Bain Capital Specialty Finance, Inc.

Good morning and welcome to the Bain Capital Specialty Finance second quarter 2020 earnings conference call. All participants will be in this mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypad. To explore your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Catherine Schneider, Investor Relations at Bain Capital Specialty Finance. Please go ahead.

Thanks, Chris. Good morning, everyone, and welcome to the Bain Capital Specialty Finance conference call for the second quarter of 2020. Yesterday, after market closed, we issued our earnings press release and investor presentation of our quarterly results, a copy of which is available on Bain Capital Specialty Finance's Investor Relations website. Following our remarks today, we will hold a question and answer center for analysts and investors. This call is being webcast and a replay will be available on our website. This call and 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. Today, I'm joined by Michael Ewald, our President and Chief Executive Officer, Michael Boyle, our Vice President and Treasurer, and our Chief Financial Officer, Sally Dornis. In terms of the agenda for the call, Michael Ewald will first provide an overview of our second quarter results and the recent capital market actions that we took during the quarter. Thereafter, Mike Boyle and Sally will discuss our investment portfolio, credit quality, and financial results in greater detail. So with that, I'll turn the call over to our President and CEO, Michael Ewald.

Thanks, Catherine, and good morning, and thank you all for joining us on our earnings call. We hope everyone's staying safe and healthy. Before jumping into our second quarter results, I want to take some time to discuss the current environment and the recent actions that we took to strengthen the company's balance sheet and better position it to navigate an uncertain future. The market environment today continues to be marked by uncertainty due to the COVID-19 pandemic. Most businesses across the global economy have been impacted to varying degrees depending on the nature and type of company. From our viewpoint, the extent of the impact on each business will largely be driven by the duration of the pandemic, which unfortunately continues to be unknown. Nevertheless, we've been encouraged by early indications of better than expected performance by our portfolio in the second quarter. We believe these positive results can largely be attributed to the swift actions that the owners and management teams of these businesses took in late March and early April to preserve capital through several cost-cutting or delaying actions. Notwithstanding these positive indications, we remain watchful for the unique challenges that middle market companies and impacted COVID-19 sectors face and place a high emphasis on preparing for any prolonged economic challenges that could arise. Consistent with Bain Capital Credit's focus on capital preservation and disciplined investment approach, we have been conservatively positioning the company's balance sheet over the past several years. Our investment portfolio, which Mike Boyle will discuss in greater detail later in this call, It's comprised largely of first lien senior secured floating rate assets across a set of portfolio companies diversified by both industry and geography. Given the significant volatility exhibited in the markets during Q1 and our focus on positioning the company to better withstand uncertain and volatile periods ahead, we conducted two capital markets transactions during the second quarter as a means of strengthening the company's balance sheet and providing it with greater financial flexibility going forward. First, we completed a transferable rights offering, issuing approximately 13 million shares of our common stock at a price of 10.22 per share. We had over two times demand for the offering, and we appreciate and were encouraged by the strong support that we received from our shareholders. Total gross proceeds from the offering were approximately $132 million. The proceeds from the offering were used to repay outstanding secured indebtedness and brought the company's 630 net leverage ratio significantly down quarter over quarter, ending the second quarter at approximately 1.4 times. Second, we completed a private placement of unsecured debt. The company issued $150 million aggregate principal amount of 8.5% notes due 2023. While this is a relatively high cost of capital compared to our other debt instruments, we limited the size of the offering in order to minimize the impact on the company's overall cost of borrowings while gaining greater flexibility in our liability stack. In addition, we structured the notes with only a two-year non-call period to limit the duration of these notes on our balance sheet. The proceeds of the notes were also used to repay existing secure debt facilities. While the repayment of debt has a neutral effect on the company's leverage ratio, it created excess capital availability and resources under the company's revolving facilities, which we believe are significant benefits to the company. Our ability to demonstrate the company's access to debt and equity capital markets during these times is a testament to the broader Bain Capital platform and exhibits the resources, expertise, and relationships from which the company benefits. As a result of the capital raised, we believe the company has a stronger balance sheet to be able to support existing portfolio companies and take advantage of new opportunistic investments resulting from periods of extreme market volatility and dislocation. While middle market loan volumes remain significantly below new activity levels under normal market conditions, we believe more transactions will be completed in future quarters, and we would seek to capitalize on attractive investment opportunities and take advantage of improved lender terms and structures. Importantly, BCSF sits within our broader Bain Capital Credit platform and benefits from our private credit group's global origination platform and relationships. Now turning to our financial results for the second quarter. Our net investment income for the quarter was 37 cents per share compared to our Q2 dividend of 34 cents per share. Subsequent to quarter end, our board declared a third quarter dividend equal to 34 cents per share, payable to record date holders as of September 30th, 2020. This represents an annualized 8.6% yield on ending book value as of June 30th. Based on the attributes of the current portfolio, we believe this dividend level can be maintained for the foreseeable future. Net asset value per share was flat quarter over quarter after taking into account the evolution impact from the rights offering. As of June 30th, ending NAV per share was $15.81 per share compared to an adjusted $15.82 last quarter. During the second quarter, we saw broad-based spread tightening in our reference markets, but also witnessed decreased financial performance across our portfolio versus prior year results as well as initial budgeted expectations. in line with a broader decline in the economy as a whole. Overall, though, credit quality remained stable during the quarter with no new investments placed on NanoCool. As of June 30th, just 1% of the total investment portfolio at fair value, representing two out of 109 portfolio companies, was on NanoCool. We believe credit quality is solid across the investment portfolio, driven by our team's longstanding history and expertise in investing in middle market leveraged capital structures. Capital preservation is at the core of our investment philosophy, and we believe many tenets of our strategy, which we've followed since our inception, provide the company with a strong foundation to manage downside protection in the current environment. We witnessed the benefit of having these structures in place during the quarter as we worked through several amendments with our portfolio companies. Over the years, we have placed an emphasis on strong loan documentation with legitimate financial covenants and voting controls that helps us identify issues early and gives us a seat at the table when expectations aren't met in order to maximize investment outcomes. We are therefore in a stronger position to better align our risk-reward trade-off at early signs of weakness, which we did by executing a number of amendments across our portfolio in the second quarter. These outcomes typically result in exchanging short-term covenant relief for additional economics, both one-time fees and ongoing rate increases, and or the introduction of new governors, such as liquidity covenants. Furthermore, our focus on favoring private equity sponsor-backed companies, given the professional management, resources, oversight, and alignment to guide them through various macroeconomic periods, also served us well this quarter, as private equity sponsors injected equity into businesses that required liquidity in order to preserve value. We believe these attributes will continue to serve us well as we navigate volatile periods ahead. Finally, our team of 29 investment professionals within the private credit group is operating efficiently at full capacity, most of our global team continuing to work remotely. In addition to our dedicated team, the company benefits from the expertise within Bain Capital Credit's 77-person distressed and special situations team. We believe this is a key competitive advantage in the current environment as it provides us with a deep set of experiences and resources to deploy as needed, and we will not shy away from situations where we might need to take a more active role in owning and managing a portfolio company in the future. I will now turn the call over to Mike Boyle, our Vice President and Treasurer, to walk through our investment portfolio in greater detail.