NYSE:BBDC Barings BDC Q4 2024 Earnings Report $8.86 +0.03 (+0.29%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$8.92 +0.07 (+0.77%) As of 04/25/2025 05:31 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 Barings BDC EPS ResultsActual EPS$0.28Consensus EPS $0.29Beat/MissMissed by -$0.01One Year Ago EPSN/ABarings BDC Revenue ResultsActual Revenue$70.63 millionExpected Revenue$69.35 millionBeat/MissBeat by +$1.29 millionYoY Revenue GrowthN/ABarings BDC Announcement DetailsQuarterQ4 2024Date2/20/2025TimeAfter Market ClosesConference Call DateFriday, February 21, 2025Conference Call Time9:00AM ETUpcoming EarningsBarings BDC's Q1 2025 earnings is scheduled for Thursday, May 8, 2025, with a conference call scheduled on Friday, May 9, 2025 at 9:00 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 Barings BDC Q4 2024 Earnings Call TranscriptProvided by QuartrFebruary 21, 2025 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Good day, everyone. At this time, I'd like to welcome you to the Barings BDC Inc. Conference Call for the Quarter Ended and Year Ended 12/31/2024. At this time, all participants are in a listen only mode. Operator00:00:27Today's call is being recorded and a replay will be available approximately two hours after the conclusion of the call on the company's website at www.bearingsbtc.com under the Investor Relations section. At this time, I'll turn the call over to Joe Mizzoli, Head of Investor Relations for Barings BDC. Please go ahead, Joe. Speaker 100:00:48Good morning, and thank you for joining the call. Please note that this call may contain forward looking statements that include statements regarding the company's goals, beliefs, strategies, future operating results and cash flows. Although the company believes these statements are reasonable, actual results could differ materially from those projected in forward looking statements. These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled Risk Factors and Forward Looking Statements in the company's quarterly report on Form 10 Q for the quarter ended 12/31/2024, as filed with the Securities and Exchange Commission. Barings BDC undertakes no obligation to update or revise any forward looking statements unless required by law. Speaker 100:01:49I will now turn the call over to Eric Lloyd, Chief Executive Officer of Barings BDC. Speaker 200:01:57Thanks, Joe, and good morning, everyone. We appreciate you joining us for today's call. Please note that throughout today's call, we'll be referring to our fourth quarter twenty twenty four earnings presentation that is posted on the Investor Relations section of our website. On the call today, I'm joined by Barings BDC's President, Matt Freund Chief Financial Officer, Elizabeth Murray and Barings Head of Global Private Finance and BBDC Portfolio Manager, Brian Hai. In the fourth quarter BBDC delivered another strong and consistent set of results, fueled by best in class credit performance and the strength and stability of our franchise. Speaker 200:02:38Consistent with broader industry trends, lending activity during the first three quarters of twenty twenty four was somewhat muted. During the fourth quarter, we experienced a meaningful uptick in deployment, both as part of add on net transactions within the existing portfolio and for new buyouts by a number of our long standing sponsor clients. The result of this activity produced strong originations during the period that we are proud of. Strong deployment combined with benign credit environment and our focus on the top of the capital structure investments in the middle market combined to serve our investors well. Our focus on the core of the middle market is reflective of our lower leverage levels and more attractive risk adjusted returns, which is why we find this to be the best segment of the market for BBDC and our shareholders. Speaker 200:03:26Consistent with how we have defined our strategy in past discussions, our portfolio strategy is outlined in greater detail on Slide five and we continue to successfully invest throughout the market and deliver compelling returns to our shareholders. As we reflect on the full year 2024, the performance of BBDC has been strong. Total shareholder return during 2024 exceeded 24% and top quartile among publicly traded peers. These results were driven by a number of tailwinds, some of which are specific to the industry and some of which are specific to bearings managed portfolios. Interest rates while elevated have been stable for several quarters. Speaker 200:04:05Credit performance has been has held up broadly across the industry, but has been particularly durable within BBDC. Deployment opportunities as I previously noted improved during the December compared to 2023 and the first half of twenty twenty four. While we closed 2024 on a strong and stable footing, we have entered 2025 with caution. Economic data appears to be overwhelmingly positive. Credit fundamentals, namely cash flows, revenue growth and margins are all exhibiting positive trends. Speaker 200:04:37As Matt will discuss in great detail, we are optimistic that additional transaction activity will blossom in 2025. However, it is equally as clear that uncertainty, particularly regulatory and trade uncertainties, have given private markets a pause. As our investors know, we are often investing in illiquid credit securities alongside private equity firms who are investing in illiquid equity securities. The regulatory shifts that have occurred only in the first two months of 2025 make it difficult for private capital investors to assess the possible shifts they may experience over the coming three to five year holds horizons. Consequently, we remain cautious on the pace of new buyout existing portfolio to continue to be providing compelling opportunities to invest. Speaker 200:05:26Add on transactions remain a compelling way for private equity firms to enhance the value of portfolio companies and allow bearings to deploy capital into companies we already know. While not anticipated to the extent volatility is on the horizon, we have confidence in our credit selection and believe our underwriting discipline will continue to provide stable returns in the quarters to come. Turning to some specifics on BBDC, net asset value per share was $11.29 substantially unchanged compared to $11.28 reported at the prior fiscal year end, a testament to the portfolio stability. Net investment income for the quarter was $0.28 per share and out earned our dividend of $0.26 per share. Digging a bit deeper into the portfolio, we continue to actively maximize the value of the legacy holdings acquired from MVC Capital and Sierra. Speaker 200:06:21Our goal remains to divest these assets at attractive valuations as we did this quarter. Barings originated positions are now 93% of the portfolio fair value, up from 76% at the beginning of twenty twenty two. As a reminder, potential losses from the acquired assets are protected by credit support agreements limiting downside risk for BBDC investors. Our investment portfolio performed well during the fourth quarter with the non accrual rate declining from a mere 50 basis points in September to 30 basis points as of December. There is no substitute for fundamental credit analysis, which has always been at the core of our investment philosophy as reflected in the health of the BBDC portfolio today. Speaker 200:07:03Including the acquired Sierra and MVC assets, our total non accruals are the industry leading 0.3% on a fair value basis and 1.6% of the portfolio on a cost basis. This is down from 1.5% on a fair value basis and 2.5% on a cost basis as of 12/31/2023. Turning to the earnings power of the portfolio, the weighted average yields at fair value was 10.4%. We remain conservative on our base dividend policy and our Board declared a fourth quarter dividend of $0.26 per share consistent with the prior quarter. On an annualized basis, the dividend level equates to a 9.2% yield on our net asset value of $11.29 As we have separately announced, our Board has also declared a $0.15 dividend of supplemental dividends that will be paid in three quarterly installments. Speaker 200:07:55Taken together with our regularly scheduled dividend, the dividend level equates to 11% yield based on December's net asset value. We believe the best measures of the portfolio's performance, non accruals, net asset value and NII were extremely compelling for the year ended December 2024. And we anticipate continued strength in the quarters ahead. I'll now turn the call over to Matt. Speaker 300:08:21Thanks, Eric. BBDC is managed by Barings LLC, a credit focused asset manager with over $420,000,000,000 of assets under management. The bulk of the portfolio is sourced from the global private finance team, an organization with more than 100 investment professionals located around the globe providing financing solutions to high quality market leading middle market companies sponsored by top tier private equity firms. BBDC deployed $298,000,000 of capital in the quarter offset by $222,000,000 of sales and repayments resulting in net sales and deployment of $76,000,000 reflecting one of the most active deployment quarters in recent history. Repayments during the quarter included various non core positions acquired with Sierra Incomes legacy portfolio. Speaker 300:09:04As Eric noted, we are executing on the strategy that we have been telegraphing for the past twenty four months, simplifying the portfolio and selectively investing in what we believe are the most compelling middle market direct lending opportunities in the market. During our prior call, we noted that we had started seeing green shoots related to new deployment opportunities. Our growth in net originations during the quarter validated that anticipation. Originations activity was fueled both by add on transactions as well as new issuer financings. The mix of our funding did skew somewhat towards add on activity at a higher rate than historical averages, which we believe was largely reflective of industry results during the period for scaled asset managers such as Barings. Speaker 300:09:44As we evaluate forward looking activity into the balance of 2025, we remain cautious as Eric noted. Recall that the average transaction timeline from initial inbound activity to ultimate closed transactions typically ranges from three to six months. Initial inbound transactions initially increased following the November elections, but as we closed 2024, the volume of inbound activity started to recede. The deal landscape appears primed to support M and A activity in 2025, supported by extended hold periods within private equity portfolios, interest rate stability and a positive economic indicators that Eric mentioned. Juxtaposed against these favorable characteristics, we have perceived in our private equity relationships and company management teams an underlying sense of uncertainty related to the intermediate outlook. Speaker 300:10:32All of this is to say that we are cautiously optimistic for the year ahead. Turning to our current portfolio, 72% of the portfolio consists of secured investments with approximately 69% constituting first lien securities. BBDC has experienced stabilization of interest coverage during 2024 and finished the quarter with a weighted average interest coverage of 2.2 times above industry averages and consistent with our results for the prior quarter. We believe interest coverage demonstrates the merits of our approach focusing on leading companies in defensive sectors and thoroughly underwriting their ability to weather a range of economic conditions. The portfolio composition remains highly diversified with the top 10 issuers accounting for 23.1% of the fair market value. Speaker 300:11:15Recall that the top two positions within the portfolio, Eclipse Business Capital and Mercade Holdings are strategic platform investments that we own and provide BBDC shareholders with access to differentiated compelling opportunities to invest in asset backed securities and litigation funding solutions. Two areas we believe to provide attractive total returns as well as diversification benefits for the broader portfolio. Turning to portfolio quality, risk ratings exhibited minimal movement during the quarter as our issuers exhibiting the most stress classified as risk ratings four and five were 11% on a combined basis quarter over quarter compared to 10% in the immediately preceding quarter. Non accruals accounted for only $8,000,000 of fair market value within the portfolio and 0.3% of fair market value, which we believe is one of the lowest levels of non accruals across the industry. We remain confident in the credit quality of the portfolio. Speaker 300:12:08We expect BBDC's differentiated reach and scale coupled with its core focus on the middle market credit and focus on shareholder and our focus on shareholders will continue driving positive outcomes in the quarters and years to come. The BBDC portfolio is a through the cycle portfolio designed to withstand a variety of economic environment and prevailing interest rate levels. To this end, BBDC was structured to align both fees and credit performance hurdles with shareholders. Before turning the call over to Elizabeth, I'd like to share an observation from an industry call I participated in earlier this week. The presenters were focused on trying to dissect the causes of PIK interest income and specifically whether PIK signaled portfolio distress that could manifest itself in the quarters to come. Speaker 300:12:47I found the results to be confirmatory to our understanding, but wanted to offer this anecdote to the audience. The presenters analyzed a large pool of loans and noted that of the loans reviewed, nearly 60% of those loans had a PIK component during the fourth quarter of twenty twenty four that did not have a PIK component at the time of the original underwriting. Of this pool of loans with modified PIK, EBITDA experienced a negative CAGR of approximately 20% and loan to value substantially increased since the time of the original underwriting. We regularly get asked about our pick income and whether we feel it is a sign of stress in the portfolio. We'll now take the opportunity to call out that the Barings PIK interest income during the quarter was 5.1% of total investment income and compared to our trailing five quarter average of 5.7%. Speaker 300:13:33This combination of data points serves as a reinforcement of the discipline and quality underwriting within the portfolio. I'll now turn the call over to Elizabeth. Speaker 400:13:41Thanks, Matt. On Slide 15, you can see the full bridge of the NAV per share movement in the fourth quarter. NAV per share was $11.29 as of December 31, which is a decrease of 0.2% over the prior quarter and an increase of 0.1% year over year. Our net investment income exceeded the $0.26 per share dividend by $0.02 per share or 8%. Net unrealized appreciation from investments, CFAs and FX equaled $0.08 and was offset by net realized losses on the portfolio FX of $0.13 per share. Speaker 400:14:16The net realized loss on the portfolio was predominantly due to this restructure of our investments in CECO, which is reclassed from unrealized depreciation. The valuation of the credit support agreement increased by approximately $12,200,000 The fair value of the Sierra CSA increased from $32,200,000 in the third quarter to $44,200,000 as of December 31. During the fourth quarter, the Sierra portfolio had sales and repayments of approximately $12,500,000 and had 23 positions remaining in the portfolio, down from 28 positions as of September 30. Year over year, we rotated out of approximately $100,000,000 or 45% of the remaining Sierra portfolio in 2024. The fair value of the MVC CSA increased from $19,000,000 to $19,200,000 as of September 30, predominantly due to the rolling maturity of the contract for one quarter with four positions remaining. Speaker 400:15:14Our net investment income was $0.28 per share for the quarter or $0.3 per share on a pre tax basis compared to $0.29 per share in the prior quarter and $0.31 per share for the fourth quarter twenty twenty three. For the year, net investment income was $1.24 per share compared to $1.2 per share for 2023. Investment income in the quarter was primarily driven by dividends from joint venture and platform and fees associated with repayment activity. This is partially offset by slight decline in interest income associated with the impact of decline in yields from the portfolio's base rates are lower quarter over quarter. Incentive fee expense was slightly higher, but continued to be at a normalized level. Speaker 400:15:55Our net leverage ratio, which is defined as regulatory leverage, net of unrestricted cash and net unsettled transactions was 1.16 times at quarter end, up slightly from 1.09x in the quarter ended September 30, and it currently sits within our long term range of 0.9x to 1.25x. Our current leverage provides ample capacity to seize opportunities and pursue attractive deployment opportunities in the quarters to come. Our funding mix remains highly defensible, both in terms of seniority and asset class, including the significant level of support provided by the unsecured debt and our capital structure. At December 31, our unsecured debt accounted for $1,000,000,000 of our fundings and equated to approximately 70% of our outstanding debt balances. We maintain a diversified funding mix by maturity, counterparty and type and have a limited near term of maturities on our debt outstanding with our ladder of maturities extending to 2029. Speaker 400:16:53BBDC currently has $323,000,000 of unfunded commitments to our portfolio companies as well as $65,000,000 of outstanding commitments to our joint venture investments. Our overall liquidity remains strong with over $464,000,000 of available capital and we are well positioned to continue to support our unfunded commitments and new origination activity. As mentioned earlier, the Board declared a fourth quarter dividend, our first quarter dividend of $0.26 per share and special dividends totaling $0.15 per share and 11 percent distribution on net asset value. The special dividends will be paid in three equal quarterly installments of $0.05 per share in each of the first three quarters of twenty twenty five. In 2024, we continue to be active users of our share repurchase plan and purchased 150,000 shares in the fourth quarter for a total of over 650,000 shares during 2024. Speaker 400:17:49In addition, the Board authorized a new $30,000,000 share repurchase plan for 2025. Our focus on share repurchases is one example of BBDC's thoughtful approach to aligning our interests to shareholders. I'll wrap up our prepared remarks with a note on our investment pipeline. Thus far in the first quarter, we have made $81,000,000 of new commitments and funded $50,000,000 With that operator, we'll open the line for questions. Operator00:18:13Thank you. We'll now be conducting a question and answer session. Our first question today is coming from Finian O'Shea from Wells Fargo Securities. Your line is now live. Speaker 500:18:56Hey, everyone. Good morning. I was looking at a name AT is another slight mark, but it's a sort of a partial or pick non accrual. And I was seeing if you could outline just the spirit of a pick non accrual and how that compares to the regular definition of something that you don't anticipate collection of full interest in principle for? Thank you. Speaker 400:19:27Yes, Ben, thanks for the call. And the way we determine that is, when we meet with the investment team, that was an investment that prior to us putting on Pick Non accrual, it paid its full cash, which I believe at the time was a 15% interest rate. And we underwrote it where it would pay, I believe half of that. And so it's actually performing where we underwrote it. And so when it was determined that they were going to start paying cash and they wanted to pick a certain portion, we didn't believe that we would be able to recover the full value including the pick, but we knew we could with the cash. Speaker 400:20:09So that's why we thought it was prudent to put it on pick on accrual. But it is performing now as it was underwritten, it just for a certain period of time was performing above where it was underwritten. Speaker 500:20:20Okay. So it seems like you'll collect the regular principal, but not the PIK part of it? Speaker 400:20:28Correct. And we're going to they're paying the cash current and we will collect the principal. Speaker 500:20:35Okay. That's helpful. Thank you. And what the CSA marks, could you run through that or how much was interest rate or timing related versus fundamental? Speaker 300:20:52Yes. Fin, good question. Overwhelmingly, it was directly related to the marks on Black Angus Steakhouse, which as I'm sure you're reviewing the material, you'll see that there was a sequential quarter on quarter valuation mark associated with that position and a corresponding increase in the value of the CSA. There was, as you alluded to, impacts of interest rate and timing, but the bulk of the change quarter on quarter is going to associate with the Black Angus Steakhouse market. Speaker 500:21:22Okay, great. That's all for me. Thanks so much. Speaker 300:21:25Thank you. Operator00:21:31Our next question is coming from Robert Dodd from Raymond James. Speaker 600:21:38Congrats on the quarter and congrats on the continued portfolio rotation. That's 2024. What are you going to do for us in 2025 on the portfolio rotation? So I mean, just any thoughts on how you expect that to progress through this year, especially with uncertainty to the point on and it's easier to notate the portfolio in an active market than an inactive one or slower one. I mean, any thoughts on how that might progress through the year? Speaker 600:22:14I mean, really good job so far. Speaker 700:22:16Yes. Hey, Robert, it's Brian. A couple of thoughts and then obviously, Matt can chime in as well. But obviously, we're going to continue to try to rotate out the non Barings names from the acquisitions with a focus on really trying to move the non income producing assets to the best of our ability, while also trying to maximize value so that we can get income producing assets, which will hopefully benefit from an ROE perspective. So that's kind of a goal of ours. Speaker 700:22:50Obviously, market timing is everything to your point on the overall market. Good news is this is fully ramped and we're kind of within our leverage targets. And so if there's not a lot of deal flow coming in, there's typically not a lot of repayments at the same time. So it's relatively easy to manage from that perspective. That being said, as Matt alluded to in his comments, we do have a decent pipeline of new opportunities and expect to continue to originate consistent with our strategy previously. Speaker 600:23:24Thank you. On just kind of the comments about the uncertainty that Eric had or talked about. As you said, the economy all the economic metrics for the overall economy look good right now. Obviously, tariffs are starting to be implemented. There's cost cutting, etcetera. Speaker 600:23:47I mean, so can you give us any kind of like where you have exposure to those things? I mean, you have some other transportation businesses, you have some automotive, etcetera, I mean, a lot of services, obviously. So, but how much of that the services side is exposed to government spending? How much of the hard goods are exposed to tariffs? Any color you can give us there? Operator00:24:15Yes. So, look, we're pulling Speaker 300:24:17out the playbook from several years ago, kind of running these analyses on the portfolio. Fortunately for all of us, it's not the first time we've done it. We've done kind of an initial frankly props to the team for proactively organizing some efforts around this analysis. Our prelim indication is that somewhere between 6075% of portfolio will be unimpacted by regulatory uncertainty. And then I think that the balance is going to be a sliding scale depending on exactly what the underlying issuer does and exactly where they are operating. Speaker 300:24:49It's obviously way too early to say in terms of where we're headed from a portfolio perspective. We do have as I'm sure many managers do. We have our kind of top hits in terms of where we think kind of the 15 issuers are that might be the most impacted. And as you can imagine, we're staying in contact with them on a more regular basis. But certainly optimistic that well managed businesses owned by relatively sophisticated private equity firms are going to be in a position to modify their cost structures and adapt to a changing environment. Speaker 300:25:21I think that perhaps equally as important is just the opportunity for net deployment on a go forward basis. And that's where we've really seen a lot of uncertainty. Private equity firms we've talked to early in 2025 listed a slate of probable sales of their portfolio companies. And I would venture to say that that is kind of shrunk into a trickle in terms of where people have their heads now from a sale process perspective. So it's just a broader theme around uncertainty and we're obviously going to keep our ear to the ground on both fronts. Speaker 600:25:54Got it. Thank you. Operator00:25:58Thank you. Next question is coming from Casey Alexander from Compass Point. Your line is now live. Speaker 100:26:04Yes. I just want to ask I may be asking the same question in a different way, okay? Given, Matt, your comments regarding the sort of uncertainty and the lack of kind of deal proposals. Is it fair to think and actually fee and other income had a pretty good quarter in the fourth quarter, but is it fair to think of fee and income as you look out across 2025 is likely to be flat to down as opposed to I think a lot of people were thinking it was going to be up in 2025 because thought there was going to be very robust deal activity? Speaker 300:26:48Yes, it's a fair question, Katie. I wouldn't say that it's going to be flat to down. I think that our current expectation is going to kind of be flat to flat. And the reason for that is just the broader maturity dynamics within the overall portfolio. And so while you may not see the OID acceleration associated with upfront fees, but I do think you'll this is here we are in February, so forecasting the whole year. Speaker 300:27:11But what my gut tells me is that we're probably going to see some more activity with respect to amendment fees, extension fees, those sorts of things. And so while what you may lose from an OID acceleration perspective, you're probably going to make up from an amendment fee perspective. And that's my gut in terms of where we are. Now of course, if M and A activity picks up, then the reverse will also be true. But with kind of fully invested and seasoned portfolio, that's our operating base case right now. Speaker 100:27:40Well, I mean, while you're on the phone, you could take a crack at 2026 if you want to. So like I said, that fourth quarter number was a bit high. Was there a one time or a single deal that contributed to a little bit higher fee and other income in the fourth quarter than we've seen in previous quarters? Speaker 300:28:03Yes. I would say that the answer to your question directly is yes. There was a transaction that did have a more substantive fee component to it in the fourth quarter. And I would tell you that it did create a little bit of an outlier dynamic. And so if you were looking for modeling purposes for the forecast, I would suggest that you use kind of a trailing four quarter average as more of a baseline. Speaker 100:28:24Thank you very much. Speaker 300:28:25You got it. Operator00:28:27Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments. Speaker 200:28:34Thank you, Kevin. And thank you to everybody who participated on today's call. Please stay safe and have a great day. Operator00:28:41Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallBarings BDC Q4 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) Barings BDC Earnings HeadlinesBarings BDS Is Not A Great Buy Despite The Sell-OffApril 24 at 2:03 PM | seekingalpha.comBarings BDC, Inc. (BBDC): One of the High-Dividend Stocks to Invest In Under $10April 11, 2025 | msn.com$2 Trillion Disappears Because of Fed's Secretive New Move$2 trillion has disappeared from the US government's books. 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Email Address About Barings BDCBarings BDC (NYSE:BBDC) is a publicly traded, externally managed investment company that has elected to be treated as a business development company under the Investment Company Act of 1940. It seeks to invest primarily in senior secured loans, first lien debt, unitranche, second lien debt, subordinated debt, equity co-investments and senior secured private debt investments in private middle-market companies that operate across a wide range of industries. It specializes in mezzanine, leveraged buyouts, management buyouts, ESOPs, change of control transactions, acquisition financings, growth financing, and recapitalizations in lower middle market, mature, and later stage companies. It invests in manufacturing and distribution; business services and technology; transportation and logistics; consumer product and services. It invests in United States. It invests in companies with EBITDA of $10 million to $75 million, typically in private equity sponsor backed.View Barings BDC ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Markets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Starbucks (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 8 speakers on the call. Operator00:00:00Good day, everyone. At this time, I'd like to welcome you to the Barings BDC Inc. Conference Call for the Quarter Ended and Year Ended 12/31/2024. At this time, all participants are in a listen only mode. Operator00:00:27Today's call is being recorded and a replay will be available approximately two hours after the conclusion of the call on the company's website at www.bearingsbtc.com under the Investor Relations section. At this time, I'll turn the call over to Joe Mizzoli, Head of Investor Relations for Barings BDC. Please go ahead, Joe. Speaker 100:00:48Good morning, and thank you for joining the call. Please note that this call may contain forward looking statements that include statements regarding the company's goals, beliefs, strategies, future operating results and cash flows. Although the company believes these statements are reasonable, actual results could differ materially from those projected in forward looking statements. These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled Risk Factors and Forward Looking Statements in the company's quarterly report on Form 10 Q for the quarter ended 12/31/2024, as filed with the Securities and Exchange Commission. Barings BDC undertakes no obligation to update or revise any forward looking statements unless required by law. Speaker 100:01:49I will now turn the call over to Eric Lloyd, Chief Executive Officer of Barings BDC. Speaker 200:01:57Thanks, Joe, and good morning, everyone. We appreciate you joining us for today's call. Please note that throughout today's call, we'll be referring to our fourth quarter twenty twenty four earnings presentation that is posted on the Investor Relations section of our website. On the call today, I'm joined by Barings BDC's President, Matt Freund Chief Financial Officer, Elizabeth Murray and Barings Head of Global Private Finance and BBDC Portfolio Manager, Brian Hai. In the fourth quarter BBDC delivered another strong and consistent set of results, fueled by best in class credit performance and the strength and stability of our franchise. Speaker 200:02:38Consistent with broader industry trends, lending activity during the first three quarters of twenty twenty four was somewhat muted. During the fourth quarter, we experienced a meaningful uptick in deployment, both as part of add on net transactions within the existing portfolio and for new buyouts by a number of our long standing sponsor clients. The result of this activity produced strong originations during the period that we are proud of. Strong deployment combined with benign credit environment and our focus on the top of the capital structure investments in the middle market combined to serve our investors well. Our focus on the core of the middle market is reflective of our lower leverage levels and more attractive risk adjusted returns, which is why we find this to be the best segment of the market for BBDC and our shareholders. Speaker 200:03:26Consistent with how we have defined our strategy in past discussions, our portfolio strategy is outlined in greater detail on Slide five and we continue to successfully invest throughout the market and deliver compelling returns to our shareholders. As we reflect on the full year 2024, the performance of BBDC has been strong. Total shareholder return during 2024 exceeded 24% and top quartile among publicly traded peers. These results were driven by a number of tailwinds, some of which are specific to the industry and some of which are specific to bearings managed portfolios. Interest rates while elevated have been stable for several quarters. Speaker 200:04:05Credit performance has been has held up broadly across the industry, but has been particularly durable within BBDC. Deployment opportunities as I previously noted improved during the December compared to 2023 and the first half of twenty twenty four. While we closed 2024 on a strong and stable footing, we have entered 2025 with caution. Economic data appears to be overwhelmingly positive. Credit fundamentals, namely cash flows, revenue growth and margins are all exhibiting positive trends. Speaker 200:04:37As Matt will discuss in great detail, we are optimistic that additional transaction activity will blossom in 2025. However, it is equally as clear that uncertainty, particularly regulatory and trade uncertainties, have given private markets a pause. As our investors know, we are often investing in illiquid credit securities alongside private equity firms who are investing in illiquid equity securities. The regulatory shifts that have occurred only in the first two months of 2025 make it difficult for private capital investors to assess the possible shifts they may experience over the coming three to five year holds horizons. Consequently, we remain cautious on the pace of new buyout existing portfolio to continue to be providing compelling opportunities to invest. Speaker 200:05:26Add on transactions remain a compelling way for private equity firms to enhance the value of portfolio companies and allow bearings to deploy capital into companies we already know. While not anticipated to the extent volatility is on the horizon, we have confidence in our credit selection and believe our underwriting discipline will continue to provide stable returns in the quarters to come. Turning to some specifics on BBDC, net asset value per share was $11.29 substantially unchanged compared to $11.28 reported at the prior fiscal year end, a testament to the portfolio stability. Net investment income for the quarter was $0.28 per share and out earned our dividend of $0.26 per share. Digging a bit deeper into the portfolio, we continue to actively maximize the value of the legacy holdings acquired from MVC Capital and Sierra. Speaker 200:06:21Our goal remains to divest these assets at attractive valuations as we did this quarter. Barings originated positions are now 93% of the portfolio fair value, up from 76% at the beginning of twenty twenty two. As a reminder, potential losses from the acquired assets are protected by credit support agreements limiting downside risk for BBDC investors. Our investment portfolio performed well during the fourth quarter with the non accrual rate declining from a mere 50 basis points in September to 30 basis points as of December. There is no substitute for fundamental credit analysis, which has always been at the core of our investment philosophy as reflected in the health of the BBDC portfolio today. Speaker 200:07:03Including the acquired Sierra and MVC assets, our total non accruals are the industry leading 0.3% on a fair value basis and 1.6% of the portfolio on a cost basis. This is down from 1.5% on a fair value basis and 2.5% on a cost basis as of 12/31/2023. Turning to the earnings power of the portfolio, the weighted average yields at fair value was 10.4%. We remain conservative on our base dividend policy and our Board declared a fourth quarter dividend of $0.26 per share consistent with the prior quarter. On an annualized basis, the dividend level equates to a 9.2% yield on our net asset value of $11.29 As we have separately announced, our Board has also declared a $0.15 dividend of supplemental dividends that will be paid in three quarterly installments. Speaker 200:07:55Taken together with our regularly scheduled dividend, the dividend level equates to 11% yield based on December's net asset value. We believe the best measures of the portfolio's performance, non accruals, net asset value and NII were extremely compelling for the year ended December 2024. And we anticipate continued strength in the quarters ahead. I'll now turn the call over to Matt. Speaker 300:08:21Thanks, Eric. BBDC is managed by Barings LLC, a credit focused asset manager with over $420,000,000,000 of assets under management. The bulk of the portfolio is sourced from the global private finance team, an organization with more than 100 investment professionals located around the globe providing financing solutions to high quality market leading middle market companies sponsored by top tier private equity firms. BBDC deployed $298,000,000 of capital in the quarter offset by $222,000,000 of sales and repayments resulting in net sales and deployment of $76,000,000 reflecting one of the most active deployment quarters in recent history. Repayments during the quarter included various non core positions acquired with Sierra Incomes legacy portfolio. Speaker 300:09:04As Eric noted, we are executing on the strategy that we have been telegraphing for the past twenty four months, simplifying the portfolio and selectively investing in what we believe are the most compelling middle market direct lending opportunities in the market. During our prior call, we noted that we had started seeing green shoots related to new deployment opportunities. Our growth in net originations during the quarter validated that anticipation. Originations activity was fueled both by add on transactions as well as new issuer financings. The mix of our funding did skew somewhat towards add on activity at a higher rate than historical averages, which we believe was largely reflective of industry results during the period for scaled asset managers such as Barings. Speaker 300:09:44As we evaluate forward looking activity into the balance of 2025, we remain cautious as Eric noted. Recall that the average transaction timeline from initial inbound activity to ultimate closed transactions typically ranges from three to six months. Initial inbound transactions initially increased following the November elections, but as we closed 2024, the volume of inbound activity started to recede. The deal landscape appears primed to support M and A activity in 2025, supported by extended hold periods within private equity portfolios, interest rate stability and a positive economic indicators that Eric mentioned. Juxtaposed against these favorable characteristics, we have perceived in our private equity relationships and company management teams an underlying sense of uncertainty related to the intermediate outlook. Speaker 300:10:32All of this is to say that we are cautiously optimistic for the year ahead. Turning to our current portfolio, 72% of the portfolio consists of secured investments with approximately 69% constituting first lien securities. BBDC has experienced stabilization of interest coverage during 2024 and finished the quarter with a weighted average interest coverage of 2.2 times above industry averages and consistent with our results for the prior quarter. We believe interest coverage demonstrates the merits of our approach focusing on leading companies in defensive sectors and thoroughly underwriting their ability to weather a range of economic conditions. The portfolio composition remains highly diversified with the top 10 issuers accounting for 23.1% of the fair market value. Speaker 300:11:15Recall that the top two positions within the portfolio, Eclipse Business Capital and Mercade Holdings are strategic platform investments that we own and provide BBDC shareholders with access to differentiated compelling opportunities to invest in asset backed securities and litigation funding solutions. Two areas we believe to provide attractive total returns as well as diversification benefits for the broader portfolio. Turning to portfolio quality, risk ratings exhibited minimal movement during the quarter as our issuers exhibiting the most stress classified as risk ratings four and five were 11% on a combined basis quarter over quarter compared to 10% in the immediately preceding quarter. Non accruals accounted for only $8,000,000 of fair market value within the portfolio and 0.3% of fair market value, which we believe is one of the lowest levels of non accruals across the industry. We remain confident in the credit quality of the portfolio. Speaker 300:12:08We expect BBDC's differentiated reach and scale coupled with its core focus on the middle market credit and focus on shareholder and our focus on shareholders will continue driving positive outcomes in the quarters and years to come. The BBDC portfolio is a through the cycle portfolio designed to withstand a variety of economic environment and prevailing interest rate levels. To this end, BBDC was structured to align both fees and credit performance hurdles with shareholders. Before turning the call over to Elizabeth, I'd like to share an observation from an industry call I participated in earlier this week. The presenters were focused on trying to dissect the causes of PIK interest income and specifically whether PIK signaled portfolio distress that could manifest itself in the quarters to come. Speaker 300:12:47I found the results to be confirmatory to our understanding, but wanted to offer this anecdote to the audience. The presenters analyzed a large pool of loans and noted that of the loans reviewed, nearly 60% of those loans had a PIK component during the fourth quarter of twenty twenty four that did not have a PIK component at the time of the original underwriting. Of this pool of loans with modified PIK, EBITDA experienced a negative CAGR of approximately 20% and loan to value substantially increased since the time of the original underwriting. We regularly get asked about our pick income and whether we feel it is a sign of stress in the portfolio. We'll now take the opportunity to call out that the Barings PIK interest income during the quarter was 5.1% of total investment income and compared to our trailing five quarter average of 5.7%. Speaker 300:13:33This combination of data points serves as a reinforcement of the discipline and quality underwriting within the portfolio. I'll now turn the call over to Elizabeth. Speaker 400:13:41Thanks, Matt. On Slide 15, you can see the full bridge of the NAV per share movement in the fourth quarter. NAV per share was $11.29 as of December 31, which is a decrease of 0.2% over the prior quarter and an increase of 0.1% year over year. Our net investment income exceeded the $0.26 per share dividend by $0.02 per share or 8%. Net unrealized appreciation from investments, CFAs and FX equaled $0.08 and was offset by net realized losses on the portfolio FX of $0.13 per share. Speaker 400:14:16The net realized loss on the portfolio was predominantly due to this restructure of our investments in CECO, which is reclassed from unrealized depreciation. The valuation of the credit support agreement increased by approximately $12,200,000 The fair value of the Sierra CSA increased from $32,200,000 in the third quarter to $44,200,000 as of December 31. During the fourth quarter, the Sierra portfolio had sales and repayments of approximately $12,500,000 and had 23 positions remaining in the portfolio, down from 28 positions as of September 30. Year over year, we rotated out of approximately $100,000,000 or 45% of the remaining Sierra portfolio in 2024. The fair value of the MVC CSA increased from $19,000,000 to $19,200,000 as of September 30, predominantly due to the rolling maturity of the contract for one quarter with four positions remaining. Speaker 400:15:14Our net investment income was $0.28 per share for the quarter or $0.3 per share on a pre tax basis compared to $0.29 per share in the prior quarter and $0.31 per share for the fourth quarter twenty twenty three. For the year, net investment income was $1.24 per share compared to $1.2 per share for 2023. Investment income in the quarter was primarily driven by dividends from joint venture and platform and fees associated with repayment activity. This is partially offset by slight decline in interest income associated with the impact of decline in yields from the portfolio's base rates are lower quarter over quarter. Incentive fee expense was slightly higher, but continued to be at a normalized level. Speaker 400:15:55Our net leverage ratio, which is defined as regulatory leverage, net of unrestricted cash and net unsettled transactions was 1.16 times at quarter end, up slightly from 1.09x in the quarter ended September 30, and it currently sits within our long term range of 0.9x to 1.25x. Our current leverage provides ample capacity to seize opportunities and pursue attractive deployment opportunities in the quarters to come. Our funding mix remains highly defensible, both in terms of seniority and asset class, including the significant level of support provided by the unsecured debt and our capital structure. At December 31, our unsecured debt accounted for $1,000,000,000 of our fundings and equated to approximately 70% of our outstanding debt balances. We maintain a diversified funding mix by maturity, counterparty and type and have a limited near term of maturities on our debt outstanding with our ladder of maturities extending to 2029. Speaker 400:16:53BBDC currently has $323,000,000 of unfunded commitments to our portfolio companies as well as $65,000,000 of outstanding commitments to our joint venture investments. Our overall liquidity remains strong with over $464,000,000 of available capital and we are well positioned to continue to support our unfunded commitments and new origination activity. As mentioned earlier, the Board declared a fourth quarter dividend, our first quarter dividend of $0.26 per share and special dividends totaling $0.15 per share and 11 percent distribution on net asset value. The special dividends will be paid in three equal quarterly installments of $0.05 per share in each of the first three quarters of twenty twenty five. In 2024, we continue to be active users of our share repurchase plan and purchased 150,000 shares in the fourth quarter for a total of over 650,000 shares during 2024. Speaker 400:17:49In addition, the Board authorized a new $30,000,000 share repurchase plan for 2025. Our focus on share repurchases is one example of BBDC's thoughtful approach to aligning our interests to shareholders. I'll wrap up our prepared remarks with a note on our investment pipeline. Thus far in the first quarter, we have made $81,000,000 of new commitments and funded $50,000,000 With that operator, we'll open the line for questions. Operator00:18:13Thank you. We'll now be conducting a question and answer session. Our first question today is coming from Finian O'Shea from Wells Fargo Securities. Your line is now live. Speaker 500:18:56Hey, everyone. Good morning. I was looking at a name AT is another slight mark, but it's a sort of a partial or pick non accrual. And I was seeing if you could outline just the spirit of a pick non accrual and how that compares to the regular definition of something that you don't anticipate collection of full interest in principle for? Thank you. Speaker 400:19:27Yes, Ben, thanks for the call. And the way we determine that is, when we meet with the investment team, that was an investment that prior to us putting on Pick Non accrual, it paid its full cash, which I believe at the time was a 15% interest rate. And we underwrote it where it would pay, I believe half of that. And so it's actually performing where we underwrote it. And so when it was determined that they were going to start paying cash and they wanted to pick a certain portion, we didn't believe that we would be able to recover the full value including the pick, but we knew we could with the cash. Speaker 400:20:09So that's why we thought it was prudent to put it on pick on accrual. But it is performing now as it was underwritten, it just for a certain period of time was performing above where it was underwritten. Speaker 500:20:20Okay. So it seems like you'll collect the regular principal, but not the PIK part of it? Speaker 400:20:28Correct. And we're going to they're paying the cash current and we will collect the principal. Speaker 500:20:35Okay. That's helpful. Thank you. And what the CSA marks, could you run through that or how much was interest rate or timing related versus fundamental? Speaker 300:20:52Yes. Fin, good question. Overwhelmingly, it was directly related to the marks on Black Angus Steakhouse, which as I'm sure you're reviewing the material, you'll see that there was a sequential quarter on quarter valuation mark associated with that position and a corresponding increase in the value of the CSA. There was, as you alluded to, impacts of interest rate and timing, but the bulk of the change quarter on quarter is going to associate with the Black Angus Steakhouse market. Speaker 500:21:22Okay, great. That's all for me. Thanks so much. Speaker 300:21:25Thank you. Operator00:21:31Our next question is coming from Robert Dodd from Raymond James. Speaker 600:21:38Congrats on the quarter and congrats on the continued portfolio rotation. That's 2024. What are you going to do for us in 2025 on the portfolio rotation? So I mean, just any thoughts on how you expect that to progress through this year, especially with uncertainty to the point on and it's easier to notate the portfolio in an active market than an inactive one or slower one. I mean, any thoughts on how that might progress through the year? Speaker 600:22:14I mean, really good job so far. Speaker 700:22:16Yes. Hey, Robert, it's Brian. A couple of thoughts and then obviously, Matt can chime in as well. But obviously, we're going to continue to try to rotate out the non Barings names from the acquisitions with a focus on really trying to move the non income producing assets to the best of our ability, while also trying to maximize value so that we can get income producing assets, which will hopefully benefit from an ROE perspective. So that's kind of a goal of ours. Speaker 700:22:50Obviously, market timing is everything to your point on the overall market. Good news is this is fully ramped and we're kind of within our leverage targets. And so if there's not a lot of deal flow coming in, there's typically not a lot of repayments at the same time. So it's relatively easy to manage from that perspective. That being said, as Matt alluded to in his comments, we do have a decent pipeline of new opportunities and expect to continue to originate consistent with our strategy previously. Speaker 600:23:24Thank you. On just kind of the comments about the uncertainty that Eric had or talked about. As you said, the economy all the economic metrics for the overall economy look good right now. Obviously, tariffs are starting to be implemented. There's cost cutting, etcetera. Speaker 600:23:47I mean, so can you give us any kind of like where you have exposure to those things? I mean, you have some other transportation businesses, you have some automotive, etcetera, I mean, a lot of services, obviously. So, but how much of that the services side is exposed to government spending? How much of the hard goods are exposed to tariffs? Any color you can give us there? Operator00:24:15Yes. So, look, we're pulling Speaker 300:24:17out the playbook from several years ago, kind of running these analyses on the portfolio. Fortunately for all of us, it's not the first time we've done it. We've done kind of an initial frankly props to the team for proactively organizing some efforts around this analysis. Our prelim indication is that somewhere between 6075% of portfolio will be unimpacted by regulatory uncertainty. And then I think that the balance is going to be a sliding scale depending on exactly what the underlying issuer does and exactly where they are operating. Speaker 300:24:49It's obviously way too early to say in terms of where we're headed from a portfolio perspective. We do have as I'm sure many managers do. We have our kind of top hits in terms of where we think kind of the 15 issuers are that might be the most impacted. And as you can imagine, we're staying in contact with them on a more regular basis. But certainly optimistic that well managed businesses owned by relatively sophisticated private equity firms are going to be in a position to modify their cost structures and adapt to a changing environment. Speaker 300:25:21I think that perhaps equally as important is just the opportunity for net deployment on a go forward basis. And that's where we've really seen a lot of uncertainty. Private equity firms we've talked to early in 2025 listed a slate of probable sales of their portfolio companies. And I would venture to say that that is kind of shrunk into a trickle in terms of where people have their heads now from a sale process perspective. So it's just a broader theme around uncertainty and we're obviously going to keep our ear to the ground on both fronts. Speaker 600:25:54Got it. Thank you. Operator00:25:58Thank you. Next question is coming from Casey Alexander from Compass Point. Your line is now live. Speaker 100:26:04Yes. I just want to ask I may be asking the same question in a different way, okay? Given, Matt, your comments regarding the sort of uncertainty and the lack of kind of deal proposals. Is it fair to think and actually fee and other income had a pretty good quarter in the fourth quarter, but is it fair to think of fee and income as you look out across 2025 is likely to be flat to down as opposed to I think a lot of people were thinking it was going to be up in 2025 because thought there was going to be very robust deal activity? Speaker 300:26:48Yes, it's a fair question, Katie. I wouldn't say that it's going to be flat to down. I think that our current expectation is going to kind of be flat to flat. And the reason for that is just the broader maturity dynamics within the overall portfolio. And so while you may not see the OID acceleration associated with upfront fees, but I do think you'll this is here we are in February, so forecasting the whole year. Speaker 300:27:11But what my gut tells me is that we're probably going to see some more activity with respect to amendment fees, extension fees, those sorts of things. And so while what you may lose from an OID acceleration perspective, you're probably going to make up from an amendment fee perspective. And that's my gut in terms of where we are. Now of course, if M and A activity picks up, then the reverse will also be true. But with kind of fully invested and seasoned portfolio, that's our operating base case right now. Speaker 100:27:40Well, I mean, while you're on the phone, you could take a crack at 2026 if you want to. So like I said, that fourth quarter number was a bit high. Was there a one time or a single deal that contributed to a little bit higher fee and other income in the fourth quarter than we've seen in previous quarters? Speaker 300:28:03Yes. I would say that the answer to your question directly is yes. There was a transaction that did have a more substantive fee component to it in the fourth quarter. And I would tell you that it did create a little bit of an outlier dynamic. And so if you were looking for modeling purposes for the forecast, I would suggest that you use kind of a trailing four quarter average as more of a baseline. Speaker 100:28:24Thank you very much. Speaker 300:28:25You got it. Operator00:28:27Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over for any further or closing comments. Speaker 200:28:34Thank you, Kevin. And thank you to everybody who participated on today's call. Please stay safe and have a great day. Operator00:28:41Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.Read morePowered by