Barings BDC, Inc.

At this time, I would like to welcome everyone to Barings BDC, Inc. conference call for the quarter and year ending March 31st, 2022. 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, please press star one, 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.barringsbdc.com under the investor relations section. Please note 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 the 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 form. 10-K for the fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission. Barings BDC, and there takes no obligation to update or revise any forward-looking statements unless required by law. At this time, I would like to turn the call over to Eric Lloyd, Chief Executive Officer of Barings BDC. Please go ahead, sir.

Thank you, operator, and good morning, everyone. We appreciate you joining us for today's call, and I hope you and your families are doing well. Please note that throughout today's call, we'll be referring to our first quarter 2022 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 Co-Head of Global Private Finance, Ian Fowler, Brian High, Barings Head of US Special Situations and Co-Portfolio Manager, and the BDC's Chief Financial Officer, Jonathan Bock. 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. After a record 2021, we carried that momentum into the first quarter of 2022 with strong net portfolio growth and expanded equity capital base following the close of the CRA acquisition and strong performance from our direct lending and cross-platform investment strategies. Let's begin with the market backdrop shown on slide five of the presentation. With rapid change in the geopolitical and market landscape, Raleigh syndicated loan prices began to price an increased risk tied to both underlying inflation as well as concerns of an overly aggressive Federal Reserve. BDC equity prices also were not insulated from the current bout of market volatility, and we believe it is in these periods where well-capitalized, disciplined, and highly selective managers can source attractive risk-adjusted returns. Moving to the fourth quarter highlights on slide six, net asset value per share was $11.86 compared to the prior quarter of $11.36. Our net investment income remained at 23 cents per share, unchanged from last quarter. This is despite raising approximately $527 million in new equity with the close of the CRA transaction. It is important to note the underlying stability of our net investment income is further enhanced by our incentive fee structure as our earnings continue to exceed our new 8.25% hurdle rate and remain in the investment catch-up. As a result of these trends, our board elected to increase our second quarter dividend to 24 cents per share, equating to an 8.1% yield on our net asset value of $11.86. Regarding new investments, we had gross originations of $330 million in the first quarter, on top of the $443 million portfolio acquired from CRA income. This was offset by $173 million of sales and prepayments and $132 million of which were sold to our JVs. Our investment portfolio continued to perform well in the first quarter, with no new bearings loans on non-accrual. and the portfolio remains valued above original cost. With the onboarding of the Sierra assets, total non-accruals increased to 3% of cost from 2.2% of cost last quarter. However, on a fair value basis, total non-accruals are just 1.8%. Ian will highlight later our focus on select asset sales and restructurings in the acquired NBC and Sierra portfolios as we continue to maximize shareholder value while benefiting from the protection added by the credit support agreements. Slide 7 outlines summary financial highlights for the quarter. In the first quarter, robust investment activity and continued strong performance from cross-platform investments offset negative earnings drag associated with the increased share count as total net investment income per share was at the $0.23 per share level. Net unrealized appreciation was $3.5 million, associated with select marks on the investment portfolio, and realized losses totaled $1.4 million. Following the Sierra acquisition, net leverage which is leveraged net of cash, short-term investments, and unsettled transactions, was 0.89 times, which is currently below our target leverage range of 0.9 to 1.25 times. This attractive liquidity position allows us to look towards future growth with our portfolio companies, as well as selective opportunities in the current market environment. In these periods of market uncertainty, you can expect us to remain disciplined, keeping a focus on our core markets, our incumbencies across 287 portfolio companies, and our cross-platform strategies. Additionally, our commitment to investor alignment further differentiates our focus on strong investor returns. Recall that Barings BDC incentive fee structure provides an earnings cushion against unforeseen events when our net investment income exceeds our hurdle rate, which increased to 8.25% in connection with the Sierra close. A decline in earnings caused by non-accrual loans or yield compression which 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 increased by $125 million on a net basis in the quarter. with gross fundings of $261 million offset by sales and repayments of $136 million. New middle market investments include 16 new platform investments totaling $164 million and $97 million of follow-on investments and delayed draw term loan fundings. We also had $69 million of net new cross-platform investments in the quarter. Slide 10 updates the data we show you each quarter on middle market spreads across the capital structure. While we have witnessed volatility in the public markets, it is well understood that the private markets react to market volatility at a much slower pace. And further, the strength of the capital flows into the direct lending asset class may also offset the potential spread-winding effects of a more fearful marketplace. As a result, market conditions remain generally competitive across direct lending as evidenced by generally stable spreads, loosening terms, and higher leverage levels. Turn to slide 11. A theme we outlined last quarter that continued in the first quarter is that unit tranche executions remain near all-time spread tights when compared to first lien, second lien traditional executions. And the level of cub light unit tranche volume, again, was at an all-time record. This is again a symptom of substantial capital inflows into direct lending, and I don't expect it to slow down anytime soon. A bridge of our investment portfolio from December 31st to March 31st is shown on slide 12. On slide 13, you'll see a breakdown of the key components of our investment portfolio on March 31st. As we have discussed in the past, the goal of this slide is to provide details of the key categories of our portfolio. which are now our Barings-originated middle market portfolio, the legacy MVC Capital and Sierra income portfolios, as well as our cross-platform investments. The middle market portfolio remains our core focus and continues to grow. It makes up 53% of our portfolio in terms of total investments at fair value and 50% of our portfolio in terms of revenue contributions. Our bearings originate in middle market exposure as heavily diversified amongst obligors of 184 portfolio companies with a geographic diversification across the U.S., Europe, and APAC regions. Underlying yields on our middle market investment portfolio of 7% 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 Barings' wide investment frame of reference to complement our core portfolio with $579 million of investments in the legacy MVC and Sierra portfolios and $546 million of cross-platform investments. As mentioned earlier, two of our legacy MVC assets were non-accrual at core end, And with the close of the Sierra transaction, we onboarded five additional assets on non-accrual. As mentioned previously, total non-accrual assets as a percent of fair value are 1.8%, all of which are covered by the respective credit support agreements with Barings. Recall the Sierra transaction closed on February 25th, raising $527 million in new equity along with the onboarding of $443 million in new assets and $102 million of cash. The portfolio continues to perform well with continued pay downs in both the first and second quarters with the proceeds being redeployed into Barron's originated transactions. At quarter end, the current $430 million Sierra portfolio is spread across 55 obligors, the majority of which is first lien when including the senior loans in the Sierra JV. The average spread is 669 basis points for a total yield of 8%. The Sierra portfolio has approximately 14.6 million at fair value of non-accrual and is supported by 100 million CSA. Turning to the Barings portfolio, no Barings 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 is now made up of 65% first lien assets. Slide 14 provides a further breakdown of the portfolio from a senior perspective. The core Barings-originated portfolio, which makes up 76% of our funded investments, is 73% first lien. This is down from 74% last quarter, driven largely by additional joint venture investments. Note the combined MVC Sierra portfolios are comprised of senior secured, equity, second lien, and mezzanine debt investments, which brings the first lien component of the total portfolio down to 65%. Our top 10 investments are shown on slide 15. Our largest investment is 5.2% of the total portfolio, and the top 10 investments represent 23% of the total 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 value. The overall portfolio remains diverse from an industry's perspective as well, with 287 investments spread across 31 different industries. I'll summarize my market comments by saying, when high levels of market uncertainty persist, managers are best served by being both highly selective and highly diverse. It is also a time to further drive benefit and origination from our incumbency advantages, investing in names we know well. Furthermore, the strong performance of our cross-platform strategies create an optimal and unique asset mix that is difficult to replicate in the current market, ranging from unique infrastructure investments to attractive risk-adjusted returns and asset-based loans. We complement this unique portfolio with our aligned fee structure to drive strong shareholder returns. As I 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.