Barings Participation Investors

Good day, everyone. At this time, I'd like to welcome you to the Barings BDC, Inc. conference call for the quarter-ended and year-ended December 31st, 2024. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may press star one to be placed into question queue at any time. 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'll turn the call over to Joe Mazzoli, head of investor relations for Barrings BDC. Please go ahead, Joe.

Good morning and thank you for joining the call. 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 December 31, 2024, as filed with the Securities and Exchange Commission. Barron's BDC undertakes no obligation to update or revise any forward-looking statements unless required by law. I will 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 fourth 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 fourth 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. Consistent with broader industry trends, lending activity during the first three quarters of 2024 was somewhat muted. During the fourth quarter, we experienced a meaningful uptick in deployment, both as part of add-on transactions within the existing portfolio and for new buyouts by a number of our long-standing sponsor clients. The result of this activity produced strong originations during the period that we are proud of. Strong deployment combined with benign credit environment and our focus on the top of the capital structure investments in the middle market combined to serve our investors well. Our focus on the core of the middle market is reflective of our 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. Consistent with how we have defined our strategy in past discussions, 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 full year of 2024, the performance of BBDC has been strong. Total shareholder return during 2024 exceeded 24% and top quartile among publicly traded peers. These results were driven by a number of tailwinds, some of which are specific to the industry and some of which are specific to Barings managed portfolios. Interest rates, while elevated, have been stable for several quarters. Credit performance has held up broadly across the industry but has been particularly durable within BBDC. Deployment opportunities, as I previously noted, improved during the December quarter compared to 2023 and the first half of 2024. While we closed 2024 on a strong and stable footing, we have entered 2025 with caution. Economic data appears to be overwhelmingly positive. Credit fundamentals, namely cash flows, revenue growth, and margins, are all exhibiting positive trends. As Matt will discuss in great detail, we are optimistic that additional transaction activity will blossom in 2025. However, it is equally as clear that uncertainty, particularly regulatory and trade uncertainties, have given private markets a pause. As our investors know, we are often investing in illiquid credit securities alongside private equity firms who are investing in illiquid equity securities. The regulatory shifts that have occurred only in the first two months of 2025 make it difficult for private capital investors to assess the possible shifts they may experience over the coming three- to five-year hold horizons. Consequently, we remain cautious on the pace of new buyout opportunities and expect the size of the existing portfolio to continue to be providing compelling opportunities to invest. Add-on transactions remain a compelling way for private equity firms to enhance the value of portfolio companies and all bearings to deploy capital into companies we already know. While not anticipated 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. Turning to some specifics on BBDC, net asset value per share was $11.29, substantially unchanged compared to $11.28 reported at the prior fiscal year end. A testament to the portfolio stability. Net investment income for the quarter was 28 cents per share and out-earned our dividend of 26 cents per share. Digging a bit deeper into the portfolio, we continue to actively maximize the value of the legacy holdings acquired from MVC Capital and Sierra. Our goal remains to divest these assets at attractive valuations as we did this quarter. Barron's originated positions are now 93% of the portfolio at fair value, up from 76% at the beginning of 2022. As a reminder, potential losses from the acquired assets are protected by credit support agreements, limiting downside risk for BBDC investors. Our investment portfolio performed well during the fourth quarter, with the non-accrual rate declining from a mere 50 basis points in September to 30 basis points as of December. 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 the BBDC portfolio today. including the acquired Sierra and MVC assets, our total non-approvals are the industry leading 0.3% on a fair value basis and 1.6% 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 31st, 2023. Turning to the earnings power of the portfolio, the weighted average yields at fair value was 10.4%. 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 $11.29. As we have separately announced, our board has also declared a 15 cent dividend of supplemental dividends that will be paid in three quarterly installments. Taken together with our regularly scheduled The dividend level equates to 11% yield based on December's net asset value. We believe the best measures of the portfolio's performance, non-accruals, net asset value, and NII were extremely compelling for the year ended December 24, and we anticipate continued strength in the quarters ahead. I'll now turn the call over to Matt. Thanks, Eric.