Good morning, ladies and gentlemen, and welcome to the Bain Capital Specialty Finance first quarter ended March 31, 2024 earnings conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]. This call is being recorded on Tuesday, May 7, 2024. I would now like to turn the conference over to Katherine Schneider. Go ahead.

Thanks, Constantin. Good morning, and welcome, everyone, to the Bain Capital Specialty Finance First Quarter ended March 31, 2024 conference call. Yesterday after market close, we issued our earnings press release and presentation of our quarterly results, a copy of which is available on Bain Capital Specialty Finance's 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. So, with that, I'd like to turn the call over to our Chief Executive Officer, Michael Ewald.

Thanks, Katherine, and good morning to all of you, and thank you for joining us here today on our earnings call. I'm also joined by Mike Boyle, our President and our Chief Financial Officer, Amit Joshi. In terms of the agenda for the call, I'll start with an overview of our first quarter ended March 31, 2024 results. and then provide some thoughts on our performance, the overall market environment and our positioning. Thereafter, Mike and Amit will discuss our investment portfolio and financial results in greater detail. And as usual, we'll also leave some time for questions at the end. So yesterday after market close, we delivered strong first quarter results. Q1 net investment income per share was $0.53 as we continue to benefit from high base interest rates as well as higher spreads across our portfolio. Our net investment income return represented an annualized yield of 12% on book value and covered our regular dividend by 126%. Q1 earnings per share were $0.55, driven by improved credit quality across our portfolio investments during the quarter. Our net income produced an annualized return on book value of 12.5%. These results then led to another consecutive quarter of growth in our net asset value to $17.70, reflecting a 0.6% increase from our 17.60 -- sorry, $17.60 now as of December 31. Subsequent to quarter end, our Board declared a second quarter dividend equal to $0.42 per share and payable to record date holders as of June 28, 2024. The Board has also declared an additional dividend of $0.03 per share for shareholders as of June 28, as we previously announced back in February. So, this brings total dividends for the second quarter to $0.45 per share. which we believe represents an attractive yield for our shareholders at a 10.2% annualized…

Thanks, Mike and good morning everyone. Our investments made during the first quarter and then provide an update on our portfolio. Investment made during the first quarter totaled $403 million into 83 companies, including $238 million into seven new companies. Sales and repayment activity totaled approximately $296 million, resulting in net investment funding of $107 million quarter-over-quarter. Investment funding’s to new portfolio companies represented nearly 60% of our gross originations in the quarter as new transaction volumes were healthy. We also continue to remain active supporting our existing portfolio of companies with new fundings into existing companies totaling $127 million in Q1. I -- for the new investments made during the first quarter, we were the majority or lead lender driving terms and structure as we leveraged our sourcing relationships and Bain Capital's in-house industry expertise. As Mike highlighted earlier in the call, we remain focused on investing in the core middle market, a segment of the market that we have been investing in for the past 25 years and one where we can drive favorable terms, structures and pricing. The weighted average spread on our new directly originated portfolio companies this quarter was approximately 695 basis points over SOFR across our first lien debt investment and a weighted average net debt-to-EBITDA leverage ratio on these new loans was approximately 4.75 times, reflecting conservative capital structures in the current market environment. The first quarter was also an active quarter of sales and repayment activity across our portfolio. Our largest repayment in Q1 was driven by an exit on our first lien and equity investment in direct travel as the company conducted the successful process. This is a 2017 vintage investment that was restructure back in 2020 during COVID. Bain Capital credit was heavily involved in the restructuring as one of…

Thank you, Mike, and good morning, everyone. I'll start the review of our first quarter 2024 results with our income statement. Total investment income was $74.5 million for the three months ended March 31, 2024, as compared to $74.9 million for the three months ended December 31, 2023. The decrease in investment income was primarily driven by a decrease in interest and dividend income, partially offset by increase in other income. The decrease in interest and dividend income was primarily driven by a onetime dividend income from ISLP during the prior quarter and modestly lower investment income across our portfolio as our average net leverage was slightly lower in Q1 as many of our new origination funded later during the quarter. Our investment income continuous to benefit from high-quality sources of investment income largely driven by contractual cash income across its investment. Interest income and dividend income represented 93% of our total investment income in Q1. In [indiscernible] income represented approximately 7% of our total investment income this quarter, slightly down from 8% during the fourth quarter. Total expenses for the first quarter were $39.5 million as compared to $39 million in the fourth quarter. Net investment income for the fourth quarter was $34 million or $0.53 per share as compared to $34.9 million or $0.54 per share for the prior quarter. During the three months ended March 31, 2024, the company had a net realized and unrealized gain of $1.1 million. Net income for the three months ended March 31, 2024, was $35.1 million or $0.55 per share. Moving over to our balance sheet. As of March 31, our investment portfolio at fair value totaled $2.4 billion and total assets of $2.6 billion. Total net assets were $1.1 billion as of March 31. NAV per share was $17.7 up…

Thanks, Amit. Again, in closing, we are pleased to start off the year with another strong quarter of earnings. We produced attractive levels of investment income across our portfolio and demonstrated strong credit performance across our middle-market borrowers. We believe we are well positioned in the middle market to capitalize on attractive growth opportunities going forward. We remain committed to delivering value for our shareholders, and thank you for the privilege of managing our shareholders' capital. At Constantine, please open the line for questions.

[Operator Instructions]. Your first question comes from the line of Finian Osha from Wells Fargo. Please go ahead.

Sorry, I was on mute. I wanted to ask about Sensor Tower, a new name that came with a pretty sizable spread and hold size according to what you've normally done in the past and kind of just seeing if you could give some more color there on how we should think about the why in those two elements.

Sure. Thanks for the question, Fin. So, Sensor Tower was a new deal we originated in the first quarter in the software space, software is something that we have went to episodically in the past and a place that we often find interesting relative value. This was a situation where we were financing the acquisition of a new company from an existing company and it's backed by a sponsor that we know quite well. And so, as we did our in-depth diligence, we decided that a first lien loan made sense, priced at a spread of 750 over SOFR, which we think was a particularly attractive risk return in today's market environment. And this is a deal that we led and were able to structure and get the documents that -- and terms that we wanted. I will note this is part of a strategy that we have to often originate and lead an entire tranche of debt and then syndicate down to other partners over time, generating some skim income for our investors. And so, the hold size you see at the end of the quarter is something that's likely to come down over time as we syndicate that risk on to other players and collect some skim for our investors.

That's very helpful. Can you remind us how often you're doing that, the syndication or sell-down? And just why not bring in other lenders in the beginning and not take that sort of risk if it's going to lead to risk of at least a concentrated position or whatnot?

Sure. So, you'll see in our other income over time that we do quite often generate this type of income based on origination fees, both for risk we hold and also risk that will sometimes pass on to other investors. The reason why sometimes we will take a larger risk position is really to deliver certainty to the sponsor to close the transaction, recognizing that we are being mindful of not taking too large of a position when we're underwriting any name. And so, it is something that is a key part of the value we do drive for our shareholders is for some time taking that risk on and then syndicating at some skim.

The other point I would add there, Fin, is that we do within the Private Credit Group have a handful of dedicated capital markets professionals so it is their job to ensure that we do have some back-end interest or situations where we do take skim, which again goes directly to the shareholders. This is not a situation where we kind of go in blind and figure out a couple of months later that we may want to sell down. This is something where we go into it with a pretty high level of confidence so we know there's going to be somebody on the other side of that trade.

Sure. Helpful. Thank you. And just one more Direct Travel that looks like a pretty good outcome and appreciate that. Can you just touch on any -- I think you said your restructuring group worked on it like I guess, milestones you achieved or kind of what you are finally able to implement to make this salable. And if you could remind us how long ago that was taken -- I think you took the keys of that one in the past. Just like a brief recap of the time line and what you were able to do to recover value there? And that's all for me. Thanks.

Sure. So Direct Travel was the 2017 investment we made. It is an outsourced travel agency for small and midsized businesses. So as COVID shutdown, travel around the world, this was a business that went in negative revenue. So, we ended up taking the keys in 2020, but recognizing the fact that we did think that this company had the potential to recover at or above the original value and original revenues, we did not write off any debt, but instead took the keys, maintained our first lien debt position, but now also we're the owner of the business. As we thought forward to an exit and sale process and recovery, we wanted to make sure we had an incentivized management team. We wanted to make sure we had the right independent Board of Directors. And so, our operating group alongside some of the other lenders in the tranche, ensured that we did have a motivated management team to keep that business on track for a turnaround as the world reopened. And in recent history, we were able to go and have a successful sales process based on the strong recovery of that business. And so, I think that is a credit to the lender consensus across the handful of lenders that were in that debt tranche to drive the outcome, but also the strength of our restructuring expertise here at Bain Capital and the operating network that we do have to turn around businesses that may not go according to original budget.

[Operator Instructions]. Your next question comes from the line of Paul Johnson from KBW. Please go ahead.

Good morning. Thanks for taking my questions. Just how are you guys feeling about the pipeline and how has strong origination activity this quarter. Does that carry through in this second quarter? How do you feel that actually for the year?

Yes. Thanks, Paul. What I would say is we really started seeing a turnaround kind of post Powell's comments back in December that we were likely at a peak for rates and that there's some cuts to be expected in 2024. Clearly, inflation has still been pretty consistent here. So, we haven't seen any rate cuts yet, and there's some debate over how many -- especially over the rest of the year. But regardless, the fact that we have reached a peak, I think, started to give private equity sponsors, for example, a little bit more confidence that they weren't writing into a base case that had a recession associated with it. So that really started manifesting itself in the first quarter in terms of increased deal volume, more certainty around modeling cases and such. And so, buyers, private equity sponsors got more excited about transacting in the market. We certainly saw that in Q1, as we mentioned in our prepared remarks, that has continued here into Q2. Certainly, anecdotally, Mike and I have been spending a lot of time with the rest of the team evaluating new investment opportunities more so certainly than we would have been doing in Q4. And again, that's continuing today.

Have you found more of that interest and activity has been in that sort of core market where you guys have been exactly sort of versus the upper middle market?

Yes. It's certainly easier for us to comment on that core middle market since that's where we are. But having a -- or being affiliated with a large broadly syndicated loan business also gives us some insights into that upper middle market/large-cap corporate market. And we are seeing that there, it seems to be -- the activity seems to be driven mostly by refinancings. And again, as we mentioned, there's a lot of BSL takeouts of formerly private credit deals. I'd say from a new platform perspective, there's been some change there. But if you just think about the number of companies that are that big, it's just not that big of a universe. And so, I think that the volume there is always going to be somewhat spotty. I haven't seen a wholesale return to fresh LDO activity there, similar to what we've been seeing in the core middle market.

That’s helpful. On the facility, it sounds like that you're possibly in discussions and working on that. How is that going? Do you expect that to be pricing on that to be maintained or any changes there?

Sorry, Paul, you were saying on the -- on our financing?

Yes, the credit facility.

Yes. Sure. So, conversations are ongoing. We're not expecting any material change from existing structures as we look at that extension.

Your next question comes from the line of Derek Hewett from Bank of America. Please go ahead.

Good morning, everyone. So, given elevated base rates, could you provide some color on the overall portfolio interest coverage for the first quarter versus, say, the end of the year? And then also what percentage of the portfolio has interest coverage below 1 time as of the first quarter?

Sure. So, I'll start with the -- your -- the last part of your question around what percent has interest coverage below 1 time. That really is aligned with our risk rating 3s and 4s so companies that are performing less below budget. So that's about 3% of the portfolio that has interest coverage below 1 time. In terms of interest coverage trend, we are -- it has -- with base rates remaining high, interest coverage has come down slightly, although we still view it to be at a healthy level. So, we were around 2 times interest coverage if I rewind about six months. We're now closer to between 1.8 times and 1.9 times interest coverage across the overall portfolio and we do run stress tests running forward our current base rates for the next 12 months, and we do not see a material further degradation in interest coverage from here. So, we are feeling quite good about the fact that our capital structures are appropriately levered for today's interest rate environment, and that does dovetail to the 4.7 times debt-to-EBITDA average across our portfolio, which we think is quite defensible in today's interest rate environment.

Okay. And then in terms of just looking at a lot of the credit trends seem to be positive, whether it's the net leverage or the improvement in nonaccruals or the positive movement in the risk rating. But when we look at the median EBITDA, it is down meaningfully if you look at it on a quarter-over-quarter basis or on a year-over-year basis. Could you -- are there lumpy types of underlying borrowers in that number? And so, the numbers skewed a little bit? And would we expect this kind of stabilize going forward?

Sure. So that really -- the reduction in EBITDA is really a function of many of the companies that we harvested in the first quarter were companies where EBITDA had grown meaningfully since inception. So, think of EBITDA between $90 million and $100 million for what we exited versus new loans where we -- the entry EBITDA was about $37 million on average. And so as is often the case in our segment of the market, we'll buy a company at, call it, $30 million of EBITDA, watch it grow to $90 million or $100 million of EBITDA as an exit. And so that's a trend that we saw in the first quarter, and that's the reason why our EBITDA trended down, you shouldn't view that as an indication of the negative trends in the underlying portfolio companies, but more a trend in the overall portfolio composition.

There are no further questions at this time. I would like to hand the call back to Michael Ewald for closing remarks.

Great. Thanks, Constantine, and thanks, everyone, for your time and attention today. Again, we really appreciate the support and the interest, and we look forward to bringing you more results in the future. Thanks very much. Cheers.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.