Barings BDC, Inc.

Greetings. At this time, I would like to welcome everyone to the Barings VDC, Inc. conference call for the quarter ended September 30th, 2021. All participants are in a listen only mode. A question and answer session will follow the company's formal remarks. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Today'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.bearingsbdc.com under the investor relations section. 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 and 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 annual report on Form 10-K for the fiscal year ended December 31, 2020, and quarterly report on Form 10-Q for the quarter ended September 30, 2021, each as filed with the Securities and Exchange Commission. Barron's BDC undertakes no obligation to update or revise any forward-looking statements unless required by law. At this time, I will turn the call over to Everett Lloyd, Chief Executive Officer of Barings BDC.

Thank you, Hillary, 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 third quarter 2021 earnings presentation as posted on the investor relations section of our website. On the call today, I'm joined by Barings BDC's President and Barings Co-Head of Global Private Finance, Ian Fowler. Brian High, Barings Head of U.S. Special Situations and Co-Portfolio Manager, and the BDC's Chief Financial Officer, Jonathan Bach. Before Ian and John review details of our portfolio and third quarter results, I'll begin with some high-level comments about the quarter. Many of the things we highlighted in the second quarter continued into the third, most notably robust market activity in the U.S. and globally, with elevated deal volumes and increased competition. And this increased activity and associated portfolio velocity helped drive the stable earnings profile and dividend increase we will outline today. Let's begin with the market backdrop shown on slide five of the presentation. The backdrop remained largely the same in the third quarter, with elevated broadly syndicated loan prices and strengthening BDC equity prices. Many BDCs trade at or above their pre-COVID highs, and the competitive market for private credit assets drove associated BDC net asset values and valuation premiums higher. Barings BDC's steady and stable return performance continued with the highlights summarized on slide six of the presentation. Net asset value per share was up one penny in the quarter to $11.40. Our net investment income increased to 23 cents per share aided by accelerated OID from repayments as well as increased interest income associated with net portfolio growth. Recall the underlying stability of our net investment income is further enhanced by our incentive fee structure. as our earnings continue to exceed our 8% hurdle rate and remain in the investment catch up. As a result of these trends, our board elected to increase our fourth quarter dividend to 22 cents per share, equating to a 7.7% yield on our net asset value of $11.40. Regarding new investments, we had originations of $276 million in the third quarter. This was offset by $232 million of sales and prepayments, 89 million of which were sold to the JV. Our investment portfolio continued to perform well in the third quarter and remains valued at above original cost. We had one new non-accrual investment from the acquired NBC portfolio, equating to 70 basis points of total portfolio fair value. Slide seven outlines summary financial highlights for the quarter. In the third quarter, increased investment activity and associated portfolio velocity continue to drive total investment income and net investment income higher, both on an absolute and on a per share basis. Net unrealized depreciation was $3.3 million, and this was offset by $3.8 million of net realized losses, with the majority of those moves due to a foreign currency hedging. Net leverage, which is leveraged net of cash, short-term investments, and unsettled transactions, was 1.19 times and remained within our target range of 0.9 to 1.25 times. Additionally, many of you might recall our recent announcement related to the acquisition of Sierra Income Corporation on September 21st. I will not outline details of that transaction on this call and would direct any interested investors to our proxy statement that was filed on October 29th. That said, I do believe the transaction crystallizes the strong return and growth opportunities we have at Barings globally. We remain a leader in our core markets with an extremely wide investment frame of reference that allows us to be selective when competitive market forces increase. Our commitment to investor alignment, exhibited by our incentive fee structure, provides an earnings cushion against unforeseen events when our net investment income exceeds the 8% hurdle rate. Recall, a decline in earnings caused by non-accrual loans or having to refinance assets at lower yields would first result in a lower incentive fee, insulating investors from those negative items. I'll now turn the call over to Ian to provide an update on the market and our investment portfolio.

Thanks, Eric, and good morning, everyone. If you turn to slide nine, you can see additional details on the investment activity that Eric mentioned. Our middle market portfolio declined by $46 million on a net basis in the quarter, with gross fundings of $165 million, offset by sales and repayments of $211 million. New middle market investments included 16 new platform investments, totaling $107 million and $58 million of follow-on investments and delayed draw term loan fundings. We also had 106 million of net new cross-platform investments in the quarter, with the majority of that attributed to our closing of Eclipse Business Capital. We continue to believe portfolio repayments will remain elevated across the market, and in the third quarter, Barings BDC experienced an increase in repayments, along with the associated fee income acceleration. Of our 211 million in middle market sales and prepayments, 88 million was associated with full repayments this quarter, $4 million was from partial pay downs, and the remaining $117 million were sales, predominantly to our joint venture. Recall joint venture sales enable us to increase portfolio diversification while maintaining a prudent leverage profile at Barron's BDC. Slide 10 updates the data we show you each quarter on middle market spreads across the capital structure. As capital seeking private credit return enters the market at a rapid pace, market conditions become extremely competitive as evidenced by spread compression, loosening terms, and higher leverage levels. Turn to slide 11. As we outlined last quarter, unit tranche executions were expected to provide a level of pricing premium when compared to first lien, second lien structure as a one-stop financing solution provides private equity sponsors with ease of execution. Today, the spread differential between a Unitron's transaction and a first lien, second lien execution is approaching all-time tights. Additionally, investors can see that Covenant Lite issuance in Unitron's transactions is at an all-time record. A bridge of our investment portfolio from June 30th to September 30th is shown on slide 12. On slide 13, you will see a breakdown of the key components of our investment portfolio on September 30th. As we have discussed in the past, the goal of this slide is to provide details on the three key categories of our portfolio, which are our middle market portfolio, the legacy MVC capital portfolio, and our cross-platform investments. The middle market portfolio remains our core focus and makes up 70% of our portfolio in terms of total investments and commitments, and 67% of our portfolio in terms of revenue contributions. This portfolio is comprised of 133 portfolio companies with geographic diversification across the U.S., Europe, and Australia regions. Underlying yields on our middle market investment portfolio, 6.7%, remain reflective of our boring-as-beautiful approach to credit. For our middle market portfolio, weighted average first lien leverage was five times, consistent with our boring-as-beautiful investment approach. In addition to our middle market exposure, we continue to draw upon Barron's wide investment frame of reference and complement our core portfolio with 13 investments in the legacy MVC capital portfolio and 24 cross-platform investments, which have yields at fair value of 13.8% and 8.4%, respectively. We had one non-accrual at core end, accounting for 70 basis points of the fair value of the portfolio, which was associated with the acquired MVC portfolio. Importantly, no Barron's directly originated loans are on non-accrual, and the total portfolio had no material modifications to the cash payment terms of our debt investments during the quarter. Our total investment portfolio, excluding short-term investments, is now made up of 73 percent first lien assets. Slide 14 provides a further breakdown of the portfolio from a seniority perspective. The core Barron's originated portfolio, which makes up 90% of our funded investments, is 80% first lien. This is down from 87% last quarter, driven largely by our investment in Eclipse Business Capital. The MVC portfolio is comprised primarily of equity, second lien, and mezzanine debt investments, which brings the first lien component of the total portfolio down to 73%. With regard to the MVC assets, we saw an uptick in the repayment activity with three investments paying off in the quarter. Our top 10 investments are shown on slide 15. Our largest investment is 5.9% of the total portfolio, and the top 10 investments represent 22.4% of the total portfolio. Recall our largest investment, Eclipse Business Capital, is backed by a large portfolio of asset-backed loans, conservatively structured inside of the collateral net liquidation value. Additionally, two investments acquired from MVC Capital are in our top 10 holdings. Remember, these are covered by the credit support in place from Barings LLC, thus reducing potential downside risk. The overall portfolio remains diverse from an industry perspective as well, with 170 investments spread across 29 industries. I'll summarize my market comments by saying Behring's broad investment scope across geography and private asset classes allows Behring's BDC to create an optimal and differentiated asset mix that is not reliant on any single investment product or channel. Furthermore, we choose to look at alignment differently, and our focus on an aligned fee structure and hurdle rate gives us the latitude to ensure our investment teams make the right investment. at the right price for the risk. Being unique is endemic to our culture and our platform, and I believe it's a key ingredient to achieving long-term success. I'll now turn the call over to John to provide additional color on our financial results.