Bain Capital Specialty Finance(BCSF) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q1 net investment income per share was $0.50, representing an annualized yield on book value of 11.3% [6] - Q1 earnings per share were$ 0.44, reflecting an annualized return on book value of 10% [6] - Net asset value per share was $17.64, down$ 0.01 from the prior quarter [7] - Total investment income for Q1 was $66.8 million, down from$ 73.3 million in the previous quarter [19] - Net investment income for the quarter was $32.1 million, or$ 0.50 per share, compared to $33.6 million, or$ 0.52 per share, for the prior quarter [20] Business Line Data and Key Metrics Changes - Gross originations for Q1 were $277 million, down 31% year over year [8] - 51% of total fundings were made to new portfolio companies, while 49% were to existing companies [13] - 90% of investments were made into first lien senior secured loans, with 9% in subordinated debt and 1% in equity [14] - The weighted average yield of the investment portfolio at amortized cost and fair value was 11.5% [16] Market Data and Key Metrics Changes - Middle market direct lending volumes saw compression amid high competition, particularly in the upper and larger ends of the market [8] - Investments on non-accrual represented 1.4% of the total investment portfolio at amortized cost and fair value as of March 31 [10][17] Company Strategy and Development Direction - The company remains focused on being disciplined capital providers, favoring middle market companies and maintaining strong lender controls [8] - The investment strategy emphasizes high free cash flow businesses, domestic manufacturing, and industries such as software, healthcare, and business services [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating potential liquidity and volatility challenges ahead, leveraging their experience across multiple market cycles [24] - The company is focused on managing the portfolio prudently while delivering attractive returns for shareholders [24] Other Important Information - The Board declared a second quarter dividend of$ 0.42 per share, with an additional dividend of $0.03 per share [7] - The company has approximately$ 823 million in total available liquidity, including $699 million of undrawn capacity on its revolving credit facility [23] Q&A Session Summary Question: On the later fundings and lower interest income - Management acknowledged that some fundings were backdated in the quarter but emphasized stable earnings yield at around 11.5% [27][29] Question: Regarding realized losses and specific investments - Management discussed two non-accrual investments that were exited, with successful recoveries achieved through restructuring efforts [35][37] Question: On the ATM and stock buybacks - Management indicated that the ATM program is opportunistic and dependent on market conditions, with stock buybacks evaluated against investment opportunities [44][45] Question: Dividend coverage and SOFR curve - Management projected no immediate need to revisit the current dividend policy, citing strong spillover income [46] Question: Incentive fee stabilization - Management expects stabilization of the incentive fee from the second quarter onwards, accounting for nuances in the look-back mechanism [50]