Bain Capital Specialty Finance , Inc. (NYSE: NYSE:) reported a secure third-quarter efficiency in its newest earnings name on October 30, 2024. The corporate highlighted a rise in web funding revenue per share to $0.53, yielding an 11.9% annualized return and overlaying dividends by 126%. The online asset worth per share rose barely to $17.76. Gross originations surged, and the corporate’s funding portfolio maintained a robust credit score high quality. Bain Capital declared a complete fourth-quarter dividend of $0.45 per share, with a particular dividend included, and expressed confidence within the continued deal movement and credit score self-discipline for the forthcoming intervals.

Key Takeaways

• Web funding revenue per share at $0.53, with an annualized return of 11.9%.
• Earnings per share stood at $0.51, reflecting an 11.5% annualized return on fairness.
• Web asset worth per share elevated to $17.76, a 0.3% rise from the earlier quarter.
• Fourth-quarter dividend declared at $0.45 per share, together with a particular dividend.
• Gross originations reached $413 million, exhibiting vital year-over-year progress.
• Stable portfolio credit score high quality with low non-accrual investments at 1.1% of the entire portfolio.
• Complete (EPA:) property reported at $2.5 billion, with web property of $1.1 billion.

Firm Outlook

• Anticipates ongoing deal movement into 2025, pushed by personal fairness exercise and potential decrease rates of interest.
• Plans to deal with $300 million in bonds maturing in early 2026 via market entry and elevated credit score facility.

Bearish Highlights

• Slight lower within the proportion of the funding portfolio performing in line or higher than expectations, from 97% to 96%.
• The debt-to-equity ratio elevated to 1.14 instances.
• A slight uptick within the variety of firms rated three and 4, indicating a minor deterioration in credit score high quality.

Bullish Highlights

• The median EBITDA of debtors was $33 million, with new investments yielding a weighted common of 10.7%.
• A realized achieve of $2.8 million from the exit of the funding in BlackBrush, finalized above par worth.

Misses

• No particular misses had been highlighted within the abstract offered.

Q&A Highlights

• Administration mentioned the disciplined funding technique and concentrate on sustaining credit score high quality.
• Addressed structural relative worth, with a concentrate on the much less engaging demand for PIK optionality in Europe in comparison with the U.S.
• Expressed optimism about sourcing new lending alternatives and sustaining credit score self-discipline.

In abstract, Bain Capital Specialty Finance’s third-quarter outcomes demonstrated a robust monetary and operational place, with strong earnings and a secure credit score outlook. The corporate stays well-prepared to navigate the long run market surroundings, with strategic plans in place for upcoming monetary obligations and a concentrate on disciplined funding to drive continued progress.

InvestingPro Insights

Bain Capital Specialty Finance’s (NYSE: BCSF) stable third-quarter efficiency is additional supported by latest knowledge from InvestingPro. The corporate’s market capitalization stands at $1.09 billion, reflecting its vital presence within the specialty finance sector. BCSF’s P/E ratio of 8.46 means that the inventory could also be undervalued relative to its earnings, which aligns with the corporate’s reported robust web funding revenue.

One of the vital placing InvestingPro Suggestions is that BCSF “pays a significant dividend to shareholders.” That is corroborated by the spectacular dividend yield of 10.22%, which is especially noteworthy given the corporate’s latest declaration of a $0.45 per share dividend for the fourth quarter, together with a particular dividend. This excessive yield is prone to be engaging to income-focused buyers.

One other related InvestingPro Tip signifies that the inventory is “trading near its 52-week high,” with the price at 97.74% of its 52-week excessive. This implies that the market is recognizing BCSF’s robust efficiency and constructive outlook, as mentioned within the earnings name.

The corporate’s profitability over the past twelve months, as highlighted by InvestingPro, is in keeping with the reported earnings and web asset worth progress. With a income of $294.26 million within the final twelve months and a 100% gross revenue margin, BCSF demonstrates its effectivity in producing returns from its investments.

For buyers searching for extra complete insights, InvestingPro affords extra ideas and metrics that might present a deeper understanding of BCSF’s monetary well being and market place. At present, there are 5 extra InvestingPro Suggestions obtainable for BCSF, which may provide priceless perspective for these contemplating an funding on this specialty finance firm.

Full transcript – Bain Capital Specialty Finance Inc (BCSF) Q3 2024:

Operator: Good day, everybody, and welcome to at the moment’s Bain Capital Specialty Finance Third Quarter Ended September 30, 2024 Earnings Convention Name. Presently, all individuals are in a listen-only mode. Later, you’ll have the chance to ask a query through the question-and-answer session. [Operator instructions] Please word, this name is being recorded, and I shall be standing by must you want any help. It’s now my pleasure to show at the moment’s program over to Katherine Schneider with Investor Relations.

Katherine Schneider: Thanks, Britney, and good morning, everybody, and welcome to the Bain Capital Specialty Finance third quarter ended September 30, 2024 convention name. Yesterday, after market closed, we issued our earnings press release and investor presentation of our quarterly outcomes, a duplicate of which is accessible on Bain Capital specialty Funds Investor Relations Web site. Following our remarks at the moment, we are going to maintain a question-and-answer session for analysts and buyers. This name is being webcast and a replay shall be obtainable on our web site. This name and webcast are property of Bain Capital specialty finance and any unauthorized broadcast in any kind is strictly prohibited. Any forward-looking statements made at the moment don’t assure future efficiency, and precise outcomes could differ materially. These statements are based mostly on present administration expectations, which embody dangers and uncertainties, that are recognized within the Danger Components part of our Kind 10-Q that might trigger precise outcomes to vary materially from these indicated. Bain Capital Specialty Finance assumes no obligation to replace any forward-looking statements right now except required to take action by legislation. Lastly, previous efficiency doesn’t assure future outcomes. So, with that, I might like to show the decision over to our CEO, Michael Ewald.

Michael Ewald: Thanks, Katherine, and good morning, and because of all of you for becoming a member of us right here at the moment on our earnings name. I am joined at the moment by Mike Boyle, our President; and our Chief Monetary Officer, Amit Joshi. By way of the agenda for the decision, I am going to begin with an summary of our third quarter ended September 30, 2024 outcomes after which present some ideas on our efficiency, the general market surroundings and our positioning. Thereafter, Mike and Amit will talk about our funding portfolio and monetary leads to higher element. As common, we’ll additionally depart a while for questions on the finish. So yesterday after market shut, we delivered robust third quarter outcomes. Q3 web funding revenue per share was $0.53 as we proceed to profit from excessive base rates of interest throughout our portfolio. Our web funding revenue return represented an annualized yield of 11.9% on guide worth and lined our common dividend by 126%. Q3 earnings per share had been $0.51, or an annualized return on fairness of 11.5% as credit score fundamentals remained wholesome throughout our portfolio. As of September thirtieth, our web asset worth per share was $17.76, a rise of 0.3% from the prior quarter finish. Subsequent to quarter finish, our Board declared a fourth quarter dividend equal to $0.42 per share and payable to file date holders as of December 31, 2024. The Board additionally declared an extra dividend of $0.03 per share for shareholders of file as of December thirty first, as we had beforehand introduced again in February. This brings whole dividends for the fourth quarter to $0.45 per share, or a ten.1% annualized charge on ending guide worth as of September thirtieth, which we consider represents a gorgeous yield for our shareholders. Turning now to the market surroundings. Throughout the third quarter, we continued to see lively deal movement with elevated transaction ranges, pushed by each M&A and new LBO exercise as volumes return to ranges similar to historic intervals. Primarily based on present market situations, we’d count on these traits to proceed into 2025, supported by the big quantity of personal fairness dry powder, pressures for personal fairness sponsors to return capital again to their buyers, and a probable decrease rate of interest surroundings from the upper ranges seen lately. Our personal credit score group’s long-standing presence within the center market, mixed with our robust focus and experience throughout myriad industries, permits us to generate a gorgeous deal pipeline whereas remaining extremely selective in our investments. Gross originations throughout Q3 had been $413 million, up 278% year-over-year and roughly 35% from Q2 ranges of $307 million. This quarter, our platform was notably lively offering capital in new platforms that we sourced from our sponsor relationships who worth the specialised business experience that Bain Capital Credit score brings as a supply of differentiation versus different lenders. Whereas the personal credit score market continues to expertise vital progress as many personal lenders have moved up-market, we proceed to see engaging alternatives to supply and underwrite funding alternatives within the core center market and function a value-added capital supplier and enterprise associate to rising companies. We worth this phase of the market given its secure dimension premium and set up to giant market volatility. Throughout our direct originations to new platforms through the third quarter, the median EBITDA of our debtors was roughly $33 million, in keeping with our core borrower EBITDA focus of between $25 million and $75 million. Relative worth stays engaging on new investments inside this phase of the market. Whereas now we have seen some latest unfold compression throughout the broader market this yr, phrases and construction proceed to be engaging. The weighted common yield on Q3 investments to new firms was 10.7%, with a median leverage ranges of 4.5 instances on these new originations. We proceed to position a heavy emphasis on investing in constructions which profit from robust lender controls via credit score settlement documentation, containing monetary covenants and having managed positions amongst lender teams. 96 of our — 96% of our Q3 originations to new firms had been structured with documentation containing monetary covenants tied particularly to administration’s forecasts, and now we have majority management positions in practically 87% of those debt tranches, permitting us to drive eventual outcomes at our discretion. These statistics are in keeping with our broader portfolio exhibiting our continued concentrate on these core tenets of our investing technique. Transferring on to credit score high quality. Our portfolio firms continued to exhibit robust elementary efficiency within the present market surroundings. Leverage statistics throughout our debtors stay wholesome at 4.8 instances general based mostly on our portfolio firm median ranges. Curiosity protection additionally remained stable throughout our portfolio at roughly 1.7 instances at quarter finish regardless of continued elevated base charges. Investments on non-accrual stay low throughout the portfolio, which is 1.1% of the entire portfolio at honest worth. Credit score danger score traits had been additionally secure through the quarter with solely a small proportion of our portfolio underperforming and on our watch checklist. We consider our robust file — observe file of stable firm efficiency is a testomony to being capital disciplined and extremely selective underwriting course of. Lastly, on the finish of the third quarter, our gross and web leverage ratios for BCSF had been 1.14 instances and 1.09 instances, respectively, which falls in the course of our goal leverage ratio of 1.0 instances to 1.5 instances and place us effectively with ample dry powder to capitalize on new funding alternatives within the present surroundings. I’ll now flip the decision over to Mike Boyle, our President, to stroll via our funding portfolio in higher element. Mike?

Mike Boyle: Thanks, Michael, and good morning, everybody. I am going to begin with our funding exercise for the third quarter after which present an replace on our present portfolio. New fundings through the third quarter had been $413 million into 83 portfolio firms, together with $331 million into 16 new firms and $82 million into 67 current firms. Gross sales and compensation exercise totaled roughly $248 million, leading to web funding funding of $165 million within the quarter. This quarter, we remained targeted on investing in first lien senior secured loans with 97% of our new funding fundings in first lien constructions and three% in most popular or frequent fairness. As Michael highlighted earlier within the name, new investments made within the quarter had been 80% to new portfolio firms and 20% to current or incumbent firms. We added 16 new firms this quarter, which led to an enchancment in our single identify firm diversification to 159 totally different firms within the present portfolio. In making new investments, we leverage Bain Capital’s deep business experience throughout a variety of sectors, together with industries, reminiscent of resort, gaming and leisure, aerospace and protection and enterprise providers. Our sponsor relationships usually worth Bain Capital’s data base throughout a large spectrum of industries, together with specialised industries, which allow us to be a value-added associate to personal fairness sponsors via a number of cycles. Turning now to our present funding portfolio. On the finish of the third quarter, the scale of our portfolio at honest worth was roughly $2.4 billion throughout a diversified set of 159 firms working throughout 31 industries. Our portfolio primarily consists of first lien senior secured loans, given our concentrate on draw back administration and investing within the high of the capital construction. As of September 30, 63% of the portfolio at honest worth was invested in first lien debt, 3% in second lien debt, 2% in subordinated debt, 7% in most popular fairness, 9% in fairness and different curiosity and 15% throughout our joint ventures together with 10% within the ISLP and 6% within the SLP. The overwhelming majority of our underlying investments inside each of those joint ventures are first lien loans. As of September 30, the weighted common yield of the funding portfolio at amortized prices was 12.1% as in comparison with 13.1% as of June 30. This decline in yields was partially pushed by the lower in base charges, which contributed about 38 foundation factors to this yield decline, nevertheless it was primarily pushed by the lower in dividends from our aviation portfolio and our joint ventures. It is value noting that the unfold on our debt investments remained comparatively fixed quarter-over-quarter from 663 foundation factors over SOFR in Q2 to 653 foundation factors over SOFR in Q3. 91% of our debt investments bear curiosity at a floating charge, which positions the corporate favorably at the moment’s increased rate of interest surroundings. Transferring now to portfolio credit score high quality traits. Our fundamentals stay wholesome. As highlighted earlier, portfolio firm fundamentals exhibited stable traits with a median web leverage throughout our portfolio of 4.8 instances at quarter finish versus 4.7 instances within the prior quarter. Credit score high quality traits inside our inside danger score scales had been additionally secure quarter-over-quarter. Danger score one and two investments, which signifies that the corporate was performing in line or higher than expectations totaled 96% of our portfolio as of September 30, as in comparison with 97% within the prior quarter. Danger score 3 and 4 are underperforming investments comprise simply 4% of our portfolio at honest worth. Investments on non-accrual represented 1.9% and 1.1% of the entire funding portfolio at amortized price and honest worth, respectively, as of September 30. That is in comparison with 1.2% and 1.0%, respectively, as of June 30. Lastly, we’d spotlight the efficiency throughout our combination 120-plus firms inside our underlying joint ventures proceed to carry out effectively and in keeping with our broader portfolio. I am going to now flip the decision over to Amit, who will present a extra detailed monetary overview.

Amit Joshi: Thanks, Mike, and good morning, everybody. I am going to begin the overview of our third quarter 2024 outcomes with our revenue assertion. Complete funding revenue was $72.5 million for 3 months ended September 30, 2024, as in comparison with $72.3 million for the three months ended June 30, 2020. The rise in funding revenue was primarily pushed by a rise in different revenue. Our funding revenue continues to profit from high-quality supply of funding revenue, largely pushed by contractual money revenue throughout its investments. Curiosity revenue and dividend revenue represented 92% of our whole funding revenue in Q3. Complete bills earlier than taxes for the third quarter had been $37.5 million, as in comparison with $38 million within the second quarter. Web funding revenue for the quarter was $34 million or $0.53 per share, as in comparison with $33.1 million or $0.51 per share for the prior quarter. Throughout the 3 months ended September 30, 2024, the corporate had web realized and unrealized losses of $900,000. Web revenue for 3 months ended September 30, 2024 was $33.1 million or $0.51 per share. Transferring over to our stability sheet. As of September 30, our funding portfolio at honest worth totaled $2.4 billion and whole property of $2.5 billion. Complete web property had been $1.1 billion as of September 30, 2024. NAV per share was $17.76, a rise of $0.06 per share or a 0.3% enhance from $17.70 on the finish of second quarter, as we demonstrated robust NII overearning of our dividend, coupled with secure credit score high quality throughout our portfolio. On the finish of Q3, our debt-to-equity ratio was 1.14 instances as in comparison with 1.03 instances for the top of Q2. Our web leverage ratio, which represents principal debt excellent much less money and unsettled charge was 1.09 instances on the finish of Q3, as in comparison with 0.95 instances on the finish of Q2. As of September 30, roughly 54% of our excellent debt was in floating charge debt and 46% in our mounted charge debt. Our debt funding continues to profit from low mounted charge debt constructions. For the three months ended September 30, 2024, the weighted common rate of interest on our debt excellent was 5.1% as in comparison with 5.1% as of the prior quarter. The weighted common maturity throughout our whole debt dedication was roughly 4.5 years at September 30, 2024. Liquidity at quarter finish totaled $562 million, together with $501.3 million of undrawn capability on our revolving credit score facility, $59.8 million of money and money equivalents, together with $29.3 million of restricted money and round $600,000 of unsure commerce web of receivables and tables of funding. Subsequent to quarter finish, our Board declared a fourth quarter 2024 dividend equal to $0.42 per share and a particular dividend, as beforehand introduced, of $0.03 per share, bringing whole This autumn dividend to $0.45 per share. Each dividends are payable on January 31, 2025, to stockholders of file date on December 31, 2024. As a reminder, our Board declared a complete of $0.12 per share extra dividend pushed by our robust over-earning in 2023. These particular dividends have been paid out in installments of $0.03 per share per quarter all year long. We at the moment estimate that our spillover revenue totaled roughly $113 per share, representing over two instances of our quarterly common dividend. We’ll proceed to watch our undistributed earnings in opposition to prudent capital administration issues. With that, I am going to flip the decision again over to Mike Ewald for the closing remarks.

Michael Ewald: Thanks, Amit. In closing, we’re happy to ship one other robust quarter of engaging earnings for our shareholders with NII effectively in extra of our dividend and regular NAV progress as our underlying debtors proceed to carry out effectively. We consider the corporate stays effectively positioned to supply new middle-market lending alternatives, given our personal dry powder, world footprint and deep business experience, whereas remaining disciplined in our credit score choice. As at all times, we thanks for the privilege of managing our shareholders’ capital. Britney, please open the road for questions.

Operator: [Operator Instructions] We’ll take our first query from Paul Johnson with KBW. Your line is now open.

Paul Johnson: Yeah. Thanks. Good morning. Thanks for taking my query. I might similar to to type of perhaps get a way of simply inside the portfolio yield decline this quarter, 100 foundation factors or so quarter-over-quarter. What was type of the interaction of the decline in yield type of on account of some type of decrease reset on the bottom charges versus unfold impression? It gave the impression of in your comp spreads had been truly pretty secure quarter-over-quarter. So I simply type of prefer to get a way of what is driving the yield decline this quarter.

Michael Ewald: Certain. Thanks for the query, Paul. In order we famous, about 38 foundation factors of that yield decline was pushed by decrease base charges. There was one other about 10 foundation factors that was pushed by the lower on spreads on the credit score property within the portfolio. So pretty secure, as you famous, as we spoke about in our ready remarks. The most important step down in yield was actually pushed by the dividend revenue that was earned in BCSF quarter-over-quarter. So about $6.1 million was earned in Q3 versus about $8.2 million earned within the prior quarter. And that additionally was actually pushed by each our aviation funding known as GAIL the place we didn’t distribute all the earnings there. We determined to take a position some within the fleet of planes. And in order that drove a number of the step down in addition to a slight step down in a number of the dividends earned from our joint ventures. So it was primarily simply pushed by these dividends, not precise degradation within the unfold of the property that we’re originating.

Paul Johnson: Bought it. I respect that. That is actually useful. After which — how do you guys take into consideration — I imply, your pipeline, I imply, by way of spreads and the place that is shaping up to type of the common unfold within the portfolio at this level? It looks like M&A from what you are seeing a minimum of is selecting up — do you count on there to be some extra unfold compression within the portfolio because the portfolio turns into subsequent yr?

Michael Ewald: Okay. Thanks Paul. Look, I feel a whole lot of the unfold compression has type of performed out through the course of this yr. I feel what we’re seeing now could be much more bifurcation in spreads based mostly on the standard of the credit score, which is definitely useful to see. So I feel the effectively financial institution sponsor with an A+ credit score, you would possibly nonetheless see some unfold compression there, however the type of extra common deal or the sponsor that hasn’t gotten as a lot protection or perhaps lenders having left our core center market and gone upmarket leaves a little bit bit extra room for us to function. I feel there’ll nonetheless see, spreads cling in fairly much like the numbers that we noticed this quarter.

Paul Johnson: Thanks for that. After which, I imply, by way of the personal credit score premium, yield premium to the syndicated markets, I imply, how do you guys take into consideration the worldwide personal credit score market. I imply, do you see that market as doubtlessly a little bit bit extra insulated with the premium that personal credit score will get over the financial institution syndicated market simply on account of extra competitors within the center market right here within the U.S.? Or I am simply curious, if there’s any type of relation between the 2?

Michael Ewald: Yeah. I might say a few issues. One is, we’re nonetheless seeing a 150, 200 foundation level unfold, a minimum of within the U.S. between our property and the extra typical broadly syndicated mortgage market. That very same relationship does not essentially exist in Europe, simply because, neither of the markets, fairly frankly, neither the syndicated market nor the personal credit score market is as developed over there, so it is tougher to type of benchmark one versus the opposite. What I might say, although, is in at the moment’s surroundings from a relative worth perspective spreads are pretty related proper now between U.S. and Europe. The caveat, I might provide you with is that, within the U.S., you are seeing a few of this strain on some PIK non-compulsory curiosity, particularly within the bigger cap market. We’re not seeing as a lot in our core center market. You’re seeing that strain in Europe, within the core center market. And so, when you’re pondering like-for-like, the spreads are the identical, however there is a demand for PIK optionality in Europe that makes Europe marginally much less engaging for these specific offers. So at this level, it is much less about pricing relative worth and extra about construction relative worth after we weigh U.S. versus Europe.

Paul Johnson: Thanks for that. That is an attention-grabbing dynamic there. After which simply on the credit score high quality, there was a little bit bit of degradation, and simply inside your credit score rating, the credit score scoring of investments. I imply there’s 11 firms rated three and 4 this quarter versus eight final quarter. There was a small enhance in non-accruals. So what was the motive force of, I assume, the variety of firms rated three and 4? Is that simply the corporate is happening non-accrual? Or is there — is there any extra there?

Michael Ewald: Yeah. I highlighted its nonetheless fairly idiosyncratic. So there are some firms which can be — it is not essentially occurring non-accrual. It is simply firms which can be occurring our watch checklist. First performances below the unique underwrite, however I famous there’s — it is not concentrated in any business or actually something that is been pulling via. It has nonetheless been fairly idiosyncratic within the — that small proportion of our portfolio that is danger score three and 4.

Paul Johnson: Bought it. Thanks. After which simply final one for me actual fast. The $2.8 million small realized web achieve or realized achieve within the portfolio this quarter. Was there something particularly that drove that? Was there an exit of any investments?

Michael Ewald: Sure. So it was the exit of an funding known as BlackBrush, which was within the restructuring that occurred throughout COVID that we lastly accomplished the sale and exit effectively above our par worth and we took the keys there. So it was that legacy exit from that firm known as BlackBrush.

Paul Johnson: Bought it. Thanks. That is for me, and congrats on quarter.

Michael Ewald: Thanks, Paul.

Operator: [Operator Instructions] And we are going to take our subsequent query from Derek Hewett of Financial institution of America. Your line is open.

Derek Hewett: Good morning everybody and congrats on the nice quarter. Might you discuss your plans to deal with the $300 million of bonds that mature in early 2026? Are you going to make use of your credit score facility to care for that maturity? Are you interested by tapping the unsecured market once more afterward subsequent yr?

Amit Joshi: Sure. I imply, we’re prudently speaking to all our banking companions. We’re in steady dialogue with them. And I might say, our intend to be to entry the market in 2025. As you highlighted, now we have two unsecured, which can mature in 2026. So we undoubtedly will entry the market. However on the similar time, as you noticed, we did enhance our revolving facility. So between these two will prudently handle our legal responsibility.

Derek Hewett: Thanks.

Operator: [Operator Instructions] It seems now we have no additional questions within the queue. I am going to flip this system again over to Michael Ewald for any extra or closing remarks.

Michael Ewald: Thanks, Whitney, and thanks once more to all of you for becoming a member of us on our name at the moment. Once more, we’re very happy with the outcomes of the third quarter, and we stay up for bringing you extra information on the finish of subsequent quarter. Hope everybody has day. Thanks.

Operator: Thanks. This does conclude at the moment’s program. Thanks in your participation. It’s possible you’ll disconnect at any time, and have a beautiful day.

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