First Eagle Alternative Capital BDC (FCRX) 7 May 212021 Q1 Earnings call transcript

Good morning, and welcome to the First Eagle Alternative Capital BDC, Incorporated’s Earnings Conference Call for its First Fiscal Quarter Ended in March 31, 2021. It is my pleasure to turn the call over to Ms. Sabrina Rusnak-Carlson of First Eagle Alternative Capital BDC, Incorporated. Ms. Rusnak-Carlson, you may begin.

operator. you, Thank thank and joining us. Good you morning, for

Credit; Chris me Olson, First of today’s Eagle Chief Officer. Chief are on call Flynn, Alternative First Eagle of and Financial President Jen Chief Wilson, Accounting Joining Operating Officer and Alternative Credit; Terry

Before other factors the on of statements include Form on anticipated in most other the XXXX assumptions other Such reflect may note as to and factors this Report and meaning of materially by the that within are not and Factors guarantees and and are filings recent unknown within performance section in to various Annual Exchange entitled Alternative factors from that included concerning Risk forward-looking amended. and results statements beyond results the in and please differ Capital such First some the our XX-K we call statements. control begin, uncertainties future cause could yesterday made Commission. The ways Securities uncertainties constitute Securities filed BDC, subject actual Eagle Act statements of management’s are known

those result, we could inaccurate. assumptions that those which of any believe could prove statements based the a on be reasonable, any And on Although to are as forward-looking statements be also on assumptions are forward-looking the assumptions based incorrect.

You reliance these should undue statements. place not forward-looking on

speak of undertakes to as any herein. update statements Capital forward-looking forward-looking call. duty Alternative no made Eagle date only of First All the this statements

to we that, that released two along morning. May starting turn approximately refer during conclude access With the replay, our www.feacbdc.com. webcast can found over website our website be available and may with call. this Our XX, made the which I’ll until Chris. of hours A be visit were will presentation please on this earnings call to call at XX-Q yesterday To XXXX, after afternoon, this earnings of copies replay announcements QX our we

on then highlights, for financial more first today’s I’ll our our earnings portfolio morning, and discuss call, detail. of joining will call. thank Good us provide and and an Terry Sabrina. in Thanks, some you our results, results portfolio overview On quarter

our and with for share for $X.XX per the income investment NII in was dividend from compared $X.XX that per XX. to QX. Let’s the fee quarter. results $X.XX share the management in benefit ended begin with Net waiver March quarter continued

we’re considerable shareholders a reminder, NII as non-core leverage. our through share have improvement $X.XX de-risked the on of communicated, pleased per concentrated a to fee It portfolio exited remaining made and intended In transition management constituted was to stability waiver our light impact As as has how the previously overall, our very quarter. progress portfolio reduce with performed begun the to per we we the and We’ve our the portfolio pandemic. positions. and of impact increase

X.XX at XXXX. levels take of by account the at end. levered unsettled trades leverage of up our times times long-term times And the end into the quarter are are targeting quarter X.XX we X.X end We if to of you at

to – the at dividend value. share end We share increased level, our important to the or per of the per will to in with a value to think to $X.XX be a in at is our dividend. QX, $X.XX end highlight NII QX, current line book increase approximately it increase from expect our X.X% QX. leverage QX we accretive at in we to that In be of contributors Similar the this book at believe exceed

in $X.XX to impact syndicated the what broadly First, on in less positive per joint credit pleased market and lifted value assets. Logan’s similar QX. improvement the then names $XXX in million you Logan remain the NAV with the QX represented Logan portfolio quarter. the saw in Non-accruals across specifically of X% XX of We our quality continued overall the holdings venture this share the of than

C&K Wheels in In overall and book increases improved and portfolio credit equity metrics of value market %X.XX Market, reflects certain in represents investments the increase saw NAV. we and to these positions related in Second, Igloo, aggregate increase Miracle multiples. strong the a four in performance increase remained in equity Up, and all values

our Lastly, portfolio overall appreciation values the in of further the together performance QX reported per same of improvement the in tightening or debt QX. rest $X.XX our portfolio net earlier, and I either XX% our the in resulted share. spread in with mentioned of versus increase investments market

levels. fully the instances for portfolio maintain are portfolio company Companies related non-accrual. have to any did liquidity only most amid on improved, No non-accruals levels Now continued let’s is businesses good in continues COVID returned significant impact not not profiles. the were delve Overall, pandemic. pre-COVID portfolio. rebounded perform the exceeded and and to amendments to continue We many or impacted Loadmaster to add in during the that into of well EBITDA Revenue continue liquidity deeper quarter. the and the QX COVID. necessary new to

legacy our and we any with two do exit not Igloo concentrated in each expectations. OEM While line continue positions remaining of to perform

to the Plasma Therm technology OEM as transaction distributed and respect consummated the is to to market commercialize with proceeding in Specifically QX well.

retained to cover loan upsized In the for first years in in we first service on our certain to will form term connection payments annual million four equity the was with lien business. consideration short-term QX, contingent and milestones principal that transitional the planned sale reminder, operating costs. minimum years used be of certain payments as $X.X The capital remaining the slightly the several a including debt the for provide and all BDC As deferred transaction.

continued of in represent quarter positions positions remaining XX in represented spread of last position the impact starting early this XXXX. strong holding market perform to is our the company largest concentrated These well. we tightening. debt of The reflecting in the equity performance end investment written the single two our continues very X% and at year portfolio. par the held Igloo, up Second, The was portfolio

exiting pleased enhance on comfort progress are plan preceding investments our earlier, to with these with leverage. our noted or increase with legacy our I As we

First benefit deal lending flow The from generated our Additionally, billion continues pipeline BDC lending by Eagle’s platform. direct remains $X to direct strong.

allowing positions, market growing Our while diversified benefits Eagle ride the in middle First to companies. BDC by also allowing to the BDC capital be platform more more

par the first to The be in necessarily companies of end. Further, us are BDC quarter. million of Since compared intended direct $X new year be premium prepayment syndicated platform continue $XX directly were totaling remained that broadly million investments has made slower First the BDC quarter investments a two Eagle’s the the four there time. of in over direct opportunities. early robust not positions the two during pandemic, long-term investment replace but tends beginning to portfolio, the Separately, the with originated made the repayments to nonetheless, rather positions this we at provide to quarter. debt lending year and originated But plus

very selective where to our capital. be continue We about deploy we

is our portfolio Our continue BDC investment in grow diversify goal to we to XXXX. approach as the

to you that back gives this to Lastly, release our that stock us Board $XX sense. in open have week. With I’ll Board’s plan meeting we earnings million buy feel a discretion our it windows over stock Terry. should approved and earlier The repurchase the seen our call may turn makes plan at

morning, and everyone. Chris, good Thanks,

First, portfolio highlights. investment some

investments mentioned, X.X%. blended totaling yield $XX follow we quarter at an with of As million Chris six active had a new on several

of March lien premiums. XX, prepayment million the investments realizations XX% QX broadly The proceeds, $XXX was from X.X%, QX first million, two had in yield up first four through our syndicated of blended JV. the in the loans, our lien the which Excluding secured new Logan of buyer of $X.X we positions on end included at in generating in Marcus senior cash in of the app exit notable Neiman $XXX debt, technologies in XX% invest portfolio million

the held with As yield X.X% value Logan we JV in reminder, were the Weighted The other portfolio second a and subordinated producing BDC X.X%, XX% and invest our cost non-accruals our to the non-accruals holdings, portfolio, prior lien total Logan had and cost income of in QX average investments in no fair and mentioned equity lien percentage debt on on Chris portfolio is a quarter. non-income XX% debt including the second respectively. producing line of in including OEM. X%, equity new is lien remaining and of investment with like the which and first and restructured and assets. based the was

quarter-over-quarter of financing with to to $X.X quarter Moving largely with $X.X income we of back protection, investment adjustments line, QX of some realized items million From were related trades the $X.X were longer off amortization dividend certain the perspective, new for holdings Total million, $XXX,XXX to below and quarter, to $X.X of equity and With million, investments quarter for were new of times. as I’ll premiums a $XXX,XXX, – Alex with reserve prepayment impact amendment. since at of income this will in brands, income the from the OID. decrease our which to interest slightly on down back of to to $X.X the made repayments ended QX. income QX related about the X.XX highlight some our in the include equity million these ends March C&K, related a million in million a $X.X we write the our higher of Dividend We million, of costs follow our financials and Logan. are accelerated net full due related this ratio respect were costs million recognition holdings experience added so income and XX. facility names included dividend net to to the expenses to as portfolio deferred all we in related credit a losses rose settled the million, which $X.X quarter investment associated million debt call These to of quarter QX several leverage certain some no post and to NAV experiencing other $X.X escrows. of $X.X as ended quarter. to from And on no related receiving components our was $XXX,XXX $X.X

bonds, and on We XXXX debt alternatives the target. cost our expected back of $XXX facility facility callable the From at investment our to an of With our million considering continuing credit to our rating, towards of unsecured grow increased million ample million overall our I’ll we both borrowing call leverage to increase we Chris. the quarter, to to evaluate having have currently lowering standpoint, that, and capacity continue and are capital. over current $XXX our $XX turn refinance end

the legacy derisking this that begun has outsize economy most to with now attributed steady months. management progress going positions. improvement. to We several leverage waivers. Terry. remain over solid Originations prudently another portfolio the increase positive operator? our us to credit remain Overall, recorded operator in forward confident and in up companies of open fee like our the is to again We for I last made the and without portfolio of NAV profile Thanks, quarter would a to our position Q&A. results ability FCRD dividend our strong over turn to for to the call put cover

[Operator line Thank Cooperman you, of question Lee Office. sir. the from Instructions] from is first Your Omega Family

open. now is line Your

Good you’re Well, well. hope morning. Thank is Chris, you. How that doing? all

Well. Lee. Thanks,

I think it, want to sure I you’ve hear I just right. addressed but make

You sustainable correct? said? you fee, feel what a is to full that returning dividend the after Is

That’s correct.

big things our today? The the the repurchase view view how book. discount making to justified tomorrow, value? repurchase, be given on you by earning But the but you do merits growing business? loans seems versus stock versus How we’re do today? relative do you discount they of book to exist additional How given Not Okay. as

interrupt. you [indiscernible] it’s had a if second complicated. Yes, question, a ahead, Go Lee,

No.

On decide what magnitude would the if that the to of do repurchase, available order you you repurchase? is actual have

don’t think with question Perfect, full we elected program, for million the do take obviously that that to take the to second the restrictions as any the $XX do time that. us, for full million would base under that. access have I current the to believe there we of time I to us $XX borrowing size we’d extent It will be have the first, ING,

the thinly given is. traded stock out Just

a So actually around restrictions investments there is limit growth. and sure to that. It turn But fiduciaries we’re any BDC because capital said, and do the to capital a but balance shouldn’t strong, making balance obviously you of still also in as do expectations said, we’re and to shareholder available trade discount being has With new loans, be we’re to trying at how see to trying that we both that making book. tremendously, that you good make manage new recognize it?

and here quarter of the last other fix the continue part. most made levers that’s to to tried to pull equation. the We here, asset there want we I to points to the the of first, One had fix we it done are that emphasize equation for can side

but moving forward rating players, to and balance increase We’re comfortable we the of the sheet our dividend. the debt we never to two declare is leverage very cover victory, and lowering feel therefore Step our cost improving with financing.

a set bonds are have callable. We of that

set are have that another we in Now October. callable

of to As sheet side continues asset balance the the improve.

upgrade, to continue We our our which and therefore further price. and book should accretive costs, for stock push the between shrink dividend. substantially be NAV an would to which reduce that gap And

answer haven’t you the to So decided. the question is

side in that the good were basis, my that’s looking growth But at by but and that’s correct. significant right the is capital of use again, equation to and trading prudent the liability now investments. fix a decided, still maintaining them case haven’t some do We coupled we’re focus We case existing I at a well. a of as on recognize also discount, with trying

So I would anticipate all three.

is value last credits compensation the some business two of which scheme. return yield of What and in. in a quality book investing questions, And the full on target, you’re run that way fee your in earnings. of in equity for you to is terms given way want are the Actually change reasonable schedule ask $X the a a

was the I to now the than any now, down. different of fixed. ROE. to But other – debt it Yes. Once sheet we’re that cost we the that unjustified stack liability saying But BDC. we think X% get corrected it’s need before side, absolutely I right too don’t still balance was fixed, targeting is high, bring wasn’t the that’s substantially XX%

Got you.

very you call Thank the much. Okay. I’ll to yield somebody else.

Lee. Thanks,

you. Thank

from James. Your of the question Tjaden line Matthew of next is Raymond

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time join covered apologies good all had by I Hey, the as been and appreciate and that’s morning assuming late. to

level First spreads can question, kind what of the guess, of I commentary on kind you levels? And any versus pre-COVID for high structures in seeing give me, you’re and pipeline?

secured We I’d cover The XXX our didn’t or become Yes. that script. more out now, Sure, question. spreads Appreciate basis those a hits, to on LIBOR probably XX transactions you’re XXX high to were transactions. still but call our quality wide spreads the gapped a pre-COVID points. COVID in stabilized, I’d On XXX LIBOR maybe from right market XXX. competitive where levels, have points your Matt. down. traditional basis say market senior ABL probably now has the deal XXX our When come probably

the a in on at note, of value unrelated guess, marks I more portfolio. Okay. just kind broad cost looking the to fair

any much So on that, obviously and call that can on and embedded that non-accrual and call on book. that? book the how OEM. how further my is $X.XX But calculations, commentary from depreciation I’ve upside of you like just got it, from of know embeds give might Any I much loadmaster I what about, NAV the

the math, to have that of ahead Yes, with this you question this call. I the back answer to to had I’d get Terry, is bifurcated

back Jane. I is is with So name probably with – I closed other circle over last And see you. decent that has the where that you’re performance. seeing his There can the gap a there’s say on few gap you based only quarters if would maybe can Matilda

think don’t would to But that there’s name related I’d other area specific that be that I point out. larger So split. a the only where exact

the Okay. time. is me. Fair That it I enough. for appreciate

Matt. Thanks,

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a Good this morning. Yes, morning, weird guys. is

I’m So the joined from actually going question, a asked follow-up. Lee to different but I call.

timeframe a is below realistic What a you’re strategy, think ROE, move? of obviously the well you get timeframe ROE, actually can you So do ROE if you level do hit that cetera. to that think your X% today? the seems realistic? potentially can that’s target the you to et On think for realistic What valuation X% where what’s

the didn’t what facilities the I it’s exit aspects all We’ve the reduce to reposition the se, don’t equation. could Robert, these hard question. side unfortunately, we massively great per that did make was Yes. control asset concentrated that our I portfolio, we a of But of control wish, positions. tremendously sense, worked to give you. business

an dividend, need investment that We What the equation coming. have do which will unfortunately, will feel to we an substantially upgrade, the much in status easier. we’ve asset on that’ll we extremely in sheet upgrades But, an near-term of part the our work? cost cheaper. accretive grade be the grade. got to And when don’t now or of So that to future be the financed calculation can a I the make balance need need like I that to ROE other financings, if enable us hit we substantially make crystal reduce which ball be investment that

conversations the having rating as obviously remarks. with his agencies, Terry prepared alluded in We’re

I have of So October, said callable stuff we I’m that’s before, end to now, agencies. as up course, get have of again, that are we – bonds by this the are we that in can set rating the subject still another But wrapped all year. hopeful that the callable

sit we rated, get enough done becomes the from hold investment can that that Once bonds we’ve savings, grade but we debt. bigger comes debt currently in the cost I to have cost that rating, and my here As the is take down the of we perspective, to like to substantially today refinance obviously, down, of easier. step ROE a equation want think for

you. Thank Understood.

a about on to magnitude, annualized XX bonds points. maybe around point some just it just of put of the themselves, NII Robert, on order basis rate drives on $X.XX XX numbers basis just savings just perspective

you share per points. on down could to potentially get or an three, could annualized and by that multiply that you basis bonds if $X.XX the basis, So, can $X.XX up XXX come

that points for but you’ve that the I sure math, highlight together. tie to to I’m two done just So wanted

done I Yes, that. I’ve Thank appreciate But you. it.

the Robert. for Thanks Absolutely. question,

I’m there no sorry. continue. further are questions. Presenters, Please

it is questions? Operator, no more

sir. Yes,

it. Robert, that was

Well, Okay. you. Perfect. All Thanks, right. thank operator.

remarks, tell remiss the XX the Well, highlight I help I didn’t can for him. years. didn’t row of a I I’d partner few do with Before I with XX fact I us. did in believe I Terry, pleased that I a if he my think me. earnings you call with navigate all align this is make final to this be Terry’s better last couldn’t am all last that was

you. the I on all We behalf thank you So First say to just wish Eagle, of wanted best.

also We update good providing shareholders August in our an a hope look and with everyone of support results. early has appreciate on the we to you forward our future day. I

As usual, or to myself have you any then. feel Sabrina free to reach out questions if before

with conference call. And today’s attending. that, concludes you Thank this for

now disconnect. may You