Good day, everyone, and welcome to today's Bain Capital Specialty Finance Third Quarter Ended September 30, 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask a question during the question-and-answer session. [Operator instructions] Please note, this call is being recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn today's program over to Katherine Schneider with Investor Relations.

Thank you, Britney, and good morning, everyone, and welcome to the Bain Capital Specialty Finance third quarter ended September 30, 2024 conference call. Yesterday, after market closed, we issued our earnings press release and investor presentation of our quarterly results, a copy of which is available on Bain Capital specialty Finances 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 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 CEO, Michael Ewald.

Thanks, Katherine, and good morning, and thanks to all of you for joining us here today on our earnings call. I'm joined today 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 third quarter ended September 30, 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. As usual, we'll also leave some time for questions at the end. So yesterday after market close, we delivered strong third quarter results. Q3 net investment income per share was $0.53 as we continue to benefit from high base interest rates across our portfolio. Our net investment income return represented an annualized yield of 11.9% on book value and covered our regular dividend by 126%. Q3 earnings per share were $0.51, or an annualized return on equity of 11.5% as credit fundamentals remained healthy across our portfolio. As of September 30th, our net asset value per share was $17.76, an increase of 0.3% from the prior quarter end. Subsequent to quarter end, our Board declared a fourth quarter dividend equal to $0.42 per share and payable to record date holders as of December 31, 2024. The Board also declared an additional dividend of $0.03 per share for shareholders of record as of December 31st, as we had previously announced back in February. This brings total dividends for the fourth quarter to $0.45 per share, or a 10.1% annualized rate on ending book value as of September 30th, which we believe represents an attractive yield for our shareholders. Turning now to the market environment. During the third quarter, we continued to see active deal…

Thanks, Michael, and good morning, everyone. I'll start with our investment activity for the third quarter and then provide an update on our current portfolio. New fundings during the third quarter were $413 million into 83 portfolio companies, including $331 million into 16 new companies and $82 million into 67 existing companies. Sales and repayment activity totaled approximately $248 million, resulting in net investment funding of $165 million in the quarter. This quarter, we remained focused on investing in first lien senior secured loans with 97% of our new investment fundings in first lien structures and 3% in preferred or common equity. As Michael highlighted earlier in the call, new investments made in the quarter were 80% to new portfolio companies and 20% to existing or incumbent companies. We added 16 new companies this quarter, which led to an improvement in our single name company diversification to 159 different companies in the current portfolio. In making new investments, we leverage Bain Capital's deep industry expertise across a wide range of sectors, including industries, such as hotel, gaming and leisure, aerospace and defense and business services. Our sponsor relationships often value Bain Capital's knowledge base across a wide spectrum of industries, including specialized industries, which enable us to be a value-added partner to private equity sponsors through multiple cycles. Turning now to our current investment portfolio. At the end of the third quarter, the size of our portfolio at fair value was approximately $2.4 billion across a diversified set of 159 companies operating across 31 industries. Our portfolio primarily consists of first lien senior secured loans, given our focus on downside management and investing in the top of the capital structure. As of September 30, 63% of the portfolio at fair value was invested in first lien debt, 3% in second…

Thank you, Mike, and good morning, everyone. I'll start the review of our third quarter 2024 results with our income statement. Total investment income was $72.5 million for 3 months ended September 30, 2024, as compared to $72.3 million for the 3 months ended June 30, 2020. The increase in investment income was primarily driven by an increase in other income. Our investment income continues to benefit from high-quality source of investment income, largely driven by contractual cash income across its investments. Interest income and dividend income represented 92% of our total investment income in Q3. Total expenses before taxes for the third quarter were $37.5 million, as compared to $38 million in the second quarter. Net investment income for the quarter was $34 million or $0.53 per share, as compared to $33.1 million or $0.51 per share for the prior quarter. During the 3 months ended September 30, 2024, the company had net realized and unrealized losses of $900,000. Net income for 3 months ended September 30, 2024 was $33.1 million or $0.51 per share. Moving over to our balance sheet. As of September 30, our investment portfolio at fair value totaled $2.4 billion and total assets of $2.5 billion. Total net assets were $1.1 billion as of September 30, 2024. NAV per share was $17.76, an increase of $0.06 per share or a 0.3% increase from $17.70 at the end of second quarter, as we demonstrated strong NII overearning of our dividend, coupled with stable credit quality across our portfolio. At the end of Q3, our debt-to-equity ratio was 1.14 times as compared to 1.03 times for the end of Q2. Our net leverage ratio, which represents principal debt outstanding less cash and unsettled rate was 1.09 times at the end of Q3, as compared to 0.95 times…

Thanks, Amit. In closing, we are pleased to deliver another strong quarter of attractive earnings for our shareholders with NII well in excess of our dividend and steady NAV growth as our underlying borrowers continue to perform well. We believe the company remains well positioned to source new middle-market lending opportunities, given our own dry powder, global footprint and deep industry expertise, while remaining disciplined in our credit selection. As always, we thank you for the privilege of managing our shareholders' capital. Britney, please open the line for questions.

[Operator Instructions] We will take our first question from Paul Johnson with KBW. Your line is now open.

Yeah. Thanks. Good morning. Thanks for taking my question. I'd just like to kind of maybe get a sense of just within the portfolio yield decline this quarter, 100 basis points or so quarter-over-quarter. What was kind of the interplay of the decline in yield sort of due to some sort of lower reset on the base rates versus spread impression? It sounded like in your comp spreads were actually fairly stable quarter-over-quarter. So I just kind of like to get a sense of what's driving the yield decline this quarter.

Sure. Thanks for the question, Paul. So as we noted, about 38 basis points of that yield decline was driven by lower base rates. There was another about 10 basis points that was driven by the decrease on spreads on the credit assets in the portfolio. So fairly stable, as you noted, as we spoke about in our prepared remarks. The biggest step down in yield was really driven by the dividend income that was earned in BCSF quarter-over-quarter. So about $6.1 million was earned in Q3 versus about $8.2 million earned in the prior quarter. And that also was really driven by both our aviation investment called GAIL where we did not distribute all of the earnings there. We decided to invest some in the fleet of planes. And so that drove some of the step down as well as a slight step down in some of the dividends earned from our joint ventures. So it was primarily just driven by those dividends, not actual degradation in the spread of the assets that we're originating.

Got it. I appreciate that. That's really helpful. And then -- how do you guys think about -- I mean, your pipeline, I mean, in terms of spreads and where that's shaping up to kind of the average spread in the portfolio at this point? It seems like M&A from what you're seeing at least is picking up -- do you expect there to be some more spread compression in the portfolio as the portfolio turns into next year?

Okay. Thanks Paul. Look, I think a lot of the spread compression has kind of played out during the course of this year. I think what we're seeing now is a lot more bifurcation in spreads based on the quality of the credit, which is certainly helpful to see. So I think the well bank sponsor with an A+ credit, you might still see some spread compression there, but the sort of more average deal or the sponsor that hasn't gotten as much coverage or maybe lenders having left our core middle market and gone upmarket leaves a little bit more room for us to operate. I think there will still see, spreads hang in pretty similar to the numbers that we saw this quarter.

Thanks for that. And then, I mean, in terms of the private credit premium, yield premium to the syndicated markets, I mean, how do you guys think about the international private credit market. I mean, do you see that market as potentially a little bit more insulated with the premium that private credit gets over the bank syndicated market just due to more competition in the middle market here in the U.S.? Or I'm just curious, if there's any kind of relation between the two?

Yeah. I'd say a couple of things. One is, we're still seeing a 150, 200 basis point spread, at least in the U.S. between our assets and the more typical broadly syndicated loan market. That same relationship doesn't necessarily exist in Europe, just because, neither of the markets, quite frankly, neither the syndicated market nor the private credit market is as developed over there, so it's harder to kind of benchmark one versus the other. What I would say, though, is in today's environment from a relative value perspective spreads are fairly similar right now between U.S. and Europe. The caveat, I would give you is that, in the U.S., you're seeing some of this pressure on some PIK optional interest, especially in the larger cap market. We're not seeing as much in our core middle market. You are seeing that pressure in Europe, in the core middle market. And so, if you're thinking like-for-like, the spreads are the same, but there's a demand for PIK optionality in Europe that makes Europe marginally less attractive for those particular deals. So at this point, it's less about pricing relative value and more about structure relative value when we weigh U.S. versus Europe.

Thanks for that. That's an interesting dynamic there. And then just on the credit quality, there was a little bit of deterioration, and just within your credit ranking, the credit scoring of investments. I mean there's 11 companies rated three and four this quarter versus eight last quarter. There was a small increase in non-accruals. So what was the driver of, I guess, the number of companies rated three and four? Is that just the company is going on non-accrual? Or is there -- is there any more there?

Yeah. I highlighted its still quite idiosyncratic. So there are some companies that are -- it's not necessarily going on non-accrual. It's just companies that are going on our watch list. First performances under the original underwrite, but I noted there's -- it's not concentrated in any industry or really anything that's been pulling through. It has still been quite idiosyncratic in the -- that small percentage of our portfolio that's risk rating three and four.

Got it. Thanks. And then just last one for me real quick. The $2.8 million small realized net gain or realized gain in the portfolio this quarter. Was there anything in particular that drove that? Was there an exit of any investments?

Yes. So it was the exit of an investment called BlackBrush, which was in the restructuring that happened during COVID that we finally completed the sale and exit well above our par value and we took the keys there. So it was that legacy exit from that company called BlackBrush.

Got it. Thanks. That's for me, and congrats on a good quarter.

Thank you, Paul.

[Operator Instructions] And we will take our next question from Derek Hewett of Bank of America. Your line is open.

Good morning everyone and congrats on the good quarter. Could you talk about your plans to address the $300 million of bonds that mature in early 2026? Are you going to use your credit facility to take care of that maturity? Are you interested in tapping the unsecured market again later on next year?

Yes. I mean, we are prudently talking to all our banking partners. We are in continuous dialogue with them. And I would say, our intend to be to access the market in 2025. As you highlighted, we have two unsecured, which will mature in 2026. So we definitely will access the market. But at the same time, as you saw, we did increase our revolving facility. So between those two will prudently manage our liability.

Thank you.

[Operator Instructions] It appears we have no further questions in the queue. I'll turn the program back over to Michael Ewald for any additional or closing remarks.

Thanks, Whitney, and thanks again to all of you for joining us on our call today. Again, we're very pleased with the results of the third quarter, and we look forward to bringing you more news at the end of next quarter. Hope everyone has a good day. Thanks.

Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.