Q2 2025 Kayne Anderson BDC Inc Earnings Call
Speaker #2: Hello, and welcome tone
Operator: Hello and welcome to Kayne Anderson BDC, Inc.'s second quarter 2025 earnings call. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to Andy Wedderburn-Maxwell, Managing Director. Please go ahead.
Speaker #4: Anderson BDC, Inc.'s second quarter 2025 earnings call. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
Speaker #4: It is now my pleasure to turn the conference over to Andy Wedderburn-Maxwell, Managing Director. Please go ahead.
Speaker #5: Good morning, and welcome to Kayne Anderson BDC, Inc.'s second quarter 2025 earnings call. Today, I'm joined by Douglas Goodwillie and Kenneth Leonard, Co-CEOs of KBDC; Frank Karl, Senior Vice President; and Terry Hart, CFO.
Andy Wedderburn-Maxwell: Good morning and welcome to Kayne Anderson BDC, Inc.'s second quarter 2025 earnings call. Today I am joined by Doug Goodwillie and Ken Leonard, Co-CEOs of KBDC, Frank Karl, Senior Vice President, and Terry Hart, CFO. Following our prepared remarks, we will be available to take your questions. Today's call may include forward-looking statements. Such statements involve known and unknown risks, uncertainties, and other factors, and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates, and projections about the company, our current and prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict. Actual results may differ materially from those expressed or forecasted in the forward-looking statements.
Speaker #5: Following our prepared remarks, we will be available to take your questions. Today's call may include forward-looking statements, such statements involve known and unknown risks, uncertainties in other factors, and undue reliance should not be placed thereon.
Speaker #5: These forward-looking statements are not historical facts but rather are based on current expectations, estimates, and projections about the company, our current and prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions.
Speaker #5: These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict.
Speaker #5: Actual results may differ materially from those expressed or forecasted in the forward-looking statements. We ask that you refer to the company's most recent filings with the SEC for important risk factors.
Andy Wedderburn-Maxwell: We ask that you refer to the company's most recent filings with the SEC for important risk factors. Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time. Our earnings release, 10-Q, and supplemental earnings presentation are available on the financial section of our website at kaynebdc.com. Now I would like to turn the call over to Ken Leonard.
Speaker #5: Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time, our earnings release, 10-Q, and supplemental earnings presentation are available on the Financials section of our website at kanebdc.com.
Speaker #5: Now, I'd like to turn the call over to Ken Leonard.
Speaker #6: Thank you, Andy, and thank you everyone for joining us in the call today. I'd like to start with an overview of our financial results before discussing investment activity during the second quarter.
Ken Leonard: Thank you, Andy, and thank you everyone for joining us on the call today. I would like to start with an overview of our financial results before discussing investment activity during the second quarter, current market conditions, and our recent investment in SG Credit, announced just after the quarter end. I will then turn over the call to Frank Karl to go over our portfolio makeup and performance. Finally, Terry Hart will conclude with details on KBDC's financial results. As of the close yesterday, we reported solid second-quarter results, generating stable net investment income of $0.40 a share and net income of $0.35 a share, representing a 9.8% annual return on equity. During the quarter, we distributed $0.40 per share regular dividend and a $0.10 per share special dividend in conjunction with the final of three lockup releases occurring on May 21st.
Speaker #6: Current market conditions, and our recent investment in SG Credit. And now, just after the quarter end, I'll then turn over the call to Frank Karl to go over our portfolio makeup and performance, and finally, Terry Hart will conclude with details on KBDC's financial results.
Speaker #6: As of the close yesterday, we reported solid second quarter results, generating stable net investment income of 40 cents a share and net income of 35 cents a share.
Speaker #6: Representing 9.8% annual return on equity. During the quarter, we distributed 40 cents per share regular dividend and a 10 cent per share special dividend, in conjunction with the final of three lock-up releases occurring on May 21st.
Speaker #6: Our NAV and quarter end was 16.37 cents, a 0.8% decline quarter over quarter. Due in part to our final 10 cent special dividend payment, coupled with some minor unrealized losses.
Ken Leonard: Our NAV at quarter end was $16.37, a 0.8% decline quarter over quarter, due in part to our final $0.10 special dividend payment, coupled with some minor unrealized losses. At quarter end, our estimated spillover net investment income was $0.12 per share. Despite the trade and policy-related disruptions across most markets during Q2 2025, we had $129 million of gross new private credit investments. In the quarter, we also funded a total of $129 million, of which $101 million represented new investments and $28 million represented existing previously unfunded commitments. This is in line with private credit fundings from Q2 2024 of $136 million. While Q2 2025 generally represented something of a market-wide slowdown, we remain quite active, particularly in the latter part of the quarter.
Speaker #6: A quarter end, our estimated spillover net investment income was 12 cents per share. Despite the trade and policy-related disruptions across most markets during Q2-25, we had 129 million of gross new private credit investments.
Speaker #6: In the quarter, we also funded a total of 129 million, of which 101 million represented new investments and 28 million represented existing previously unfunded commitments.
Speaker #6: This is in line with private credit fundings from Q2-24 of 136 million. While Q2-25 generally represented something of a market-wide slowdown, we remain quite active particularly in the latter part of the quarter.
Speaker #6: We firmly believe that our ability to execute on our strategy, even in challenging market conditions, is representative of our value-add to our private equity clients and shareholders alike.
Ken Leonard: We firmly believe that our ability to execute on our strategy, even in challenging market conditions, is representative of our value add to our private equity clients and shareholders alike. While Q2 2025 was a slower quarter industry-wide, we are seeing signs of improving market landscape for transaction activity. Our deal team has seen a noticeable uptick in market sentiment in recent weeks, and we have seen a significant increase in total activity to match. We believe that this will lead to a solid second half of the year, anchored by a reasonably attractive macroeconomic backdrop, along with rate cut prospects, but tempered by the likely continuation of tariff noise. Transactions that we have reviewed recently and in Q2 2025 mostly have average spreads over SOFR in the 500 to 600 basis point range.
Speaker #6: While Q2-25 was a slower quarter industry-wide, we're seeing signs of improving market landscape for transaction activity. Our deal team has seen a noticeable uptick in market sentiment in recent weeks, and we have seen a significant increase in total activity to match.
Speaker #6: We believe that this will lead to a solid second half of the year, anchored by a reasonably attractive macroeconomic backdrop, along with rate cut prospects.
Speaker #6: But tempered by the likely continuation of tariff noise. Transactions that we have reviewed recently and in Q2-25 mostly have average spreads over so far in the 500 to 600 basis point range, and our second quarter middle market loans had an average spread over so far of approximately 540 basis points.
Ken Leonard: Our second quarter middle market loans had an average spread over SOFR of approximately 540 basis points. As always, we remain very selective and disciplined in our capital allocation. Repayment of private credit loans during the quarter totaled $72 million, up from $41 million in the second quarter of 2024, but down from $86 million in the first quarter of 2025. Given the continued relative strength of the broadly syndicated markets and our success in originations, we continued our previously stated strategy to reduce the size of our broadly syndicated loan portfolio and replace those lower-yielding credits with higher-yielding loans within our lending strategy. In the second quarter of 2025, we had repaid or sold out $47 million of broadly syndicated loans and have continued to strategically exit these investments in the third quarter.
Speaker #6: As always, we remain very selective and disciplined in our capital allocation. Repayment of private credit loans during the quarter totaled 72 million, up from 41 million in the second quarter of 2024.
Speaker #6: But down from 86 million in the first quarter of 2025. Given the continued relative strength of the broadly syndicated markets and our success in originations, we continue our previously stated strategy to reduce the size of our broadly syndicated loan portfolio and replace those lower-yielding credits with higher-yielding loans within our lending strategy.
Speaker #6: In the second quarter of 2025, we had repaid or sold out 47 million of broadly syndicated loans and have continued to strategically exit these investments in the third quarter.
Speaker #6: We remain focused on winding down our broadly syndicated loan portfolio and rotating into wider spread private credit loans over the balance of the year.
Ken Leonard: We remain focused on winding down our broadly syndicated loan portfolio and rotating into wider spread private credit loans over the balance of the year. When considering all funding and repayment activity, net investment activity for the quarter was $10 million. This increase raised our debt-to-equity ratio to 0.91 times, above our first quarter 2025 debt-to-equity ratio of 0.86 times. The third quarter is off to a strong start, bolstered in part by our previously reported investment in SG Credit, which we will discuss later. We feel we are on pace to hit our target leverage range of 1 to 1 and a quarter in the third quarter, also continuing the execution of our arbitrage with respect to exiting our remaining broadly syndicated loans.
Speaker #6: When considering all funding and repayment activity, net investment activity for the quarter was $10 million. This increase raised our debt-to-equity ratio to 0.91 times.
Speaker #6: Above our first quarter 2025 debt-to-equity ratio of 0.86 times. The third quarter is off to a strong start, bolstered in part by our previously reported investment in SG Credit, which we'll discuss later.
Speaker #6: We feel we're on pace to hit our target leverage range of 1:1 and a quarter in the third quarter, while also continuing the execution of our arbitrage with respect to exiting our remaining broadly syndicated loans.
Speaker #6: Shifting to the portfolio, we are very pleased with the performance and health of our loan book, which remains conservatively positioned with 98% first-lean senior secured loans with an average loan-to-value of approximately 43%.
Ken Leonard: Shifting to the portfolio, we are very pleased with the performance and health of our loan book, which remains conservatively positioned with 98% first lien senior secured loans with an average loan-to-value of approximately 43%. As a percentage of fair value, investments on non-accrual were flat quarter over quarter at 1.6% of fair value, although we did add one very small position to non-accrual status in the quarter. Given the high proportion of investments where we are lead or co-lead, coupled with our highly experienced workout team, we believe we are well positioned to drive positive outcomes for our shareholders in these situations. Turning to events post-quarter close, in mid-July, we announced an investment into SG Credit, a leading lower middle market credit platform.
Speaker #6: As a percentage of fair value, investments on non-accrual were flat quarter over quarter at 1.6% of fair value. Although we did add one very small position to non-accrual status in the quarter.
Speaker #6: Given the high proportion of investments where we are leader co-lead, coupled with our highly experienced workout team, we believe we are well positioned to drive positive outcomes for our shareholders in these situations.
Speaker #6: Turning to events, post-quarter close, and mid-July, we announced an investment into SG Credit, a leading lower middle market credit platform. The investment, which is structured as an $80 million term loan, structured inside of NAV, with a $34 million delay draw facility, is immediately accretive to earnings with a yield on funded debt north of 11%.
Ken Leonard: The investment, which is structured as an $80 million term loan structured inside of NAV with a $34 million delayed draw facility, is immediately accretive to earnings with a yield on funded debt north of 11%. KBDC made a $12 million equity investment for 22.5% ownership of SG Credit. Lastly, on August 5th, we launched a private placement unsecured notes offering and will provide further details post-pricing. Given the recent strength in the private placement market, with spreads near their tightest levels compared to the public markets, we felt this was an opportune time to continue to diversify our sources of funding. I will now pass the call over to Frank Karl to discuss our portfolio in more detail.
Speaker #6: KBDC made a $12 million equity investment for 22.5% ownership of SG Credit. Lastly, on August 5th, we launched a private placement unsecured NOSA offering and will provide further details post-pricing.
Speaker #6: Given the recent strength in the private placement market, with spreads near their tightest levels compared to the public markets, we felt this was an opportune time to continue to diversify our sources of funding.
Speaker #6: I will now pass the call over to Frank Karl to discuss our portfolio in more detail.
Speaker #7: Thanks, Ken. Turning to our portfolio composition, as of June 30th, 2025, KBDC's portfolio included 114 individual portfolio companies, representing fair market value of approximately 2.2 billion of investments.
Doug Goodwillie: Thanks, Ken. Turning to our portfolio composition, as of June 30th, 2025, Kayne Anderson BDC, Inc.'s portfolio included 114 individual portfolio companies representing fair market value of approximately $2.2 billion of investments. We have another $251 million of unfunded commitments comprised of a mix of unfunded revolvers and delayed draw term loans for a total commitment of approximately $2.5 billion. Since June 30th, Kayne Anderson BDC, Inc. has closed or is in the final closing process on an additional $176 million of fundings, highlighting the continued improvement in market conditions previously touched on by Ken. This number also includes the investment into SG Credit. We have a number of other higher probability investments in process such that we think there is a reasonable amount of upside to Q3 2025 originations relative to these amounts.
Speaker #7: We have another $251 million of unfunded commitments, comprised of a mix of unfunded revolvers and delayed draw term loans, for a total commitment of approximately $2.5 billion.
Speaker #7: Since June 30th, KBDC has closed or is in the final closing process on an additional 176 million dollars of fundings, highlighting the continued improvement in market conditions previously touched on by Ken.
Speaker #7: This number also includes the investment into SG Credit. We have a number of other higher-probability investments in process, such that we think there is a reasonable amount of upside to third-quarter 2025 originations, relative to these amounts.
Speaker #7: As of June 30, 2025, investments in KBDC's portfolio, excluding those on the watchlist, have a weighted average leverage of 4.3 times, an interest coverage ratio of 2.5 times, and a loan-to-enterprise value of approximately 43%.
Doug Goodwillie: As of June 30th, 2025, investments in Kayne Anderson BDC, Inc.'s portfolio, excluding those on watchlist, have a weighted average leverage of 4.3 times, interest coverage ratio of 2.5 times, and loan-to-enterprise value of approximately 43%. We have also built a diversified portfolio with an average position size of 0.9% of fair value, and our top 10 investments represent only 18% of our portfolio. Outside of the specific credit statistics associated with our portfolio, our investments are well structured. 98% of our portfolio is invested in first lien securities, and 99% of our private middle market investments are backed by private equity sponsors. Additionally, all of our core first lien private middle market investments have financial covenants. 100% of our debt investments are floating rate, which mirrors our liabilities, where the vast majority of our debt funding utilizes floating rate borrowings as well.
Speaker #7: We've also built a diversified portfolio with an average position size of 0.9% of fair value and our top 10 investments represent only 18% of our portfolio.
Speaker #7: Outside of the specific credit statistics associated with our portfolio, our investments are well structured. 98% of our portfolio is invested in first-lean securities and 99% of our private middle market investments are backed by private equity sponsors.
Speaker #7: Additionally, all of our core first-lean private middle market investments have financial covenants. 100% of our debt investments are floating rate, which mirrors our liabilities, where the vast majority of our debt funding utilizes floating rate borrowings as well.
Speaker #7: Credit performance across our portfolio remains strong to date, with only 1.6% of total debt investments at fair value on non-accrual, represented by only five positions out of those 114.
Doug Goodwillie: Credit performance across our portfolio remains strong to date, with only 1.6% of total debt investments at fair value on non-accrual status, represented by only five positions out of those 114. Lastly, we have built this conservative portfolio with a healthy weighted average yield of approximately 10.4% on fair value of investments. This yield has been achieved with approximately 8% of our portfolio still invested in broadly syndicated loans. While we have continued to rotate out of these positions, we still have some upside as we reinvest this capital into higher yielding private middle market investments. I want to take this opportunity to provide some additional context around our recent investment into SG Credit. The company was founded in 2013 and has originated over $1 billion in commitments in more than 200 companies across its three lending verticals: commercial finance, consumer products, and software and technology.
Speaker #7: Lastly, we've built this conservative portfolio with a healthy weighted average yield of approximately 10.4% on fair value of investments. This yield has been achieved with approximately 8% of our portfolio still invested in broadly syndicated loans.
Speaker #7: While we have continued to rotate out of these positions, we still have some upside as we reinvest this capital into higher-yielding private middle-market investments.
Speaker #7: I want to take this opportunity to provide some additional context around our recent investment in SG Credit. The company was founded in 2013 and has originated over $1 billion in commitments in more than 200 companies across its three lending verticals.
Speaker #7: Commercial finance, consumer products, and software and technology. The core lending strategies are focused primarily on asset-backed facilities, recurring revenue loans, and some cash flow lending, all in what we would consider the lower middle market.
Doug Goodwillie: The core lending strategies are focused primarily on asset-backed facilities, recurring revenue loans, and some cash flow lending, all in what we would consider the lower middle market. Kayne Anderson has a long history with many of the principals of SG Credit, including having overlapped at previous institutions. SG Credit has built a solid, diversified portfolio of loans to businesses in the smaller end of the market, with an underwriting strategy and credit philosophy that mirrors much of what we do at KBDC. We believe that the investment we structured here represents a measured first step into this market, where we can create indirect exposure for KBDC's shareholders into a differentiated and attractive segment of the lower middle market via what is mostly a debt investment into a commercial finance company.
Speaker #7: Kane Anderson has a long history with many of the principles of SG Credit, including having overlapped at previous institutions. SG Credit has built a solid diversified portfolio of loans to businesses in this smaller end of the market, with an underwriting strategy and credit philosophy that mirrors much of what we do at KBDC.
Speaker #7: We believe that the investment we structured here represents a measured first step into this market, where we can create indirect exposure for KBDC's shareholders into a differentiated and attractive segment of the lower middle market, via what is mostly a debt investment into a commercial finance company.
Speaker #7: The capital provided by KBDC to SG Credit will be used mostly for growth purposes, on a fully funded basis, this investment will be approximately 5% of our portfolio.
Doug Goodwillie: The capital provided by KBDC to SG Credit will be used mostly for growth purposes on a fully funded basis. This investment will be approximately 5% of our portfolio. Switching gears to at least touch on the tariffs issue, we have continued to monitor our portfolio company's performance as tariff policies have evolved. Deal teams are in regular dialogue with management teams, and we still feel confident that most of our borrowers will be largely unaffected by the policies since most are domestically focused, both in terms of revenue and sourcing, resulting in minimal direct tariff exposure. For those businesses that do have direct or indirect exposure through their supply chains, we believe that most have pricing power to pass these increased costs on to buyers.
Speaker #7: Switching gears to at least touch on the tariffs issue, we've continued to monitor our portfolio company's performance as tariff policies have evolved. Deal teams are in regular dialogue with management teams, and we still feel confident that most of our borrowers will be largely unaffected by the policies, since most are domestically focused, both in terms of revenue and sourcing, resulting in minimal direct tariff exposure.
Speaker #7: For those businesses that do have direct or indirect exposure through their supply chains, we believe that most have pricing power to pass these increased costs on to buyers.
Speaker #7: With only one new non-accrual representing 0.2% of our portfolio at fair value this quarter, we continue to see credit events as one-offs as opposed to a part of any meaningful trend.
Doug Goodwillie: With only one new non-accrual representing 0.2% of our portfolio at fair value this quarter, we continue to see credit events as one-offs as opposed to part of any meaningful trend. Looking ahead, while we expect some further volatility in markets, we are very happy with the increased level of investment activity so far in the third quarter. The strength of our originations, along with our extensive network of private equity relationships, means we can maintain a healthy pipeline of opportunities at attractive risk-adjusted returns. We believe our portfolio remains well positioned for continued earnings upside in the future as we finalize our rotation out of our remaining broadly syndicated loans and increase leverage to our stated target range of 1 to 1.25 times. With that, I'll turn it over to Terry Hart to discuss KBDC's second quarter 2025 financial results.
Speaker #7: Looking ahead, while we expect some further volatility in markets, we're very happy with the increased level of investment activity so far in the third quarter.
Speaker #7: The strength of our originations, along with our extensive network of private equity relationships, means we can maintain a healthy pipeline of opportunities at attractive risk-adjusted returns.
Speaker #7: We believe our portfolio remains well-positioned for continued earnings upside in the future, as we finalize our rotation out of our remaining broadly syndicated loans and increase leverage to our stated target range of 1.25 times.
Speaker #7: With that, I'll turn it over to Terry Hart to discuss KBDC's second quarter 2025 financial results.
Speaker #8: Thanks, Frank. Let's first review results of operations. During the second quarter, we earned net income per share of 35 cents, and net investment income per share was 40 cents, compared to 40 cents in the prior quarter, and fully covering our dividend.
Terry Hart: Thanks, Frank. Let's first review results of operations. During the second quarter, we earned net income per share of $0.35, and net investment income per share was $0.40 compared to $0.40 in the prior quarter and fully covering our dividend. We were able to maintain net investment income at this level through higher interest income resulting from rotations out of the lower yielding broadly syndicated loans into private middle market investments and despite the partial expiration of the base management fee waiver. As a reminder, in connection with our IPO, Kayne Anderson BDC, Inc. instituted a 25 basis point fee waiver of our base management fee through May 23rd, 2025. Total investment income for the second quarter was $57.3 million as compared to $55.2 million in the prior quarter.
Speaker #8: We were able to maintain net investment income at this level, through higher interest income resulting from rotations out of the lower-yielding broadly syndicated loans, into middle market loans, and despite the partial expiration of the base management fee waiver.
Speaker #8: As a reminder, in connection with our IPO, Kane Anderson instituted a 25 basis point fee waiver of our base management fee through May 23rd, 2025.
Speaker #8: Total investment income for the second quarter was 57.3 million, as compared to 55.2 million in the prior quarter. As mentioned, the increase to investment income was primarily driven by the portfolio rotations, and the full quarter impact of net additions to the portfolio during the first quarter.
Terry Hart: As mentioned, the increase to investment income was primarily driven by the portfolio rotations and the full quarter impact of net additions to the portfolio during the first quarter. These additions were partially offset by the $0.2 million impact of placing Bell USA on non-accrual status during the quarter. Our portfolio yield was unchanged quarter over quarter, and PIK interest remains relatively low at 3.6% of interest income for the quarter. PIK income was elevated from prior quarters because year-to-date interest income from Centerline Communications was converted to PIK during the second quarter. Additionally, during the second quarter, we had approximately $0.5 million of accelerated amortization of OID as a result of realization activity. Total expenses for the second quarter were $28.6 million compared to $26.5 million for the prior quarter.
Speaker #8: These additions were partially offset by the 0.2 million impact of placing failed USA on non-accrual status during the quarter. Our portfolio yield was unchanged quarter over quarter, and pick interest remains relatively low at 3.6% of interest income for the quarter.
Speaker #8: Pick income was elevated from prior quarters, because year-to-date interest income from centerline communications was converted to pick during the second quarter. Additionally, during the second quarter, we had approximately 0.5 million of accelerated amortization of OID, as a result of realization activity.
Speaker #8: Total expenses for the second quarter were $28.6 million, compared to $26.5 million for the prior quarter. The increase was primarily related to higher average borrowings on our credit facilities and the partial expiration of the base management fee waiver.
Terry Hart: The increase was primarily related to higher average borrowings on our credit facilities and the partial expiration of the base management fee waiver. During the quarter, our incentive management fee was reduced by the 12-quarter lookback incentive fee cap. During the second quarter, we had a small realized loss of approximately $10,000, primarily related to the sale of several broadly syndicated loans, and we had net unrealized losses on the portfolio of $3.5 million compared to unrealized losses of $6.5 million in the prior quarter. The unrealized losses were primarily the result of negative fair value changes related to our investments in Trademark Global, Sundance, and Siegel Egg, partially offset by positive marks on our broadly syndicated loan portfolio and ArborWorks. Additionally, we had $0.3 million of deferred income tax expense related to unrealized gains on equity investments held in our taxable subsidiary.
Speaker #8: During the quarter, our incentive management fee was reduced by the 12-quarter look back incentive fee cap. During the second quarter, we had a small realized loss of approximately $10,000, primarily related to the sale of several broadly syndicated loans, and we had net unrealized losses on the portfolio of 3.5 million, compared to unrealized losses of 6.5 million in the prior quarter.
Speaker #8: The unrealized losses were primarily the result of negative fair value changes related to our investments in Trademark Global, Sundance, and Segaleg, partially offset by positive marks on our broadly syndicated loan portfolio and ArborWorks.
Speaker #8: Additionally, we had 0.3 million of deferred income tax expense related to unrealized gains on equity investments held in our taxable subsidiary. As of June 30th, total assets were 2.3 billion, and net assets were 1.2 billion.
Terry Hart: As of June 30th, total assets were $2.3 billion and net assets were $1.2 billion. As of that date, our net asset value was $16.37 per share. The decrease of $0.14 from $16.51 per share as of March 31st was primarily a result of paying the final special dividend related to our IPO of $0.10 per share during the quarter and $0.06 per share related to net unrealized losses during the second quarter. Of note, during the quarter, we had $0.01 of accretion related to our share repurchase program. At the end of the second quarter, we had debt outstanding of $1 billion 54 million, and our debt-to-equity ratio was 0.91 times, which was an increase from 0.86 times at the end of the first quarter. We anticipate achieving the low end of our debt-to-equity range of 1 times to 1.25 times in the third quarter of 2025.
Speaker #8: As of that date, our net asset value was $16.37 per share. The decrease of $0.14 from $16.51 per share, as of March 31, was primarily a result of paying the final special dividend related to our IPO of $0.10 per share during the quarter, and $0.06 per share related to net unrealized losses during the second quarter.
Speaker #8: Of note, during the quarter, we had 1 cent of accretion related to our share repurchase program. At the end of the second quarter, we had debt outstanding of $1.054 billion, and our debt-to-equity ratio was 0.91 times, which was an increase from 0.86 times at the end of the first quarter.
Speaker #8: We anticipate achieving the low end of our debt-to-equity range of one times to one and a quarter times in the third quarter of 2025.
Speaker #8: During the second quarter, we continued to increase credit facility borrowings, improving the utilization of these facilities. The higher utilization of our credit facilities, resulting from robust origination during the third quarter, should be beneficial to net investment income over the balance of the year.
Terry Hart: During the second quarter, we continued to increase credit facility borrowings, improving the utilization of these facilities. The higher utilization of our credit facilities resulting from robust origination during the third quarter should be beneficial to net investment income over the balance of the year. As Ken mentioned earlier, during the third quarter, as we increase our leverage on our credit facilities and achieve the low end of our debt-to-equity target range, we plan to opportunistically issue unsecured notes to provide additional credit facility flexibility and capacity. Now turning to our distributions. On August 5th, our board of directors declared a regular dividend for the third quarter of 2025 of $0.40 per share to shareholders of record on September 30th, 2025. As of June 30th, our undistributed net investment income was approximately $0.12 per share.
Speaker #8: As Ken mentioned earlier, during the third quarter, as we increase our leverage on our credit facilities and achieve the low end of our debt-to-equity target range, we plan to opportunistically issue unsecured notes to provide additional credit facility flexibility and capacity.
Speaker #8: Now, turning to our distributions. On August 5th, our board of directors declared a regular dividend for the third quarter of 2025, of $0.40 per share to shareholders of record on September 30th, 2025.
Speaker #8: As of June 30th, our undistributed net investment income was approximately $0.12 per share. For the balance of 2025, we anticipate relatively modest excess net investment income above our base dividend, reflecting the continued ramp of our portfolio to achieve target leverage ranges and the strategic rotation out of our lower-yielding broadly syndicated loan investments into middle market loans.
Terry Hart: For the balance of 2025, we anticipate relatively modest excess net investment income above our base dividend, reflecting the continued ramp of our portfolio to achieve target leverage ranges and the strategic rotation out of our lower yielding broadly syndicated loan investments into middle market loans. We believe our dividend yield and dividend coverage will more accurately reflect our steady state operations when KBDC is operating at its leverage target with the portfolio fully invested in middle market loans. With that operator, please open the line for questions.
Speaker #8: We believe our dividend yield and dividend coverage will more accurately reflect our steady-state operations when KBDC is operating at its leveraged target, with the portfolio fully invested in middle-market loans.
Speaker #8: With that operator, please open the line for questions.
Speaker #2: We We will now begin the question and answer session. In order to ask a question, press star followed by the number one on your telephone keypad.
Operator: We will now begin the question and answer session. In order to ask a question, press star followed by the number one on your telephone keypad. Our first question will come from the line of Doug Harter with UBS. Please go ahead.
Speaker #2: Our first question will come from the line of Doug Harder with UBS. Please go ahead.
Speaker #8: Hi, this is Corey Johnson on for Doug Harder. I just wanted a quick point of clarification just to see if I heard this correctly.
Speaker 9: Hi, this is Corey Johnson for Doug Harter. I just wanted a quick point of clarification to see if I heard this correctly. I think you have about $180 million left in broadly syndicated loans on the portfolio. Did you say that you believe you will be out of those loans by the end of the year?
Speaker #8: So, I think you have about $180 million left in syndicated loans in the portfolio. Did you say that you believe you'll be out of those loans by the end of the year?
Speaker #6: Thanks, Corey. Yeah, this is Frank. Just to put a bit of a finer point on it, so in Q3, we've already exited an additional about 100 million dollars of that book.
Doug Goodwillie: Thanks, Corey. This is Frank. Just to put a bit of a finer point on it, in Q3, we have already exited an additional about $100 million of that book. I think the Q2 number was still remaining about $176 million. So we are down into the, call it, lower mid $70 million of that portfolio. We will look to strategically exit those throughout the rest of the year. Long way of saying, yes.
Speaker #6: I think the Q2 number was still remaining about 176 million. So we're down into the, call it, lower mid-70 million dollars of that portfolio.
Speaker #6: You know, we'll look to strategically exit those throughout the rest of the year. Long way of saying, you know, yes.
Speaker #8: Got it. Thank you. And this is one follow-up. So you think you'll hit your target leverage as of the next quarter. Just thinking a little bit beyond that, you know, once you hit that, where I guess do you expect where do you expect it to sort of like hang out?
Speaker 9: Got it. Thank you. I just want one follow-up. Do you think you will hit your target leverage as of the next quarter? Just thinking a little bit beyond that. Once you hit that, where do you expect it to sort of like hang out? Do you think you will take it probably close towards like the midpoint of that range, or do you feel like you can operate at the higher end? Just where do you think that will wind up lying?
Speaker #8: Do you think you'll take it probably close towards the midpoint of that range, or do you feel like you can operate at the higher end? You know, just I guess where do you think that'll wind up lying?
Speaker #6: Yeah, Corey, this is Doug Goodwillie. Thank you for the question. Given the investment activity that we've seen in Q3 and that we're seeing in our immediate pipeline, we expect to hit one-to-one during this quarter as Terry mentioned.
Doug Goodwillie: Yeah, Corey, this is Doug Goodwillie. Thank you for the question. Given the investment activity that we've seen in Q3 and that we're seeing in our immediate pipeline, we expect to hit 1 to 1 during this quarter, as Terry Hart mentioned. We would expect to operate over the long term, you know, in that range of probably 1.1. Obviously, that will ebb and flow given investment activity, but we will expect to be in that range of 1.1 over the long term.
Speaker #6: And we would expect to operate over the long term, you know, in that range of probably 1.1. Obviously, that will ebb and flow given investment activity.
Speaker #6: But we will expect to be in that range of 1.1 over the long term.
Speaker #8: Great. Thank you.
Speaker 9: Great. Thank you.
Speaker #2: Again, to ask a question, press star followed by the number one on your telephone keypad. Our next question will come from the line of Kenneth Lee with RBC Capital Markets.
Operator: Again, to ask a question, press star followed by the number 1 on your telephone keypad. Our next question will come from the line of Kenneth Leonard with KBW. Please go ahead.
Speaker #2: Please go ahead.
Speaker #9: Hey, good morning. Thanks for taking my question. Just one on SG Credit. Could you talk a little bit more about how you view the relative risk and return profile for originations within that business versus the rest of your core middle-market investments?
Speaker 9: Hey, good morning. Thanks for taking the question. Just one on SG Credit. Could you talk a little bit more about how you view the relative risk and return profile for originations within that business versus the rest of your core middle market investments? Thanks.
Speaker #9: Thanks.
Speaker #6: I'll start on that. This is Doug. Ken, thank you for the question. I think SG Credit is, Frank touched on, focuses on the commercial finance business, consumer ABL, as well as a recurring revenue.
Doug Goodwillie: will start on that. This is Doug. Ken, thank you for the question. SG Credit, as Frank touched on, focuses on the commercial finance business, consumer ABL, as well as a recurring revenue loan product. They focus really in what we would consider the lower mid-market. If our average EBITDA is median, it is usually high $30s in our direct lending product. They are focused on a different subset of the market, typically somewhere between $0 to $10 million in EBITDA. Again, they are focused on the asset-based side of that in many of those companies. So they tend to be smaller growth-related businesses. They have a great proprietary origination system. They source over 1,000 deals a year. Their return profile has been really strong, frankly, with gross returns in the 15% range, supported by two-family offices in the past.
Speaker #6: Loan product, and they focus really on what we would consider the lower mid-market. Our average EBITDA median is usually in the high 30s in our direct lending product.
Speaker #6: Their focus on a different subset of the market, typically somewhere between 0 to 10 million in EBITDA. Again, they're focused on the asset-based side of that in many of those companies, so they tend to be smaller growth-related businesses.
Speaker #6: So they have a great proprietary origination system. They source, you know, over a thousand deals a year. And their return profile has been, you know, really strong.
Speaker #6: Frankly, what growth returns in the 15% range. You know, supported by two family offices in the past, and obviously our investment both in the term loan as well as in the equity will help grow that platform from a loan perspective, as well as investing into the actual structure and people of the business.
Doug Goodwillie: Obviously, our investment, both in the term loan as well as in the equity, will help grow that platform from a loan perspective as well as investing into the actual structure and people of the business.
Speaker #9: Gotcha. Very helpful there. And just one follow-up on that. It sounds like it's going to be structured. Obviously, there's a term loan component, but it's a strategic equity investment.
Speaker 9: Gotcha. Very helpful there. Just one follow-up on that. It sounds like it is going to be structured. Obviously, there is a term loan component, but it is a strategic equity investment. I think in the prepared remarks, it sounds as if there could be some incremental capital allocations over time. How meaningful could the overall allocation to SG Credit be over time? Is it close to—just wanted to get a little bit more color around that. Thanks.
Speaker #9: And I think the prepared remarks, it sounds as if there could be some incremental capital allocations over time. You know, how meaningful could the overall allocation to SG Credit be over time as opposed to just wanting to get a little bit more color around that?
Speaker #9: Thanks.
Speaker #6: Yeah, again, Ken, I'll start on that, and Frank can weigh in as well. He worked on the deal with me on SG. I think we obviously have a significant delayed draw term loan to help that business grow.
Doug Goodwillie: Yeah, again, Ken, I will start on that. Frank and Andy Wedderburn-Maxwell as well, who worked on the deal with me on SG Credit. I think we obviously have a significant delayed draw term loan to help that business grow, as well as, we think it is a great platform and ultimately, have the ability to invest more equity into the business to help it grow. So we think it is an attractive investment on both the, obviously, the term loan side. Clearly, we do not do a lot of, when we do equity, we are doing small equity co-invests alongside our sponsor-backed transactions. But here, we believe it is a strategic long-term investment into SG Credit. So we think that a bit more equity is relevant and a good place to invest. Ultimately, Frank, I would not see the investment being over 10% of the overall book.
Speaker #6: As well as, you know, we think it's a great platform. And ultimately, you know, have the ability to invest more equity into the business to help it grow.
Speaker #6: So we think it's an attractive investment on both the obviously the term loan side, and clearly we don't do a lot of, you know, when we do equity, we're doing, you know, small equity co-invests alongside our sponsor-backed transactions.
Speaker #6: But here, you know, we believe it's a strategic long-term investment into SG. So we think that, you know, a bit more equity is relevant.
Speaker #6: And a good place to invest. Ultimately, Frank, I wouldn't see the investment being over, you know, 10% of the overall book. But we think, again, it's a very attractive investment from both the debt and smaller equity investment as well.
Doug Goodwillie: But we think, again, it is a very attractive investment from both the debt and smaller equity investment as well.
Speaker #9: Yeah, only thing I'll add, and I mentioned it, I didn't give you fully funded our existing commitments. So that vehicle would be about 5% of the portfolio, and to Doug's point, you know, clearly there's some capacity above that number, but, you know, we're not expecting a, you know, outsized, you know, above something in that, you know, mid-high single digits percentage of the portfolio range.
Ken Leonard: Yeah, the only thing I'll add, and I mentioned it, I think if you fully funded our existing commitments to that vehicle, we would be about 5% of the portfolio. To Doug Goodwillie's point, you know, clearly there's some capacity above that number, but you know, we are not expecting an outsized, you know, above something in that, you know, mid-high single-digits percentage of the portfolio range. That's, you know, it would take some time to get there. As we look at sort of the immediate to medium-term future, you know, something in that 5% range is probably a reasonable assumption.
Speaker #9: And that's, you know, it would take some time to get there. So as we look at sort of the immediate to medium-term future, you know, something in that 5% range, is probably a reasonable assumption.
Speaker #9: Gotcha. Very helpful there. Thanks again.
Speaker 9: Gotcha. Very helpful there. Thanks again.
Speaker #6: Thank you.
Doug Goodwillie: Thank you.
Speaker #2: Our next question will come from the line of Paul Johnson with KBW. Please go ahead.
Operator: Our next question will come from the line of Paul Johnson with KBW. Please go ahead.
Speaker #8: Hey, good morning. Thanks for taking my questions. Just a few more on SG Credit. Maybe you can just kind of help us understand, I guess, what is the benefit of structuring the transaction with SG?
Speaker 9: Hey, good morning. Thanks for taking my questions. Just a few more on SG Credit. Maybe you can just kind of help us understand, I guess, what is the benefit of structuring the transaction with SG within the BDC versus, you know, maybe structuring something at more of the advisor level and sharing the benefits via like a JV structure or just, you know, deal flow or something of the like? Is it just the economics are better, or what makes it more, I guess, beneficial for the investment to be placed in the BDC?
Speaker #8: Within the BDC versus, you know, maybe structuring something at more of the advisor level and sharing the benefits via like a JV structure or just, you know, deal flow or something of the like.
Speaker #8: Is it just the economics are better or what makes it more, I guess, beneficial for the investment to be placed in the BDC?
Speaker #6: I'll start on that, and then Terry and Frank can weigh in on maybe some of the consolidated, you know, non-consolidation issues. But, you know, Paul, you've seen it in the past. Other BDCs have made investments into commercial finance companies.
Doug Goodwillie: I will start on that. Then Terry and Frank can weigh in on maybe some of the non-consolidation issues. Paul, you have seen it in the past. Other BDCs have made investments into commercial finance companies. It is a pretty efficient way to invest. For us to be able to invest in a strong cash pay debt security, we think is attractive within the actual NAV of SG Credit. Then actually invest $12 million into the finance company to have a minority ownership there as well. From just a return perspective, we think it is a really attractive investment for Kayne Anderson BDC, Inc. and to have long-term ownership as well as a nice term loan, if you will, to help that business grow. Frank, Terry, you can comment a little bit more in terms of the structure.
Speaker #6: It's a pretty efficient way to invest. For us to be able to invest in a strong cash pay debt security, we think it's attractive within the actual NAV of SG.
Speaker #6: And then, we actually plan to invest $12 million into the finance company to gain a minority ownership stake there as well. From just a return perspective, we think it's a really attractive investment for the BDC.
Speaker #6: And to have long-term ownership as well as a night term loan, if you will, to help that business grow. And then, Frank, Terry, you can comment a little bit more in terms of the structure and, you know, as a BDC and not facing consolidation issues, it makes it an attractive way to invest out of the BDC.
Doug Goodwillie: As a BDC and not facing consolidation issues, it makes it an attractive way to invest out of Kayne Anderson BDC, Inc. and how you consider leverage charges.
Speaker #6: And how you consider leverage charges.
Speaker #9: Yeah, I think that, you know, at a high level, structuring this through the, I mean, none of this is necessarily simple and straightforward as we think about regular regulated vehicles, but for us as a platform, sort of the most straightforward way to invest in a business that we see as clearly accretive was through the BDC, matched up for return targets, strategy, hold size, et cetera.
Ken Leonard: I think that, at a high level, structuring this through the BDC, none of this is necessarily simple and straightforward as we think about regulated vehicles. But for us as a platform, the most straightforward way to invest in a business that we see as clearly accretive was through the BDC, matched up for return targets, strategy, hold size, et cetera. I thought that the best place to house this was inside Kayne Anderson BDC, Inc.
Speaker #9: Thought that the best place to house this was inside KBDC. Yeah, and the only thing I would add, as Doug mentioned, we did structure this in a way that it won't be consolidated.
Terry Hart: Yeah, the only thing I would add is, as Doug mentioned, we did structure this in a way that it won't be consolidated on the books of the BDC. So it will look very much like any other investment that we have. We'll have additional disclosure just given the size of the investment. But yeah, pretty straightforward.
Speaker #9: On the books of the BDC, it will look very much like any other investment that we have. We'll have additional disclosure just given the size of the investment.
Speaker #9: But yeah, pretty straightforward.
Speaker #8: Appreciate that. And how do you feel, I guess, longer term, about, you know, the ability to basically refinance that loan if that were ever something that you needed to do or, you know, get the loan paid off?
Ken Leonard: Appreciate that. How do you feel, I guess, longer term about the ability to basically refinance that loan if that were ever something that you needed to do or get the loan paid off? Do you feel pretty good about the ability if anything were to happen down the road where this partnership just didn't work out as planned? How do you feel about the refinancing of the debt investment?
Speaker #8: I mean, do you feel pretty good about the ability if, you know, if anything were to happen down the road where this partnership just didn't work out as planned, how do you feel about the refinancing of the debt investment?
Speaker #6: I think we consider it, you know, similar to most of the investments we make into a, you know, it's obviously a finance company versus a more typical operating company.
Doug Goodwillie: I think we consider it, you know, similar to most of the investments we make into a, you know, it's obviously a finance company versus a more typical operating company. It is an illiquid loan into a privately owned business. That said, we think it's a very strong loan. I think during this process, if their Chairman, Matt McNamara, were on, he would say that there was a lot of interest in investing into the debt security here. I think it was really a great fit between SG from the investment perspective. We wanted to be more active in the asset-backed category, from a cultural perspective in terms of knowing the founders and the principals there for decades, and even having a shared past at Cerberus as well. I think there was strong interest there.
Speaker #6: It is an illiquid loan into a, you know, privately owned business. That said, we think it's a, you know, very strong loan. And I think during this process, if, you know, their chairman, Mac McNarrow, he would say that, you know, there was a lot of interest in investing into the debt security here.
Speaker #6: And I think it was really a great fit between SG. You know, from the investment perspective, we wanted to be more active in the asset-backed category.
Speaker #6: You know, from a cultural perspective in terms of knowing the founders and the principles there for decades. And even, you know, having a shared past that serves us as well.
Speaker #6: So I think there was strong interest there, but, you know, to be clear, Paul, it is still an illiquid loan like any of the private credit investments that we make.
Doug Goodwillie: To be clear, Paul, it is still an illiquid loan like any of the private credit investments that we make. That said, we expect to hold it and it to be a strong performer.
Speaker #6: And that said, we expect to hold it and it to be a strong performer.
Speaker #8: Thanks for that. Understood. And appreciate that. And lastly, just on the accretive comment towards earnings, from SG Credit, are you able to provide, I'm assuming that that means accretive in the sense that whatever the ROE or return generated on kind of the aggregate investment is, you know, greater than what, you know, the portfolio on balance sheet is generating.
Ken Leonard: Thanks for that. Understood, and appreciate that. Lastly, just on the accretive comment towards earnings from SG Credit, are you able to provide, I'm assuming that that means accretive in the sense that whatever the ROE or return generated on kind of the aggregate investment is greater than what the portfolio on balance sheet is generating. Are you able to provide any kind of context around what the yield is on that debt investment at this point?
Speaker #8: Are you able to provide any kind of context around what the yield is on that debt investment at this point?
Speaker #6: Yeah, this is Frank. I think we said that, so it's fixed rate, 11% stream rate. There were also fees associated with that that will be amortized over the life of the loan.
Doug Goodwillie: This is Frank Karl. I think we said that, so it is fixed rate, 11% stream rate. There were also fees associated with that that will be amortized over the life of the loan. On the debt side, that 11% plus is accretive to the book.
Speaker #6: So on the debt side, you know, that 11% plus is accretive to the book.
Speaker #8: Got it. Appreciate it. Missed that part. Thank you very much. That's all for me.
Ken Leonard: Got it. Appreciate it. Missed that part. Thank you very much. That is all for me.
Speaker #6: Thanks, Paul.
Doug Goodwillie: Thanks, Paul.
Speaker #2: And that will conclude our question and answer session. I'll hand the call back over to Doug Goodwillie for any closing comments.
Operator: That will conclude our question and answer session. I will hand the call back over to Doug Goodwillie for any closing comments.
Speaker #6: Thank you. And I want to thank everybody for joining us on the call today. We look forward to another strong quarter of KBDC investment activity in Q3.
Doug Goodwillie: Thank you. I want to thank everybody for joining us on the call today. We look forward to another strong quarter of Kayne Anderson BDC, Inc. investment activity in Q3 and also look forward to our next earnings call in mid-November.
Speaker #6: And also look forward to our next earnings call in mid-November. Thank you.
Ken Leonard: Thank you.
Speaker #8: Thanks everyone.
Operator: This concludes today's call. Thank you all for joining. You may now disconnect.