Bain Capital Specialty Finance, Inc. (NYSE:BCSF) Q4 2021 Earnings Conference Call February 24, 2022 8:30 AM ET Company Participants Katherine Schneider - Investor Relations Michael Ewald - Chief Executive Officer Mike Boyle - President Sally Dornaus - Chief Financial Officer Conference Call Participants Ryan Lynch - KBW Operator Good day, and welcome to the Bain Capital Specialty Finance Fourth Quarter and Fiscal Year Ended December 31, 2021 Earnings Conference Call. Today's conference is being recorded. At ...

PART I [Item 1. Business](index=7&type=section&id=Item%201.%20Business) BCSF operates as an externally managed, closed-end business development company (BDC) and regulated investment company (RIC), primarily investing in senior direct lending to middle-market companies - BCSF was formed on October 5, 2015, commenced investment operations on October 13, 2016, and completed its initial public offering (IPO) on November 19, 2018, with shares trading on the NYSE under 'BCSF'[14](index=14&type=chunk) - The company is regulated as a Business Development Company (BDC) under the 1940 Act and has elected to be treated as a Regulated Investment Company (RIC) for U.S. federal income tax purposes[14](index=14&type=chunk) - Primary investment focus is on senior direct lending to middle-market companies with **$10.0 million to $150.0 million** in annual EBITDA, concentrating on first or second lien secured investments and seeking effective voting control[14](index=14&type=chunk)[27](index=27&type=chunk) - The company's asset coverage requirement under the 1940 Act was reduced from **200% to 150%** effective February 2, 2019, following stockholder approval[15](index=15&type=chunk)[98](index=98&type=chunk)[102](index=102&type=chunk) General The Investment Advisor About Bain Capital Credit The Board of Directors Investment Decision Process Investment Strategy Investment Focus Competition Investment Advisory Agreement; Administration Agreement Fees and Expenses Capital Resources and Borrowings BCSF Revolving Credit Facility 2018-1 Notes Citibank Revolving Credit Facility JPM Credit Facility 2019-1 Debt Revolving Advisor Loan 2023 Notes March 2026 Notes October 2026 Notes Sumitomo Credit Facility Dividend Reinvestment Plan Administration Regulation as a Business Development Company Qualifying Assets Limitations on Leverage Managerial Assistance to Portfolio Companies Monitoring Investments Temporary Investments Senior Securities Code of Ethics Compliance Policies and Procedures Sarbanes-Oxley Act of 2002 Proxy Voting Policies and Procedures Privacy Principles Information Available Certain U.S. Federal Income Tax Consequences Portfolio Composition as of December 31, 2021 (Fair Value) | Investment Type | Fair Value ($ thousands) | Percentage of Total Portfolio | | :-------------------------------- | :----------------------- | :---------------------------- | | First Lien Senior Secured Loans | 1,774,675 | 77.5 % | | Equity Interest | 151,844 | 6.6 % | | Subordinated Note Investment Vehicles | 125,437 | 5.5 % | | Second Lien Senior Secured Loans | 118,561 | 5.2 % | | Preferred Equity | 53,991 | 2.4 % | | Equity Interest Investment Vehicles | 44,444 | 1.9 % | | Subordinated Debt | 20,027 | 0.9 % | | Warrants | 126 | 0.0 % | | **Total** | **2,289,105** | **100.0 %** | Portfolio Composition as of December 31, 2020 (Fair Value) | Investment Type | Fair Value ($ thousands) | Percentage of Total Portfolio | | :-------------------------------- | :----------------------- | :---------------------------- | | First Lien Senior Secured Loans | 2,164,910 | 87.1 % | | Second Lien Senior Secured Loans | 161,960 | 6.6 % | | Equity Interests | 119,905 | 4.8 % | | Preferred Equity | 37,713 | 1.5 % | | Warrants | — | 0.0 % | | **Total** | **2,484,488** | **100.0 %** | Investment Performance Rating as of December 31, 2021 | Rating | Fair Value ($ thousands) | Percentage of Total | Number of Companies | Percentage of Total | | :----- | :----------------------- | :------------------ | :------------------ | :------------------ | | 1 | 42,233 | 1.9 % | 4 | 3.8 % | | 2 | 2,017,059 | 88.1 | 95 | 89.6 | | 3 | 229,813 | 10.0 | 7 | 6.6 | | 4 | — | 0.0 | — | 0.0 | | **Total** | **2,289,105** | **100.0 %** | **106** | **100.0 %** | Investment Performance Rating as of December 31, 2020 | Rating | Fair Value ($ thousands) | Percentage of Total | Number of Companies | Percentage of Total | | :----- | :----------------------- | :------------------ | :------------------ | :------------------ | | 1 | 42,942 | 1.7 % | 3 | 2.9 % | | 2 | 2,121,057 | 85.4 | 87 | 82.8 | | 3 | 315,383 | 12.7 | 14 | 13.3 | | 4 | 5,106 | 0.2 | 1 | 1.0 | | **Total** | **2,484,488** | **100.0 %** | **105** | **100.0 %** | [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks associated with investing in BCSF common stock, covering business, market, investment, and tax-related factors - Investing in BCSF common stock involves a high degree of risk, including potential partial or total loss of capital, as the company primarily invests in illiquid, privately negotiated debt and junior investments[121](index=121&type=chunk)[122](index=122&type=chunk) - The company's ability to achieve investment objectives is highly dependent on the financial and managerial expertise of its Advisor and Bain Capital Credit, with the loss of key individuals posing a material adverse effect[123](index=123&type=chunk) - Conflicts of interest may arise due to the Advisor's management and incentive fee structure, which is based on gross assets and can incentivize the use of leverage and speculative investments, potentially misaligning with stockholder interests[134](index=134&type=chunk) - The expected discontinuation of LIBOR could significantly impact BCSF's business, leading to operational challenges in amending existing loan agreements and potential mismatches in interest rates, affecting net investment income and distributions[147](index=147&type=chunk)[149](index=149&type=chunk) - A majority of BCSF's portfolio investments are recorded at fair value determined in good faith by the Board, often using unobservable inputs (Level 3), leading to inherent uncertainty and potential material differences from actual liquidation values[153](index=153&type=chunk)[155](index=155&type=chunk) - The COVID-19 pandemic has caused and continues to cause disruptions in global debt and equity markets, negatively impacting portfolio companies' operating results, increasing default risks, and potentially limiting BCSF's investment income and distributions[187](index=187&type=chunk)[189](index=189&type=chunk)[191](index=191&type=chunk) - BCSF invests in middle-market companies, which inherently involve higher risks due to shorter operating histories, narrower product lines, smaller market shares, and greater vulnerability to economic downturns compared to larger corporations[197](index=197&type=chunk)[199](index=199&type=chunk) - Failure to maintain RIC tax qualification would subject BCSF to corporate-level income tax, substantially reducing net assets and income available for distribution to stockholders[249](index=249&type=chunk)[251](index=251&type=chunk)[258](index=258&type=chunk) Risks Relating to Our Business and Structure Risks Relating to COVID-19 and General Market Conditions Risks Relating to Our Investments Federal Income Tax and Other Tax Risks Risks Relating to Our Common Stock Effect of Leverage on Returns (as of December 31, 2021) | Assumed Return on our Portfolio (Net of Expenses) | Corresponding return to common stockholder assuming actual asset coverage (177%) | Corresponding return to common stockholder assuming 150% asset coverage | | :------------------------------------------------ | :----------------------------------------------------------------------------- | :--------------------------------------------------------------------- | | (10.00%) | (27.34%) | (36.47%) | | (5.00%) | (15.66%) | (21.29%) | | 0.00% | (3.97%) | (6.10%) | | 5.00% | 7.72% | 9.08% | | 10.00% | 19.40% | 24.26% | [Item 1B. Unresolved Staff Comments](index=81&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the SEC - No unresolved staff comments were reported[295](index=295&type=chunk) [Item 2. Properties](index=81&type=section&id=Item%202.%20Properties) The company's principal executive office is located in Boston, Massachusetts, and it does not own any real estate - The principal executive office is at 200 Clarendon Street, 37th Floor, Boston, Massachusetts 02116[295](index=295&type=chunk) - The company does not own any real estate and believes current facilities are adequate, with additional space available at competitive prices if required[295](index=295&type=chunk) [Item 3. Legal Proceedings](index=81&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently involved in any material legal proceedings, nor is it aware of any threatened against it - The company is not currently subject to any material legal proceedings, nor is any material legal proceeding threatened against it[296](index=296&type=chunk) - The company may be a party to certain legal proceedings in the ordinary course of business, including those related to enforcing rights under loans or contracts with portfolio companies[296](index=296&type=chunk) [Item 4. Mine Safety Disclosures](index=81&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[297](index=297&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=82&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) BCSF common stock trades on the NYSE under 'BCSF', with quarterly dividends intended to maintain RIC tax treatment and a dividend reinvestment plan in place - BCSF common stock is traded on the New York Stock Exchange under the symbol 'BCSF'[298](index=298&type=chunk) - As of February 11, 2022, there were approximately **113** holders of record of the common stock[299](index=299&type=chunk) - The company intends to distribute quarterly dividends to stockholders to maintain its RIC tax treatment, requiring distributions of at least **90%** of net ordinary income and net short-term capital gains in excess of net long-term capital losses[300](index=300&type=chunk) - A Dividend Reinvestment Plan (DRIP) automatically reinvests cash distributions into additional common stock for stockholders who do not opt out[301](index=301&type=chunk)[303](index=303&type=chunk) - On May 7, 2019, the Board authorized repurchases of up to **$50 million** of common stock, but as of December 31, 2021, no repurchases had occurred[399](index=399&type=chunk) - In June 2020, BCSF completed a transferable subscription rights offering, issuing **12,912,453** shares at **$10.2163** per share, generating net proceeds of **$129.6 million**[401](index=401&type=chunk) Market Information Holders Distribution Policy Dividend Reinvestment Plan Performance Graph Recent Sales of Unregistered Securities and Use of Proceeds SENIOR SECURITIES Senior Securities Outstanding (in millions) | Class and Year/Period | Total Outstanding | Asset Coverage Per Unit ($ per $1,000 of indebtedness) | | :-------------------- | :---------------- | :----------------------------------------------------- | | **2018-1 Notes** | | | | December 31, 2021 | $365.7 | $6,920.2 | | December 31, 2020 | $365.7 | $6,927.8 | | December 31, 2019 | $365.7 | $7,103.1 | | December 31, 2018 | $365.7 | $4,480.7 | | **2019-1 Debt** | | | | December 31, 2021 | $352.5 | $7,179.3 | | December 31, 2020 | $398.8 | $6,352.8 | | December 31, 2019 | $398.8 | $6,513.6 | | **2023 Notes** | | | | December 31, 2021 | $112.5 | $22,495.2 | | December 31, 2020 | $150.0 | $16,890.1 | | **March 2026 Notes** | | | | December 31, 2021 | $300.0 | $8,435.7 | | **October 2026 Notes**| | | | December 31, 2021 | $300.0 | $8,435.7 | | **Total Senior Securities** | | | | December 31, 2021 | $1,430.7 | $1,768.9 | | December 31, 2020 | $1,465.5 | $1,728.8 | | December 31, 2019 | $1,579.3 | $1,644.8 | | December 31, 2018 | $637.0 | $2,572.4 | | December 31, 2017 | $451.0 | $2,124.1 | | December 31, 2016 | $59.1 | $2,867.1 | [Item 6. Selected Consolidated Financial Data](index=85&type=section&id=Item%206.%20Selected%20Consolidated%20Financial%20Data) This section presents selected consolidated historical financial data for BCSF from 2017 to 2021, including statements of operations, per share data, and balance sheet highlights Selected Consolidated Statements of Operations Data (in thousands) | Metric | 2021 | 2020 | 2019 | 2018 | 2017 | | :---------------------------------------- | :-------- | :-------- | :-------- | :------- | :------ | | Total investment income | $197,394 | $194,460 | $197,945 | $99,294 | $24,605 | | Total expenses, net of waivers | 109,522 | 108,397 | 113,078 | 43,364 | 10,396 | | Net investment income (loss) before taxes | 87,872 | 86,063 | 84,867 | 55,930 | 14,209 | | Excise tax expense | 134 | 232 | — | — | 5 | | Net investment income (loss) after taxes | 87,738 | 85,831 | 84,867 | 55,930 | 14,204 | | Net realized and unrealized gain (loss) | 32,069 | (77,553) | 13,218 | (29,285) | 5,096 | | Net increase in net assets from operations| $119,807 | $8,278 | $98,085 | $26,645 | $19,300 | Selected Per Share Data | Metric | 2021 | 2020 | 2019 | 2018 | 2017 | | :---------------------------------------- | :---- | :---- | :---- | :--- | :--- | | Net investment income (loss) | $1.36 | $1.46 | $1.64 | $1.45 | $0.73 | | Net increase in net assets from operations| $1.86 | $0.14 | $1.90 | $0.69 | $0.99 | | Distributions declared | $1.36 | $1.43 | $1.64 | $1.52 | $0.70 | Selected Consolidated Statements of Assets and Liabilities Data (at period end, in thousands) | Metric | 2021 | 2020 | 2019 | 2018 | 2017 | | :---------------------------------------- | :---------- | :---------- | :---------- | :---------- | :-------- | | Total assets | $2,571,193 | $2,603,492 | $2,645,554 | $1,791,014 | $988,251 | | Total investments, at fair value | 2,289,105 | 2,484,488 | 2,527,055 | 1,727,806 | 831,578 | | Total liabilities | 1,471,187 | 1,535,488 | 1,627,154 | 789,385 | 481,288 | | Total debt, net of unamortized debt costs | 1,414,982 | 1,458,360 | 1,574,635 | 634,925 | 451,000 | | Total net assets | 1,100,006 | 1,068,004 | 1,018,400 | 1,001,629 | 506,963 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=86&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section details BCSF's financial condition, operations, and cash flows for 2019-2021, covering investment strategy, revenue, expenses, leverage, and the impact of COVID-19 - BCSF is an externally managed specialty finance company focused on lending to middle market companies, operating as a BDC and managed by BCSF Advisors, LP[316](index=316&type=chunk) - From October 13, 2016, through December 31, 2021, BCSF invested approximately **$5,019.3 million** in aggregate principal amount of debt and equity investments[316](index=316&type=chunk) - The company's primary revenue sources are interest income from debt investments and distributions on equity investments, with a majority (**97.8% in 2021, 99.2% in 2020**) of debt investments bearing floating rates[320](index=320&type=chunk) - BCSF's asset coverage ratio was **177%** as of December 31, 2021, and **173%** as of December 31, 2020, exceeding the **150%** regulatory requirement[327](index=327&type=chunk)[396](index=396&type=chunk) - The COVID-19 pandemic has led to increased draw requests on credit facilities and requests for loan modifications from portfolio companies, but BCSF has maintained compliance with asset coverage and financial covenants[328](index=328&type=chunk) - During 2021, BCSF invested **$1,185.3 million** and had **$1,431.4 million** in repayments/sales, resulting in a net decrease of **$246.1 million** in investments[337](index=337&type=chunk) - The International Senior Loan Program, LLC (ISLP) joint venture was formed on February 9, 2021, with Pantheon, investing primarily in non-US first lien senior secured loans. BCSF contributed **$317.1 million** in debt investments for a **70.5%** stake and received **$190.2 million** in cash[363](index=363&type=chunk)[576](index=576&type=chunk) Overview Investments Revenues Expenses Leverage Impact of COVID-19 Investment Decision Process Environmental, Social and Governance Portfolio and Investment Activity Antares Bain Capital Complete Financing Solution International Senior Loan Program, LLC Results of Operations Financial Condition, Liquidity and Capital Resources Equity Debt Distribution Policy Commitments and Off-Balance Sheet Arrangements Significant Accounting Estimates and Critical Accounting Policies Recent Accounting Pronouncements Contractual Obligations Subsequent Events Total Investment Income (in thousands) | Year | Total Investment Income | | :--- | :---------------------- | | 2021 | $197,394 | | 2020 | $194,460 | | 2019 | $197,945 | Composition of Investment Income (in thousands) | Income Type | 2021 | 2020 | 2019 | | :---------------- | :------- | :------ | :------ | | Interest income | $167,343 | $174,197 | $179,917 | | Dividend income | 13,115 | 9,324 | 16,741 | | PIK income | 10,763 | 8,778 | 478 | | Other income | 6,173 | 2,161 | 809 | | **Total** | **$197,394** | **$194,460** | **$197,945** | Total Expenses, Net of Waivers (in thousands) | Year | Total Expenses, Net of Waivers | | :--- | :----------------------------- | | 2021 | $109,522 | | 2020 | $108,397 | | 2019 | $113,078 | Net Realized and Unrealized Gains and Losses (in thousands) | Category | 2021 | 2020 | 2019 | | :-------------------------------------------------------------------- | :---------- | :---------- | :-------- | | Net realized gains (losses) | $(10,902) | $(27,222) | $7,785 | | Net unrealized appreciation (depreciation) | 42,971 | (50,331) | 5,433 | | **Net increase in net assets resulting from operations** | **$119,807**| **$8,278** | **$98,085** | Cash, Foreign Cash, Restricted Cash and Cash Equivalents (in thousands) | Date | Amount | | :--------------- | :-------- | | December 31, 2021| $203,581 | | December 31, 2020| $81,702 | | December 31, 2019| $68,846 | Debt Outstanding (in thousands) | Debt Type | 2021 Principal Outstanding | 2020 Principal Outstanding | | :--------------------- | :------------------------- | :------------------------- | | 2018-1 Notes | $365,700 | $365,700 | | 2019-1 Debt | $352,500 | $398,750 | | 2023 Notes | $112,500 | $150,000 | | March 2026 Notes | $300,000 | — | | October 2026 Notes | $300,000 | — | | Sumitomo Credit Facility | — | — | | **Total Debt** | **$1,430,700** | **$1,465,507** | Distributions Declared (in thousands) | Year | Total Distributions Declared | | :--- | :--------------------------- | | 2021 | $87,805 | | 2020 | $87,029 | | 2019 | $84,636 | [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=128&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) BCSF is exposed to financial market risks, primarily interest rate fluctuations, due to its illiquid loan investments and fair value measurements, with potential hedging strategies for foreign currency - BCSF is subject to financial market risks, including changes in interest rates, due to its investments in illiquid loans and securities of middle-market companies[466](index=466&type=chunk)[469](index=469&type=chunk) - Many portfolio investments are valued at fair value using unobservable inputs (Level 3), leading to significant uncertainty in valuation[469](index=469&type=chunk) - The company may employ hedging techniques, such as forward contracts, to minimize exposure to foreign currency exchange rate fluctuations, but their effectiveness is not assured[470](index=470&type=chunk) Annualized Impact of Hypothetical Base Rate Changes on Interest Income and Expense (in thousands) | Change in Interest Rates | Increase in (Decrease) Interest Income | Increase in (Decrease) Interest Expense | Net Increase (Decrease) in Net Investment Income | | :----------------------- | :------------------------------------- | :-------------------------------------- | :----------------------------------------------- | | Down 25 basis points | $(729) | $(1,502) | $773 | | Up 100 basis points | $7,556 | $7,182 | $374 | | Up 200 basis points | $28,935 | $14,364 | $14,571 | | Up 300 basis points | $50,477 | $21,546 | $28,931 | [Item 8. Consolidated Financial Statements and Supplementary Data](index=128&type=section&id=Item%208.%20Consolidated%20Financial%20Statements%20and%20Supplementary%20Data) This section presents BCSF's audited consolidated financial statements for 2019-2021, including statements of assets, operations, changes in net assets, cash flows, and detailed notes - The consolidated financial statements for Bain Capital Specialty Finance, Inc. and its subsidiaries as of and for the years ended December 31, 2021, 2020, and 2019 are included, along with the report of the independent registered public accounting firm[471](index=471&type=chunk)[475](index=475&type=chunk) - The financial statements are prepared in accordance with US GAAP and follow accounting and reporting guidance for investment companies (ASC Topic 946)[457](index=457&type=chunk)[533](index=533&type=chunk) Consolidated Statements of Assets and Liabilities (as of December 31, in thousands) | Asset/Liability | 2021 | 2020 | | :-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :---------- | :---------- | | **Assets** | | | | Investments at fair value | $2,289,105 | $2,484,488 | | Cash and cash equivalents | 87,443 | 53,704 | | Foreign cash | 29,979 | 972 | | Restricted cash and cash equivalents | 86,159 | 27,026 | | Collateral on forward currency exchange contracts | 2,815 | 4,934 | | Deferred financing costs | 2,178 | 3,131 | | Interest receivable on investments | 19,269 | 15,720 | | Receivable for sales and paydowns of investments and other investment transactions | 30,334 | 5,928 | | Prepaid Insurance | 193 | — | | Unrealized appreciation on forward currency exchange contracts | 5,321 | — | | Dividend receivable | 18,397 | 7,589 | | **Total Assets** | **$2,571,193**| **$2,603,492**| | **Liabilities** | | | | Debt (net of unamortized debt issuance costs) | $1,414,982 | $1,458,360 | | Interest payable | 7,058 | 8,223 | | Payable for investments purchased | 7,594 | 10,991 | | Unrealized depreciation on forward currency exchange contracts | — | 22,614 | | Base management fee payable | 8,792 | 6,289 | | Incentive fee payable | 4,727 | 3,799 | | Accounts payable and accrued expenses | 6,083 | 3,261 | | Distributions payable | 21,951 | 21,951 | | **Total Liabilities** | **$1,471,187**| **$1,535,488**| | **Net Assets** | | | | Common stock, par value $0.001 per share, 100,000,000,000 shares authorized, 64,562,265 and 64,562,265 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively | 65 | 65 | | Paid in capital in excess of par value | 1,168,384 | 1,166,453 | | Total distributable earnings (loss) | (68,443) | (98,514) | | **Total Net Assets** | **$1,100,006**| **$1,068,004**| | **Total Liabilities and Total Net assets** | **$2,571,193**| **$2,603,492**| | Net asset value per share | $17.04 | $16.54 | Consolidated Statements of Operations (for the years ended December 31, in thousands) | Income/Expense Category | 2021 | 2020 | 2019 | | :------------------------------------------------------------------------------------ | :---------- | :---------- | :---------- | | **Income** | | | | | Total investment income from non-controlled/non-affiliate investments | $164,865 | $180,928 | $179,453 | | Total investment income from non-controlled/affiliate investments | 7,440 | 2,068 | — | | Total investment income from controlled affiliate investments | 25,089 | 11,464 | 18,492 | | **Total investment income** | **$197,394**| **$194,460**| **$197,945**| | **Expenses** | | | | | Interest and debt financing expenses | 51,345 | 63,309 | 66,330 | | Base management fee | 34,888 | 35,215 | 32,702 | | Incentive fee | 24,028 | 4,473 | 17,418 | | Professional fees | 2,854 | 2,626 | 2,297 | | Directors fees | 725 | 726 | 546 | | Other general and administrative expenses | 5,038 | 5,398 | 4,772 | | Total expenses before fee waivers | 118,878 | 111,747 | 124,065 | | Base management fee waiver | (4,837) | (2,676) | (8,242) | | Incentive fee waiver | (4,519) | (674) | (2,745) | | **Total expenses, net of fee waivers** | **$109,522**| **$108,397**| **$113,078**| | Net investment income before taxes | 87,872 | 86,063 | 84,867 | | Excise tax expense | 134 | 232 | — | | **Net investment income** | **$87,738** | **$85,831** | **$84,867** | | **Net realized and unrealized gains (losses)** | | | | | Net realized gain (loss) on non-controlled/non-affiliate investments | 25,084 | (33,824) | (3,487) | | Net realized gain (loss) on controlled affiliate investments | (3,858) | — | 265 | | Net realized gain (loss) on foreign currency transactions | (3,496) | 130 | (36) | | Net realized gain (loss) on forward currency exchange contracts | (23,773) | 6,472 | 11,043 | | Net realized loss on extinguishment of debt | (4,859) | — | — | | Net change in unrealized appreciation (depreciation) on foreign currency translation | (936) | 108 | (130) | | Net change in unrealized appreciation (depreciation) on forward currency exchange contracts | 27,935 | (22,396) | (9,540) | | Net change in unrealized appreciation (depreciation) on non-controlled/non-affiliate investments | (568) | (6,744) | 13,308 | | Net change in unrealized appreciation (depreciation) on non-controlled/affiliate investments | 12,576 | (174) | — | | Net change in unrealized appreciation (depreciation) on controlled affiliate investments | 3,964 | (21,125) | 1,795 | | **Total net gains (losses)** | **$32,069** | **$(77,553)**| **$13,218** | | **Net increase in net assets resulting from operations** | **$119,807**| **$8,278** | **$98,085** | | Basic and diluted net investment income per common share | $1.36 | $1.46 | $1.64 | | Basic and diluted increase in net assets resulting from operations per common share | $1.86 | $0.14 | $1.90 | | Basic and diluted weighted average common shares outstanding | 64,562,265 | 58,670,518 | 51,603,415 | Consolidated Statements of Changes in Net Assets (for the years ended December 31, in thousands) | Category | 2021 | 2020 | 2019 | | :--------------------------------------------------------------------- | :---------- | :---------- | :---------- | | **Operations:** | | | | | Net investment income | $87,738 | $85,831 | $84,867 | | Net realized gain (loss) | (10,902) | (27,222) | 7,785 | | Net change in unrealized appreciation (depreciation) | 42,971 | (50,331) | 5,433 | | **Net increase (decrease) in net assets resulting from operations** | **$119,807**| **$8,278** | **$98,085** | | **Stockholder distributions:** | | | | | Distributions from distributable earnings | (87,805) | (87,029) | (84,636) | | **Net decrease in net assets resulting from stockholder distributions**| **$(87,805)**| **$(87,029)**| **$(84,636)**| | **Capital share transactions:** | | | | | Issuance of common stock, net | — | 128,355 | — | | Reinvestment of stockholder distributions | — | — | 3,322 | | **Net increase in net assets resulting from capital share transactions**| **—** | **$128,355**| **$3,322** | | **Total increase in net assets** | **$32,002** | **$49,604** | **$16,771** | | Net assets at beginning of year | 1,068,004 | 1,018,400 | 1,001,629 | | **Net assets at end of year** | **$1,100,006**| **$1,068,004**| **$1,018,400**| | Net asset value per common share | $17.04 | $16.54 | $19.72 | | Common stock outstanding at end of period | 64,562,265 | 64,562,265 | 51,649,812 | Consolidated Statements of Cash Flows (for the years ended December 31, in thousands) | Cash Flow Category | 2021 | 2020 | 2019 | | :-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :------------ | :------------ | :------------ | | **Cash flows from operating activities** | | | | | Net increase in net assets resulting from operations | $119,807 | $8,278 | $98,085 | | Adjustments to reconcile net increase in net assets from operations to net cash used in operating activities: | | | | | Purchases of investments | (1,177,339) | (516,234) | (1,413,662) | | Proceeds from principal payments and sales of investments | 1,399,163 | 538,494 | 1,069,492 | | Net realized (gain) loss from investments | (21,226) | 33,824 | 3,222 | | Net realized loss on foreign currency transactions | 3,496 | (130) | 36 | | Net realized loss on extinguishment of debt | 4,859 | — | — | | Net change in unrealized (appreciation) depreciation on forward currency exchange contracts | (27,935) | 22,396 | 9,540 | | Net change in unrealized (appreciation) depreciation on investments | (15,972) | 28,043 | (15,103) | | Net change in unrealized (appreciation) depreciation on foreign currency translation | 936 | (108) | 130 | | Increase in investments due to PIK | (10,763) | (8,779) | (479) | | Accretion of discounts and amortization of premiums | (5,674) | (5,905) | (4,476) | | Amortization of deferred financing costs and debt issuance costs | 5,731 | 2,675 | 1,497 | | Changes in operating assets and liabilities: | | | | | Collateral on forward currency exchange contracts | 2,119 | (4,934) | 4 | | Interest receivable on investments | (3,549) | 6,762 | (16,233) | | Prepaid Insurance | (193) | — | 1 | | Dividend receivable | (10,808) | (6,628) | 7,748 | | Interest payable | (1,165) | (7,311) | 10,699 | | Collateral payable on forward currency exchange contracts | — | (331) | 331 | | Base management fee payable | 2,503 | (976) | 4,315 | | Incentive fee payable | 928 | (714) | 1,213 | | Accounts payable and accrued expenses | 636 | 996 | 874 | | **Net cash provided by (used in) operating activities** | **$265,554** | **$89,418** | **$(242,766)**| | **Cash flows from financing activities** | | | | | Borrowings on debt | 1,425,050 | 597,262 | 1,249,048 | | Repayments on debt | (1,461,826) | (710,802) | (884,529) | | Payments of financing costs | — | (1,447) | (409) | | Payments of offering costs | — | (3,545) | (1,820) | | Payments of debt issuance costs | (14,053) | (3,648) | (2,795) | | Proceeds from issuance of common stock | — | 131,917 | — | | Stockholder distributions paid | (87,805) | (86,254) | (81,246) | | **Net cash (used in) provided by financing activities** | **$(138,634)**| **$(76,517)** | **$278,249** | | Net increase in cash, foreign cash, restricted cash and cash equivalents | 126,920 | 12,901 | 35,483 | | Effect of foreign currency exchange rates | (5,041) | (45) | 92 | | Cash, foreign cash, restricted cash and cash equivalents, beginning of year | 81,702 | 68,846 | 33,271 | | **Cash, foreign cash, restricted cash and cash equivalents, end of year** | **$203,581** | **$81,702** | **$68,846** |

Bain Capital Specialty Finance, Inc. (NYSE:BCSF) Q3 2021 Earnings Conference Call November 4, 2021 8:00 AM ET Company Participants Katherine Schneider - Investor Relations Michael Ewald - Chief Executive Officer Michael Boyle - President Sally Dornaus - Chief Financial Officer Conference Call Participants Paul Johnson - Keefe, Bruyette, & Woods, Inc. Finian O'Shea - Wells Fargo Securities, LLC Operator Good day, and welcome to the Bain Capital Specialty Finance Third Quarter Ended September 30, 2021 Earning ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 814-01175 BAIN CAPITAL SPECIALTY FINANCE, INC. (Exact name of registrant as specified in its charter) Delaware 81-2878769 (State or other jurisdiction of (I.R.S. ...

Bain Capital Specialty Finance, Inc. (NYSE:BCSF) Q2 2021 Results Conference Call August 5, 2021 8:30 AM ET Company Participants Katherine Schneider - IR Michael Ewald - CEO Mike Boyle - President Sally Dornaus - CFO Conference Call Participants Finian O’Shea - Wells Fargo Securities Ryan Lynch - KBW Derek Hewett - Bank of America Operator Good day, and welcome to the Bain Capital Specialty Finance Second Quarter ended June 30, 2021 Earnings Conference Call. Today’s conference is being recorded. At this time ...

PART I. FINANCIAL INFORMATION This section presents the company's unaudited consolidated financial statements and related notes, along with management's discussion and analysis of financial condition and results of operations [Item 1. Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents the unaudited consolidated financial statements of Bain Capital Specialty Finance, Inc. for the periods ended June 30, 2021, and December 31, 2020, including statements of assets and liabilities, operations, changes in net assets, cash flows, and schedules of investments. These statements provide a comprehensive overview of the company's financial position and performance [Consolidated Statements of Assets and Liabilities](index=4&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) This statement provides a snapshot of the company's financial position, detailing its assets, liabilities, and net assets at specific reporting dates | Metric | June 30, 2021 (Unaudited, in thousands) | December 31, 2020 (in thousands) | | :----- | :-------------------------------------- | :------------------------------- | | Total Assets | $2,449,291 | $2,603,492 | | Total Liabilities | $1,351,003 | $1,535,488 | | Total Net Assets | $1,098,288 | $1,068,004 | | Net Asset Value per Share | $17.01 | $16.54 | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This statement outlines the company's revenues, expenses, and net income or loss over specific reporting periods | Metric (in thousands) | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total Investment Income | $46,490 | $47,871 | $96,320 | $99,367 | | Total Expenses, net of fee waivers | $24,566 | $27,849 | $52,230 | $56,845 | | Net Investment Income | $21,924 | $20,022 | $44,090 | $42,522 | | Net Realized Gains (Losses) | $(12,546) | $5,215 | $(3,688) | $(4,151) | | Net Change in Unrealized Appreciation (Depreciation) | $33,055 | $(3,465) | $33,784 | $(121,046) | | Net Increase (Decrease) in Net Assets from Operations | $42,433 | $21,772 | $74,186 | $(82,675) | | Metric | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic and diluted net investment income per common share | $0.34 | $0.37 | $0.68 | $0.81 | | Basic and diluted increase (decrease) in net assets | $0.66 | $0.40 | $1.15 | $(1.57) | [Consolidated Statements of Changes in Net Assets](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) This statement tracks the changes in the company's net assets resulting from operations, distributions, and stock transactions over time | Metric (in thousands) | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Assets at Beginning of Period | $1,077,806 | $892,777 | $1,068,004 | $1,018,400 | | Net Increase (Decrease) from Operations | $42,433 | $21,772 | $74,186 | $(82,675) | | Stockholder Distributions | $(21,951) | $(21,951) | $(43,902) | $(43,127) | | Issuance of Common Stock, net | $0 | $128,355 | $0 | $128,355 | | Net Assets at End of Period | $1,098,288 | $1,020,953 | $1,098,288 | $1,020,953 | | Net Asset Value per Common Share | $17.01 | $15.81 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement details the cash inflows and outflows from operating, investing, and financing activities over specific periods | Metric (in thousands) | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | | :-------------------- | :--------------------------- | :--------------------------- | | Net Cash Provided by (Used in) Operating Activities | $206,218 | $(19,201) | | Net Cash (Used in) Provided by Financing Activities | $(197,383) | $53,990 | | Net Increase (Decrease) in Cash, Foreign Cash, Restricted Cash and Cash Equivalents | $8,835 | $34,789 | | Cash, Foreign Cash, Restricted Cash and Cash Equivalents, End of Period | $88,720 | $102,899 | | Cash Interest Paid | $22,403 | $38,699 | [Consolidated Schedules of Investments](index=8&type=section&id=Consolidated%20Schedules%20of%20Investments) This schedule provides a detailed breakdown of the company's investment portfolio by type, industry, and geographic region, including amortized cost and fair value - The company's investment portfolio as of June 30, 2021, primarily consists of **First Lien Senior Secured Loans (81.5% at amortized cost)**, followed by Equity Interest (6.0%) and Second Lien Senior Secured Loans (5.0%) The total amortized cost was **$2,344,933 thousand**, with a fair value of **$2,319,540 thousand**[106](index=106&type=chunk) | Investment Type | Amortized Cost (in thousands) | % of Total Portfolio (Amortized Cost) | Fair Value (in thousands) | % of Total Portfolio (Fair Value) | | :-------------- | :---------------------------- | :------------------------------------ | :------------------------ | :-------------------------------- | | First Lien Senior Secured Loans | $1,911,749 | 81.5% | $1,881,504 | 81.1% | | Equity Interest | $141,052 | 6.0% | $136,579 | 5.9% | | Second Lien Senior Secured Loan | $117,236 | 5.0% | $115,172 | 5.0% | | Subordinated Note Investment Vehicles | $97,360 | 4.2% | $97,360 | 4.2% | | Preferred equity | $29,361 | 1.3% | $37,043 | 1.6% | | Equity Interest Investment Vehicles | $31,610 | 1.3% | $35,303 | 1.5% | | Subordinated Debt | $16,563 | 0.7% | $16,579 | 0.7% | | Warrants | $2 | 0.0% | $0 | 0.0% | | **Total** | **$2,344,933** | **100.0%** | **$2,319,540** | **100.0%** | | Geographic Region | Amortized Cost (in thousands) | % of Total Portfolio | Fair Value (in thousands) | % of Total Portfolio | | :---------------- | :---------------------------- | :------------------- | :------------------------ | :------------------- | | United States | $2,101,306 | 89.6% | $2,088,068 | 90.1% | | United Kingdom | $80,923 | 3.4% | $80,923 | 3.6% | | Cayman Islands | $79,763 | 4.0% | $79,763 | 3.4% | | Germany | $26,245 | 1.1% | $26,245 | 1.1% | | Ireland | $21,298 | 0.9% | $21,298 | 0.9% | | Luxembourg | $14,501 | 0.6% | $14,501 | 0.6% | | Australia | $7,120 | 0.4% | $7,120 | 0.3% | | Canada | $955 | 0.0% | $955 | 0.0% | | Israel | $349 | 0.0% | $349 | 0.0% | | Sweden | $177 | 0.0% | $177 | 0.0% | | France | $141 | 0.0% | $141 | 0.0% | | **Total** | **$2,344,933** | **100.0%** | **$2,319,540** | **100.0%** | | Industry | Amortized Cost (in thousands) | % of Total Portfolio | Fair Value (in thousands) | % of Total Portfolio | | :------- | :---------------------------- | :------------------- | :------------------------ | :------------------- | | Aerospace & Defense | $331,968 | 14.2% | $307,751 | 13.3% | | High Tech Industries | $211,114 | 9.0% | $212,588 | 9.2% | | Consumer Goods: Non-Durable | $195,494 | 8.3% | $197,349 | 8.5% | | Services: Business | $142,601 | 6.1% | $136,678 | 5.9% | | Healthcare & Pharmaceuticals | $136,797 | 5.8% | $135,902 | 5.9% | | Investment Vehicles | $128,970 | 5.5% | $132,663 | 5.7% | | Capital Equipment | $117,519 | 5.0% | $117,200 | 5.1% | | Transportation: Cargo | $106,532 | 4.5% | $108,133 | 4.7% | | Construction & Building | $106,306 | 4.5% | $106,981 | 4.6% | | Automotive | $91,656 | 3.9% | $92,233 | 4.0% | | Wholesale | $80,881 | 3.4% | $82,565 | 3.6% | | Energy: Oil & Gas | $69,071 | 2.9% | $76,153 | 3.3% | | Chemicals, Plastics & Rubber | $68,507 | 2.9% | $69,964 | 3.0% | | Transportation: Consumer | $76,608 | 3.3% | $65,783 | 2.8% | | Services: Consumer | $64,060 | 2.7% | $65,413 | 2.8% | | Consumer Goods: Durable | $64,194 | 2.7% | $58,148 | 2.5% | | FIRE: Insurance | $52,868 | 2.4% | $54,023 | 2.3% | | Hotel, Gaming & Leisure | $53,278 | 2.3% | $51,972 | 2.2% | | Media: Diversified & Production | $52,951 | 2.3% | $51,888 | 2.2% | | Media: Advertising, Printing & Publishing | $56,210 | 2.4% | $47,053 | 2.0% | | Retail | $44,841 | 1.9% | $45,359 | 2.0% | | Telecommunications | $39,898 | 1.7% | $40,228 | 1.7% | | FIRE: Finance | $18,955 | 0.8% | $19,243 | 0.8% | | Beverage, Food & Tobacco | $7,766 | 0.3% | $18,034 | 0.8% | | Banking | $14,397 | 0.6% | $14,649 | 0.6% | | FIRE: Real Estate | $10,940 | 0.5% | $11,020 | 0.5% | | Media: Broadcasting & Subscription | $434 | 0.1% | $448 | 0.0% | | Containers, Packaging, & Glass | $117 | 0.0% | $119 | 0.0% | | **Total** | **$2,344,933** | **100.0%** | **$2,319,540** | **100.0%** | [Notes to Consolidated Financial Statements](index=30&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed disclosures regarding the company's accounting policies, investment activities, fair value measurements, related party transactions, debt obligations, derivatives, distributions, common stock, commitments, and financial highlights, offering essential context for the consolidated financial statements [Note 1. Organization](index=31&type=section&id=Note%201.%20Organization) This note describes the company's formation, operational commencement, status as a Business Development Company (BDC) and Regulated Investment Company (RIC), and its investment strategy - Bain Capital Specialty Finance, Inc. (the "Company") was formed on October 5, 2015, and commenced investment operations on October 13, 2016 It operates as a **Business Development Company (BDC)** and a **Regulated Investment Company (RIC)** The company is externally managed by BCSF Advisors, LP, focusing on senior direct lending to middle-market companies with EBITDA between **$10.0 million and $150.0 million**[60](index=60&type=chunk)[62](index=62&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=31&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods used in preparing the consolidated financial statements, including the basis of presentation, consolidation, use of estimates, valuation of investments, revenue recognition, and treatment of various financial instruments and taxes [Basis of Presentation](index=31&type=section&id=Basis%20of%20Presentation) This section describes the accounting framework and principles used to prepare the consolidated financial statements - The consolidated financial statements are prepared in accordance with **US GAAP**, following **ASC Topic 946** for investment companies, and reflect adjustments necessary for fair statement[64](index=64&type=chunk) [Basis of Consolidation](index=32&type=section&id=Basis%20of%20Consolidation) This section explains the criteria for consolidating subsidiaries and the treatment of portfolio investments in the financial statements - The Company consolidates wholly or substantially owned subsidiaries that act as extensions of its investment operations (e.g., BCSF I, LLC, BCSF II-C, LLC) Portfolio investments, including those held by consolidated subsidiaries, are carried at fair value and not consolidated[67](index=67&type=chunk) [Use of Estimates](index=32&type=section&id=Use%20of%20Estimates) This section highlights the reliance on management's judgments and assumptions in preparing the financial statements, which can affect reported amounts [Valuation of Portfolio Investments](index=32&type=section&id=Valuation%20of%20Portfolio%20Investments) This section details the methodologies and oversight processes used to determine the fair value of the company's investment portfolio - Investments with readily available market quotations are valued at market prices Unquoted investments are valued at fair value, overseen by the Board, using discounted cash flow models, peer comparisons, and external event pricing Valuations are categorized into **Level 1, 2, or 3** based on market observability of inputs[69](index=69&type=chunk)[70](index=70&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk) [Securities Transactions, Revenue Recognition and Expenses](index=34&type=section&id=Securities%20Transactions%2C%20Revenue%20Recognition%20and%20Expenses) This section outlines the accounting policies for recording investment transactions, recognizing various types of income, and accruing expenses - Investment transactions are recorded on a trade date basis Interest income, including PIK, and amortization/accretion of discounts/premiums, are accrued Dividend income is recognized on an accrual or record date basis Loan origination and other fees are capitalized or recognized as other income Expenses are recorded on an accrual basis[80](index=80&type=chunk)[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk) [Non-Accrual Loans](index=35&type=section&id=Non-Accrual%20Loans) This section describes the policy for placing loans on non-accrual status when collection is doubtful and reports the status of such loans - Loans are placed on non-accrual status when principal or interest collection is doubtful, with accrued interest generally reversed As of June 30, 2021, there were **no loans on non-accrual status**, compared to one loan on non-accrual as of December 31, 2020[85](index=85&type=chunk) [Distributions](index=35&type=section&id=Distributions) This section explains the company's policy for distributing income to stockholders and its intention to qualify as a Regulated Investment Company (RIC) for tax purposes - Distributions to common stockholders are recorded on the record date and are generally based on estimated earnings The company intends to distribute substantially all annual taxable income to qualify as a RIC, with tax characteristics reported annually[86](index=86&type=chunk)[87](index=87&type=chunk) [Dividend Reinvestment Plan](index=36&type=section&id=Dividend%20Reinvestment%20Plan) This section describes the company's plan allowing stockholders to reinvest cash dividends in additional common shares [Offering Costs](index=36&type=section&id=Offering%20Costs) This section outlines the accounting treatment for costs incurred in connection with the company's equity offerings [Cash, Restricted Cash, and Cash Equivalents](index=36&type=section&id=Cash%2C%20Restricted%20Cash%2C%20and%20Cash%20Equivalents) This section defines what constitutes cash and cash equivalents and explains the nature of restricted cash balances - Cash and cash equivalents include highly liquid investments with original maturities of three months or less, carried at cost Restricted cash is held by a trustee for financing transactions[93](index=93&type=chunk) [Foreign Currency Translation](index=36&type=section&id=Foreign%20Currency%20Translation) This section details the accounting treatment for assets, liabilities, and transactions denominated in foreign currencies - Foreign currency assets and liabilities are translated to U.S. dollars at current exchange rates Unrealized and realized gains/losses from foreign currency are reported in the consolidated statements of operations[94](index=94&type=chunk) [Forward Currency Exchange Contracts](index=37&type=section&id=Forward%20Currency%20Exchange%20Contracts) This section describes the company's use of derivative instruments to manage foreign currency exposure and their accounting treatment - The Company uses forward currency exchange contracts to manage foreign currency exposure These derivatives are recognized at fair value, with changes in unrealized appreciation/depreciation recorded in the statements of operations Collateral is managed to mitigate counterparty risk[96](index=96&type=chunk)[97](index=97&type=chunk)[240](index=240&type=chunk) [Deferred Financing Costs and Debt Issuance Costs](index=37&type=section&id=Deferred%20Financing%20Costs%20and%20Debt%20Issuance%20Costs) This section explains the accounting for costs associated with obtaining debt financing [Income Taxes](index=38&type=section&id=Income%20Taxes) This section outlines the company's tax status as a Regulated Investment Company (RIC) and its implications for corporate-level income taxes - The Company has elected to be treated as a RIC, generally exempting it from corporate-level U.S. federal income taxes on distributed income No provision for income taxes is required in the consolidated financial statements[101](index=101&type=chunk)[102](index=102&type=chunk) [Recent Accounting Pronouncements](index=38&type=section&id=Recent%20Accounting%20Pronouncements) This section discusses recently issued accounting standards and their potential impact on the company's financial statements - The FASB issued **ASU No. 2020-04** and **ASU No. 2021-01** regarding Reference Rate Reform (Topic 848), providing optional expedients for contracts and hedging relationships affected by LIBOR discontinuation The Company is evaluating the impact of these ASUs[104](index=104&type=chunk) [Note 3. Investments](index=39&type=section&id=Note%203.%20Investments) This note details the composition of the investment portfolio by type, geographic region, and industry, providing amortized cost and fair value data for June 30, 2021, and December 31, 2020 It also introduces the International Senior Loan Program (ISLP) joint venture [International Senior Loan Program, LLC](index=42&type=section&id=International%20Senior%20Loan%20Program%2C%20LLC) This section details the formation and investment activities of the joint venture, including the company's contributions and holdings - On February 9, 2021, the Company formed ISLP, an unconsolidated joint venture with Pantheon, to invest primarily in non-US first lien senior secured loans The Company contributed **$317.1 million** in debt investments for a **70.5% stake** and received a **$190.2 million cash distribution** As of June 30, 2021, the Company's investment in ISLP included **$97.4 million** in subordinated notes and **$35.3 million** in equity interests[114](index=114&type=chunk) | Metric | Value (in thousands) | | :----- | :------------------- | | Total investments (at fair value) | $394,503 | | Weighted average yield on investments | 6.6% | | Number of borrowers | 21 | | Largest portfolio company investment | $44,291 | | Total of five largest portfolio company investments | $180,605 | | Unfunded commitments | $5,805 | [Note 4. Fair Value Measurements](index=47&type=section&id=Note%204.%20Fair%20Value%20Measurements) This note provides a detailed breakdown of the fair value measurements of investments, cash equivalents, and derivatives, categorized by the fair value hierarchy (Level 1, 2, and 3) for June 30, 2021, and December 31, 2020 It also includes a reconciliation of Level 3 inputs and discusses the valuation techniques used | Investment Type | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Measured at NAV (in thousands) | Total (in thousands) | | :-------------- | :--------------------- | :--------------------- | :--------------------- | :----------------------------- | :------------------- | | First Lien Senior Secured Loans | $0 | $137,682 | $1,743,822 | $0 | $1,881,504 | | Equity Interests | $0 | $0 | $136,579 | $0 | $136,579 | | Second Lien Senior Secured Loans | $0 | $12,326 | $102,846 | $0 | $115,172 | | Subordinated Note in Investment Vehicles | $0 | $0 | $97,360 | $0 | $97,360 | | Preferred Equity | $0 | $0 | $37,043 | $0 | $37,043 | | Equity Interest in Investment Vehicles | $0 | $0 | $0 | $35,303 | $35,303 | | Subordinated Debt | $0 | $0 | $16,579 | $0 | $16,579 | | Warrants | $0 | $0 | $0 | $0 | $0 | | **Total Investments** | **$0** | **$150,008** | **$2,134,229** | **$35,303** | **$2,319,540** | | Cash equivalents | $85,534 | $0 | $0 | $0 | $85,534 | | Forward currency exchange contracts (liability) | $0 | $2,010 | $0 | $0 | $2,010 | - For the six months ended June 30, 2021, transfers from Level 2 to Level 3 were primarily due to decreased price transparency, while transfers from Level 3 to Level 2 were due to increased price transparency[132](index=132&type=chunk) [Note 5. Related Party Transactions](index=51&type=section&id=Note%205.%20Related%20Party%20Transactions) This note details the company's agreements and transactions with related parties, including the Investment Advisory Agreement, Base Management Fee, Incentive Fee structures (income-based and capital gains), Administration Agreement, Resource Sharing Agreement, co-investment policies, Revolving Advisor Loan, and related party commitments [Investment Advisory Agreement](index=51&type=section&id=Investment%20Advisory%20Agreement) This section describes the terms and conditions of the agreement with the external investment advisor [Base Management Fee](index=51&type=section&id=Base%20Management%20Fee) This section explains the calculation and payment structure of the base management fee paid to the investment advisor - The Base Management Fee is **1.5% annually (0.375% quarterly)** of average gross assets (excluding cash) for asset coverage ratios down to 200%, and **1.0% (0.25% quarterly)** for assets attributable to leverage below 200%[143](index=143&type=chunk) | Period | Management Fees (Gross) | Contractual Waiver | Voluntary Waiver | Management Fees (Net) | | :----- | :---------------------- | :----------------- | :--------------- | :-------------------- | | 3 Months Ended June 30, 2021 | $8,623 | $0 | $(2,723) | $5,900 | | 3 Months Ended June 30, 2020 | $8,639 | $0 | $0 | $8,639 | | 6 Months Ended June 30, 2021 | $17,320 | $0 | $(4,837) | $12,483 | | 6 Months Ended June 30, 2020 | $17,365 | $0 | $0 | $17,365 | [Incentive Fee](index=51&type=section&id=Incentive%20Fee) This section outlines the general structure and components of the incentive fees paid to the investment advisor [Incentive Fee on Pre-Incentive Fee Net Investment Income](index=52&type=section&id=Incentive%20Fee%20on%20Pre-Incentive%20Fee%20Net%20Investment%20Income) This section details the calculation of the income-based incentive fee, including the hurdle rate and lookback provisions - The incentive fee on income is calculated quarterly based on a "Three-Year Lookback" of aggregate pre-incentive fee net investment income exceeding a **1.5% hurdle rate (6% annualized)** The fee structure includes a "Catch-up Amount" and a **17.5% rate** on income exceeding this[150](index=150&type=chunk)[152](index=152&type=chunk) [Incentive Fee Cap](index=53&type=section&id=Incentive%20Fee%20Cap) This section describes the mechanism that limits the total incentive fee payable based on cumulative net return - The incentive fee is subject to a cap equal to **17.5% of the Cumulative Net Return** during the relevant Trailing Twelve Quarters, less prior incentive fees If the cap is zero or negative, no fee is paid[154](index=154&type=chunk)[155](index=155&type=chunk) | Period | Income Incentive Fees (Before Waivers) | Voluntary Waiver | | :----- | :------------------------------------- | :--------------- | | 3 Months Ended June 30, 2021 | $8,042 | $(4,519) | | 3 Months Ended June 30, 2020 | $0 | $0 | | 6 Months Ended June 30, 2021 | $14,771 | $(4,519) | | 6 Months Ended June 30, 2020 | $0 | $0 | [Annual Incentive Fee Based on Capital Gains](index=54&type=section&id=Annual%20Incentive%20Fee%20Based%20on%20Capital%20Gains) This section explains the calculation of the capital gains incentive fee, based on cumulative realized and unrealized capital performance - A capital gains incentive fee of **17.5% (15% prior to IPO)** is payable annually based on cumulative aggregate realized capital gains net of realized capital losses and unrealized capital depreciation since inception No capital gains incentive fee was payable as of June 30, 2021, and December 31, 2020[161](index=161&type=chunk)[164](index=164&type=chunk) [Administration Agreement](index=55&type=section&id=Administration%20Agreement) This section describes the agreement for administrative services provided to the company [Resource Sharing Agreement](index=56&type=section&id=Resource%20Sharing%20Agreement) This section outlines the agreement for sharing resources and personnel with affiliates [Co-investments](index=56&type=section&id=Co-investments) This section discusses the company's policy and activities related to co-investing alongside its affiliates [Revolving Advisor Loan](index=56&type=section&id=Revolving%20Advisor%20Loan) This section details the terms of the unsecured revolving loan agreement with the investment advisor [Related Party Commitments](index=56&type=section&id=Related%20Party%20Commitments) This section discloses any outstanding commitments or obligations involving related parties [Non-Controlled/Affiliate and Controlled Affiliate Investments](index=57&type=section&id=Non-Controlled%2FAffiliate%20and%20Controlled%20Affiliate%20Investments) This section provides details on the company's investments in non-controlled/affiliate and controlled affiliate entities - The company's non-controlled/affiliate investments increased from **$92,915 thousand** at December 31, 2020, to **$102,800 thousand** at June 30, 2021, primarily due to gross additions of **$4,478 thousand** and unrealized gains of **$5,407 thousand** Controlled affiliate investments increased from **$130,112 thousand** to **$268,642 thousand** in the same period, driven by gross additions of **$135,587 thousand** and unrealized gains of **$6,249 thousand**[175](index=175&type=chunk) [Note 6. Debt](index=59&type=section&id=Note%206.%20Debt) This note provides a comprehensive overview of the company's debt obligations, including the BCSF Revolving Credit Facility, 2018-1 Notes, JPM Credit Facility, 2019-1 Debt, Revolving Advisor Loan, 2023 Notes, and 2026 Notes It details their terms, interest rates, maturities, and compliance with covenants - As of June 30, 2021, the Company's asset coverage ratio was **183%**, compared to **173%** at December 31, 2020, indicating compliance with the **150%** requirement for BDCs[178](index=178&type=chunk) | Debt Facility | Principal Amount Outstanding (June 30, 2021) | Carrying Value (June 30, 2021) | Principal Amount Outstanding (Dec 31, 2020) | Carrying Value (Dec 31, 2020) | | :------------ | :------------------------------------------- | :----------------------------- | :------------------------------------------ | :---------------------------- | | BCSF Revolving Credit Facility | $0 | $0 | $257,774 | $257,774 | | 2018-1 Notes | $365,700 | $364,092 | $365,700 | $364,006 | | JPM Credit Facility | $103,233 | $103,233 | $293,283 | $293,283 | | 2019-1 Debt | $398,750 | $396,379 | $398,750 | $396,265 | | Revolving Advisor Loan | $0 | $0 | $0 | $0 | | 2023 Notes | $150,000 | $147,635 | $150,000 | $147,032 | | 2026 Notes | $300,000 | $294,690 | $0 | $0 | | **Total Debt** | **$1,317,683** | **$1,306,029** | **$1,465,507** | **$1,458,360** | - The combined weighted average interest rate on aggregate borrowings outstanding decreased from **3.6%** for the year ended December 31, 2020, to **3.2%** for the six months ended June 30, 2021[180](index=180&type=chunk) [BCSF Revolving Credit Facility](index=60&type=section&id=BCSF%20Revolving%20Credit%20Facility) This section details the terms, usage, and termination of the company's revolving credit facility - The BCSF Revolving Credit Facility, with a maximum commitment of **$425.0 million** (reduced from $500.0 million in August 2020), was terminated on March 11, 2021, with proceeds from the 2026 Notes used for repayment[185](index=185&type=chunk)[188](index=188&type=chunk)[393](index=393&type=chunk)[396](index=396&type=chunk) [2018-1 Notes](index=62&type=section&id=2018-1%20Notes) This section describes the terms and outstanding principal of the company's 2018-1 term debt securitization - The Company completed a **$451.2 million** term debt securitization (2018-1 Notes) on September 28, 2018, secured by a diversified portfolio of middle-market loans As of June 30, 2021, **$365.7 million** in principal amount of these notes was outstanding, with a carrying value of **$364.1 million**[191](index=191&type=chunk)[192](index=192&type=chunk)[179](index=179&type=chunk) [JPM Credit Facility](index=63&type=section&id=JPM%20Credit%20Facility) This section outlines the terms, outstanding borrowings, and interest rates of the JPM Credit Facility - The JPM Credit Facility, with a facility amount of **$450.0 million**, bears interest at **LIBOR plus 2.375%** Borrowings decreased from **$293.3 million** at December 31, 2020, to **$103.2 million** at June 30, 2021[210](index=210&type=chunk)[211](index=211&type=chunk)[179](index=179&type=chunk) [2019-1 Debt](index=64&type=section&id=2019-1%20Debt) This section details the terms and outstanding principal of the company's 2019-1 term debt securitization - The Company completed a **$501.0 million** term debt securitization (2019-1 Debt) on August 28, 2019, secured by a diversified portfolio of middle-market loans As of June 30, 2021, **$398.8 million** in principal amount was outstanding, with a carrying value of **$396.4 million**[213](index=213&type=chunk)[214](index=214&type=chunk)[179](index=179&type=chunk) [Revolving Advisor Loan](index=66&type=section&id=Revolving%20Advisor%20Loan) This section describes the terms and current status of the unsecured revolving loan agreement with the investment advisor - The Revolving Advisor Loan, an unsecured revolving loan agreement with BCSF Advisors, LP, has a maximum credit limit of **$50.0 million** and matures on March 27, 2023 As of June 30, 2021, there were **no borrowings outstanding** under this facility[172](index=172&type=chunk)[224](index=224&type=chunk) [2023 Notes](index=66&type=section&id=2023%20Notes) This section details the terms and outstanding principal of the company's 8.50% senior unsecured notes due in 2023 - The Company issued **$150.0 million** aggregate principal amount of **8.50% senior unsecured notes** due June 10, 2023 As of June 30, 2021, the principal amount outstanding was **$150.0 million**, with a carrying value of **$147.6 million**[226](index=226&type=chunk)[229](index=229&type=chunk)[179](index=179&type=chunk) [2026 Notes](index=67&type=section&id=2026%20Notes) This section details the terms and outstanding principal of the company's 2.950% senior unsecured notes due in 2026 - The Company issued **$300.0 million** aggregate principal amount of **2.950% senior unsecured notes** due March 10, 2026 As of June 30, 2021, the principal amount outstanding was **$300.0 million**, with a carrying value of **$294.7 million**[232](index=232&type=chunk)[234](index=234&type=chunk)[179](index=179&type=chunk) [Note 7. Derivatives](index=68&type=section&id=Note%207.%20Derivatives) This note discusses the company's use of forward currency exchange contracts to manage foreign currency risk, detailing their fair value, collateral arrangements, and the impact of these derivatives on the consolidated statements of operations - The Company uses forward currency exchange contracts to mitigate foreign currency exchange rate risk As of June 30, 2021, the company had collateral receivables of **$3.8 million** on these contracts[238](index=238&type=chunk) | Metric | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net realized gains (losses) | $(18,396) | $5,097 | $(21,688) | $6,602 | | Net change in unrealized appreciation (depreciation) | $16,028 | $(9,865) | $20,604 | $3,256 | | **Total net realized and unrealized gains (losses)** | **$(2,368)** | **$(4,768)** | **$(1,084)** | **$9,858** | [Note 8. Distributions](index=70&type=section&id=Note%208.%20Distributions) This note provides a summary of distributions declared to common stockholders for the six months ended June 30, 2021, and 2020, including per share amounts and total distributions | Date Declared | Record Date | Payment Date | Amount Per Share | Total Distributions | | :------------ | :---------- | :----------- | :--------------- | :------------------ | | **Six Months Ended June 30, 2021** | | | | | | February 18, 2021 | March 31, 2021 | April 30, 2021 | $0.34 | $21,951 | | April 27, 2021 | June 30, 2021 | July 30, 2021 | $0.34 | $21,951 | | **Total** | | | **$0.68** | **$43,902** | | **Six Months Ended June 30, 2020** | | | | | | February 20, 2020 | March 31, 2020 | April 30, 2020 | $0.41 | $21,176 | | May 4, 2020 | June 30, 2020 | July 30, 2020 | $0.34 | $21,951 | | **Total** | | | **$0.75** | **$43,127** | [Note 9. Common Stock/Capital](index=70&type=section&id=Note%209.%20Common%20Stock%2FCapital) This note details the company's common and preferred stock authorization, historical equity issuances including the IPO and a transferable subscription rights offering, and share repurchase authorizations - The Company has **100,000,000,000 authorized common shares ($0.001 par value)** and **10,000,000,000 authorized preferred shares** (none issued) As of June 30, 2021, **64,562,265.27 common shares** were outstanding[250](index=250&type=chunk)[1](index=1&type=chunk) - In June 2020, the Company completed a transferable subscription rights offering, issuing **12,912,453 shares at $10.2163 per share**, generating net proceeds of **$129.6 million**[256](index=256&type=chunk) [Note 10. Commitments and Contingencies](index=72&type=section&id=Note%2010.%20Commitments%20and%20Contingencies) This note outlines the company's unfunded commitments under loan and financing agreements and discusses potential contingencies in the normal course of business | Commitment Type | Unfunded Commitments | | :-------------- | :------------------- | | First Lien Senior Secured Loans | $212,982 | | **Total** | **$212,982** | - The Company is not currently subject to any material legal proceedings and does not expect any to occur, thus no liability is recorded for potential indemnities[263](index=263&type=chunk) [Note 11. Financial Highlights](index=75&type=section&id=Note%2011.%20Financial%20Highlights) This note presents a schedule of financial highlights, including per share data, net assets, shares outstanding, market value, total returns, and key financial ratios for the six months ended June 30, 2021, and 2020 | Metric | 2021 | 2020 | | :----- | :--- | :--- | | **Per share data:** | | | | Net asset value at beginning of period | $16.54 | $19.72 | | Net investment income | $0.68 | $0.81 | | Net increase (decrease) in net assets resulting from operations | $1.15 | $(1.57) | | Stockholder distributions from income | $(0.68) | $(0.75) | | Net asset value at end of period | $17.01 | $15.81 | | **Ratios:** | | | | Ratio of net investment income to average net assets | 8.80% | 8.86% | | Ratio of total net expenses to average net assets | 9.30% | 11.84% | | Portfolio turnover | 25.09% | 9.93% | [Note 12. Subsequent Events](index=76&type=section&id=Note%2012.%20Subsequent%20Events) This note discloses significant events that occurred after the reporting period but before the financial statements were issued - On July 16, 2021, the Company repurchased **$37.5 million** of its 2023 Notes at a total cost of **$39.5 million**[267](index=267&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=74&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and liquidity, including an overview of its investment strategy, revenue generation, operating expenses, leverage, and the impact of COVID-19 It also details investment activities, portfolio composition, and results of operations for the periods presented [Overview](index=77&type=section&id=Overview) This section provides a general introduction to the company's business model, investment focus, and operational structure as a BDC - Bain Capital Specialty Finance, Inc. is an externally managed specialty finance company operating as a BDC, focusing on lending to middle-market companies with EBITDA between **$10.0 million and $150.0 million** The company primarily invests in secured debt (first lien, first lien/last-out, unitranche, second lien) and seeks current income and capital appreciation[270](index=270&type=chunk)[271](index=271&type=chunk) [Investments](index=77&type=section&id=Investments) This section describes the company's investment strategy, including its focus on qualifying assets and opportunistic non-qualifying assets - As a BDC, the Company must maintain at least **70%** of its total assets as "qualifying assets" (investments in eligible portfolio companies) and can opportunistically invest up to **30%** in "non-qualifying" assets, such as non-U.S. companies[274](index=274&type=chunk)[275](index=275&type=chunk) [Revenues](index=78&type=section&id=Revenues) This section explains the primary sources of the company's revenue, including interest income, dividend income, and various fees - Revenues are primarily generated from interest income on debt investments and distributions on equity investments, with additional income from loan origination fees, PIK interest, and capital gains The debt portfolio is predominantly floating rate (**98.3%** as of June 30, 2021), subject to interest rate floors[277](index=277&type=chunk)[278](index=278&type=chunk) [Expenses](index=78&type=section&id=Expenses) This section details the company's main operating expenses, such as management fees, incentive fees, and administrative costs - Primary operating expenses include fees to the Advisor (Base Management Fee and Incentive Fee), allocable overhead under the Administration Agreement, and other operational costs The company bears all out-of-pocket expenses, including debt interest, offering costs, and administrative fees[280](index=280&type=chunk) [Leverage](index=79&type=section&id=Leverage) This section discusses the company's use of debt financing and its compliance with regulatory asset coverage ratio requirements - The Company's ability to incur indebtedness is limited by a **150% asset coverage ratio** requirement under the 1940 Act As of June 30, 2021, the asset coverage ratio was **183%**[284](index=284&type=chunk) [Impact of COVID-19](index=80&type=section&id=Impact%20of%20COVID-19) This section analyzes the effects of the COVID-19 pandemic on the company's operations, portfolio, and financial condition - The COVID-19 pandemic has negatively impacted the Company and its portfolio companies, leading to increased draw requests on credit facilities, potential deferrals of loan payments, and decreased loan values The Company actively monitors portfolio companies and maintains compliance with asset coverage and financial covenants, but future impacts remain uncertain[287](index=287&type=chunk)[288](index=288&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk) [Investment Decision Process](index=80&type=section&id=Investment%20Decision%20Process) This section outlines the Advisor's four-step investment process: Sourcing and Idea Generation, Investment Diligence & Recommendation, Credit Committee Approval and Portfolio Construction, and Portfolio & Risk Management, emphasizing a bottom-up approach and ESG considerations [Sourcing and Idea Generation](index=80&type=section&id=Sourcing%20and%20Idea%20Generation) This section describes the initial phase of the investment process, focusing on identifying potential investment opportunities [Investment Diligence & Recommendation](index=81&type=section&id=Investment%20Diligence%20%26%20Recommendation) This section outlines the rigorous due diligence process and the formulation of investment recommendations [Credit Committee Approval and Portfolio Construction](index=81&type=section&id=Credit%20Committee%20Approval%20and%20Portfolio%20Construction) This section details the approval process for investments and how they contribute to the overall portfolio strategy [Portfolio & Risk Management](index=81&type=section&id=Portfolio%20%26%20Risk%20Management) This section describes the ongoing monitoring and management of the investment portfolio to mitigate risks [Environmental, Social and Governance](index=81&type=section&id=Environmental%2C%20Social%20and%20Governance) This section explains how ESG factors are integrated into the investment decision-making and portfolio management processes - The Advisor integrates ESG factors into its investment decision-making process, applying negative screens, examining societal and environmental impact during diligence, and engaging companies via proxy voting and board seats to generate attractive risk-adjusted returns[298](index=298&type=chunk) [Portfolio and Investment Activity](index=81&type=section&id=Portfolio%20and%20Investment%20Activity) This section details the company's investment and divestment activities, portfolio composition by type, yield data, and performance ratings for the periods ended June 30, 2021, and December 31, 2020 It also includes information on the International Senior Loan Program (ISLP) | Period | Investments (including PIK) | Principal Repayments and Sales | Net Increase (Decrease) in Investments | | :----- | :-------------------------- | :----------------------------- | :------------------------------------- | | 3 Months Ended June 30, 2021 | $216,100 | $257,700 | $(41,600) | | 3 Months Ended June 30, 2020 | $50,600 | $67,100 | $(16,500) | | 6 Months Ended June 30, 2021 | $602,400 | $807,100 | $(204,700) | | 6 Months Ended June 30, 2020 | $326,900 | $247,800 | $79,100 | | Investment Type | Amortized Cost (in thousands) | % of Total Portfolio | Weighted Average Yield at Amortized Cost | | :-------------- | :---------------------------- | :------------------- | :--------------------------------------- | | First Lien Senior Secured Loans | $1,911,749 | 81.5% | 7.2% | | Equity Interest | $141,052 | 6.0% | 7.0% | | Second Lien Senior Secured Loans | $117,236 | 5.0% | 9.6% | | Subordinated Note Investment Vehicles | $97,360 | 4.2% | 9.0% | | Preferred equity | $29,361 | 1.3% | 15.0% | | Equity Interest in Investment Vehicles | $31,610 | 1.3% | 9.8% | | Subordinated Debt | $16,563 | 0.7% | 11.4% | | Warrants | $2 | 0.0% | N/A | | **Total** | **$2,344,933** | **100.0%** | **7.5%** | - As of June 30, 2021, **98.3%** of the debt portfolio bore floating rates, and there were **no loans on non-accrual status**, compared to one non-accrual loan (**0.2% of portfolio**) at December 31, 2020[307](index=307&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk) | Rating | Fair Value (in thousands) | % of Total Portfolio | Number of Companies | % of Total Companies | | :----- | :------------------------ | :------------------- | :------------------ | :------------------- | | 1 | $20,287 | 0.9% | 3 | 2.9% | | 2 | $2,050,293 | 88.4% | 92 | 88.4% | | 3 | $248,960 | 10.7% | 9 | 8.7% | | 4 | $0 | 0.0% | 0 | 0.0% | | **Total** | **$2,319,540** | **100.0%** | **104** | **100.0%** | [International Senior Loan Program, LLC](index=88&type=section&id=International%20Senior%20Loan%20Program%2C%20LLC_2) This section provides an update on the formation and investment activities of the ISLP joint venture - The Company formed ISLP with Pantheon on February 9, 2021, to invest in non-US first lien senior secured loans The Company contributed **$317.1 million** in debt investments for a **70.5% stake** and received a **$190.2 million cash distribution** As of June 30, 2021, ISLP had **$394.5 million** in debt investments at fair value[327](index=327&type=chunk)[330](index=330&type=chunk) [Results of Operations](index=93&type=section&id=Results%20of%20Operations) This section analyzes the company's operating results, including investment income, operating expenses (interest, management, incentive, professional, and administrative fees), and net realized and unrealized gains and losses, highlighting key changes and their drivers for the three and six months ended June 30, 2021, and 2020 | Metric | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total investment income | $46,490 | $47,871 | $96,320 | $99,367 | | Total expenses, net of fee waivers | $24,566 | $27,849 | $52,230 | $56,845 | | Net investment income | $21,924 | $20,022 | $44,090 | $42,522 | | Net realized gain (loss) | $(12,546) | $5,215 | $(3,688) | $(4,151) | | Net change in unrealized appreciation (depreciation) | $33,055 | $(3,465) | $33,784 | $(121,046) | | Net increase (decrease) in net assets from operations | $42,433 | $21,772 | $74,186 | $(82,675) | [Investment Income](index=93&type=section&id=Investment%20Income) This section analyzes the components and trends of the company's investment income, including interest, dividends, and other fees | Income Type | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | | :---------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Interest income | $39,755 | $44,885 | $81,728 | $93,528 | | Dividend income | $2,929 | $2,927 | $4,964 | $5,340 | | PIK income | $2,931 | $0 | $5,297 | $0 | | Other income | $875 | $59 | $4,331 | $499 | | **Total Investment Income** | **$46,490** | **$47,871** | **$96,320** | **$99,367** | - For the three months ended June 30, 2021, interest income decreased by **$5.1 million (YoY)** due to lower LIBOR and a smaller investment portfolio PIK income increased by **$2.9 million (YoY)**, and other income increased by **$0.8 million (YoY)** due to one-time fees The weighted average yield at amortized cost increased to **7.5%** from **7.1% (YoY)**[346](index=346&type=chunk) [Operating Expenses](index=94&type=section&id=Operating%20Expenses) This section breaks down the company's operating expenses, highlighting changes in interest, management, and administrative costs | Expense Type | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | | :----------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Interest and debt financing expenses | $13,017 | $17,312 | $24,850 | $35,188 | | Base management fee (gross) | $8,623 | $8,639 | $17,320 | $17,365 | | Incentive fee (gross) | $8,042 | $0 | $14,771 | $0 | | Base management fee waiver | $(2,723) | $0 | $(4,837) | $0 | | Incentive fee waiver | $(4,519) | $0 | $(4,519) | $0 | | **Total expenses, net of fee waivers** | **$24,566** | **$27,849** | **$52,230** | **$56,845** | [Interest and Debt Financing Expenses](index=95&type=section&id=Interest%20and%20Debt%20Financing%20Expenses) This section analyzes the changes in interest and debt financing expenses, attributing them to debt levels and interest rates - Interest and debt financing expenses decreased by **$4.3 million (YoY)** for the three months ended June 30, 2021, and by **$10.3 million (YoY)** for the six months ended June 30, 2021, primarily due to a decrease in total principal debt outstanding and lower LIBOR rates The weighted average principal debt outstanding for the six months ended June 30, 2021, was **$1,380.5 million**, down from **$1,615.4 million** in the prior year[351](index=351&type=chunk) [Management Fees](index=95&type=section&id=Management%20Fees) This section discusses the trends and waivers related to the base management fees paid to the investment advisor - Net management fees decreased to **$5.9 million** for the three months ended June 30, 2021 (YoY) and to **$12.5 million** for the six months ended June 30, 2021 (YoY), primarily due to voluntary waivers of **$2.7 million** and **$4.8 million**, respectively[353](index=353&type=chunk)[354](index=354&type=chunk) [Incentive Fees](index=95&type=section&id=Incentive%20Fees) This section analyzes the changes in incentive fees, including the impact of voluntary waivers - Net incentive fees increased to **$3.5 million** for the three months ended June 30, 2021 (YoY) and to **$10.3 million** for the six months ended June 30, 2021 (YoY), despite voluntary waivers of **$4.5 million** in both periods[355](index=355&type=chunk) [Professional Fees and Other General and Administrative Expenses](index=96&type=section&id=Professional%20Fees%20and%20Other%20General%20and%20Administrative%20Expenses) This section details the changes in professional and administrative expenses and their underlying causes - Professional fees and other general and administrative expenses increased to **$2.0 million** for the three months ended June 30, 2021 (YoY) and to **$4.3 million** for the six months ended June 30, 2021 (YoY), primarily due to increased costs for investment portfolio servicing and legal fees[357](index=357&type=chunk)[358](index=358&type=chunk) [Net Realized and Unrealized Gains and Losses](index=96&type=section&id=Net%20Realized%20and%20Unrealized%20Gains%20and%20Losses) This section analyzes the company's realized and unrealized gains and losses on investments and derivatives | Metric | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net realized gains (losses) on investments | $4,845 | $52 | $20,021 | $(10,404) | | Net realized gains (losses) on foreign currency transactions | $1,005 | $66 | $(2,021) | $(349) | | Net realized gains (losses) on forward currency exchange contracts | $(18,396) | $5,097 | $(21,688) | $6,602 | | **Total Net Realized Gains (Losses)** | **$(12,546)** | **$5,215** | **$(3,688)** | **$(4,151)** | | Net change in unrealized appreciation (depreciation) on investments | $17,092 | $6,296 | $12,858 | $(124,197) | | Net change in unrealized appreciation (depreciation) on foreign currency translation | $(65) | $104 | $322 | $(105) | | Net change in unrealized appreciation (depreciation) on forward currency exchange contracts | $16,028 | $(9,865) | $20,604 | $3,256 | | **Total Net Change in Unrealized Appreciation (Depreciation)** | **$33,055** | **$(3,465)** | **$33,784** | **$(121,046)** | - For the three months ended June 30, 2021, net realized losses were **$(12.5) million**, primarily due to **$(18.4) million** in losses on forward currency contracts Net change in unrealized appreciation was **$33.1 million**, driven by **$17.1 million** in investment appreciation and **$16.0 million** in forward currency appreciation[359](index=359&type=chunk)[360](index=360&type=chunk)[362](index=362&type=chunk) - For the six months ended June 30, 2021, net realized losses were **$(3.7) million**, primarily from **$(21.7) million** in losses on forward currency contracts, offset by **$20.0 million** in investment gains Net change in unrealized appreciation was **$33.8 million**, mainly from **$12.9 million** in investment appreciation and **$20.6 million** in forward currency appreciation[364](index=364&type=chunk)[365](index=365&type=chunk)[368](index=368&type=chunk) [Net Increase (Decrease) in Net Assets Resulting from Operations](index=99&type=section&id=Net%20Increase%20%28Decrease%29%20in%20Net%20Assets%20Resulting%20from%20Operations) This section summarizes the overall change in net assets attributable to the company's operations - For the three months ended June 30, 2021, net assets increased by **$42.4 million ($0.66 per share)**, up from **$21.8 million ($0.40 per share)** in the prior year For the six months ended June 30, 2021, net assets increased by **$74.2 million ($1.15 per share)**, a significant improvement from a decrease of **$(82.7) million ($(1.57) per share)** in the prior year[372](index=372&type=chunk)[373](index=373&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=99&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) This section discusses the company's financial health, sources of liquidity (equity, credit facilities, debt issuances, operations), and uses of cash (investments, operating costs, debt service, distributions) It also covers asset coverage, cash balances, and available credit - The Company's liquidity is primarily from equity issuances, credit facilities, and cash flows from operations As of June 30, 2021, the asset coverage ratio was **183%**, meeting the **150%** regulatory requirement[374](index=374&type=chunk)[375](index=375&type=chunk) | Metric | June 30, 2021 | December 31, 2020 | | :----- | :------------ | :---------------- | | Total Cash, Foreign Cash, Restricted Cash and Cash Equivalents | $88,700 | $81,700 | - As of June 30, 2021, the Company had **$346.8 million** available on its JPM Credit Facility and **$50.0 million** on its Revolving Advisor Loan[377](index=377&type=chunk) - For the six months ended June 30, 2021, cash, foreign cash, restricted cash, and cash equivalents increased by **$7.0 million**, driven by **$206.2 million** in operating cash flow, offset by **$197.4 million** used in financing activities (debt repayments and distributions)[378](index=378&type=chunk)[379](index=379&type=chunk) [Equity](index=100&type=section&id=Equity) This section discusses the company's equity capital, including historical issuances and their impact on financial resources - The Company completed its IPO on November 19, 2018, issuing **7.5 million shares at $20.25 per share**, generating **$147.3 million** in proceeds In June 2020, a transferable subscription rights offering issued **12.9 million shares**, generating **$129.6 million** in net proceeds[383](index=383&type=chunk)[386](index=386&type=chunk) [Debt](index=100&type=section&id=Debt_2) This section provides an overview of the company's various debt facilities, including their terms, outstanding amounts, and compliance | Debt Facility | Principal Amount Outstanding (June 30, 2021) | Carrying Value (June 30, 2021) | Principal Amount Outstanding (Dec 31, 2020) | Carrying Value (Dec 31, 2020) | | :------------ | :------------------------------------------- | :----------------------------- | :------------------------------------------ | :---------------------------- | | BCSF Revolving Credit Facility | $0 | $0 | $257,774 | $257,774 | | 2018-1 Notes | $365,700 | $364,092 | $365,700 | $364,006 | | JPM Credit Facility | $103,233 | $103,233 | $293,283 | $293,283 | | 2019-1 Debt | $398,750 | $396,379 | $398,750 | $396,265 | | Revolving Advisor Loan | $0 | $0 | $0 | $0 | | 2023 Notes | $150,000 | $147,635 | $150,000 | $147,032 | | 2026 Notes | $300,000 | $294,690 | $0 | $0 | | **Total Debt** | **$1,317,683** | **$1,306,029** | **$1,465,507** | **$1,458,360** | [BCSF Revolving Credit Facility](index=101&type=section&id=BCSF%20Revolving%20Credit%20Facility_2) This section provides an update on the BCSF Revolving Credit Facility, including its termination and repayment - The BCSF Revolving Credit Facility, with a financing limit of **$425.0 million**, was terminated on March 11, 2021, with proceeds from the 2026 Notes used to repay outstanding debt[393](index=393&type=chunk)[396](index=396&type=chunk) [2018-1 Notes](index=102&type=section&id=2018-1%20Notes_2) This section provides an update on the 2018-1 Notes, including outstanding amounts and covenant compliance - The **$451.2 million 2018-1 Notes** securitization, issued September 28, 2018, had **$365.7 million** outstanding at June 30, 2021 The Company was in compliance with all covenants[399](index=399&type=chunk)[407](index=407&type=chunk) [JPM Credit Facility](index=104&type=section&id=JPM%20Credit%20Facility_2) This section provides an update on the JPM Credit Facility, including outstanding borrowings and interest rates - The JPM Credit Facility, with a **$450.0 million** limit, had **$103.2 million** outstanding at June 30, 2021, down from **$293.3 million** at December 31, 2020 It bears interest at **LIBOR plus 2.375%**[415](index=415&type=chunk)[418](index=418&type=chunk)[419](index=419&type=chunk) [2019-1 Debt](index=106&type=section&id=2019-1%20Debt_2) This section provides an update on the 2019-1 Debt, including outstanding amounts and covenant compliance - The **$501.0 million 2019-1 Debt** securitization, issued August 28, 2019, had **$398.8 million** outstanding at June 30, 2021 The Company was in compliance with all covenants[423](index=423&type=chunk)[429](index=429&type=chunk) [Revolving Advisor Loan](index=107&type=section&id=Revolving%20Advisor%20Loan_2) This section provides an update on the Revolving Advisor Loan, including its credit limit and current outstanding balance - The unsecured Revolving Advisor Loan has a **$50.0 million** credit limit and matures March 27, 2023 No borrowings were outstanding as of June 30, 2021[434](index=434&type=chunk) [2023 Notes](index=108&type=section&id=2023%20Notes_2) This section provides an update on the 2023 Notes, including outstanding principal and terms - The Company issued **$150.0 million** of **8.50% senior unsecured notes** due June 10, 2023 **$150.0 million** was outstanding at June 30, 2021[438](index=438&type=chunk)[440](index=440&type=chunk) [2026 Notes](index=108&type=section&id=2026%20Notes_2) This section provides an update on the 2026 Notes, including outstanding principal and terms - The Company issued **$300.0 million** of **2.950% senior unsecured notes** due March 10, 2026 **$300.0 million** was outstanding at June 30, 2021[443](index=443&type=chunk)[446](index=446&type=chunk) [Distribution Policy](index=109&type=section&id=Distribution%20Policy) This section outlines the company's policy for distributing income to stockholders to maintain its RIC tax status - The Company intends to distribute quarterly dividends to stockholders, determined by the Board, to maintain its RIC tax treatment by distributing at least **90%** of its net ordinary income and net short-term capital gains[450](index=450&type=chunk)[452](index=452&type=chunk) [Commitments and Off-Balance Sheet Arrangements](index=111&type=section&id=Commitments%20and%20Off-Balance%20Sheet%20Arrangements) This section details the company's unfunded commitments and potential off-balance sheet financial instruments | Commitment Type | Unfunded Commitments | | :-------------- | :------------------- | | First Lien Senior Secured Loans | $212,982 | | **Total** | **$212,982** | - The Company may enter into off-balance sheet financial instruments, such as commitments to extend credit, which involve liquidity and credit risk[458](index=458&type=chunk) [Significant Accounting Estimates and Critical Accounting Policies](index=114&type=section&id=Significant%20Accounting%20Estimates%20and%20Critical%20Accounting%20Policies) This section reiterates the critical accounting policies and estimates used in preparing the financial statements, including the basis of presentation, use of estimates, revenue recognition, and valuation of portfolio investments [Basis of Presentation](index=114&type=section&id=Basis%20of%20Presentation_2) This section reiterates the accounting framework and principles used for the financial statements - The unaudited consolidated financial statements are prepared in accordance with **US GAAP**, specifically **ASC Topic 946** for investment companies, and are presented in U.S. dollars[463](index=463&type=chunk) [Use of Estimates](index=115&type=section&id=Use%20of%20Estimates_2) This section reiterates the reliance on management's judgments and assumptions in financial reporting [Revenue Recognition](index=115&type=section&id=Revenue%20Recognition_2) This section reiterates the policies for recognizing various types of revenue - Revenue recognition policies include recording investment transactions on a trade date basis, accruing interest income (including PIK), recognizing dividend income on preferred/common equity, and capitalizing/amortizing loan origination fees and discounts[466](index=466&type=chunk)[467](index=467&type=chunk)[468](index=468&type=chunk) [Valuation of Portfolio Investments](index=115&type=section&id=Valuation%20of%20Portfolio%20Investments_2) This section reiterates the methodologies for fair valuing investment portfolios - Investments with readily available market quotations are valued at market prices Unquoted securities are valued at fair value using discounted cash flow models, peer comparisons, and external event pricing, with oversight from the Board and independent valuation firms[470](index=470&type=chunk)[471](index=471&type=chunk)[473](index=473&type=chunk) [Contractual Obligations](index=116&type=section&id=Contractual%20Obligations) This section presents a schedule of the company's debt obligations and their maturity profiles | Debt Obligation | Total | Less than 1 year | 1 – 3 years | 3 – 5 years | More than 5 years | | :-------------- | :---- | :--------------- | :---------- | :---------- | :---------------- | | 2018-1 Notes | $365,700 | $0 | $0 | $0 | $365,700 | | JPM Credit Facility | $103,233 | $0 | $0 | $103,233 | $0 | | 2019-1 Debt | $398,750 | $0 | $0 | $0 | $398,750 | | 2023 Notes | $150,000 | $0 | $150,000 | $0 | $0 | | 2026 Notes | $300,000 | $0 | $0 | $300,000 | $0 | | **Total Debt Obligations** | **$1,317,683** | **$0** | **$150,000** | **$403,233** | **$764,450** | [Subsequent Events](index=117&type=section&id=Subsequent%20Events_2) This section provides an update on significant events occurring after the reporting period - On July 16, 2021, the Company repurchased **$37.5 million** of its 2023 Notes for **$39.5 million**[482](index=482&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=117&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to financial market risks, particularly interest rate changes and foreign exchange rate fluctuations, and presents a sensitivity analysis of net investment income to hypothetical interest rate changes - The Company is exposed to interest rate risk, with most investments being illiquid loans and securities valued at fair value[483](index=483&type=chunk) | Change in Interest Rates | Increase (Decrease) in Interest Income | Increase (Decrease) in Interest Expense | Net Increase (Decrease) in Net Investment Income | | :----------------------- | :------------------------------------- | :-------------------------------------- | :----------------------------------------------- | | Down 25 basis points | $(543) | $(1,249) | $706 | | Up 100 basis points | $7,445 | $8,547 | $(1,102) | | Up 200 basis points | $30,623 | $17,094 | $13,529 | | Up 300 basis points | $54,107 | $25,640 | $28,467 | [Item 4. Controls and Procedures](index=118&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal controls over financial reporting during the most recent fiscal quarter [Evaluation of Disclosure Controls and Procedures](index=118&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms that the company's disclosure controls and procedures were effective as of the end of the reporting period - As of June 30, 2021, management, under the supervision of the CEO and CFO, concluded that the company's disclosure controls and procedures are effective in timely alerting management to material information[486](index=486&type=chunk) [Changes in Internal Controls Over Financial Reporting](index=118&type=section&id=Changes%20in%20Internal%20Controls%20Over%20Financial%20Reporting) This section reports on any changes in the company's internal control over financial reporting during the most recent fiscal quarter

Bain Capital Specialty Finance, Inc. (NYSE:BCSF) Q1 2021 Earnings Conference Call May 6, 2021 8:30 AM ET Company Participants Katherine Schneider – Director of Investor Relations Michael Ewald – Chief Executive Officer Mike Boyle – President Sally Dornaus – Chief Financial Officer Conference Call Participants Finian O'Shea – Wells Fargo Securities Ryan Lynch – KBW Operator Good morning and welcome to the Bain Capital Specialty Finance First Quarter Ending March 31, 2021 Conference Call. All participants wi ...