BCP Investment Corporation

Welcome to BCP Investment Corporation's second quarter and the June 30th, 2026 earnings conference call. An earnings press release was distributed yesterday, August 6th, after market closed. A copy of the release along with an earnings presentation is available on the company's website at www.bcpinvestmentcorporation.com in the investor relations section and should be reviewed in conjunction with the company's form 10Q filed yesterday with the SEC. As a reminder, this conference call is being recorded for replay purposes. Please note that today's conference call may contain forward-looking statements which are not guaranteed of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described in your company's filings with the SEC. BCP Investment Corporation assumes no obligation to update any such forward looking statements unless required by law. Speaking on today's call will be Ted Goldthorpe, Chief Executive Officer, President and Director of BCP Investment Corporation, Brandon Satoren, Chief Financial Officer, and Patrick Schafer, Chief Investment Officer. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of BCP Investment Corporation. Please go ahead, Ted.

Good morning. and welcome to our second quarter 2026 earnings call. I'm joined today by our Chief Financial Officer, Brandon Satoren and our Chief Investment Officer, Patrick Schafer. Following my opening remarks on the company's performance and activities during the second quarter, Patrick will provide commentary on our investment portfolio and the broader market and Brandon will discuss our operating results and financial condition in greater detail. During the second quarter, we continued the execution against our plan As we strengthened our balance sheet and improved our asset coverage, we continued to reposition the portfolio and we saw further improvement in our non-accrual profile. Subsequent to quarter end, we amended and upsized our key bank facility and used it to refinance and retire our Great Lakes revolving credit facility with J.P. Morgan. Net asset value declined during the quarter, driven predominantly by unrealized mark-to-market movements across the portfolio, which I will discuss in more detail. Thank you for joining us. for sharing our base distribution. We also saw further improvement in underlying credit performance with non-accruals declining on a net basis to 5.7% of the portfolio at amortized cost from 6.2% in the prior quarter and a number of portfolio companies on non-accrual declining to seven from nine. We paid total distributions of 30 cents per share during the second quarter comprised of our base 27 cent base distribution and three cent supplemental distribution declared on our first quarter earnings. We're also paying monthly base distributions of $0.09 per share for July, August, and September as declared in May. Our board has now approved a fourth quarter 2026 base distribution of $0.27 per share, payable in monthly installments of $0.09 per share in October, November, and December. With our monthly dividend structure now well established, we believe this framework provides shareholders with a regular cadence of cash distributions while maintaining the flexibility to declare supplemental distributions when supported by earnings. We also continue to enhance our capital structure through proactive liability management. During the quarter, we used proceeds from the $50 million of 7.5% notes due 2029 that we issued in March to redeem $40 million of our 2026 notes at par. And we further reduced outstanding borrowings under our revolving credit facilities. In total, par borrowings declined by $56 million during the quarter to $286 million. Our asset coverage ratio improved to 162% from 156%, and gross leverage declined to 1.6 times from 1.8 times. Subsequent to quarter end, we amended our key bank credit facility, reducing applicable borrowing spreads during the reinvestment period by 30 basis points, extending the facility's reinvestment period immaturity and increasing committed borrowing capacity from $75 million to $150 million. In connection with the amendment, we use borrowings under the upsized facility to repay in full all outstanding borrowings under our Great Lakes revolving credit facility with J.P. Morgan and the commitments under that facility were terminated. This consolidates our secure revolving borrowings into a single facility with a longer runway, improves our overall cost of capital and provides greater financial flexibility as we continue to execute our investment strategy. Net assets per share declined to $14.49 per share this quarter, driven primarily by unrealized mark-to-market declines across the portfolio. Approximately 34% of this quarter's unrealized markdowns were attributable to investments classified as software and are consolidated scheduled investments, and approximately 47% when including software-exposed names compared with approximately 40% and 70% respectively in the first quarter. We believe the majority of these markdowns continue to reflect sector-specific valuation pressure and broader market dislocation rather than fundamental credit deterioration. Approximately 93.5% of our software exposure is rated low to medium AI impact under our internal review, concentrated in mission-critical, vertically specialized businesses with proprietary data embedded workflows and high switching costs, and these are unrealized marks against the senior secured positions with contracted cash flows and covenant protection. Our approach to deployment has not changed, but the environment has. Transaction volumes across the broader market were meaningfully lower this quarter, and in a slower market, we would rather be selective than compromise on structure. What we are finding is our best opportunities continue to come from smaller, more complex situations and from borrowers and sponsors we already know, where we can dictate terms rather than respond to process. That is the same discipline we describe in our private quarters, and the difference this quarter is we are applying it to a narrower set of transactions. As we look to the second half of 2026, we remain focused on active portfolio management, discipline underwriting, and prudent capital allocation with a goal of driving long-term value for our shareholders. We are not relying on market-wide recovery and M&A transaction activity. Our focus is on the opportunities we are sourcing directly and on the pipeline we've built in our core market. With that, I will turn the call over to Patrick Schafer, our Chief Investment Officer for a review of our investment activity.

Thanks, Ted. Before turning to the quarter, a few comments on our core market. Our core market has not changed. We continue to focus on companies with 15 to $50 million of EBITDA in industries or business models where we have an edge and ideally non-sponsor or non-traditional sponsor situations Thank you for joining us. The B-rated loan index improved modestly, and the loan benchmarks we used in our valuation process ended the quarter flat to slightly tighter. Software was the exception, with spreads widening further to a level several hundred basis units wide of the broader B-rated index. That divergence is an important context for our marks this quarter. Within software, our exposure continues to be concentrated in businesses with proprietary data, embedded workflows, and vertical market positioning. While the markets have generally differentiated between these credits in a positive way relative to those without these characteristics, we are still in a world where the syndicated markets view all software as a four-letter word. As a result of that lower activity level during the second quarter, our investment activity remains measured and selective. We completed three new portfolio company investments and four follow-on investments during the period. Repayments and sales remained elevated for the quarter, reflecting a mix of borrowers refinancing or being required and the resolution of two non-accrual positions. As a result, originations for the quarter were $20.9 million and repayments and sales were $34.9 million, resulting in net repayments and sales of approximately $14 million. A little over half of our originations by dollar amount came through increasing exposure to existing portfolio companies that we know and that are performing well. Overall, we are constantly evaluating our deployment levels relative to leverage levels and desire to repurchase stock. Turning to slide 10, the overall yield on par value of new debt investments during the quarter was 13.3%. This compares to a 12.2% weighted average annualized yield, excluding income from non-approvals and collateralized loan obligations, as of June 30, 2026, and a weighted average annualized yield of 12.8% as of March 31, 2026. Our focus remains on credit quality, structure, and overall risk-adjusted return. Our investment portfolio as of June 30, 2026, remained highly diversified. We ended the quarter with a debt investment portfolio of $349.7 million at fair value, excluding our investments in CLO funds, equities, and joint ventures, spread across 71 different portfolio companies in 33 different industries, with an average par balance of $3.2 million per investment. Turning to slide 11, our non-recrual profile continued to improve on a cost basis during the quarter. At the end of the second quarter, we had 11 investments on non-recrual status attributable to seven portfolio companies, representing 3.1% and 5.7% of the portfolio at fair value and advertised costs, respectively. This compares to 12 investments attributable to nine portfolio companies on non-recrual status as of March 31, 2026. representing 2.6% and 6.2% of the portfolio at fair value and cost respectively. The number of investments and companies on non-recrual along with the amortized cost percentage both improved, though the fair value percentage increased, reflecting one additional investment placed on non-recrual during the quarter alongside a lower total portfolio value. On slide 12, excluding our non-recrual investments, we have an aggregate debt investment portfolio of $335.6 million at fair value, representing a blended price of 88.6% of par value and 79.4% of that portfolio was comprised of first-line loans at par value. Assuming par recovery, our June 30th, 2026 fair value implied approximately $43.2 million of incremental NAV value or a 24.1% increase to NAV. Applying an illustrative 10% default rate and 70% recovery rate, The debt portfolio would apply approximately $2.57 per share of incremental NAV, or a 17.7% increase as the portfolio rotates. I'll now turn the call over to Brandon to further discuss our financial results for the period.

Thanks, Patrick. For the quarter ended June 30, 2026, the company generated $15.2 million in investment income. as compared to $17.6 million reported for the quarter ended March 31st, 2026. The decrease was largely due to net portfolio repayments and sales over the past several quarters, including $14 million in the second quarter. The impact of placing one investment on non-accrual status and lower core pay down and non-recurring fee income. For the same period, expenses were $9.6 million or $1.1 million below the $10.7 million reported for the prior quarter. The decrease in expenses was primarily due to the absence of performance-based incentive fees during the quarter, as compared to approximately $0.9 million of incentive fees incurred in the first quarter of 2026. Accordingly, our net investment income for the second quarter of twenty twenty six was five point five million dollars or forty five cents per share from six point nine million dollars or fifty five cents per share reported for the prior quarter. Core net investment income for the second quarter was three point three million dollars or twenty seven cents per share compared to four point one million dollars or thirty three cents per share for the first quarter of twenty twenty six. As of June 30th, 2026, our net asset value, or NAV, totaled $179.5 million as compared to the prior quarter's NAV of $193 million. On a per share basis, NAV was $14.49 as of June 30th, 2026, as compared to the prior quarter's NAV of $15.60. As Ted noted, the decline in NAV during the quarter was driven predominantly by unrealized mark-to-market declines across the portfolio. We also recorded a $10.5 million net realized loss relating primarily to the resolution of two positions that had been on non-accrual and were carried at a significant discount to costs. So those losses were substantially reflected in the net asset value reported in prior periods. Separately, the partial redemption of our 2026 notes resulted in a $0.4 million realized loss on extinguishment of debt from the write-off of unamortized deferred financing costs. As of June 30, 2026, our gross and net leverage ratios were both 1.6 times, respectively, compared to 1.8 times and 1.5 times in the prior quarter. The increase in net leverage reflects the use of cash on hand to reduce borrowings and a lower net asset value. At quarter end, our total outstanding borrowings were $286.1 million, with an asset coverage ratio of 162%, compared to $342.2 million and 156%, respectively, as of March 31, 2026. As Ted mentioned, we redeemed $40 million of the 2026 notes during the quarter and reduced our outstanding borrowings under our revolving credit facilities. As of June 30, 2026, our total borrowings carried a weighted average contractual interest rate of approximately 7%, and we finished the quarter with $86 million of available borrowing capacity under our senior secured revolving credit facilities, subject to borrowing-based restrictions. Subsequent to quarter end, We amended the credit facility, reducing the spread by 30 basis points, extending the reinvestment period and maturity by two years, and increasing committed capacity from $75 million to $150 million. We also reduced the unfunded fee. In connection with the amendment, Certain portfolio investments previously securing the JPMorgan Great Lakes Revolving Credit Facility were transferred into the KeyBank Collateral Pool, and borrowings under the amended KeyBank Credit Facility were used to repay all outstanding borrowings under the JPMorgan Great Lakes Revolving Credit Facility, which was then terminated. This will be reflected in the third quarter and provides us with greater financial flexibility as we continue to execute our investment strategy. With that, I will turn the call back over to Ted.

Thank you, Brandon. Ahead of questions, I'd like to re-emphasize our commitment to our shareholders. Our focus remains on active portfolio management, discipline underwriting, and diligent capital management with a goal of delivering sustainable, long-term value creation for our shareholders. Thank you once again to all of our shareholders, employees, and partners for your ongoing support. This concludes our prepared remarks, and I'll turn the call over for any questions.

At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Eric Zwick with Lucid Capital Markets. Your line is open.

Thank you. Good morning, guys. Hi, Eric. Hey, good morning. You've made some nice progress on deleveraging the balance sheet and bringing the leverage ratio down. I think there's still maybe, I'm curious if you agree, a little bit more room to go in terms of maybe reaching the target that you had laid out before. To some degree, I think the valuation marks worked against you this quarter, and who knows where those go. Hopefully, maybe next quarter reverse to some degree, but From what you can control, curious, do you expect to continue using cash flow from the investments and repayments potentially to continue paying down some of the borrowings at this point? Or what are your kind of current thoughts on leverage and where it goes from here?

Yeah, thanks, Eric. So I think, as you mentioned, we are still a little bit above kind of what we view our kind of long-term average to be. and so I think kind of consistent with the last couple of quarters, you know, you saw us be in a net repayment position, you know, repayments relative to coins. I think you could probably reasonably expect that to kind of continue going forward, which is, you know, we do see a lot of good opportunity or good opportunities in the market and we're being, we believe we're being relatively prudent in terms of being selective on those new investments, but generally speaking, trying to take advantage of repayments to overall reduce leverage.

Okay. Thanks, Patrick. I appreciate that. And also nice to see that the non-accrual account go down quarter over quarter. For those investments that are still on non-accrual, any noteworthy updates there of things that are you know, maybe you've been working on for a little while and maybe getting a little closer to resolution that could potentially return to the accrual list at some point in the near future?

Yeah, good question. I would say there's definitely like a couple of them are in various different stages. I would say probably on the margin between, you know, of the names in the list, I would say like what you'll generally see probably more likely is sort of a resolution and, you know, repayment of some amount of value, which again, we believe we're kind of like reasonably marked, you know, relative to what we think a resolution would be. And then to reinvest those proceeds into something new or pay down debt, et cetera, relative to, again, for the most part, sort of like either resetting, restructuring, and kind of continue to be invested in these particular portfolio companies. If you go down the list of them, most of them are legacy positions from different portfolios, and they're generally speaking on the longer end, and you've got a number of different lenders within these different portfolio companies, and everyone in the groups, generally speaking, are sort of looking to sort of move on and focus on new investments as opposed to kind of continuing to stay in these capital structures. So it's not just us, but I think, again, when you kind of scan through the list of them, by and large, you've got lender groups who are probably more excited to exit and replace that with a new portfolio company as opposed to continuing on as a lender.

Makes sense.

and last one, just thinking about the pipeline for new originations. You know, you mentioned seeing some wider spreads and seeing some opportunities. I'm curious if there's any, you know, themes there in terms of, you know, industries we're seeing stronger opportunities and then also just in terms of, I guess, kind of, you know, the opportunities, are they more towards Growth or M&A, I'm guessing not refinancing at this point given kind of wider spreads and where rates are, but just kind of curious what you're seeing from that perspective.

Yeah, good question. I would say... as you would imagine, so I'm not going out on a limb with a hot take, a lot of the companies that we are seeing are companies that would believe to be quote-unquote AI-proof, right? Business services, distribution businesses, things of that nature where you obviously don't have or have a much lower component of AI Risk. That tends to be more of what we are seeing, but having said that, you do still see, and we are still seeing software deals being done in the private markets at reasonable leverage levels and not wider, but not insanely wide pricing. with a good bid from private lenders. We haven't done a lot of that and certainly haven't done any of that in BCIC, but you are still, I would say that the software market in private credit is not completely shut down.

In terms of use of proceeds,

Again, I think generally speaking, it is for M&A as opposed to refinancing. Again, I know we said activity levels low and it is lower, but it still exists out there. And again, particularly in our size of the market where you're looking at, you know, 15 to 50, your sponsors, I think, are a lot more willing to, you know, write a, you know, 100 to, you know, $300 million check. Thank you for having me. I think in general, our market has fared a little bit better from an activity level. So again, to point, most of what we are seeing is, I'd say, new purchase, whether that is like a management team sort of buying out a minority investor that they've had in there or, you know, a flip from a founder to a sponsor or just kind of, again, a new founder or a founder who is kind of looking to do a dividend recap and growth for the first time. Those tend to be the majority of our deals.

Thanks for taking my questions this morning.

Thanks, Jared.

Your next question comes from the line of Francis Lau with Lucid Capital. Your line is open.

Hey, Ted. Good morning. On the back of the software question, just want to have just a little bit more clarity on the unrealized depreciation. So half of that came from software in this quarter. How do you get comfortable that this is not going to weigh on the NAS in the future quarters?

I'll speak first, then I'll turn it over to Patrick. I think from my perspective, software is now less than 13% of our portfolio. And as you mentioned earlier, almost all of it is mission critical with structural protections. The one thing I'd say is there is a big split in valuations in software between software valuations that have zero liquid securities in the capital structure versus ones that do. Thank you for having me. deals are getting done at the software space still at L plus 550 at par on small assets and medium-sized assets. And yet, we're marked at pretty big discounts to par. So there's a pretty big disconnect between broader public valuations versus where things are getting done in the private markets.

And I guess on that, so widening spread is good for capital deployment. I guess two questions here are how do you feel about the cadence of deploying capital in this current market? Do you want to wait? Do you want to go faster? And the second thing is, you know, given where the stock is trading at, you know, at a massive discount to NAV, is that deployment into new deals better than buying back the stock here, being cognizant of the liquidity of the stock, obviously?

Yeah, that's a good question. I mean, I think our perspective is we think spreads are going to widen. You know, given the redemption pressure, just generally speaking, in the space market, plus the slowdown in fundraising. The M&A market is just not that robust. Our pipeline is okay. It's not bad. There's not a big M&A market right now. Your second point, we should be buying back stock. During open windows where we're not blocked out, it just makes a lot more sense for us to buy our stock back where it trades versus deploying new capital, but there's a limitation on how much we can actually buy. It's always a balance between originating new assets that are accretive to our shareholders. But obviously, we're trying to buy back as much stock as we can and buy stock personally and buy stock through our funds. We just think our stocks doesn't reflect what we think is fair market value.

Got it. Thank you.

Your next question comes from the line of Christopher Nolan with Luddenberry Thelman. Your line is open. Hello, guys.

Should we expect... The key facility just to absorb the borrowings in the Great Lakes facility in their quarter.

Yeah, that's right. That's right, Chris. I mean, we'll have incremental borrowing capacity above and beyond what the two standalone facilities would otherwise have. But yeah, you should think of it as sort of just absorbing the assets in the JP facility as of now.

Yeah, and as a broader question, everyone talks about how AI and blah, blah, blah. How has that affected your diligence? I mean, you get a lot of these, and I would say idiots, loading in all the company's secrets into AI. And they have no idea where it goes. And at some point later on, and they're doing it for tokens. At some point, you know, that could be used against them. There's a lawsuit between Apple and Anthropic. Anthropic basically has Apple secrets on polishing metal or something. And, you know, when you're underwriting an investment, how do you gauge the intelligence of management dealing with this stuff? It's sort of like people, you know, on email when it first came out, when everyone's like saying anything on email before they realize their repercussions. I'm just trying to see whether or not you have an AI intelligence test for some of the management that you deal with.

That's an interesting question. I mean, it's a hard one to answer. I mean, generally speaking, as Patrick said earlier, we're really trying to avoid sectors with AI risk. What you said specifically, any deal we do, we do full IT diligence. Historically, it's focused on cyber. That's more where we spend our time in cyber insurance. What you just said is an evolving area. I wouldn't say... We have a big team at BC Partners that is AI experts, and we kind of try to apply that expertise into our portfolio companies. But what you just said, I mean, it's a fair question. We try to pick it up in our IT diligence, but again... is involved in on a weekly basis. Okay, that's it. Thanks.

I will now turn the call back over to Ted Goldthorpe for closing remarks.

Great. Well, thank you all for attending our call. As always, please feel free to reach out to us with any questions, which we're happy to discuss. We look forward to speaking to you again in November when we announce our third quarter of 2026 results and have a great end of the summer. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining Ueno Disconnect.