Bain BDC: Credit quality strong, markdowns due to volatility

The business development company had the strong portfolio origination and consistent yields, despite taking a hit to its NAV per share.

Bain Capital Specialty Finance (BCSF) said in its debut earnings report as a publicly traded entity that it is pleased with the shape of its loan book, despite turmoil in the broadly syndicated loan market bringing down its net asset value per share.

Boston-based BCSF listed on the New York Stock Exchange on 15 November and posted a strong quarter for originations and portfolio quality. The success was dampened though by turmoil in the broadly-syndicated loan market late in the fourth quarter.

Michael Ewald, managing director and global head of Bain Capital’s private credit group and chief executive officer of BCSF, had positive things to say about the BDC’s results.

The vehicle posted a $0.71-per-share decline in its NAV per share, going from $20.17 at the end of the third quarter to $19.46 at the end of the fourth quarter. Ewald said this can mainly be attributed to the fourth-quarter turbulence.

“[Toward the end of the year], broadly syndicated loan prices moved down, which [might] imply the prices for the mid-market loans should move down as well,” Ewald told Private Debt Investor. “[So], the markdown of the net asset value was not due to any sort of credit issues.”

Ewald clarified that the decline was not caused by the portfolio quality, as the portfolio ended the quarter with no loans on nonaccrual status and with 98.5 percent at or above underwriting expectations, according to the firm’s annual report.

“The [year-end] decrease you saw in prices reversed themselves pretty quickly in January,” Ewald said.

The vehicle had a strong quarter for origination, with more than $409 million being deployed, up from more than $278 million for the three months ending 30 September. The vehicle now has more than $1.79 billion in total assets.

The portfolio comprises 79 percent first-lien loans, 16 percent in its unitranche-providing joint venture with Antares Capital, 15 percent second-lien loans, 2 percent corporate bonds, 2 percent equity, 2 percent subordinated debt and less than 1 percent preferred equity. More than 95 percent of the loans portfolio is floating rate.

The portfolio had a weighted average portfolio yield of 8.7 percent, which was consistent from the end of the third quarter, and up from 8.2 percent at the end of 2017.  The net investment income was $0.41 per share, which is up from the third quarter’s $0.33 and the $0.19 at end of 2017. The firm’s earnings per share stood at a $0.21-a-share loss, after accounting for portfolio markdowns.

“Generally speaking, we felt good about how the quarter ended up,” Ewald said.

The BDC also had its shareholders vote at a meeting in February to increase its allowable leverage from a 1:1 debt-to-equity ratio to 2:1.

BCSF was formed in 2016 and is a subsidiary of Bain Capital Credit. Bain Capital Credit is based in Boston and has more than $41 billion in assets under management.