Kayne Anderson BDC, Inc. Q4 FY2025 earnings call

Key Points - Ken Leonard: Gave overview of fourth quarter results, discussed direct lending market conditions, highlighted value lending strategy and portfolio well-positioned to weather headwinds. - Frank Carl: Provided detailed portfolio and performance overview, talked about portfolio composition, credit performance, and investment activity. - Terry Hart: Concluded with financial results, discussed net investment income, expenses, net asset value, debt-to-equity ratio, distributions, and initiatives to maximize earnings in 2026 such as rotating out of lower yielding positions, optimizing leverage, and reducing borrowing costs.

For the fourth quarter, net investment income was 44 cents per share, an increase from 43 cents per share in the third quarter. Annualized return on equity was 10.8%. Asset value per share was $16.32 at quarter end. Dividend coverage ratio was 110%. Portfolio had 1.4% of investments in non-accrual status. Weighted average yield on income-producing investments was approximately 10.3%. 93% of portfolio was senior secured debt. Portfolio consisted of 107 companies with total fair market value of $2.2 billion. 95.7% of debt investments were floating rate. Weighted average borrower net leverage was 4.5 times. Non-accrual levels were 1.4% of total debt investments, flat quarter over quarter.

Forward-Looking Statements - Expect to be able to pay the 40 cent dividend for the entirety of 2026. - Plan to complete rotation out of remaining lower yielding BSL positions to redeploy into higher yielding direct lending opportunities. - Intend to gradually optimize leverage within target debt to equity range of one to one and a quarter times. - Continue to work with banking partners to reduce borrowing costs, e.g., announced term extension and interest rate reduction on a credit facility.

Risk Discussion - Current public BDC valuations not in line with strong fundamentals. - Potential for prolonged AI software dislocation making capital tougher to raise in private credit. - Perception of undisciplined underwriting causing potential for increased losses in upper middle market, which may lead to spreads widening. - Consumer-related stress affecting some companies on watch list. - Management missteps in some companies that need correction with sponsors and management teams.

Q: In regards to NII for this quarter, how much was estimated to be impacted by Fed recuts and how much expected in first quarter?

A: Doug Goodwilly said Fed rate cuts had partial impact in fourth quarter, full impact expected in first quarter, with offsetting factors like rotations out of BSLs and full quarter impact of SG credit. ### Q: Talk about opportunities to take advantage as other BDCs deal with credit issues related to software companies?

A: Doug Goodwilly said when BDCs have large software portfolios, it takes time for restructures, allowing others with less stress to put more capital to work. ### Q: Updated outlook on targeted portfolio ramp timeframe and range?

A: Frank said total deployment was effectively flat, working out of broadly syndicated book, repurchase program active, expecting progression over next couple of quarters, likely remaining in 1 to 1.2 range. ### Q: Investments on current watch lists and stress areas?

A: Doug said no software company investments on watch list, less than 10% of portfolio on watch list, five credits on non-accrual, stress on consumer and management missteps. ### Q: Repayment outlook and overlap with underperformers?

A: Frank said no concentration of names on watch list in 26 maturities. ### Q: GNA expense specifics and future change?

A: Terry said agreements allow passing through costs like administration and fund accounting, currently low G&A cost, will be mindful of G&A related to coverage and dividend policy. ### Q: Supply chain risk in portfolio?

A: Frank said majority of supply chain from U.S., portfolio performed well through inflation and tariffs, expecting more of the same. ### Q: Remaining BSL rotation and selling out for new originations?

A: Doug said only a handful of BSL names left, actively exiting, and not at point of needing to sell at loss given size of book versus funding new private credit assets