First Eagle Alternative Capital BDC (FCRX) 14 May 222022 Q1 Earnings call transcript

Good morning, and welcome to First Eagle Alternative Capital BDC, Inc. earnings conference call for its first fiscal quarter ended March 31, 2022. It is my pleasure to turn the call over to Sabrina Rusnak-Carlson of First Eagle Alternative Capital BDC, Inc. Ms. Rusnak-Carlson, you may begin.

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

And of Chris Capital me Wilson, the First of made some today’s on Investment the Factors our that section are subject of please Exchange statements are on call report by actual periodic on assumptions Securities reflect Flynn, beyond include and Officer. factors with Securities Chief Eagle uncertainties results our unknown recent Accounting this statements. Form Jim management’s and President we our annual included cause Form statements forward-looking performance BDC materially the the anticipated as of Officer; in that most Act differ begin, note Joining that and in from XX-Q report Chief Fellows, future such our Alternative before Alternative quarterly call results could Credit; concerning constitute updated other and to guarantees ways, may meaning XXXX are statements our known to not various and by First within the as Such and Eagle filings The amended. control on other entitled and uncertainties XX-K factors in other are, Commission. Risk factors Jen and

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

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

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

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

Good increasing recent strategic and Thanks, us to one, strategic quarter On discuss discuss busy Jen the X We our taken joining and results on to actions three, more portfolio to this today’s our there, thank working and cost our as We call. From we’ve I first on to our reducing hand our financial had initiatives: call, and for increasing well as portfolio over want I’ll share progress drive Sabrina. portfolio yield; year. earnings in results initiatives quarter our some toward portfolio call X review highlights. debt; morning, two, diversification. our detail. of a goals these made you

debt effectively First, financing. our we’ve reduced

reduce we X-K, XXX weighted December XXXX, cost our through reduced QX average facility by credit points. in cost we announced Further, to since XX by borrowing As our the XX, our average amended borrowing weighted basis basis have points.

result of which the expect a incremental to a Second, this middle the JV CLO into we we FCRD Logan to market leverage. increase dividend structure, as refinanced

alignment with longer-term leverage our portfolio some we we onetime market management CLO, Logan we very we we equity with Ukraine, with historically JV in in on same call shareholders, the shareholders, of entail with JV To going our pressures, increase close able are Logan order QX our noted to to to connection facility, of FCRD’s At us thanks X.XXx, the brings $XXX,XXX around structure. in XX. This our that for dividend. exposure of increase middle size end maintain We QX through a supports strength XX% the our new of April inflationary refinances, deal management in our forward Logan our expect that’s range agreed XX% to is show increase to our facility to waiver have to date, the reduction to to upfront and to to X.XX we from competition leverage. by portfolio waive cost aim a credit FCRD. the the The fee which X/XX, our achieve portfolio from believe our Moreover, $XXX loans. higher-yielding like in consolidated return the yield, maturity the from war and favorable to asset-based initiatives strategic increasing At we We market pleased increasing secure benefits. and were XX% part million results to AAA many credit Logan at a our in the this further that $X.XX last platform. overall stemming allocation to XX% able challenging JV CLO Despite buyers, increased to the and a pushed increase connection transaction were was diversification yield. fee during on increasing to up time, me QX. to CLO approximately out allowed of the to In amendment and leverage the the

of costs, First flexible per increased utilizations further which activity, to the a quarter leverage primarily with in was ended change We net NII. drive net by income driven $X.XX per $X.XX expectations The quarter in in X.X% basis. investment a was drive quarter-over-quarter value line share. NAV capital We unrealized depreciation. the asset in financing with the of anticipate more down and share, help decrease NAV on reduction will at more and stabilize

In used to in $X.XX our share. not material write-downs portfolio labor first shortages QX The the few basis core companies by remaining quickly were position in Matilda lien a well Overall, We the in value and The per We wages off on investment were of The outstanding Matilda significant Aurotech, Similar that in individual and Jane, liquidity and spread continue the to as reunderwrote placed the the $X.X an portfolio the loss as the exit Jane exit at ultimately a with terminate including we chain portfolio. and loans perform and as no of with supply loans exposure into XX-Q, across as proceeds transaction. by Our down line realized written in of seen nonincome-producing well market in companies update support amounts was X.X% shares. sale, of eliminate based and early recent the possible. from loss believe section broader to position lien about second goal common market to in to chain our in-place portfolio portfolio quarter Loadmaster on nonincome-producing to the pressures, were in as which inflationary continues entered and our interest to private issues sought and million reversal result April, in names therefore, of the new in total or escrow, profiles defaulted. pay shareholders, remaining and impacted be in supply portfolio on announced noted the Aurotech for XX. the its was will prospects handful shortages. line reduce last our LLC the trends, monitored, equity Since, March fair positions, represents amendments existing a nonaccrual no to labor expectations. challenges, company investment. The a cash a facing particular, sell company offset in of good sponsors. amount credit on to agreement material costs. There includes unrealized purchase our nonaccrual. value have position we were remain and the believe agreement. as a best this on placed in This

keep We continue signs a on close the impacted for companies to economy further of eye weakness. and

is paramount portfolio focus. our investment stabilization portfolio before, noted of we’ve and As of diversification

origination market to typical slower deals new ability we and our its up perspective, settling focused XXXX. new rest QX to capital the equity increase in We deployment terms leverage record partners year on private will time goals trend into a these the flexible from further From of closing over of capital investments. the private debt saw a Our year. add across of kept unbreast and more as an relative

or invested First during portfolio million million in portfolio with deployment add-ons $XX.X investment. on XXXX. in trend, draw Direct received in accelerated in of that including QX new activity of in focused no was investments, premiums new this portfolio mainly amortization revolvers in quarter, with million OID quarter $XXX million X the fundings. an repayments invested with Total and quarter $X.X the delayed FCRD origination $XX Eagle follow-on resulted significant line atypical additional the Lending investment QX versus In were was first prepayment no plus quarter. which a There

generated flow Direct and positions from XX diversified of allows First while the The a BDC from remains hold in by Looking strong, $X forward, up more to allowing quarter, the approximate businesses. continues of The provide capital portfolio, XX Eagle to Eagle’s of QX our asset-based XXXX deals. to also Lending including this flow platform benefit deal BDC direct pipeline cash First the platform. to growth market lending billion agency middle to more with number

remained we attractive to investment provide with Direct Eagle’s First it opportunities. us robust, Lending platform and has expect continue to

capital that, be the to very macro committee over and to of Jen. environment investment selective call are and our With where we about continue turn deploy mindful We I’ll discussions. the

Thanks, everyone. and good morning, Chris,

highlights. First, investment and I’ll start portfolio off with some

follow-on a investments relatively new activity realizations muted $X.X the million totaling blended Chris of at for several with As X during yield had mentioned, X.X%. QX and a a new quarter. no notable was We quarter

at from in and at XX, XX% of the portfolio Logan As our of JV. in March was end lien slightly senior the up $XXX.X was million, secured million QX. debt invested It XX% first $XXX.X valued

second flat first was other remaining is including in including lien was and restructured QX. reminder, a on equity BDC’s average and OEM. XX% based which weighted costs JV on portfolio, held debt equity-like in in The QX, and holdings, Logan and our in X% lien assets. income-producing of X.X% second the investment the with lien debt was nonincome-producing yield invested portfolio The As Logan,

investments place As X% Chris cost nonaccruals on and did X.X%, a new during respectively. Total and percentage at not as were nonaccrual of fair portfolio value QX. we noted, at any our

like address first for to the Now I’d financials the quarter.

to on recognized resulted was $X.X $XXX,XXX to The income Interest other QX. $XXX,XXX the current prior from at fees decrease from primarily QX, from from were investment were quarter down relatively and QX. management primarily by a interest biggest refinancings million income of as our was in net year-end fully million, borrowings quarter. in amortization for to the a $XXX,XXX During a in $X.X From notes management Total decrease due in well decrease from from X.XXx. of fees Logan asset a debt-to-equity approximately during the of $X.X driven of of net being income dividends. OID during flat repayments million decline QX waiver in and the as QX. during decrease decrease $X.X QX. fee Dividend XXXX to $XXX,XXX the of waivers The was million decline million, $X.X in decreased income in in $XXX,XXX expenses value This and our for $XX,XXX due QX. the the quarter quarter-over-quarter with redeemed of driver perspective, and JV interest QX a ended we half QX we accelerated ratio leverage and decrease approximately to $XXX,XXX

to We our back have the With over X.Xx. target ample increased grow on continue to Chris. to to our facility turn towards X.X leverage call and capacity I’ll increase that, of borrowing credit

Jen. Thanks,

take over call committed a that to to what’s turn wanted Before moment right the here. to doing shareholders we’re assure Q&A, I to our I

for of separately have We, CLOs, funds, the investors. direct platform billion institutional managed we accounts, assets tradable a and managed successively We levered benefit where unlevered in and private $XX credit loans. of shareholders, ABL higher benefit for and provide out the higher-yielding a specific to of assets, legacy We our after assets brought our shifted process rotated NII. outlined strategy driving in

would patience to create fees these invested to foregoing, BDC. the Notwithstanding be this structure a we of wish our are patient longer as the stock the management dividend. and and the recognizing little our compensated go expected This as shareholders and sheet the for been said we error have the have for Logan accretive in to process, restructured transition has repeatedly process higher, had of terms taken execution. management shareholders waived the more for be supporting have we room we asked this price in I’ve BDC. than to events. success fee demonstrate waivers committed We through Along that the of balance with designed, shareholders

dividend increase now it’s previous is If in able not that recognize As acceptable acceptable peer discount status starting noted significant result quo to later to team. our in be clear, to Logan NII QX. the in than should a to trade be increased And or the growth, is dividend budgeted, stock a we closed to at releases, in be management which to position shareholders. our should isn’t continues see a group, the to not we

record ask While for executing been the our impeccable. of on I perfect, has and from the shareholders this our supporting record what’s far would been track right shareholders plan record has track you take doing largest comfort as are look and the we, can you. the aligned to the latter Operator, open line shareholders shareholder, the for now. questions track at with that

[Operator Instructions] from from Omega the Office. Your comes Cooperman first line Lee question Family of

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random questions. in Lee, if thanks. a I’m order, probably take I okay. the appreciate them that’s to going

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Yes, yes.

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of it time we’re wait mode, shorter a but going much to So period the and wait-and-see historically. than is I’m see was that probably in

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it going but You very down. keeps must it buying be carefully,

you’re answer, good wish you and appreciate a guy. But thank you I Okay. your and very much. well, I

of Ryan question [Operator comes from Instructions] next Your of line KBW. the Lynch

really just your shows lending as number overall from the as the slide kind platform deals growth you direct small a and If direct bit approach. FCRD $X.X far a platform, your to and of to at obviously, Lee’s that. really Slide have participate look component of a And percentage I a a lending have of Eagle. billion in, you across I asked platform First the then at that Slide the XX that shows XX really that it And little he a XX deck, little of deployed I shows all it of wanted just FCRD up capital few. Slide is overall of I different of question. small follow bit know you Chris, and take was on want kind

of time platform. the is for issues X shareholders So have lending the it component X direct been to FCRD really, just the imagine years has seems a been a the all low is little fee I overall work entity last run small a not , been notable such been very shareholder-friendly, you’ve -- super profitable Chris, for good Eagle a as imagine overall generates. all this can’t FCRD that the public a or the to and through. I it’s very FCRD’s, there’s trying manager that time as Obviously, fees you obviously it can’t big It’s given been your waivers valuable. for run First company. commitment

harder these lot than a company funds. run to a private public it’s So

wondering being any are this what And I’m why And really not that there really FCRD reasons the entity, parties would this what stay you public? for a entity not public make like what just sense? from that, think where company. really makes so -- is point to not I’m sure benefiting I’m like sure are that sense it

the and appreciate question perspective. Ryan, I the

right. You’re interesting. It’s

down legacy used like one BDC I the Direct beginning Unfortunately, talked vehicle was I be the guess, X it First to it I That some basically private they from now and million to we of, we $X vehicle. the $XXX $XXX to, that, only business that in to million. from had. of THL of we’ve you due has vehicle had $XXX Outside at think shrunk call have billion. the it, that mean issues. Lending a platform, about point, was think about past, portfolio grown lots million over If markets Eagle things

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the my -- the the shareholders narrow It’s gap platform. We’re the in single time. we this. If don’t, are we increased larger the because is shareholder taken listen, and great. works is we’re And I remarks, able book, you and if prepared to where stages still that’s with late of in in the it we’re dividend XXX% like be the in said aligned

you well. has So to value. generate they’re you value there is when trading can This above as it’s a difficult. can said, Lee when a vehicle capital lot one run more And been it’s have permanent of obviously a when lot book, of --

I a ask the we accordingly. alignment good of there’s going order is appreciate know the as us So all here to market time. this think I We and the questions And and in same the turnaround. we’ll why how we’ll patience shareholders react, these plan ourselves as That’s execute said, short tried manager. to the we’ve interest between of

of Your line Matt comes next from question Tjaden from James. Raymond the

high credit X your changed outlook ‘XX a months I I the and private what go how ago. to for was maybe level. and little a wondering default pivot is Chris, versus at little year-end wanted maybe more that’s environment

we That’s going But back business as a listen, we’re people. a our not -- we’re at companies, don’t tell put new and I good of we’re if sit to I’ll know it. you on I’m underwriting question. looking portfolio number credit and specific

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to able there something shock that that. system, we’re is navigate there’s extent to So a the the to

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helpful. have of dividend fair as it. Got embedding answered. you’re talking you that about and either Loadmaster or the value That’s higher, me the assets? for OEM benefit any those are one potentially When asked in taking rotation Last from been most remaining

We are not.

of line a from Lynch from the coming KBW. Instructions] follow-up have We question Ryan [Operator

like lot already -- any that to some hoping I of was generate? a obviously there’s question that initiatives, working you FCRD on of do for The you and already are of you’ve other had obviously, sort I you restructuring executed your -- guys some entity. curious, been these outlined talked deck, you that uncertainties ROE out just target know there. slide in I’m guys have started will And the initiatives, Logan they’ve increase refinancing you ROE have, --

of is your benefit rates to uncertainty positive that are entity. going One sort of rising the the

times of ROE today? interplay up. ROE guidance you do rate on sit we sort what you sort here think FCRD will you have generate? think into sort risk-free kind you can generate ends operating obviously where strategies, what where the of But that these execute of any of can If you of that So in can

believe component. the it’s with some critical pick up can what some incremental strategies the yield. I a what’s differentiated Yes. side the lower ABL we portfolio going in I lending, forward, mean mean I got like stable where ROE. much diversified is more is side we’ve market. you a liability think now position driving a of with basically to more a be, The But to asset being equation

the the, XX% because FCRD using add look in quoted already basis, X% more this in that, range leverage call in ROE. it, that’s around on at we’re you stand-alone If a you market. the should synthetic sheet of be a balance Logan, to that there, When we’ve X.X%

out, the not balance portfolio XX% X%. because So Lowering out cost you position, even I’m an X% basically get at to debt the because XX%, excessive higher want that risk of of going blend a though if get it in wrong, we in that of I’ll do was in debt you And my to that’s those you’ve or head got but where yield. mission-critical things stand. be never taking where it of our been, cost have we’re was chasing than should math

can you So ROA see the discipline side. on the

to But probably ROE that’s X.X%. debt balance combined much can XX%. our of stable on around drive basis. its is pockets. Logan a I to X% at FCRD look lower it we sheet on how X more cost the those ripe, we’ve is got stand-alone now Now inside a own

both have a see kind you couple newer is Or expect Like been from that sense initiative. ABL of that maybe of to guys in Can going the quarters? you over percentage we’ve a space? ABL forward? forward? going that of then And changing going grow consistent deals that do of far kind last what lending, to that’s closed seen And do be have broader as just of lending us give you the the What platform? know as that I you Okay. the direct

Yes.

the think about institutions for or direct $X XX% asset-specific that the to If where you call ABL XX% look it, allocation. a platform, across as at it want funds that’s could across of be book the it’s, XXX% entire ABL allocation SMAs XX% There to of entire XX% access, billion. to but

from Instructions] Lee We follow-up from [Operator Cooperman Mr. Office. Family coming a question have Omega

you there but a approximations, Some raise by would $X.XX $X.XX, to were if dividend dividend. your able rough be annual

very You I okay? it’s listen, you strongly, is being I say justify public but adequate It’s very objective, X% by obvious. saying, to X, your the that book, return okay? that And would a on to divide think you’re conclusion seem company, an everything be not just

We either buy That conclusion, It’s my could own have facts to supported I as your year. the comments could and my buy somebody us. us conclusion. have is up bulk been And or First Eagle else that think well for well. over a conclusion

So out out. you you and environment not X% to the that that’s but return given I the equity want there. would this say the I on risks way wish That’s run And appreciate an in company, and I Over adequate. luck, it. is

the questions have phone. we over any Chris, please And don’t continue.

support operator. Thank QX results look of an our We you providing our to appreciate of this summer. update you, we and the forward shareholders,

you to Wilson. reach or If Jen to myself any feel have questions, out free

conference And ladies and you gentlemen, call. your for this concludes today’s Thank participation.

disconnect. now may You