At this time, I would like to welcome everyone to the Barings BDC, Inc. Conference Call for the quarter ended June 30, 2025. The question-and-answer session will follow the company's formal remarks. Today's call is being recorded, and a replay will be available approximately 2 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 will turn the call over to Joe Mazzoli, Head of Investor Relations for Barings BDC.

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 June 30, 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.

Thanks, Joe, and good morning, everyone. We appreciate you joining us for today's call. Please note that we will be referring to our Second Quarter 2025 earnings presentation that's available on the Investor Relations section of our website. I'm joined today by Barings BDC's President, Matt Freund, Chief Financial Officer, Elizabeth Murray, and Bryan High, Barings Head of Global Private Finance and BBDC Portfolio Manager. In the second quarter, BBDC delivered a strong and consistent set of results driven by excellent credit performance and the scale of our franchise. We are pleased to share strong net investment income alongside impressive credit performance within the portfolio. Additionally, origination activity during the second quarter remained consistent with the previous period, featuring gross originations of nearly $200 million and net originations of $32 million. Robust deployment, along with a favorable credit environment and our focus on top-tier capital structure investments in middle market issuers, has served our investors well. We concentrate on the core middle market due to its lower leverage and superior risk-adjusted returns, making it an appealing segment for BBDC and our shareholders. Moreover, our focus on sectors that tend to perform well across economic conditions adds an extra layer of stability to our portfolio. This blend of senior secured financing solutions, a core middle market focus, defensive noncyclical sectors, and our global reach provides our investors with strong relative value and portfolio differentiation compared to the broader BDC sector. Our portfolio strategy is detailed on Slide 6, which outlines the distribution between sponsored, nonsponsored, and platform investments. We continue to invest successfully across the market and generate solid returns for our shareholders. As Matt will discuss shortly, we maintain cautious optimism about the larger economy. The first half of the year was marked by uncertainty across various fronts, and we believe BBDC is well positioned to navigate various economic changes. With that in mind, we think BDC investors should focus on alignment with the investment adviser now more than ever. Private credit managers have been expanding rapidly in recent years, with private equity firms launching credit strategies, publicly traded asset managers entering the market to enhance their fee-earning assets, and smaller niche players striving for a foothold in this crowded landscape. What distinguishes Barings is our alignment of interests; we are supported by patient long-term capital with decades of experience through numerous market cycles. This foundation enables us to build resilient portfolios that can perform well across different economic environments. We're also proud that BBDC holds the highest hurdle rate of any listed BDC, reflecting our commitment to accountability and our focus on delivering enduring value for shareholders. Barings is a $456 billion credit-focused asset management franchise, and credit is not just a vertical for us; it's our specialty, with deep expertise developed across countless strategies. Specifically, we have invested in middle market companies through various cycles, which positions us favorably to deliver value for our shareholders amidst today’s market volatility. Our expertise in credit, combined with scale and a track record that surpasses the broader BDC landscape, will continue to set us apart in the industry. Regarding our expectations for deployment in the current environment, we noted in the first quarter that the pace of buyout opportunities is influenced by various unpredictable variables. As we progress further into 2025, we want to emphasize that predicting origination activity is more of an art than a science, particularly in today's landscape. Market sentiment reflects trends similar to those of 2024, influenced by several factors we noted last year. Firstly, our pipeline is developing with more nascent opportunities, often leading to increased LBO financings. Secondly, qualitative insights from sell-side investment banks suggest a strong interest among companies looking to engage in transactions. Lastly, the hold period for middle market private equity portfolios is extending to historical highs. These factors indicate a potential rise in M&A activity in the latter half of the year. However, as we've seen before, similar patterns can sometimes lead to false positives regarding activity levels in the second half of 2025. Concerning BBDC's financial performance this quarter, the net asset value per share was $11.18, reflecting a slight decline from the previous quarter. Net investment income for the quarter was $0.28 per share, up from $0.25 per share in the first quarter. This improvement in net investment income was due to certain one-time fees and distributions received from our portfolio companies, which Elizabeth will elaborate on soon. Delving further into the portfolio, we are actively working to maximize the value of legacy holdings from MVC Capital and Sierra, planning to divest these assets at favorable valuations as we did in the first quarter. As of the end of the quarter, Barings originated positions constituted 95% of the BBDC portfolio at fair value, an increase from 76% at the beginning of 2022. Our investment portfolio performed well in the second quarter, with the non-accrual rate improving to 50 basis points at fair value as of June 30, significantly below industry averages and comfortably within our long-term expectations. There is no substitute for fundamental credit analysis, which has always been central to our investment philosophy, reflected in the current health of the BBDC portfolio. Looking at the earnings potential of the portfolio, the weighted average yield at fair value was 10.1%, unchanged from the previous quarter. Our Board has declared a third-quarter dividend of $0.26 per share, consistent with the prior quarter. Annually, this dividend level equates to a 9.3% yield based on our net asset value of $11.18. As previously announced, our Board declared $0.15 in supplemental dividends to be distributed in three quarterly installments throughout 2025, with one-third to be paid alongside our regular third-quarter dividend. We believe our portfolio is in a strong position, and we're advancing our strategic imperatives. As Matt will discuss shortly, BBDC is well equipped to navigate the current market landscape and deliver consistent risk-adjusted returns in the upcoming quarters. I'll now turn the call over to Matt.

Thanks, Eric. During our prior earnings call, we discussed how the rapidly evolving macroeconomic landscape was impacting our issuer base and how we work 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, and the net takeaway was that issuers were on alert and in some cases concerned about the future financial results, but we're unable to excite a confident view of the outcome for calendar 2025, particularly after April. As we have continued throughout the year, we have continued to view the economic outlook as uncertain and believe that our intentional durable portfolio construction is what will help us navigate the operating environment ahead. As we look ahead for opportunities in the second half of 2025, it is important to underscore the advantages of investing in a scaled platform backed by long-term capital. At BBDC, our structure allows us to take a patient and selective approach to capital deployment, prioritizing quality over speed. In contrast, some publicly traded asset managers have increasingly focused on growing assets rather than carefully allocating them. And over recent quarters, this shift has raised questions about the consistency of the relative value discipline. Our approach remains centered on thoughtful underwriting, long-term positioning and a commitment to delivering durable value for shareholders. With that, I would like to offer a few observations that will help guide our areas of focus. Both interest rates and spreads have exhibited compression over the course of the past 12 months. Historically speaking, interest rates and spreads move in opposite directions. When rates increase, spreads contract and vice versa. And another interesting post-COVID development, both rates and spreads increased in tandem and have now been declining in similar capacities. We're optimistic that during the course of the next interest rate cycle, the historic relationship between interest rates and spreads will revert such that reductions in interest rate levels will somewhat be offset by increases in interest rate spreads. That said, regardless of the direction of interest rates, investors in BBDC will continue to see a disciplined approach to investing in middle-market issuers backed by both sponsored and nonsponsored ownership groups. While interest rates will ebb and flow, we believe that there is a compelling complexity premium that can accompany both sponsored and nonsponsored opportunities if the manager is able to source them. Barings has a history of being able to source transactions that entail a complexity premium, and we anticipate leaning into these opportunities in a more intentional fashion for the duration of the year. The Barings network of sourcing opportunities is vast, and BBDC shareholders are appropriately positioned to take advantage of deployment into middle-market corporate issuers. Eric referenced onetime fees and dividend income during the period, and we are pleased to report that some of these fees were derived exactly from the kind of unique sponsor sourcing opportunities that I have just referenced. Post June 30, we anticipate that assets underwritten with the complexity premium will continue providing tailwinds to our results for the balance of the year. While we are pleased with the financial results of the quarter, we are also encouraged by the credit trends in the portfolio. While we're mindful of the broader economic landscape, we have observed that macroeconomic events have not historically produced wide-thread defaults. Rather, idiosyncratic risk unique to the specific issuers has created the biggest challenge. Failed acquisitions, poor management teams and botched ERP implementations have been responsible for more underperformance in portfolios than exogenous factors. We underwrite every transaction as if 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 nonaccrual percentage among the strongest in the sector, a small percentage of PIK again, leading in the industry and a very small number of risk-rated 5 issuers in the BBDC portfolio. 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 remained strong with a weighted average interest coverage this quarter of 2.4x above the industry averages and consistent with 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 remains highly diversified with the top two positions in the portfolio, Eclipse Business Capital and Rocade Holdings being strategic platform investments. These investments provide BBDC shareholders with access to differentiated compelling opportunities to invest in asset-backed loans and litigation funding solutions, two specialized areas we believe provide attractive total return and diversification benefits. Turning briefly 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 7% on a combined basis as compared to 8% in the immediately preceding quarter. The improvement in the underlying risk ratings was driven by certain upgrades to issuers that have been experiencing temporary performance challenges. The number of issuers with the greatest stress is at the lowest level since we have been disclosing these statistics, a fact that we feel is important in light of the broader macroeconomic uncertainty. Nonaccruals accounted for 0.5% of assets on a fair value basis and 1.4% on a cost basis, which we believe is one of the lowest levels of nonaccruals 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 unmatched alignment with shareholders, will continue driving 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. And with that, I will now turn the call over to Elizabeth.

Thanks, Matt. As Eric and Matt have said, BBDC continues to demonstrate the durability of our core earnings, uphold best-in-class credit quality and provide strong, reliable yields to our fellow shareholders. As announced during our Q1 earnings call, the early termination of the NBC CSA, which resulted in a $23 million payout in June, further enhances our ability to generate attractive returns by redeploying capital into additional income-producing investments. On Slide 16, we provided a detailed bridge of the NAV per share movement for the second quarter. As of June 30, NAV per share was $11.18, representing a 1% decline quarter-over-quarter. The decline was driven by net realized losses on the portfolio, credit support agreements, and foreign exchange which came to $0.14 per share. This was partially offset by net unrealized appreciation on the investments, credit support agreements, and foreign exchange of $0.06 per share. The net realized loss on the portfolio was primarily due to the exit of the Black Angus position. However, this is largely offset by the reversal of unrealized depreciation and was covered by the Sierra CSA. The valuation of the Sierra credit support agreement increased by approximately $6.4 million from $44.8 million in the first quarter to $51.2 million as of June 30. During the second quarter, the Sierra portfolio had sales and repayments of approximately $2.7 million and had 18 positions remaining in the portfolio, down from 20 positions as of March 31. We reported net investment income of $0.28 per share for the quarter, an increase from $0.25 per share in the prior quarter. This growth was primarily driven by higher interest income resulting from increased originations, a one-time dividend from our security holdings position in an elevated one-time fee income. These gains were partially offset by higher incentive fees, which included the impact of the catch-up provision excluding the catch-up incentive fees, would have been approximately $8 million. Our net leverage ratio, which is defined as regulatory leverage net of unrestricted cash and net unsettled transactions, was 1.29x at quarter-end, up modestly from 1.24x as of March 31. This puts us slightly above our long-term target range of 0.9 to 1.25x. The increase in leverage was primarily driven by elevated origination activity during the quarter. We expect leverage to trend back within our target range in the second half of 2025 supported by continued asset sales and anticipated repayment activity. This ensures we will maintain the capacity to pursue attractive opportunities that may result from either increased turbulence in markets or an uptick in deals and potentially spreads that may result from a benign environment and reduced production rates. More broadly, our funding profile remains well structured and aligned with our disciplined 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. As of quarter end, our unsecured debt accounted for approximately $1 billion of our funding and represented roughly 65% of our outstanding balances. Subsequent to quarter end, on August 4, we fully repaid $50 million of private placement notes at par, including accrued and unpaid interest. Additionally, as of June 30, we had $322 million of available capacity under our revolving credit facility providing continued flexibility to meet funding needs and support future unsecured issuances. Now on to capital allocation. Our net investment income for the quarter was $0.28 per share, which more than covered our regular dividend. In addition, our net investment income for the first half of 2025 fully covered our year-to-date regular distributions. As previously mentioned, the Board declared a third quarter dividend of $0.26 per share which, when combined with the previously declared special dividend of $0.05 per share brings the total dividend for the quarter to $0.31 per share, representing an 11.1% distribution yield on NAV. Looking ahead, we feel confident in the level of our regular dividend. The durability of our portfolio's net investment income underpinned by a diversified mix of senior secured investments and a well-laddered capital structure gives us conviction in our ability to maintain this level. Our views are further supported by the current shape of the forward super curve, which we believe will continue to provide a constructive backdrop for net investment income generation in the near term. We continue to actively use our 2025 share repurchase plan and repurchased 100,000 shares during the quarter bringing the total shares repurchased under the current plan to 250,000. We will continue to exercise this plan as a way to deliver value to shareholders and to demonstrate our belief in the long-term value of our portfolio. To close, I'll offer a little color on the third quarter. To date, Barings BDC has made $59.3 million of new commitments in Q3, of which approximately $39 million closed and funded. Our overall liquidity remains strong with over $322 million of available capital at quarter end, and we are well positioned to navigate uncertain market conditions and be reliable capital partners, sponsors, and borrowers through such uncertainty, which we expect will result in compelling investment opportunities for us to pursue on behalf of BBDC shareholders. With that, I would like to open the call up for questions.

We will now be conducting a question-and-answer session. Our first questions come from the line of Finian O'Shea with Wells Fargo Securities.

Elizabeth, you mentioned increased sales to Jocassee. Can you elaborate on the profile of those sales? Will they be more related to new or existing business, and will it lean towards GPF or solutions? Additionally, you've already increased leverage this quarter; how much more can we expect? What is the target leverage again?

I'll start with leverage. Let me just clarify. Are you asking about leverage at the BDC? Or are you asking about leverage at Jocassee? I want to make sure I answer.

At Jocassee.

Yes. I'll jump in. Currently, Jocassee is well-structured and funded, providing sufficient liquidity to take on additional investments. While managing leverage at BBDC, it's recognized that it reached the higher end of our range this quarter. Given the broader uncertainties regarding deployment opportunities, we expect to maintain this higher leverage level and feel supported by strong credit quality within the portfolio. This combination of factors gives us confidence that operating at the upper end of our range is a suitable and prudent strategy for maximizing returns for shareholders. Regarding investment capacity within the joint venture vehicle, I can confirm it has ample capacity for further investments. When considering portfolio construction in Jocassee, we adopt a similar approach as with our other portfolios. We're focused on driving diversification from an industry perspective, vintage perspective, and yield perspective as appropriate. It's difficult to predict if it will mainly involve transfers of recent or older vintage, but I expect it will be a mix of both.

Okay. And I guess that brings us to the next question. Can you discuss where the largest new name screen vision fits into the Barings platform? Additionally, can you explain how much the GPF and Cap Solutions platforms have blended together over the past year? Is it functioning as one unit now, while adopting a barbell approach with 450 stuff and 850 stuff?

Yes. Finian, it's Bryan. Just to answer that question. Obviously, there's been a lot of collaboration across the platform, not just between the teams that you referenced. But certainly in the way that we're operating across all of our investment teams, their individual investment committees depending on the asset class. But from a sourcing perspective, it's pretty centralized from an underwriting perspective, it's pretty seamless. It's basically the same process, but perhaps different skill sets or areas where you may look to originate assets. So I wouldn't say that there's no difference in terms of the underwriting standards and the way that investments get into the BDC and the collaboration continues to be consistent with the way it's been at Barings since I've been here.

Yes. And to highlight what Bryan emphasized there, Fin, is each one has a separate and distinct investment committee for that particular asset class or strategy.

And the only thing I would add specific to the issuer, Fin, is that in a small world phenomenon. That asset that you noted was actually reviewed by myself years ago. We ultimately lost it due to financing situation that just got too tight. And so it's a name that's been familiar to Barings for a long time. And I think that the fact that it's a sponsored first lien position kind of fits a number of pools of capital within our organization.

Our next questions come from the line of Heli Sheth with Raymond James.

Obviously, you had a strong quarter of originations. Can you provide any breakdown to how much the follow-ons for existing borrowers versus new borrowers?

Yes. So across the franchise, the number over the course of the past quarter has been between 60% and 70%, depending on the underlying portfolio. And I think that BBDC falls kind of squarely within that range for this quarter.

Got it. And how is the pipeline looking after the second quarter close? I know repayments were kind of high this quarter? Are they still going to be in that range? Or are they down?

Yes. Look, in referencing Eric's commentary, we have reasons to feel very optimistic around forward visibility on origination. And so we're certainly hopeful that deployment trends will continue to be very attractive. That said, again, in keeping with Eric's comments, the fact is that this is the same profile of an economic outlook that we had a year ago and candidly, 2 years ago. And so we want to be careful around booking these originations before they actually materialize. I think that one of the overriding principles that we think about on the portfolio management front for BBDC will be to keep the portfolio invested in high-quality credits. It's a very granular portfolio. And so even to the extent we start having repayments, I don't think that we have any concerns around delivering strong returns through the balance of 2025.

Okay. Got it. That's helpful. And with all your new originations this quarter, how does the yield on those compare to the overall yield was, I think, 10.1%, was it higher or lower, kind of same range?

Yes. The weighted average yield for new issuance this quarter was about 10 basis points higher than the overall portfolio, so around 10.2 on a fair value basis compared to the current portfolio yield of 10.1.

Okay. Got it. And then one more quick one. You previously sized tariff impact as less than 5% of the portfolio. With the recent little bit of clarity we found, do you have any updates there as it shifted at all?

It's difficult to determine whether the tariff risk has increased. However, there is a significant sense of uncertainty. Hiring and capital investment have been delayed across the board, leading many to adopt a defensive stance. Our credit concerns are likely lower than they were last quarter, but the overall macro uncertainty has certainly increased.

Our next questions come from the line of Derek Hewett with Bank of America.

Dividend coverage remained strong even after accounting for the one-time items in revenue and expenses. How should we assess the sustainability of the dividend considering the forward curve? It seems that the initial 50 basis points of rate cuts will only represent a $0.01 quarterly impact based on the sensitivity table in the quarterly report. I would appreciate your thoughts on this matter.

Yes. From a dividend coverage perspective, you did point out we had some one-time dividends and one-time fees, and those offset the higher incentive fee. So when we think about over the next few quarters with where the current super curve is, we have confidence in earning our dividend. Now again, if things change with rate cuts, that could potentially change the outlook. But right now, with where the super curve is, we feel good about the $0.26.

Okay. Credit remains remarkably strong for most, largely excluding some of the usual concerns. Where do you believe we stand in the credit cycle? Considering the industry, how should we approach credit moving forward? Do you anticipate that over the next year or two, we'll remain in a similar position, or could credit conditions deteriorate for the industry as a whole?

Yes. I think looking out 2 years is maybe a little bit difficult. But if you just sort of look at the backdrop today in terms of modest growth in North America, call it stable inflation and unemployment where it is today. The setup is pretty constructive for credit, I would say. How that might change over the next 12 to 24 months is really anybody's guess. But in terms of the amount of activity that we're seeing some visibility and a little bit more certainty around how some of the noise back in April is going to play out. It has been helpful, I would say, in terms of building a pipeline of opportunities. And certainly, as I mentioned, kind of the right backdrop for credit at this point in the cycle.

Okay. And then maybe one more. Just in terms of the amendment activity for the second quarter versus the first quarter, did you guys mention that in your prepared remarks?

Not in relation to amendment activity, no, but I would say it was below average. I would direct your attention to the trends in risk ratings. The pool of most criticized assets decreasing from quarter to quarter is a positive indication of what we likely focused on regarding underperforming assets. Overall, the levels are lower in the second quarter compared to previous quarters.

Our next questions come from the line of Casey Alexander with Compass Point.

I know shareholders value the past $86 million in share buybacks. However, in the recent quarters, these repurchases have been considerably lower, around 0.1% of shares outstanding. Despite this, the stock is trading at one of the steepest discounts in price to NAV compared to its peers. I'm curious about the current pace of the share repurchase program and why we might not be capitalizing more on this significant discount. Additionally, what other strategies do you believe could be implemented to reduce the discount in price to NAV?

Yes, great question, Casey. This is a key focus for us every day. Regarding the tactical aspect, our ability to repurchase shares during the blackout period is influenced by when our valuation cadence begins. Looking back at the last few quarters, we had more opportunities for buying. Internally, we've discussed strategic moves like terminating the CSA, which can extend our blackout windows. While we believe we are engaging in shareholder-friendly activities that limit our ability to repurchase, share repurchases remain a fundamental way we return capital to shareholders and support our share price. However, there are constraints on when we can execute this based on our internal circumstances. Concerning our goal to narrow the gap, our long-term expectation is to improve our return on equity (ROE) by selling off non-income-producing assets, which should naturally lead to a higher share price and help close the gap between net asset value (NAV) and our trading level. Yes. Look, I love the hyperbole within our industry. You just said that August has been one of the busiest months in recent memory. Well, we're only 8 days in. And this is only the first full week. And so for people to be making assessments about kind of August being a really active one, I think is just kind of an interesting data point. I would say that our pipeline is higher for sure. If you talk to the origination professionals in our business, they would echo that sentiment for sure. I think it's a little bit early to call it and to say that this will be one of the most active quarters on record. But I think that to your point, in terms of balancing deployment with the opportunities. We actually included a new slide this quarter, Slide 5 in our earnings deck that just shows the capital base that's supporting our GPF franchise. And one of the reasons that we wanted to introduce this is to reflect the fact that we have very balanced forms of capital. And so we are not driven by short-term expectations to deploy, to deploy, to deploy, only to drive fee-earning revenue. What we're going to do, and as we have always done, is that we are going to deploy capital in a measured way to ensure that these vehicles are performing in a diversified fashion for the benefit of the underlying investor. You've seen that we've run our leverage level at BBDC a little higher this quarter. That was a conscious decision that we made. I think that we will continue to run it towards the higher end of our range, but we anticipate keeping the capital deployed in assets that we feel like are very compelling and don't anticipate any challenges doing that throughout the balance of 2025.

We have reached the end of our question-and-answer session. I would now like to hand the call back over to Eric Lloyd for closing comments.

Thank you, operator, and thank you all who participated in today's call. BBDC is well positioned to perform in today's operating environment with strong support from our manager and decades of experience to draw from. Our senior secured portfolio of global investments will continue to deliver for our fellow shareholders. We look forward to updating you further this fall. Everybody, have a great weekend.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.