Bain Capital Specialty Finance, Inc.

Good day and welcome to the Bain Capital Specialty Finance fourth quarter and fiscal year end of December 31st, 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Katrin Schneider, Investor Relations. Please go ahead, madam.

Thanks, Irina. Good morning, everyone, and welcome to the Bain Capital Specialty Finance fourth quarter and year-ended December 31st Conference Call. 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 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 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-K that could cause actual results to differ materially from those indicated. Bank 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. So with that, I'd like to turn the call over to our Chief Executive Officer, Michael Ewald.

Thanks, Catherine, and good morning to all of you, and thanks for calling in today. I'm joined here by Mike Boyle, our President, and our Chief Financial Officer, Sally Dornis. I'll start with an overview of the results of our fourth quarter and year ending December 31, 2021, and then provide some thoughts on our performance, the market environment, and the recently announced Bain Capital Senior Loan Program. Thereafter, Mike and Sally will discuss our investment portfolio and financial results in greater detail. So beginning with our results, Q4 net investment income per share was $0.34, bringing net investment income per share for the full year to $1.36, or an 8.1% return on average net assets for 2021. Our net investment income covered our dividend by 100% for the full year of 2021. Earnings per share were $0.35 for the fourth quarter and $1.86 per share for the full year. This represents a total return on equity of 11.5% that we generated for our shareholders in 2021. Our returns were driven by the stable interest income earned from our middle market borrowers and net realized and unrealized gains across the portfolio. Net asset value per share was $17.04 as of December 31st, up one cent from our NAV as of September 30th. 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, 2022. This represents an 8% annualized yield on ending book value as of December 31st. So during the fourth quarter and looking back on the year, we remain focused on the execution of our investment strategy and strategic initiatives that we've set forth for our shareholders back at the beginning of 2021. Looking at the asset side first, we witnessed improved and continued stable credit quality across our portfolio throughout the year, as demonstrated by some key credit metrics. For each quarter end date in 2021, including the fourth quarter, we had no investments on non-accrual status, and we had a decline in our internal risk rating three investments, which are companies performing below expectations relative to our initial underrate, to 10% of the portfolio with fair value at the end of 2021, down from 13% as of prior year end. We attribute this to our upfront diligence and discipline when reviewing new investment opportunities, as well as to the strong portfolio company performance across our diversified portfolio of high-quality middle market companies. We also leverage the broader Bain Capital Credit platform to source compelling new investment opportunities for BCSF throughout the year. BCSF benefits from Bain Capital Credit's private credit group, which has a track record of investing in middle market private debt dating back to 1998 and has differentiated global sourcing capabilities. In 2021 and during the fourth quarter, we witnessed record levels of new loan originations in the middle market, driven by favorable macroeconomic backdrop and high levels of M&A-sponsored activity. Against this backdrop, our private credit group remained very active and invested $2.7 billion in more than 100 middle market companies during the year, including approximately $1.2 billion on behalf of BCSF. The company's investment in the International Senior Loan Program, or ISLP, which is our strategic joint venture that we formed a year ago in February 2021, continue to grow steadily throughout the year. As a quick reminder, the ISLP focuses on providing direct lending solutions to middle market borrowers, primarily across Europe and Australia, both markets in which Bain Capital Credit has longstanding presence and track record of investing. The ISLP allows us to further expand BCSS reach and capabilities into these regions, markets where we continue to see attractive investment opportunities. 2021 was particularly an active year for us internationally as we found attractive relative value in these markets. Looking abroad served as a portfolio diversifier and enhanced our sourcing capabilities given the competitive U.S. market. Approximately 45% of our private credit group's platform originations in 2021 were to non-U.S. dollar borrowers, which helped to support the growth of our investment in the ISLP. Since the inception of the program in February 2021, ISLP's investment portfolio has grown to over $500 million of fair value, invested across 27 different middle market borrowers. The growth in ISLP's underlying investment portfolio has led to an increase in BCSF's investment in ISLP on balance sheet to 7.4% of the total portfolio at fair value, up from 5.6% as of March 31, 2021. Subsequent to quarter end, BCSF and its joint venture partner increased the size of our commitment to the ISLP. BCSF increased its total commitment by $60 million, bringing its total to approximately $250 million. This represents a total position size of up to 11% based on the size of the investment portfolio year-end. It is also important to note that the presence of our team on the ground in these geographies, coupled with our focus on private equity-sponsored companies and senior positioning in the capital structure, allows us to invest prudently even in periods of geopolitical turmoil such as today. Our new origination activity, combined with the growth of our ISLP investment, contributed to an improvement in our portfolio asset yields, both quarter over quarter and year over year. As of December 31st, 2021, our weighted average portfolio yield was 7.6% at amortized cost, up from 7.5% as of the prior quarter end and 7.3% as of the end of 2020. We remain focused on improving the yield on our total portfolio to an 8% target, while maintaining our focus on senior secured loans. Turning out of our liabilities, we took proactive measures throughout the year and continuing during the fourth quarter, distracting the company's balance sheet and funding profile by increasing the amount of unsecured debt in our capital structure, while simultaneously lowering our overall cost of capital to better position BCSF to drive attractive returns for our shareholders. During the year, we closed on $900 million of new financing commitments, including $600 million of new unsecured debt borrowings. In the institutional debt markets, we took advantage of low treasury rates and strong investor demand levels in 2021 to access attractive five-year fixed rate debt, which positions the company well if interest rates continue to rise. As of December 31st, 2021, unsecured debt represented 50% of total debt outstanding, a significant improvement from 10% at the end of 2020. During the fourth quarter, we refinanced our 2019-1 CLO to reduce the blended net spread across class tranches by approximately 70 basis points and extended the final maturity rate by two years to 2033. In addition, we entered into a new $300 million senior secured revolving facility with Sumitomo Mitsui Bank that is attractively priced at 175 basis points spread over the reference rate, subject to certain requirements. Our active balance sheet management allowed us to reduce the weighted average stated interest rate on our total borrowings from 3.2% at the end of 2020 to 2.9% as of December 31, 2021. The company has a near-term opportunity to further reduce its cost of debt as the non-call period on our 2023 8.5% notes expires in June of this year. Lastly, I wanted to touch on the recent formation of the Bain Capital Senior Loan Program, or SLP, that we announced last week. The SLP is structured as a 50-50 joint venture between BCSF and Capital from Amberstone, a credit-focused investment manager that advises institutional investors. The structure is similar to that of the ISLP that we discussed earlier. And while the ISLP focuses on senior loans to middle market borrowers primarily across Europe and Australia, the SLP will focus primarily on U.S. borrowers and remain consistent with our platform's core middle market focus. which we define as companies with between $25 and $75 million of EBITDA. The Senior Loan Program provides us with increased capacity and balance sheet flexibility to invest in senior metal market loans, which we believe should enhance our capabilities and scale in the current market environment. Initial capital commitments to the SLP total $358 million, including $179 million from BCSF. The scale allows for the position size to grow over time as we find attractive new investment opportunities and can provide for higher portfolio yields to drive greater net investment income for our shareholders. Let me now turn the call over to Mike Boyle, our president, to walk through our investment portfolio in greater detail.