Bain Capital Specialty Finance(BCSF) - 2025 Q2 - Quarterly Report

Forward-Looking Statements This section outlines the inherent risks and uncertainties associated with forward-looking statements, noting potential material differences from actual results - This report contains forward-looking statements based on current expectations, estimates, projections, opinions, and beliefs, which involve known and unknown risks and uncertainties. Actual results may differ materially due to factors identified in the Annual Report on Form 10-K and other SEC filings[9][10] - The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 do not apply to these forward-looking statements because the registrant is an investment company[10] PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements, including assets, operations, net assets, cash flows, and investment schedules, for the specified periods Consolidated Statements of Assets and Liabilities This statement provides a snapshot of the company's financial position, detailing assets, liabilities, and net assets at specific reporting dates | Metric | June 30, 2025 (Unaudited) (in thousands) | December 31, 2024 (in thousands) | | :----- | :--------------------------------------- | :------------------------------- | | Total Assets | $2,774,306 | $2,632,157 | | Total Liabilities | $1,635,271 | $1,492,485 | | Total Net Assets | $1,139,035 | $1,139,672 | | Net asset value per share | $17.56 | $17.65 | - Total assets increased by $142.1 million from December 31, 2024, to June 30, 2025, primarily driven by an increase in investments at fair value[13] - Total liabilities increased by $142.8 million, mainly due to an increase in debt[13] - Net asset value per share slightly decreased from $17.65 to $17.56[14] Consolidated Statements of Operations This statement details the company's revenues, expenses, and net investment income, culminating in the net increase in net assets from operations | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total investment income | $70,965 | $72,271 | $137,804 | $146,770 | | Total expenses | $39,299 | $38,004 | $72,952 | $77,528 | | Net investment income | $30,590 | $33,117 | $62,700 | $67,067 | | Total net loss | $(6,868) | $(4,027) | $(10,431) | $(2,882) | | Net increase in net assets from operations | $23,722 | $29,090 | $52,269 | $64,185 | | Basic and diluted net investment income per share | $0.47 | $0.51 | $0.97 | $1.04 | | Basic and diluted increase in net assets per share | $0.37 | $0.45 | $0.81 | $1.00 | - Total investment income decreased by $1,306 thousand for the three months ended June 30, 2025, compared to the same period in 2024, and by $8,966 thousand for the six months ended June 30, 2025, compared to 2024[17] - Net investment income decreased for both the three-month and six-month periods ended June 30, 2025, compared to 2024[17] - The company reported a total net loss for both periods in 2025, which was higher than in 2024, leading to a decrease in net assets resulting from operations[17] Consolidated Statements of Changes in Net Assets This statement tracks changes in the company's net assets, reflecting operational results, distributions, and capital share transactions | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net increase in net assets from operations | $23,722 | $29,090 | $52,269 | $64,185 | | Distributions from distributable earnings | $(29,191) | $(29,053) | $(58,382) | $(58,106) | | Net increase from capital share transactions | $0 | $0 | $5,476 | $0 | | Total increase (decrease) in net assets | $(5,469) | $37 | $(637) | $6,079 | | Net assets at end of period | $1,139,035 | $1,142,545 | $1,139,035 | $1,142,545 | | Net asset value per share | $17.56 | $17.70 | $17.56 | $17.70 | - Net assets decreased by $5,469 thousand for the three months ended June 30, 2025, primarily due to distributions exceeding net increase from operations[20] - For the six months ended June 30, 2025, net assets decreased by $637 thousand, with distributions exceeding net increase from operations, partially offset by capital share transactions[20] Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities over the reporting periods | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $(6,623) | $128,739 | | Net cash provided by (used in) financing activities | $79,791 | $(142,643) | | Net (increase) decrease in cash, foreign cash, restricted cash and cash equivalents | $73,168 | $(13,904) | | Cash, foreign cash, restricted cash and cash equivalents, end of period | $174,485 | $98,126 | - Operating activities shifted from providing $128.7 million in cash in H1 2024 to using $6.6 million in H1 2025, mainly due to higher purchases of investments relative to proceeds from sales[22] - Financing activities provided $79.8 million in H1 2025, a significant turnaround from using $142.6 million in H1 2024, driven by increased borrowings on debt and proceeds from common stock issuances[22] - Overall cash, foreign cash, and restricted cash increased by $73.2 million in H1 2025, ending the period at $174.5 million[22] Consolidated Schedules of Investments This section details the company's investment portfolio by type, industry, and geography, including affiliate and non-affiliate holdings, cash equivalents, and derivatives As of June 30, 2025 This schedule provides a detailed breakdown of the investment portfolio and cash equivalents as of June 30, 2025 | Investment Type | Market Value (in thousands) | % of NAV | | :---------------- | :-------------------------- | :------- | | Non-Controlled/Non-Affiliate Investments Total | $1,847,266 | 162.2% | | Non-Controlled/Affiliate Investments Total | $63,735 | 5.6% | | Controlled Affiliate Investments Total | $590,796 | 51.9% | | Investments Total | $2,501,797 | 219.7% | | Cash Equivalents Total | $133,631 | 11.7% | | Investments and Cash Equivalents Total | $2,635,428 | 231.4% | - As of June 30, 2025, the total investment portfolio at fair value was $2,501,797 thousand, representing 219.7% of Net Asset Value (NAV)[44] - Controlled affiliate investments constitute a significant portion of the portfolio, totaling $590,796 thousand or 51.9% of NAV[44] As of December 31, 2024 This schedule provides a detailed breakdown of the investment portfolio and cash equivalents as of December 31, 2024 | Investment Type | Market Value (in thousands) | % of NAV | | :---------------- | :-------------------------- | :------- | | Non-Controlled/Non-Affiliate Investments Total | $1,773,742 | 155.6% | | Non-Controlled/Affiliate Investments Total | $75,733 | 6.6% | | Controlled Affiliate Investments Total | $581,714 | 51.1% | | Investments Total | $2,431,189 | 213.3% | | Cash Equivalents Total | $103,582 | 9.1% | | Investments and Cash Equivalents Total | $2,534,771 | 222.4% | - As of December 31, 2024, the total investment portfolio at fair value was $2,431,189 thousand, representing 213.3% of Net Asset Value (NAV)[69] - Non-controlled/affiliate investments decreased from $75,733 thousand to $63,735 thousand by June 30, 2025[43][68] Notes to Consolidated Financial Statements This section provides detailed disclosures and explanations for the consolidated financial statements, covering organization, accounting policies, investments, fair value, related parties, debt, and other financial details Note 1. Organization This note describes the company's formation, operational commencement, regulatory status as a BDC and RIC, and its external management structure - Bain Capital Specialty Finance, Inc. (BCSF) was formed on October 5, 2015, and commenced investment operations on October 13, 2016, operating as a Business Development Company (BDC) and a Regulated Investment Company (RIC)[75] - The company is externally managed by BCSF Advisors, LP, focusing on a Senior Direct Lending Strategy primarily investing in middle-market companies with $10.0 million to $150.0 million in annual EBITDA[75][77] - BCSF's primary investment focus is on senior investments (first or second lien) with strong structures, but it may also invest in mezzanine debt, junior securities, and equity on an opportunistic basis[77] Note 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and methods used in preparing the financial statements, including investment valuation and revenue recognition - The financial statements are prepared in accordance with US GAAP for investment companies (ASC Topic 946) and reflect adjustments necessary for fair statement[79] - Investments are valued at fair value, with market quotations used when available, and unquoted investments valued using discounted cash flow models, comparable company multiples, and other factors, subject to Board oversight[84][85][87] - Interest income is recorded on an accrual basis, adjusted for amortization/accretion, and PIK income is recognized as interest or dividend income. Loans are placed on non-accrual status when collectibility is doubtful[92][95][99] - The company uses forward currency exchange contracts and interest rate swaps to manage market risks, recognizing them at fair value with changes in unrealized appreciation/depreciation recorded in operations[108][111] Note 3. Investments This note provides a detailed breakdown of the investment portfolio by type, geographic region, and industry, including joint venture specifics Investment Portfolio by Type | Investment Type | Amortized Cost (in thousands) | Fair Value (in thousands) | % of Total Portfolio (Fair Value) | | :--------------------------------- | :---------------------------- | :------------------------ | :-------------------------------- | | First Lien Senior Secured Loan | $1,606,552 | $1,577,960 | 63.1% | | Second Lien Senior Secured Loan | $20,125 | $20,350 | 0.8% | | Subordinated Debt | $92,775 | $91,052 | 3.6% | | Preferred Equity | $136,203 | $180,711 | 7.2% | | Equity Interest | $212,920 | $230,141 | 9.2% | | Subordinated Notes in Investment Vehicles | $354,723 | $342,654 | 13.7% | | Total Investments | $2,489,516 | $2,501,797 | 100.0% | Investment Portfolio by Geographic Region | Geographic Region | Amortized Cost (in thousands) | Fair Value (in thousands) | % of Total Portfolio (Fair Value) | | :------------------ | :---------------------------- | :------------------------ | :-------------------------------- | | USA | $2,197,162 | $2,161,486 | 86.5% | | Cayman Islands | $112,016 | $125,219 | 5.1% | | United Kingdom | $40,790 | $43,543 | 1.7% | | Germany | $31,672 | $31,672 | 1.3% | | France | $29,900 | $31,140 | 1.2% | | Total Investments | $2,489,516 | $2,501,797 | 100.0% | Investment Portfolio by Industry | Industry | Amortized Cost (in thousands) | Fair Value (in thousands) | % of Total Portfolio (Fair Value) | | :-------------------------- | :---------------------------- | :------------------------ | :-------------------------------- | | Investment Vehicles | $420,941 | $400,763 | 16.0% | | High Tech Industries | $282,073 | $297,097 | 11.9% | | Aerospace & Defense | $251,329 | $248,741 | 9.9% | | Services: Business | $199,990 | $225,558 | 9.0% | | Healthcare & Pharmaceuticals | $179,953 | $177,679 | 7.1% | | Total Investments | $2,489,516 | $2,501,797 | 100.0% | - International Senior Loan Program, LLC (ISLP), a joint venture with Pantheon, primarily invests in non-US first lien senior secured loans. As of June 30, 2025, ISLP had $717.7 million in debt and equity investments at fair value, with a weighted average yield of 10.1%[122][133][360] - Bain Capital Senior Loan Program, LLC (SLP), a joint venture with Amberstone, primarily invests in senior secured first lien loans of U.S. borrowers. As of June 30, 2025, SLP had $1,518.7 million in total investments at fair value, with a weighted average yield of 10.2%[163][178][363] Note 4. Fair Value Measurements This note details the methodologies and inputs used for fair value measurements of investments and debt, categorized by the fair value hierarchy Fair Value Measurements of Investments | Investment Type | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Measured at Net Asset Value (in thousands) | Total (in thousands) | | :--------------------------------- | :--------------------- | :--------------------- | :--------------------- | :----------------------------------------- | :------------------- | | First Lien Senior Secured Loans | $0 | $7,496 | $1,564,667 | $5,797 | $1,577,960 | | Second Lien Senior Secured Loans | $0 | $0 | $20,350 | $0 | $20,350 | | Subordinated Debt | $0 | $0 | $91,052 | $0 | $91,052 | | Preferred Equity | $0 | $0 | $180,711 | $0 | $180,711 | | Equity Interests | $0 | $0 | $220,604 | $9,537 | $230,141 | | Subordinated Notes Investment Vehicles | $0 | $0 | $342,654 | $0 | $342,654 | | Total Investments | $0 | $7,496 | $2,420,858 | $73,443 | $2,501,797 | - As of June 30, 2025, a substantial portion of investments, $2,420,858 thousand, are classified as Level 3, indicating significant unobservable inputs in their fair value measurement[199] - Key unobservable inputs for Level 3 assets include comparative yields (5.1%–22.0%), EBITDA multiples (7.0x–15.3x), and recovery rates (92.6%–100.0%)[203] Fair Value Measurements of Debt | Debt Type | Level | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------ | :---- | :--------------------------- | :------------------------------- | | 2019-1 Debt | 2 | $352,518 | $352,500 | | March 2026 Notes | 2 | $295,915 | $291,280 | | October 2026 Notes | 2 | $290,995 | $285,940 | | March 2030 Notes | 2 | $347,821 | $0 | | Sumitomo Credit Facility | 3 | $263,000 | $442,699 | | Total Debt | | $1,550,249 | $1,372,419 | Note 5. Related Party Transactions This note describes the company's transactions and agreements with its Advisor and Administrator, including management and incentive fees - The company pays its Advisor a Base Management Fee of 1.5% annually (0.375% quarterly) of gross assets, with a tiered rate of 1.0% for assets attributable to leverage below a 200% asset coverage ratio[210] Management and Incentive Fees | Fee Type | Three Months Ended June 30, 2025 (in millions) | Three Months Ended June 30, 2024 (in millions) | Six Months Ended June 30, 2025 (in millions) | Six Months Ended June 30, 2024 (in millions) | | :--------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Management fees | $9.3 | $8.8 | $18.3 | $17.6 | | Incentive fees | $5.4 | $7.9 | $7.7 | $17.2 | - The incentive fee has two parts: one based on income (subject to a three-year lookback and a cap based on Cumulative Net Return) and a capital gains incentive fee (17.5% of realized capital gains, net of losses and unrealized depreciation)[212][217][219][226] - The Administrator provides administrative services, and the company reimburses its costs and allocable overhead. The Advisor also has a Resource Sharing Agreement with Bain Capital Credit for investment professionals and resources[230][233] Note 6. Debt This note details the company's debt obligations, including principal amounts, carrying values, maturity dates, and compliance with regulatory asset coverage ratios - The company's asset coverage ratio was 172.4% as of June 30, 2025, and 181.7% as of December 31, 2024, exceeding the 150% regulatory requirement[240] Debt Instruments | Debt Instrument | Principal Amount Outstanding (in thousands) | Carrying Value (in thousands) | Maturity Date | | :------------------ | :---------------------------------------- | :---------------------------- | :------------ | | 2019-1 Debt | $352,500 | $351,423 | October 15, 2033 | | March 2026 Notes | $300,000 | $299,216 | March 10, 2026 | | October 2026 Notes | $300,000 | $298,236 | October 13, 2026 | | March 2030 Notes | $350,000 | $350,703 | March 15, 2030 | | Sumitomo Credit Facility | $263,000 | $263,000 | May 18, 2029 | | Total Debt | $1,565,500 | $1,562,578 | | - The weighted average interest rate of aggregate borrowings outstanding was 4.8% for the six months ended June 30, 2025, down from 5.1% for the year ended December 31, 2024[241] Debt Obligations by Maturity Period | Maturity Period | Total Debt Obligations (in thousands) | | :---------------- | :---------------------------------- | | Less than 1 year | $300,000 | | 1 – 3 years | $300,000 | | 3 – 5 years | $613,000 | | More than 5 years | $352,500 | | Total | $1,565,500 | Note 7. Derivatives This note describes the company's use of derivative financial instruments to manage interest rate and foreign currency risks - The company uses derivative financial instruments, including forward currency exchange contracts and interest rate swaps, to manage interest rate and foreign currency risk exposures[279] Net Realized and Unrealized Gains (Losses) on Forward Currency Exchange Contracts | Derivative Type | Three Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | | :------------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | | Net realized gain (loss) on forward currency exchange contracts | $(1,409) | $(3,814) | | Net change in unrealized appreciation on forward currency exchange contracts | $(15,074) | $(17,147) | | Total net realized and unrealized gain (loss) on forward currency exchange contracts | $(16,483) | $(20,961) | - For the six months ended June 30, 2025, the net impact of foreign currency on total net gains (losses) was $(1.5) million, compared to $1.0 million in the prior year[285] - The company's interest rate swaps are designated in a qualifying hedge accounting relationship, with related interest expense components recognized in the Consolidated Statements of Operations[286] Note 8. Distributions This note details the distributions declared and paid to stockholders, including regular and special dividends Distributions Declared | Date Declared | Record Date | Payment Date | Amount Per Share | Total Distributions (in thousands) | | :-------------- | :---------- | :----------- | :--------------- | :------------------------------- | | Feb 27, 2025 | Mar 17, 2025 | Mar 31, 2025 | $0.42 | $27,245 | | Feb 27, 2025 | Mar 17, 2025 | Mar 31, 2025 | $0.03 (Special) | $1,946 | | May 5, 2025 | Jun 16, 2025 | Jun 30, 2025 | $0.42 | $27,245 | | May 5, 2025 | Jun 16, 2025 | Jun 30, 2025 | $0.03 (Special) | $1,946 | | Total | | | $0.90 | $58,382 | - Total distributions declared for the six months ended June 30, 2025, were $58,382 thousand, including special dividends, consistent with the $58,106 thousand declared in the prior year[287][288] Note 9. Common Stock/Capital This note outlines the company's authorized and outstanding common stock, equity distribution agreements, and share repurchase authorizations - The company has authorized 100 billion shares of common stock and 10 billion shares of preferred stock, with 64,868,507 common shares outstanding as of June 30, 2025[14][290] - On February 27, 2025, the company entered into equity distribution agreements to sell up to $250.0 million of common stock through 'at the market' offerings[295][296] 'At the Market' Offerings | Issuance Type | Number of Shares Issued (in thousands) | Gross Proceeds (in thousands) | Offering Expenses (in thousands) | Net Proceeds (in thousands) | Average Offering Price Per Share | | :-------------- | :------------------------------------- | :---------------------------- | :------------------------------- | :-------------------------- | :------------------------------- | | 'At the market' offerings | 253.9 | $4,574.7 | $23.2 | $4,551.4 | $18.02 | - No common stock repurchases have occurred as of June 30, 2025, despite Board authorization for up to $50 million in repurchases[294][398] Note 10. Commitments and Contingencies This note discloses the company's unfunded commitments under loan agreements and confirms the absence of material legal proceedings - As of June 30, 2025, the company had $512.7 million in unfunded commitments under loan and financing agreements, a decrease from $560.9 million as of December 31, 2024[298][302] - These commitments are subject to borrowers meeting certain criteria and may remain outstanding until the commitment period expires[301] - The company is not currently subject to any material legal proceedings or threatened claims, and no liability for indemnities is considered necessary[306] Note 11. Financial Highlights This note presents key financial performance metrics and ratios, including net asset value, total return, and expense ratios Financial Highlights | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net asset value at beginning of period | $17.65 | $17.60 | | Net investment income per share | $0.97 | $1.04 | | Net increase in net assets from operations per share | $0.81 | $1.00 | | Stockholder distributions from income per share | $(0.90) | $(0.90) | | Net asset value at end of period | $17.56 | $17.70 | | Total return based on net asset value | 4.64% | 5.73% | | Ratio of net investment income to average net assets | 11.93% | 13.55% | | Ratio of total expenses to average net assets | 12.38% | 12.35% | | Portfolio turnover | 30.36% | 30.17% | - Net asset value per share decreased slightly from $17.65 to $17.56 during the six months ended June 30, 2025[308] - The ratio of net investment income to average net assets decreased to 11.93% in H1 2025 from 13.55% in H1 2024[308] Note 12. Subsequent Events This note discloses significant events occurring after the reporting period, including a CLO Reset Transaction and stockholder meeting outcomes - On July 2, 2025, BCC Middle Market CLO 2019-1, Ltd. completed a $430.25 million CLO Reset Transaction, refinancing its term debt securitization through the issuance of new Replacement Notes[310][311] - The company continues to serve as portfolio manager and retention holder for the CLO Issuer, waiving all portfolio management fees[312][315] - At the 2025 Annual Meeting of Stockholders on July 15, 2025, stockholders did not renew the authorization to sell common stock below net asset value[317] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial condition, operations, and cash flows, detailing investment strategies, market risks, and performance drivers Overview This overview describes the company's structure, investment strategy, and primary sources of revenue as an externally managed specialty finance company - Bain Capital Specialty Finance, Inc. operates as an externally managed specialty finance company, regulated as a BDC and managed by BCSF Advisors, LP[320] - The company's primary strategy is Senior Direct Lending, focusing on middle-market companies with $10.0 million to $150.0 million in annual EBITDA, primarily through secured debt investments[322] - Revenues are primarily generated from interest income on debt investments, distributions on equity, and various loan origination and other fees[323] Investments This section discusses factors influencing investment activity and the regulatory requirements for qualifying and non-qualifying assets as a BDC - Investment activity fluctuates based on factors like available capital, M&A activity, economic environment, and competitive landscape[327] - As a BDC, at least 70% of total assets must be 'qualifying assets,' primarily investments in 'eligible portfolio companies' (companies not listed on national exchanges or public companies with market capitalization less than $250 million)[328] - Up to 30% of the portfolio can be invested opportunistically in 'non-qualifying' assets, such as non-U.S. companies[329] Revenues This section details the company's revenue sources, emphasizing interest income from its predominantly floating-rate debt portfolio and the treatment of PIK income - Revenue is primarily derived from interest income on debt investments and distributions on equity, with additional income from fees (commitment, origination, structuring, diligence) and capital gains[330] - The debt investment portfolio is predominantly floating rate (92.6% as of June 30, 2025), making net investment income sensitive to base interest rate trends like SOFR[331] - PIK interest and dividends are recognized as income, but investments generating PIK are placed on non-accrual status if realization is doubtful[330] Expenses This section outlines the company's primary operating expenses, including management fees, incentive fees, administrative costs, and other operational expenditures - Primary operating expenses include Base Management Fees and Incentive Fees paid to the Advisor, allocable overhead under the Administration Agreement, and other operational costs[333] - The company bears all other out-of-pocket costs, including public offering costs, valuation fees, interest on debt, distributions, transfer agent fees, and various administrative and compliance expenses[333][335] Operating Expenses by Category | Expense Category | Three Months Ended June 30, 2025 (in millions) | Three Months Ended June 30, 2024 (in millions) | Six Months Ended June 30, 2025 (in millions) | Six Months Ended June 30, 2024 (in millions) | | :------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Interest and debt financing expenses | $21.8 | $17.6 | $40.7 | $35.7 | | Base management fee | $9.3 | $8.8 | $18.3 | $17.6 | | Incentive fee | $5.4 | $7.9 | $7.7 | $17.2 | | Professional fees | $0.7 | $1.0 | $1.4 | $1.8 | | Other general and administrative expenses | $1.9 | $2.5 | $4.5 | $4.9 | | Total expenses, net of fee waivers | $39.3 | $38.0 | $73.0 | $77.5 | Leverage This section discusses the company's use of leverage to achieve investment objectives, adhering to the regulatory asset coverage ratio requirement - The company may use leverage to meet its investment objective, subject to a regulatory asset coverage ratio of at least 150%[337] - As of June 30, 2025, the company's asset coverage ratio was 172.4%, indicating compliance with regulatory limits[337] Investment Decision Process This section details the Advisor's five-stage investment process, from sourcing and diligence to approval, portfolio construction, and ongoing risk management - The Advisor's investment process involves five stages: Sourcing and Idea Generation, Investment Diligence & Recommendation, Credit Committee Approval, Portfolio Construction, and Portfolio & Risk Management[338] - Sourcing leverages Bain Capital Credit's global contacts and industry groups to generate middle-market investment opportunities[339] - Diligence involves detailed review, independent research, management meetings, and facilities visits, summarized in investment memorandums and credit packs[340] - Investments require approval from at least the Private Credit Investment Committee, while portfolio managers are responsible for portfolio construction and sell decisions[342][343] - Ongoing monitoring of financial performance and market developments is conducted by the Private Credit Group, with corrective actions taken as deemed appropriate[344] Portfolio and Investment Activity This section summarizes the company's investment activity, portfolio composition, and performance ratings, including changes in the number of portfolio companies and weighted average yields Investment Activity | Period | Investments (including PIK) (in millions) | Principal Repayments and Sales (in millions) | Net Increase (Decrease) in Investments (in millions) | | :----- | :---------------------------------------- | :------------------------------------------- | :--------------------------------------------------- | | Q2 2025 | $529.6 | $502.3 | $27.3 | | Q2 2024 | $306.7 | $473.7 | $(167.0) | | H1 2025 | $806.8 | $748.7 | $58.1 | | H1 2024 | $709.8 | $769.7 | $(59.9) | Portfolio Metrics | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Number of portfolio companies | 185 | 168 | | Percentage of debt bearing a floating rate | 92.6% | 92.0% | | Percentage of debt bearing a fixed rate | 7.4% | 8.0% | | Weighted average yield on investments (at amortized cost) | 11.4% | 11.7% | | Weighted average yield on investments (at fair value) | 11.4% | 11.8% | Investment Performance Rating | Investment Performance Rating (Fair Value) | June 30, 2025 (in thousands) | % of Total | December 31, 2024 (in thousands) | % of Total | | :--------------------------------------- | :--------------------------- | :--------- | :------------------------------- | :--------- | | 1 (Above expectations) | $4,984 | 0.2% | $2,491 | 0.1% | | 2 (As expected) | $2,385,732 | 95.3% | $2,344,745 | 96.4% | | 3 (Below expectations) | $96,419 | 3.9% | $62,149 | 2.6% | | 4 (Materially below expectations) | $14,662 | 0.6% | $21,804 | 0.9% | | Total | $2,501,797 | 100.0% | $2,431,189 | 100.0% | - The company's portfolio monitoring includes assessing adherence to business plans, compliance with covenants, and regular contact with management. Investments are rated on a 1-4 scale, with 3 and 4 indicating underperformance and increased scrutiny[355][356][357] International Senior Loan Program, LLC This section describes ISLP, an unconsolidated joint venture focused on non-US first lien senior secured loans, detailing its investment value and yield - ISLP is an unconsolidated joint venture with Pantheon, primarily investing in non-US first lien senior secured loans[358][359] - As of June 30, 2025, ISLP had $717.7 million in debt and equity investments at fair value, with a weighted average yield of 10.1%[360] ISLP Metrics | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :--------------------------- | :------------------------------- | | Total investments | $717,686 | $655,804 | | Weighted average yield on investments | 10.1% | 10.6% | | Number of borrowers in ISLP | 39 | 35 | | Largest portfolio company investment | $53,839 | $51,142 | | Unfunded commitments | $0 | $3,907 | Bain Capital Senior Loan Program, LLC This section describes SLP, a joint venture with Amberstone, focusing on U.S. senior secured first lien loans, detailing its investment value and yield - SLP is a newly formed joint venture with Amberstone, primarily investing in senior secured first lien loans of U.S. borrowers[361][362] - As of June 30, 2025, SLP had $1,518.7 million in total investments at fair value, with a weighted average yield of 10.2%[363] SLP Metrics | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :--------------------------- | :------------------------------- | | Total investments | $1,518,682 | $1,399,241 | | Weighted average yield on investments | 10.2% | 10.6% | | Number of borrowers in SLP | 87 | 100 | | Largest portfolio company investment | $40,353 | $35,681 | | Unfunded commitments | $1,545 | $991 | Results of Operations This section summarizes the company's financial performance, detailing total investment income, expenses, net investment income, and net increase in net assets from operations Key Operational Metrics | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total investment income | $70,965 | $72,271 | $137,804 | $146,770 | | Total expenses | $39,299 | $38,004 | $72,952 | $77,528 | | Net investment income | $30,590 | $33,117 | $62,700 | $67,067 | | Net increase in net assets from operations | $23,722 | $29,090 | $52,269 | $64,185 | - Net increase in net assets from operations decreased to $23.7 million in Q2 2025 from $29.1 million in Q2 2024, and to $52.3 million in H1 2025 from $64.2 million in H1 2024[364][365] Investment Income This section analyzes the components of investment income, including interest, dividends, PIK income, and other income, and their changes over the periods Investment Income by Type | Income Type (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest income | $54,226 | $55,106 | $105,054 | $110,701 | | Dividend income | $5,063 | $8,238 | $11,574 | $16,505 | | PIK income | $7,518 | $5,786 | $14,143 | $11,168 | | Other income | $4,158 | $3,141 | $7,033 | $8,396 | | Total investment income | $70,965 | $72,271 | $137,804 | $146,770 | - Interest income decreased due to a lower yield on the investment portfolio (11.4% in H1 2025 vs. 13.1% in H1 2024)[366][367] - Dividend income decreased primarily from lower contributions from SLP and ISLP. PIK income increased due to more investments earning PIK[366][367] Operating Expenses This section details the company's operating expenses, including interest, management fees, incentive fees, and administrative costs, and explains their period-over-period changes Operating Expenses by Category | Expense Category (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest and debt financing expenses | $21,772 | $17,631 | $40,676 | $35,687 | | Base management fee | $9,257 | $8,769 | $18,325 | $17,587 | | Incentive fee | $5,446 | $7,924 | $7,668 | $17,156 | | Professional fees | $714 | $1,029 | $1,428 | $1,830 | | Other general and administrative expenses | $1,928 | $2,477 | $4,499 | $4,920 | | Total expenses, net of fee waivers | $39,299 | $38,004 | $72,952 | $77,528 | - Interest and debt financing expenses increased due to higher debt outstanding (weighted average principal debt of $1.6 billion in Q2 2025 vs. $1.2 billion in Q2 2024)[369][370] - Incentive fees decreased significantly in H1 2025 due to the incentive fee cap. Management fees increased due to higher total assets[372][374] - Professional fees and other general and administrative expenses decreased, primarily due to lower costs associated with servicing the investment portfolio[375][376] Net Realized and Unrealized Gains and Losses This section analyzes the net realized and unrealized gains and losses on investments, detailing the drivers of appreciation and depreciation within the portfolio Net Realized and Unrealized Gains and Losses | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net realized gain (loss) | $3,322 | $(5,617) | $(23,285) | $(1,684) | | Net change in unrealized appreciation | $(10,190) | $1,590 | $12,854 | $(1,198) | - Net realized gains (losses) on investments were $4.2 million in Q2 2025 (vs. $(5.3) million in Q2 2024) and $(19.8) million in H1 2025 (vs. $(3.2) million in H1 2024), driven by sales/paydowns[377][381] - Net change in unrealized appreciation was $(10.2) million in Q2 2025 (vs. $1.6 million in Q2 2024) and $12.9 million in H1 2025 (vs. $(1.2) million in H1 2024)[377][381] - Unrealized appreciation in H1 2025 was $75.3 million on 90 portfolio companies, offset by $47.3 million in depreciation on 100 companies, primarily due to positive valuation adjustments and widening credit spreads[382] Interest Rate Swaps This section explains the company's use of interest rate swaps to manage interest rate risk associated with its fixed-rate liabilities - The company utilizes interest rate swaps to mitigate interest rate risk associated with its fixed-rate liabilities, with certain swaps designated in a hedge accounting relationship[388] Net Increase (Decrease) in Net Assets Resulting from Operations This section summarizes the net change in the company's net assets attributable to its operational activities for the reporting periods Net Increase in Net Assets from Operations | Period | Net Increase in Net Assets from Operations (in millions) | Per Share Net Increase | | :----- | :--------------------------------------- | :--------------------- | | Q2 2025 | $23.7 | $0.37 | | Q2 2024 | $29.1 | $0.45 | | H1 2025 | $52.3 | $0.81 | | H1 2024 | $64.2 | $1.00 | - The net increase in net assets from operations decreased for both the three-month and six-month periods ended June 30, 2025, compared to the prior year[389][390] Financial Condition, Liquidity and Capital Resources This section discusses the company's financial health, sources of liquidity, and capital resources, including equity issuances, credit facilities, and debt notes - Liquidity is primarily derived from equity issuances, credit facilities, various debt notes (2019-1, March 2026, October 2026, March 2030), the Sumitomo Credit Facility, and cash flows from operations[391] - Primary uses of cash include investments, debt service, distributions, and operational costs[391] Cash and Credit Facility Availability | Metric | June 30, 2025 (in millions) | December 31, 2024 (in millions) | | :------------------------------------------ | :-------------------------- | :------------------------------ | | Cash, foreign cash, restricted cash and cash equivalents | $174.5 | $99.1 | | Availability on Sumitomo Credit Facility | $592.0 | $412.3 | - Cash, foreign cash, and restricted cash equivalents increased by $75.4 million in H1 2025, driven by financing activities (new debt issuances) despite cash usage in operating activities[394] Equity This section details the company's equity structure, including IPO proceeds, 'at the market' offerings, and share repurchase authorizations - The company closed its IPO on November 19, 2018, issuing 7.5 million common shares at $20.25 per share, generating $145.4 million in net proceeds[397] - On February 27, 2025, the company entered into equity distribution agreements to sell up to $250.0 million of common stock through 'at the market' offerings[399][400] 'At the Market' Offerings | Issuance Type | Number of Shares Issued (in thousands) | Gross Proceeds (in thousands) | Offering Expenses (in thousands) | Net Proceeds (in thousands) | Average Offering Price Per Share | | :-------------- | :------------------------------------- | :---------------------------- | :------------------------------- | :-------------------------- | :------------------------------- | | 'At the market' offerings | 253.9 | $4,574.7 | $23.2 | $4,551.4 | $18.02 | Debt This section provides a detailed overview of the company's debt instruments, including principal amounts, carrying values, and maturity dates Debt Instruments | Debt Instrument | Principal Amount Outstanding (in thousands) | Carrying Value (in thousands) | Maturity Date | | :------------------ | :---------------------------------------- | :---------------------------- | :------------ | | 2019-1 Debt | $352,500 | $351,423 | October 15, 2033 | | March 2026 Notes | $300,000 | $299,216 | March 10, 2026 | | October 2026 Notes | $300,000 | $298,236 | October 13, 2026 | | March 2030 Notes | $350,000 | $350,703 | March 15, 2030 | | Sumitomo Credit Facility | $263,000 | $263,000 | May 18, 2029 | | Total Debt | $1,565,500 | $1,562,578 | | - Total principal amount outstanding increased from $1,395,199 thousand as of December 31, 2024, to $1,565,500 thousand as of June 30, 2025[402] Distribution Policy This section outlines the company's policy for quarterly dividends, requirements for RIC tax treatment, and details of the dividend reinvestment plan - The company intends to distribute quarterly dividends to stockholders from legally available assets, determined by the Board[405] - To maintain RIC tax treatment and avoid excise taxes, the company must distribute at least 90% of its net ordinary income and net short-term capital gains annually[406] - The company has a dividend reinvestment plan where stockholders who do not opt out have cash dividends automatically reinvested in additional common stock[408] Commitments and Off-Balance Sheet Arrangements This section addresses the company's potential exposure to off-balance sheet risks through commitments to extend credit for investments - The company may enter into financial instruments with off-balance sheet risk, such as commitments to extend credit, to fund investments and meet portfolio companies' needs[410] Related Party Transactions This section describes the company's business relationships with affiliated parties, including advisory and administration agreements, and co-investment policies - The company has business relationships with affiliated parties, including the Amended Advisory Agreement and Administration Agreement[411] - Exemptive relief from the SEC allows co-investments with other Bain Capital Credit Clients, subject to independent director approval and specific conditions[412] Recent Developments This section refers to Note 12 for a summary of significant events occurring after the reporting period - Recent developments are summarized in Note 12 to the Consolidated Financial Statements[413] Significant Accounting Estimates and Critical Accounting Policies This section highlights the key accounting estimates and critical policies, particularly those related to investment valuation and revenue recognition, which involve inherent judgment - The financial statements are prepared under US GAAP for investment companies, requiring significant estimates and assumptions, particularly for asset and liability reporting[414][415] - Revenue recognition policies include accrual-based interest income, amortization/accretion of discounts/premiums, and evaluation of distributions from equity interests[416][417] - Investment valuation relies on market quotations or, for unquoted investments, discounted cash flow models and comparable company multiples, with inherent uncertainty in fair value determination[420][421][422] Contractual Obligations This section outlines the company's contractual commitments, including advisory and administration fees, and debt obligations with their respective maturity periods - The company has contractual obligations under its Amended Advisory Agreement and Administration Agreement, including annual base management fees and incentive fees[425][426][427] Debt Obligations by Maturity Period | Maturity Period | Total Debt Obligations (in thousands) | | :---------------- | :---------------------------------- | | Less than 1 year | $300,000 | | 1 – 3 years | $300,000 | | 3 – 5 years | $613,000 | | More than 5 years | $352,500 | | Total | $1,565,500 | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to financial market risks, particularly interest rate and foreign currency fluctuations, and their potential impact on net investment income - The company is subject to financial market risks, including interest rate changes, due to investments in illiquid loans and securities, with fair value determinations involving inherent uncertainty[430] Sensitivity to Interest Rate Changes | Change in Interest Rates | Net Increase (Decrease) in Net Investment Income (in thousands) | | :----------------------- | :------------------------------------------------------------ | | Down 100 Basis Points | $(6,434) | | Down 200 Basis Points | $(12,649) | | Down 300 Basis Points | $(18,137) | | Up 100 Basis Points | $6,466 | | Up 200 Basis Points | $12,934 | | Up 300 Basis Points | $19,400 | - The company is exposed to foreign currency exchange rate movements from foreign-denominated investments and may use hedging techniques like forward contracts to mitigate these risks[431] Item 4. Controls and Procedures This section reports on management's evaluation of the effectiveness of disclosure controls and procedures and any changes in internal controls over financial reporting - As of June 30, 2025, management, including the CEO and CFO, concluded that disclosure controls and procedures are effective in providing reasonable assurance for timely and accurate financial reporting[432] - No material changes in internal controls over financial reporting occurred during the fiscal quarter ended June 30, 2025[433] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section confirms the absence of any material legal proceedings or threatened claims against the company - The company is not currently subject to any material legal proceedings, nor is any material legal proceeding threatened against it[435] Item 1A. Risk Factors This section highlights any material changes to the risk factors previously disclosed, particularly concerning potential impacts from U.S. trade policy changes - No material changes to the risk factors set forth in the Annual Report on Form 10-K for the year ended December 31, 2024, occurred during the fiscal quarter ended June 30, 2025, except for potential negative impacts from changes to U.S. tariff and import/export regulations[436][437] - Changes in U.S. trade policy, including new tariffs, could adversely affect global economic conditions, reduce global trade, and negatively impact portfolio companies' business, financial condition, and results of operations[437] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section confirms the absence of unregistered equity sales, common stock issuances under the dividend reinvestment plan, or share repurchases during the reporting period - The company did not engage in any unregistered sales of equity securities, issue common stock under its dividend reinvestment plan, or purchase any common stock during the three months ended June 30, 2025[438] Item 3. Default Upon Senior Securities This section confirms that there was no default upon senior securities during the reporting period - Not applicable[439] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company's operations - Not applicable[440] Item 5. Other Information This section provides information regarding Rule 10b5-1 trading plans and arrangements by directors and executive officers - None of the company's directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2025[441] Item 6. Exhibits, Consolidated Financial Statement Schedules This section lists all exhibits and consolidated financial statement schedules included or incorporated by reference in the Quarterly Report on Form 10-Q - The report includes a comprehensive list of exhibits, such as the Amended and Restated Certificate of Incorporation, Bylaws, Investment Advisory Agreement, Administration Agreement, various Indentures, Loan Sale Agreements, and other relevant documents[443][444][445][446][447][448][449][450][451][452][453][454][455][456] SIGNATURES This section contains the official signatures of the company's Chief Executive Officer and Chief Financial Officer, certifying the report - The report is duly signed on behalf of Bain Capital Specialty Finance, Inc. by Michael A. Ewald, Chief Executive Officer, and Amit Joshi, Chief Financial Officer, as of August 5, 2025[459][460][461]