Kayne Anderson BDC, Inc.

Hello and welcome to Kane Anderson BDC Inc's third 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 Karl, Senior Vice President of KBDC.

Good morning and welcome to Kane Anderson BDC Inc's third 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. Such statements involve known and unknown risks, uncertainties, and other factors, and undue reliance should not be placed thereon. 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 the 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 thereon. The company assumes no obligation to update any forward-looking statements at any time. Our earnings release, 10Q, and supplemental earnings presentation are available in the financial section of our website at kanebdc.com. With that, I'd like to turn the call over to Doug.

Thank you, Frank. Before I provide an overview of our performance during the quarter, I want to provide a quick reminder on our strategy at KBEC. First, we believe that the core mid-market represents the most attractive risk award area in which to invest in direct lending. We define this market as including borrowers ranging in size from 10 to 50 million in EBITDA. This market segment generally includes more lender-friendly documentation and the ability to lend at lower leverage while still maintaining strong yields in those investments. Within this segment of the mid-market, We focus on stable, slower-growing industries where the winners and losers have generally been decided, as you can see in our industry diversification chart, summarized later. Within these industries, we identify companies that have specific attributes that have been shown to be present in companies that have successfully survived multiple cycles. If an investment does not exhibit these attributes, we will not pursue it. From a structuring perspective, our portfolios have lower average leverage of approximately four times well below most other publicly traded BDCs. Consequently, that leads to industry-high weighted average interest coverage ratios 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 of the vehicles within our credit platform. 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 a small club of lending groups. This puts us in a position to structure and manage these investments proactively, avoid large bank group consensus risk, and obtain the best economics. We believe that the third quarter of 2024 represents a continuation of this strategy, and I am pleased to provide an overview of our portfolio, recent investment activity, and then turn it back to Frank to discuss the market before Terry Hart covers KBDC's financial results for the third quarter of 2024. As of September 30th, KBDC's portfolio includes 110 individual portfolio companies representing approximately 1.94 billion of fair value fund investments. We have another approximate 179 million of unfunded commitments comprised of a mix of unfunded revolvers and delayed draw term loans for total commitments in excess of 2.1 billion. Since September 30th of 2024, KBDC has closed or is in the final closing process on an additional $180 million plus of commitments with another six weeks left in the quarter, evidencing continued strong origination volumes in 2024. The KBDC portfolio was purposely constructed in a defensive manner in order to outperform in high interest rate environments and through periods of economic instability or uncertainty. Investments in KBEC's portfolio, excluding the handful on our watch list, have weighted average leverage of 4.2 times, interest coverage of 3.1 times, and loan devalued of approximately 42%, again, evidencing our conservatism in loan structure. We think these credit statistics are a material positive factor for our favorable portfolio outlook. particularly in an elevated interest rate environment, and that these statistics compare favorably to virtually all other public BDCs of a scale similar to us. We also have built a diversified portfolio with an average position size of approximately 0.9% of fair value, and where our top 10 investments represent only 19% of our portfolio. Outside of the specific credit statistics associated with our portfolio, our investments are well-structured, 98% of our portfolio is invested in first lane securities and 99% of our middle market investments are backed by private equity sponsors. Additionally, all of our core first lane private middle market investments have financial covenants. We think that this combination of being in the lowest risk portion of the capital structure in businesses that are supported by committed private equity capital with financial maintenance covenants represents the most attractive way to invest in our market. We also believe that our portfolio is positioned appropriately for potential changes in the interest rate environment with 100% of our debt investments being floating rate. This also mirrors our liabilities where the vast majority of our debt funding utilizes floating rate bonds. Our portfolio has also performed very well to date with only 1% of total debt investments at fair value and non-accrual represented by only two positions out of 110. And lastly, we have built this conservative portfolio with a healthy weighted average yield of approximately 11.3% on fair value of investments. This yield has been achieved with approximately 14% of our portfolio in broadly syndicated securities, such that we have positioned the portfolio for upside and spreads relative to our competitors over the next few quarters as we rotate out of these lower spread broadly syndicated investments. Our portfolio is diversified by end market and industry with a focus on stable, slower-growing segments of the U.S. economy. As you can see in our earnings presentation, our largest industries are distribution, food products, business slash industrial services, and containers and packaging, with the largest representing only 14.6% of the total portfolio. Financing businesses in these stable, lower-growth industries with typical enterprise values in the 8 to 10 times range allows us to build portfolios with more conservative leverage and better interest coverages. Turning to our private middle market investment activity in the third quarter of 2024, we made 183 million of total commitments across 14 different businesses during the period of which 161 million was funded. In addition, 24 million of our existing unfunded commitments were funded or partially funded during the quarter representing It combined gross fundings of 185 million. This was a meaningful uptick in activity relative to the third quarter of 2023, where gross fundings were 42 million. We did see a slight uptick in the amount of private middle market repayment activity, totaling 83 million of gross repayments during the period, up from 41 million in Q2 2024, but still only 4.4% of average funded investments. During the third quarter, our broadly syndicated loan portfolio experienced no new fundings and $2 million of repayments. We currently hold approximately 270 million in broadly syndicated loans across 22 borrowers. In coming quarters, we expect to generate enough privately originated mid-market loan volume to rotate out of these broadly syndicated loan investments while still maintaining leverage inside our target ratio of one to one and a quarter. Now I will turn it back to Frank to discuss the market.