Barings Participation Investors

At this time, I would like to welcome everyone to Barings BDC, Inc. conference call for the quarter ended September 30, 2024. All participants are in listen-only mode. A question and answer session will follow the company's formal remarks. Today's call is being recorded and a replay will be available approximately two hours after the conclusion of the call on the company's website at www.barringsbdc.com under the Investor Relations section. At this time, I will turn the call over to Joe Mazzoli, Head of Investor Relations for Barrings BDC.

Please note that this call may contain forward-looking statements that include statements regarding the company's goals, beliefs, strategies, future operating results, and cash flows. Although the company believes these statements are reasonable, actual results could differ materially from those projected in forward-looking statements. These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks including those disclosed under the sections titled Risk Factors and Forward-Looking Statements in the company's quarterly report on Form 10Q for the quarter ended September 30, 2024, as filed with the Securities and Exchange Commission. Barings BDC undertakes no obligation to update or revise any forward-looking statements unless required by law. I'll now turn the call over to Eric Lloyd, Chief Executive Officer of Barings BDC.

Thanks, Joe, and good morning, everyone. We appreciate you joining us for today's call. Please note that throughout today's call, we'll be referring to our third quarter 2024 earnings presentation that is posted on the investor relations section of our website. On the call today, I'm joined by Barings BDC's President Matt Freund, Chief Financial Officer Elizabeth Murray, and Barings Head of Global Private Finance and BBDC Portfolio Manager, Brian High. In the third quarter, BBDC delivered another strong and consistent set of results, fueled by best in class credit performance and the strength and stability of our franchise. Our focus on the top of the capital structure investments and sponsor-backed middle market issuers continues to serve our investors well. Our focus on the core of the middle market is reflective of lower leverage levels and more attractive risk-adjusted returns, which is why we find this to be the best segment of the market for BBDC and our shareholders. The core portfolio is complemented by a selection of non-sponsored and platform investments that we believe benefit our shareholders in the form of higher potential returns and diversification. Our portfolio strategy is outlined in greater detail on slide five, and we continue to successfully invest throughout the market and deliver compelling returns to our shareholders. As we reflect on the first three quarters of 2024, the performance of BBDC has been strong against a relatively benign economic backdrop. Interest rates, while elevated, have been stable for several quarters. Credit performance appears to be holding up broadly across the industry, save a few idiosyncratic examples. Inflation has started to recede, and with it, interest rates are likely to follow in the quarters to come. The long hoped for soft landing appears to be coming into clearer focus, As we have discussed previously, we believe that a reduction in interest rates will have an overall positive impact on our business as it further improves credit metrics in the existing portfolio and sparks a sentiment shift among sponsors and spurs further deal activity, which in turn may drive higher spreads and additional transaction fees. While soft landing is possible, BBDC's portfolio has been intentionally constructed to withstand a variety of economic scenarios. To the extent volatility is on the horizon, we have confidence in our credit selection and believe our underwriting discipline will continue to provide stable returns in the quarters to come. We are extremely happy to announce that we have extended the maturities of our revolving credit facility on terms we find extremely compelling. Elizabeth will touch on this development in greater detail, but I wanted to be sure and express my personal appreciation for the support of our lending partners in accomplishing this important goal of ours in 2024. Turning to some specifics of BBDC, net asset value per share was $11.32, compared to $11.28 at the prior fiscal year end, reflecting an increase of 0.4%, and a testament to the portfolio's stability. Net investment income for the quarter was $0.29 per share, and out-earned our dividend of $0.26 per share. Non-accruals as a percent of fair value were modest at 0.5%. As our investors know, the stability of our performance is the result of our focus on thorough and conservative underwriting at the top of the capital structure and with more defensive industries. Digging a bit deeper into the portfolio, we continue to actively maximize the value in legacy holdings acquired from NBC Capital and Sierra. Our goal remains to divest of these assets at attractive valuations as we did this quarter. Barron's originated positions are now 92% of the portfolio at fair value and up from 76% at the beginning of 2022. As a reminder, potential losses from acquired assets are protected by credit support agreements, limiting downside for BBDC investors. Our investment portfolio continued to perform well in the third quarter. There is no substitute for fundamental credit analysis, which has always been at the core of our investment philosophy and is reflected in the health of BBDC's portfolio today. Including the acquired Sierra and MVC assets, our total non-accruals are an industry-leading 0.5% on a fair value basis and 1.8% of the portfolio on a cost basis. This is down from 1.5% on a fair value basis and 2.5% on a cost basis as of December 31, 2023. Turning to the earnings power of the portfolio, the weighted average yields at fair value was 11%. We remain conservative on our base dividend policy, and our board declared a fourth quarter dividend of 26 cents per share, consistent with the prior quarter. On an annualized basis, the dividend level equates to a 9.2% yield on our net asset value of $11.32. We believe the best measures of the portfolio's performance, non-accruals, net asset value, and NII were extremely compelling for the September quarter and anticipate continued strength in the quarters ahead. I'll now turn it over to Matt.