First Eagle Alternative Capital BDC, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the first EGLE Alternative Capital BDC, Inc. Q4 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference to our speaker today, Sabrina Resnick-Carlson, General Counsel, First Eagle Alternative Capital BDC. Please go ahead, ma'am.

Thank you, operator. Good morning, and thank you for joining us. Joining me on today's call are Chris Flynn, Chief Executive Officer, and Terry Olson, Chief Operating and Chief Financial Officer. Before we begin, please note that the statements made on this call may constitute forward-looking statements within the meeting of the Securities Act of 1933 as amended. Such statements reflect various assumptions by First Eagle Alternative Capital, BDC, concerning anticipated results that are not guarantees of future performance and are subject to known and unknown uncertainties and other factors that could cause actual results to differ materially from such statements. The uncertainties and other factors are in some ways beyond management's control and include the factors included in the section entitled Risk Factors in our most recent annual report on Form 10-K, filed yesterday, and other filings within the Securities and Exchange Commission. Although we believe that the assumptions on which any forward-looking statements are based on are reasonable, any of those assumptions could prove to be inaccurate and, as a result, The forward-looking statements based on those assumptions also could be incorrect. You should not place undue reliance on these forward-looking statements. First Eagle Alternative Capital undertakes no duty to update any forward-looking statements made herein. All forward-looking statements speak only as of the date of this call. Our earnings announcements in 10-K were released yesterday afternoon. copies of which can be found on our website along with our Q4 earnings presentation that we may refer to during this call. A webcast replay of this call will be made available until March 15, 2021, starting approximately two hours after we conclude this morning. To access the replay, please visit our website at www.feacbdc.com. With that, I'll turn the call over to Chris.

Thanks, Sabrina. Good morning, and thank you for joining us on our earnings call. On today's call, we'll provide an overview of our fourth quarter results, some portfolio highlights, and then Terry will discuss our portfolio and financial results in more detail. Let's begin with our results for the quarter. Net investment income for the quarter was $0.11 per share compared to our $0.10 dividend and $0.01 per share of NII of Q3. NII continues to benefit from the management fee waiver that will continue through Q1 of 2021. As a reminder, the management fee waiver adds $0.03 per share in NII per quarter. It was intended to reduce the impact to shareholders as we exited and de-risked our remaining concentrated non-core positions. This management fee waiver has supported NII over the past year. We've made considerable progress on our portfolio transition, and overall, we are very pleased with how the portfolio has performed through the pandemic. We are currently levered 0.093 times and a target long-term leverage level of up to 1.2 times by the end of Q2 2021. We expect this increase in leverage to be accretive to NII at this level and we believe we'll be in line with or exceed our 10-cent dividend while paying the management fee. In Q4, our book value decreased approximately 1.6 percent from $6.25 per share at Q3 to $6.15 per share at the end of Q4. It is important to put this modest change in Q4 in context of three other developments. First, as you may have seen in our 8K filing from late December, we were successful in completing the sale of two principal businesses of OEM. The de-risking of this position resulted in a significant decline in the value of our equity-like second lien position compared to our holdings at the end of Q3. This had a 41-cent per share impact on our book value. I'll provide some additional color on this later in the call. Second, the improvement in broadly syndicated loans lifted the value of our holdings in the Logan Joint Venture, specifically an 18-cent per share positive impact on the Logan Joint Venture this quarter. We remain pleased with the overall credit quality across the 92 names and Logan's $254 million of assets. Non-accruals represented less than 1% of the portfolio in Q4. Lastly, the overall improvement in portfolio performance I mentioned earlier, together with further spread tightening in the market, resulted in appreciation in the rest of our portfolio of $0.12 per share. Excluding OEM, 90% of our portfolio companies reported either the same or increased value in Q4. Now let's dive deeper into the portfolio. As noted earlier, the portfolio continues to perform well amid the continued impact of the pandemic. Revenue and EBITDA levels for COVID-impacted businesses continue to improve and, in many instances, have returned to or exceeded pre-COVID levels. Companies that have not yet rebounded continue to maintain good liquidity profiles. Revolver draws remain muted this quarter, and median leverage through our securities from the portfolio decreased from 4.8 turns to 4.3 turns quarter over quarter. We did not add any new non-accruals during the quarter. Loadmaster is the only portfolio company on non-accrual. Smart Tours, a business centered on sponsoring and organizing high-end travel and vacation tours, was significantly impacted by COVID. Restructured in Q4 and subsequently removed from non-accrual. The company has emerged from Chapter 11 in December after we reached an agreement with a sponsor on a balance sheet restructuring that included approximately $10 million of capital support, split evenly among the lenders and the sponsor. a partial term loan equitization, and other modifications. Smart Tours is performing as expected and is beginning to see some earlier-than-expected traction with booking activities for the second half of 2021 and 2022. We also continue to make progress on our goal of exiting or de-risking the remaining concentrated positions. The sale of the two principal businesses of OEM allowed us to meaningfully reduce our exposure to this credit, which previously represented our single largest position. This has been a priority and will contribute importantly to the ongoing efforts to diversify our portfolio into first-lane positions and sponsor-backed companies, consistent with our strategy since the end of 2014. As we mentioned on our last call, we had completed a restructuring of our holdings in OEM at the end of Q3, which resulted in returning a portion of our holdings to income-producing status beginning in Q4. We upsized our $7.5 million first-lane term loan slightly at the end of 2020 and to $8.5 million to provide short-term transitional capital in connection with the sale process. The 8K that was filed provides additional details on this transaction, but in short, the consideration for the sale of one of the businesses, the Plasma Therm, was in the form of deferred payments that will take place over several years contingent on certain milestones, including minimal annual payments for the first four years. These payments will be used to service our debt and cover certain operating costs. The sale of the other business, which was based in Pennsylvania, to a minority investor will not result in any cash consideration. Our first and second lien term loans remain in place after completing this sale. We retain all the equity of the remaining business and will be the beneficiary of the aforementioned deferred payments. After investing in OEMs technology for several years, we are pleased to have found the right partner in Plasma Therm to commercialize and distribute this to the market. CNK Markets A 5% position, which had been in the portfolio since 2010, was sold in December to an ESOP trust. We received $10.7 million of cash at closing, plus a $5.8 million subordinated seller note with an 11% yield, comprised of 8% cash pay and 3% pick, and warrants in the business with nominal value. Our sub-debt position represents 1.8% of the portfolio at fair value. C&K continues to be one of our top-performing credits during the pandemic. Igloo, the largest single holding at year-end, represents 6.4% of the portfolio. The company continues to perform very well. Our position is marked at par, up from 95% of par in Q3, reflecting improved performance and the overall effect of spread tightening. After the C&K transaction, only two of the 14 concentrated positions we held in early 2018 remain in the portfolio, OEM and Igloo. And during 2020, we added 15 new direct lending investments to the portfolio with an average hold size of approximately $4 million. We also increased our first lien exposure, which includes the company's investment in LoganJB, to approximately 90%. Our direct lending platform and the market in general has seen a pickup in both new business as well as M&A activity and our existing portfolio companies during the quarter. The BDC continues to benefit from the deal flow generated by First Eagle's $5 billion direct lending platform and this provides more opportunities for diversification. We added eight new investments in Q4, totaling $23 million, while seeing three debt repayments at par and a substantial realization of our C&K investment. Since the beginning of the pandemic, First Eagle's direct lending platform has remained robust, and we continue to provide us with investment opportunities. We continue to be very selective about where we deploy capital. and are very disciplined about sticking to our strategy of investing in first-line, highly diversified positions in select industries where we have expertise and a sponsor to be supportive partners. Our goal is to continue to diversify as we can grow the BDC portfolio in 2021. With that, I'll turn the call over to Terry.