BCP Investment Corporation (BCIC) Earnings

Management highlights

2025 was an important year of execution. Key actions from the Logan Ridge merger were in place, including rebranding, tender offer, share repurchase program, transition to monthly dividends. During the quarter, total investment income and core investment income grew. Generated net investment income of $6.9 million, or $0.55 per share, exceeded base distribution. Share repurchase activity in Q1 2026 accreted to NAV by $0.07 per share. Credit performance improved. Board declared a supplemental cash distribution of 3 cents per share for Q2, total Q2 distributions to 30 cents per share. Approved Q3 2026 base distribution of 27 cents per share. Enhanced capital structure through liability management, issued $50 million of 7.5% notes due 2029 and redeemed $40 million of LFRC 5.25% notes due 2026. Net asset value declined due to unrealized markdowns on portfolio, but underlying credit performance remained relatively stable. Focused on lower middle market, prioritizing credit quality, strong documentation, and downside protection.

Guidance

Remain focused on active portfolio management, discipline underwriting, and prudent capital allocation. Expect to capitalize on M&A opportunities in pipeline throughout remainder of 2026. Monthly dividend structure in place provides regular cash distributions with flexibility for supplemental distributions. Debt portfolio implies approximately $2.24 per share of incremental NAV value, or a 14.4% increase as it rotates.

Segment performance

During the first quarter, the company generated net investment income of $6.9 million, or $0.55 per share, which exceeded the base distribution. Total investment income and core investment income grew compared to the prior quarter and first quarter of 2025. Non-accruals declined to 6.2% of the portfolio amortized costs from 7.1% in the prior quarter, and the number of portfolio companies on non-accrual decreased from 10 to 9. Net asset value declined during the quarter, primarily driven by unrealized markdowns on the portfolio. Approximately 40% of the quarter's unrealized markdowns were attributable to investments classified as software, and approximately 70% when including software or AI exposed names. 70% of these markdowns were from portfolio investments without at least one publicly quoted security.

Risks & headwinds

Unrealized markdowns primarily reflect sector-specific valuation pressure and broader mid-market dislocation rather than fundamental credit deterioration. Macroeconomic uncertainty and volatility in portions of the software market. Competition more pronounced in larger and more commoditized transactions. 70% of markdowns from portfolio investments without at least one publicly quoted security negatively impacted valuation of all securities in the capital structure.

Analyst Q&A

• Q: Good morning, guys. I wanted to start with a question on the unrealized depreciation. You mentioned if you include software-exposed, about 70% of the unrealized depreciation was driven by software and software-exposed. I'm curious if you could talk a little bit more in depth about which particular inputs to your valuation models drove the valuation change. I guess I'm just curious, you know, if you look at what, you know, public equity markets have done in April and early May here, we've certainly seen, you know, a rebound there and curious if that may have, you know, things are to stay that way, if we potentially see a little bit of unwinding of that depreciation that you experienced in 1Q.

  A: Yeah, Eric, can you hear us? Yes, I can. Okay. Sorry, we're having some issues with our phone here. So, yeah, to take questions, a couple of different steps. Like as an example, one of the names sort of within that unrealized is like a healthcare kind of data analytics business. And it's a third-party valuation that's done on it. But one of the inputs, because we own some amount of the overall exposure that we have in the company, is an equity security company. And so the third party evaluation firm looked at comps in the space and the comp set that they use is sort of healthcare IT type comparables. And so between December 31st and March 31st, the multiples for that sector and the multiples kind of for the comp set declined. And so, you know, the multiple compressed by, I want to say like three quarters of a term. And so that kind of drove some of the unrealized. So it's your points. I think, again, assuming some of that stuff rebounds or kind of rebounds by the time we get to 630, you would expect some of that to return. I would say, though, the biggest impact broadly within sort of both software and software exposed is really where there is a public security in the capital structure. So we'll either... We either own a first lien that is quoted and so we mark to market and maybe not obviously, but obviously the BSL market has been very challenged for software in the quarter through March. And so a lot of that movement is priced on that security. But another example would be if we have a second lien non-quoted security or a private security, If there is a first lien in the capital structure that is also quoted, generally speaking, kind of our valuation firms use a relative value approach when valuing the rest of the capital structure. So the markdown in the first lien, even though it's just kind of a quoted mark, also has an impact and pushes out our discount rate kind of applied to other securities in the capital structure.

• Q: And then you noted a couple of the – kind of the funding changes you made with some of the redemptions, the new issues, and just curious if you could kind of refresh me on your targeted leverage range at this point, and if there's any other kind of, you know, leverage you have to pull to, you know, reach that target if you're not there today.

  A: Yeah, it's Patrick again, and branding can, I'll talk about the targets and if there's anything more specific branding can kind of talk about the individual inputs, but Our target range remains sort of one and a quarter to 1.4 times leverage on a net basis. We're sort of at the high end of that. But as you kind of saw in Q1, we think there is still a pretty robust or a pretty ordinary course in kind of normal market condition M&A environment. So we would expect just kind of to have a little bit of natural de-levering as a couple of deals that sort of we know are in the process of sort of being refinanced out. and we're kind of comfortable getting taken out of those names and don't want to kind of continue on with those portfolio companies, kind of as that sort of naturally rotates in Q2, you know, you'd kind of expect to see that. So we don't think there's any real leverage specifically we need to pull on the liability side. It's just going to kind of be naturally the portfolio journey. Yeah, that's right. Last one. Yeah, go ahead, Brendan. I was just going to say, Eric, it obviously spiked a little bit at quarter end as a result of the broader market volatility and some of the unrealized depreciation that we had to take because of the software sell-off. Yes, yep, understood. And last one, I think it was Ted in your comments, you mentioned some optimism around the pipeline as you look at it today and I'm wondering if you could talk a little bit just maybe on two points. One, what you're seeing in terms of spreads today for new opportunities relative to the existing portfolio yield and also just from a kind of industry and sector perspective, if there's any particular areas of opportunity that you feel are more attractive today. A: Yeah, good question. I would say on the sector-specific stuff, we're actually really, as a firm, very focused on sector specialization. But I wouldn't say there's any broad theme, you know, like in the last, I would say the market's definitely slowed the last couple of weeks, given some of the volatility. And we're seeing spreads wider actually in middle market credit. So we probably had like 50 basis points of spread widening. And obviously we haven't, you know, that's not what you're seeing in the liquid markets. It's like the opposite. So like the high yield market's tighter today than where it was pre-Iran. But, you know, I think there's a lot. I think the bar for new investments has gone up in the industry, like in private credit. And I think people are kind of like thinking about capital optimization. So I think we're pretty optimistic that spreads will either go wide or stay relatively where they are. Thanks for taking my question today. Thanks.

• Q: Hey, guys. On the software exposure, that's the BDC's second largest industry exposure. And I note that fair value is now 75% of cost for that sector versus 82% last quarter. And if you're using outside valuation firms for this, does this simply reflect M&A events happening in software where people are just trying to run for the exits in an M&A?

  A: The way I describe the software situation is there's a huge dichotomy for where private credit players are valued and where private equity is valued. So if you look at where private equity is carrying certain of these assets, it implies a very, very low... I'm speaking purely valuation-wise. It shows a very, very big buffer in terms of downside protection. Now, again, I would probably estimate a lot of those valuations will have to come down. The reason you're seeing a dichotomy across private credit players and software and valuations is it's what Patrick mentioned earlier. The liquid markets have been very punitive on software, and a lot of it's to do with risk around LME and things that don't really impact... you know, don't come into play in a private credit situation. So we had certain securities that are illiquid that we originated, but they happen to have a security in the capital structures that's liquid. And so when that happens, you see a huge dichotomy in valuations between capital structures that are a hundred percent private versus those that have a little bit of liquid securities in them. So again, fundamentally, I mean, our software portfolio is performing very well. Like it's, you know, Revenues are up, generating cash. And again, I'm not saying there's not going to be issues. The biggest problem that we see is two things. One is access to credit. So who's going to refinance all this stuff? Because most people have come out and are trying to reduce software exposure. And then number two is no exits. It's going to be a very difficult exit environment for these companies. And so it's probably going to reduce the velocity of our book in that sector. I just don't see a big wave of software sales over the next 12 months. Yeah, now it actually raises the interesting question. If this is a potential, and I highlight potential, stress point in private credit, what does that mean for the private equity sector in general? Because if private credit gets a cold, private equity is getting pneumonia. Yeah, yeah. All right. Catch up with you later. Thanks.