Bain Capital Specialty Finance Q1 2025 Earnings Report

Bain Capital Specialty Finance EPS Results

• Actual EPS: $0.50
• Consensus EPS: $0.48
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: N/A

Bain Capital Specialty Finance Revenue Results

• Actual Revenue: $52.84 million
• Expected Revenue: $71.00 million
• Beat/Miss: Missed by -$18.16 million
• YoY Revenue Growth: N/A

Bain Capital Specialty Finance Announcement Details

• Quarter: Q1 2025
• Date: 5/5/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, May 6, 2025
• Conference Call Time: 8:30AM ET

Bain Capital Specialty Finance (NYSE:BCSF) is business development company specializing in direct loans to middle-market companies. The fund seeks to invest in senior investments with a first or second lien on collateral, senior first lien, stretch senior, senior second lien, unitranche, mezzanine debt, junior securities, other junior investments, and secondary purchases of assets or portfolios that primarily consist of middle-market corporate debt. It typically invests in companies with EBITDA between $10 million and $150 million.

Bain Capital Specialty Finance Q1 2025 Earnings Call Transcript

Key Takeaways

• Strong first quarter results with net investment income per share of $0.50 (11.3% yield on book value) providing 119% coverage of the regular dividend, and earnings per share of $0.44 (10% annualized return on book value) driven by high-quality middle market lending.
• Gross originations fell 31% year-over-year to $277 million amid heightened market volatility and competition in middle market direct lending, although first-lien spreads remained attractive at over 140 bps.
• Credit quality and balance sheet positioning remained solid, with non-accruals at just 1.4% of cost, net leverage of 1.17× within the 1.0–1.25× target range, and $823 million of available liquidity.
• The Board declared total second-quarter dividends of $0.45 per share, reflecting a 10.2% annualized yield on Q1 NAV, supported by estimated spillover income of approximately $1.41 per share.
• A portfolio review found minimal direct exposure to proposed tariffs, benefiting from a focus on asset-light, high-free-cash-flow domestic companies in software, healthcare, and business services.

Presentation

[Operator]

Good day, everyone, and welcome to the Bain Capital Specialty Finance First Quarter Ended 03/31/2025 Earnings Conference Call. At this time, all participants are in a listen only mode.

[Operator]

Later, you will have the opportunity to ask questions during the question and answer session. 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 the conference over to Kathryn Schneider, Investor Relations. Please go ahead.

[Katherine Schneider, Managing Director - Investor Relations at Bain Capital Specialty Finance]

Thanks, Nikki. Good morning, and welcome to the Bain Capital Specialty Finance first quarter ended 03/31/2025 conference call. Yesterday, after market close, we issued our earnings press release and investor 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 authorized broadcast in any form is strictly prohibited.

[Katherine Schneider, Managing Director - Investor Relations at Bain Capital Specialty Finance]

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.

[Michael Ewald, CEO & Director at Bain Capital Specialty Finance]

Thanks, Kathryn, and good morning, thanks to all of you for joining us here on our earnings call. I'm also joined today by Mike Boyle, our President and our Chief Financial Officer, Amit Joshi. As usual, in terms of agenda for the call, I'll start with an overview of our first quarter results and then provide some thoughts on our performance, the current market environment and 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.

[Michael Ewald, CEO & Director at Bain Capital Specialty Finance]

So yesterday, after we closed, we delivered strong first quarter results. Q1 net investment income per share was $0.50 representing an annualized yield on book value of 11.3%. Our net investment income was well in excess of our regular dividend with 119% dividend coverage. Q1 earnings per share were $0.44 reflecting an annualized return on book value of 10%. Our results were driven by high quality interest income earned from our middle market borrowers and stable credit performance across our portfolio.

[Michael Ewald, CEO & Director at Bain Capital Specialty Finance]

Our net asset value per share was $17.64 down to $01 per share from the prior quarter end. Subsequent to quarter end, our Board declared a second quarter dividend equal to $0.42 per share, payable to record date holders as of 06/16/2025. The Board also declared an additional dividend of $03 per share for shareholders of record as of 06/16/2025, as we previously announced in February. The total dividends for the second quarter to zero four five dollars per share or a 10.2% annualized return on ending value as of March 31, which we believe represents an attractive yield for our shareholders. The first quarter was driven by a busy start to the year beginning in January, while volumes then trended lower throughout the quarter on increased volatility uncertainty experienced across the broader market.

[Michael Ewald, CEO & Director at Bain Capital Specialty Finance]

Middle market direct lending volumes continue to see compression amid high levels of competition, which were steepest across the upper and larger ends of the market. We're certainly not immune to increased competition within a core part of the market, although we seek to be disciplined capital providers when we underwrite new capital structures, price, the risk we take, the reward we receive. Q1, BCSS gross originations were $277,000,000 down 31% year over year. We remain selective in our underwriting approach and continue to favor middle market companies within the core part of the market. The median weighted average EBITDA of borrowers during the quarter were approximately $23,000,000 and $3,000,000 respectively.

[Michael Ewald, CEO & Director at Bain Capital Specialty Finance]

The weighted average spread on our first lien originations was over 140 basis points. Many of the core tenants that we value in our direct strategy, such as higher spread premiums, stronger lender controls through credit documentation containing financial covenants, and having majority control positions within a small lender group are much more attainable in this segment of the market. Notably, these are attributes that we believe are increasingly important during periods of greater volatility. So 97% of our Q1 originations to new companies were structured with documentation containing financial covenants tied to management's forecasts, majority control positions in over 78% of these debt tranches, allowing us to drive eventual outcomes at our discretion. These statistics are consistent with our broader portfolio, showing our continued focus on these core tenants.

[Michael Ewald, CEO & Director at Bain Capital Specialty Finance]

Credit quality and fundamentals continue to be solid across our portfolio. Investments on non accrual represented 1.4%, zero point seven % in amortized cost and fair value respectively as of March 31. Our liquidity draws $823,000,000 of total available liquidity across undrawn capacity on our revolving credit facility, cash and net settled trades. We ended the first quarter at a net leverage ratio to 1.17 times, which falls within our target leverage ratio on a net basis of one point zero to 1.25 times and positions us well with ample dry powder in the current environment. Following the U.

[Michael Ewald, CEO & Director at Bain Capital Specialty Finance]

S. Government's tariff announcements in early April, we performed a portfolio review to identify potential individual exposure to higher tariffs. While there's still uncertainty around the timing and height of eventual tariffs, given the fluid situation and ongoing developments, only a small portion of BCSS portfolio companies were estimated to have direct tariff exposure. This limited exposure to exogenous factors identified by our team aligns with various facets of our investment strategy, including a focus on the core middle market, asset light, high free cash flow businesses, domestic manufacturing and favoring certain industries such as software, healthcare, business services and financial services. Notably, our aerospace and defense investments are not expected to have high direct impacts from tariffs as our exposure within this segment includes service providers and manufacturers with overwhelmingly domestic customer bases and supply chains.

[Michael Ewald, CEO & Director at Bain Capital Specialty Finance]

While it is still too early to assess longer term impacts of tariffs on the broader economy, we remain focused on the potential downstream effects of these and other current administration policies that could drive inflation higher, lower economic growth, and lead to a potential recessionary environment. Bain Capital's private credit group has over twenty five years of experience and is well equipped to navigate the current environment as our professionals have successfully navigated multiple market cycles and periods of disruptions in the past, and we remain focused on prudently managing our portfolio. I will now turn the call over to Mike Boyle, our President, to walk through our investment portfolio in greater detail.

[Michael Boyle, President & Director at Bain Capital Specialty Finance]

Thanks, Michael. Good morning, everyone. I'll start with our investment activity for the first quarter and then provide an update in more detail on our portfolio. New fundings during the first quarter were $277,000,000 into 89 portfolio companies including $140,000,000 in 13 new companies, dollars 134,000,000 in 75 existing companies and $2,000,000 into our senior loan program. Activity totaled approximately $246,000,000 resulting in net investment fundings of $31,000,000 quarter over quarter.

[Michael Boyle, President & Director at Bain Capital Specialty Finance]

Our fundings were split with 51% of total fundings made to new portfolio companies versus 49 to existing companies. This quarter we remained focused on investing in first lien senior secured loans with 90% of our investments made into first lien structures, 9% in subordinated debt and 1% into equity. Investments made in the quarter continued to favor defensive industries such as healthcare, high-tech and business services. For our select investments within auto and capital equipment sectors, we provided capital to service oriented companies within these end markets or manufacturers with domestic footprints. Turning to the investment portfolio.

[Michael Boyle, President & Director at Bain Capital Specialty Finance]

At the end of the first quarter, the size of our portfolio at fair value was $2,500,000,000 across a diversified set of 175 companies operating across 29 different industries. We have continued to increase our single name portfolio diversification with name count up from 153 companies one year ago and 108 companies at the beginning of twenty twenty. Our portfolio primarily consists of investments in first lien senior secured loans given our focus on downside management and investing in the top of capital structures. As of March 31, '60 '4 percent of the investment portfolio at fair value was invested in first lien debt, 1% in second lien debt, 3% subordinated debt, 7% in preferred equity, 9% in equity and 16% across our joint ventures, including 10% in our international senior loan program and 6% in our senior loan program. As a reminder, the vast majority of the underlying investments within our joint venture structures are first lien loans.

[Michael Boyle, President & Director at Bain Capital Specialty Finance]

As of 03/31/2025, the weighted average yield of the investment portfolio at amortized cost and fair value was eleven point five percent and eleven point five percent respectively as compared to 11.711.8% respectively as of 12/31/2024. This decrease in yields was primarily driven by a decrease in reference rates as well as spreads across our portfolio. 93% of our debt investments bear interest at a floating rate positioning the company favorably in today's higher rate environment. Moving on to portfolio credit quality trends. Our credit fundamentals remained healthy.

[Michael Boyle, President & Director at Bain Capital Specialty Finance]

We saw largely stable trends within our internal risk rating scale quarter over quarter. Risk rating one and two investments comprised 95 of our portfolio as of March 31 indicating that these companies are performing in line or better than the expectations we set at our underwrite. Risk Rating three and four or underperforming investments comprised just 5% of our portfolio at fair value. Investments on non accrual represented 1.40.7% of the total investment portfolio at amortized cost and fair value respectively as of March 31. And this compares to 1.30.2% respectively as of December 31.

[Michael Boyle, President & Director at Bain Capital Specialty Finance]

I will also highlight that performance across our aggregate 100 plus companies within our underlying joint ventures continue to perform well consistent with our broader portfolio. I'll turn it now to Amit who will provide a more detailed financial review.

[Amit Joshi, Treasurer and SVP - Finance & CFO - Bain Capital Private Credit at Bain Capital Specialty Finance]

Thank you, Mike, and good morning, everyone. I'll start the review of our first quarter results with our income statement. Total investment income was 66,800,000.0 for the three months ended 03/31/2025 as compared to 73,300,000.0 for the three months ended 12/31/2024. The decrease in investment income was driven by decrease in average investment balance of the portfolio as a new origination funded towards the back half of the quarter, lower portfolio yields and decrease in other income. The quality of our investment income continues to be high as vast majority of our investment income is driven by contractual cash income across our investments.

[Amit Joshi, Treasurer and SVP - Finance & CFO - Bain Capital Private Credit at Bain Capital Specialty Finance]

Interest income and dividend income represented 96% of our total investment income in Q1. PIC income is also low at just under 10% of our overall investment income. Notably, the vast majority of our PIK income is derived from investments that were underwritten with PIK versus from amendment or restructured investments. Total expenses before taxes for the first quarter was 33,700,000.0 as compared to 38,400,000.0 in the fourth quarter. The decrease in expenses was primarily driven by lower incentive fee resulting from our three year look back feature on our incentive fee hurdle rate.

[Amit Joshi, Treasurer and SVP - Finance & CFO - Bain Capital Private Credit at Bain Capital Specialty Finance]

Net investment income for the quarter was 32,100,000.0 or 50¢ per share as compared to 33,600,000.0 or 52¢ per share for the prior quarter. During the three months ended 03/31/2025, the company had net realized and unrealized losses of 3,600,000.0. Net income for three months ended 03/31/2025 was 28,500,000.0 or $0.44 per share. Moving to our balance sheet. As of March 31, our investment portfolio at fair value totaled 2,500,000,000.0 and total assets of 2,600,000,000.0.

[Amit Joshi, Treasurer and SVP - Finance & CFO - Bain Capital Private Credit at Bain Capital Specialty Finance]

Total net assets were 1,100,000,000.0 as of March 31. NAV per share was $17.64 a slight decrease of 1¢ per share from $17.65 at the end of fourth quarter. In January, we issued $350,000,000 of unsecured notes maturing in March 2030 at a spread of 190 basis points. We swapped these notes to floating notes at SOFR plus 190 basis points, which is close to parity with our weighted average spread on our floating rate debt of 187.5 basis points. We believe our liability structure is well positioned in the current environment with no debt maturities this year.

[Amit Joshi, Treasurer and SVP - Finance & CFO - Bain Capital Private Credit at Bain Capital Specialty Finance]

Our unsecured note issuance during the first quarter position us well in advance of our first unsecured debt maturing in March of twenty twenty six. As of March 31, approximately 59% of our outstanding debt was in floating rate debt and 41% was in fixed rate debt. For the three months ended 03/31/2025, the weighted average interest rate on our debt outstanding was 4.8% as compared to 5.1% of the prior quarter end. The weighted average maturity across our total debt commitment was approximately four point two years at 03/31/2025. At the end of Q1, our debt to equity ratio was 1.27 times as compared to 1.22 times from the end of Q4.

[Amit Joshi, Treasurer and SVP - Finance & CFO - Bain Capital Private Credit at Bain Capital Specialty Finance]

Our net leverage ratio, which represent principal debt outstanding, less cash and unsettled rate was 1.17 times at the end of Q1 as compared to 1.13 times at the end of Q4. Liquidity at quarter end was strong totaling $823,000,000 including $699,000,000 of undrawn capacity on our revolver facility, 94,000,000 of cash and cash equivalent, including 55,600,000.0 of restricted cash and 30,300,000.0 of unsettled rate net of receivables and payables of investments. We currently estimate that our spillover income total approximately $1.41 per share representing over three times of our quarterly regular dividend. With that, I turn the call back over to Mike Ewald for the closing remarks.

[Michael Ewald, CEO & Director at Bain Capital Specialty Finance]

Thanks Amit and thank you Mike as well. In closing, we are pleased to deliver a strong start to the year for our shareholders with our Q1 twenty twenty five results. Looking ahead, we believe our portfolio and balance sheet are well positioned to navigate potentially increasing periods of liquidity ahead volatility ahead, excuse me. And our investment team is equipped with deep expertise having invested across multiple market cycles across our long term. We remain committed to delivering value for our shareholders by providing attractive returns on equity and prudently managing our shareholders' capital. Nikki, please open the line for questions. Thanks.

[Operator]

Thank you. And we'll take our first question from Paul Johnson with KBW. Please go ahead. Your line is open.

[Paul Johnson, Vice President at Keefe, Bruyette & Woods (KBW)]

Yes, thanks for taking my questions. Just on the later fundings that you mentioned in the quarter and the lower sort of interest income, I guess, over quarter, Is there any way to quantify that, I guess, in terms of like how much funded kind of late in the quarter and kind of when approximate timing?

[Michael Boyle, President & Director at Bain Capital Specialty Finance]

Sure. Thanks for the question Paul. So it was somewhat backdated in terms of new fundings. But what I would point you to is just the spread calculation and yield calculation across the entire portfolio. So we are still generating about an 11.5% yield across the book and new originations as you all noted in his remarks were made at about five forty basis points spread over base rates.

[Michael Boyle, President & Director at Bain Capital Specialty Finance]

So we do feel quite good that the earnings yield is still quite stable. But I do know your point that some of the fundings were back weighted into the quarter.

[Michael Ewald, CEO & Director at Bain Capital Specialty Finance]

And Paul, look, it's helpful too, that spread, the five forty plus that we had last quarter was down about 10 basis points over the prior quarter. So, decline, but certainly not what we have seen earlier.

[Paul Johnson, Vice President at Keefe, Bruyette & Woods (KBW)]

And that spread, is that just a straight coupon spread or does that include any kind of, you know, adjustment for like amortized income?

[Michael Boyle, President & Director at Bain Capital Specialty Finance]

Spread is just spread

[Michael Ewald, CEO & Director at Bain Capital Specialty Finance]

spread spread. Yeah.

[Michael Boyle, President & Director at Bain Capital Specialty Finance]

Yeah.

[Paul Johnson, Vice President at Keefe, Bruyette & Woods (KBW)]

Got it. Okay. Thanks.

[Amit Joshi, Treasurer and SVP - Finance & CFO - Bain Capital Private Credit at Bain Capital Specialty Finance]

I mean, on an average. Right?

[Paul Johnson, Vice President at Keefe, Bruyette & Woods (KBW)]

Got it. Okay. Thank you for that. And then maybe just kind of talking about or sorry, going into just the realized losses this quarter. Can you just kind of talk about, for example, forming machine industries, what was kind of the resolution there, if that's what drove the loss or if there was any other things in there that drove realized losses this quarter and how you're able to drive to such a quick solution there?

[Michael Boyle, President & Director at Bain Capital Specialty Finance]

Sure. Yes, we did have two names that were on non accrual that we exited in the quarter. Atlas which is at forming machine products as well as Aimbridge which was a second lien investment that we made. Both of them were situations where our restructuring teams worked with the company and other participants in the capital structure to drive to a resolution. And in both of those situations we either sold the position to another lender in the group or just completely exited that position with the sale of the company.

[Michael Boyle, President & Director at Bain Capital Specialty Finance]

So both of those were on had been on accrual for quite a reasonable period of time when we were doing work through the restructuring. And in both situations we feel like we optimized our value on the exit. In Atlas we were both in the first lien and second lien. And in Ambridge we were a second lien holder there. And both of those we did recover a reasonable value here over the life of the hold north of $0.50 across both of those investments.

[Michael Boyle, President & Director at Bain Capital Specialty Finance]

So it was the strong work of our restructuring team that did drive us to exit both of those investments here in the first quarter.

[Paul Johnson, Vice President at Keefe, Bruyette & Woods (KBW)]

Got it. And that's in exit mark, you know, $5.00, the recovery there, was that below the fourth quarter mark? Was there any sort of additional markdown from that? Or was that pretty much in line from last quarter?

[Michael Boyle, President & Director at Bain Capital Specialty Finance]

It was in line with last quarter's mark.

[Paul Johnson, Vice President at Keefe, Bruyette & Woods (KBW)]

Thank you very much. That's all for me.

[Michael Ewald, CEO & Director at Bain Capital Specialty Finance]

Thank you.

[Operator]

Thank you. We will move next with Finian O'Shea with Wells Fargo Securities. Please go ahead. Your line is open.

[Finian O'shea, Director, WFS Research at Wells Fargo Securities]

Hey, everyone. Good morning. I wanted to ask about the ATM. It looks like you tapped that in the quarter. Just seeing what your posture will be there, if this will sort of continue to dribble out as they say?

[Finian O'shea, Director, WFS Research at Wells Fargo Securities]

And if so, will you also be buying back stock below book going forward? Thanks.

[Michael Ewald, CEO & Director at Bain Capital Specialty Finance]

Thanks, Ben. Look, it is on the ATM first. It's meant to be opportunistic if it makes sense to tap it. Quick wrap issue, but as you certainly appreciate the entire, the entire IBD segment traded down right around the time that we announced it. So we did not end up tapping into that again.

[Michael Ewald, CEO & Director at Bain Capital Specialty Finance]

It is something that is open, it's available, but I think it's going be dependent on how we're trading. And on your question around buybacks, we do sell that program that we put in place, I guess, probably back four years ago now. It's something that we evaluate versus the alternative of continuing to use that capital, that equity capital to invest in the market. As you know, we haven't tapped that before, but that is something that is available to us if we think that that is the risk of capital.

[Finian O'shea, Director, WFS Research at Wells Fargo Securities]

Okay, thanks. Can you talk about dividend coverage and the SOFR curve like sort of what level would it be the next Fed cut or something more that would put you underneath?

[Amit Joshi, Treasurer and SVP - Finance & CFO - Bain Capital Private Credit at Bain Capital Specialty Finance]

I would say at this point, yeah, at this point based on our projection, right, and again, in an environment where we believe rates will continue to stay higher, we don't see in foreseeable future that we need to revisit our current dividend as we have highlighted. Our regular dividend is $0.42 and we have been declaring an additional supplemental dividend. So, we don't foresee in near term any need for us to revisit our dividend. At the same time, as we highlighted, we do have good amount of spillover income as well, we'll continue to evaluate as we look at our dividend policy.

[Finian O'shea, Director, WFS Research at Wells Fargo Securities]

Okay, thanks so much.

[Operator]

Thank you. And once again, that is star and one for your questions. And there appear to be no further questions at this time. I will turn the call back to management for closing remarks. Oh, actually, yeah, we are showing another question comes from the line of Derek Hewitt with Bank of America. Please go ahead.

[Derek Hewett, Analyst at Bank of America]

Good morning, everyone. Just a question on the look back. If the if credit kind of stabilizes at current levels, when should the full incentive fee kick back in? Will it be in second quarter or will it be sometime later? Thank you.

[Amit Joshi, Treasurer and SVP - Finance & CFO - Bain Capital Private Credit at Bain Capital Specialty Finance]

We do expect that from second quarter onwards, it should stabilize. There are some nuances with look back because there is a payment component too. So, it does create some volatility in future as well. But we do expect that significant amount of impact around COVID and all has already been accounted for. So, we do expect from Q2, it should be more stabilized.

[Derek Hewett, Analyst at Bank of America]

Okay. Thank you.

[Operator]

Thank you. And it appears that we have no further questions at this time. I will turn the call back to management for closing or additional remarks.

[Michael Ewald, CEO & Director at Bain Capital Specialty Finance]

Thanks a lot, Nikki, and thanks again to everyone on the phone for your time and attention today. We look forward to speaking with you again next quarter. Thanks.

[Operator]

And this does conclude today's program. Thank you for your participation. You may disconnect at any time.

Participants

Executives

• Katherine Schneider, Managing Director - Investor Relations
• Michael Ewald, CEO & Director
• Michael Boyle, President & Director
• Amit Joshi, Treasurer and SVP - Finance & CFO - Bain Capital Private Credit

Analysts

• Paul Johnson, Vice President at Keefe, Bruyette & Woods (KBW)
• Finian O'shea, Director, WFS Research at Wells Fargo Securities
• Derek Hewett, Analyst at Bank of America