First Eagle Alternative Capital BDC, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the First Eagle Alternative Capital BDC Inc. Q2 2021 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 keypad. Please be advised that today's conference is being recorded. If you require any further assistance, please press store then zero. I would now like to hand the conference over to your speaker today, Sabrina Resnick Carlson. Thank you. Please go ahead.

Thank you, operator. Good morning and thank you for joining us. On today's call are Chris Flynn, President of First Eagle Alternative Credit, and Jen Wilson, our Chief Accounting Officer and Treasurer. Before we begin, please note that 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 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 as updated by our quarterly report on Form 10-Q and our periodic and other filings with 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 four statements. First Eagle Alternative Capital BDC 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 announcement and 10Q were released yesterday afternoon copies of which can be found on our website along with a Q2 earnings presentation that we may refer to during this call. A webcast replay of this call will be available until August 16, 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 second quarter results and some highlights in the portfolio. And Jim 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 $0.09 per share compared with a $0.10 dividend and $0.11 per share of NII in Q1. As a reminder, the management fee waiver, which contributed $0.03 per share in NII, ended in Q1. The waiver went into effect in Q3 of 2020 and was provided by the advisor to reduce the impact of shareholders as we continue to complete the reposition of our portfolio by exiting and de-risking the remaining concentrated non-core positions. This portfolio reposition, you know, is substantially complete. In light of the improvement and stabilization of the portfolio, we increased our leverage to 1.1 times, up from 0.96 times at the end of Q1. We had previously communicated our plan to move closer to our long-term leverage target of 1.2 turns. Based on the deal pipeline and the lending environment today, we believe we have the ability to hit our target leverage ratio by the end of the year. At that level, assuming all conditions remain the same, we are in targeting an increase to our earnings to $0.10 per share next quarter. During the quarter, book value increased by approximately 2%, from $6.37 per share at the end of Q1 to $6.52 per share at the end of Q2. we think this is important to highlight the key contributors to this book value increase. First, continued improvement in the broadly syndicated loan market lifted the value of our holdings in the Logan joint venture. This had a six cent per share positive impact on NAV this quarter. We remain very pleased with the overall credit quality across the 92 names in the Logan's $241 million portfolio. Non-accruals were less than 1% in Logan as of Q2. Second, Other parts of the portfolio experienced increases in value as well. The IPO of Wheels Up, in which the BDC holds an equity position, and continued performance improvements at Matilda Jane, together contributed $0.04 a share. Lastly, the overall improvement in the portfolio performance I mentioned earlier, together with further spread tightening in the market, resulted in a net appreciation for the rest of the portfolio equal to $0.06 per share. Now let's delve deeper into the portfolio. Overall, the portfolio companies continue to perform well amid the continuing impact of the pandemic. Revenue and EBITDA levels and liquidity for most COVID-impacted businesses in the portfolio continue to improve and, in many instances, have returned or exceeded pre-COVID levels. Companies that have not yet fully rebounded continue to maintain good liquidity profiles. No significant amendments were required to the existing loan portfolio in Q2. Consistent with Q1, we did not add any new non-new accruals for the quarter. ModeMaster is the only portfolio company on non-accrual. OEM and Igloo are two remaining concentrated positions. Both continue to perform in line with expectations. At OEM, the plasma therm transaction that we consummated in Q4 to commercialize and distribute the technology into the market is proceeding well. As a reminder, the principal consideration was in the form of deferred payments over several years. These payments are contingent upon certain milestones, including minimal annual payments of the first four years that would be used to service our debt and cover certain operating costs. The BDC retained all the equity in the remaining business. In Q2, we upsized our first loan position by $300,000, as planned, to provide short-term transitional capital in connection with the sale transaction. Big Blue represents a 6% position in the portfolio and is the largest holding that we have as of June 30th. The company continues to form well, the debt investment is marked at par, and the equity position was written out this quarter, reflecting strong performance and continued impact and spread tightening. These two positions represent the last of the 14 concentrated positions we held in the portfolio in early 2018. We are pleased with our progress in exiting these legacy investments, and this gives us comfort with proceeding with our plan to increase leverage. We were very active in the quarter, making new portfolio investments across the direct lending platform, totaling $350 million. of which $46 million in 12 new investment companies was allocated to FCRD. FCRD made an additional $4 million of follow-on investments during this quarter. Separately, there were two debt prepayments at par plus a prepayment premium during the quarter. Our direct lending pipeline remains strong, and the BDC continues to benefit from the overall deal flow generated by First Eagle's $5 billion direct lending platform. The growth of the platform allows the BDC to hold a more diversified portfolio, with the number of positions up from 45 in Q1 of 2018 to 64 this quarter. Since the beginning of the pandemic, First Eagle's direct lending platform has remained robust, and we expect it to continue to provide us with attractive investment opportunities. We continue to be very selective on where we deploy our capital, and we are mindful of the macroeconomics environment in all of our investment committee decisions. Our goal is to continue to diversify our investment approach as we grow the BDC's portfolio into 2021 and beyond. With that, I'll turn the call over to Jen.