Bain Capital Specialty Finance, Inc.

Good morning, ladies and gentlemen, and welcome to the Bain Capital Specialty Finance second quarter and the June 30th, 2023 earnings conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for operator. This call is being recorded on Wednesday, August 9th, 2023. I would now like to turn the conference over to Catherine Schneider, Director of Investor Relations. Please go ahead.

Thanks, Enso. Good morning and welcome everyone to our Bain Capital Specialty Finance second quarter ended June 30th, 2023 earnings 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 Finance's 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 includes 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 CEO, Michael Ewald.

Thanks, Catherine, and good morning to all of you, and thanks for joining us here on our earnings call today. I'm also joined by Mike Boyle, our president, and our chief financial officer, Sally Dornis. I'll start with an overview of our second quarter and the June 30, 2023 results, and then provide some thoughts on our performance, the overall 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 delivered strong earnings results. Q2 net investment income per share was 60 cents, an increase of 20% quarter over quarter, driven by the continued benefit of higher interest rates across our portfolio. Our net investment income return represented an annualized yield of 13.9% on book value and was well in excess of our Q2 dividend, demonstrating 158% NII dividend coverage. Q2 earnings per share were 45 cents, driven by stable credit quality across our portfolio investments during the quarter. Our net income produced an annualized return on book value of 10.4%. These results in turn led to modest NAV growth during the quarter. Net asset value per share as of June 30th was $17.44, reflecting a 40 basis point increase from our $17.37 NAV as of March 31st. And with all that, we're very pleased to announce that our board increased our regular quarterly dividend by 4 cents per share, up 10.5% to 42 cents per share, to shareholders of record as of September 29th, 2023. This represents an annualized yield of 9.6% on ending book value as of June 30th and an 11% annualized yield at BCSF's current trading levels. Importantly, this increase in the regular dividend rate represents the third increase for our shareholders in the past 12 months. Our dividend framework seeks to provide our shareholders with an attractive rate of return while also seeking an appropriate level of cushion for future NAV stability and growth. As we have been evaluating our dividend policy with our board throughout the past year, In light of higher earnings, we believe it is important to provide our shareholders the benefit of the higher income that the company is generating, while remaining prudent in setting the regular dividend level to a rate that the company can earn under various interest rates and economic scenarios. In the current environment, we believe the company remains well positioned to generate net investment income in excess of our newly announced dividend rate, while staying consistent with our objective of achieving NAV stability and growth over time. Our spillover income is estimated to be approximately $0.66 per share. which we believe is a healthy amount and provides for increased dividend stability. We expect to evaluate the potential for any additional distributions as we near the end of the year. Turning out of the market environment, new middle market loan volumes picked up a bit during the second quarter from first quarter levels. Our volumes remain low overall as compared to recent years, given muted LBO activity, as buyers and sellers continue their struggle to find enterprise value equilibrium in the current market environment. As the private credit markets have continued to grow in recent years, both on the supply and demand side of the equation, the value of a well-established direct lending platform with longstanding relationships and expertise is increasingly important to not only source attractive investments, but also have deep resources to diligence and work through complex situations. For the new companies in which our private credit group platform invested during the second quarter, we leverage our in-house industry expertise within niche verticals such as aerospace and defense, and continue to partner with top-tier sponsors who value our prior relationship, working with them on past investments. We believe the lending environment for middle market lenders continues to be attractive given favorable terms and structures that are more lender-friendly. While we have begun to see a small amount of spread compression relative to peak levels in recent quarters, we are still seeing market spread pricing for new first lien term loans between 625 and 700 basis points. In fact, the weighted average spread on our new portfolio company, First Lean Debt Investments, in the second quarter was approximately 670 basis points, which produced a weighted average yield of 12.2% when factoring in current base rates and amortization of original issue discounts. And the weighted average net to EBITDA leverage on these new loans was 4.5 times, reflecting conservative capital structures. In addition to the new First Lean loans in which we invested during the second quarter, We also made an initial equity investment into Legacy Corporate Lending Holdco, LLC, a newly formed portfolio company created to invest in middle market ABL loans. By way of background to this new investment, Bain Capital Credit recently announced that it formed a partnership with Legacy Corporate Lending, an independent asset-based lending company focused on serving the needs of North American middle market borrowers. We believe the ABL space is compelling as the asset class benefits from growing deal volumes and increased non-bank penetration and provides for attractive risk-adjusted returns with differentiated return profiles. Over the past few years, we have evaluated various acquisition opportunities and whether to buy or build an ABL platform. And we're fortunate to partner with a talented and experienced leadership team who brings years of ABL and commercial lending experience to build the business organically. While our initial investment in the company is modest, We believe it could be an attractive growth investment for BCSF over time and provide us with differentiated deal flow in a market which is tangential and complementary to our existing core middle market corporate focus. Our portfolio companies continue to perform well in light of a more complex operating environment as demonstrated by stable credit quality metrics across our portfolio, with no investments added to non-accrual status during the quarter. Almost 40% of our investments were originated after January 1, 2022. a period when rising rates and higher expectations of an economic slowdown were very much central to the investment decision. Overall, we feel good about the health and quality of our portfolio as our underlying borrowers have largely proven to be defensible thus far this year. I will now turn the call over to Mike Boyle, our president, to walk through our investment portfolio in greater detail.