarks.
Speaker Change: Thanks, Amit and thanks, Mike as well.
Michael Ewald: In closing, we were pleased with the execution of our investment strategy on behalf of our shareholders during the fourth quarter and throughout 2024. We demonstrated attractive levels of investment income earned across our portfolio and stable credit quality across our middle market borrowers. As we look forward into 2025, we believe we are well-positioned to capitalize on attractive growth opportunities.
Speaker Change: In closing we were pleased with the execution of our investment strategy on behalf of our shareholders during the fourth quarter and throughout 2024.
Speaker Change: We demonstrated attractive levels of investment income earned across our portfolio and stable credit quality across our middle market borrowers.
Speaker Change: As we look forward into 2025, we believe we are well positioned to capitalize on attractive growth opportunities.
Michael Ewald: We remain committed to delivering value for our shareholders by producing attractive returns on equity, and thank you for the privilege of managing our shareholders' capital.
Speaker Change: We remain committed to delivering value for our shareholders like producing attractive returns on equity and thank you for the privilege of managing our shareholders' capital.
Operator: Erika, please open the line for questions. Certainly as a reminder at this time, if you would like to ask a question, it is the star and 1 on your touchtone telephone.
Speaker Change: Erica Please open the line for questions. Thanks.
Certainly as a reminder, at this time, if you would like to ask a question. It is the star and one on your Touchtone telephone.
Finney O'Shea: We'll go first to the line of Finney and O'Shea with Wells Fargo. Please go ahead. Hey, everyone. Good morning. Can you talk about, Michael, the sort of... Spread dynamic, you know, deployment and spread dynamics, how much it's sort of Yes, stabilize perhaps or or still tightening and then what? you know, what level the core middle market. It gets you as a premium to large market now versus historically. Sure. Thanks for the question, Finn. So, if we look at the fourth quarter originations, we were originating at a spread over SOFR of about 560 basis points, and that's about 20 basis points tighter than where we were on our Q2 originations, which was about 580 basis points over SOFR.
Speaker Change: We'll go first to the line of Finian O'shea with Wells Fargo. Please go ahead.
Speaker Change:
Finian O'shea: Hey, everyone. Good morning. Thanks.
Speaker Change: Can you talk about.
Speaker Change: Michael the sort of.
Speaker Change: Real time.
Speaker Change: Spread dynamic deployment and spread dynamics, how much is sort of.
Speaker Change: So, yes stabilized, perhaps or we're still tightening.
Speaker Change: And then what.
Speaker Change: What level.
Speaker Change: The core middle market.
Speaker Change: Gets gets you is as a premium.
Speaker Change: It's a large market now versus historically.
Phil: Sure. Thanks for the question Phil.
Phil: So if we look at the fourth quarter originations, we were originating at a spread over so far of about 560 basis points.
Phil: And that's about 20 basis points tighter than where we were on our Q2 originations, which was about 580 basis points over sulfur. So the spread tightening that we saw over the course of the last two years has stabilized quite a bit.
Michael Ewald: So, the spread tightening that we saw over the course of the last two years has stabilized quite a bit as we look at the numbers and what we're able to originate today. If we think about that as a premium versus the larger market, we do think it commands a 50 to 75 basis point premium on the spread basis for originating at similar leverage levels to companies north of $100 million of EBITDA, which, again, is why we've doubled down in this core middle market, because we do think the lender controls we get, as Mike highlighted, we get financial maintenance covenants across all the deals that we do, but also the spread levels we think really highlight the premium that we're able to get in our market segment.
Phil: As we look at the numbers and what we're able to originate today, if we think about that as a premium versus versus the larger market. We do think it commands a 50 to 75 basis point premium on a spread basis for originating at similar leverage levels, the company's north of $100 million of EBITA.
Phil: It's why we've doubled down in this core middle market, because we do think the lender controls we get as.
Phil: As Mike highlighted we get financial maintenance covenants across all the deals that we do.
Phil: But also the spread levels, we think really highlight the premium that we're able to get in our market segment.
Michael Ewald: Yes, it's a helpful thing. Just to clarify, like the fourth quarter, I think you said. 460 or 480, 460, 560, sorry, 560. Sorry, it's been a lot of earnings. How does that compare to the, say, term sheets you submitted last week? Just understanding the fourth quarter, you know, that was probably those words. you know, committed in the second and third quarter, right? Sure. Yes, I'd say it's pretty similar. I'd say we're in the $5.25 to $5.50 level for term sheets depending on the credit risk underlying. So we do think much of the spread tightening that marked a year ago, the course of 2023, we saw a whole lot of spread tightening.
Phil: Yes, that's helpful. Thanks, and just to clarify like the fourth quarter I think you said.
Phil: For 60 or for Eddie.
Phil: Fourth at 460, 560 <unk> sorry.
Phil: 16, sorry, [laughter], so it's been a lot of earnings.
Speaker Change: How does that compare to the to the se term sheets U verse submitted last week.
Phil:
Phil: Just understanding the fourth quarter that was probably those words.
Phil: Committed in the second and third quarter right.
Sure Yeah, I would say, it's pretty similar I'd say, we're in the $5 50, 525 to $5 50 level for term sheets, depending on the credit risk underlying so we.
Phil: We do think much of the spread tightening that marked a year ago with the course of 2023, we saw a whole lot of spread tightening I think 2024, particularly.
Michael Ewald: I think 2024, particularly Q2 through Q4 and what we're seeing now has been fairly stable. Okay. And then what's like, is there?
Phil: Q2 through through Q4, and what we're seeing now has been fairly stable.
Phil: Okay.
Phil: And then what's it like is there.
Michael Ewald: Is there a meaningful difference on on a new What is a new LBO or platform, you know, a real new money opportunity versus follow-on, like when M&A comes back and whichever one is waiting for, and you have all this, you know, clean, well-capitalized, new paper, like is the stuff that fits in that box? It's really much tighter in blending things down, if you follow. Yeah, it's Mike Ewald, but I think generically speaking, those sorts of deals might be on the lower end of what Mike was talking about. Maybe those are the 525 deals and some of the add-on activities, some of the deals that originated earlier.
Phil: Is there a meaningful difference on.
Phil: A new.
Phil: New LBO or platform, you know a new real new money.
Phil: Opportunity versus follow on like when when M&A comes back and whichever one is waiting for and you have all this you know clean well capitalized new new paper.
Phil: Like is this stuff that fits in that box.
Phil: Really much tighter and blending things down.
Phil: If you follow them.
Speaker Change: Yeah, Hey, independents might be well look I think generically speaking those sorts of deals might be on the lower end of what Mike was talking about maybe those are the $5 25 deals.
And some of the add on activity with some of the deals that were originated earlier, so that might be the 550 or $5 75, but if you think about your one of your questions was historical context as well.
Michael Ewald: So that might be the 550 or 575. But, you know, if you think about one of your questions was historical context as well. Clearly, the end of 2022, beginning of 2023 were, at least in my career over 25 years of doing this, were the highest spread that we'd ever witnessed. And something in the 500s, be it 500 for a top-notch crystal clean company with no EBITDA adjustments, 550, 575 for the more regular way deal. Those are really levels that we saw in 2017, 2018, 2019, and that's kind of what we're back to today. So while there's been a lot of hand-wringing over spread compression, I think we're pretty much in line today with more historical aspects.
Speaker Change: Clearly the end of 2022, beginning of 2023 were at least in my career of over 25 years doing this where the highest spreads that we'd never witnessed and something in the 500 500 for a top notch.
Speaker Change: Crystal Clean company with no EBITDA adjustments $5 50 575 to the.
Speaker Change: More regular way deal those are really levels that we saw in 2017, 2018, 2019, and that's kind of what we're back to today. So while there's been a lot of hand wringing over spread compression I think we're pretty much in line today with more historical averages.
Finney O'Shea: Great. Awesome. Thanks so much. Thanks, man. Thank you. And again, that is the star in one to ask a question, star in one. Great.
Speaker Change: Great awesome. Thanks, so much.
Ed: Thanks, Ed.
Speaker Change: Thank you and again that is the star one to ask a question star one.
Operator: Well, it doesn't look like there are any other questions at this point. Thanks again for everyone's time today. We certainly appreciate your continued support and look forward to speaking again next quarter.
Speaker Change: Great well it doesn't look like there are any other questions at this point, thanks again for everyone's time today.
Speaker Change: We appreciate your continued support and look forward to speaking again next quarter.
Operator: Do please feel free to reach out in the meantime with any questions. And certainly have a great weekend. Thanks.
Do please feel free to reach out in the meantime, with any questions and certainly have a great weekend.
<unk>.
Operator: We'd like to thank everybody for their participation on today's conference. Please feel free to disconnect your line at any time.
Speaker Change: We'd like to thank everybody for their participation on today's conference. Please feel free to disconnect your line at anytime.
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Operator: © The Bulletproof Executive 2013 © The Bulletproof Executive 2013 © The Bulletproof Executive 2013 This is a production of the Center for Economic Co-operation and Development in the United
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