Bain Capital Specialty Finance, Inc.

Good morning and welcome to the Bain Capital Specialty Finance. Fourth quarter and fiscal year ended December 31st, 2020 earnings conference call. All participants will be in listen-only 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 then one on your telephone keypad. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Catherine Schneider, Director, Investor Relations. Please go ahead.

Thanks, Debbie. Good morning, everyone. Yesterday after market close, we issued our earnings press release and investor presentation of our quarterly results. a copy of which is available on Bain Capital Specialty Finances 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 the 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-K 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. With that, I'll turn the call over to our Chief Executive Officer, Michael Ewald.

Thank you, Catherine, and good morning to all of you. Thanks for joining us today on our earnings call. Also with me are Mike Boyle, our President, and our Chief Financial Officer, Sally Dornis. I'll start with an overview of our fourth quarter and year ended December 31st, 2020 results and provide some thoughts on our portfolio performance, the market environment, as well as our recently announced Strategic Joint Venture Partnership. Thereafter, Mike and Sally will discuss our investment portfolio, credit quality, and financial results in greater detail. Yesterday, after market close, we reported solid fourth quarter results that were consistent with the preliminary figures that we provided back on February 11th. Our results were a reflection of solid net investment income earned from our investment portfolio and strong earnings as we demonstrated our third consecutive quarter of producing net gains across our investment portfolio. Q4 net investment income per share was 34 cents. Q4 earnings per share were 61 cents. This brings net investment income per share to $1.46 for the full year 2020, representing an 8.6% NII return on average net assets. Our net investment income per share results for 2020 were above our distributions of $1.43 per share for the full year. Earnings per share for 2020 were 14 cents. Net asset value per share as of December 31st was $16.54, reflecting a 1.7% increase from our NAV as of September 30th. While we have recaptured a large portion of the unrealized depreciation experience across our portfolio in Q1 due to the significant market volatility following the initial outbreak of the pandemic, we expect a gradual recovery of the remaining unrealized depreciation over time, given our belief that the portfolio is largely comprised of high-quality companies with demonstrated value propositions. Subsequent to quarter end, our board declared a first quarter dividend equal to 34 cents per share and payable to record date holders as of March 31st, 2021. This represents an 8.2% annualized yield on ending book value as of December 31st. And while the events of 2020 created a challenging backdrop due to the global pandemic, we believe our solid performance was attributable to the core fundamental tenets of our investment strategy that we have honed over our 20 plus years of experience at Bain Capital. In particular, constructing well-diversified global portfolios, primarily invested in first lien loans with financial covenants, investing alongside high-quality private equity sponsors, and maintaining a control position in our loans. All of these attributes help to mitigate downside risk throughout the year. For example, we successfully conducted amendments with a small portion of the borrowers in our portfolio. Maintaining strong documentation standards, including the presence of covenants, brought us early to the table to de-risk certain investments, and resulted in credit-enhancing outcomes, such as receiving additional economics, equity contributions, and or even tighter credit documentation. In fact, approximately $450 million of new capital was provided by our sponsors to support the portfolio of companies that required liquidity-preserved value, highlighting one of the benefits of partnering with well-funded top-tier sponsors. We believe the strength of our credit qualities reflected in our low non-accrual rates and the improving trends across our proprietary investment risk ratings. As of December 31, 2020, we had one portfolio company on non-accrual status, representing 0.2% of the total investment portfolio at both cost and fair value. Furthermore, our peak non-accrual rate throughout 2020 was only 1.8% of the portfolio at cost and 1.1% at fair value, and we were successful in coming to quick resolutions with impacted companies during the year. Likewise, our internal investment performance ratings demonstrated stable to improving trends across our borrowers. Turning now to the market environment, we witnessed the debt and equity markets beginning to normalize during the second half of 2020. Fourth quarter origination levels across our platform were elevated given the backlog of deals from earlier in the year. We believe our platform was well positioned to capitalize on these opportunities given our strong sponsor relationships and incumbency advantage across our large portfolio of over 100 existing borrowers. During 2020, we remained active in providing capital to new platforms and existing borrowers that Mike Boyle will touch on shortly. that we did remain on cautious footing throughout much of the year. Recall that there wasn't an approved vaccine in the U.S. until midway through the fourth quarter last year. In addition to demonstrating strong credit performance and investing capabilities to our shareholders in 2020, we also focused on making significant improvements to our balance sheet and capitalization. First, we strengthened the company's balance sheet by further diversifying our liability structure to include unsecured debt, given the increased flexibility that the structure provides. And we're actually very pleased to report that this morning the company also received an investment grade rating of BAA3 with a stable outlook from Moody's. We believe this rating is a reflection of our demonstrated credit performance across our diversified and primarily first lien portfolio and the broader Bain Capital platform and risk management oversight that it provides to the company. This investment grade rating from Moody's is a significant achievement for the company as it provides us with greater access to the institutional unsecured debt market. In recent months, we've observed this mark to be increasingly attractive given the historically low interest rate environment. Next, we demonstrated meaningful progress in deleveraging our balance sheet throughout 2020 while delivering stable net investment income to our shareholders. As of December 31st, our net leverage ratio was 1.30 times, down from a peak level of 1.78 times as of Q1. Available liquidity consisting of cash and undrawn capacity on our credit facilities improved throughout the year. with approximately $430 million of availability against $190 million of undrawn investment commitments at year-end, representing coverage of 2.25 times. Lastly, we announced a strategic joint venture partnership with Pantheon earlier this month. Importantly, this transaction further deleverages our balance sheet to approximately 1.1 times on a pro-form basis based on our portfolio year-end, as BCSF contributed approximately $320 million of loans from its balance sheet to the newly created joint venture structure on February 22nd. As a result of this deleveraging, we have significantly improved the company's balance sheet to take advantage of new attractive loan opportunities in the current market environment and to provide for accretion to our net investment income. Here in 2021, we've revised the company's target net leverage range to be between 1.0 and 1.25 times, down from our previous outer bound level of approximately 1.5 times. We believe this change provides the company with greater asset cushion relative to our regulatory leverage limitation of 2.0 times and demonstrates prudent liability management. However, we do not plan to change our investment strategy focus of lending to primarily first lien middle market borrowers as a result of this change. Before turning the call over to Mike Boyle to walk through our investment portfolio in greater detail, I wanted to spend a few minutes discussing our recently announced strategic partnership with Pantheon. By way of background, Pantheon is a leading global alternative private markets manager who we've known institutionally across our platform for a long time. In February 2021, we formed a joint venture with their private credit business, known as the International Senior Loan Program, or ISLP, to provide direct lending solutions to middle market borrowers primarily across Europe and Australia. These are markets in which Bain Capital Credit has had a longstanding presence and track record of investing. as we have a global footprint and local teams focused on providing financing solutions to middle market companies there. We've been an active investor across Europe since 2007 and have been investing in Australia's middle market for nearly a decade. This partnership with Pantheon will allow us to further expand BCSF's reach and capabilities into Europe and Australia, markets where we continue to see attractive investment opportunities. And when forming this joint venture partnership, it was important for us to select a partner with whom we had an existing partnership pre-existing relationship, and someone who brought the capabilities to diligence investments alongside us, given the structure of the joint venture, which requires 50-50 voting rights among both partners. Within Bain Capital broadly, Pantheon has been a known limited partner over time, and they have a dedicated private credit team with offices in New York and London. We believe the formation of the ISLP provides BCSF with three key benefits. First, The ISLP is expected to enhance BCSF's balance sheet flexibility to expand its global capabilities. Non-US dollar investments, which count against the 30% non-qualifying asset bucket of BDCs, represented approximately 17% of BCSF's total investments as of year-end. Following the transfer of these assets from BCSF's balance sheet to ISLP, non-US dollar denominated investments represent less than 5% of the total year-end portfolio on a pro forma basis. Second, BCSF's investment in ISLP is projected to result in higher portfolio yields to drive greater net investment income for our shareholders, as we estimate BCSF's investment will produce a low double-digit yield. As a result, BCSF's investment portfolio yield is expected to increase by approximately 20 basis points on a pro forma basis based on the investment portfolio as of year-end. BCSF's investment in ISLP represents approximately 5% of our total portfolio with fair value, based on the 1231 pro forma portfolio. However, there is the potential for BCSF to increase its investment commitment over time as we identify attractive investment opportunities in Europe and Australia, which could lead to additional yield enhancement to our portfolio. And third, given the deleveraging impact of the transfer of assets to ISLP, BCSF has greater capacity to continue investing in new senior secured loans to middle market companies to drive further accretion to net investment income. Our ability to form the ISLP is a demonstration of harnessing the relationships, resources, and investment capabilities across Bain Capital in a manner that seeks to drive shareholder value. We look forward to providing further updates and transparency on our ISLP investment over time. I will now turn the call over to Mike Boyle, our president, to walk through our investment portfolio in greater detail.