NYSE:BCSF Bain Capital Specialty Finance Q4 2023 Earnings Report $14.96 +0.36 (+2.47%) Closing price 04/17/2025 03:59 PM EasternExtended Trading$14.96 -0.01 (-0.03%) As of 04/17/2025 04:17 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Bain Capital Specialty Finance EPS ResultsActual EPS$0.54Consensus EPS $0.54Beat/MissMet ExpectationsOne Year Ago EPSN/ABain Capital Specialty Finance Revenue ResultsActual Revenue$74.95 millionExpected RevenueN/ABeat/MissN/AYoY Revenue GrowthN/ABain Capital Specialty Finance Announcement DetailsQuarterQ4 2023Date2/27/2024TimeN/AConference Call DateWednesday, February 28, 2024Conference Call Time8:30AM ETUpcoming EarningsBain Capital Specialty Finance's Q1 2025 earnings is scheduled for Monday, May 5, 2025, with a conference call scheduled on Tuesday, May 6, 2025 at 8:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Bain Capital Specialty Finance Q4 2023 Earnings Call TranscriptProvided by QuartrFebruary 28, 2024 ShareLink copied to clipboard.There are 6 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen, and welcome to the Bain Capital sorry, Bain Capital Specialty Finance 4th Quarter and Fiscal Year Ended December 31, 2023 Earnings Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. I would now like to turn the conference over to Catherine Schneider, Director of Investor Relations. Please go ahead. Speaker 100:00:35Thank you, Jenny. Good morning, everyone, and welcome to the Bain Capital Specialty Finance 4th quarter and year ended December 31, 2023 conference call. Yesterday, after market close, we issued our earnings press release and investor presentation of our quarterly and year ended results, copy of which are available on Bain Capital Specialty Finance's Investor Relations website. Following our remarks today, we will hold a question and answer session for analysts and investors. This call is being webcast and a replay will be available on our website. Speaker 100:01:07This call and the webcast are property of Bain Capital Specialty Finance and any unauthorized broadcast in any form is strictly prohibited. Any forward looking statements made today do not guarantee future performance and actual results may differ materially. These statements are based on current management expectations, which include risks and uncertainties, which are identified in the Risk Factors section of our Form 10 ks that could cause actual results to differ materially from those indicated. Bain Capital Specialty Finance assumes no obligation to update any forward looking statements at this time unless required to do so by law. Lastly, past performance does not guarantee future results. Speaker 100:01:46So with that, I'd like to turn the call over to our CEO, Michael Ewald. Speaker 200:01:51Thanks, Catherine, and good morning to everyone, and thank you for joining us on our earnings call. I'm joined here today by Mike Boyle, our President and our Chief Financial Officer, Amit Joshi. Before we begin, I would like to welcome Amit. For those who may not have seen our announcement, Amit has been appointed as our new Chief Financial Officer effective 2024. He brings a wealth of accounting knowledge specifically within the private credit and BDC landscapes and has over 2 decades of finance and accounting experience. Speaker 200:02:19We're excited to have Amit join our management team. And I would be remiss if I didn't thank our predecessor CFO, Sally Dornis, many contributions to the company over the last 8 years. Sally remains in place as a senior leader across the Greater Bain Capital platform. Thank you, Sally. In terms of the agenda for the call, I'll start with an overview of our Q4 and 2023 full year results and then provide some thoughts on our performance, the overall market environment and our positioning. Speaker 200:02:46Thereafter, Mike and Amit will discuss our investment portfolio and financial results in greater detail. So first, yesterday after market close, we delivered strong 4th quarter and full year 2023 results. Q4 net investment income per share $0.54 representing an annualized yield on book value of 12.3%. Our net investment income covered our dividend by 129% during the quarter. Q4 earnings per share were $0.48 reflecting an annualized return on book value of 10.9%. Speaker 200:03:18For the full year 2023, net investment income per share was $2.19 equal to a 12.6% return on equity. This was up $0.60 per share or 38% year over year. Our NII covered our dividend by 137% during the year. 2023 earnings per share were $1.91 representing a total return on equity of 11.4%. Our annual net earnings continued to exceed our dividend payout for a 3rd consecutive year, demonstrating our consistently strong credit performance. Speaker 200:03:54Our results were driven by high quality interest income earned from our middle market borrowers and stable credit performance across our portfolio during the Q4 and throughout the year. Our net asset value ended the year at $17.60 per share, up from $17.54 from the previous quarter and up from $17.29 as of Q4 2022, reflecting the underlying portfolio strength. In addition, total dividends to our shareholders were $1.60 per share for 2023, reflecting a 16% increase from 2022 dividends. Subsequent to quarter end, our Board declared a 1st quarter dividend equal to $0.42 per share and payable to record date holders as of March 28, 2024. As we have highlighted to our shareholders in prior calls, our management team alongside our Board has been continuously paying out any additional dividends as we neared year end. Speaker 200:04:48In recognition of the strength of our 2023 earnings as demonstrated by the company's strong net investment income and continued growth in our excess undistributed earnings, our Board has declared additional dividends to shareholders totaling $0.12 per share for 2024. We intend to pay these special dividends in installments of $0.03 per share each quarter throughout the year. Together with our declared regular and special dividend, our total dividend payout for the Q1 represents an attractive yield of 10.2% annualized on ending book value. At BCSF's current trading levels, our total Q1 dividend represents an 11.6 percent annualized yield. And we believe this is a compelling level for investors on both an absolute and relative value basis across the BDC sector. Speaker 200:05:34Over the course of 2023, our middle market borrowers across our diversified portfolio demonstrated resiliency against the macroeconomic backdrop declining to a median net leverage across our portfolio of 4.8 times, declining to a median net leverage across our portfolio of 4.8 times at year end. The strong credit quality health of our portfolio is reflected both by the low non accrual rate of 1% of the portfolio at fair value and the small number of portfolio companies on our watch list at only 5% of our portfolio at fair value merited a risk rating 3 or 4, our lowest ratings. We ended the 4th quarter at a net leverage ratio of 1.02x at the lower end of our target net leverage ratio between 1 and 1.25x, providing us with ample dry powder to capitalize on new investments in the current environment. While middle market transaction volumes were lower throughout 2023, we believe future transaction growth from new LBO and M and A processes are expected to be higher 2024 with a clear macroeconomic outlook and increased clarity on the rate environment. Importantly, while much has been made in the press lately of the return of the broadly syndicated loan market and how it may portend a decline in private credit opportunities going forward, the public markets have never been a player in our core middle market segment of companies with $25,000,000 to $75,000,000 of EBITDA, and we don't see that dynamic changing in the future. Speaker 200:07:04Bain Capital's global and longstanding presence in the middle market positions us well to source new investment opportunities from our broad and deep set of relationships, while remaining highly selective. Furthermore, our platform incumbency advantage provides us with a sourcing, underwriting and execution edge. As new deal flow volume has slowed over the past year, supporting existing portfolio companies has been an increased source of new investment activity across our platform as we've been providing add on capital to existing portfolio companies to allow them to grow and execute their business plans. I will now turn the call over to Mike Boyle, our President, to walk through our investment portfolio in greater detail. Mike? Speaker 300:07:44Thank you, Mike, and good morning, everyone. I'll start by discussing our investment activity in the Q4 and then provide an update in more detail on our portfolio. New fundings during the Q4 were $206,000,000 across 43 portfolio companies, including $56,000,000 to 2 new companies, $145,000,000 to 40 existing companies and $5,000,000 to the ISLP. Sales and repayment activity totaled approximately $308,000,000 resulting in net funded portfolio decline of $102,000,000 quarter over quarter. For the full year, fundings were $821,000,000 Total sales and repayment activity for the year were $924,000,000 As a result of this activity, the size of our total portfolio modestly declined 4% year over year. Speaker 300:08:35But that leaves us well positioned with ample dry powder for investment opportunities over the course of 2024. Our new investing activities for the Q4 and full year were comprised of a mix of fundings to new portfolio companies and existing portfolio companies. During the Q4, fundings to new portfolio companies represented 27% of total versus 73% to existing companies. For the full year, 52% of our investment activity was lending to new portfolio companies, with the remaining 48% to existing companies, highlighting the importance of incumbencies in a market with muted LDO volumes. The cornerstone of our investment philosophy is focused on rigorous fundamental due diligence at the industry and company level. Speaker 300:09:20During the quarter, we continued to leverage Bain Capital's in house industry knowledge across our new investments. Our 2 largest investments this quarter were to companies within industries that are less traffic, capital equipment and aerospace and defense. In Q4, we provided a 1st lien senior secured loan at SOFR plus 6.75 and a preferred equity co investment to AXH Air Coolers, a supplier of air cooled heat exchangers, which are manufactured products that are used to cool gases and liquids. We source this investment from a high quality sponsor who also knows the niche end market well and has partnered with us on prior investments within the sector. We also provided add on capital to Forward Slope, a provider of mission critical software and surveillance solutions to the defense industry. Speaker 300:10:09Aerospace and Defense is our largest sector exposure and one that we continue to favor in the current environment given the non cyclical nature of the demand drivers in this industry. Our add on investment was structured at the same interest rate as our existing 1st lien loan at SOFR plus 675 basis points. Turning to the investment portfolio. At the end of the 4th quarter, the size of our investment portfolio at fair value was approximately $2,300,000,000 across a highly diversified set of 137 portfolio companies operating across 31 different industries. Our portfolio primarily consists of investments in 1st lien senior secured loans given our focus on downside management and investing at the top of capital structures. Speaker 300:10:54As of December 31, 64% of the investment portfolio at fair value was invested in 1st lien debt, 3% in 2nd lien debt, 2% in subordinated debt, 5% in preferred equity, 10% in equity and other interests and 16% across our joint ventures. As we've highlighted to our shareholders on prior earnings call, 96% the underlying investments held in our joint ventures consist of 1st lien loans, resulting in a look through 1st lien exposure of approximately 82% of the overall portfolio. As of December 31, 2023, the weighted average yield on the investment portfolio at amortized cost and fair value were 13.0% 13.1% respectively, as compared to 12.9% 13.1% as of September 30, 2023. 94% of our debt investments bear interest at a floating rate, positioning the company favorably as interest rates have continued to rise beyond reference rate floors across our loan portfolio. Moving on to portfolio credit quality trends, fundamentals remained healthy and we have observed positive credit migration across our portfolio. Speaker 300:12:07As Mike highlighted earlier, the median leverage detachment point declined to 4.8 times as of December 31 as compared to 5.0 times as of September 30. Over the course of the year, we were pleased to see declining leverage across older vintage companies that have come back in line with our budgets. During the quarter, we realized a net gain by exiting our investment in Black Brush Oil and Gas. This was a 2018 vintage investment that was restructured back in 2020 and we are pleased to demonstrate our ability to drive a positive outcome for our shareholders by taking ownership of that business. The gross IRR Black Brush Oil and Gas were 14% and 1.6 times respectively at year end. Speaker 300:12:53We have a small residual value that we currently expect in near term distribution at or near our mark. Within our internal risk rating scale, we saw a modest improvement within our risk rating 1 and 2 investments, which indicate that the company is performing in line or better than expectations relative to our original underwriting. As of December 31, these investments comprised 95% of our portfolio at fair value, relatively unchanged from the prior quarter end. Risk rating 34 investments comprised 5% of our portfolio at fair value consistent with prior quarter end. Investments on non accrual remained low across our portfolio and represented 1.9% and 1.2% of the total investment portfolio at amortized cost and fair value as of December 31, as compared to 1.5% and 1.0% respectively as of September 30. Speaker 300:13:45Amit will now provide a more detailed financial review. Speaker 400:13:50Thank you, Mike, and good morning, everyone. I'll start the review of our Q4 2023 results with our income statement. Total investment income was $74,900,000 for the 3 months ended December 31, 2023, as compared to $72,400,000 for the 3 months ended September 30, 2023. The increase in investment income was primarily driven by increase in dividend and other income. BCSF continues to benefit from high quality sources of investment income, largely driven by contractual cash income across its investments. Speaker 400:14:29Interest income and dividend income represented 97% of our total investment income in Q4. Total expenses for the Q4 were $39,000,000 as compared to $36,100,000 for the 3rd quarter. Net investment income for the 4th quarter was $34,900,000 or $0.54 per share as compared to $35,600,000 or $0.55 per share for the prior quarter. Net investment income per share for the full year 2023 was $2.19 During the 3 months ended December 31, 2023, the company had a net realized and unrealized losses of $3,800,000 Notably, the company had $19,000,000 of net realized gain during the Q4, primarily driven by an exit of our investment in Black Brush Oil and Gas, as Mike highlighted earlier. Net income for the 3 months ended December 31, 2023 was $31,100,000 or $0.48 per share. Speaker 400:15:35Moving over to our balance sheet. As of December 31, our investment portfolio at fair value totaled $2,300,000,000 and total assets of $2,500,000,000 Total net assets were $1,100,000,000 as of December 31, 2023. NAND per share was $17.60 up from $17.54 at the end of 3rd quarter, representing a 0.3% increase quarter over quarter. The increase in our NAV was primarily driven by over earning of our dividend. At the end of Q4, our debt to equity ratio was 1.11 times as compared to 1.22 times for the end of Q3. Speaker 400:16:22Our net leverage ratio, which represents principal debt outstanding, less cash and unsettled trades, was 1.02x at the end of Q4 as compared to 1.12x at the end of Q3. As of December 31, approximately 53% of outstanding debt was in floating rate debt and 47% in fixed rate debt. The company does not have any debt maturities until 2026 and that the weighted average maturity across our total debt commitment was 4.3 years on December 31, 2023. Our debt funding continues to benefit from low fixed rate debt structures as we access the unsecured market during the period of low interest rate. For the 3 months ended December 31, 2023, the weighted average interest rate on our debt outstanding was 5.3% as compared to 5.4% as of the prior quarter end. Speaker 400:17:25Liquidity at quarter end totaled 448,000,000 dollars including $343,000,000 of undrawn capacity on our revolving credit facility, dollars 112,000,000 of cash and cash equivalents including $63,000,000 of restricted cash and liquidity was netted with $7,000,000 of unsettled trade payable, net of receivables and payable of investments. As Mike highlighted earlier, our Board declared a Q1 2024 dividend equal to $0.42 per share, payable on April 30, 2024 to stockholders of record on March 28, 2024. Given our strong earnings throughout the year, we out earned the dividend paid in 2023 resulting in an increase in our undistributed taxable income or spillover income. We currently estimate that our spillover income totaled approximately $0.87 per share at year end, reflecting an increase of $0.51 per share from 22 levels and currently represent over 2x of our quarterly regular dividend. As a result of company spillover income expansion throughout the year, our Board declared additional dividend totaling $0.12 per share during 2024, which will be paid in 4 equal quarterly installments of $0.03 per share alongside our regular dividend. Speaker 400:18:56The first additional dividend of $0.03 per share is payable on April 30, 2024 to stockholders of record on March 28, 2024. Including our $0.42 per share regular quarterly dividend, this brings our total Q1 distribution to $0.45 per share, which equates to an annualized dividend yield of 10.2% based on our ending 4th quarter NAV. We will continue to monitor our undistributed earnings against prudent capital management considerations. Overall, we believe having a strong and meaningful amount of undistributed income is beneficial to the stability of our dividend through varying market conditions. With that, I'll turn the call back over to Mike Ewald for closing remarks. Speaker 200:19:47Great. Thanks, Amit. In closing, we are pleased with the execution of our investment strategy on behalf of our shareholders during the Q4 and throughout 2023. We demonstrated attractive levels of investment income earned across our portfolio and strong credit performance across our middle market borrowers. As we look forward into 2024, we believe we are well positioned to capitalize on attractive growth opportunities. Speaker 200:20:11We remain committed to delivering value for our shareholders by producing attractive returns on equity, including through our newly announced additional special dividends. And thank you for the privilege of managing our shareholders' capital. Jenny, please open the line for questions. Operator00:20:28Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question is from Paul Johnson from KBW. Please ask your question. Speaker 500:21:03Yes. Thank you. Thanks for taking my questions this morning. I just kind of wondered just kind of give some maybe higher level commentary on credit. Obviously, it looks like there's fewer 3 and 4 rated names in the portfolio this quarter. Speaker 500:21:18I don't think that Black Brush would have been one of those names, but maybe talk about the movements there as well as just the new non accrual this quarter? Speaker 300:21:31Sure. Thanks for the question. So as we've highlighted, the number has stayed quite low, particularly our non accrual number representing about 1% of the portfolio. I'd say the non accruals we've had have been highly idiosyncratic across varied industries. Right now, we have 3 different names on non accrual, really spanning from consumer industries to more industrial industries. Speaker 300:21:58And I think we have marked all of those positions appropriately, probably close to where we think ultimate recoveries are across the portfolio. I think some of the positive migration has been names that were COVID era issues that we've seen companies start to perform better. 1 of the specific companies is actually in an educational travel space that was dealing with a reduction in travel during COVID. But as we've seen the world reopen and the company get back on firm footing, we're able to take that name off of non accrual and move that up back to a risk rating 3. So it really has been highly idiosyncratic. Speaker 300:22:37And I think I'd highlight the fact that 95% of the portfolio is at or above budget, really focusing in on the fact that credit has been stable in spite of some of these idiosyncratic issues. Speaker 500:22:50Thanks for that, Michael. That's very helpful. And then I guess just kind of looking at the opportunity set globally, where do you kind of wait, I guess, the best set of opportunities today? I mean, is it Europe? Is it the United States? Speaker 500:23:08Or somewhere else internationally? How are you kind of looking at the world today? Speaker 200:23:14Thanks, Paul. Look, I would say today, the relative value across the different geographies is fairly equivalent. As we talked about in the past, for example, in 2021, the U. S. Is a little bit overheated, so we focused a little bit more on Europe. Speaker 200:23:282022, we're a little bit more focused on the U. S. Given some of the geopolitical concerns in Europe. But as we sit here today, I'd say that they're probably relatively equivalent. The one caveat I would say is that, as Mike highlighted, most of our deal flow or a big chunk of our deal flow in 2023 has been with existing portfolio companies. Speaker 200:23:50So there's just been a dearth of new volume across geographies. So we're happy to take a look at anything in either geography, certainly Australia, New Zealand as well, but it's just been a little bit more focused on existing portfolio companies the past year or Speaker 400:24:06so. Great. Speaker 500:24:08Thanks for the commentary. That's all for me. Speaker 200:24:10Sure. Thanks, Paul. Operator00:24:14Thank you. There are no further questions at this time. I will now hand the call back to Mike Ewald for the closing remarks. Speaker 200:24:37Great. Thanks, Jenny. And again, thanks everyone on the phone, not just for your time today, but for your support of BCSF over the years. We look forward to bringing you more news in the upcoming quarters. Thanks very much. Operator00:24:51Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallBain Capital Specialty Finance Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) Bain Capital Specialty Finance Earnings HeadlinesKeefe, Bruyette & Woods Lowers Bain Capital Specialty Finance (NYSE:BCSF) Price Target to $17.00April 10, 2025 | americanbankingnews.comBain Capital Specialty Finance price target lowered to $17 from $18 at Keefe BruyetteApril 9, 2025 | markets.businessinsider.comCrypto’s crashing…but we’re still profitingMost traders are panicking right now. Bitcoin’s dropping. Altcoins are bleeding. The stock market’s a mess. The news is screaming fear. 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The fund seeks to invest in senior investments with a first or second lien on collateral, senior first lien, stretch senior, senior second lien, unitranche, mezzanine debt, junior securities, other junior investments, and secondary purchases of assets or portfolios that primarily consist of middle-market corporate debt. 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There are 6 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen, and welcome to the Bain Capital sorry, Bain Capital Specialty Finance 4th Quarter and Fiscal Year Ended December 31, 2023 Earnings Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. I would now like to turn the conference over to Catherine Schneider, Director of Investor Relations. Please go ahead. Speaker 100:00:35Thank you, Jenny. Good morning, everyone, and welcome to the Bain Capital Specialty Finance 4th quarter and year ended December 31, 2023 conference call. Yesterday, after market close, we issued our earnings press release and investor presentation of our quarterly and year ended results, copy of which are available on Bain Capital Specialty Finance's Investor Relations website. Following our remarks today, we will hold a question and answer session for analysts and investors. This call is being webcast and a replay will be available on our website. Speaker 100:01:07This call and the webcast are property of Bain Capital Specialty Finance and any unauthorized broadcast in any form is strictly prohibited. Any forward looking statements made today do not guarantee future performance and actual results may differ materially. These statements are based on current management expectations, which include risks and uncertainties, which are identified in the Risk Factors section of our Form 10 ks that could cause actual results to differ materially from those indicated. Bain Capital Specialty Finance assumes no obligation to update any forward looking statements at this time unless required to do so by law. Lastly, past performance does not guarantee future results. Speaker 100:01:46So with that, I'd like to turn the call over to our CEO, Michael Ewald. Speaker 200:01:51Thanks, Catherine, and good morning to everyone, and thank you for joining us on our earnings call. I'm joined here today by Mike Boyle, our President and our Chief Financial Officer, Amit Joshi. Before we begin, I would like to welcome Amit. For those who may not have seen our announcement, Amit has been appointed as our new Chief Financial Officer effective 2024. He brings a wealth of accounting knowledge specifically within the private credit and BDC landscapes and has over 2 decades of finance and accounting experience. Speaker 200:02:19We're excited to have Amit join our management team. And I would be remiss if I didn't thank our predecessor CFO, Sally Dornis, many contributions to the company over the last 8 years. Sally remains in place as a senior leader across the Greater Bain Capital platform. Thank you, Sally. In terms of the agenda for the call, I'll start with an overview of our Q4 and 2023 full year results and then provide some thoughts on our performance, the overall market environment and our positioning. Speaker 200:02:46Thereafter, Mike and Amit will discuss our investment portfolio and financial results in greater detail. So first, yesterday after market close, we delivered strong 4th quarter and full year 2023 results. Q4 net investment income per share $0.54 representing an annualized yield on book value of 12.3%. Our net investment income covered our dividend by 129% during the quarter. Q4 earnings per share were $0.48 reflecting an annualized return on book value of 10.9%. Speaker 200:03:18For the full year 2023, net investment income per share was $2.19 equal to a 12.6% return on equity. This was up $0.60 per share or 38% year over year. Our NII covered our dividend by 137% during the year. 2023 earnings per share were $1.91 representing a total return on equity of 11.4%. Our annual net earnings continued to exceed our dividend payout for a 3rd consecutive year, demonstrating our consistently strong credit performance. Speaker 200:03:54Our results were driven by high quality interest income earned from our middle market borrowers and stable credit performance across our portfolio during the Q4 and throughout the year. Our net asset value ended the year at $17.60 per share, up from $17.54 from the previous quarter and up from $17.29 as of Q4 2022, reflecting the underlying portfolio strength. In addition, total dividends to our shareholders were $1.60 per share for 2023, reflecting a 16% increase from 2022 dividends. Subsequent to quarter end, our Board declared a 1st quarter dividend equal to $0.42 per share and payable to record date holders as of March 28, 2024. As we have highlighted to our shareholders in prior calls, our management team alongside our Board has been continuously paying out any additional dividends as we neared year end. Speaker 200:04:48In recognition of the strength of our 2023 earnings as demonstrated by the company's strong net investment income and continued growth in our excess undistributed earnings, our Board has declared additional dividends to shareholders totaling $0.12 per share for 2024. We intend to pay these special dividends in installments of $0.03 per share each quarter throughout the year. Together with our declared regular and special dividend, our total dividend payout for the Q1 represents an attractive yield of 10.2% annualized on ending book value. At BCSF's current trading levels, our total Q1 dividend represents an 11.6 percent annualized yield. And we believe this is a compelling level for investors on both an absolute and relative value basis across the BDC sector. Speaker 200:05:34Over the course of 2023, our middle market borrowers across our diversified portfolio demonstrated resiliency against the macroeconomic backdrop declining to a median net leverage across our portfolio of 4.8 times, declining to a median net leverage across our portfolio of 4.8 times at year end. The strong credit quality health of our portfolio is reflected both by the low non accrual rate of 1% of the portfolio at fair value and the small number of portfolio companies on our watch list at only 5% of our portfolio at fair value merited a risk rating 3 or 4, our lowest ratings. We ended the 4th quarter at a net leverage ratio of 1.02x at the lower end of our target net leverage ratio between 1 and 1.25x, providing us with ample dry powder to capitalize on new investments in the current environment. While middle market transaction volumes were lower throughout 2023, we believe future transaction growth from new LBO and M and A processes are expected to be higher 2024 with a clear macroeconomic outlook and increased clarity on the rate environment. Importantly, while much has been made in the press lately of the return of the broadly syndicated loan market and how it may portend a decline in private credit opportunities going forward, the public markets have never been a player in our core middle market segment of companies with $25,000,000 to $75,000,000 of EBITDA, and we don't see that dynamic changing in the future. Speaker 200:07:04Bain Capital's global and longstanding presence in the middle market positions us well to source new investment opportunities from our broad and deep set of relationships, while remaining highly selective. Furthermore, our platform incumbency advantage provides us with a sourcing, underwriting and execution edge. As new deal flow volume has slowed over the past year, supporting existing portfolio companies has been an increased source of new investment activity across our platform as we've been providing add on capital to existing portfolio companies to allow them to grow and execute their business plans. I will now turn the call over to Mike Boyle, our President, to walk through our investment portfolio in greater detail. Mike? Speaker 300:07:44Thank you, Mike, and good morning, everyone. I'll start by discussing our investment activity in the Q4 and then provide an update in more detail on our portfolio. New fundings during the Q4 were $206,000,000 across 43 portfolio companies, including $56,000,000 to 2 new companies, $145,000,000 to 40 existing companies and $5,000,000 to the ISLP. Sales and repayment activity totaled approximately $308,000,000 resulting in net funded portfolio decline of $102,000,000 quarter over quarter. For the full year, fundings were $821,000,000 Total sales and repayment activity for the year were $924,000,000 As a result of this activity, the size of our total portfolio modestly declined 4% year over year. Speaker 300:08:35But that leaves us well positioned with ample dry powder for investment opportunities over the course of 2024. Our new investing activities for the Q4 and full year were comprised of a mix of fundings to new portfolio companies and existing portfolio companies. During the Q4, fundings to new portfolio companies represented 27% of total versus 73% to existing companies. For the full year, 52% of our investment activity was lending to new portfolio companies, with the remaining 48% to existing companies, highlighting the importance of incumbencies in a market with muted LDO volumes. The cornerstone of our investment philosophy is focused on rigorous fundamental due diligence at the industry and company level. Speaker 300:09:20During the quarter, we continued to leverage Bain Capital's in house industry knowledge across our new investments. Our 2 largest investments this quarter were to companies within industries that are less traffic, capital equipment and aerospace and defense. In Q4, we provided a 1st lien senior secured loan at SOFR plus 6.75 and a preferred equity co investment to AXH Air Coolers, a supplier of air cooled heat exchangers, which are manufactured products that are used to cool gases and liquids. We source this investment from a high quality sponsor who also knows the niche end market well and has partnered with us on prior investments within the sector. We also provided add on capital to Forward Slope, a provider of mission critical software and surveillance solutions to the defense industry. Speaker 300:10:09Aerospace and Defense is our largest sector exposure and one that we continue to favor in the current environment given the non cyclical nature of the demand drivers in this industry. Our add on investment was structured at the same interest rate as our existing 1st lien loan at SOFR plus 675 basis points. Turning to the investment portfolio. At the end of the 4th quarter, the size of our investment portfolio at fair value was approximately $2,300,000,000 across a highly diversified set of 137 portfolio companies operating across 31 different industries. Our portfolio primarily consists of investments in 1st lien senior secured loans given our focus on downside management and investing at the top of capital structures. Speaker 300:10:54As of December 31, 64% of the investment portfolio at fair value was invested in 1st lien debt, 3% in 2nd lien debt, 2% in subordinated debt, 5% in preferred equity, 10% in equity and other interests and 16% across our joint ventures. As we've highlighted to our shareholders on prior earnings call, 96% the underlying investments held in our joint ventures consist of 1st lien loans, resulting in a look through 1st lien exposure of approximately 82% of the overall portfolio. As of December 31, 2023, the weighted average yield on the investment portfolio at amortized cost and fair value were 13.0% 13.1% respectively, as compared to 12.9% 13.1% as of September 30, 2023. 94% of our debt investments bear interest at a floating rate, positioning the company favorably as interest rates have continued to rise beyond reference rate floors across our loan portfolio. Moving on to portfolio credit quality trends, fundamentals remained healthy and we have observed positive credit migration across our portfolio. Speaker 300:12:07As Mike highlighted earlier, the median leverage detachment point declined to 4.8 times as of December 31 as compared to 5.0 times as of September 30. Over the course of the year, we were pleased to see declining leverage across older vintage companies that have come back in line with our budgets. During the quarter, we realized a net gain by exiting our investment in Black Brush Oil and Gas. This was a 2018 vintage investment that was restructured back in 2020 and we are pleased to demonstrate our ability to drive a positive outcome for our shareholders by taking ownership of that business. The gross IRR Black Brush Oil and Gas were 14% and 1.6 times respectively at year end. Speaker 300:12:53We have a small residual value that we currently expect in near term distribution at or near our mark. Within our internal risk rating scale, we saw a modest improvement within our risk rating 1 and 2 investments, which indicate that the company is performing in line or better than expectations relative to our original underwriting. As of December 31, these investments comprised 95% of our portfolio at fair value, relatively unchanged from the prior quarter end. Risk rating 34 investments comprised 5% of our portfolio at fair value consistent with prior quarter end. Investments on non accrual remained low across our portfolio and represented 1.9% and 1.2% of the total investment portfolio at amortized cost and fair value as of December 31, as compared to 1.5% and 1.0% respectively as of September 30. Speaker 300:13:45Amit will now provide a more detailed financial review. Speaker 400:13:50Thank you, Mike, and good morning, everyone. I'll start the review of our Q4 2023 results with our income statement. Total investment income was $74,900,000 for the 3 months ended December 31, 2023, as compared to $72,400,000 for the 3 months ended September 30, 2023. The increase in investment income was primarily driven by increase in dividend and other income. BCSF continues to benefit from high quality sources of investment income, largely driven by contractual cash income across its investments. Speaker 400:14:29Interest income and dividend income represented 97% of our total investment income in Q4. Total expenses for the Q4 were $39,000,000 as compared to $36,100,000 for the 3rd quarter. Net investment income for the 4th quarter was $34,900,000 or $0.54 per share as compared to $35,600,000 or $0.55 per share for the prior quarter. Net investment income per share for the full year 2023 was $2.19 During the 3 months ended December 31, 2023, the company had a net realized and unrealized losses of $3,800,000 Notably, the company had $19,000,000 of net realized gain during the Q4, primarily driven by an exit of our investment in Black Brush Oil and Gas, as Mike highlighted earlier. Net income for the 3 months ended December 31, 2023 was $31,100,000 or $0.48 per share. Speaker 400:15:35Moving over to our balance sheet. As of December 31, our investment portfolio at fair value totaled $2,300,000,000 and total assets of $2,500,000,000 Total net assets were $1,100,000,000 as of December 31, 2023. NAND per share was $17.60 up from $17.54 at the end of 3rd quarter, representing a 0.3% increase quarter over quarter. The increase in our NAV was primarily driven by over earning of our dividend. At the end of Q4, our debt to equity ratio was 1.11 times as compared to 1.22 times for the end of Q3. Speaker 400:16:22Our net leverage ratio, which represents principal debt outstanding, less cash and unsettled trades, was 1.02x at the end of Q4 as compared to 1.12x at the end of Q3. As of December 31, approximately 53% of outstanding debt was in floating rate debt and 47% in fixed rate debt. The company does not have any debt maturities until 2026 and that the weighted average maturity across our total debt commitment was 4.3 years on December 31, 2023. Our debt funding continues to benefit from low fixed rate debt structures as we access the unsecured market during the period of low interest rate. For the 3 months ended December 31, 2023, the weighted average interest rate on our debt outstanding was 5.3% as compared to 5.4% as of the prior quarter end. Speaker 400:17:25Liquidity at quarter end totaled 448,000,000 dollars including $343,000,000 of undrawn capacity on our revolving credit facility, dollars 112,000,000 of cash and cash equivalents including $63,000,000 of restricted cash and liquidity was netted with $7,000,000 of unsettled trade payable, net of receivables and payable of investments. As Mike highlighted earlier, our Board declared a Q1 2024 dividend equal to $0.42 per share, payable on April 30, 2024 to stockholders of record on March 28, 2024. Given our strong earnings throughout the year, we out earned the dividend paid in 2023 resulting in an increase in our undistributed taxable income or spillover income. We currently estimate that our spillover income totaled approximately $0.87 per share at year end, reflecting an increase of $0.51 per share from 22 levels and currently represent over 2x of our quarterly regular dividend. As a result of company spillover income expansion throughout the year, our Board declared additional dividend totaling $0.12 per share during 2024, which will be paid in 4 equal quarterly installments of $0.03 per share alongside our regular dividend. Speaker 400:18:56The first additional dividend of $0.03 per share is payable on April 30, 2024 to stockholders of record on March 28, 2024. Including our $0.42 per share regular quarterly dividend, this brings our total Q1 distribution to $0.45 per share, which equates to an annualized dividend yield of 10.2% based on our ending 4th quarter NAV. We will continue to monitor our undistributed earnings against prudent capital management considerations. Overall, we believe having a strong and meaningful amount of undistributed income is beneficial to the stability of our dividend through varying market conditions. With that, I'll turn the call back over to Mike Ewald for closing remarks. Speaker 200:19:47Great. Thanks, Amit. In closing, we are pleased with the execution of our investment strategy on behalf of our shareholders during the Q4 and throughout 2023. We demonstrated attractive levels of investment income earned across our portfolio and strong credit performance across our middle market borrowers. As we look forward into 2024, we believe we are well positioned to capitalize on attractive growth opportunities. Speaker 200:20:11We remain committed to delivering value for our shareholders by producing attractive returns on equity, including through our newly announced additional special dividends. And thank you for the privilege of managing our shareholders' capital. Jenny, please open the line for questions. Operator00:20:28Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question is from Paul Johnson from KBW. Please ask your question. Speaker 500:21:03Yes. Thank you. Thanks for taking my questions this morning. I just kind of wondered just kind of give some maybe higher level commentary on credit. Obviously, it looks like there's fewer 3 and 4 rated names in the portfolio this quarter. Speaker 500:21:18I don't think that Black Brush would have been one of those names, but maybe talk about the movements there as well as just the new non accrual this quarter? Speaker 300:21:31Sure. Thanks for the question. So as we've highlighted, the number has stayed quite low, particularly our non accrual number representing about 1% of the portfolio. I'd say the non accruals we've had have been highly idiosyncratic across varied industries. Right now, we have 3 different names on non accrual, really spanning from consumer industries to more industrial industries. Speaker 300:21:58And I think we have marked all of those positions appropriately, probably close to where we think ultimate recoveries are across the portfolio. I think some of the positive migration has been names that were COVID era issues that we've seen companies start to perform better. 1 of the specific companies is actually in an educational travel space that was dealing with a reduction in travel during COVID. But as we've seen the world reopen and the company get back on firm footing, we're able to take that name off of non accrual and move that up back to a risk rating 3. So it really has been highly idiosyncratic. Speaker 300:22:37And I think I'd highlight the fact that 95% of the portfolio is at or above budget, really focusing in on the fact that credit has been stable in spite of some of these idiosyncratic issues. Speaker 500:22:50Thanks for that, Michael. That's very helpful. And then I guess just kind of looking at the opportunity set globally, where do you kind of wait, I guess, the best set of opportunities today? I mean, is it Europe? Is it the United States? Speaker 500:23:08Or somewhere else internationally? How are you kind of looking at the world today? Speaker 200:23:14Thanks, Paul. Look, I would say today, the relative value across the different geographies is fairly equivalent. As we talked about in the past, for example, in 2021, the U. S. Is a little bit overheated, so we focused a little bit more on Europe. Speaker 200:23:282022, we're a little bit more focused on the U. S. Given some of the geopolitical concerns in Europe. But as we sit here today, I'd say that they're probably relatively equivalent. The one caveat I would say is that, as Mike highlighted, most of our deal flow or a big chunk of our deal flow in 2023 has been with existing portfolio companies. Speaker 200:23:50So there's just been a dearth of new volume across geographies. So we're happy to take a look at anything in either geography, certainly Australia, New Zealand as well, but it's just been a little bit more focused on existing portfolio companies the past year or Speaker 400:24:06so. Great. Speaker 500:24:08Thanks for the commentary. That's all for me. Speaker 200:24:10Sure. Thanks, Paul. Operator00:24:14Thank you. There are no further questions at this time. I will now hand the call back to Mike Ewald for the closing remarks. Speaker 200:24:37Great. Thanks, Jenny. And again, thanks everyone on the phone, not just for your time today, but for your support of BCSF over the years. We look forward to bringing you more news in the upcoming quarters. Thanks very much. Operator00:24:51Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect.Read morePowered by