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Operator: At this time, I’d like to welcome everyone to the Barings BDC Inc. Conference Call for the Quarter Ended March 31, 2025. All participants are in a listen-only mode. A question-and-answer session will follow the company’s formal remarks. [Operator Instructions]. Today’s call is being recorded and a replay will be available approximately two hours after the conclusion of the call on the company’s website at www.baringsbdc.com, under the Investor Relations section. At this time, I’ll turn the call over to Joe Mazzoli, Head of Investor Relations for Barings BDC. Please go ahead, Joe.

Joe Mazzoli: Good morning, and thank you for joining today’s call. Please note that this call may contain forward-looking statements that include statements regarding the company’s goals, beliefs, strategies, future operating results, and cash flows. Although the company believes these statements are reasonable, actual results could differ materially from those projected in forward-looking statements. These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled Risk Factors and Forward-Looking Statements in the company’s quarterly report on Form 10-Q for the quarter ended March 31, 2025, as filed with the Securities and Exchange Commission. Barings BDC undertakes no obligation to update or revise any forward-looking statements, unless required by law. I will now turn the call over to Eric Lloyd, Chief Executive Officer of Barings BDC.

Eric Lloyd: Thanks, Joe, and good morning, everyone. We appreciate you joining us for today’s call. Please note that throughout today’s call, we’ll be referring to our first quarter 2025 earnings presentation that is posted on the Investor Relations section of our website. On the call today, I’m joined by Barings BDC’s President, Matt Freund; Chief Financial Officer, Elizabeth Murray; and Barings’ Head of Global Private Finance and BBDC Portfolio Manager, Bryan High. In the first quarter, BBDC delivered another strong and consistent set of results, fueled by leading credit performance and supported by the scale and stability of our franchise. The uptick in origination activity that we noted during the fourth quarter continued into the first three months of 2025, with net originations of more than $100 million during the period.

Strong deployment combined with a benign credit environment and our focus on the top of the capital structure investments and middle market issuers combined to serve our investors well. Our focus on the core of the middle market is driven by the sector’s low leverage levels and more attractive risk-adjusted returns, which is why we find this to be the best segment of the market for BBDC and our shareholders. Further, we have strong alignment with the broader Barings LLC ecosystem, focusing on sectors that will perform with resilience across economic environments. This combination of senior secured financing solutions, core middle market focus, and defensive non-cyclical sectors worldwide offers our investors strong relative value and portfolio differentiation compared to the broader BBDC sector.

Consistent with how we have defined our strategy in the past discussions, our portfolio strategy is outlined in greater detail on Slide 5, and we continue to successfully invest throughout the market and deliver compelling returns to our shareholders. As you will have seen in our press release, the Board of BBDC has accepted a proposal from Barings LLC to terminate the Credit Support Agreement related to the MVC capital transaction for the maximum consideration of $23 million. We have outlined some of the key benefits of this transaction on Slide 14. Our manager’s proactive measure to settle this obligation is another clear demonstration of their and our alignment with fellow BBDC shareholders and our focus on simplifying the portfolio. The payment to settle the CSA will be made from Barings to BBDC during the second quarter and will be available for deployment into attractive income-producing private credit opportunities immediately, demonstrating the accretive nature of this transaction.

In short, this move will rotate capital into income-producing investments and enhance the core earnings power of our portfolio. As Matt will touch on in a moment, we believe that volatility is on the horizon, and as such, we believe BBDC shareholders should be more focused on alignment with their investment advisor more than ever before. Private credit managers have proliferated over the recent years. In our view, we have very strong economic alignment. Our ownership structure is unequal to the asset management ecosystem. We are anchored by patient, long-term capital that has seen this industry grow for decades, and we have built portfolios that can weather a variety of economic cycles because of our long-term horizon and experience across multiple decades.

Additionally, we are proud of the fact that BBDC has the highest hurdle rate of any listed BDC, demonstrating that we hold ourselves to a high standard in terms of delivering value to shareholders. Barings is a $440 billion credit-focused asset management franchise. Credit is not simply a vertical at Barings, it is a specialty, and we have developed an expertise across countless strategies. We believe our focus on credit, with scale and track record that outstrips the broader BDC landscape, will deliver superior and consistent risk-adjusted returns for shareholders. Turning to our expectations for deployment in the current environment, we articulated during the first quarter that the pace of buyout opportunities was subject to a number of variables that were difficult to predict.

As we move further into 2025, we will take the opportunity to reiterate that forecasting origination activity in the current environment is more of an art than science. We continue to selectively underwrite new opportunities, but we anticipate a reduction in transaction activity during the second quarter compared to strong deployment experience during the early part of 2025. Add-on transactions will remain a compelling way for private equity firms to enhance the value of portfolio companies and allow Barings to deploy capital into those companies we already know. Additionally, our strategic investments in Rocade and Eclipse offer us consistent, differentiated credit exposure across a range of verticals beyond our sponsor-backed corporate lending.

Turning to BBDC’s financial performance in the quarter, net asset value per share was $11.29, unchanged compared to prior quarter, an attestment to the portfolio’s stability. Net investment income for the quarter was $0.25 per share. Now digging a bit deeper into the portfolio, we continue to actively maximize the value in legacy holdings acquired from MVC Capital and Sierra. We are seeking to divest these assets at attractive valuations as we did in the first quarter. As of quarter end, Barings’ originating positions now make up 94% of the BBDC portfolio at fair value, up from 76% at the beginning of 2022. Our investment portfolio performed well in the first quarter, with non-accrual rate of 60 basis points at fair value as of March 31st, well below industry averages and comfortably below our long-term expectations.

There is no substitute for fundamental credit analysis, which has always been at the core of our investment philosophy and is reflected in the health of the BBDC portfolio today. Turning to the earnings power of the portfolio, the weighted average yield at fair value was 10.1%, down from 10.4% during the prior quarter. The decline in yield is predominantly a function of reductions in reference rates within the portfolio and to a lesser extent re-pricing activity that occurred during the period. Our board declared a second quarter dividend of $0.26 per share, consistent with the prior quarter. On an annualized basis, the dividend level equates to a 9.2% yield on our net asset value of $11.29. As we have previously announced, our board declared $0.15 of supplemental dividends that will be paid in three quarterly installments during the calendar year of 2025.

Taken together with our regularly scheduled base dividends, the dividend level equates to an 11% yield based on March’s net asset value. We believe our portfolio is on strong footing and we’re advancing our strategic imperatives. As Matt will cover momentarily, BBDC is well positioned to navigate the current market volatility and deliver consistent risk-adjusted returns in the quarters ahead. I’ll now turn the call over to Matt.

Matt Freund: Thanks, Eric. I’d like to start by discussing how the macroeconomic landscape is currently impacting our issuer base and how we have worked to understand and triage anticipated challenges. Following the presidential inauguration, our team began analyzing the impacts of prospective tariffs should the administration choose to pursue them. Recall that we lived this journey during 2020 and anticipated some degree of tariff impact in light of the rhetoric during the 2024 election cycle. In mid-February, we reached out to nearly 200 issuers within the portfolio to understand how prospective tariffs would impact their businesses. The takeaways at that time suggested that issuers that we defined as having, quote, a high impact consisted of less than 5% of the portfolio.

Perhaps not surprisingly, the issuers which presented the largest concern operated in industries such as manufacturing, industrial technologies and international sourcing. Following April 2nd, we again engaged the issuer base, most of whom we had remained in active dialogues with and determined that the initial indications on risk were directionally accurate, but the secondary levels of impact were of greater concern, given the broad nature of the initial policy measures that were rolled out. Specifically, issuers across a host of industries expressed the possibility that a meaningful amount of downstream impact related to tariffs were possible, but were difficult to assign a probability. Taking a step back, what we ultimately learned in speaking with the issuers on this topic was that the tariffs in and of themselves do not pose the greatest concern to the majority of our borrowers.

More than 80% of the issuer base is providing services, domestic sourcing and other businesses generating the majority of their revenues from non-tariff impacted industries. The most direct consequence rather, of the current trade discussions has resulted in an effective freeze on the decision-making within the issuer community. Hiring, capital investments, and sales efforts are at the core of commerce and all require a reasonable degree of visibility regarding the near to intermediate landscape for companies to make decisions with confidence. The management teams we have spoken to do not have any degree of visibility at this time, the consequence of which has been a reticence to commit to spending plans. Instead, we are seeing management teams settle in for what could be a protracted period of uncertainty and move into defensive positioning.

As a result, we have heard that hiring plans have been put on hold, not canceled and the same is true of capital investments. We anticipate the intermediate term impact of trade uncertainty will begin to surface later this year. Over the course of the past five years, a period which includes COVID, bank failures, supply chain challenges and a significant rise in interest rates, we have observed that macroeconomic events have not historically produced widespread defaults. Rather, idiosyncratic risk unique to specific issuers has created the biggest challenge. Failed acquisitions, poor management teams, and botched ERP implementations have been responsible for more underperformance in our portfolio than exogenous factors. We underwrite every transaction as though we will experience a recession during our hold period and are encouraged about the positioning of the portfolio today.

For this reason, we are comforted by our current non-accrual percentage among the strongest in the sector, small component of PIC, again, leading in the industry, and a very small number of risk-rated 5 issuers within the BBVP portfolio. We anticipate some disruption in the direct lending space, and we are keeping a vigilant eye on opportunities that this dislocation may present. Turning to an overview of our current portfolio, 74% consists of secured investments, with approximately 71% of investments constituting first lien securities. Interest coverage within the portfolio remains strong, with weighted average interest coverage this quarter at 2.4 times, above industry averages, and slightly ahead of the prior quarter. We believe strong interest coverage demonstrates the merits of our approach of focusing on leading companies in defensive sectors and thoroughly underwriting their ability to weather a range of economic conditions.

The portfolio composition remains highly diversified, with the top 10 issuers accounting for 23% of fair market value. The top two positions within the portfolio, Eclipse Business Capital and Recade Holdings, are strategic platform investments that provide BBDC shareholders with access to differentiated, compelling opportunities to invest in asset-backed loans and litigation funding solutions, two specialized areas that we believe will provide attractive total return and diversification benefits. Turning to portfolio quality, risk ratings exhibited positive movement during the quarter, as our issuers exhibiting the most stress, classified as risk ratings 4 and 5, were 8% on a combined basis quarter over quarter, compared to 11% in the immediately preceding quarter.

The improvement in the underlying risk ratings was driven by upgrades to certain issuers that had been experiencing temporary performance challenges. We believe that our risk rating metrics continue to provide indicative guidance on the health of the portfolio in the quarters to come. Non-accruals accounted for 0.6% of assets on a fair value basis and 1.8% on a cost basis, which we believe is one of the lowest levels of non-accruals in the industry. We remain confident in the credit quality of the underlying portfolio. We expect BBDC’s differentiated reach and scale, coupled with its core focus on middle market credit and a focus on shareholders, will continue to drive positive outcomes in the quarters and years to come. The BBDC portfolio is a through-the-cycle portfolio, designed to withstand a variety of economic environments and prevailing interest rate levels.

To this end, BBDC was structured to align both fees and credit performance hurdles with shareholders. I’ll now turn the call over to Elizabeth.

Elizabeth Murray: Thanks, Matt. As Eric and Matt have said, BBDC is performing well and demonstrating solid core earnings power of our portfolio while preserving leading credit quality and generating attractive yield for our fellow shareholders. We are especially excited about the coming increases to that earnings power as we are able to rotate more of our assets into income-producing investments with the early termination of the NBC CSA, which I’ll discuss further shortly. On slide 16, you can see the full bridge of the NAV per share movement in the first quarter. NAV per share was $11.29 as of March 31st, which is flat quarter over quarter. Net unreliable depreciation on investments, credit support agreements, and foreign exchange was $0.07.

This is partially offset by net realized losses on the portfolio and FX of $0.01 per share. The net realized loss on the portfolio was predominantly due to the exit of Legal Solutions, NBC’s PE Fund, and RONDA, which were offset by the reversal of unreliable depreciation. The valuation of the credit support agreements increased by approximately $4.4 million. The fair value of the Sierra CSA increased from $44.2 million in the fourth quarter to $44.8 million as of March 31st. During the first quarter, the Sierra portfolio had sales and repayments of approximately $21 million and had 20 positions remaining in the portfolio, down from 23 positions as of December 31st. The fair value of the NBC CSA increased from $19.3 million in the fourth quarter to $23 million in the first quarter due to the expected termination in the second quarter.

We generated net investment income of $0.25 per share for the quarter compared to $0.28 per share in the prior quarter and $0.28 per share for the first quarter of 2024. Our investment income in the quarter was predominantly impacted by lower weighted average yield and origination activity more heavily weighted at the end of the quarter. Despite lower NII in the quarter, we advanced our efforts to defensively position the portfolio for the current investment landscape. In Q1, we had net originations of over $100 million, rotated out of over $20 million of the Sierra portfolio, exited two NBC assets, and returned $3 million of our non-core JVs, Thompson Rivers and Waccamaw. We will continue to divest from Sierra and NBC assets opportunistically in the quarters ahead.

Our net leverage ratio, which is defined as regulatory leverage net unrestricted cash and net unsettled transactions, was 1.24 times at quarter end, up slightly from 1.16 times in the quarter ended December 31st, which is in the range of our long-term target of 0.9 to 1.25 times. Currently, we have approximately $420 million of investable dry powder, which provides ample capacity to seize opportunities and pursue attractive deployments in the quarters to come. More broadly, our funding mix remains well structured and well aligned with our strategic approach to asset liability management. Our liabilities are well diversified in terms of duration, seniority, and structure, with an industry-leading percentage of unsecured debt in our capital structure.

Specifically, at March 31st, our unsecured debt accounted for approximately $1 billion of our funding and equated to approximately 70% of our outstanding balances. Now on to capital allocation. As mentioned earlier, the board declared a second quarter dividend of $0.26 per share and a special dividend of $0.05, totaling $0.31 per share. This equates to an 11% distribution yield on NAV and is consistent with the prior quarter. In the first and second quarter, we are paying out a portion of the spillover income we had generated over the past year as part of the dividend. Our board assesses dividend coverage on an annual basis and at this time is confident in the core earnings power of our portfolio. The board is always evaluating our capital allocation strategy and knows the importance of consistency when considering our long-term dividend strategy.

On March 1st, 2025, we commenced our share repurchase program. Our board authorized BBDC to buy back $30 million of stock over the subsequent 12 months. In the first quarter, we repurchased 150,000 shares. This capital allocation initiative is an example of our focus on delivering value for our shareholders and further advancing shareholder alignment overall as well as our confidence in BBDC’s portfolio and view it as an extremely compelling investment at a discount to NAB. As Eric laid out, we are very focused on rotating our portfolio further and further towards bearings-originated income-producing assets that earn current cash income for our investors. We prosecute that focus with a combination of urgency, diligence, and thoughtfulness, all underpinned by our consistent emphasis on what is the best interest of the BBDC common shareholders.

The early termination of the NBC credit support agreement we announced yesterday demonstrates all of those qualities. And we view it as a major step in optimizing the BBDC portfolio. Our manager’s decision to eliminate the CSA through a one-time $23 million payment will not just mitigate further risk but also enhance the core earnings power of our portfolio. This $23 million payment will rotate capital into income-producing investments. In addition, to the extent the remaining two legacy NBC assets generate gain, such gain will be retained solely by BBDC and the payment of the CSA is not conditioned on a recapture to the extent these two assets outperform current mark. Looking ahead, we will continue to evaluate opportunities to create value for our shareholders while optimizing our portfolio for the long term.

To close, I’ll offer a little color on the second quarter. To date, Bearing’s BBDC has made 130 million of new commitments in Q2, of which 106 million closed and funded. Our overall liquidity remains strong with over 420 million of available capital and we are well positioned to navigate uncertain market conditions and be a reliable capital partner to sponsors and borrowers through such uncertainty, which we expect will result in compelling investor opportunities for us to pursue on behalf of BBDC shareholders. With that, I would like to open the call up for questions.

Operator: Thank you. We’re now conducting a question-and-answer session. [Operator Instructions].

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Operator: We’ve reached the end of our question-and-answer session. I’d like to turn the floor back over for any further closing comments.

Eric Lloyd: Thank you, everybody, for joining, and I hope everybody has a great weekend.

Operator: Thank you. That does conclude today’s teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.