Bain could put off BDC IPO – exclusive

The firm had been planning to raise up to $100m from the offering, which would have seen the BDC listed on the New York Stock Exchange, to pay off debt and fund investment activities.

The initial public offering for Bain Capital’s business development company has been a tough sell and could be put off, according to sources familiar with the situation.

Should the IPO proceed, the Boston-based mid-market lender may need to sell stock below the net asset value per share of its BDC, Bain Capital Specialty Finance, people with knowledge of the matter told Private Debt Investor. Several of the sources cited current market conditions as a factor, while others said yield was a factor. The deal has yet to be priced.

The firm declined to comment.

The alternative lender planned to lock down up to $100 million from the offering, according to Securities and Exchange Commission filings. The firm would list on the New York Stock Exchange under the ticker BCSF. It had planned to use the proceeds to pay off debt and use any remaining proceeds for investment activities.

As of 30 September, BCSF reported $1.56 billion in assets. Its NAV per share has largely stayed constant, according to the database LPC BDC Collateral. The vehicle reported that figure at $20.17 per share at the end of the third quarter, and was $20.33 at the same time last year. The firm’s return on NAV is 4.91 percent.

After an IPO, the manager would charge a 17.5 percent incentive fee over a 6 percent hurdle rate with a three-year look-back, which would cap the BDC’s performance fees. The management fee would be 1.5 percent; a fee waiver has been in place while the vehicle is private, charging an effective rate of 0.75 percent.

In addition, BCSF had planned to seek approval from both its board and shareholders post-IPO to increase its leverage capacity from its current 1:1 debt-to-equity ratio to 2:1, the latter being the current statutory maximum following a new law enacted by the US government in March. If BCSF won approval, it planned to charge a 1 percent management fee on levered funds in excess of the 1:1 level.

BDC IPOs have been relatively scarce in recent years, with The Carlyle Group’s TCG BDC ending a two-year drought in June 2017. KKR listed on the NYSE in November but did not conduct an offering at the time.

The Bain BDC itself has garnered substantial capital from investors, collecting some $1.63 billion from 3,153 investors, according to a Wednesday SEC filing. UBS Financial Services and CAIS Capital are working as placement agents for the fundraise.

Bain launched BCSF in October 2016, finally joining the crowd of alternative asset management behemoths with BDCs. A source familiar with the situation said at the time that Bain had launched the BDC in order to access two classes of investors: offshore investors looking to access mid-market direct lending while avoiding commingled funds for regulatory reasons; and onshore tax-exempt investors limited by the use of leverage at the fund level.