Barings BDC (BBDC) 10 Nov 232023 Q3 Earnings call transcript

Greetings. At this time, I would like to welcome everyone to the Barings BDC, Inc. conference call for the quarter ended September 30, 2023. [Operator Instructions] Today's call is being recorded, and a replay will be available approximately 2 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.

Although the company believes these statements are reasonable, actual results could differ materially from those projected in forward-looking statements. These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks including those disclosed under the sections titled Risk Factors and Forward-Looking Statements in the company's quarterly report on Form 10-Q for the quarter ended September 30, 2023, as filed with the Securities and Exchange Commission. Executive obligation by or the law. I to Lloyd, no statements any call undertakes BDC. Eric required Barings unless will Chief BDC to revise update forward-looking over Barings of Officer now turn

years. Thank veterans you, With Veterans veterans very by everything tomorrow, members We're Day of that off loved morning, over are want who start phone all or it their our your and to any being for I thanking service and done operator, you've good the country. everyone. the supported on ones grateful the family and for

For Investor call, everybody, you we'll Relations website. section for that's quarter us today's to Please referring presentation. today's third of our our call. we appreciate be XXXX throughout the note on that earnings joining posted

joined the Freund. I'd and our call the Ian BDC, refreshed by Co-Head of financial of and we presentation that Officer, portfolio Co-Portfolio Fowler; and information some High start BDC's the Managers, Finance of have today, statistics. of Matt Elizabeth Barings the Global President like Private On to Murray; by Barings acknowledging Financial and BDC's Chief I'm Bryan

how information the team has presenting of engaged was BDC months, investor course the several manner an the in in market. The and review in the credit a companies not of consistent about intentional Over changed. Barings manage been the the with portfolio. we has past strategy and middle remains

selection complemented is a and of and sponsor-backed predominantly by is portfolio platform nonsponsored Our investments.

in portfolio greater on strategy detail Our is Slide outlined X.

our stylistic guiding shareholders. And acknowledgment invest compelling market continue and this strategy economic deliver our the returns operating the during out macroeconomic we stability the discussing discussing the light approach. hand quarter at the our hope of that and BBDC and of time deal and XX. to significant investors shift uncertainty ended partners morning this will as we quarter. backdrop to throughout strong results understand performance will against the our to and during as spend with of a our not important September attentions We successfully the serves exhibited matters way, new and volatility We

investment top the sponsor-backed issuers investors to $XX.XX Net of uncertain value and Our unchanged $X.XX, due yields times. Net incentive lower per third, is income incentive the from capital credit at of structure of prior structure. was and cap the quarter share $XX.XX was asset on these portfolio; for X.X%. in prior December our was compared rates; continued increase focus Consistent performance year-to-date base the to $XX.XX well fueled and fees of by reflecting rising quarter. in the XXXX, quarter serving our NII a secondly, strong normalization the investments from within shareholder-friendly

result more We forward. net during in is capital BBDC going for activity degree the most the during reflected well industries. of positioned market we the further the quarter Investment the as of modest compelling market opportunities certain deployments the some any review of as year. a remains Our and viewed a defensive of focus the performance top the within and structure on volatility believe in uncertainty

our As Barings compelling acquired them our positions. the to actively MVC shareholders from originated in maximize and rotate into Income we're working value know, and Sierra legacy Capital holdings

a third portfolio value a X.X% are quarter. acquired MVC perform on X.X% the fair basis nonaccruals Our in X of with book new the nonaccrual continued quarter. well investment and cost assets, total the basis to on our Including Sierra and during the portfolio

credit were portfolios the assets With of by all our support benefit of acquired therefore, manager. the agreements. BBDC support covered provided continue from by and are to credit investments, the exception our nonaccrual shareholders X agreements from

in the to $XX related positions to Sierra valuation for credit the the realized in agreements. basis Sierra reduction and They're portfolio. appreciation CSA the million designed losses The quarter, the due current to support primarily CSA on valuation is underlying MVC quarter-over-quarter shareholders combined the was unrealized portfolio. For approximately a in from insulate

Recall across issuers semi-liquid declines As the versa. To vice acquired less realized are wide when bulk par spread comprised value portfolio investors of portfolio of traded than date, a losses to The believe reflect $XX anticipated than portfolios. of within know, the million broadly been to loans of net issued rather that unrealized market Sierra insurance number of to and was in have value, improves discounts in infrequently. the depreciation at collateral the the remaining the impairments. syndicated that the

the realized. positions were on end quarter, nonaccrual of Sierra X fully Following the

on continue the of power XX.X% earnings rate floating average to rate base rates $XX.XX. increasing quarter. per weighted a to from dividend an our policy, our the We investments Board with consistent yields $X.XX the quarter the prior on of On on fourth quarter our value portfolio. basis, base asset of net floating yield lift conservative yields with remain and declared share, Increasing to of to the dividend equates dividend XX.X%. prior X.X% Turning level annualized portfolio our predominantly on

net our of net and X.XXx. to X.X was leverage is X.XXx. unsettled target transactions, of Looking This range leverage liquidity, which at leverage, cash is within

for to continue prioritize become private credit. very has deployment We of a management into attractive risk capital the balancing while what environment

partners Investor that Day Barings of available investors our early many of are our We were and Before hosted the in shared replays the presentation able our attend. many you the section BDC grateful turning over at Investor XXXX under and The were event of of that website. Relations to content call, as know, October.

you're Ian. turn to review For those if over unable to who of were to encourage you now the call we attend, able. I'll you that

basis bulk and to approximately the past fundings as million our of this asset likely on indicated investment being tip million repayments the $XX of spear, on on the opportunities private and sales billion equity Activity the by sell-side our added of year environment who the months impact venture. with solutions more that during they professionals is transaction the credit-focused under firms. BBDC's backlogs located sitting of with included of assets $XXX market management. middle Barings in been buyout rising determine net is joint in $XXX LLC, managed consistent any by more to the private as has a Eric. sourced equity with pause The $XX which increased manager bankers rate than valuations. Investment finance to new million Recall sales, organization from than portfolio are the a been The serve a are by a gross providing buyers of an have messaging BBDC companies to $XXX and XXX for team, record globe, more backlog. by more around offset tempered XX private preeminent sponsored take has Thanks, opportunities. Jocassee financing quarter, portfolio million of global as

opportunities However, costs. sponsors based of bridge The and range cost deluge a today's up dam on of valuation unease. being general to by by appear gap reticent economic resetting XXXX the financing buttressed capital that the of and held multiples between price is the purchase is

volumes in private transaction to conflicts, show compression are When portfolios, continue but seen backlog effect, by opportunities portfolio our Barings political original in multiples. have uncertainty a close underwriting reason increase We're high in having bottom. There to opportunities the convert of created in use opportunities mandates distributions to managers into we BDC enabling ultimately platform believe a X-arm reduce price, to investment which already the and to we transactions, provides increase the trending by not a Investors opportunities. facts know exit is well. to rates in are will to that community early-stage for multiples the a companies within strategy for need as their interest We benefit invest their conversion compelling lows. come, platform, increase banking already historic basis add-ons logical against a capital an their namely inflation, towards continue call LPs. months deals and forthcoming equity to the execute below of purchase makes in an Counter sense among high is unfortunately, on add-on seasoned level a to to improve any Sponsors of within disciplined persistently the capital to rates number a to cycle. into and those sponsors in hedge the sell-side most issuers, record cost in deploy and the position do closed rapid

interest forecasting earlier. as issuers X.XXx quarter to weighted fall Interest reflected in our securities. XX% state, portfolio approximately is secured ultimately rates portfolio. of with the current will within coverage at a a lien full X.Xx, average financials coverage of for impact Turning stood XX% consists decline investments X.Xx constituting performance. higher first between We're and and from portfolio Xx of steady a modest the investments the

against a and oil volatility, less proven economic to metals backdrop a prone industries them, be restaurants, various strategy among to has of predictability. economic avoidance Our gas, retail, of sound

of sponsor-backed the portfolio leverage up combat the earlier. a for proven similar at gains Private the of to are has -- a One of going issuers out combined set wage the fact reflection Finance sample believe gross successfully quarters, median a in expansion year increases noted. price same the And XX%, predominantly benefits strategy stood believed that margin flat American through that over reasonable portfolio, Global EBITDA past confidence year gross what consumed earlier, the inflationary from multiples, gives with margin in us were we degree some from North in their to to pushing several were our margins businesses. Adjusted have BDC were be to pressures previously XX% XX%, X the

activity portfolio with portfolio, perfectly we within highly value. Recall somewhat, to issuers these a for feel The accounting XX.X% comparable While reason X performance the of composition the included market in of These fair the we Eclipse not quarters not positions that going come. that X platform originated period-to-period of past the these top the Rocade market structure positions as We skew originating transaction comfortable acquired volume on middle number remains the to in positions the positions and portfolio. market basis have have loans. underlying as diversified, the of out metric investments, will Business rolling XX believe top assets a a other Capital positions certain Holdings, of anticipate includes quarters issuers, allow will conditions classification in new be forward. and the our issue metrics

the positive combined third on some X% a the minimal performing issuers rating movement Risk basis as mentioned. The previously X uncorrelated not to underlying the expectations exhibit volatility shareholders. and In and of in at formatting, to expected a quarter-over-quarter. and underwriting the increased during ratings quarter companies. during quality issuers publishing our we -- Eclipse We're -- heading portfolio, bolster to associated we see also but horizon. value We outperformed into event in schedule as attractive we're nature quarter. classified our the is risk a at our do long risk in middle should the enters most reasons of Rocade we an X Encouragingly, recession. remain shareholders over confident exhibiting experienced the movement BBDC return ratings for addition stress XXXX investments for into portfolio a time long as credit new market were do of economy and have but certain unchanged investors credit delivering risk-adjusted the committed we're with consistent

our Our is Elizabeth. risk now across gives market call and managers, asset to the turn credit unique but to do. I'll select we global what return significant core and reach compared ability a scale BBDC classes over other to middle

the NAV XX, per can full of the quarter. Ian. third On Slide Thanks, in see you share movement the bridge

share. in net exceeded per offset FX Carlson pleased portfolio of from share predominantly decreased losses share very which XX%. to to position, restructuring agreements loss $X.XX listed on Our investments, exit our $X was of mentioned. appreciation the the of of our a the driven NAV amid performance improved underwriting due backdrop portfolio's of share by with million, $X.XX support realized and partially and per highlights conservative and from economic the net Travel construction. which Eric uncertainty, underlying by reclassified our The investment credit as The Communications, Learfield were CSA unrealized was was per performance this unrealized valuation Sierra by investment by approach in realized per approximately Net which dividend and the portfolio $X.XX $X.XX income the depreciation. We're

by the joint base was net and income to fees per lower investment incentive the lower unrealized higher quarter and venture our This gross for incentive in was and Our losses due fee from was investments. From by offset driven share the cap. debt-to-equity balance X.XXx September and realized rates quarter dividends at perspective, sheet a partially XX. total $X.XX platform

currently of view long-term the from and June quarter true to ended as leverage of of we X.X within end, leverage our X.XXx was which target position in modestly quarter vehicle XX more up X.XXx. ratio, the Our net sits reflective X.XXx the at

continue thankful our a rates. stewardship will in position of profile. Barings of our with to rating structure that issuance enviable consistent capital We investment-grade avoiding high us years thoughtful leads that liability manage structure manner the is of in BDC is at historically the

Our class, capital of in level defensible, funding $XXX seniority the both unsecured mix debt structure. remains by of of in support asset terms million highly significant the our including and provided

joint to our currently companies in next August as BDC of XXXX. Barings As portfolio unsecured average investments. the million unfunded debt third our And approximately outstanding our of of we $XX commitments comprised million maturity fixed until the $XXX funding of the as coupon X.XX%. commitments bond roughly has half of X quarter, rate weighted have well with years end a venture was to of of

cushion these commitments entirety meet called have our limit We leverage upon. of available the if against to

mentioned of manner stability. X.X% Eric fourth We asset a quarter manage per our driven As consistently we business, policy share, the $X.XX value. on broader dividend distribution Board declared net earlier, in evaluate the by dividend our a

I'll June and shareholders rate Rocade earn continue dividend our will should level the for questions. a as facilities. With portfolio highlight Eclipse of importance million remained our environment, and joint have the of with of will benefits help the $XX commitments, $XX benefit up in above normalized diverse assets prepared closed generate correlated high an Jocassee equity increase believe venture as base investments and results remarks our made We in pipeline. which we Thus our we that to portfolio. hurdle the to expect QX, of well open platform income. These the wrap our we'll million line that, debt continue higher on earnings significant funded. million the and and a of committed investments, funded our announced operator, rates have less the that have previously Given note we appropriate. investment for $XXX of We've and new longer, remains fact higher at also far

from question-and-answer We [Operator will with a now Our conducting question first Jefferies. line Kyle Joseph Instructions] the of session. be comes

'XX. macro you election gave It a color like of the optimistic cautiously the appreciate powder but I an Ian, cycle a into sounds and there, with little on lot deal outlook some uncertainty. dry bit out

what yields market, we of want at your where kind moving of see see look in of curve kind expected rates what year? base curve. pick to given those you you do. see 'XX, next the trending in are to Obviously, Just the to a the portfolio market give and on sense want brain the given us into spreads are forward can the in context historically dynamics could But see And as doing. just forward to lot the a parts look for you spreads where

because I are we're can and mean, a go there's in little you I seen Yes. of this have XX-plus in firms valuation a activity private I XX But environment Happy this all inflationary Sure. this bit between it. years, buyer ball, crystal understand of market definitely and off there. now, right obviously I different have anemic now the and of Kyle. I'll that. in nailed out do terms obviously, hesitant I've you -- equity deal doing start seller is gap for because years. than this to pressures and on a to And why right still over don't think been

have on Fed's flow. don't it kind an is going a we are that normal seems higher backed and really deal trading XX, because points, is with at valuations think not longer impact. elevated definitely the know basis off telegraphing but it's to rates market where another lot the -- And XX of I functioning like a of

So the that's that we're like -- environment in. said, you that

closer back to think to the election the in the start of maybe getting election. we pulling and base see uncertainty extent to terms I then getting direction bit rates, some a through of

to out see. waiting when of to floodgates there to that's might I'm ton the think not is there I say deals a come you but going open, market.

especially you new when that's the today's on. managers the market that look can there don't and side, So rely deal on there, platform law portfolios that have out activity are they at our our uncertainty. deal of economic invest of the all well. coming which portfolio, It's is understand is flow know being XX% because from to able you companies great nice in and

don't very have aggressive portfolios, being pretty attractive. But that's So spreads. managers on that and new activity with for they're

it's is XX that's there's maybe XX a this class. if the rates the a I think my if property historically points we've years, even opportunity. if on XXX kind over basis again, of little of perspective deal all-in you go bit just attractive market, at spreads to XX as compress over this XX so years, coming base at we're spreads to look points, in depending But from the And been high yields a anywhere seen asset to come that basis and -- an kind always and look down, you as of as reversion up, mean seeing

I'm senior surprised attractive end still it, for but risk. extremely not lien we're at all-in generating the by So the day, secured yields first of

vintage this great So class. it's asset a for

helpful. sorry. Got -- oh, it. Very And

sorry just to the No, answer. say for long-winded going I was

were M&A your last, Obviously, your been year, crystal I us a was potentially outlook that the I kind potentially repayments? No. a ball XX so assets, as we for offset has repayments think over the a But pick declining into have sense to in rates call are provide repayments -- guys environment yes, muted environment, a But context that rate you do 'XX. going No. have Oh, say muted now, but probably of out. to follow-up how which while floating next keep if rate obviously, go months. of insulation. that. it, base obviously, the into would But But give declining these some rate up, about

Yes.

question. we we a sort to I came incredible year came very close use volume think out now, cutting and reasons, an quality same can with benchmark crystal we was was ball the is And 'XX, low situation. of would that once but your have market. And occur the with expect of great to the So then really to terms situation stalled. that M&A back of market runoff. of Fed our floodgates if and 'XX The same I that in deals it the half as and M&A out 'XX the market. right because have, the true COVID, plays well, and half obviously, into rates of back is different the election opened And the performing 'XX, starts point, portfolio, we which to go especially the I of benefit

This And will is so us our increase activity our we obviously runoff whatever new dramatically properties traded. as is across allowing AUM. saw change. have that in 'XX, platform. pretty actually We deal to where were That increased

that market origination strong you new be expect long deal flip market, M&A dramatically have the up. that increase and a on to as would team replace opens able when in you'll I the But with runoff definitely think the as side, activity. leadership to So position a

back like be extremely it'll of So was 'XX. busy it just half

come of Robert Our the from line Raymond Dodd with James. next questions

Congrats quarter. on the

any coming towards levels don't the them? mean, heading of Another is that of still historic you driving all valuation? want any close. color rates because level you -- prepared me. deals can give deals high-quality that I the give of Is sponsors remarks, you competition to mean of actually And for said conversion pulling deals of conversion? to question I people a that what's because in are lot us it -- low historic on for actually the the closing probably us your Can

focus I Sure, quality Robert. deals like through I you point, least on. above. much of it those I deals, at because for sure, some all sponsors the screen, would at that but it's making breakdown, that get with the we probably, can aren't just even an right, not it's mean, of say so the exact the

so are looking properties high-quality at And that properties. they're

of couple I think factors. you have a

next I also, interest rate where kind you there's rate impact that until full seeing we're about think really point impact. And the of to is you a the full definitely year this see if an of issue. get the not right? we're valuation now Because interest quarter's financials. kind the elevated the starting think environment, like catch-up, And of you're effect at

eroding we kind a go last the bit showing over if they're because all fall higher valuation of you of around So sudden, was and deals base the catch-up maybe earlier performance of more so X of decent. months, a much is a negotiation this of because was then inflationary kind now and there a But and quarter X, whole into rates a performance back get bit and apart. the little

a So that of in sure I've seen situations. for lot

On because to I now some -- side, attractive. right really what's the in this not are there's lot properties the of market it's deal unique, new that competitive think, environment, a not coming there's extremely

trying lot working the So or that compression in certainly, to And are reduced. because a times, are deals. to trying losing bankers competition. are of And kind not avoid deals the come stage these really to these really of deal in been coming second investment really to the cycle the sponsors of they're allowed control has to lenders by the

So really very third-party be and quickly with all team it's as diligence these be through to responsive the got there. fiercely competitive going to a our out working sponsors underwriting. We've doing

an overall in the theme them slowing is not that definitely down. market. we're But So

appreciate I that.

Another one different on subject.

I done? an Investor QX in no a buyback, Can on was quite -- the obviously, Can -- On QX -- versus was in give give have any any second. wasn't blackout Was in anything, you it dates? in what it Day. you the buybacks the or why buy obviously, did us it mean, back second but you -- would color year-end you quarter, did didn't us third lot

shares. X since Day, equates Yes, million our bought an In XQ, average million Robert, X.X great at $X.XX. question. spent in like price And which million XXXX, of $XX mentioned Investor shares to buying we we shares as we

always around $X.XX what I were some as very of we with we're committed our yesterday, we've think shareholder-friendly. quarter, had As closed leverage that. And this to said, balance We're And very opportunities. that's we to share we been you a in XX buybacks, market out see out, worked quarter and times in that quarters. Since wasn't the in we've XX of when the will weren't market just but blacked it out. coming this XXXX, we us portfolio

you So it. to -- to we're levers just this that choose know can This committed we just quarter. had different

from questions Alexander next of Compass Point. with line Casey Our come the

Sierra of quarter, that know were I were? us The X quarter just were can those or know positions don't even the realized after -- additional the gain what loss you to end any what need how X mark? their they the there's -- quarter versus end on to just -- to the realized subsequent the tell relative names, of if the marks how

Casey. Yes,

or $X,XXX that you One, and want either like at exited we was we only the right to other under. So $XX,XXX exited marked the exited, said, I mark. And one we like mark X. above slightly say, about the around

very to the immaterial So overall portfolio.

Okay. That's agreements compare them fine, support Elizabeth. are the that loss the and Sierra at. XX, the to Then what just portfolio, credit see are What so is we mark-to-market portfolios where the fine. portfolio looking Slide on MVC at the we can valued? That's

I think couple know. points, me going to a answer I'm Casey, data question. let If So of not, which will your you give

where $XX.X, $XX.X So MVC, the was $XX.X. at prior CSA versus valued is at the current was portfolio quarter versus valued $XX.X

portfolio. that's So MVC the

top -- MVC the I'm is actual asking. $XX is for what at loss that's portfolio? is But $XX.X. on mark-to-market of asking the I'm is MVC side CSA current the not the valued CSA is what The million, What

Got you.

Casey. $XX So about million, that's

Okay. That's about million. $XX

the mark-to-market the And portfolio? loss on actual Okay. Sierra what's

million. It was about -- $XX it's

$XX about It's Okay. million.

Ian, And was give I you is So some but $XX quarter-over-quarter. which understand position, view us can all great. security, That's right. marked down into million then MVC an it

interested fed core who the that pretty would par. I marked past $X into you're think got of core. about of guys you've then on million ability to XX% hearing big was be XX% package going Core that, know I market receive your you of So to work par. up securities change a that's on in to in different at that that valuation. And

Yes.

thoughts. the let appreciate Ian, I Ian had and me I Casey, same answer the that. question.

as equity-oriented. so in may recall, is you position And security holdings the

little unfortunately During there a I financials is projects of multiple of past that figure, you were just the dynamic enterprise the an that value as course impact EBITDA apply to quarter, bit of that with to impact think against us shifted that right. the associated magnifies the some timing the And the it the trended performance. the

over And reality little performance. I'm volatile, a are constitute quarter. to they with to period to side speak more to the the optimistic exposed this But actually be is core have respect that turn reason It's unfortunate an that bit to the term longer specifically. we'll to we and call so of equity that concerned don't they be position Bryan portfolio. this a in and particular over can intermediate of time, positions more the see were whenever on volatility going recovery the any

they've to they how terms approved elections Matt. and with it want disclosure so of of from out needs the Thanks, core, go perspective, Casey, get still statements to in make terms everyone for parties. They all reached Yes. plan. to an to process agreement have solicitation vote as in relates a to

As business go equity when loan is terms reinstated equipment forward the equity. a a $X.XX on there's different you receive, what can debt the is the roughly about which couple dollar in other of the previously, reorganized and of on holders in of I know, options we've of talked know, one

that evaluating both those not So We process an still happened has there, of options. solicitation have and yet. the we're ability election to make

turn We to of closing the like now to the back would have session. Eric remarks. I any reached Lloyd end over question-and-answer for our floor

thanks, Just for have weekend. dialing everybody, in a wonderful everybody, and

does Thank conclude today's We your appreciate you. This teleconference. participation.

the disconnect of this You day. your may your rest Enjoy time. lines at