Barings BDC, Inc.

Greetings. At this time, I would like to welcome everyone to the Barings BDC, Inc. conference call for the quarter and year ended December 31st, 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.barringsvdc.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 in 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, 2021, as filed with the Securities and Exchange Commission. Barings 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 Eric Lloyd, Chief Executive Officer of Barings VDC.

Thank you, Hillary, and good morning, everyone. We appreciate you joining us for today's call, and I hope you and your families are doing well and staying healthy. Please note that throughout today's call, we'll be referring to our fourth quarter 2021 earnings presentation that is 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. As we typically do, Ian, Brian, and John will review details of our portfolio and fourth quarter results in a moment. But I'll start off with some high-level comments about the quarter. As you may have guessed with our reported dividend increase on February 1st and yesterday's filings, It was an extremely active quarter. We experienced record originations, issued our first public investment-grade bond issuance, announced a dividend increase, and continued to work towards closing the Sierra Income Corporation acquisition by the end of this month. The timing of this call also affords us the opportunity to provide greater visibility into the first quarter of 2022, and you will see that the strong finish to 2021 continues into the new year. Let's begin with the market backdrop shown on slide five of the presentation. The backdrop remained largely the same in the fourth quarter, with elevated broadly syndicated loan prices, tighter credit spreads, and strengthening BDC equity prices. Markets remain competitive, and we expect these competitive forces to intensify as demand for floating rate assets increases, particularly as a result of rising interest rate environment. Come to the fourth quarter highlights on slide six. Net asset value per share was $11.36 a share compared to the prior quarter of $11.40 a share. Our net investment income remained 23 cents per share, driven by strong capital deployments, as well as accelerated fees and OID from repayments. It's important to note the underlying stability of our net interest income is further enhanced by our incentive fee structure as our earnings continue to exceed our 8% hurdle and remain in the investment catch-up. As a result of these trends, Our board elected to increase our fourth quarter dividend to 23 cents per share, equating to an 8.1% yield on our net asset value of $11.36. Regarding new investments, we had originations of $671 million in the fourth quarter. This was offset by 453 million of sales and prepayments, 198 million of which were sold to one of the JVs. Our investment portfolio continued to perform well in the fourth quarter, with no new bearings loans on non-accrual and remains valued above original cost. We had one new non-accrual investment from the acquired MVC portfolio, equating to approximately 2.2% of cost. Ian will highlight later our focus on select asset sales and restructurings in the acquired MVC portfolio as we continue to maximize shareholder value while benefiting from the protection added by the credit support agreement. Slide seven outlines summary financial highlights for the quarter. In the fourth quarter, heightened investment activity, increased dividend distributions, and associated portfolio velocity continued to drive total investment income and net investment income higher, both on an absolute and a per share basis. Net unrealized depreciation was $1.9 million, associated with select marks on the investment portfolio, and realized losses totaled $1.8 million, which was primarily driven by our foreign currency hedges. Net leverage, which is leveraged net of cash, short-term investments, and unsettled transactions, was 1.49 times and remained above our target range of 0.9 to 1.25 times. Our announced merger with Sierra is scheduled to close this quarter, and pro forma for the Sierra transaction, net leverage will be approximately one times. I will not outline details of that transaction on this call today and would direct any interested investors to our proxy statement that was filed on October 29th. That said, this transaction is on track to close inside the time period we have discussed, and it further advances Barings BDC towards the strong growth opportunities we have at Barings globally. We remain a leader in our core markets with an extremely wide frame of reference that allows us to be selective when competitive forces increase. Our commitment to investor alignment exhibited by our incentive structure provides an earnings cushion against unforeseen events when our net investment income exceeds our soon-to-be-increased 8.25% hurdle rate. Recall, a decline in earnings caused by non-recrual 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 9, you can see additional details on the investment activity that Eric mentioned. Our middle market portfolio increased by $66 million on a net basis in the quarter, with gross fundings of $503 million, offset by sales and repayments of $437 million. New middle market investments included 44 new platform investments, totaling $375 million and $128 million of follow-on investments and delayed draw-term loan fundings. We also had 152 million of net new cross-platform investments in the quarter. We continue to believe portfolio repayments will remain elevated across the market and in the fourth quarter. Barron's BDC experienced an increase in repayments along with associated fee income acceleration. Of our 437 million in middle market sales and prepayments, 86 million was associated with full repayments this quarter, $2 million was from partial paydowns, and the remaining $346 million were sales. 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 Eric mentioned, the potential for a rising interest rate environment leads to an increased demand for floating-rate private credit assets. As one would expect, market conditions remain competitive, as evidenced by spread compression, loosening terms, and higher leverage levels, all while the private credit markets experience record investment originations. Turn to slide 11. As we outlined last quarter and continuing in the fourth quarter, Unitranche executions remain near all-time spread types when compared to first-lane, second-lane traditional structures, and the level of CovLight Unitranche volume again was an all-time record. This is simply a symptom to the wider problem associated with substantial capital inflows into private credit, and I don't expect it to slow down anytime soon. A bridge of our investment portfolio from September 30th to December 31st is shown on slide 12. On slide 13, you will see a breakdown of the key components of our investment portfolio on December 31st. 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 now middle market portfolio, the legacy MVC capital portfolio, and our cross-platform investments. The middle market portfolio remains our core focus and continues to grow. It makes up 66% of our portfolio in terms of total investments of fair value and 66% of our portfolio in terms of revenue contribution. Our middle market exposure is heavily diversified amongst obligors of 168 portfolio companies with a geographic diversification across the U.S., Europe, and APAC regions. Underlying yields on our middle market investment portfolio of 6.8% and weighted average first lien leverage of 5.5 times remain reflective of our boring as beautiful approach to credit. 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 $150 million of investments in the legacy MVC capital portfolio and $470 million of cross-platform investments, which have yields at fair value of 10.4% and 9.2% respectively. As mentioned earlier, two of the legacy MVC assets were on non-accrual at quarter end. Additionally, we report first quarter results, the Sierra assets will be included here. However, let me give you some high-level data points on the Sierra portfolio. Recall as of June 30th, Sierra had 630 million of investments. As a result of elevated M&A activity in 2021, the portfolio experienced total repayments of 153 million since we announced the transaction. The repayments were first used to eliminate all Sierra debt outstanding and subsequently added to the acquired cash balance. The current 460 million portfolio spread across 66 obligors the majority of which is first lien. The average spread is 687 basis points for a total yield of 7.7%. The total portfolio had approximately $16 million at fair value on non-accrual and will be supported by $100 million CSA. Turning to the bearings portfolio, no bearings directly originated loans are on non-accrual, and the total portfolio had no material modifications to cash, payment terms of our debt investments during the quarter. Our investment portfolio is now made up of 68% 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 92% of our funded investments, is 74% first lien. This is down from 80% last quarter driven largely by investments into income-producing equity and joint ventures. 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 68%. Our top 10 investments are shown on slide 15. Our largest investment is 5.5% of the total portfolio. and the top 10 investments represent 24% of the total portfolio. Pro forma for the Sierra acquisition, we estimate the top 10 investments will represent 19% of the portfolio. Recall our largest investment, Eclipse Business Credit, is backed by a large portfolio of asset-backed loans, conservatively structured inside of the collateral net liquidation values. The overall portfolio remains diverse from an industry perspective as well, with 212 investments spread across 29 industries. I'll summarize my market comments by saying, Bering's broad investment scope across geographies and our scaled origination platform further drive our ability to generate attractive direct lending returns. Since the formation transaction in 2018, Barings BDC has deployed $2.5 billion into Barings-originated middle market transactions with no non-accruals. That's an achievement we are particularly proud of when one considers the COVID-related pressures of 2020, but this isn't to say we simply want to rest on our laurels. As the private and direct lending competition elevates, we will continue to drive unique risk-adjusted return investing inside of our asset or collateral value with our cross-platform investments. Furthermore, our cross-platform investments allow Barings B2C to create an optimal and unique asset mix that is not is not a replica in the current market. We complement this unique portfolio with our aligned fee structure to drive strong shareholder returns. As I've said before, Being unique is endemic to our culture and our platform, and I believe it is 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. John?