Bain Capital Specialty Finance(BCSF) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q2 net investment income per share was $0.41, an increase from $0.34 in the previous quarter, driven by higher investment income across the portfolio [6][23] - Net asset value (NAV) as of June 30 was $17.15 per share, a decrease of approximately 40 basis points quarter-over-quarter [6][24] - Total investment income for Q2 was $52.4 million, up from $46 million in Q1 [22] - Total expenses for Q2 were $25.6 million, compared to $24.3 million in Q1 [22] Business Line Data and Key Metrics Changes - New investment fundings in Q2 totaled $482 million across 50 portfolio companies, including $254 million in 11 new companies [14] - The investment portfolio at fair value was $2.3 billion, diversified across 122 companies in 31 industries [16] - 94% of new fundings were first lien senior secured loans, with a focus on U.S. domiciled companies [15] Market Data and Key Metrics Changes - The company experienced higher market volatility, particularly in syndicated loan and equity markets, due to macroeconomic uncertainties [7] - The weighted average yield on the investment portfolio increased to 8.5% at amortized cost and 8.8% at fair value, compared to 7.9% and 8.1% in the previous quarter [16][17] Company Strategy and Development Direction - The company focuses on downside risk management and curating a diversified portfolio of middle market borrowers [8] - The higher interest rate environment is seen as an opportunity to generate excess net investment income [11] - The formation of a senior loan program joint venture aims to drive attractive risk-adjusted returns while maintaining exposure to first lien loans [11][12] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the health of middle market borrowers despite economic uncertainties [27] - The company is monitoring inflationary impacts and believes that many portfolio companies can pass through costs without losing demand [9] - Future earnings growth is expected due to the timing lag of rate resets across loans [11] Other Important Information - The company declared a third quarter dividend of $0.34 per share, representing a 7.9% annualized yield [7] - Approximately 57% of outstanding debt was in fixed rate and 43% in floating rate, positioning the company well for higher interest income [25] Q&A Session Summary Question: What was the driver of the big increase in other income? - The increase was primarily due to new origination fees from a record high of over $400 million in new investments during the quarter [28][29] Question: Can you break down the ISLP portfolio exposure? - About 90% of the ISLP portfolio exposure is in Europe [31][32] Question: How does the company evaluate the risk of the European portfolio? - The European portfolio is similar to the U.S. portfolio, with a skew towards technology-related companies, which are less impacted by the energy crisis [33][34] Question: Are new investments still being made in Europe? - The company is more U.S.-focused currently but continues to see deal flow in Europe, particularly in companies not affected by the energy crisis [36]