Barings BDC, Inc.

At this time, I would like to welcome everyone to the Barings BDC, Inc. conference call for the quarter ended June 30, 2024. All participants are currently in a listen-only mode. A question and answer session will follow the company's formal remarks, at which time we ask that you limit your questions to one with a follow-up. 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. At this time, I will turn the call over to Joe Mazzoli, Head of Investor Relations for Bearings BDC.

Good morning and thank you for joining 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 10Q for the quarter ended June 30, 2024, 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, Joe, 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 second quarter 2024 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, Matt Freund, Chief Financial Officer, Elizabeth Murray, and Barings Head of Global Private Finance and BBDC Portfolio Manager, Brian High. In the second quarter, BBDC delivered another strong set of results fueled by best-in-class credit performance and the strength and stability of our franchise. Our focus on the top of the capital structure investments and sponsor-backed middle market issuers continues to serve investors well. I want to take a moment to note that in this market, unlike the larger cap end of direct lending, we are not competing with investment banks for broadly syndicated loan issuance, and we generally see stronger documentation, meaning some of the BSL-style covenant package you may have heard of in other direct lenders' portfolios are not present in ours. Our focus on the core of the middle market is reflective of lower leverage levels and more attractive risk-adjusted returns, which is why we find this to be the best segment of the market for BBVC and our shareholders. That core portfolio is complemented by a selection of non-sponsored and platform investments that we believe benefit our shareholders in the form of higher potential returns and diversification. Our portfolio strategy is outlined in greater detail on slide 5. and we continue to successfully invest throughout the market and deliver compelling returns to our shareholders. As we reflect on the first half of 2024, the performance of BBDC has been strong against a relatively benign economic backdrop. Interest rates, while elevated, have been stable for several quarters. Credit performance appears to be holding up broadly across the industry, save for a few idiosyncratic examples. While we have done well in this stable economic and interest rate environment, The market activity of the past week suggests change may be afoot in the lending ecosystem. These changes may include a decrease in interest rates, which we think will have an overall positive impact on our business as it further improves credit metrics in the existing portfolio and sparks a sentiment shift among sponsors and may spur a further deal activity, which in turn may drive higher spreads and additional transaction fees. Turning to some specifics of BBDC, Net asset value per share was $11.36, compared to $11.28 for the prior fiscal year end, reflecting an increase of 0.7% and a testament to the portfolio's stability. Net investment income for the quarter was $0.40 per share and meaningfully out-earned our dividend of $0.26 per share. Perhaps most importantly, and a metric that we are particularly proud of, our non-accruals as a percent of fair value were unchanged quarter over quarter at 0.3%. As our investors know, the stability of our performance is a result of our focus on thorough and conservative underwriting at the top of the capital structure and within more defensive industries. With a more uncertain landscape ahead of us, we are confident the BBDC strategy and portfolio are well-suited to deliver strong results for our valued shareholders across a wide range of economic and market conditions. Being a bit deeper into the portfolio, we continue to actively maximize the value in legacy holdings acquired from NBC Capital and Sierra. Our goal remains to divest these assets at attractive valuations as we did this quarter. Barron's originated positions are now 90% of the portfolio at fair value, up from 76% of the portfolio at the beginning of 2022. Also, just to remind you all, potential losses from these assets are protected by credit support agreements limiting downside risk for BBDC investors. Our investment portfolio continued to perform well in the second quarter. There is no substitute for fundamental credit analysis, which has always been at the core of our investment philosophy and is reflected in the health of the BBDC portfolio today. Including the acquired Sierra and MVC assets, our total non-accruals are an industry-leading 0.3% on a fair value basis, and 1.5% of the portfolio on a cost basis. This is down from 1.5% on a fair value basis and 2.5% on a cost basis as of December 31st, 2023. Turning to the earnings power of the portfolio, the weighted average yields at fair value was 11.1%. We remain conservative on our base dividend policy and our board declared a third quarter dividend of 26 cents per share consistent with the prior quarter. On an annualized basis, the dividend level equates to a 9.2% yield on our net asset value of 11.36. We believe the best measures of the portfolio's performance, non-accruals, net asset value, and NII were extremely compelling for the June quarter and anticipate continued strength in the quarters ahead. Before I turn the call over to Matt, I want to highlight that while the future operating environment may be uncertain, the long-tenured team we have here in the North American global private finance business Coupled with capabilities of teams across bearings who also contribute to our asset sourcing and underwriting, we are extremely confident in our ability to continue delivering compelling value to our shareholders. We have designed our portfolio to have resiliency to weather economic stress and to have the liquidity and expertise to play offense in what we believe will be an even more attractive environment for middle market direct lending in the second half of the year. I'll now turn the call over to Matt.