Q1 2025 Bain Capital Specialty Finance Inc Earnings Call
Speaker Change: Good day everyone and welcome to the Bain Capital Specialty Finance, 1st quarter ended March 31st, 2025 earnings conference call.
Speaker Change: At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask questions by pressing the star and one on your telephone keypad. You may withdraw your question by pressing star 2.
Speaker Change: Please note this goal is being recorded, and I will be standing by, should you need any assistance.
Speaker Change: It is now my pleasure to send a conference over to Katherine Schneider, the Investor Relations. Please go ahead. Thank you. Good morning. And welcome to the Bain Capital Specialty Finance First Quarter ended March 31st, 2025 Conference Call.
Speaker Change: 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 Finances and investor relations website.
Speaker Change: Following our remarks today, we will hold a question and answer chest session for analysts and investors.
Speaker Change: This call is being broadcast and a replay will be available on our website.
Speaker Change: This call on the webcast are property of Bain Capital Specialty Finance and any authorized broadcast in any form is strictly prohibited.
Speaker Change: Any forward-looking statements made today do not guarantee future performance and natural results may differ materially.
Speaker Change: The statements are based on current management expectations, which includes risks on uncertainties, which are identified in the risk factor section of our form 10Qs that could cause actual results to differ materially from those indicated.
Speaker Change: Bain Capital Specialty Finance assumes no obligations to update any forward-looking statements at this time unless required to do so by law. Lastly, past performance does not guarantee future results.
Speaker Change: So with that, I'd like to turn the call over to our CEO , Michael Ewald.
Michael Ewald: Thanks, Katherine, and good morning and thanks to all of you for joining us here on our earnings call. I'm also joined today by Mike Boyle, our President and our Chief Financial Officer, Sarah Amit Joshi.
Michael Ewald: Usually, in terms of the agenda for the call, I'll start with an overview of our first quarter results and then provide some thoughts on our performance, the current market environment positioning. Thank you.
Michael Ewald: Thereafter, Mike and Amit will discuss our messing portfolio and financial results in great
Michael Ewald: As usual, we'll also leave some time for questions at the end.
Michael Ewald: So yesterday after we closed, we delivered the first quarter results. T1, that investment income per share was $0.50, representing an 80% on book value of 11.20%.
Michael Ewald: Our net investment income was well in excess of our regular dividend with 119% dividend coverage.
Michael Ewald: Q1 earnings per share for 44 cents, reflecting an annualized return on book value 10.0%.
Michael Ewald: Our results were driven by high quality interest income earned from our metal market borrowers and stable credit performance across our portfolio.
Michael Ewald: Our net asset value for share was $17.64, down to 1 penny per share from the Pire Quarter
Michael Ewald: Subsequent to quarter-end, our board declared a second-quarter dividend equal to 42 cents per share.
Payable, Director of Stateholders, As of June 16th, 2025.
Michael Ewald: The board also declared an additional dividend of 3 cents per share for shareholders of record as of June 16, 2025, as we previously in February .
Michael Ewald: The total dividends for the second quarter to 45 cents per share, or a 10.2% annualized return on ending value as of March 31st, which we believe represents an attract field for our
Michael Ewald: The market. The first quarter was by a busy start to the year beginning in January , while volumes then trend toward the quarter of green volatility and uncertainty, it's changed across the broader market.
Michael Ewald: Middle Market Direct Lending Volumes continue to see the compression and the high levels of competition, which were steepest across the upper of Durand.
Michael Ewald: We're certainly not immune to increased competition within the core part of the market, although we seek to be discipline capital providers when we underwrite new capital structures. Price, the risk we take, the reward we risk.
Q1, BCSF's gross originations were 277 millionaires.
down 31% over here.
Michael Ewald: We remain selective in our underwriting approach and continue to face middle-march life studies within the core part of the market.
Michael Ewald: The median weighted average EBITDA borrowers' daughter were approximately $23 million dollars and $3 million dollars respectively.
Michael Ewald: The way in average spread our first-linked originations was over 140 basis points.
Michael Ewald: Many of the core tenants that we value in our direct work strategy. He says, higher spread
Michael Ewald: Stronger Lender Controls Through Credit Documentation, Containing Financial Funds, and having majority control positions within the Small Lender Group are much more capable in this segment of the market. Notably, these are attributes that we believe are increasingly important during periods of greater volatility.
Michael Ewald: So, 97% of our two one originations to new companies were structured with documentation containing financial covenants tied to management's forecasts.
Michael Ewald: Majority control positions in over 78% of these challenges, allowing us to drive eventual outcomes in our discretion.
Michael Ewald: These statistics are consistent with our broader portfolio showing our continued focus on these core tenants.
Michael Ewald: Credit Quality and Fundamentals continue to be sold across our William.
Michael Ewald: Investments on non-a-cruel represented 1.4%, 0.7%, and amortized cost and fair value respectively as of March 31st.
Michael Ewald: Paul Equities, Drone, $3 million dollars, a total available liquidity across undrawn capacity on our revolving credibility, cash, and net settled trades.
Michael Ewald: We end first quarter at a net leverage to 1.17 times, which falls within our target leverage ratio on a net basis of 1.0 to 1.25 times, and positions us well with ample dry powder in the current environment.
Michael Ewald: Following the US government's tariff announcements in early April , we performed a portfolio review to identify potential individual exposure to higher tariffs.
Michael Ewald: While there's still uncertainty around the timing and height of eventual tariffs given the fluid situation in ongoing developments, only a small portion of BCSS portfolio companies were estimated to have direct tariff exposure.
Michael Ewald: This limited exposure to exogenous factors identified by our team aligns with various facets of our investment strategy.
Michael Ewald: Including a focus on the core metal market, asset light, high three cash flow businesses, domestic manufacturing, and favoring certain industries such as software, healthcare, business services, and financial services.
Michael Ewald: Notably, our aerospace and defense investments are not expected to have high direct impacts from tariffs, as our exposure within this segment includes service providers and manufacturers with overwhelmingly domestic customer bases and supply chains.
Michael Ewald: While it is still too early to assess long-term impacts of tariffs on the broader economy, we remain focused on the potential downstream effects of these and other current administration policies that could drive inflation higher, lower economic growth, and lead to a potential recessionary environment.
Speaker Change: Bain Capital's private credit group has over 25 years of experience and is well equipped to navigate the current environment as our professionals have successfully navigated multiple market cycles and period of disruptions in the past and we remain focused on prudently managing our portfolio. We hope.
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. I'll start with our investment activity for the first quarter and then provide an update and more detail on our portfolio.
Speaker Change: New funding during the first quarter were $277 billion into 89 portfolio companies.
Speaker Change: Including $140 million in 13 new companies, $134 million in 75 existing companies, and $2 million in tour senior loan program.
Speaker Change: Sales and Repayment Activity totaled approximately $246 million, resulting in net investment fundings of $31 million, quarter-over-quarter.
Speaker Change: The fundings were split with 51% of total fundings made to new portfolio companies, versus 49% to existing companies.
Speaker Change: This quarter we remained focused on investing in first-lane senior secured loans, with 90% of our investments made into first-lane structures, 9% in subordinated debt, and 1% into equity.
Speaker Change: Investments made in the corridor continue to favor defense and industries such as health care, high tech, and business services.
Speaker Change: For our select investments within auto and capital equipment sectors, we provided capital to service-oriented companies within design markets or manufacturers with domestic footprints.
During to the investment portfolio.
Speaker Change: At the end of the first quarter, the size of our portfolio at fair value was $2.5 billion across the diversified set of 175 companies operating across 29 different industries.
Speaker Change: We have continued to increase our single main portfolio diversification, with name count up from 153 companies one year ago and 108 companies at the beginning of 2020.
Speaker Change: Our portfolio primarily consists of investments in first-lean senior secured loans, given our focus on downside management and investing in the top of capital structures. [inaudible]
Speaker Change: As of March 31st, 64% of the investment portfolio at fair value was invested in first-line debt. 1% in second-line debt, 3% subordinated debt.
Speaker Change: 7% in preferred equity, 9% in equity, and 16% across our joint ventures.
Speaker Change: Including 10% in our International Senior Loan Program and 6% in our Senior Loan Program. As a reminder, the vast majority of the underlying investments within our joint venture structures are first-lane loans.
Speaker Change: As of March 31st, 2025, the weighted average yield of the Investment Portfolio at Amortized Cost and Fair Value was 11.5% and 11.5% respectively.
Speaker Change: As compared to 11.7% and 11.8% respectively as of December 31st, 2024.
Speaker Change: This decrease in yields was primarily driven by a decrease in reference rates, as well as spreads across our portfolio.
Speaker Change: 93% of our debt investments bear interest rate, bear interest in a floating rate, positioning the company favorably in today's higher rate environment.
Moving on to Portfolio Credit Quality Trends.
For Credit Fundamentals, Remained Healthy.
Speaker Change: We saw largely stable trends within our internal risk rating scale, quarter of a quarter. Risk rating one and two investments comprise 95% of our portfolio as of March 31st, indicating that these companies are performing in line or better than the expectations we set at our
Speaker Change: Risk Grading 3 and 4 are underperforming investments comprised just 5% of our portfolio at fair value.
Speaker Change: Investments on non-accrual represented 1.4% and 0.7% of a total investment portfolio. It amortized costs and fair value respectively as a March 31st.
Speaker Change: And this compares to 1.3% and 0.2% respectively as of December 31st.
Speaker Change: I will also highlight that performance across our aggregate 100 plus companies within our underlying joint ventures continue to perform well consistent with our broader portfolio. Thank you very much.
Amit: I'll turn it now to Amit who will provide a more detailed financial review.
Amit: Thank you, Mike, and good morning, everyone. I'll start the review of our first quarter results with our income statement.
Amit: Total investment income was $66.8 million for the three months ended March 31st, 2025, as compared to $73.3 million for the three months ended December 31st, 2024.
Amit: The decrease in investment income was driven by decrease in average investment balance of the portfolio as a new origination funded towards the back half of the quarter, lower portfolio is and decrease in other income.
Amit: In just income and dividend income represented 96% of our total investment income in Q-Waltz.
Amit: Pick-Income is also low at just under 10% of our overall investment in.
Speaker Change: Notably, the vast majority of our pick income is derived from investments that were underwritten with pick versus from amendment or restructured investments.
Speaker Change: Total expenses before Texas for the first quarter was 33.7 million as compared to 38.4 million in the fourth quarter. The decrease in expenses was primarily driven by lower incentive fee resulting from our three year look back feature on our incentive fee hurdle rate.
Speaker Change: Net investment income for the quarter was 32.1 million or 50 cents per share as compared to 33.6 million or 52 cents per share for the prior quarter.
Speaker Change: During the three months ended March 31st, 2025, the company had net-realized and un-realized losses of 3.6 million.
Speaker Change: Net income for 3 month ended, March 31st, 2025, was 28.5 million, or 44 cents per share.
Speaker Change: Moving to our balance sheet, as of March 31st, our investment portfolio at fair value total total 2.5 billion and total assets of 2.6 billion.
Total net assets were 1.1 billion as of March 31st.
Speaker Change: Math per share was $17.64, a slight decrease of 1 cent per share from $17.65 at the end of fourth quarter.
Speaker Change: In January , we showed 350 million of unsecured notes maturing in March 2030 at a spread of 190 basis points.
Speaker Change: We swap these notes to floating notes at so far plus 190 basis points, which is close to parity with our weighted average spread on our floating rate debt of 187.5 basis points.
Speaker Change: We believe our library structure is well positioned in the current environment with no dead
Speaker Change: Aaron Secured Note, Issues During The First Quarter, Position As Well In Advance Of First Unsecured Dead Mature In March of 2026.
Speaker Change: As of March 31st, approximately 59% of our outstanding debt was in floating rate debt, and 41% was in fixed rate debt.
Speaker Change: For the three month ended March 31st, 2025, the weighted average interest rate on a debt outstanding was 4.8% as compared to 5.1% of the prior quarter end.
Speaker Change: The weighted average maturity across our total debt commitment was approximately 4.2 years at March 31, 2025.
Speaker Change: At the end of Q1, a debt to equity ratio was 1.27 times as compared to 1.22 times from the end of Q4.
Speaker Change: Our net leverage ratio, which represent principle data outstanding, list cache and unsatisfactory was 1.17 times at the end of Q1 as compared to 1.13 times at the end of Q4.
Speaker Change: Liquidity at quarter end was strong totaling 823 million, including 699 million of undrawn capacity on other Volvo facilities.
Speaker Change: 94 million of cash and cash equivalent, including 55.6 million of restricted cash and 30.3 million of unsettled rent, net of receibles and tables of investment.
Speaker Change: We currently estimate that our still-over-income total approximately $1.41 per share representing over three times of our quarterly regular dividend.
Mike Ewald: With that, I turn the call back over to Mike Ewald for the closing remarks.
Speaker Change: Thanks, Amit, and thank you, Mike as well. In closing, we are pleased to deliver a strong start to the year for our shareholders with our Q1 2025 results.
Mike Ewald: Looking ahead, we believe our portfolio and balance sheet are well positioned to navigate potentially increasing periods of liquidity ahead.
Speaker Change: or volatility you had, excuse me. And our investment team is with deep expertise having invested across multiple market cycles across our one. Great.
Speaker Change: We remain committed to delivering value for our shareholders by providing attractive returns on equity and prudently managing our shareholders' capital.
Nikki, please open the line for questions. Thanks.
Speaker Change: Thank you, and at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw your question by pressing star two. Once again, to ask a question, please press the star and one on your telephone keypad.
Speaker Change: I will take our first question from Paul Johnson with KPW. Please go ahead. Your line is open.
Yes, thanks for taking my questions.
Speaker Change: Just on the later funding that you mentioned in the quarter.
Speaker Change: And the lower sort of interest in how my guest quarter over quarter.
Speaker Change: Is there any way to quantify that, I guess, in terms of, like, how much funded kind of late in the quarter and kind of win the approximate timing?
Speaker Change: Or thanks for the question, Paul. So it was somewhat backdated in terms of new funding, but what I would point you to is just the spread calculation and yield calculation across the entire portfolio. So we are still generating about 11.5% yield.
Speaker Change: across the book and new originations as Ewald and his remarks were made at about 540 basis points spread over base rates.
Speaker Change: So, we do feel quite good that the earnings yield is still quite stable, but I do know your point that some of the fundings were back-weighted into the quarter.
Speaker Change: In public, if it's helpful, too, you know, that spread the 540 plus that we had last quarter was down about 10 basis points over the prior quarter. So it's a climb, but surely not what we've seen earlier.
Paul: In that spread, is that just a street coupon spread or is that include any kind of adjustment for like amortized income?
It's friends, it's friends, friends, friends. Yeah. Yeah.
Paul: Got it. Okay. Thank you for that. And then maybe just
Paul: Kind of talking about or sorry going into just the realized losses this quarter. Can you just kind of talk about
For example.
Paul: Forming Machine Industries, what was kind of the resolution there, if that's what drove the loss, or if there was any other things in there that drove realized losses this quarter, and how you're able to drive to such a quick solution there.
and other Lender in the group.
Paul: or just completely acted in that position with the sale of the company.
Paul: So, both of those were on had been on the cruel for quite a reasonable period of time when we were doing work through the restructuring. And in both situations, we feel like we optimized our value on the exit. In Atlas, we were both in the first lane and second lane and in Ambridge, we were a second lane holder there. And both of those, we did recover a reasonable value here over the life of the hold.
Paul: North of $0.50 across both of those investments. So it was the strong work of our restructuring team that did drive us to exit both of those investments here in the first quarter.
Paul: Got it. And that in the exit mark, you know, 50 cents the recovery there was that below the fourth quarter mark. Was there any sort of additional markdown from that or was that pretty much in line from last quarter?
That was in line with last course, Mark.
Thank you very much. It's all for me.
Thank you.
Speaker Change: Thank you, and once again, that is store and one for your questions. We will move next with Finian O'Shae with Wells Fargo Securities. Please go ahead. Your line is open.
Finian O'shea: Hey everyone, good morning. I wanted to ask about the ATM. It looks like you tapped that.
Speaker Change: In the quarter, just to see what your posture will be there if this will sort of...
Finian O'shea: Continue to dribble out, as they say. And if so, will you also be buying back stock below book going forward? Thanks.
Speaker Change: Thanks, Ben. Look, it is on the ATM. First, it's the opportunistic, if it makes sense.
Finian O'shea: I did tap it and click that issue, but as you certainly appreciate the entire...
The entire B.C. segment traded down.
Speaker Change: So, right around the time that we announced it, so we did not end up tapping into that again.
Finian O'shea: It is something, you know, that is open, it's available, but I think it's dependent on.
Finian O'shea: How we're trading. And on your question around buybacks, we do sell a program that we put in place.
Finian O'shea: I guess probably back four years ago now. It's something that we evaluate versus the alternative of continuing to use that capital, the equity capital to invest in the market. As you know, we haven't tapped out before, but that is something that is available to us if we think about it.
I'm the little person of Capital.
Finian O'shea: Okay, thanks. Can you talk about dividend coverage and the sulfur curve, like sort of what level?
I would say at this point,
Finian O'shea: Yeah, at this point based on our projection, right, and again in an environment where we believe rates will continue to stay higher.
We don't see enforceable future that we need to...
Finian O'shea: Revisit, our current dividend as we have highlighted. A regular dividend is 42 cents and we have been declaring additional supplemental dividend.
Finian O'shea: So, we don't foresee in near term any need for us to revisit our dividend. At the same time as we highlighted, we do have good amount of spillover income as well, which will continue to evaluate as we look at our dividend policy.
Okay, thanks so much.
Finian O'shea: Thank you. And once again, that is star-in-one for your questions. We'll pause for another moment to allow any further questions to cue.
Speaker Change: And there appear to be no further questions at this time. I will turn the call back to management for Closing Bream. Oh, actually, yeah, we are showing another question comes from the line of Derek Hewett with Bank of America. Please go ahead.
Speaker Change: Good morning, everyone. Just a question on the look back. If the credit kind of stabilizes at current levels, when should the full incentive to be kicked back in will be in the second quarter or will be sometime later? Thank you.
Speaker Change: We do expect that from second quarter onwards, it should stabilize.
Speaker Change: There are some nuances with look back because there is a payment component too. So it does create some volatility in future as well, but we do expect that move.
Speaker Change: Significant amount of impact around COVID and all has already been accounted for so we do expect some Q2 it should be more stabilized.
Okay, thank you.
Speaker Change: Thank you, and it appears that we have no further questions at this time. I will turn the call back to management for closing or additional remarks.
Speaker Change: Thanks a lot, Mickey, and thanks again to everyone on the phone for your time attention today. We look forward to speaking with you again next quarter. Thanks.
Speaker Change: And this also concludes today's program. Thank you for your participation. You may disconnect at any time.
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