Barings BDC, Inc. Q4 FY2024 earnings call

• Fourth quarter saw meaningful uptick in deployment, both add-on transactions and new buyouts, with strong originations. - Total shareholder return in 2024 exceeded 24% and was top quartile among peers. - Actively maximizing value of legacy holdings from MVC Capital and Sierra, with potential losses protected by credit support agreements. - Portfolio composition is diversified, with top ten issuers accounting for 23.1% of fair market value. - Risk ratings exhibited minimal movement, non-accruals at low levels. - Barings' PIK interest income during the quarter was 5.1% of total investment income, compared to trailing five - quarter average of 5.7%.

In the fourth quarter, BBDC delivered strong results. Net asset value per share was $11.29, substantially unchanged from the prior fiscal year-end. Net investment income for the quarter was $0.28 per share, out-earning the dividend of $0.26 per share. Barings-originated positions are now 93% of the portfolio at fair value, up from 76% at the beginning of 2022. The non-accrual rate declined from 50 basis points in September to 30 basis points as of December. The weighted average yield at fair value was 10.4%. The portfolio's revenue contribution is driven by various segments including Barings-originated positions and strategic platform investments like Eclipse Business Capital and Rokaid Holdings.

• Entered 2025 with caution due to regulatory and trade uncertainties, expecting cautious pace of new buyout opportunities and add - on transactions to remain a way to deploy capital. - Anticipate continued strength in quarters ahead based on portfolio performance metrics. - Board declared fourth - quarter dividend of $0.26 per share, and supplemental dividends totaling $0.15 per share paid in three quarterly installments. - Authorized a new $30 million share repurchase plan for 2025.

• Regulatory and trade uncertainties pose challenges for private capital investors in assessing future shifts over hold horizons. - Potential impact of economic factors on portfolio companies, such as EBITDA and loan - to - value changes for loans with modified PIK.

Q: Hey, everyone. Good morning. I was looking at a name, 880, is another slight mark, but it's a sort of a partial or PIK non - accrual. And I was seeing if you could outline just the spirit of a PIK non - accrual and how that compares to the regular definition of something that you don't anticipate, you know, collection of full interest and principal for.

A: Yes. And thanks for the call. And the way we determine that is when we meet with the investment team, that was an investment that prior to us putting on PIK non - accrual, it paid its full cash, which I believe at the time was a 15% interest rate. And we underwrote it where it would pay, I believe, half of that. And so it is actually performing where we underwrote it. And so when it was determined that they were gonna start paying cash and they wanted to PIK a certain portion, we didn't believe that we would be able to recover the full value including the PIK, but we knew we could with the cash. So that's why we felt it was prudent to put it on PIK non - accrual, but it is performing now as it was underwritten. It just for a certain period of time was performing above where it was underwritten.

Q: Hi. Congrats on the quarter and congrats on the continued portfolio rotation. That's 2024. What are you gonna do for us in 2025 on the portfolio rotation? So, I mean, just any thoughts on how you expect that to progress through this year, especially with uncertainty to the point on the M&A as you do notate portfolio in an active market and in an inactive one or slower one. I mean, any thoughts on how that might progress through the year? I mean, really good job so far.

A: Hey, Robert. It's Bryan. A couple of thoughts, and then, obviously, Matt can chime in as well. But obviously, we're gonna continue to try to rotate out of the non - Barings names from the acquisitions with the focus on really trying to move the non - income producing assets to the best of our ability while also trying to maximize value so that we can get income - producing assets which will hopefully benefit from an ROE perspective. So that's kind of a goal of ours. Obviously, market timing is everything. To your point on the overall market, the good news is this is fully ramped and we're kind of within our leverage targets. And so if there's not a lot of deal flow coming in, there's typically not a lot of repayments at the same time, so it's relatively easy to manage from that perspective. That being said, as Matt alluded to in his comments, we do have a decent pipeline of new opportunities and expect to continue to originate consistent with our strategy previously.

Q: Yes. I just want to ask, I'm maybe asking the same question in a different way. Given Matt, your comments regarding the uncertainty and the lack of kind of deal proposals. Is it fair to think actually, fee and other income had a pretty good quarter in the fourth quarter, but is it fair to think of fee and income as you look out across 2025 as likely to be flat to down as opposed to I think a lot of people were thinking it was gonna be up in 2025 because they thought it was gonna be very robust deal activity?

A: Yeah. It's a fair question, Casey. I wouldn't say that it's gonna be flat to down. I think that our current expectation is gonna be is gonna kind of be flat to flat. And the reason for that is just the broader maturity dynamics within the overall portfolio. And so while you may not see the OID acceleration associated with upfront fees, but I do think you'll see, here we are in February, so I forecast in the whole year. But what my gut tells me is that we're probably gonna see some more activity with respect to amendment fees, extension fees, those sorts of things. And so while you may lose from an OID acceleration perspective, you're probably going to make up from an amendment fee perspective. And that's my gut in terms of where we are. Of course, if M&A activity picks up, then the reverse will also be true. But with a kind of fully invested and seasoned portfolio, that's our operating base case right now.

Q: Well, I mean, while you're on the phone, you could take a crack at 2026 if you want to. So that fourth quarter number was a bit high. Was there a one - time or a single deal that contributed to a little bit higher fee and other income in the fourth quarter than we've seen in previous quarters?

A: Yeah. I would say that the answer to your question directly is yes. There was a transaction that did have a more substantive fee component to it in the fourth quarter. And I would tell you that it did create a little bit of an outlier dynamic. And so if you were looking for modeling purposes for the forecast, I would suggest that you use kind of trailing four - quarter average as more of a baseline.