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Bain Capital Specialty Finance, Inc. Announces December 31, 2022 Financial Results and Declares First Quarter 2023 Dividend of $0.38 per Share

February 28, 2023

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BOSTON--Bain Capital Specialty Finance, Inc. (NYSE: BCSF, the “Company”, “our” or “we”) today announced financial results for the fourth quarter and fiscal year ended December 31, 2022, and that its Board of Directors has declared a dividend of $0.38 per share for the first quarter of 2023.

“BCSF delivered strong fourth quarter earnings and full year 2022 financial results including attractive levels of interest income and net asset value growth driven by solid credit performance across our largely senior secured portfolio,” said Michael Ewald, Chief Executive Officer of BCSF. “For the second consecutive quarter, we are raising our regular quarterly dividend by 6% to $0.38 per share which represents a 9% annualized yield on book value, reflecting our view of the Company’s higher earnings power.”

QUARTERLY HIGHLIGHTS

  • Net investment income (NII) per share was $0.37, equating to an annualized NII yield on book value of 8.7% and 9.3% for 2022(1)(2);
  • Net income per share was $0.67, equating to an annualized return on book value of 15.7% and 9.8% for 2022(2);
  • Net asset value per share as of December 31, 2022 was $17.29, as compared to $16.98 as of September 30, 2022;
  • Gross and net investment fundings were $220.7 million and $58.7 million, respectively; Ending debt-to-equity (net of cash) was 1.14x, as compared to 1.20x as of September 30, 2022;
  • The Company increased the amount of commitments to its Sumitomo Credit Facility to $665.0 million, up from $635.0 million;
  • Subsequent to quarter-end, the Company’s Board of Directors increased its quarterly regular dividend by $0.02 per share to $0.38 per share for the first quarter to stockholders of record as of March 31, 2023(3); and
  • In February 2023, Kroll Bond Rating Agency, LLC (KBRA) assigned the Company an investment grade rating of BBB and Stable outlook.

SELECTED FINANCIAL HIGHLIGHTS

($ in millions, unless otherwise noted)

Q4 2022

 

Q3 2022

Net investment income per share

$0.37

 

$0.47

Net investment income

$24.2

 

$30.1

Earnings per share

$0.67

 

$0.17

Dividends per share declared and payable

$0.36

 

$0.34

 

 

 

 

($ in millions, unless otherwise noted)

As of
December 31, 2022

 

As of
September 30, 2022

Total fair value of investments

$2,387.0

 

$2,293.5

Total assets

$2,592.4

 

$2,521.4

Total net assets

$1,116.4

 

$1,096.1

Net asset value per share

$17.29

 

$16.98

   

PORTFOLIO AND INVESTMENT ACTIVITY

For the three months ended December 31, 2022, the Company invested $220.7 million in 44 portfolio companies, including $101.0 million in five new companies, $101.5 million in 38 existing companies and $18.2 million in International Senior Loan Program, LLC (“ISLP”). The Company had $162.0 million of principal repayments and sales in the quarter, resulting in net investment fundings of $58.7 million.

Investment Activity for the Quarter Ended December 31, 2022:

($ in millions)

Q4 2022

 

Q3 2022

Investment Fundings

$220.7

 

$433.0

Sales and Repayments

$162.0

 

$396.5

Net Investment Activity

$58.7

 

$36.5

As of December 31, 2022, the Company’s investment portfolio had a fair value of $2,387.0 million, comprised of investments in 132 portfolio companies operating across 31 different industries.

Investment Portfolio at Fair Value as of December 31, 2022:

Investment Type

$ in Millions

 

% of Total

First Lien Senior Secured Loans

$1,630.9

 

68.3%

Second Lien Senior Secured Loans

94.0

 

3.9

Subordinated Debt

43.9

 

1.8

Structured Products

22.8

 

1.0

Preferred Equity

80.9

 

3.4

Equity Interests

210.7

 

8.8

Warrants

0.5

 

0.0

Investment Vehicles

303.3

 

12.8

Subordinated Note in ISLP

187.0

 

7.8

Equity Interest in ISLP

62.6

 

2.6

Subordinated Note in SLP

51.0

 

2.2

Preferred and Equity Interest in SLP

2.7

 

0.2

Total

$2,387.0

 

100.0%

As of December 31, 2022, the weighted average yield on the investment portfolio at amortized cost and fair value were 11.4% and 11.6%, respectively, as compared to 10.2% and 10.6%, respectively, as of September 30, 2022.(4) 94.5% of the Company’s debt investments at fair value were in floating rate securities.

As of December 31, 2022, three portfolio companies were on non-accrual status, representing 3.0% and 1.6% of the total investment portfolio at amortized cost and fair value, respectively.

As of December 31, 2022, ISLP’s investment portfolio had an aggregate fair value of $707.7 million, comprised of investments in 38 portfolio companies operating across 17 different industries. The investment portfolio on a fair value basis was comprised of 95.7% first lien senior secured loans, 2.8% second lien senior secured loans and 1.5% equity interests. 98.3% of ISLP’s debt investments at fair value were in floating rate securities.

As of December 31, 2022, SLP’s investment portfolio had an aggregate fair value of $546.7 million, comprised of investments in 48 portfolio companies operating across 21 different industries.(5) The investment portfolio on a fair value basis was comprised of 96.0% first lien senior secured loans and 4.0% 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 December 31, 2022 and September 30, 2022, total investment income was $62.4 million and $58.8 million, respectively. The increase in investment income was primarily due to an increase in interest income as a result of higher base rates.

Total expenses (before taxes) for the three months ended December 31, 2022 and September 30, 2022 were $37.3 million and $28.7 million, respectively. The increase was primarily driven by an increase in incentive fees due to a higher Cumulative Net Return under the Company’s incentive fee structure that has a total return three-year look back feature.(6)

Net investment income for the three months ended December 31, 2022 and September 30, 2022 was $24.2 million or $0.37 per share and $30.1 million or $0.47 per share, respectively.

During the three months ended December 31, 2022, the Company had net realized and unrealized gains (losses) of $19.3 million.

Net increase in net assets resulting from operations for the three months ended December 31, 2022 was $43.5 million, or $0.67 per share.

CAPITAL AND LIQUIDITY

As of December 31, 2022, the Company had total principal debt outstanding of $1,395.5 million, including $443.0 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.

For the three months ended December 31, 2022, the weighted average interest rate on debt outstanding was 4.3%, as compared to 3.7% for the three months ended September 30, 2022.

As of December 31, 2022, the Company had cash and cash equivalents (including foreign cash) of $59.8 million, $207.3 million of capacity under its Sumitomo Credit Facility and $50.0 million of capacity under the Revolving Advisor Loan. As of December 31, 2022, the Company had $303.7 million of undrawn investment commitments.

As of December 31, 2022, the Company’s debt-to-equity and debt-to-equity (net of cash) ratios were 1.25x and 1.14x, respectively, as compared to 1.25x and 1.20x, respectively, as of September 30, 2022.

Endnotes

(1)

 

The accounting classification of certain earnings as reported in the Company’s financial statements on Form 10-Q for the quarter ended September 30, 2022 were reclassified. The reclassification is related to an earnings revision from dividend income to realized gain on investments. The revisions do not have any impact on the Company’s net asset value per share as of September 30, 2022 as previously reported.

   

 

(2)

 

Net investment income yields and net income returns are calculated on average net assets, or book value, for the respective periods shown. Please refer to Note 12 in the Company’s Form 10-K for additional information regarding the 2022 return calculations.

   

 

(3)

 

The first quarter dividend is payable on April 28, 2023 to holders of record as of March 31, 2023.

   

 

(4)

 

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.

   

 

(5)

 

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.

   

 

(6)

 

The incentive fee based on income is subject to a cap of 17.5% of Cumulative Net Return during the relevant Trailing Twelve Quarters, which is defined as (x) pre-incentive fee net investment income of the relevant Trailing Twelve Quarters less (y) any Net Capital loss, if any, in respect of the relevant trailing twelve quarters. “Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in respect of such period and (ii) aggregate capital gains, whether realized or unrealized, in respect of such period.

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 March 1, 2023. 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: 1-877-407-4018
  • International: 1-201-689-8471
  • Conference ID: 13736325

All participants will need to reference “Bain Capital Specialty Finance - Fourth Quarter and Fiscal Year Ended December 31, 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 March 8, 2023 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: 13736325#
 

Bain Capital Specialty Finance, Inc.

Consolidated Statements of Assets and Liabilities

(in thousands, except share and per share data)

 

 

 

As of December 31,

 

 

 

2022

 

2021

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Investments at fair value:

 

 

 

 

 

 

 

Non-controlled/non-affiliate investments (amortized cost of $1,846,172 and $1,921,970, respectively)

 

$

1,774,947

 

 

$

1,901,054

 

 

Non-controlled/affiliate investment (amortized cost of $133,808 and $100,888 respectively)

 

 

173,400

 

 

 

113,290

 

 

Controlled affiliate investment (amortized cost of $439,958 and $288,526, respectively)

 

 

438,630

 

 

 

274,761

 

 

Cash and cash equivalents

 

 

30,205

 

 

 

87,443

 

 

Foreign cash (cost of $34,528 and $30,877, respectively)

 

 

29,575

 

 

 

29,979

 

 

Restricted cash and cash equivalents

 

 

65,950

 

 

 

86,159

 

 

Collateral on forward currency exchange contracts

 

 

9,612

 

 

 

2,815

 

 

Deferred financing costs

 

 

3,742

 

 

 

2,178

 

 

Interest receivable on investments

 

 

34,270

 

 

 

19,269

 

 

Receivable for sales and paydowns of investments

 

 

18,166

 

 

 

30,334

 

 

Prepaid Insurance

 

 

194

 

 

 

193

 

 

Unrealized appreciation on forward currency exchange contracts

 

 

62

 

 

 

5,321

 

 

Dividend receivable

 

 

13,681

 

 

 

18,397

 

 

Total Assets

 

$

2,592,434

 

 

$

2,571,193

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Debt (net of unamortized debt issuance costs of $10,197 and $15,718, respectively)

 

$

1,385,303

 

 

$

1,414,982

 

 

Interest payable

 

 

12,130

 

 

 

7,058

 

 

Payable for investments purchased

 

 

34,292

 

 

 

7,594

 

 

Base management fee payable

 

 

8,906

 

 

 

8,792

 

 

Incentive fee payable

 

 

9,216

 

 

 

4,727

 

 

Accounts payable and accrued expenses

 

 

2,954

 

 

 

6,083

 

 

Distributions payable

 

 

23,242

 

 

 

21,951

 

 

Total Liabilities

 

 

1,476,043

 

 

 

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 December 31, 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)

 

 

(52,058

)

 

 

(68,443

)

 

Total Net Assets

 

 

1,116,391

 

 

 

1,100,006

 

 

Total Liabilities and Total Net assets

 

$

2,592,434

 

 

$

2,571,193

 

 

 

 

 

 

 

 

 

 

Net asset value per share

 

$

17.29

 

 

$

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 Year Ended December 31,

 

 

2022

 

2021

 

2020

Income

 

 

 

 

 

 

 

 

 

Investment income from non-controlled/non-affiliate investments:

 

 

 

 

 

 

 

 

 

Interest from investments

 

$

138,984

 

 

$

153,703

 

 

$

170,914

 

Dividend income

 

 

634

 

 

 

514

 

 

 

787

 

PIK income

 

 

13,495

 

 

 

4,475

 

 

 

7,272

 

Other income

 

 

15,091

 

 

 

6,173

 

 

 

1,955

 

Total investment income from non-controlled/non-affiliate investments

 

 

168,204

 

 

 

164,865

 

 

 

180,928

 

 

 

 

 

 

 

 

 

 

 

Investment income from non-controlled/affiliate investments:

 

 

 

 

 

 

 

 

 

Interest from investments

 

 

7,470

 

 

 

1,818

 

 

 

639

 

Dividend income

 

 

4,109

 

 

 

 

 

 

 

PIK income

 

 

1,542

 

 

 

5,622

 

 

 

1,227

 

Other Income

 

 

 

 

 

 

 

 

202

 

Total investment income from non-controlled/affiliate investments

 

 

13,121

 

 

 

7,440

 

 

 

2,068

 

 

 

 

 

 

 

 

 

 

 

Investment income from controlled affiliate investments:

 

 

 

 

 

 

 

 

 

Interest from investments

 

 

19,819

 

 

 

11,822

 

 

 

2,644

 

Dividend income

 

 

18,401

 

 

 

12,601

 

 

 

8,537

 

PIK income

 

 

 

 

 

666

 

 

 

279

 

Other income

 

 

 

 

 

 

 

 

4

 

Total investment income from controlled affiliate investments

 

 

38,220

 

 

 

25,089

 

 

 

11,464

 

Total investment income

 

 

219,545

 

 

 

197,394

 

 

 

194,460

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

Interest and debt financing expenses

 

 

52,318

 

 

 

51,345

 

 

 

63,309

 

Base management fee

 

 

34,669

 

 

 

34,888

 

 

 

35,215

 

Incentive fee

 

 

19,572

 

 

 

24,028

 

 

 

4,473

 

Professional fees

 

 

2,959

 

 

 

2,854

 

 

 

2,626

 

Directors fees

 

 

707

 

 

 

725

 

 

 

726

 

Other general and administrative expenses

 

 

5,777

 

 

 

5,038

 

 

 

5,398

 

Total expenses before fee waivers

 

 

116,002

 

 

 

118,878

 

 

 

111,747

 

Base management fee waiver

 

 

 

 

 

(4,837

)

 

 

(2,676

)

Incentive fee waiver

 

 

 

 

 

(4,519

)

 

 

(674

)

Total expenses, net of fee waivers

 

 

116,002

 

 

 

109,522

 

 

 

108,397

 

Net investment income before taxes

 

 

103,543

 

 

 

87,872

 

 

 

86,063

 

Excise tax expense

 

 

837

 

 

 

134

 

 

 

232

 

Net investment income

 

 

102,706

 

 

 

87,738

 

 

 

85,831

 

 

 

 

 

 

 

 

 

 

 

Net realized and unrealized gains (losses)

 

 

 

 

 

 

 

 

 

Net realized gain (loss) on non-controlled/non-affiliate investments

 

 

(1,725

)

 

 

25,084

 

 

 

(33,824

)

Net realized gain (loss) on non-controlled/affiliate investments

 

 

(1,355

)

 

 

 

 

 

 

Net realized loss on controlled affiliate investments

 

 

 

 

 

(3,858

)

 

 

 

Net realized gain (loss) on foreign currency transactions

 

 

5,292

 

 

 

(3,496

)

 

 

130

 

Net realized gain (loss) on forward currency exchange contracts

 

 

20,894

 

 

 

(23,773

)

 

 

6,472

 

Net realized loss on extinguishment of debt

 

 

(747

)

 

 

(4,859

)

 

 

 

Net change in unrealized appreciation (depreciation) on foreign currency translation

 

 

(3,644

)

 

 

(936

)

 

 

108

 

Net change in unrealized appreciation (depreciation) on forward currency exchange contracts

 

 

(5,259

)

 

 

27,935

 

 

 

(22,396

)

Net change in unrealized depreciation on non-controlled/non-affiliate investments

 

 

(50,309

)

 

 

(568

)

 

 

(6,744

)

Net change in unrealized appreciation (depreciation) on non-controlled/affiliate investments

 

 

27,190

 

 

 

12,576

 

 

 

(174

)

Net change in unrealized appreciation (depreciation) on controlled affiliate investments

 

 

12,437

 

 

 

3,964

 

 

 

(21,125

)

Total net gains (losses)

 

 

2,774

 

 

 

32,069

 

 

 

(77,553

)

 

 

 

 

 

 

 

 

 

 

Net increase in net assets resulting from operations

 

$

105,480

 

 

$

119,807

 

 

$

8,278

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net investment income per common share

 

$

1.59

 

 

$

1.36

 

 

$

1.46

 

Basic and diluted increase in net assets resulting from operations per common share

 

$

1.63

 

 

$

1.86

 

 

$

0.14

 

Basic and diluted weighted average common shares outstanding

 

 

64,562,265

 

 

 

64,562,265

 

 

 

58,670,518

 

 

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 December 31, 2022, BCSF has invested approximately $6.5 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.


Contacts

Investor Contact:
Katherine Schneider
Tel. (212) 803-9613
investors@baincapitalbdc.com

Media Contact:
Charlyn Lusk
Tel. (646) 502-3549
clusk@stantonprm.com