Bain Capital Specialty Finance, Inc. (NYSE: BCSF, the “Company”, “our” or “we”) today announced financial results for the third quarter ended September 30, 2022, and that its Board of Directors has declared a dividend of $0.36 per share for the fourth quarter of 2022.
“We delivered positive third quarter earnings driven by strong interest income generated across our diversified portfolio of largely floating rate loans, which benefitted from the rise in interest rates, and the continued credit stability across our portfolio,” said Michael Ewald, Chief Executive Officer of BCSF. “We are raising our regular quarterly dividend by 6% to $0.36 per share to reflect our improved outlook on the Company’s earnings power and the strength of our portfolio to navigate the current market environment.”
QUARTERLY HIGHLIGHTS
- Net investment income per share was $0.53, as compared to $0.41 for the quarter ended June 30, 2022;
- Net income per share was $0.17, as compared to $0.27 for the quarter ended June 30, 2022;
- Net asset value per share as of September 30, 2022 was $16.98, as compared to $17.15 as of June 30, 2022;
- Gross and net investment fundings were $433.0 million and $36.5 million, respectively; Ending debt-to-equity (net of cash) was 1.20x, as compared to 1.07x as of June 30, 2022;
- The Company increased the amount of commitments to its Sumitomo Credit Facility to $635.0 million, up from $300.0 million; and
- Subsequent to quarter-end, the Company’s Board of Directors increased its quarterly regular dividend by $0.02 per share to $0.36 per share for the fourth quarter to stockholders of record as of December 31, 2022(1).
SELECTED FINANCIAL HIGHLIGHTS
($ in millions, unless otherwise noted) | Q3 2022 | Q2 2022 | |
Net investment income per share | $0.53 | $0.41 | |
Net investment income | $34.1 | $26.7 | |
Earnings per share | $0.17 | $0.27 | |
Dividends per share declared and payable | $0.34 | $0.34 | |
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($ in millions, unless otherwise noted) | As of | As of | |
Total fair value of investments | $2,293.5 | $2,287.0 | |
Total assets | $2,521.4 | $2,426.0 | |
Total net assets | $1,096.1 | $1,107.0 | |
Net asset value per share | $16.98 | $17.15 | |
PORTFOLIO AND INVESTMENT ACTIVITY
For the three months ended September 30, 2022, the Company invested $433.0 million in 59 portfolio companies, including $270.2 million in nine new companies, $106.6 million in 48 existing companies, $41.0 million in International Senior Loan Program, LLC (“ISLP”) and $15.2 million in Bain Capital Senior Loan Program (“SLP”). The Company had $396.5 million of principal repayments and sales in the quarter, resulting in net investment fundings of $36.5 million.
Investment Activity for the Quarter Ended September 30, 2022:
($ in millions) | Q3 2022 | Q2 2022 |
Investment Fundings | $433.0 | $481.9 |
Sales and Repayments | $396.5 | $332.4 |
Net Investment Activity | $36.5 | $149.5 |
As of September 30, 2022, the Company’s investment portfolio had a fair value of $2,293.5 million, comprised of investments in 130 portfolio companies operating across 32 different industries.
Investment Portfolio at Fair Value as of September 30, 2022:
Investment Type | $ in Millions | % of Total |
First Lien Senior Secured Loans | $1,594.5 | 69.5% |
Second Lien Senior Secured Loans | 96.0 | 4.2 |
Subordinated Debt | 39.5 | 1.7 |
Equity Interest | 208.8 | 9.1 |
Preferred Equity | 71.7 | 3.1 |
Warrants | 0.5 | 0.0 |
Investment Vehicles | 282.5 | 12.4 |
Subordinated Note in ISLP | 173.3 | 7.6 |
Equity Interest in ISLP | 54.6 | 2.4 |
Subordinated Note in SLP | 51.0 | 2.2 |
Preferred and Equity Interest in SLP | 3.6 | 0.2 |
Total | $2,293.5 | 100.0% |
As of September 30, 2022, the weighted average yield on the investment portfolio at amortized cost and fair value were 10.2% and 10.6%, respectively, as compared to 8.5% and 8.8%, respectively, as of June 30, 2022.(2) 93.6% of the Company’s debt investments at fair value were in floating rate securities.
As of September 30, 2022, two portfolio companies were on non-accrual status, representing 3.1% and 1.7% of the total investment portfolio at amortized cost and fair value, respectively.
As of September 30, 2022, ISLP’s investment portfolio had an aggregate fair value of $623.0 million, comprised of investments in 34 portfolio companies operating across 15 different industries. The investment portfolio on a fair value basis was comprised of 96.0% first lien senior secured loans, 2.9% second lien senior secured loans and 1.1% equity interest. 100% of ISLP’s debt investments at fair value were in floating rate securities.
As of September 30, 2022, SLP’s investment portfolio had an aggregate fair value of $570.6 million, comprised of investments in 51 portfolio companies operating across 22 different industries.(3) The investment portfolio on a fair value basis was comprised of 96.2% first lien senior secured loans and 3.8% second lien senior secured loans. 98.2% of SLP’s debt investments at fair value were in floating rate securities.
RESULTS OF OPERATIONS
For the three months ended September 30, 2022 and June 30, 2022, total investment income was $62.8 million and $52.4 million, respectively. The increase in investment income was primarily due to an increase in interest income as a result of rising base rates.
Total expenses (before taxes) for the three months ended September 30, 2022 and June 30, 2022 were $28.7 million and $25.6 million, respectively. The increase was primarily driven by an increase in interest and debt financing expenses, partially offset by a decrease in incentive fees.
Net investment income for the three months ended September 30, 2022 and June 30, 2022 was $34.1 million or $0.53 per share and $26.7 million or $0.41 per share, respectively.
During the three months ended September 30, 2022, the Company had net realized and unrealized gains (losses) of $(23.1) million.
Net increase in net assets resulting from operations for the three months ended September 30, 2022 was $11.1 million, or $0.17 per share.
CAPITAL AND LIQUIDITY
As of September 30, 2022, the Company had total principal debt outstanding of $1,370.5 million, including $418.0 million outstanding in the Company’s Sumitomo Credit Facility, $352.5 million outstanding of the debt issued through BCC Middle Market CLO 2019-1 LLC, $300.0 million outstanding in the Company’s senior unsecured notes due March 2026 and $300.0 million outstanding in the Company’s senior unsecured notes due October 2026.
During the quarter, the Company repaid in full $150.0 million in aggregate principal amount committed, including the principal amount outstanding of $112.5 million, of senior unsecured notes due in June 2023 (the “2023 Notes”). The 2023 Notes were prepaid at 100% of their principal amount, plus accrued and unpaid interest thereon, on September 6, 2022.
For the three months ended September 30, 2022, the weighted average interest rate on debt outstanding was 3.7%, as compared to 3.2% for the three months ended June 30, 2022.
As of September 30, 2022, the Company had cash and cash equivalents (including foreign cash) of $44.2 million, $217.0 million of capacity under its Sumitomo Credit Facility and $50.0 million of capacity under the Revolving Advisor Loan. As of September 30, 2022, the Company had $307.3 million of undrawn investment commitments.
As of September 30, 2022, the Company’s debt-to-equity and debt-to-equity (net of cash) ratios were 1.25x and 1.20x, respectively, as compared to 1.14x and 1.07x, respectively, as of June 30, 2022.
Endnotes
(1) | The fourth quarter dividend is payable on January 27, 2023 to holders of record as of December 31, 2022. | |
(2) | The weighted average yield is computed as (a) the annual stated interest rate or yield earned on the relevant accruing debt and other income producing securities plus amortization of fees and discounts on the performing debt and other income producing investments, divided by (b) the total relevant investments at amortized cost. The weighted average yield does not represent the total return to our stockholders. | |
(3) | SLP acquired 70% of the member equity interests of the Company’s 2018-1 portfolio (“2018-1”). The Company retained 30% of the 2018-1 membership interests as a non-controlling equity interest. |
CONFERENCE CALL INFORMATION
A conference call to discuss the Company’s financial results will be held live at 8:30 a.m. Eastern Time on November 10, 2022. Please visit BCSF’s webcast link located on the Events & Presentations page of the Investor Resources section of BCSF’s website at http://www.baincapitalbdc.com for a slide presentation that complements the Earnings Conference Call.
Participants are also invited to access the conference call by dialing one of the following numbers:
- Domestic: 1-888-204-4368
- International: 1-323-994-2093
- Conference ID: 6606318
All participants will need to reference “Bain Capital Specialty Finance - Third Quarter Ended September 30, 2022 Earnings Conference Call” once connected with the operator. All participants are asked to dial in 10-15 minutes prior to the call.
Replay Information:
An archived replay will be available approximately three hours after the conference call concludes through November 17, 2022 via a webcast link located on the Investor Resources section of BCSF’s website, and via the dial-in numbers listed below:
- Domestic: 1-844-512-2921
- International: 1-412-317-6671
- Conference ID: 6606318#
Bain Capital Specialty Finance, Inc.
Consolidated Statements of Assets and Liabilities
(in thousands, except share and per share data)
| As of | As of | |||||
| September 30, 2022 | December 31, 2021 | |||||
| (Unaudited) | ||||||
| Assets | ||||||
| Investments at fair value: | ||||||
| Non-controlled/non-affiliate investments (amortized cost of $1,811,644 and $1,921,970, respectively) | $ | 1,733,477 | $ | 1,901,054 | ||
| Non-controlled/affiliate investment (amortized cost of $124,612 and $100,888, respectively) | 147,143 | 113,290 | ||||
| Controlled affiliate investment (amortized cost of $419,887 and $288,526, respectively) | 412,902 | 274,761 | ||||
| Cash and cash equivalents | 32,343 | 87,443 | ||||
| Foreign cash (cost of $17,388 and $30,877, respectively) | 11,830 | 29,979 | ||||
| Restricted cash and cash equivalents | 14,656 | 86,159 | ||||
| Collateral on forward currency exchange contracts | 4,577 | 2,815 | ||||
| Deferred financing costs | 3,702 | 2,178 | ||||
| Interest receivable on investments | 27,875 | 19,269 | ||||
| Receivable for sales and paydowns of investments | 109,171 | 30,334 | ||||
| Prepaid Insurance | 376 | 193 | ||||
| Unrealized appreciation on forward currency exchange contracts | 12,886 | 5,321 | ||||
| Dividend receivable | 10,445 | 18,397 | ||||
| Total Assets | $ | 2,521,383 | $ | 2,571,193 | ||
| Liabilities | ||||||
| Debt (net of unamortized debt issuance costs of $10,861 and $15,718, respectively) | $ | 1,359,639 | $ | 1,414,982 | ||
| Interest payable | 9,965 | 7,058 | ||||
| Payable for investments purchased | 17,664 | 7,594 | ||||
| Base management fee payable | 8,763 | 8,792 | ||||
| Incentive fee payable | 2,976 | 4,727 | ||||
| Accounts payable and accrued expenses | 4,311 | 6,083 | ||||
| Distributions payable | 21,951 | 21,951 | ||||
| Total Liabilities | 1,425,269 | 1,471,187 | ||||
| Commitments and Contingencies (See Note 10) | ||||||
| Net Assets | ||||||
| Common stock, par value $0.001 per share, 100,000,000,000 and 100,000,000,000 shares authorized, 64,562,265 and 64,562,265 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | 65 | 65 | ||||
| Paid in capital in excess of par value | 1,168,384 | 1,168,384 | ||||
| Total distributable earnings (loss) | (72,335) | (68,443) | ||||
| Total Net Assets | 1,096,114 | 1,100,006 | ||||
| Total Liabilities and Total Net assets | $ | 2,521,383 | $ | 2,571,193 | ||
| Net asset value per share | $ | 16.98 | $ | 17.04 | ||
See Notes to Consolidated Financial Statements
Bain Capital Specialty Finance, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)
| For the Three Months | For the Three Months | For the Nine Months | For the Nine Months | |||||||||
| Ended September 30 | Ended September 30 | Ended September 30 | Ended September 30 | |||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
| Income | ||||||||||||
| Investment income from non-controlled/non-affiliate investments: | ||||||||||||
| Interest from investments | $ | 36,239 | $ | 37,821 | $ | 100,295 | $ | 114,439 | ||||
| Dividend income | 4,532 | 38 | 4,640 | 38 | ||||||||
| PIK income | 4,276 | 1,046 | 9,159 | 3,108 | ||||||||
| Other income | 4,329 | 1,181 | 12,484 | 5,512 | ||||||||
| Total investment income from non-controlled/non-affiliate investments | 49,376 | 40,086 | 126,578 | 123,097 | ||||||||
| Investment income from non-controlled/affiliate investments: | ||||||||||||
| Interest from investments | 2,141 | 455 | 4,366 | 1,355 | ||||||||
| Dividend income | 1,067 | — | 2,918 | — | ||||||||
| PIK income | 48 | 1,421 | 1,497 | 4,173 | ||||||||
| Total investment income from non-controlled/affiliate investments | 3,256 | 1,876 | 8,781 | 5,528 | ||||||||
| Investment income from controlled affiliate investments: | ||||||||||||
| Interest from investments | 5,437 | 4,983 | 13,073 | 9,192 | ||||||||
| Dividend income | 4,746 | 2,600 | 12,758 | 7,564 | ||||||||
| PIK income | — | — | — | 483 | ||||||||
| Total investment income from controlled affiliate investments | 10,183 | 7,583 | 25,831 | 17,239 | ||||||||
| Total investment income | 62,815 | 49,545 | 161,190 | 145,864 | ||||||||
| Expenses | ||||||||||||
| Interest and debt financing expenses | 14,381 | 12,265 | 36,051 | 37,115 | ||||||||
| Base management fee | 8,853 | 8,776 | 25,673 | 26,096 | ||||||||
| Incentive fee | 2,976 | 4,531 | 10,356 | 19,301 | ||||||||
| Professional fees | 968 | 581 | 1,804 | 2,254 | ||||||||
| Directors fees | 177 | 186 | 531 | 529 | ||||||||
| Other general and administrative expenses | 1,357 | 1,445 | 4,254 | 4,075 | ||||||||
| Total expenses before fee waivers | 28,712 | 27,784 | 78,669 | 89,370 | ||||||||
| Base management fee waiver | — | — | — | -4,837 | ||||||||
| Incentive fee waiver | — | — | — | -4,519 | ||||||||
| Total expenses, net of fee waivers | 28,712 | 27,784 | 78,669 | 80,014 | ||||||||
| Net investment income | 34,103 | 21,761 | 82,521 | 65,850 | ||||||||
| Net realized and unrealized gains (losses) | ||||||||||||
| Net realized gain (loss) on non-controlled/non-affiliate investments | (5,180) | (668) | (6,339) | 22,589 | ||||||||
| Net realized loss on controlled affiliate investments | — | (621) | — | (3,858) | ||||||||
| Net realized gain (loss) on foreign currency transactions | 2,254 | (72) | 4,932 | (2,093) | ||||||||
| Net realized gain (loss) on forward currency exchange contracts | 17,633 | (2,085) | 20,894 | (23,773) | ||||||||
| Net realized loss on extinguishment of debt | (745) | (2,546) | (745) | (2,546) | ||||||||
| Net change in unrealized depreciation on foreign currency translation | (4,820) | (508) | (6,525) | (186) | ||||||||
| Net change in unrealized appreciation (depreciation) on forward currency exchange contracts | (2,210) | 6,080 | 7,565 | 26,685 | ||||||||
| Net change in unrealized appreciation (depreciation) on non-controlled/non-affiliate investments | (24,937) | 922 | (57,251) | 2,125 | ||||||||
| Net change in unrealized appreciation (depreciation) on non-controlled/affiliate investments | (4,640) | 2,905 | 10,129 | 8,312 | ||||||||
| Net change in unrealized appreciation (depreciation) on controlled affiliate investments | (407) | (1,826) | 6,780 | 4,423 | ||||||||
| Total net gains (losses) | (23,052) | 1,581 | (20,560) | 31,678 | ||||||||
| Net increase in net assets resulting from operations | $ | 11,051 | $ | 23,342 | $ | 61,961 | $ | 97,528 | ||||
| Basic and diluted net investment income per common share | $ | 0.53 | $ | 0.34 | $ | 1.28 | $ | 1.02 | ||||
| Basic and diluted increase in net assets resulting from operations per common share | $ | 0.17 | $ | 0.36 | $ | 0.96 | $ | 1.51 | ||||
| Basic and diluted weighted average common shares outstanding | 64,562,265 | 64,562,265 | 64,562,265 | 64,562,265 | ||||||||
See Notes to Consolidated Financial Statements
About Bain Capital Specialty Finance, Inc.
Bain Capital Specialty Finance, Inc. is an externally managed specialty finance company focused on lending to middle market companies. BCSF is managed by BCSF Advisors, LP, an SEC-registered investment adviser and a subsidiary of Bain Capital Credit, LP. Since commencing investment operations on October 13, 2016, and through September 30, 2022, BCSF has invested approximately $6.2 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits or repayments. BCSF’s investment objective is to generate current income and, to a lesser extent, capital appreciation through direct originations of secured debt, including first lien, first lien/last out, unitranche and second lien debt, investments in strategic joint ventures, equity investments and, to a lesser extent, corporate bonds. BCSF has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended.
Forward-Looking Statements
This letter may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts included in this letter may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in filings with the U.S. Securities and Exchange Commission. The Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this letter.
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