NOVEMBER 7, 2024 | --- | --- | --- | |-------------------|-------|-----------------------| | | | | | | | | | Barings BDC, Inc. | | | | | | Third Quarter 2024 | | | | Earnings Presentation | Important Information & Cautionary Notice Regarding Forward-Looking Statements Cautionary Notice: Certain statements contained in this presentation are "forward-looking" statements. Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made an ...

Financial Data and Key Metrics Changes - Net asset value per share increased to $11.32, reflecting a 0.4% increase from the prior fiscal year-end [10] - Net investment income for the quarter was $0.29 per share, exceeding the dividend of $0.26 per share by $0.03 or 10% [26] - Nonaccruals as a percentage of fair value remained low at 0.5%, down from 1.5% on a fair value basis as of December 31, 2023 [12] Business Line Data and Key Metrics Changes - The investment portfolio's weighted average yield at fair value was 11% [13] - BBDC deployed $125 million of capital in the quarter, offset by $121 million of sales and repayments, resulting in net deployments of $4 million [15] - The portfolio composition remains highly diversified, with 72% consisting of secured investments and approximately 68% being first lien securities [19] Market Data and Key Metrics Changes - LBO activity in 2024 remains muted, but the third quarter showed signs of improvement in deployment opportunities compared to the first half of the year [16] - Only 13% of transaction volume year-to-date represented "new money financings," indicating a focus on refinancings and repricings [16] Company Strategy and Development Direction - The company continues to focus on the top of the capital structure investments and sponsor-backed middle-market issuers, which are seen as the best segment for risk-adjusted returns [6] - BBDC's portfolio strategy includes simplifying the portfolio and selectively investing in compelling direct lending opportunities [16] - The company aims to align fees and credit performance hurdles with shareholders, with a hurdle rate of 8.25% compared to a median of 7.03% among peers [24] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about a potential soft landing for the economy, which could lead to a reduction in interest rates and improved credit metrics [8] - The company is confident in its credit selection and underwriting discipline, which is expected to provide stable returns despite potential market volatility [9] - Management highlighted the importance of the portfolio's construction to withstand various economic scenarios [9] Other Important Information - The board declared a fourth quarter dividend of $0.26 per share, consistent with the previous quarter, representing a 9.2% yield on net asset value [35] - The company amended and extended its revolving credit facility, reducing the spread on borrowings and extending the maturity to November 2029 [33][34] - BBDC has $241 million of unfunded commitments to portfolio companies and $65 million of outstanding commitments to joint ventures, with strong overall liquidity of over $540 million [34] Q&A Session Summary - The call experienced technical difficulties, preventing access to questions from analysts and shareholders [37][38] - The company encouraged direct communication with the executive management team for any inquiries [38]

Barings BDC (BBDC) came out with quarterly earnings of $0.29 per share, missing the Zacks Consensus Estimate of $0.30 per share. This compares to earnings of $0.31 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of -3.33%. A quarter ago, it was expected that this business development company would post earnings of $0.30 per share when it actually produced earnings of $0.40, delivering a surprise of 33.33%.Over the last four quart ...

Investment Portfolio - As of September 30, 2024, the total value of the investment portfolio was $2,416.7 million, down from $2,488.7 million as of December 31, 2023[358]. - The company had investments in 328 portfolio companies with an aggregate cost of $2,446.9 million as of September 30, 2024, compared to 336 portfolio companies with an aggregate cost of $2,535.6 million as of December 31, 2023[358]. - The total investment portfolio fair value was $2,416,714,000, a decrease from $2,488,715,000 on December 31, 2023[360]. - The total fair value of investments in joint ventures and private equity funds was $104,243,000 as of September 30, 2024, down from $110,066,000 at the end of 2023[360]. - The fair value of investments categorized as Risk Rating 1 increased to $250,611,000 (10.5% of total portfolio) as of September 30, 2024, compared to $207,279,000 (8.5%) at the end of 2023[370]. - The fair value of investments in Risk Rating Category 2 decreased to $1,542,076,000 (65.0%) from $1,787,077,000 (73.0%)[370]. Investment Income - The company generates revenues primarily from interest income, loan origination fees, and dividend income from debt securities[350]. - Total investment income for the three months ended September 30, 2024, was $70.851 million, slightly up from $70.846 million in the same period of 2023[383]. - Net investment income after taxes for the three months ended September 30, 2024, was $30.185 million, compared to $33.309 million for the same period in 2023[383]. - Dividends from portfolio companies for the three months ended September 30, 2024, were $9.8 million, up from $8.5 million in the same period of 2023[384]. - Total recurring fee and other income for the three months ended September 30, 2024, was $2,322,000, compared to $2,258,000 for the same period in 2023, reflecting a 2.83% increase[472]. - Total non-recurring fee and other income for the three months ended September 30, 2024, was $1,967,000, significantly higher than $392,000 for the same period in 2023[472]. - Total fee and other income for the nine months ended September 30, 2024, reached $11,532,000, compared to $10,250,000 for the same period in 2023, indicating a 12.47% increase[472]. Expenses and Losses - Total operating expenses for the three months ended September 30, 2024, were $39.633 million, an increase from $37.125 million in the same period of 2023[385]. - The company experienced a net realized loss of $12.6 million from the restructuring of investments in two portfolio companies during the nine months ended September 30, 2024[361]. - Net realized losses for Q3 2024 totaled $10.9 million, primarily from an $8.5 million loss on the investment portfolio and a $2.9 million loss on forward currency contracts[396]. - During the nine months ended September 30, 2024, net realized losses amounted to $24.3 million, with $17.6 million from the investment portfolio and $7.5 million from forward currency contracts[396]. - The company reported a net loss on its investment portfolio of $62.1 million for the nine months ended September 30, 2023, primarily due to a $43.6 million loss on debt investments[397]. Debt and Borrowings - The company had U.S. dollar borrowings of $131.0 million outstanding under the February 2019 Credit Facility, with a weighted average interest rate of 7.105%[410]. - The fair value of the borrowings outstanding under the February 2019 Credit Facility was $347.8 million as of September 30, 2024[411]. - The company issued $50.0 million in aggregate principal amount of Series A senior unsecured notes due August 2025, with a fixed interest rate of 4.66% per year[412]. - The Series B Notes and Series C Notes under the November 2020 NPA have fixed interest rates of 4.25% and 4.75% per year, respectively[417]. - The company had net repayments under the February 2019 Credit Facility totaling $377.1 million during the nine months ended September 30, 2024[404]. - The February 2019 Credit Facility was increased to $1,065.0 million as of April 1, 2022, with a maturity date extended to February 21, 2026[406]. Share Repurchase and Distributions - The company authorized a share repurchase program allowing for the repurchase of up to $30.0 million of common stock, which terminated on March 1, 2024[440]. - During the nine months ended September 30, 2024, the company did not repurchase any shares under the share repurchase program[440]. - The company authorized a new 12-month share repurchase program allowing for the repurchase of up to $30.0 million of common stock starting March 1, 2024[441]. - The company intends to pay quarterly distributions to stockholders, with a declared distribution of $0.26 per share payable on December 11, 2024[449]. Risk Management - The company is exposed to foreign currency fluctuations, with investments translated into U.S. dollars based on spot rates[495]. - Interest rate risk management systems are in place to monitor and hedge against fluctuations, utilizing instruments like interest rate swaps and options[494]. - The complexity of transitioning away from LIBOR could materially affect the company's financial condition and operations[492]. - A hypothetical increase of 300 basis points in interest rates could result in a net income increase of $36.121 million, while a decrease of 50 basis points could lead to a net income decrease of $6.020 million[496]. Investment Strategy - The company focuses on investing in senior secured private debt investments in well-established middle-market businesses across various industries[348]. - The company employs a strategy that targets investments with relatively low levels of cyclicality and operating risk, enhancing returns through prudent leverage[349]. - The company must distribute at least 90% of its investment company taxable income (ICTI) to maintain its status as a regulated investment company (RIC)[445]. - The company has historically met its minimum distribution requirements and continually monitors compliance with the Code[443].

Barings BDC, Inc. Third Quarter 2024 Results [Financial & Operational Highlights](index=1&type=section&id=Financial%20%26%20Operational%20Highlights) Barings BDC reported Q3 2024 net investment income of $0.29 per share, exceeding dividends, with NAV at $11.32 Q3 2024 Key Financial Results (per share) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Jun 30, 2024 | | :--- | :--- | :--- | | Net Investment Income | $0.29 | $0.40 | | Net Realized Loss on Investments | $(0.10) | $0.08 | | Net Unrealized Appreciation (Depreciation) | $0.02 | $(0.29) | | Net Increase in Net Assets | $0.21 | $0.18 | | Dividend Declared | $0.26 | $0.26 | Key Balance Sheet and Portfolio Metrics (in millions) | Metric | As of Sep 30, 2024 | As of Jun 30, 2024 | | :--- | :--- | :--- | | Investment Portfolio (Fair Value) | $2,416.7 M | $2,395.7 M | | Total Net Assets (Equity) | $1,194.4 M | $1,201.9 M | | Net Asset Value (NAV) per Share | $11.32 | $11.36 | | Debt-to-Equity Ratio | 1.15x | 1.14x | | Net Debt-to-Equity Ratio | 1.09x | 1.07x | - CEO Eric Lloyd stated that the company continues to deliver attractive returns through its disciplined investment strategy, with **net investment income well above the dividend**, **strong credit metrics**, and a **resilient portfolio**[4](index=4&type=chunk) [Detailed Financial Results](index=2&type=section&id=Detailed%20Financial%20Results) Q3 2024 total investment income was $70.9 million, net investment income $30.2 million, and NAV per share decreased to $11.32 Q3 2024 Financial Performance (in millions, except per share data) | Metric | Amount | Per Share | | :--- | :--- | :--- | | Total Investment Income | $70.9 | N/A | | Net Investment Income | $30.2 | $0.29 | | Net Increase in Net Assets | $22.0 | $0.21 | - The decrease in NAV per share from $11.36 to $11.32 was primarily attributed to: - **$(0.10) per share** from net realized loss on investments and currency transactions - **+$0.03 per share** from net investment income exceeding the dividend - **+$0.02 per share** from net unrealized appreciation - **+$0.01 per share** from the accretive impact of share repurchases[6](index=6&type=chunk) [Portfolio and Capital Management](index=2&type=section&id=Portfolio%20and%20Capital%20Management) Q3 saw $125.0 million in investments and $111.9 million in repayments, alongside strong liquidity and share repurchases [Recent Portfolio Activity](index=2&type=section&id=Recent%20Portfolio%20Activity) Q3 portfolio activity involved significant investments and repayments, leading to both realized losses and unrealized appreciation - **New Investments:** Made 11 new investments totaling **$88.4 million** - **Follow-on Investments:** Invested **$36.6 million** in existing portfolio companies - **Repayments/Sales:** Received **$111.9 million** from loan repayments and principal payments, recognizing a net realized loss of **$13.2 million** on these transactions - **Equity Sales:** Received **$5.9 million** from equity sales, recognizing a net realized gain of **$4.3 million**[7](index=7&type=chunk) - The company recorded net unrealized appreciation of **$2.7 million**. This was primarily driven by a **$21.6 million positive impact from foreign currency exchange rates** on investments, which was partially offset by **negative credit/fundamental performance of $11.1 million** and unrealized depreciation on currency and forward contracts[8](index=8&type=chunk) [Liquidity and Capitalization](index=2&type=section&id=Liquidity%20and%20Capitalization) The company maintained $66.0 million in cash and $1.37 billion in total debt, later amending its credit facility to extend maturity Liquidity Position as of September 30, 2024 (in millions) | Item | Amount | | :--- | :--- | | Cash and Foreign Currencies | $66.0 | | Borrowings under Credit Facility | $347.8 | | Unsecured Notes Outstanding | $1,025.0 | - On November 5, 2024, the company amended its credit facility, extending the revolving period to November 2028 and the maturity date to November 2029, while reducing total commitments from **$1,065 million** to **$825 million**[10](index=10&type=chunk) - The CFO highlighted **over $540.0 million of available capital** and a **net leverage level below 1.10x**, positioning the company for new origination activity[11](index=11&type=chunk) [Share Repurchase Program](index=2&type=section&id=Share%20Repurchase%20Program) The company repurchased 199,054 shares at $9.84 per share in Q3 2024 under its $30.0 million program - The Board authorized a 12-month, **$30.0 million share repurchase program** effective March 1, 2024, for open market purchases at prices below the current NAV per share[12](index=12&type=chunk) - During Q3 2024, the company repurchased **199,054 shares** at an average price of **$9.84 per share**. As of November 6, 2024, a total of **508,132 shares** have been repurchased under the program[13](index=13&type=chunk) [Shareholder Information](index=3&type=section&id=Shareholder%20Information) The Board declared a Q4 2024 cash dividend of $0.26 per share, payable December 11, 2024, with a DRIP option [Fourth Quarter 2024 Dividend](index=3&type=section&id=Fourth%20Quarter%202024%20Dividend) A Q4 2024 cash dividend of $0.26 per share was declared, with a December 4 record date and December 11 payment | Item | Detail | | :--- | :--- | | Amount per share | $0.26 | | Record date | December 4, 2024 | | Payment date | December 11, 2024 | [Dividend Reinvestment Plan (DRIP)](index=3&type=section&id=Dividend%20Reinvestment%20Plan%20%28DRIP%29) The company offers a Dividend Reinvestment Plan (DRIP) for automatic reinvestment of cash dividends into shares - Stockholders who have not opted out of the DRIP will have their cash dividends automatically reinvested in additional shares of the Company's common stock[15](index=15&type=chunk) [Subsequent Events & Conference Call](index=3&type=section&id=Subsequent%20Events%20%26%20Conference%20Call) Subsequent to Q3, Barings BDC made $117.1 million in new commitments, with $95.8 million funded, and scheduled a Q3 results conference call - After September 30, 2024, the Company made new commitments of **~$117.1 million**, with **$95.8 million funded**. The funded amount consisted primarily of **$91.2 million in first lien senior secured debt** with a weighted average yield of **9.6%**[17](index=17&type=chunk) - A conference call to discuss Q3 2024 results is scheduled for Thursday, November 7, 2024, at 9:00 a.m. ET[18](index=18&type=chunk) [Financial Statements (Unaudited)](index=4&type=section&id=Financial%20Statements%20%28Unaudited%29) This section presents the unaudited consolidated financial statements for periods ended September 30, 2024, covering assets, operations, and cash flows [Consolidated Statements of Assets and Liabilities](index=4&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) As of September 30, 2024, total assets were $2.61 billion, with net assets of $1.19 billion and an investment portfolio of $2.42 billion Balance Sheet Summary (in thousands) | Account | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total investments at fair value | $2,416,714 | $2,488,715 | | Total assets | $2,605,078 | $2,677,453 | | Total liabilities | $1,410,637 | $1,480,894 | | Total net assets | $1,194,441 | $1,196,559 | | Net asset value per share | $11.32 | $11.28 | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) Q3 2024 total investment income was $70.9 million, yielding $30.2 million net investment income and a $22.0 million net increase in net assets Statement of Operations Summary - Three Months Ended (in thousands) | Account | Sep 30, 2024 | Sep 30, 2023 | | :--- | :--- | :--- | | Total investment income | $70,851 | $70,846 | | Total operating expenses | $39,633 | $37,125 | | Net investment income after taxes | $30,185 | $33,309 | | Net realized/unrealized loss | $(8,165) | $(15,250) | | Net increase in net assets | $22,020 | $18,321 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Nine months ended September 30, 2024: operating activities provided $167.3 million cash, financing used $171.9 million, resulting in a $4.5 million net cash decrease Cash Flow Summary - Nine Months Ended (in thousands) | Activity | Sep 30, 2024 | Sep 30, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $167,318 | $(62,060) | | Net cash provided by (used in) financing activities | $(171,852) | $(27,597) | | Net increase (decrease) in cash | $(4,534) | $(89,657) | [Non-GAAP Financial Measures](index=4&type=section&id=Non-GAAP%20Financial%20Measures) The company provides a reconciliation for its non-GAAP net debt-to-equity ratio, 1.09x as of September 30, 2024, used to monitor leverage - The company uses non-GAAP measures such as **net debt** and **net debt-to-equity ratio** to supplement GAAP financial information, as management believes these measures enhance investors' ability to analyze leverage and financial condition[22](index=22&type=chunk) Reconciliation of Net Debt-to-Equity Ratio (in millions) | Metric | Sep 30, 2024 | Jun 30, 2024 | Mar 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total debt (principal) | $1,372.8 M | $1,375.8 M | $1,465.4 M | $1,444.9 M | | Total net debt | $1,298.2 M | $1,285.9 M | $1,412.8 M | $1,374.2 M | | Total net assets | $1,194.4 M | $1,201.9 M | $1,211.9 M | $1,196.6 M | | **Total net debt-to-equity ratio** | **1.09x** | **1.07x** | **1.17x** | **1.15x** |

The past couple of years have been great and rewarding for BDC investors. Higher base rates, increased regulation in the banking sector, and a continued momentum of the private capital expansion have created favorable environment for BDCs to Roberts Berzins has over a decade of experience in the financial management helping top-tier corporates shape their financial strategies and execute large-scale financings. He has also made significant efforts to institutionalize REIT framework in Latvia to boost the li ...

Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.Considering these trends, value investing is clearly one of the most preferred ways to find strong stocks in any type of market. Value investors rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are unde ...

Market Overview - Wall Street has experienced significant volatility in September, with the U.S. stock market bouncing back on expectations of Federal Reserve rate cuts after the largest weekly losses of the year [1] - Economic slowdown concerns continue to impact stock performance, with investors seeking high-yield dividend ETFs and stocks as defensive options [1] Rate Cuts Expectations - The Federal Reserve is anticipated to lower interest rates by 25 basis points at each of the three remaining policy meetings this year, with a current range of 5.25%-5.50% since July 2023 [3] - The CME FedWatch tool indicates a 66% chance of a 25 bps cut and a 34% chance of a 50 bps cut during the Fed's decision on September 18 [3] Economic Slowdown Indicators - The U.S. created 142,000 jobs in August, below the expected 160,000, with prior month job growth also revised lower, signaling a cooling labor market [4] - Job openings dropped to the lowest level since January 2021, and the ISM manufacturing survey showed weaker results, contributing to economic slowdown concerns [4] Volatility Factors - Continued volatility is expected due to geopolitical tensions and the upcoming November elections, with historical trends indicating September is typically a weak month for the stock market [5] ETFs in Focus - **Global X SuperDividend ETF (SDIV)**: Annual yield of 10.8%, with $789.2 million in assets and an average trading volume of 200,000 shares [6][7] - **First Trust NASDAQ Rising Dividend Achievers ETF (RDVY)**: Annual yield of 8.5%, with $1.3 billion in assets and an average trading volume of 714,000 shares [8] - **Global X SuperDividend U.S. ETF (DIV)**: Annual yield of 6.2%, with $639.2 million in assets and an average trading volume of 144,000 shares [9] Stocks in Focus - **Barings BDC (BBDC)**: Annual dividend of 10.70%, market cap of $1 billion, with a Zacks Rank 2 and expected earnings growth of 7.56% [10] - **Delek Logistics Partners L.P. (DKL)**: Annual yield of 10.6%, market cap of $1.9 billion, with expected earnings growth of 5.6% [11] - **British American Tobacco (BTI)**: Annual yield of 7.6%, market cap of $86.7 billion, with expected earnings growth of 0.4% [12]

Core Viewpoint - The article discusses the current state of small-cap stocks with high dividend yields, contrasting them with the S&P 500, particularly highlighting the challenges faced by companies like Xerox and the potential opportunities in other small-cap stocks. Group 1: S&P 500 and Small-Cap Comparison - The S&P 500 index is heavily weighted towards Nvidia, which constitutes 6.3% of the index, and the SPDR S&P 500 ETF (SPY) yields only 1.2% with a P/E ratio of 22 times earnings [1] - In contrast, the S&P SmallCap 600 trades at a more reasonable P/E of 16, with select small caps offering dividend yields between 9.1% and 14.7% [1] Group 2: Xerox (XRX) - Xerox has seen its market capitalization fall below $2 billion, marking its status as a small cap for the first time since 1990, following a nearly 40% year-to-date decline [2] - The company has struggled to pivot from its core printing business, leading to a revised revenue guidance of a 5%-6% decline and an adjusted operating margin of 6.5% [3] - Despite a high dividend yield of 9.1%, the business is considered to be in decline, with earnings expectations lowered significantly [3] Group 3: Dorian LPG (LPG) - Dorian LPG, a liquefied petroleum gas shipping company, currently offers a dividend yield of 10.7%, although this has decreased from 25% due to a 66% increase in share price [4] - The company’s earnings for the fiscal year 2025 are expected to fall by 36% from last year's record profits, but a rebound is anticipated in fiscal 2026 [5] - Shares are trading at 7.7 times expected earnings, which is considered inexpensive for investors [6] Group 4: Goldman Sachs BDC (GSBD) - Goldman Sachs BDC offers a high dividend yield of 12.7%, targeting companies with annual EBITDA between $5 million and $75 million [7] - The company has underperformed the BDC industry for years, with a net asset value decline of about 6% last quarter [8] - Despite trading at a low 6.5 times estimates for net investment income per share, it is considered overvalued at a price to NAV of 1.04x [8] Group 5: Barings BDC (BBDC) - Barings BDC provides a 10.3% dividend yield and trades at an 11% discount to NAV, focusing on senior secured private debt investments [9] - The company has improved its portfolio significantly since rebranding from Triangle Capital in 2018, now managing 329 portfolio companies [9][10] - Barings BDC maintains a high-credit-quality portfolio and covers its dividend comfortably [10] Group 6: Ready Capital (RC) - Ready Capital has a dividend yield of 14.7% and trades at 0.63 times book value, which is lower than its peers [11] - The company focuses on originating and servicing small- and medium-sized balance commercial loans, with a recent merger with Broadmark Realty Capital [12] - Ready Capital is undergoing a restructuring process to improve earnings, which have recently fallen below its dividend expectations [13]

Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the ...