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Barings(BBDC) - 2019 Q1 - Earnings Call Transcript
BBDCBarings(BBDC)2019-05-10 19:11
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Financial Data and Key Metrics Changes - The company's NAV increased by 4.9% to 11.52pershare,primarilydrivenbytherecoveryincreditspreads,whichpositivelyimpactedthefairvalueofthebroadlysyndicatedloanportfolio[9][10][20]−Netinvestmentincomewas11.52 per share, primarily driven by the recovery in credit spreads, which positively impacted the fair value of the broadly syndicated loan portfolio [9][10][20] - Net investment income was 0.16 per share, consistent with the previous quarter and exceeding the first quarter dividend of 0.12pershare[10][20]−Thecompanyreported0.12 per share [10][20] - The company reported 25.4 million of net unrealized depreciation, recovering a significant portion of the 52.3millionunrealizeddepreciationrecordedinthefourthquarter[11][20]BusinessLineDataandKeyMetricsChanges−Themiddlemarketportfolioincreasedto52.3 million unrealized depreciation recorded in the fourth quarter [11][20] Business Line Data and Key Metrics Changes - The middle market portfolio increased to 289 million at quarter end, with investments totaling 65millionmadeduringthequarter[10][15]−Thebroadlysyndicatedloan(BSL)portfolioconsistedofapproximately65 million made during the quarter [10][15] - The broadly syndicated loan (BSL) portfolio consisted of approximately 838 million, with a diversified portfolio of 111 investments across multiple industries [16] - The middle market portfolio was spread across 25 companies, up from 19 at the end of 2018, with a median EBITDA size of approximately 34million[17]MarketDataandKeyMetricsChanges−ThefirstquartersawamodestrecoveryinBDCstockprices,reflectingtheincreaseincreditspreads,despiteaslightmarketweakeninginMarch[8][9]−Averagespreadsinthemiddlemarketremainedstable,withfirstlienspreadsat501basispointsandyieldsat7.834 million [17] Market Data and Key Metrics Changes - The first quarter saw a modest recovery in BDC stock prices, reflecting the increase in credit spreads, despite a slight market weakening in March [8][9] - Average spreads in the middle market remained stable, with first lien spreads at 501 basis points and yields at 7.8% [17][18] - The overall leverage in the market showed slight increases, with senior leverage for the BSL portfolio remaining consistent at a weighted average of 4.9 times senior debt to EBITDA [16][19] Company Strategy and Development Direction - The company aims to repurchase up to 2.5% of outstanding shares trading below NAV and up to 5% if trading below 0.9 of NAV, reflecting a commitment to shareholder alignment [13] - A joint venture with the State of South Carolina Retirement System was announced, aiming to diversify the asset pool and enhance risk-adjusted returns [24][25] - The focus remains on maintaining a predominantly first lien senior secured strategy while exploring opportunities across various asset classes [17][19] Management's Comments on Operating Environment and Future Outlook - Management noted that the earnings pressure from the new credit facility is expected to be temporary as they leverage the credit line effectively [10][20] - The company remains optimistic about the recovery of unrealized losses and the overall performance of the portfolio, with continued improvements expected in the second quarter [11][45] - Management emphasized the importance of maintaining attractive credit spreads and not chasing yield, even in a fluctuating LIBOR environment [33][34] Other Important Information - The company has experienced a significant increase in operational capacity with the new 800 million corporate credit facility, which is expected to enhance liquidity [12][20] - The share repurchase program has already seen approximately 1.5% of outstanding shares purchased, demonstrating the company's commitment to capital allocation [13] Q&A Session Summary Question: Follow-up on the joint venture and its rationale - Management clarified that the joint venture allows for investments in both non-qualified and qualified assets, enhancing diversification and return potential [30] Question: Managing downside risk with LIBOR trends - Management stated that they continue to implement 1% LIBOR floors in deals and do not focus on fixed-rate deals, maintaining a floating rate approach [33] Question: Funding plans for the attractive pipeline in middle market deals - Management indicated a balanced approach between BSL sales and leveraging existing debt capacity to fund new investments [36] Question: Clarification on unrealized loss recovery - Management explained that they have recovered approximately half of the unrealized loss from the previous quarter, with ongoing improvements noted [45] Question: Static CLO structure and its implications - Management confirmed that the static CLO allows for limited flexibility in asset sales but provides lower financing costs and matches the duration of liabilities with assets [66] Question: Goals for the joint venture and expected returns - Management emphasized that the joint venture is primarily about diversification and risk-adjusted returns rather than simply boosting ROE [58]