Barings BDC (BBDC) 11 Nov 222022 Q3 Earnings call transcript

At this time, I would like to welcome everyone to the Barings BDC, Inc. Conference Call for the Quarter Ended September 30, 2022. All participants are in a listen-only mode. [Operator Instructions] Today’s call is being recorded, and a replay will be available approximately two hours after the conclusion of the call on the company’s website at www.baringsbdc.com under the Investor Relations section.

Please note that this call may contain forward-looking statements that include statements regarding the company’s goals, beliefs, strategies, future operating results and cash flows.

these those reasonable, projected believes differ results company from materially in the statements actual are could Although forward-looking statements. quarter based XX-Q uncertainties year XX, quarterly those report on are subject ended Forward-Looking Statements titled December statements on XX-K for XXXX. company’s assumptions and on ended underlying reports These annual the and Risk to September Factors numerous two under for and XXXX, disclosed including Form the and in risks, XX, Form the sections various are the fiscal filed with as the Each Commission. Securities and Exchange obligation Barings BDC update undertakes forward-looking any statements required no to law. or revise by unless

I At BDC. time, Bock, go Chief call Officer will this over Please to Jonathan turn the ahead, Barings of sir. Executive

joining today’s today’s that Relations website. XXXX the Thank please note section we’ll And call, earnings us on our for our good you, presentation appreciate operator. And third throughout call. Investor of referring morning, be to everyone. posted quarter that’s you We

as Bryan, review of results will Global on Barings Bryan comments portfolio High, Ian, I’m and I details to on Head quarter Manager and is in with and And Solutions third Co-Portfolio the I’d BDC’s of moment, Fowler, and Ian high-level Barings of call some and by Capital Barings and today Co-Head customary, of BDC, President Financial our Private a like Jonathan Jonathan Officer, off Landsberg. start Chief joined the the Finance quarter.

Barings hikes X volatility BDC shown equity consistent, backdrop pace Slide market of presentation. loans rate the on the economic with results. generate leveraged to and in market elevates begin unprecedented stable In the Let’s of continue interest both BDC a where

tied of fundamental Slide was prior compared $XX.XX with spread to asset per write-downs approximately primarily to to value quarter third credit-related down Net macro market Turn factors. and X. widening opposed and driven factors unrealized quarter as X.X%, on by our the highlights $XX.XX share

repayments last our capped share sales quarter, as Our partial which losses. to fee in structure, the quarter share as fee per unrealized and well per $X.XX and realized impacted by that net investment shareholder-friendly occurred income by a compared incentive includes and gains was early income $X.XX

We this the had by in primarily offset a million $XXX of $XXX quarter and for in quarter, of funding and million investments. gross portfolio originations new was later the net million. repayments $X to Turning of decline third sales

Our investment a a the covered are MVC credit on support by in Including assets, third X.X% acquired agreement. total are portfolio to X.X% basis continued and nonaccruals perform well fair our that basis Sierra assets and quarter. the our on of all value the portfolio cost

The our with increase to Now as frame middle turning share investments to and yields further forward to range. and respectively, within cross-platform reference, X.X% gradually we investment quarter our expect expect at additional our average expansion X.X%, target the increased leverage continue revenue earnings has And that as contribution XXXX. fourth power. we and market of $X.XX net with per in rates on into of base we income increase least weighted

net equated and dividend dividend approach hurdle policy asset fourth which Jonathan Additionally, an our our industry-leading $X.XX Landsberg detail yield additional of Board our on to $XX.XX, per later rate, value the a X.X% share have discussion. quarter provide our matches in on declared to I’ll

$X fundings second tied sales earlier the in one, and by to three, a two, quarter; though slightly quarter the investment down. total was in $XX highlights a nonrecurring as revenue portfolio million CLO financial strong Slide X total million, continued five large distribution drove mentioned, and to outlines the muted performance third higher summary for increase quarter-over-quarter percentage previous repayments quarters. in and from later-than-anticipated income And I wind the investment revenue

be Looking yield total higher investment to $XX anticipate we income in portfolio forward, drives total million. rates base as the excess impact of of

million $XX depreciation per of on depreciation on and quarter unrealized net a investment credit had line, This further assets higher net a positive a was result share. incentive to as quarterly fee curtailed the primarily NII spreads. expenses of elevating our lowering income unrealized in result mark-to-market of incentive cap the fee the impact as below Now Barings $X.XX

Now which leveraged target of times investments transactions turning the net short-term is as X.XX and steady of to look X.XX to that themselves face with times. of current of cash, investment liquidity. unsettled us to lower leverage, Net opportunities as clients allows sponsor X.X attractive liquidity partners existing present in end was towards toward which uncertainty. times, our remain This is the currently position our new economic range well

The diverse we private prosecute take be work through markets a come, environment forward, the approach portfolio be those rates with consists to of to increasing of looking alignment and yet to current investor Now market. level delayed will to XXXX. conditions, of manager And advantage for will poised ability current remain investment to in stresses of credit opportunities its which many that arrive. capital starting both way well opportunity. us best-in-class believe impact to to ripe said, and and directly are with some market they the correlated the how well we our future of And continue deployed

portfolio. to investment update and And market provide that, I’ll the our over with on turn an call Ian to the

Thanks, good everyone. morning, John, and

activity X, can Slide on the If see investment details previously. you mentioned turn you additional to

middle on by and fundings million. decreased sales portfolio of repayments by net million gross a with basis in the million, $XXX $XXX $XX Our offset market of quarter,

$XXX included of investments totaling new million, loan million delayed investments middle-market investments and New follow-on $XX in platform term draw XX fundings.

the cross We platform in also quarter. million $XX net had of investments

active in million continue and $XX via liquidity remain prepayments. and generated We of quarter MVC this sales our Sierra, both and paydowns at sales realizations and to

each much the private the public the in quarter on premium take past. have now capital spread investment widened. meaningfully private exceed show Most deal the and the illiquidity one asset XX you loans. of and has updates smaller On spreads remains public important, data market to across across Slide effects. than spreads or those middle spreads we extra This market clearly, structure, a market private investors loan the middle two hand, classes to

marketplace the is reliable. of very hand, lending for On the more today’s sponsor in direct solution attractiveness and high equity the relative private other

relative has shown buyout the direct on this create by of and loans in for the leveraged Notice price banks averaged uneconomical. debt be Slide new issue XX. issue market current This and the attractiveness can lending to clearing mid-to-low-XXs. cost making paper sponsors

origination market trend bodes expect continue capital given for well which We this our across deployment to future footprint. uncertainties,

portfolio June our XX of components shown A investment of September XX. bridge of breakdown portfolio On will a investment Slide of key see XX. to is XX you on Slide the XX, September from as our

in portfolio have categories the on Income bearings of past, Sierra of legacy goal Capital and slide this which well to investments. our middle market provide we the portfolio, discussed details portfolios as originated MVC the the As our cross-platform are is the key as

in our up investments our XX% XX% market contribution. terms of of portfolio portfolio core terms remains fair focus The middle at and revenue value of and makes portfolio total of our in

originated is companies XXX and heavily across bearings market with Europe regions. of obligors a diversified exposure portfolio amongst APAC Our middle diversification the geographic U.S.,

X.X from beautiful weighted middle on average at of first leverage times reflective The credit. is of market and up approach boring X.X%, value portfolio fair our last and remain of X.X% to investment our quarter underlying lien yield

frame middle $XXX MVC in core to million and portfolio our we to of of million legacy complement cross-platform reference investments. exposure, and the with draw wide portfolios continue addition In investments of investment market our Barings’ $XXX to Sierra upon

have $XXX environment. today’s we in date, continue from and capital realized To drive transactions to approximately million both realizations in

Sierra The $XXX,XXX. on and Two MVC sold on Sierra assets to from nonaccrual. added came loan as unchanged is while loans remain of The nonaccrual was five Turning one it total new quarter. assets cost loan off a of nonaccrual credit. number with was last

quarter portfolio in on Core we company the a X.X% investment debt placed of Additionally, representing our Scientific with nonaccrual costs. restructuring the end, subsequent as that position undergoes to

The to of the portfolio portfolio provides lien Barings lien and secured the debt combined from originated Slide lien. portfolio comprised first component equity core brings are perspective. of investments, down XX second portfolios breakdown mezzanine senior first a MVC total XX%. the the a XX% Note Sierra which is of seniority further

top XX shown XX. are investments Our Slide on

represent Business the largest Our XX an largest the X.X% portfolio remains structured with and by diverse large net a conservatively XX as portfolio. total is Eclipse of liquidation value. Recall from investment Eclipse across backed industry loans collateral investments XX% top of spread well inside is the total asset-backed our investment, portfolio Capital of industries. of perspective portfolio investments the The XX

cash flow different past in a may that shift market thought once than not liquidity. become it more be market, companies, focused I’ll will always for summarize in growth for deals with cycles. to quickly acquisition Expected synergies my entirely looks the portfolio secular phenomenon, Emphasis, simple market was did which in materialize. comments stress thought now preparedness growth challenging. total addressable once EBITDA will to on and today’s on

short, the and institutional the XX need At process our investment of Barings, those social years with memory, we to be discipline In investment favor across learning demonstrate wide investment unlearned, capital and frame last deploying will reference, this inflationary long environments. over learned and in norms will both.

turn on to I’ll call to over the color financials. now our Jonathan additional provide

Thanks, Ian.

XX. Slide to Turning

third the of NAV in movement share Here’s full quarter. the the per bridge

depreciation Share per increase our Our share, net realized $X.XX investment per of dividend income repurchases per share. our another $X.XX added unrealized per share. an gains exceeded by $X.XX drove $X.XX Net share. while totaled

$XX million million are depreciation XX. spread as contributed unrealized Slide $XX The total select in situational quarter, the shown portfolio unrealized cross-platform total assets. net the approximately to tied investments this moves. on depreciation to depreciation of more details the was such BSLs price-driven the mortgage or on primarily liquid million Of Additional price or due third $XX

million, underlying depreciation Notably, million due had to portfolio equity positions depreciation to million performance, movements predominantly $X.X tied of to portfolio Sierra in of of JV. while the saw Sierra price total the credit MVC the legacy was CLO $X total tied which $X

can the of you increased bottom see Slide a of the as result credit investment marks. $X agreements XX, support million Near that

statement Slides and quarters. XX income our last balance and five XX sheet for show the

driven with investment investment stable from income, unrealized portfolio. $X.XX earlier net for resulting investment per total a incentive combined capped share by Our on as mentioned income fee by generally the the marks quarter, was Jon,

high a unsettled at Slide debt sheet JV was to sales. X.XXx and September perspective balances to level this equity total due From cash quarter-end was balance elevated although on XX, XX,

as position more view unsettled true measure of was net Our cash the reflective the and leverage leverage X.XXx after we vehicle. of adjusting ratio and this for transactions,

Turning to XX. Slide

our with of the in our unsecured diversify to mix as of our in public the on both and to diverse secured see to continued class. the assets. liabilities issuance our debt asset mix, You XXXX, private have $XXX reliance our match asset markets decreased of seniority Compared we end has can and of ties to both terms of debt how funding million bank portfolio

the shows which of of profile Details XX, year. evolution borrowings our on each are included last the our of debt Slide over

half bond three we fixed As until comprised our quarter debt was average weighted end, have of of with X.XX%, maturity. years over the coupon next nearly funding a of and rate of unsecured

Turning to Slide XX.

can commitments million of as impact liquidity available capital You our see $XX leverage has commitments. commitments the remaining well currently Barings $XXX of our net of fund to BDC companies unused of our using our as to joint our to investments. unfunded portfolio million to venture

our limit against if entirety cushion upon, of facility. available our of $XXX meet credit available leverage called have over these as commitments, capacity as the on million to revolving well We

our as took BDC. dividends over updates adviser since to XX paid Barings Slide and the announced the

on of net a distribution earlier, As and Board asset mentioned dividend share quarter fourth XXXX Jon $X.XX the X.X% declared value. per

strong that $X.XX Looking will power anticipate per above forward, performance BBDC’s we dividend. our share portfolio earning sustain

a investor income? important not question, that out pay increased So why very it begs

highlighted BDC willingness best fee credit our high align under hurdle rate Barings performance, Recall, of answer by we the emphasis best-in-class incentive To NOI margin and to of unrealized. industry realized and our X.XX% structure a that operates fee a outline both on safety. question, to

to rate, in our manager unrealized regular or lower basis, future a aligning credit realized As hurdle which insulates the loss via NAV the income with of of the a losses dividend of the incentive distribution, on market fee. cost on our Barings stress, a Said event is result dividend the the due X.X% bears and differently, fee. price or XX.X% incentive with

base view, shareholder through rates. that and resilient our feature combination to very profile base, that further In dividend It’s repurchases, that dividends. growing and then creates is strong approach, and and drives seek that with down yield enhance this dividend alignment premiums share dividend less time. safety, of risk a yield on elevated long-term combined investor of over value special consistent a With we strong spillover significant systematic dependent believe steady margin we BDC

across XX, the of which relative graphical Slide classes. me and BB to value asset BBB, shows now depiction Turn with a B

or classes saw increased across nearly wider asset fears As in as result Ian – quarter saw the of all spreads stagnation outlined, we a we of spreads stagflation.

Notice outlines relative seen our investment illiquidity Slide BSL transactions for our premium low quarter said, current meaningful benchmarks. the the spread liquid our the in middle-market investments new relative to benchmarks. XX to liquid in that credit widening remained market That cross-platform on third premiums exposures, we’ve dislocation. given

Excluding an to spread represents BDC all-in points, certain of basis $XXX spread comparable equity basis risk Barings XXX which million liquid the same at profile. premium indices a investments, market at deployed point XXX

commitments, these secured investment Asia Of the new also Slide are $XXX in are our European XXXX of pace The fourth and weighted remained which The million wrap two originations. $X last funded pipelines. are activity I’ll up Pac new XX% or loans. compared approximately cross-platform term XX, We’ve XX% margin new DM-X so was committed and funded. prepared lien far the investment with have quarter delayed summarizes loans, commitments, with in or quarters, of during million origination average draw million senior remarks new and X.X%. first of XX% of steady closed $XXX previously which of to our investments our

Private basis senior Global $X.X investment lien Barings investments. approximately is is first billion probability-weighted a predominantly current pipeline Finance The on secured and

rates pipeline investment this expected for based our closing reminder, deals a our is in As pipeline. on estimated all

the And with line for we that, will operator, questions. open

Instructions] [Operator Wells proceed. Fargo. Finian question you. O’Shea first Thank with Please from is Our

commentary a safety Would there’s Mr. in so preference credits there do would supplementals? that higher and from the the if dividend LIBOR generate forth. ultimately year, in up? on event still maybe spillover that a you what Landsberg, everyone. or and something policy and base it Can of does now Hi, spillover next of Good event margin about build your toward – it would the lot talk be quarters you you morning. like good few appreciate eventually the stays spillover high to dividend do up into goes or or prefer specials with a

Fin. a – It’s great Thanks, Greg thanks, question. Yes.

our base that at margin preference think rate. think is I the important. We here to really provides the set hurdle leave of dividend is safety our

think spillover do first, about to we’re how – look we the that but as we bit employing have approach we we So a build, ahead, what really quite think money. all distributing of of available kind above of to

earnings a or share this that retaining really So it’s required repurchases, really a with combination with fairly because be reinvesting reinvest in dividends, ensure rules. of we’re we continued to dividends good all one-off the is compliance believe the environment, some time special dividends now of rate to onetime to supplementing staying in but systematic also

all helpful, so Thanks me. That’s Great. much. for

Thanks, Fin.

with Kyle from is question next Joseph Our Please Jefferies. proceed.

you of kind of read of incentive I that rate the we morning your of kind of their the overall? appreciate versus the some guys. distributions sign with Should the the guys kind as with battening given it of – fee. which prudent good of weighing peers, the increased down should approach timing just Or this, we conservatism Hey, aligning as dividend a consistent more more hatches? curve. is Just have this

wouldn’t it’s a Kyle, I down hatches how things, look battening Hi, which start it’s the is normally Sure. approach. investor I’d with alignment. Jon. at we say

ability the power look value our of do is is because us. increase. time, additional through to unique so our of the And own reinvestment your portfolio can an that us appropriate will repurchase course, you with through best-in-class what’s stable drive portfolio at to always the to And earnings time and aligned a so. same attractive performance. what’s to now at And to in shares see is to profile continue and the But then, equity is dividend profile continue view investment of build

this and LBO And Got guys as obviously, and it. step originations of Ian, yes, the potential competitive the That’s provided the deploy I of And in very there powder definitely environment. all do a amount are tremendous in kind originations XXXX, And thinking peers we you into approach of the helpful. view in XXXX macro level behavior environment? color you But in as seen you’ve like said, I the then, out volatility, you I particularly back to prudent, appreciate kind look on about environment. have changes transactions. of of more weighing dry recently? then How any fewer

Yes. Thanks, Kyle. to And unpack. yes, there’s lot a there

I think market, was to that were XXXX for will look wasn’t kind frankly, which market the compared to and volume at overall when sustainable, of it obviously, down be us, expected similar to but the choppy. properties is XXXX because which just quite quality was coming was XXXX, you

same being of origination you discover of reinvest large year, a are expect in year, the your happen I would a portfolio And private having is firms increased from especially percentage platform what’s equity side. the the the on as to to dramatically benefit and I portfolio large would has get – this to valuation companies. the next So and trying going portfolio coming say

our credits, from So going year, the XX% those consolidate competitors industries stronger we like because basically diversified portfolio, them well. is companies better helping – more origination we’re becoming more into scale. and great greater know XX% It’s it’s companies – larger, helping defensible become is this which to coming

terms origination, where from. it’s come going that’s I of to think So in

not battened crystal worst a us the you – think down because but it’s our prepared it’s in I have to of have none the approach, ball. definitely definitely for hatches,

And for hope the best.

standpoint, downturn. we our focused very have capital we’re a on portfolio much So that to sure a support liquidity making from through

in decade this from having and having of take my this course, because opportunities of then, perspective First asset this a done defensive capital third advantage and to is foremost, – class.

be that of those opportunities. best opportunities the in advantage conventional Did positioned we to out And take coming to of answer a have you really the that one we want your question? marketplace. if well recession see It’s

Great Thanks questions. lot my a for color. answering

Yes, cool.

Our KBW. Lynch next proceed. question from Ryan Please with is

the the than at beginning I just what’s trying Hey the That $X investment there. pretty to was sort there, at the of going quarter understand had good morning I’m on has – fair portfolio in of every question much look I about sort when the has guys. Hey is first and Thompson shrinking one-third lower portfolio million size. been of then cost It the written of been the It’s Rivers. And or is value XXXX. dramatically. in down year

So I not would assume that healthy. is rising that book on mortgage rates

to underlying portfolio for occurring it I’d So What that of what’s And – Are in love Rivers. is is expectation forward? going shrinking the the portfolio Thomson plan by fundamentally, guys Is that hear of design? you is JV? that sort the just that shrinking.

is Ryan, Sure. Jon. this

So investment those mortgage given can would was to which mortgage which liquidity you outline to very the it was in originations loans, servicers buyout FHA effectively duration, granted to to effectively guarantee. early that targeted mortgages provide a allow XXX% are short certain government where return, profile in invest really we

value in slightly, and profile what to we’ve invested to And out the believe form down in to continue And are you that now, when increase get the the you where at what the a resubmit strong. right performance, the rates of have value pool. or we underlying rapid pulled right, where be dividends, to the would obligor start effectively mortgages but the increase collect interest it matched. to underlying reperform to They point time status, paying we we the back back able returns consumer the credit not, the – look and to returned fair as pushed

It’s been strong income provider. a

particularly just sell where they to that at to recognizing not depressed wind that you underlying now now situations mortgage looking books was would look mortgage right, the with expectation that, down. Our they have it with at prices environment services that, be

match effectively Ryan see you’ll our that then and and dollar return for that. so redeploy And capital us dollar

use it you and And a that to so avenue, wider recognize strong also we our provided more view redeploy the of is spread. current put environment, earning productive while it in can

Okay.

that, the is be will expectation that will wind that So down.

goes quick too, It pretty Ryan.

time, very, and even credit very close to cost why dividends paid gapped very liquid redeploy is to wider. when that’s you very your and out get now, which the reperforming particularly you’re that So then have why rapidly consider they’re and reposition which assets, that interesting, over basis corporate into able opportunities

Yes.

significantly just following I understand. are maybe opportunity the opportunity market I kind economy quality of in And increased a have way, kind the in up, mean, is outlook become the of Okay. guys the market has and increased positioning the the then shaky. for simplistic maybe on this of more market today. more you substantially, deals – but the how has for portfolio also

quite market this two economy. range guys environment the the your flow the to be obviously, bit guys to anticipation net then would of want because you depending deploy of dislocations for like Is opportunities anticipation down those in marketplace a grower factors. this of a sort is deal and are it you sit Or generally leverage your today, further So and that current at to in there capital? the in do portfolio

look of what’s and Maybe market, it don’t right of think this it’s protection going what’s But then market valuations. has and sellers wider, to I’ll I side can about the yes, to overall over terms Jon today Spreads with right? but Ryan, Hey because to I with definitely the buyers are happening I I exactly at like said, getting Jon and leverage discovery come in it. assets, capital down, between better happen structural know going Ian. through better, mean, when is are again, start you people the the and we’re talk throw

are to I increase rates, just have going to in in – decline is to to that’s sponsors going to put going are going either come down. have to or given mean quantum change to more valuations have the reality is, debt the equity and the

say transaction, really unless today’s aren’t market unique properties. to in something great So just would there’s very certain a properties that I the

making proof through to more supporting work bullet as good we that terms go those are economy. less attractive is return ultimately our portfolio this on the risk than portfolio and that’s because, view with putting our market our And money investments again

on. what of focused kind that’s we’re So

this, this thing We one I like through out the And said, been start having cycles, middle here. end, middle in I don’t whatever right? that’s is and beginning to to going get look is again, as how to the only common it’s the is the But know dislocation like, we play the many different. going the think, through

to out be – for where those to we more looking opportunities flexible willing figure to but sellers be of the want those are, it’s may opportunistic it on good advantage the assets cross-platform and side, on and are definitely So that situation. on middle opportunities focused of we’re going be taking market that need liquidity side,

well So those they to we be appear. want for positioned as

that’s And so our focus.

You I put really well, be. it Ryan. might it And think

that If premium. assets of to the we liquid XX, really the look the slight distress market stress are exists at has available, when premiums, inside on you or start limited risk that Clearly, right? middle look

just mean we’ll doesn’t Brian to you I’ll situational but it the you can that to lob won’t good then and That for find find over assets item. going a some if of opportunities you’re quick see

certain some what gapped out in of where wide. those find of the you in Brian? But already cross-platform have You market opportunities see sufficiently can look to the could relative spreads

Yes.

the you if general overall we’re selective there about think profile to of risk really And lending. a that in economy. this correlated cross-platform direct mean something of we’re to looking provides, quarter, be opportunities for unique have little example traditional something we a out portfolio great that complements less part that a is looking is what Aerospace in Bridger even I So think the the

the Forest a that of growing deal borrower. don’t Super that is maybe a economy I aircraft a to think fleet which, That’s again corporate Fires general traditional correlated company that’s as with Scooper to is

complement where any types to are that book. we’re those and of return find risk-adjusted again capital to deploy broader opportunities looking of So kind

Got sense. Makes the I appreciate time today. you.

Our Alexander next Casey Point. with Compass is from proceed. question Please

Yes, thank I Most answered, have one. of were do you. my but questions

just you between and This cost good. still are they will is climb saying the for value and credit repay mark-to-market. back is to the difference driven fair rate So as Thomson is the cost so a that just

nets effectively it But also effectively we good. mortgage is coupon. still and Credit the as we to spreads a reperforming, at rate they’re base to it’s still back and pool the sell at to price, really asset own income, a lower submit FHA, rise in think return. a market attractive in rates the Casey, is lower general when you all have with rise totality, the slight your when mortgage now a income we and But of the so once loss, it back which retooling going you’d back buy you be which

be than right that wind But one something not But hold you’d long for it middle that be and you’d it it’s now, so, earning loan, is getting a did which if a can why sit start time. you you would market down. lower what be we on to

you. thank Okay,

end closing question-and-answer the of We have for like Jonathan Bock comments. reached conference I session. our would to turn the back over to

very, you to wish are the service. for folks all we on so to much want joining thankful us happy Veteran’s a Day and participating everybody thank today, very call, Thank we and want for their you and

for you joining. thank very much So

This does conclude Thank you. today’s conference.

at you lines for this You may disconnect and your your participation. time thank