Barings BDC, Inc.

At this time, I would like to welcome everyone to the Barings BDC, Inc. conference call for the quarter ended June 30th, 2023. 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 today, 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.barringsbdc.com under the investor relations section of the website. At this time, I will now turn the call over to Jeff Gillogg, head of investor relations for Barrings BDC. Please proceed.

Thank you, operator, and good morning, everyone. Thank you for joining us on the call. 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 quarterly report on Form 10-Q for the quarter ended June 30, 2023, 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. I will now turn the call over to Eric Lloyd, Chief Executive Officer of Barings BDC.

Thanks, Jeff. And good morning, everyone. I also want to apologize if you hear some background noise. We are having quite the thunderstorm here in Charlotte, North Carolina. So if you hear some thunder and stuff in the background, I apologize for any of that noise, but obviously not anything we can do about it. Appreciate everybody joining. Please note that throughout today's call, we'll be referring to our second quarter 2023 earnings presentation that is posted on the investor relations section of our website. On the call today, I'm joined by Barings Co-Head of Global Private Finance and President of Barings BDC, Ian Fowler, Barings Head of Capital Solutions and Co-Portfolio Manager of the BDC, Brian High, and that's the thunder and lightning I was talking about, and BDC's Chief Financial Officer, Elizabeth Murray. During today's call, Ian, Brian, and Elizabeth will review details of our portfolio and first quarter results in a moment, but I'll start off with some high-level comments about the quarter. I'd like to start by expressing my enthusiasm for a very strong quarter at BBDC. Really, I was measured on a number of financial metrics. It's clear that investors remain concerned about rates, inflation, and economic weakness. Even in this challenging environment, BBDC's portfolio continues to deliver strong results for shareholders. Net asset value per share was $11.34 compared to the prior quarter of $11.17. That's a NAV increase of 1.5%. Net investment income for the quarter was 31 cents as compared to 25 cents in the prior quarter. Strong NII was fueled by a combination of really elevated yields from rising base rates, two, favorable dividends flowing from platform investments and JVs, and three, continued strong credit performance within the portfolio. Our performance is the result of a focus on the top of the capital structure and within more defensive industries. We believe BBC remains well positioned for any further volatility and uncertainty in the market going forward. Investment activity during the quarter reflected a modest degree of net repayments as returns of capital during the quarterly modestly exceeded originations. As our shareholders know, we're actively working to maximize the value in the legacy holdings acquired from NBC Capital and Sierra Income and rotate them into compelling bearings originated positions. Our investment portfolio continued to perform well in the second quarter, including the acquired Sierra and MVC assets. Our total non-accruals are 2% of the portfolio on a cost basis and 1.1% on a fair value basis. That's compared to 3.8% of the portfolio on a cost basis in the first quarter. Three assets were removed from non-accrual status and no new non-accruals were booked during the quarter, reflecting the strength of the portfolio. With the exception of one investment, All of our non-accrual assets were from acquired portfolios and are therefore covered by our credit support agreements. BBDC shareholders continue to benefit from the credit support agreements provided by the manager. For the current quarter, the CSA valuation was approximately $60 million on a combined basis for the Sierra and MDC credit support agreements, which are designed to insulate shareholders from realized losses in those portfolios. To date, less than 30 million of net losses have been realized at the acquired portfolios. The remaining mark-to-market losses within the portfolio are spread across a wide number of issuers and believed to reflect marked discounts to par rather than anticipated impairments. Recall that a bulk of the Sierra portfolio was comprised of semi-liquid broadly syndicated loans that trade infrequently. Turning to the earnings power of the portfolio, Increasing base rates continue to lift yields on our predominantly floating rate portfolio, with weighted average yields on floating rate investments increasing to 11.0%. We remain conservative on our base dividend policy, and our board declared a second quarter dividend of 26 cents per share, reflecting a 4% increase relative to the prior quarter's declared dividend. On an annualized basis, the new dividend level equates to a 9.2% yield on our net asset value of $11.34. Total investment income generated in the quarter was the highest income delivered by BBDC since we began managing the BDC five years ago. With the strong results we have demonstrated this quarter, we wanted to remind investors of the message we telegraphed when we began managing what was previously Triangle Capital. When we rotated out of broadly syndicated loans in late 2020, Behring stated that we would seek to employ a first lien-focused strategy to providing low volatility with a target dividend yield of 8% to 10%. Through the quarter ended June 2023, we have delivered a return inside this range. We will, of course, work to outperform these goals in the months and years to come. BBDC is committed to the alignment with our shareholders. During the second quarter, we repurchased 1.4 million shares of stock at an average price of $7.75. We have consistently maintained a share repurchase plan that provides BBDC the ability to strategically repurchase shares when the price is dislocated from the NAV. We recognize that we can create share price appreciation by simply investing in quality assets, even when the stock is trading at a discount. For this reason, we work to be judicious when we are repurchasing shares and balance it against leverage considerations and deployment opportunities. Looking at liquidity, net leverage, which is leveraged net of cash and unsettled transactions, was 1.15 times. This is within our target leverage range of 0.9 to 1.25 times. We continue to prioritize risk management while balancing the deployment of capital and what has become a very attractive environment for private credit. I'll now turn the call over to Ian.