Bain Capital Specialty Finance, Inc.

Good day and welcome to the Bain Capital Specialty Finance second quarter ended June 30th, 2022 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Catherine Snyder, Investor Relations. Please go ahead.

Thank you, Elaine. Good morning, everyone, and welcome to our Bain Capital Specialty Finance Q2 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-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. So with that, I'd like to turn the call over to our Chief Executive Officer, Michael Ewald.

Good morning, and thank you for dialing into our earnings call. I'm joined here today by Mike Boyle, our President, and Financial Officer, Sally Dornis. I'll start with an overview of our second quarter and the June 30, 2022 results, and then provide some thoughts on our performance, the market environment, and our positioning. Thereafter, Mike and Sally will discuss our investment portfolio and financial results in greater detail. Yesterday after market closed, we reported Q2 net investment income per share of $0.41, driven by higher levels of investment income earned across our portfolio investments during the quarter. Our Q2 net investment income return presented a 9.6% annualized yield on book value and covered our dividend by 21%. Net asset value as of June 30th was $17.15 per share, a decrease of approximately 40 basis points quarter over quarter. Our NAP decline was primarily driven by net unrealized losses due to broad-based spread widening across our portfolio, partially offset by gains on COVID-impacted investments and excess net investment income versus our quarterly dividend. Subsequent to quarter end, our board declared a third quarter dividend equal to $0.34 per share and payable to record date holders as of September 30, 2022. This represents a 7.9% annualized yield on ending book value as of June 30th. So during the second quarter, we witnessed higher levels of market volatility, particularly in the broadly syndicated loan and equity markets, given the wider uncertainty in the macro economy stemming from the increased potential of an extended economic slowdown. This was against the backdrop of a rising interest rate environment as the Fed remains focused on its monetary policy to reduce high levels of inflation. It is important to note that as credit investors, we are first and foremost focused on the downside risk management of our investments and the ability for a company to fully pay back our debt. as opposed to equity investors who are seeking higher growth objectives and could face greater volatility in the coming months. Our focus on downside management drives our longstanding investment approach of curating a diversified portfolio of middle market borrowers with a focus on top of the capital structure, first lien, secured loan structures, with strong documentation and covenant packages. And despite a more challenging market backdrop for our borrowers, our portfolio remains quite healthy given our historical focus on lending to companies in defensive sectors such as aerospace and defense, technology, and business services. For select companies within our portfolio that were in the travel and hotel leisure industries and more impacted by business closures due to COVID, we've been pleased to see the continued improving fundamental performance across our borrowers as reflected in the gradual gains on these investments and orders. We do remain watchful of inflationary impacts across our portfolio, resulting from supply chain disruptions, higher freight costs and wage pressures, as well as rising interest rates. Many of our companies that are facing higher costs have been able to pass through these costs by implementing several price increases over the past year, while not experiencing a fall-off in demand or revenue. However, this cycle can continue to contribute to higher inflation over the long term, which may lead to reduced demand over time. Importantly, as over 90% of our debt investments are structured against financial maintenance covenants, detailing certain performance metrics that the company needs to maintain, We have early insight to foresee issues that may arise for our portfolio companies, and we have a seat at the table to mitigate our potential risk-side scenario, given our majority control position in approximately 80% of our debt tranches. Looking ahead, we believe the company is well-positioned in the current environment to continue to drive attractive earnings for our shareholders, primarily from two main sources. First, the higher interest rate environment provides us with a near-term opportunity to generate excess net investment income. above our regular dividend, as the vast majority of our investments are comprised of floating-rate loans against a large portion of long-term fixed-rate debt in our capital structure. We would expect to see a greater combination of earnings growth due to the increase in rates in the coming quarters, given the timing lag of rate resets across our loans. And second, the recent formation of our senior loan program joint venture allows us to drive attractive risk-adjusted returns while maintaining our focus and underlying exposure We originated first lien loans to sponsor back middle market companies. While BCSS investment in the SLP represented just 2% of our portfolio at fair value as of quarter end, we can grow this investment over time as we identify new loan opportunities, and this can contribute to higher levels of interest income and dividend income for our shareholders. During the second quarter, for example, BCSS investment in the SLP produced an annualized return on equity of 15%. I will now turn the call over to Mike Boyle, our president, to walk through our investment portfolio in greater detail.