Greetings. Welcome to the Bain Capital Specialty Finance First Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded.I will now turn the conference over to your host, Katherine Schneider. You may begin.

Thanks, Jomalia. Good morning, everyone, and welcome to the Bain Capital Specialty Finance conference call for the first quarter of 2020. On Monday after market closed this week, we issued our earnings press release and investor presentation of our quarterly results, a copy of which is available on Bain Capital Specialty Finance Investor Relations website. Following our remarks today, we will hold a question-and-answer session for analysts and investors. This call is being webcast, and a replay will be available on our website. This call and the webcast are property of Bain Capital Specialty Finance. And any unauthorized broadcast in any form is strictly prohibited.Any forward-looking statements made today do not guarantee future performance, and actual results may differ materially. These statements are based on current management expectations, which include risks and uncertainties, which are identified in the Risk Factors section of our Form 10-Q that could cause actual results to differ materially from those indicated.Bain Capital Specialty Finance assumes no obligation to update any forward-looking statements at this time unless required to do so by law. Lastly, past performance does not guarantee future results.And with that, I’ll turn the call over to our President and CEO, Michael Ewald.

Thanks, Katherine, and good morning, everyone, and thanks for joining us for our first quarter 2020 earnings call. As Katherine mentioned, my name is Michael Ewald, and I’m also joined today by our Vice President and Treasurer, Mike Boyle; and our Chief Financial Officer, Sally Dornaus. First, we hope everyone along with their love ones is doing well and has remained safe and healthy during this unprecedented time.In terms of the format for this call, I’ll start with a brief overview of our first quarter results, share some thoughts on the market and then provide an update on the steps we are prudently taking to position the company to navigate uncertain and volatile periods ahead. Mike and Sally will give some additional detail on the investment book in our financial results.Our net investment income for the quarter was $0.44 per share as compared to a regular stated dividend of $0.41 per share. This resulted in NII dividend coverage of 107%. Net asset value per share was down approximately 12% quarter-over-quarter, primarily due to broad-based credit spread widening, across our investment portfolio as a result of the increased volatility and uncertainty in the financial markets in light of the COVID-19 global pandemic.While we certainly did not predict that a global pandemic would elevate the likelihood of a potential recession, we’ve been positioning our investment portfolio with late cycle mentality in recent years and believe that it is well insulated to withstand the current market environment. Reflecting this investment strategy, we have focused on first lien senior secured loan structures with strong documentation and a constructed and diversified portfolio of middle market companies in defensible industries, such as technology, aerospace and defense and healthcare and pharmaceuticals.We have largely avoided cyclical industries, including those currently experiencing significant distress, such as energy, hospitality and…

Thanks, Mike. Good morning, everyone. I’ll kick it off with more detail on our investment activity this quarter and then provide an update on our investments in credit quality across our portfolio. New fundings were $276 million and 52 portfolio companies operating across 23 different industries.As Mike highlighted earlier on the call, the majority of our new investment fundings were driven by undrawn commitments to existing portfolio of companies. The other portion included commitments to four new companies that were funded during the first half of the first quarter. Sales and repayment activity totaled $181 million, driven by full repayments from three portfolio of companies. As of March 31, the fair value of our investment portfolio was $2.5 billion.The weighted average portfolio yield and amortized cost was 7.3% as compared to 7.8% in the prior quarter. The decrease was primarily driven by the decline in LIBOR that occurred. As we have discussed with our shareholders during prior calls, we have been positioning our portfolio with a late-cycle mentality. We believe the attributes of the investment portfolio that we put into place over the past several years provides the company with solid footing to withstand the potential market volatility ahead.First, we have focused on first dollar risk within our investment portfolio as this puts us at the top of the capital structure to maximize recovery value in the event of any potential default. 88% of the investment portfolio is invested in this first lien debt, including 1% in the first lien last out debt. We have not been investing in highly leveraged structures as demonstrated by the median leverage of 5.2 times across the portfolio’s last dollar attachment point. Our portfolio is comprised of a highly diversified set of companies operating in defensive industries.As of March 31, the company had 108…

Thank you, Mike, and good morning, everyone. I’ll start the review of our first quarter 2020 results with our income statement. Total investment income was $51.5 million for the three months ended March 31, 2020, as compared to $54.8 million for the three months ended December 31, 2019. The decrease in investment income was primarily driven by a decrease in interest income, due mainly to a decrease in LIBOR over the quarter.Total expenses for the quarter were $29 million in the first quarter as compared to $33.5 million in the fourth quarter. The decrease was due to no incentive fee expense this quarter because of the incentive fee cap. We net our capital losses, whether realized or unrealized, against pre incentive net investment income for the purposes of calculating incentive fees. We believe this provides us with the proper alignment with our shareholders.Net investment income for the quarter was $22.5 million or $0.44 per share as compared to $21.3 million or $0.41 per share for the prior quarter. Given the large movement and focus on valuations this quarter, we wanted to spend a few minutes to highlight our valuation approach. First, our valuation framework consists of a multilayer valuation process, including internal and external review by our adviser, independent valuation firms and ultimately, our Board of Directors. For investments for which market quotations are readily available, these investments are generally valued at such market quotations.However, given our investment strategy is primarily focused on directly originating loans to private middle market companies, the majority of our investments consist of illiquid investments for which market quotations are not available. Our approach to determining the fair value of our illiquid investments utilizes various valuation techniques, such as a discounted cash flow analysis and parallel company multiples and a collateral analysis.100% of our illiquid…

Thanks, Sally. In summary, we are living in an unprecedented time. While a number of positive signs have emerged recently in different geographies around the world. We, as an adviser, and as a management team, have invested together through a number of cycles and remain vigilant about protecting shareholder capital in BCSF. We believe we have curated a durable portfolio that will withstand current pressures well, and we are taking necessary steps, such as the previously announced rights offering to ensure the fund structure is not only able to withstand further unexpected turbulence, but properly situated to capitalize on new investment opportunities still to come. We thank you for your support in this endeavor.Operator, please open the line for questions.

[Operator Instructions] Our first question is from Chris York from JMP Securities.

Good morning, guys and thanks for taking my questions. Mike, just a question on the rights offering, notice the filings were submitted this week and that you changed the term of the offering from a non transferable to a transferable offering. So in light of that change, can you let us know the reasons for that? And then given that you had the option of coming out to the market with a transferable offering in March?

Sure. So when we first filed back in March, either there’s a lot of uncertainty in the world generally. We didn’t know really what was going on. I don’t think any of us did. Things have certainly settled down a little bit here in terms of markets in terms of doing the work on our portfolio, and ensuring we fully understand where it stands, where the valuations come out, et cetera.So when we first filed, we didn’t have a shelf in place. So we needed to just get something to the SEC. So we effectively went with a worst-case scenario where we filed and it was bracketed, the one to two, which only some folks like you picked up on, but it was really just a placeholder and to see that sort of – see some more cards turn over and try to figure out what amount we felt like we needed to raise. As things have settled down here in the second quarter, we realized that a one to four would actually provide us with sufficient liquidity and deleveraging to achieve that goal, while minimizing shareholder dilution.As it turns out, if you have anything that is bigger than a one for three, you actually cannot offer transferable rights. So in the one to two framework, we actually couldn’t do it. Now that we’re doing one to four, you’re actually allowed to. It’s a regulatory issue, you’re allowed to issue transfer rights as well. And so we figured, yes, that would also make a little bit more shareholder-friendly as well.

Okay. That color helps. A follow-up question on capital planning is, why did you decide to issue the transferable rights in lieu of straight common equity because you are one of the few PDCs to receive shareholder approval to issue stock below NAV? And then historical rights offerings for the industry have tended to be a little bit more expensive, even including fees since 2009?

Yes, So the theory with the rights offering was since we’re going to be issuing below NAV here, we thought it would be best to actually allow existing shareholders to participate in that. So if we just issued shares, given a private placement or just had a bank place them somewhere, you wouldn’t have been able to offer that opportunity to existing shareholders automatically, plus give them the actual transferable rate, which may have some value if they choose to sell that instead. So again, it was more of a matter of we understand it’s going to be dilutive, even though, we could do it another way. Let’s go ahead and do it through rights offering specifically. Does that make sense?

It does. Last question from me. Many investors know you have some aircraft leasing investments in the portfolio. Market is heavily impacted by COVID here today. Alternatively, though, there seems to be a lot of airlines in need of liquidity. So would you you want to increase your investment exposure to that industry? And then if that is the case, are sale-leaseback transactions for airlines an area where you’d want to be more active?

Sure. So about 2% of the portfolio currently is in aircraft leasing. We do think it is an interesting – there’s interested – it’s an interesting investment opportunity and will continue to be, particularly as we see the world move on from the COVID crisis. We’ve been comfortable with our existing investments and the cash flow profiles of those investments remains intact. I think we’ll wait to see exactly how the economy turns around and how travel turns around at the back of this crisis before making incremental investments there. But we are pleased that our positioning at about 2% is a meaningful underweight today. And I think we’ll be able to take that positioning up to the extent we see interesting opportunities in aviation leasing going forward.

Great. That’s it for me. Hope you guys are well.

Thanks, Chris.

And our next question is from Arren Cyganovich from Citi. Please proceed with your question.

Thanks. I was hoping you could talk a little bit about – you mentioned many of your industries being kind of a bit defensive, yet there’s still some that stand out to be – seem to be a little bit more cyclical. The aerospace and defense is, I think, 12% of the portfolio. Maybe you could talk a little bit about how that’s performing? And how that’s the more noncyclical? You have construction and building, which is, I think, 4% of the portfolio. So you have a few of these, and I think I’ve asked you this in the past, but I just – trying to understand how these are defensive industries and how you think they’re going to perform through this tough time?

Sure. Thanks for the question, Arren. So I guess, I’d start by saying – highlighting that we have an average EBITDA of about $50 million in our portfolio. And that means that any company that’s in these industries has a diversified set of revenue streams and also has multiple levers to pull from a cost cutting perspective. And so at a high level, I think our focus on this upper segment of the middle market is one way that we’ve seen diversification benefits really flow through our investments.On aerospace and dispense, specifically, I highlighted in my earlier remarks that we really focus – it’s in two different buckets, 1 of which is government contracted work, which we’ve continued to see stability in. The second of which is manufacturers and suppliers in the aviation channel. And I highlighted one investment there, an engine repair shops effectively for planes. And we’ve seen that actually hold in quite nicely during this period as – although plane travel has been reduced, there is a continued focus on servicing existing fleets.As we go through the whole portfolio, we see many of the businesses that are potentially most impacted by the slowdown, actually I’m quite firm footing from a capitalization standpoint. So one aviation manufacturer was able to raise $100 million incremental debt facility during this time, which should shore up its liquidity for the year ahead.So as we really look through, it’s not just an industry by industry view that we’re taking. It’s also a company-by-company view. And that’s what resulted in about 12% of our portfolio being put as a risk rating three. Those are, whether it’s the construction business, whether it’s an aviation business, those are all of the companies in our portfolio that we do think has increased risk. We don’t think there’s capital impairment in that bucket, but we do have our teams on high alert as we’re working through this period of volatility.

Okay. That’s helpful. And what about the international piece of your portfolio, too? How are those performing relative to the U.S.?

Sure. So they continue to perform reasonably well. I would say that the the fact that Europe is opening a little bit sooner than the U.S. has actually driven some stronger trends here in the very short term. We actually have none of those investments on our risk rating three or four currently. So we are still feeling good about the opportunities abroad and that they do provide solid diversification.

Okay. Thank you.

And we have reached the end of the question-and-answer session. And I will now turn the call back over to Mike Ewald for closing remarks.

Thanks, and thanks to everyone for joining us on our call today. Certainly, if there’s any other questions, do please reach out. And we look forward to continuing to work with you in the future. Everyone, it’s a good day. Thanks a lot.

This concludes today’s conference. And you may disconnect your lines at this time. Thank you for your participation.