At this time, I would like to welcome everyone to the Barings BDC, Inc. Conference Call for the quarter ended June 30, 2025. [Operator Instructions] The question-and-answer session will follow the company's formal remarks. [Operator Instructions] Today's call is being recorded, and a replay will be available approximately 2 hours after the conclusion of the call on the company's website at www.baringsbdc.com under the Investor Relations section. At this time, I will turn the call over to Joe Mazzoli, Head of Investor Relations for Barings BDC.

Good morning, and thank you for joining today's call. Please note that this call may contain forward-looking statements that include statements regarding the company's goals, beliefs, strategies, future operating results and cash flows. Although the company believes these statements are reasonable, actual results could differ materially from those projected in forward- looking statements. These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled Risk Factors and forward-looking statements in the company's quarterly report on Form 10-Q for the quarter ended June 30, 2025, as filed with the Securities and Exchange Commission. Barings BDC undertakes no obligation to update or revise any forward-looking statements unless required by law. I will now turn the call over to Eric Lloyd, Chief Executive Officer of Barings BDC.

Thanks, Joe, and good morning, everyone. We appreciate you joining us for today's call. Please note that throughout today's call, we'll be referring to our Second Quarter 2025 earnings presentation that is posted on the Investor Relations section of our website. On the call today, I'm joined by Barings BDC's President, Matt Freund, Chief Financial Officer, Elizabeth Murray; and Baring's Head of Global Private Finance and BBDC Portfolio Manager, Bryan High. In the second quarter, BBDC delivered another strong and consistent set of results fueled by leading credit performance and supported by the scale of our franchise. We are pleased to announce strong net investment income that was accompanied by excellent credit performance within the portfolio. Meanwhile, origination activity during the second quarter was consistent with what we experienced during the preceding period, with gross originations of nearly $200 million and net originations of $32 million. Robust deployment, combined with a benign credit environment and our focus on the top of the capital structure investments in middle market issuers combined to serve our investors well. We focus on the core middle market due to its lower leverage and stronger risk-adjusted returns, making it the most compelling segment for BBDC and our shareholders. Further, our focus on sectors that will perform resiliently across economic environments provides an additional level of stability to our portfolio. This combination of senior secured financing solutions, core middle market focus, defensive noncyclical sectors and our global footprint offers our investors strong relative value and portfolio differentiation compared to the broader BDC sector. Consistent with how we defined our approach in past discussions, our portfolio strategy is outlined in greater detail on Slide 6, where we show the breakdown between sponsored, nonsponsored and platform investments in the portfolio. We continue to successfully invest across the market and…

Thanks, Eric. During our prior earnings call, we discussed how the rapidly evolving macroeconomic landscape was impacting our issuer base and how we work to understand triage anticipated challenges. . Following the presidential inauguration, our team began analyzing the impacts of prospective tariffs should the administration choose to pursue them, and the net takeaway was that issuers were on alert and in some cases concerned about the future financial results, but we're unable to excite a confident view of the outcome for calendar 2025, particularly after April. As we have continued throughout the year, we have continued to view the economic outlook as uncertain and believe that our intentional durable portfolio construction is what will help us navigate the operating environment ahead. As we look ahead for opportunities in the second half of 2025, it is important to underscore the advantages of investing a long kind of scaled platform backed by long-term capital. At BBDC, our structure allows us to take a patient and selective approach to capital deployment, prioritizing quality over speed. In contrast, some publicly traded asset managers have increasingly focused on growing assets rather than carefully allocating them. And over recent quarters, this shift has raised questions about the consistency of the relative value discipline. Our approach remains centered on thoughtful underwriting, long-term positioning and a commitment to delivering durable value for shareholders. With that, I would like to offer a few observations that will help guide our areas of focus. Both interest rates and spreads have exhibited compression over the course of the past 12 months. Historically speaking, interest rates and spreads move in opposite directions. When rates increase, spreads contract and vice versa. And another interesting post-COVID development, both rates and spreads increased in tandem and have now been declining in similar capacities. We're optimistic…

Thanks, Matt.As Eric and Matt have said, BBDC continues to demonstrate the durability of our core earnings, uphold best-in-class credit quality and provide strong, reliable yields to our fellow shareholders. As announced during our Q1 earnings call, the early termination of the NBC CSA, which resulted in a $23 million payout in June further enhances our ability to generate attractive returns by redeploying capital into additional income-producing investments. On Slide 16, we provided a detailed bridge of the NAV per share movement for the second quarter. As of June 30, NAV per share was $11.18, representing a 1% decline quarter-over-quarter. The decline was driven by net realized losses on the portfolio, credit support agreements and FX which came to $0.14 per share. This was partially offset by net unrealized appreciation on the investments, credit support agreements and FX of $0.06 per share. The net realized loss on the portfolio was primarily due to the exit of the Black Angus position. However, this is largely offset by the reversal of unrealized depreciation and was covered by the Sierra CSA. The valuation of the Sierra credit support agreement increased by approximately $6.4 million from $44.8 million in the first quarter to $51.2 million as of June 30. During the second quarter, the Sierra portfolio had sales and repayments of approximately $2.7 million and had 18 positions remaining in the portfolio, down from 20 positions as of March 31. We reported net investment income of $0.28 per share for the quarter, an increase from $0.25 per share in the prior quarter. This growth was primarily driven by higher interest income resulting from increased originations, a onetime dividend from our security holdings position in an elevated onetime fee income. These gains were partially offset by higher incentive fees, which included the impact of the…

We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Finian O'Shea with Wells Fargo Securities.

Elizabeth, you talked about more sales to Jocassee. Can you expand on maybe the profile of those, if that's going to -- if that would be something in more of the front book or the back book and/or more of a GPF or a solutions bent. And then on its overall leverage, you already up that leverage this quarter how much more -- it sounds like more? What's the target leverage again on that?

I'll start with with leverage. Let me just clarify. Are you asking about leverage at the BDC? Or are you asking about leverage Jocassee. I want to make sure I answer.

At Jocassee.

Yes. So I'll go ahead and hop in. In, in the context of kind of how Jocassee is currently structured and funded today, there's ample liquidity in that vehicle to absorb incremental investment capacity. I think that as we manage the leverage at BBDC itself. I'm sure that folks recognize that it was at the higher end of our range, this quarter I think in light of kind of broader uncertainties around deployment opportunity, it's our expectation that we will continue to run it towards the higher end of the range as well as the fact that we feel really supported by strong credit quality in the portfolio. So this combination of factors give us confidence that running at closer to the high end of our range is both an appropriate measure as well as a prudent one in terms of driving returns for shareholders. As we think about the investment capacity actually in the JV vehicle itself, I can report that it has ample capacity to absorb incremental investments. And you referenced kind of the front book or the back book. We think about portfolio construction in Jocassee, the same way we think about it throughout all of our portfolios. So we're looking to drive diversification both from kind of an underlying industry perspective. We're looking to drive it from a vintage perspective. We're looking to drive it from a yield perspective where appropriate. And so -- it's hard to say that it's going to largely be transfers of kind of recent vintage versus older vintage. I would anticipate it will be a mix of all of the above.

Okay. And I guess that brings to the next question. Can you talk about where the larger, maybe largest new name screen vision -- where does that sort of fit in the Barings platform? And then can you kind of talk about in the past year, I guess, post [indiscernible] how much -- like to what extent have the GPF and Cap Solutions platforms blended together? Is it sort of like 1 unit now, but just taking a barbelled approach of of 450 stuff and 850 stuff?

Yes. Finian, it's Bryan. Just to answer that question. Obviously, there's been a lot of collaboration across the platform, not just between the teams that you referenced. But certainly in the way that we're operating across all of our investment teams, their individual investment committees depending on the asset class. But from a sourcing perspective, it's pretty centralized from an underwriting perspective, it's pretty seamless. It's basically the same process, but perhaps different skill sets or areas where you may look to originate assets. So I wouldn't say that there's no difference in terms of the underwriting standards and the way that investments get into the BDC and the collaboration continues to be consistent with the way it's been at Barings since I've been here.

Yes. And to highlight what Bryan emphasized there, Ben, is each one has a separate and distinct investment committee for that particular asset class or strategy.

And the only thing I would add specific to the issuer, Fin, is that in a small world phenomenon. That asset that you noted was actually reviewed by myself years ago. We ultimately lost it due to financing situation that just got too tight. And so it's a name that's been familiar to Barings for a long time. And I think that the fact that it's a sponsored first lien physician kind of fits a number of pools of capital within our organization. .

It's first lien and second lien, right?

Yes.

. Our next questions come from the line of Heli Sheth with Raymond James.

Obviously, you had a strong quarter of originations. Can you provide any breakdown to how much the follow-ons for existing borrowers versus new borrowers. .

Yes. So across the franchise, the number over the course of the past quarter has been between 60% and 70%, depending on the underlying portfolio. And I think that BBDC falls kind of squarely within that within that range for this quarter.

Got it. And how is the pipeline looking after the second quarter close? I know repayments were kind of high this quarter? Are they still going to be in that range? Or are they down?

Yes. Look, in referencing Eric's commentary, we have reasons to feel very optimistic around forward visibility on origination. And so we're certainly hopeful that deployment trends will continue to be very attractive. That said, again, in keeping with Eric's comments, the fact is that this is the same profile of an economic outlook that we had a year ago and candidly, 2 years ago. And so we want to be careful around kind of booking these originations before they actually materialize. I think that one of the overriding principles that we think about on the portfolio management front for BBDC will be to keep the portfolio invested in high-quality credits. It's a very granular portfolio. And so even to the extent we start having repayments, I don't think that we have any concerns around delivering strong return through the balance of 2025.

Okay. Got it. That's helpful. And with like all your new originations this quarter, how does the yield on those compared to like the overall yield was, I think, 10.1%, was it higher or lower kind of same range.

Yes. It was about -- on the weighted average yield for new issuance this quarter was about 10 basis points than the overall portfolio, 10 basis points higher than the overall portfolio. So call it 10.2 on a fair value basis against the current portfolio, it's 10.1.

Okay. Got it. And then one more quick one. You previously sized tariff impact is less than 5% of the portfolio. With like the recent like a little bit of clarity we fund, do you have any updates there as it shifted at all?

No. No. it's impossible to say that the tariff risk is higher. But I think that what's much more pervasive is just a sense of uncertainty. Hiring has been delayed throughout the issuer base. Capital investment has been delayed throughout the issuer base. And I think that people are moving into a very defensive position. And so we -- our credit concerns, I would say, are probably lower than they were a quarter ago, but the uncertainty more broadly from a macro perspective is definitively higher.

Our next questions come from the line of Derek Hewett with Bank of America.

So dividend coverage was relatively good even after adjusting for the onetime items on the revenue and expense side. So -- how should we think about the sustainability of the dividend, given the forward curve? And it looks like, I guess, the first 50 basis points of rate cuts are only a $0.01 quarterly headwind based on the sensitivity table in the Q. So I'd love to get your thoughts on that issue.

Yes. From a dividend coverage perspective, you did point out we had some onetime dividend and onetime fees, and those offset the higher incentive fee. So when we think about over the next few quarters with where the current super curb is. We have confidence in earning our dividend. Now again, if things change with rate cuts, that would could potentially change the outlook. But right now, with where the super curve is, we feel good about the $0.26.

Okay. And then credit continues to be kind of remarkably strong for most kind of excluding some of the kind of the usual suspects. So I guess where do you think we are in the credit cycle? And like maybe just for the industry, how should we think about credit going forward? Do you think over the next year or 2, we're going to be kind of in the kind of in the same general vicinity -- or do you think credit could worsen for the overall industry?

Yes. I think looking out 2 years is maybe a little bit difficult. But if you just sort of look at the backdrop today in terms of modest growth in North America, call it, stable inflation and unemployment where it is today. The setup is pretty constructive for credit, I would say. How that might change over the next 12 to 24 months is really anybody's guess. But in terms of the amount of activity that we're seeing some visibility and a little bit more certainty around how some of the noise back in April is going to play out. It has been helpful, I would say, in terms of building a pipeline of opportunities. And certainly, as I mentioned, kind of the the right backdrop for credit at this point in the cycle.

Okay. And then maybe one more. Just in terms of the amendment activity for the second quarter versus the first quarter, did you guys mention that in your prepared remarks. .

Not with respect to amendment activity, no, but it was -- I would assess that it was lower than average. What I'd point you to is kind of the risk rating trends. And so those most -- the pool of most criticized assets having shrunk quarter-on-quarter, I think is a good reflection of what was likely the target of our time on the underperforming side. And as a general theme, it's lower in the Q2 period than it was in prior quarters.

Our next questions come from the line of Casey Alexander with Compass Point.

I know shareholders appreciate the historical $86 million worth of share repurchases. But the last couple of quarters, the share repurchases have been of a much more modest nature, about 0.1% of shares outstanding. And yet the stock trades at 1 of the widest discounts in terms of price to NAV within its peer group. So I'm just wondering what the temper is in the prosecution of the share repurchase program and why maybe we're not taking a little bit more advantage of this exaggerated discount -- and what other measures do you think that you can take to help shrink that discount in terms of price to NAV? .

Yes. I mean, Casey, great question. Candidly, a focus of ours, day in and day out. In terms of the tactical element of it, the reality of how our quarterly cadence works is that the blackout period and our ability to repurchase shares is influenced by when our valuation cadence starts. And if you think about it over the course of the past couple of quarters, where there was more opportunistic buying available. We've been talking internally about doing more strategic things like the termination of the CSA. And so whenever we start talking about terminating the CSA, then that kind of expands those blackout windows. And so while we think that we're doing -- we firmly believe that we are doing shareholder accretive activities that then kind of put us in a period where we just cannot be as active on the share repurchase front. I do think that it is a core form of how we are returning capital to shareholders, how we are increasing the share price and it will continue to be a pillar of how we execute the strategy going forward. But of course, we'll be subject to some constraints with respect to when we can actually do that based on what's happening kind of within the vehicle itself. I think that as it relates to maybe -- as it relates to kind of our focus on narrowing the gap, I think that our long-term expectation is that we will continue to drive improvements in ROE. And as we are able to do that by rotating out of some of the nonincome-producing assets, I think that we're going to see a natural pull pull [ Northford ] where that ROE will then continue to support and justify a higher share price and therefore, narrowing the gap between NAV and the ultimate trading level.

All right. My second question is that a number of BDCs in this reporting cycle have characterized, in fact, August, specifically as one of the busiest months in a couple of years in terms of indication of interest of new deal activity, are you guys seeing the same thing? And -- how can you manage inflow of new deals relative to a leverage ratio that's already pretty high? .

Yes. Look, I love the hyperbole within our industry. You just said that August has been 1 of the busiest months in recent memory. Well, we're only 8 days in. And this is only the first full week. And so for people to be making assessments about kind of August being a really active one, I think, is just kind of an interesting data point. I would say that our pipeline is higher for sure. If you took to the origination professionals in our business, they would echo that sentiment for sure. . I think it's a little bit early in terms of calling it and to say that this will be one of the most active quarters on record. But I think that to your point, in terms of balancing deployment with the opportunities. We actually included a new slide this quarter, Slide 5 in our earnings deck that just kind of shows the capital base that's supporting our GPF franchise. And one of the reasons that we wanted to introduce this is to reflect the fact that we have very balanced forms of capital. And so we are not driven by short-term expectations to deploy, to deploy, to deploy, only to drive fee earning revenue. What we're going to do, and as we have always done, is that we are going to deploy capital in a measured way to ensure that these vehicles are performing in a diversified fashion for the benefit of the underlying investor. You've seen that we've run our leverage level at BBDC a little higher this quarter. That was a conscious decision that we made. I think that we will continue to run it towards the higher end of our range, but we anticipate keeping the capital deployed in assets that we feel like are very compelling and don't anticipate any challenges doing that throughout the balance of 2025.

We have reached the end of our question-and-answer session. I would now like to hand the call back over to Eric Lloyd for closing comments.

Thank you, operator, and thank you all who participated in today's call. BBDC is well positioned to perform in today's operating environment with strong support from our manager and decades of experience to draw from our senior secured portfolio of global investments will continue to deliver for our fellow shareholders. We look forward to updating you further this fall. Everybody, have a great weekend.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.