First Eagle Alternative Capital BDC, Inc.

Good morning and welcome to the First Eagle Alternative Capital BDC Incorporated's earnings conference call for its first fiscal quarter ended in March 31st, 2021. It is my pleasure to turn the call over to Ms. Sabrina Rusnak-Carlson of First Eagle Alternative Capital BDC Incorporated. Ms. Rusnak-Carlson, you may begin.

Thank you, Operator. Good morning and thank you for joining us. Joining me on today's call are Chris Flynn, President of First Eagle Alternative Credit, Terry Olson, Chief Operating Officer and Chief Financial Officer of First Eagle Alternative Credit, and Jen Wilson, Chief Accounting Officer. Before we begin, please note the statements made on this call may constitute forward-looking statements within the meaning 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 material from such statements. The uncertainties and other factors are in some ways beyond management's control and include factors included in the section entitled Risk Factors in our most recent annual report on Form 10-K filed yesterday. and other filings with the Securities and Exchange Commission. Although we believe that the assumptions on which any forward-looking statement are based on are reasonable, any of the 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 and 10Q were released yesterday afternoon, copies of which can be found on our website, along with a Q1 earnings presentation that we may refer to during this call. A webcast replay of this call will be available until May 17, 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, I'll provide an overview of our first 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 with $0.10 dividend and $0.11 per share in Q4. NAI continued to benefit from the management fee waiver that ended in March 31st. As a reminder, the management fee waiver constituted a $0.03 per share impact to NAI per quarter. It was intended to reduce the impact to shareholders as we exited and de-risked our remaining concentrated non-core positions. We made considerable progress on our portfolio transition and overall. We are very pleased with how the portfolio has performed through the pandemic. In light of the improvement and stability of our portfolio, as Bruce previously communicated, we have begun to increase our leverage. We are levered at 0.093 times at the end of the quarter, 0.96 times if you take into account our unsettled trades at quarter end, and we are targeting long-term leverage levels of up to 1.2 times by the end of 2021. We expect this increase in leverage to be accretive to NII at a level that we believe will be in line with or exceed our current dividend. In Q1, our book value increased approximately 3.6 percent from $6.15 per share at the end of Q4 to $6.37 per share at the end of Q1. Similar to Q4, we think it is important to highlight the contributors to the increase in our book value. First, the continued improvement in the broadly syndicated market, similar to what you saw in Q4, lifted the value of our holdings in the Logan joint venture, specifically in an 11 cent per share positive impact in NAV this quarter. We remain pleased with the overall credit quality across the 92 names and Logan's $241 million of assets. Non-accruals within Logan represent less than 1% of the portfolio in Q1. Second, we saw overall increases in portfolio related to certain equity positions in Wheels Up, C&K Market, Marical, and Igloo. Performance in all four investments remained strong, and the increase in book value reflects improved credit metrics and market multiples. In aggregate, the increase in these values of equity represent a seven-cent increase in NAV. Lastly, the overall improvement in our portfolio performance I mentioned earlier, together with further spread tightening in the market, resulted in net appreciation in the rest of the portfolio of three cents per share. Ninety-five percent of our debt investments reported either the same or increased values in Q1 versus Q4. Now let's delve deeper into the portfolio. Overall, the portfolio continues to perform well amid the continuing impact of the pandemic. Revenue and EBITDA levels and liquidity for most COVID impacted businesses continue to improve and in many instances have returned to or exceed pre-COVID levels. Companies that are not fully rebounded continue to maintain good liquidity profiles. No significant amendments were necessary in Q1 related to COVID. We did not add any new non-accruals during the quarter. LoadMaster is the only portfolio company on non-accrual. While we do not exit any of our two remaining legacy concentrated positions, OEM and IGLU, each continue to perform in line with expectations. Specifically with respect to OEM, as the plasma therm transaction consummated in Q4 to commercialize and distribute its technology to the market is proceeding well. As a reminder, the principal consideration was in the form of deferred payments for several years contingent on certain milestones, including minimum annual payments for the first four years that will be used to service their debt and cover certain operating costs. The BDC retained all the equity in the remaining business. In Q1, we upsized the $8.5 million first-lane term loan slightly as planned to provide short-term transitional capital in connection with the sale transaction. Second, EGLU, the largest single holding at the year-end, represented 6% of our portfolio. The company continues to form well. The debt investment is marked at par, and the equity position was written up this quarter, reflecting strong performance and the continued impact of spread tightening. These two positions represent the last remaining of the 14 concentrated positions we held in our portfolio starting in early 2018. As I noted earlier, we are pleased with our progress on exiting these legacy investments and hence our comfort with proceeding with our plan to increase leverage. Additionally, our direct lending pipeline remains strong. The BDC continues to benefit from deal flow generated by First Eagle's $5 billion direct lending platform. Our growing platform benefits the BDC by allowing the BDC to be more diversified positions while also allowing First Eagle to provide more capital to middle market companies. The first quarter of the year tends to be slower compared to year end, but nonetheless, the BDC made two new directly originated investments, totaling $6 million this quarter. Further, the BDC made $15 million of broadly syndicated investments in four companies that are not necessarily intended to be long-term positions in the portfolio, but rather replace the directly originated positions over time. Separately, there were two debt repayments at par, plus a prepayment premium during the quarter. 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 our capital. Our goal is to continue to diversify our investment approach as we grow the BDC's portfolio in 2021. Lastly, you may have seen in our earnings release that our board approved a $10 million stock repurchase plan at our board's meeting earlier this week. The plan gives us discretion to buy back stock and open windows should we feel it makes sense. With that, I'll turn the call over to Terry.