Barings BDC (BBDC) 7 Nov 242024 Q3 Earnings call transcript

At this time, we would like to welcome everyone to Barings BDC, Inc. conference call for the quarter ended September 30, 2024. [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.

At this time, I will turn the call over to Joe Mazzoli, Head of Investor Relations for Barings BDC.

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. based Commission. uncertainties ended XXXX, the those report on are subject September forward-looking statements titled XX, statements on XX-Q company's assumptions and and underlying Securities These quarterly the and Risk to Factors numerous with under for and as disclosed including Form filed in risks, Exchange the sections various are the quarter or update revise forward-looking BDC undertakes to Barings obligation required unless law. any by no statements

now to I'll Eric Chief Executive turn BDC. Barings Lloyd, the call over Officer of

and is everyone. that us throughout Joe, on section Relations posted XXXX to website. appreciate note for we'll call, you quarter be referring the Investor Thanks, joining good our morning, today's our of Please that today's presentation call. third We earnings

On Finance joined the President, of Chief Financial Barings Baring's BBDC Elizabeth Matt and Global High. Portfolio Freund; BDC's Head call Murray; Bryan and I'm Officer, Private by today, Manager,

delivered consistent quarter, and the strong credit franchise. of and the set by fueled another best-in-class our In of stability strength results performance third BBDC and

on the sponsor-backed serve structure investments investors of issuers continues Our focus to the middle-market our well. top capital and

levels middle returns, this on our of focus core market BBDC lower attractive the the for best is be which and to shareholders. more the the of reflective leverage is Our why find and risk-adjusted market we segment of

believe that returns is portfolio our potential we investments core complemented in The benefit platform the of by selection of and shareholders a diversification. and higher form nonsponsored

returns the outlined to we market is deliver detail and compelling continue our shareholders. Our Slide invest in on greater to portfolio throughout X, and successfully strategy

to few with likely come. of been it, follow while against in Inflation to interest Credit performance idiosyncratic on benign quarters across backdrop. a save strong has BBDC be performance the to soft up rates, appears stable the of appears coming hook the really examples. reflect landing started are quarters. XXXX, we Interest clearer holding several be rates to first been industry to a relatively economic focus. X have The the for elevated, quarters long recede. And into As has

As our activity, positive it that credit existing may reduction as will which our further turn we on and metrics overall a deal impact spreads additional and have fees. sponsors rates portfolio discussed have in an business in sentiment we improves in sparks previously, spurs and shift among drive higher believe further transaction the interest

credit horizon, extent in has of returns intentionally While on is soft a the BBDC's continue to portfolio volatility withstand to landing is we constructed discipline believe To scenarios. confidence been have to come. in stable possible, the variety provide our economic our underwriting quarters will and the selection

we announce compelling. XXXX. we on We this ours development will on of that in in extremely extended partners of this my credit to sure lending the touch are extremely find have happy and be revolving but terms important facility to for support accomplishing our the our greater in personal goal appreciation detail, of maturities wanted to express Elizabeth I

share was per stability. fair Nonaccruals compared of income share. for investment an $X.XX and per the modest X.X%. X.X% Net fiscal reflecting as was testament specifics dividend Turning were prior our at of $XX.XX share a year-end, value per portfolio a to of $X.XX the the $XX.XX BBDC. of and some to value to asset quarter Net at outearned increase percent

the of more result and the capital performance top focus know, our is industries. of underwriting with As of thorough our the investors our conservative structure and on stability defensive at a

a deeper Digging portfolio. into bit the

Capital Sierra. and We acquired continue to legacy in actively value holdings the MVC maximize from

XXXX. from as these of quarter. up now beginning XX% the are portfolio fair at attractive XX% of Our of we goal at this valuations remains value, positions did Barings at assets divest the to originated

acquired As credit agreements potential are limiting investors. BBDC a by losses assets downside reminder, from for support protected

portfolio perform There and including MVC analysis, a is which substitute fundamental in and on X.X% portfolio X.X% as from a no the of reflected BBDC's is today. has value nonaccruals health XXXX. and are This credit a to of value always fair XX, acquired assets, philosophy, basis our total industry-leading for X.X% of portfolio the in Our third continued on core basis December our the the cost a Sierra fair an quarter. X.X% And basis. down on the and of well cost investment on investment been basis is at

XX%. and our the average was prior declared Turning to dividend yield dividend ahead. the equates annualized fourth We quarter. quarters dividend value share, on a earnings a in non-accruals, and the power our strength portfolio. of net fair on the level asset best conservative per with $XX.XX. policy yield quarter believe to value an net Board weighted X.X% the anticipate On NII We of asset at continued quarter the base of basis, The value measures consistent performance portfolio's extremely remain $X.XX for the were compelling September the of our and

it turn I'll over Matt. now to

team, high-quality that than investment managed by professionals manager companies organization providing globe, located sourced assets billion the with $XXX portfolio top-tier LLC, management. Thanks, BBDC's of market-leading around an XXX is Barings over sponsored BBDC to under from solutions by Eric. bulk private equity middle-market is The the with Recall asset more Global firms. Private financing a of credit-focused Finance

Services during execution of and of million rotate deployed in stated quarter, the acquired assets. strategy by deployments Sierra resulting million a sales from net our capital Repayments reflects of large repayments, million. of Aviation position out to BBDC inherited $XXX of quarter included this $X continued $XXX the offset Technical and Income,

use deployment direct which with second have "new market. represented towards remains private the as shoots of XX% As our quarter simplifying the and for through are proxy some third the of what only opportunities been XX telegraphing to and compelling reviewed overwhelming investing related opportunities past revealed capital refinancings Eric most dedicated the first repricings. majority believe as during Data the that lending data months, in executing by for money market muted, over in activity but improved exhibiting and the markets, strategy we financings" noted, year-to-date the the LBO we portfolio XXXX are began high-yield selectively period green the volume being quarters. July a liquid transaction we team, we

The long-term historical and money between ranges transactions XX% XX%. average for new

temporary While this improved certain we of or are have and ahead sustained election cannot cycle. we pop trend encouraged marks pipeline opportunities recent be that activity in a if the months, a

optimistic are former. in the We

either differentiator advances on portfolio Nevertheless, fundings X/X the issuers facilities existing of the BBDC's approximately during gross supporting existing incremental and or the commitments. scale of of important an with issuers with remain number quarter

the portfolio. coverage of current with with lien securities. our quarter approach coverage to range and throughout XXXX finished weighted defensive the a of the lending focusing of weather underwriting demonstrating secured experienced of the thoroughly sectors interest Turning our of interest economic portfolio first and investments on approximately constituting companies their XX% X.Xx, averages stabilization merits average above and during a has conditions. consists industry a investments XX% of of BBDC in to ability

result in of rate any reflects negative cash portfolio metrics Given the and now and base rates. SOFR of rises the of we likely curve, decline believe forward flow from credit the to impact are full the current benefit the shape

believe of in rate to market portfolio XX with Holdings, portfolio, composition to issuers the invest Recall base fair XX% the attractive Business provide X as are that demonstrating differentiated, Eclipse remains investments X our top The that and structure alignment top opportunities and hurdle manager. decline, we access Rocade BBDC shareholders will highly for accounting own return compelling litigation the continue the platform solutions, and diversification positions we asset-backed rates Capital our strategic diversified, funding to areas total Furthermore, provide specialized within benefits. loans value. shareholder with

and on portfolio and ratings quarter the we confident X% lowest credit of the to a classified in and exhibiting the of exhibited during X preceding assets, in risk accounted X Non-accruals to for in is portfolio. of million issuers were Risk the nonaccruals the Turning portfolio quality. combined as quarter-over-quarter basis of quarter. industry. quality in value our believe ratings fair only as X.X% $XX which compared remain one We those immediately the movement of stress levels the underlying minimal XX% market

reach outcomes and is a portfolio differentiated credit will on on core shareholders driving designed focus and focus economic The middle-market and rate portfolio prevailing in with coupled the environments positive levels. quarters a BBDC's withstand BBDC expect come. of We its through-the-cycle and continue a scale, to to years variety interest

shareholders XX. with was credit To hurdles both Slide on fees this as performance end, to outlined BBDC structured align and

fallen the in The listed hurdle rate publicly BDCs levels years, experienced relative past their out delivered excess With X focus. increase rates in rates. hurdle effectively has over of have all of earnings between the distinction base

other strategy benefit again will rate as rates of industry base BBDC high our impacts investors begin to a participants. at hurdle fall, to the However, from compared

to the benefits have fee As public structure noted a XX, of illustrate a want Slide the fee analysis making endeavored We peers the that managed BBDC's to managers compares significantly detailed rate with But BDC "all cannot BBDC's structure stress within the designation. on hurdles. some we equal" of a else compared this that ecosystem. public lower requires require we -- hurdle among of result externally assumptions X.XX% with median having our argued. to number the have X.XX% be of

fees lower an BBDC's extent hurdle XX.X%, stability BDCs experiencing shareholders while can between same X.XX% X.XX% net pre-incentive expect returns and would receive the returns. lower of fall pre-incentive To with the the rates fee return,

to With like to the over turn I'd that, now call Elizabeth.

full see year-over-year. share quarter of quarter. the X.X% movement increase XX, X.X% as On NAV you can XX, a Matt. of the the $XX.XX is of third decrease was in which Thanks, NAV September bridge Slide and the an of per share per over prior

investments Our share. and or $X.XX $X.XX unrealized XX%. FX by offset of losses per share, net $X.XX share by portfolio CSAs was per net [ Net per investment and the ] realized $X.XX FX on appreciation exceeded dividend the from and income equals

was The the approximately Sierra increased to million. our the of investment to valuation second decreased net support The Software in XX. reclassed the agreement the predominantly the realized of loss quarter million A&G [ $XX.X which fair due unrealized exit of credit portfolio in from The September ], million by $XX.X depreciation. as value $X.X CSA was from on of

The quarter, third down as portfolio, remaining. the million rolling $XX XX to fair the $XX remaining XX and forward as of our XX. During X from of and to September sales June value million of $XX had of had CSA maturity the due predominantly with X XX, million repayments positions quarter in of from the Sierra positions portfolio MVC contract increased positions approximately

$X.XX of for was repayment per in income Investment investment the share the redeployed expense quarter late quarter net in quarter and beginning the the third pretax $X.XX the quarter. end Incentive early and and prior by at ventures driven in the or normalized compared was to of the income and third Our that fee the per quarter, a capped on the $X.XX XXXX. share basis third levels quarter joint of to second quarter, the per and share quarter fourth platform for in fee incentive $X.XX versus the the was quarter from share per activity primarily dividends second returned in investments.

ratio, from ended X.XXx in net Our was unrestricted which and of net X.XXx. currently long-term our transactions, as is and end, to X.XXx regulatory at the unsettled X.X quarter of XX leverage slightly defined net June quarter sits leverage within target cash up

opportunities to leverage capacity seize in current pursue Our the and quarters ample deployments attractive to come. provides

capital the Our unsecured class, debt billion XX% of including and for both level significant in terms At of $X debt debt seniority of and highly by outstanding balances. our our support asset funding of the remains our September funding XX, to in equates unsecured accounted defensible provided structure. mix

revolving we announce credit pleased earnings Since to extended call, facility. are our amended we our last and

amendment, facility issuance As second with the size in unsecured earlier the reduced this part million $XXX of public year. conjunction to was our

maturity that with period In XXXX. XXXX facility of revolving February from the state extended final maturity date being were addition, of to reset November the and the

has borrowings of diversifies as capital we ladder Lastly, unfunded portfolio to further provides our companies currently XXXX. our million XXX.X spread basis commitments facility structure well reduced of BDC out outstanding flexibility as basis to our investment. the our to maturities to Barings points. of million commitments XXX further $XXX from in on of and $XX extension points joint This venture

strong new activity. commitments remains our $XXX to of to positioned capital, and and we with are available liquidity support overall continue Our million origination unfunded over well

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

through be continue almost active In September addition, repurchased XXXX during we users period, XX. share and XXX,XXX and of shares repurchase XXX,XXX our to over repurchased we shares have the plan

thoughtful BBDC's is [indiscernible] to repurchases shareholders. one of Our with share approach aligning example our interest

new quarter, prepared $XXX far, in funded on fourth million I'll investment we made wrap at Thus and note pipeline. ] the remarks in up our have the million. [ our $XX commitments

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