Barings(BBDC) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The net asset value (NAV) per share increased by $1 or 10.8$10.23, primarily driven by unrealized appreciation in the investment portfolio [8][19] - The total investment portfolio was carried at 93% of cost at June 30, compared to 87.4% at March 31 [9] - The net investment income per share was $0.14, which was$0.02 below the second quarter dividend of $0.16 per share [9][10] - The net debt-to-equity ratio decreased from 1.2 to 1.0x due to lower net debt and higher NAV [11][21] Business Line Data and Key Metrics Changes - Net middle market deployments during the quarter totaled$21 million, while the broadly syndicated loan (BSL) portfolio saw a net decrease of $67 million [10][13] - The funded middle market portfolio was spread across 64 companies and 18 industries, while the BSL portfolio was spread across 81 companies and 26 industries [14] - The top 10 investments represented only 21$937 million [24][25] - The management emphasized a defensive capital structure while remaining opportunistic in asset composition [22][54] Management's Comments on Operating Environment and Future Outlook - Management noted that the middle market portfolio has weathered the COVID-19 situation well, with no payment defaults or material modifications [30][31] - The outlook remains cautious, with management acknowledging potential challenges in the next 6 to 18 months [31] - The company is not looking to time the market but will continue to underwrite investments assuming economic cycles will occur during the life of each asset [75][76] Other Important Information - The company repurchased approximately 2% of shares year-to-date under its share repurchase plan, generating $0.05 of NAV per share accretion [11] - The company announced a third quarter 2020 dividend of$0.16 per share, to be paid on September 16, 2020 [24] Q&A Session Summary Question: On portfolio improvement and liquidity outlook - Management indicated that some management teams were overly pessimistic about their market outlook, and many took aggressive actions in terms of cost reductions [28][30] Question: On Moody's rating and leverage ratios - Management confirmed that the investment-grade rating does not constrain their strategic outlook or approach [32][33] Question: On BSL sales and market conditions - Management expects the current quarter run rate for BSL reductions to be similar to the previous quarter, focusing on NAV-neutral sales [36] Question: On modifications in the middle market book - Management noted that while there were some requests for modifications, they were not significant, and most companies managed to avoid material changes [38] Question: On the investment pipeline and due diligence process - Management highlighted that the pipeline has improved significantly, but due diligence is being conducted remotely due to social distancing measures [44][46] Question: On the nature of new investments and risk appetite - Management clarified that they are not changing their core strategy but selectively investing in special situations when risk-adjusted returns are attractive [70] Question: On share repurchase program and market conditions - Management expressed commitment to share repurchases, aligning with their capital allocation philosophy, subject to liquidity constraints [72]