Bain Capital Specialty Finance, Inc.

Greetings. Welcome to the Bain Capital Specialty Finance first quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Catherine Snyder. You may begin.

Thanks, Jamalia. Good morning, everyone, and welcome to the Bain Capital Specialty Finance Conference Call for the first quarter of 2020. On Monday after market closed this week, we issued our earnings press release and investor presentation of our quarterly results, a copy of which is available on Bain Capital Specialty Finance Investor Relations website. Following our remarks today, we will hold a question and answer session for analysts and investors. This call is being webcast and a replay will be available on our website. This call and the webcast are property of Bain Capital Specialty Finance and any unauthorized broadcast in any form is strictly prohibited. Any forward-looking statements made today do not guarantee future performance and actual results may differ materially. These statements are based on current management expectations, which include risks and uncertainties, which are identified in the risk factor section of our Form 10-Q. that could cause actual results to differ materially from those indicated. Bain Capital Specialty Finance assumes no obligation to update any forward-looking statements at this time unless required to do so by law. Lastly, past performance does not guarantee future results. And with that, I'll turn the call over to our President and CEO, Michael Ewald.

Thanks, Katherine, and good morning, everyone, and thanks for joining us for our first quarter 2020 earnings call. As Catherine mentioned, my name is Michael Ewald, and I'm also joined today by our Vice President and Treasurer, Mike Boyle, and our Chief Financial Officer, Sally Dornis. First, we hope everyone, along with their loved ones, is doing well and has remained safe and healthy during this unprecedented time. In terms of the format for this call, I'll start with a brief overview of our first quarter results, share some thoughts on the market, and then provide an update on the steps we are prudently taking to position the company to navigate uncertain and volatile periods ahead. Mike and Sally will give some additional detail on the investment book and our financial results. Our net investment income for the quarter was $0.44 per share as compared to our regular stated dividend of $0.41 per share. This resulted in NII dividend coverage of 107%. Net asset value per share was down approximately 12% quarter over quarter, primarily due to broad-based credit spread widening across our investment portfolio as a result of the increased volatility and uncertainty and the financial markets in light of the COVID-19 global pandemic. While we certainly did not predict that a global pandemic would elevate the likelihood of a potential recession, we have been positioning our investment portfolio with a late cycle mentality in recent years and believe that it is well insulated to withstand the current market environment. Reflecting this investment strategy, we have focused on first lien senior secured loan structures with strong documentation and have constructed a diversified portfolio of middle market companies and defensible industries such as technology, aerospace and defense, and healthcare and pharmaceuticals. We have largely avoided cyclical industries, including those currently experiencing significant distress, such as energy, hospitality, and airlines. In light of COVID-19, our investment team has been efficiently operating at full capacity, even with our global team working remotely. We have also taken additional steps in actively overseeing and managing BCSF's portfolio. These measures include Communicating frequently with our portfolio company management teams and related private equity sponsors to understand the expected financial impact of this crisis. Re-underwriting and remodeling each of our 108 portfolio company investments to understand the impact on each company's performance if the current economic environment persists for a longer period of time. And establishing an internal working group focused on understanding the potential financial needs of our portfolio companies and engaging with these companies and their private equity sponsors as needed. Our working group is comprised of investment professionals across the firm who contribute deep expertise in multiple market environments and diverse viewpoints. And the group has been focused specifically on covenants and liquidity. During the quarter, our new investments were primarily driven by the fundings of undrawn investment commitments that we provided to existing portfolio companies alongside term loans in the form of revolving credit and delayed draw facilities. We received unprecedented amounts of draw requests from these portfolio companies as many of them sought to preserve excess cash as a defensive measure in light of an uncertain market environment. We met all of these borrow requests in a timely fashion and amended our credit facilities to allow for the inclusion of revolvers as collateral. Furthermore, out of an abundance of caution, our advisor provided additional support to the company through the establishment of a $50 million unsecured revolving credit facility maturing in 2023. We believe this is evidence of Bain Capital's commitment to our success and provides a tangible example of the resources that it can bring to the company. At the end of the first quarter, we had sufficient liquidity consisting of cash and undrawn credit facility capacity of approximately $211 million against our remaining $91 million of undrawn investment commitments, representing coverage of well over two times. We seek to capitalize the company's balance sheet in a prudent manner, consisting of appropriate equity and debt capital based on the underlying risk profile of our assets within the portfolio. As the proportion of first lien risk within that portfolio increased in recent quarters, we have been operating at the outer band of our target leverage range. However, our new investment fundings, together with the decrease in NAV during the quarter, caused the company's ending debt-to-equity ratio to be higher than our target leverage range for the company at between 1 and 1.5 times. Specifically, we ended the first quarter at 1.86 times gross and 1.78 times net of cash, respectively. As many of our shareholders know, our investment philosophy is rooted in Bain Capital's heritage of a disciplined and thoughtful approach to investing. Consistent with this approach, we are focused on safeguarding the stockholder capital entrusted to us. While we believe our investment portfolio is defensively positioned, the current economic environment remains uncertain, including the duration of the economic shutdown and its full impact on the economy. After careful consideration with BCSF's Board of Directors, we announced a rights offering to our stockholders. We believe strengthening BCSF's balance sheet is a prudent and necessary course of action in the uncertain market environment in which we are operating, as it will allow us to maximize long-term stockholder value. The capital raised in the rights offering will allow BCSF to strengthen its balance sheet as the new equity capital will initially be used to deleverage our structure in order to continue to maintain an appropriate debt-to-equity ratio in a challenging environment. While the company is currently in compliance with its debt requirements under its existing facilities and regulatory debt requirements, the additional capital will provide for greater cushion and increased flexibility. Furthermore, we believe the company will have a stronger balance sheet to be able to support existing portfolio companies and take advantage of new opportunistic investments resulting from this period of extreme market volatility and dislocation. We strive to structure the rights offering to be shareholder-friendly as possible. It has been structured as a one-for-four offering, that is, one share of common stock for every four rights held. Thus, the size of this offering minimizes the dilution impact for stockholders, while it provides sufficient liquidity for the company to navigate these uncertain times. We have also structured the rights to be transferable, thus providing some value to shareholders who are unable or unwilling to participate in the offering. Total gross proceeds are estimated to be approximately $120 million, based on current subscription price assumptions. Our advisor is also providing support for this offering, as Bain Capital and its affiliates have indicated that they intend to oversubscribe and to invest up to $50 million pursuant to the oversubscription privilege. While choosing to sell shares below NAV is a difficult decision, we take our responsibility as shareholders by exercising this option with the utmost care and responsibility. We believe this is a prudent course of action for the company to take in light of its leverage profile and is a means to properly equip the company to navigate uncertain volatile periods ahead. Subsequent to quarter end, our Board declared a second quarter dividend distribution equal to 41 cents per share, based on the current number of shares outstanding, for record-date shareholders as of June 30, 2020. If all rights are exercised and approximately 12.9 million shares of our common stock are issued pursuant to this offering, this will be adjusted to 34 cents per share. This is intended to maintain our historical distribution rate of approximately 8% annualized on book value. I will now turn the call over to Mike Boyle, our Vice President and Treasurer, to walk through our investment portfolio in greater detail.