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Bain Capital Specialty Finance(BCSF) - 2024 Q2 - Earnings Call Transcript
BCSFBain Capital Specialty Finance(BCSF)2024-08-07 16:49
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Financial Data and Key Metrics - Q2 net investment income per share was 0.51,representinganannualizedyieldof11.60.51, representing an annualized yield of 11.6% on book value and covering the regular dividend by 121% [7] - Q2 earnings per share were 0.45, with an annualized return on equity of 10.2% [7] - Net asset value per share was 17.70asofJune30,unchangedfromthepriorquarter[8]−TotalinvestmentincomeforQ2was17.70 as of June 30, unchanged from the prior quarter [8] - Total investment income for Q2 was 72.3 million, down from 74.5millioninQ1,primarilyduetoadecreaseinotherincome[21]−NetinvestmentincomeforQ2was74.5 million in Q1, primarily due to a decrease in other income [21] - Net investment income for Q2 was 33.1 million or 0.51pershare,comparedto0.51 per share, compared to 34 million or 0.53pershareinQ1[21]−NetincomeforQ2was0.53 per share in Q1 [21] - Net income for Q2 was 29.1 million or 0.45pershare[22]BusinessLineDataandKeyMetrics−GrossoriginationsduringQ2were0.45 per share [22] Business Line Data and Key Metrics - Gross originations during Q2 were 307 million, up 55% year-over-year but down 24% from Q1 levels of 403million[10]−Q2originationsweresplitnearlyhalf−and−halfbetweennewandexistingborrowers[10]−86403 million [10] - Q2 originations were split nearly half-and-half between new and existing borrowers [10] - 86% of new fundings were into first lien structures, with 9% into investment vehicles [17] - The investment portfolio at fair value was approximately 2.2 billion across 154 portfolio companies operating in 32 industries [17] - 63% of the investment portfolio at fair value was in first lien debt, 5% in second lien or subordinated debt, and 9% in equity and other interests [18] - The weighted average yield on the investment portfolio at amortized cost and fair value were 13.1% and 13.2% respectively, up from 12.9% and 13% in Q1 [18] Market Data and Key Metrics - The private credit market remains well positioned for future growth due to a large amount of private equity dry powder and pressure for sponsors to return capital to investors [9] - Market expectations for future rate cuts have increased, which could drive new activity levels into 2025 [9] - The median EBITDA of borrowers in the core middle market was approximately 45million[11]−Weightedaverageyieldonneworiginationswas11.645 million [11] - Weighted average yield on new originations was 11.6%, with median leverage levels of 4.6 times [12] Company Strategy and Industry Competition - The company remains focused on investing in first lien senior secured loans to manage downside risk and invest at the top of the capital structure [17] - The company leverages its long-standing relationships with private equity sponsors to grow and execute on longer-term business plans [16] - The company has deep restructuring and workout capabilities to maximize value for shareholders in various market environments [20] Management Commentary on Operating Environment and Future Outlook - The company believes the private credit market is well positioned for future growth despite lower new deal activity [9] - The company expects market conditions to remain favorable, with potential rate cuts driving new activity levels [9] - The company remains committed to delivering value for shareholders through attractive returns on equity [26] Other Important Information - The company declared a third quarter dividend of 0.42 per share and a special dividend, bringing the total Q3 dividend to $0.45 per share [24] - The company increased commitments under its secured revolving credit facility by nearly 30% and extended the maturity to mid-2029 [14] - The company's gross and net leverage ratios were 1.03 times and 0.95 times respectively at the end of Q2 [14] Q&A Session Summary Question: What drove the 20 basis point increase in the overall portfolio yield? - The increase in yield was driven by the optimization of assets between the balance sheet and the Senior Loan Program (SLP) joint venture, which holds lower-yielding assets off the balance sheet [29] Question: What is the interest coverage ratio for the portfolio? - The median interest coverage across the portfolio is more than 2x, with stress tests indicating that any significant degradation is limited to risk rating three and four investments [31] Question: What is the nature of the pick income and when would it become a concern? - The majority of pick income comes from original investment structures, particularly in junior capital investments, with some additional pick from amendments on underperforming companies [33] Question: How are the joint ventures performing, particularly in terms of non-accruals? - The SLP has lower non-accruals (1.5% to 2%) compared to the balance sheet, while the ISLP has seen a slight uptick in non-accruals but still maintains strong performance [38] Question: How does the company view relative value between international and US markets? - The company sees equivalent relative value between US and European markets, with Australia contributing a steady 5% plus or minus [41]