Kayne Anderson BDC, Inc.

Hello, and welcome to Kane Anderson BDC's second quarter 2024 earnings call. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to Frank Carl, Senior Vice President of KBDC.

Good morning, and welcome to Kane Anderson BDC Inc.' 's second quarter 2024 earnings call. Today I'm joined by Doug Goodwillie and Ken Leonard, co-CEOs of KBDC, as well as Terry Hart, CFO and Treasurer of KBDC. Following our prepared remarks, we will be available to take your questions. Today's call may include forward-looking statements that involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed on them. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates, and projections about the company, our current and prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict. Actual results may differ materially from those expressed or forecasted in these forward-looking statements. We ask that you refer to the company's most recent filings with the SEC for important risk factors. Any forward-looking statements made today do not guarantee future performance and undue reliance should not be placed on them. The company does not have an obligation to update any forward-looking statements. Our earnings release, KenQ, and supplemental earnings presentation are available on the investor relations section of our website. Now, I'd like to turn the call over to Ken Leonard.

Thank you, Frank, and thank you to everyone for joining us on the call today. Our first is a publicly traded company. those of you who are new to the platform i'll begin today's call with a brief overview of our company and investment strategy before we discuss our second quarter 2024 results to start we manage pools of capital inclusive of kvdc making up the kane anderson private credit platform or kapc an approximately six billion dollar middle market direct lending business kim anderson is in turn the private credit investing arm of Kane Anderson Capital Advisors, an approximately $35 billion employee-owned alternatives manager founded in 1984 with investing strategies in real estate, energy and infrastructure, and our business, Kane Anderson Private Credit, which my partners and I founded in 2011. Institutionally, Kane Anderson is focused on niche markets, where it specializes in identifying experienced investment teams with strong origination capabilities to generate differentiated, attractive risk-return profiles for its investors. Our private credit strategy has remained consistent, making investments in senior secured loans to middle market businesses through our 13 years at Kane Anderson and prior two-plus decades at other platforms. making us one of the longest tenured partnerships in middle market direct lending. During our time at KAPC alone, we've invested over $11 billion in nearly 200 businesses through nearly 400 discrete transactions. We believe KAPC is a leading player in the North America core middle market, which we define as consisting of businesses with 10 to 50 million of EBITDA. We skew towards the higher end of that range with median EBITDA of investments in KBDC of 34 million. KBDC is one of the largest BDCs focused on this market, which we believe exhibits less volatility and more stable returns than larger markets. Additionally, KAPC has an exceptionally diverse set of private investors across institutional and high net worth segments and have now brought our strategy to the public market investors via KBDC's May IPO. We invest and manage our portfolio with a group of 38 talented, long-tenured professionals across Chicago, which is our group headquarters, New York, and Los Angeles, along with additional shared resource professionals at Kane Anderson. As detailed throughout this earnings presentation, we have built our direct lending business with a focus on capital preservation and risk mitigation in a strategy we refer to as value lending. First, we believe that the core middle market represents the most attractive risk-reward area in which to invest. As a market segment, it generally includes more lender-friendly documentation and the ability to lend at lower leverage levels while still maintaining strong yields in those investments. Within this segment of the middle market, we focus on stable, lower growing industries where the winners and losers have generally been decided. Within these industries, we identify companies that have very specific attributes that have been shown to be present in companies that have successfully survived cycles or other performance related issues. And if an investment does not exhibit these attributes, we will not pursue it. Then from a structure perspective, our portfolios have lower average leverage around four times below other publicly traded VDCs. Consequently, that leads to industry-high weighted average interest coverage of three times with modest average loan-to-value below 45%. The combination of these factors results in a credit selection process that creates attractive risk-adjusted investment portfolios across all the vehicles within our credit platforms. Finally, we are the lead or co-lead agent in approximately 75% of our private middle market investments, with the vast remainder as part of small club lending groups, putting us in a position to structure and manage these investments proactively, avoid large bank group consensus risk, and obtain the highest economics. With respect to our portfolio monitoring processes, we're laser focused on staying in front of potential issues inside our portfolio. meeting multiple times per week to discuss watch list investments, over-communicating performance of the portfolio via monthly portfolio review calls, and including our most senior professionals in all our restructuring situations. This is all part of our broader culture of accountability, credibility, and quick action in stressed scenarios, which is supported by our structuring of investments with financial maintenance covenants, giving us a seat at the table early in our restructuring. BBDC started its investment activity in 2021 and successfully completed its IPO in the New York Stock Exchange on May 21st, 2024. As part of that IPO, we raised approximately $100 million at a price per share of $16.63. We were and will continue to be committed to delivering a leading shareholder-friendly investment structure with a best-in-class fee structure at 75 basis points at AUM for the first year post-IPO and with no incentive fee for the first three quarters post-IPO. Following these periods, our investment fee will increase to 1%, and our incentive fees will commence at 15%. We believe that both of those are among the lowest for publicly traded BDCs. Additionally, and based on feedback from the investor community, we instituted a 12-quarter look-back on our income-based incentive fees with a total return hurdle of 6%. have a staggered lockup for pre-ipo shareholders at 180 270 and 365 days following the ipo with affiliated shareholders and directors and officers being locked up for 365 days we have declared three special dividends of 10 cents each around those lock updates as previously communicated lastly we implemented a $100 million share repurchase program that commenced 60 days post-IPO on July 23rd of this year. To make one last point, KBDC is the largest single pool of capital in our direct lending platform, representing 25 plus percent of our total assets managed. As such, KBDC is an incredibly important part of our business, and its success is crucial to the success of our broader platform. We don't believe there are any other managers of scale public BDCs in a similar relative situation. We thank you all for your support to date, and we commit to being transparent in all our communications and unwavering in our commitment to our credit and underwriting standards. I will now turn it over to Doug Goodwillie, my co-CEO of KBDC, to discuss our existing portfolio and recent investment activity for KBDC.