Barings BDC, Inc. Q3 FY2025 earnings call

Leadership Transition

• Effective January 1, 2026, Tom McDonnell will succeed Eric Lloyd as Chief Executive Officer of Barings BDC. Eric will continue as Executive Chairman of the Board of BBDC and President of Barings LLC.

Third Quarter Results

• BBDC delivered strong net investment income with excellent credit performance in the Barings originated portion of the portfolio. Net deployment was influenced by fund-level leverage with net repayments in the third quarter consistent with prior guidance.
• Actively maximizing value in legacy holdings acquired from MVC Capital and Sierra, seeking to divest at attractive valuations. Barings originated positions now make up 95% of the portfolio at fair value.
• Weighted average yield at fair value was 9.9%, slightly reduced from prior quarter due to base rate reduction. Fourth quarter dividend of $0.26 per share declared.

Market and Portfolio Commentary

• Matt Freund discussed that BBDC has no exposure to First Brands, Tricolor, and Broadband Telecom, and core issues of recent bankruptcies relate more to factoring facilities. Remaining consistent with the manager strategy is paramount in private credit platforms.
• Current M&A environment shows sequential improvement quarter-on-quarter, with BBDC focusing on core middle market. Anticipate measured increase in deployment opportunities favoring scaled franchises like BBDC.
• Elizabeth Murray discussed NAV per share movement, net investment income, net leverage ratio at 1.26x, sold $90 million of assets to Jocassee, issued $300 million of senior unsecured notes, and repaid $62.5 million of private placement notes post-quarter end.

Net asset value per share was $11.10. Net investment income for the quarter was $0.32 per share compared to $0.28 per share in the second quarter. Barings originated positions now make up 95% of the BBDC portfolio at fair value, up from 76% at the beginning of 2022. The weighted average yield at fair value was 9.9%. The Board declared a fourth quarter dividend of $0.26 per share, which on an annualized basis equates to a 9.4% yield on the net asset value of $11.10.

Forward-Looking Guidance

• Anticipate continued sales to Jocassee and additional portfolio repayments at year-end.
• Expect a measured increase in deployment opportunities in the balance of 2025 and into 2026, favoring scaled franchises like BBDC.
• Remain focused on trends in base rates and interest rate spreads. Net investment income covered dividends, and the dividend is expected to remain stable.

Risks

• Forward-looking statements subject to uncertainties and risks, including those disclosed in the company's quarterly report on Form 10-Q. Actual results could differ materially from projected forward-looking statements. Market volatility, interest rate changes, and credit risks are potential uncertainties.

Q: With repayment activity elevated this quarter as base rates come down and with the second Fed cut in October, do you expect to see repayments remain at 3Q levels? Or are you seeing any sort of moderation there?

A: Yes. A meaningful percentage of the repayment activity is sales to the joint venture within BBDC. Anticipate a moderate uptick in repayment velocity to end the year, but not a meaningful needle mover in the context of deployed capital within BBDC as a fund.

Q: Historically, you've had $86 million in share buybacks, so they've slowed in recent quarters. With the recent contraction in industry multiples across the board? Are there any plans to ramp up buybacks while your stock is trading at such a discount?

A: It's something that we consistently evaluate. Over the past quarter, we were more restricted in being actively in the market, so we weren't able to fully utilize the share buyback program as approved by the Board. It's something we consistently evaluate and likely to see some degree of activity in the quarters to come.