Earnings Call
Barings BDC, Inc. (BBDC)
Earnings Call Transcript - BBDC Q3 2020
Operator, Operator
At this time, I would like to welcome everyone to the Barings BDC Inc. Conference Call for the quarter ended September 30, 2020. All participants are in a listen-only mode. A question-and-answer session will follow the company's formal remarks. 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.baringbdc.com under the Investor Relations section. 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 discussed in the section titled Risk Factors and Forward-looking Statements in the company's annual report on Form-10K for the fiscal year ended December 31, 2019 and quarterly report on Form-10Q for the quarter ended September 30, 2020; each is filed with the Securities and Exchange Commission. Barings BDC undertakes no obligation to update or revise any forward-looking statements unless required by law. At this time, I will turn the call over to Mr. Eric Lloyd, Chief Executive Officer of Barings BDC.
Eric Lloyd, CEO
Thank you. And I guess this goes with 2020. We start conference calls with challenging situations like this. So I apologize for that; I got dropped. Thank you, Donna. Good morning, everyone. We appreciate you joining us for today's call. And I hope you and your families are doing well and staying healthy and positive during these times. Please note that throughout today's call, we'll be referring to our third quarter 2020 earnings presentation that's posted on our Investor Relations section of our website. On the call today I'm joined by Barings BDC's President and Barings Co-Head of Global Private Finance, Ian Fowler; Tom McDonnell, Managing Director and Co-Portfolio Manager; Brian High, Barings Head of U.S. Special Situations and Co-Portfolio Manager; and the BDC Chief Financial Officer, Jonathan Bock. Ian and Jon will review details of our portfolio and third-quarter results in a moment, but I'll start off with a few high-level comments about the quarter. Turn with me to Slide 5 of the presentation. We've shown this slide in the last several quarters to provide a sense of the volatility of broadly syndicated loan prices and the correlation to BDC equity prices. In the third quarter, broadly syndicated loan prices continued to increase with spreads down over 100 basis points. BDC equity prices, however, remained relatively flat quarter-over-quarter, largely driven by factors such as select dividend reductions and increased non-accruals for some companies. Jumping to our third quarter financial highlights on Slide 6, Barings BDC's net asset value per share improved by $0.74 in the quarter, a 7.2% increase, to $10.97. Unrealized appreciation on our investment portfolio was a primary driver of this increase as market and credit-driven improvements continued to help reverse some of the unrealized depreciation we experienced in the first quarter. As of September 30, our total investment portfolio was carried at 98.3% of cost compared to 87.4% six months ago at March 31. We had no non-accrual assets at the end of the quarter, as all of our investments remain current on both interest and principal payments. While, at some point, every direct lender, including us, will experience non-accruals, I'm especially pleased with this portfolio's performance during this trying year, which I view as a testament to both our original underwriting and our ongoing portfolio management of our investment teams. Our net investment income per share was $0.17, up from $0.14 per share in the second quarter, and above our third-quarter dividend of $0.16 per share. We continue to take advantage of market conditions to rotate out of our initial BSL portfolio and redeploy that capital into higher-yielding middle-market and cross-platform investments. Total sales and repayments of $252 million included $210 million from our initial BSL portfolio, which was redeployed into $145 million of new originations with a weighted average all-in spread of 921 basis points. The investment pipeline has remained very healthy in Q4, as Jon will discuss in more detail later. And we now expect by the end of the year to have largely completed our rotation from our initial BSL portfolio into primarily a middle-market portfolio. Based on these results and expectations for the coming quarter, we announced yesterday that our board increased our fourth quarter dividend payable in December to $0.17 per share. Turning to Slide 7, you'll see some additional financial highlights for the quarter. Jon will go through the details of the financial shortly, but I do want to make one key point. You can see on the first line of Slide 7 that our investment portfolio increased $82 million for the quarter. This increase, however, included a $153 million increase in our short-term cash investments from BSL sales that were used to repay debt after quarter-end. Thus, our true investment portfolio actually decreased $70 million during the quarter as a result of our portfolio rotation that I referenced earlier. Despite this decrease in portfolio size, you can see that our total investment income actually increased slightly during the quarter, even with continued downward pressure on LIBOR, the rotation out of initial BSLs into higher-yielding middle-market and cross-platform investments. Those drove an increase in total investment income and positioned the portfolio for continued growth going forward, while still maintaining a high quality predominantly first-lien portfolio. Slide 8 outlines the key strengths of Barings platform that helps facilitate this portfolio rotation; Barings BDC is uniquely positioned within the broader Barings global fixed income franchise to focus primarily on middle-market direct lending, but also take advantage of Barings' wide investment frame of reference to participate in differentiated deal flows across both public and private markets to find the most attractive risk-adjusted returns in different market cycles and periods of volatility. This multi-channel origination strategy has enabled Barings BDC to grow its cross-platform investments over the last six months as a complement to the middle-market direct lending portfolio, and as I mentioned previously, increase our dividend to $0.17 per share for the fourth quarter. It is this large, experienced and global platform that we believe will continue to drive long-term shareholder returns. I'll wrap up my comments by providing a brief update on our planned merger with MVC Capital. The transaction is progressing in accordance with our original timeline as we have filed our preliminary and amended proxy statements with the SEC. We still expect the shareholder meetings to approve the transaction to be held in December with a targeted closing date for the merger in mid to late December. We encourage all of our shareholders to review the BDC's registration statement on Form N14 and the definitive proxy materials once made publicly available on our website and on the SEC EDGAR page. I'll now turn the call over to Ian to provide an update on the market and our investment portfolio.
Ian Fowler, President, Co-Head of Global Private Finance
Thanks, Eric, and good morning, everyone. Focusing first on the broader market, please turn to Slide 10 of the presentation. As you would expect, middle-market activity is down in the U.S. this year compared to 2019 with a focus on add-on acquisitions. This is where Eric's comments on having a wide frame of reference are of particular importance. If there's a limited universe of quality transactions in the market, firms with the ability and experience to execute across investment types will be in the best position to take advantage of the quality opportunities. Jump to Slide 11. The Credit Suisse Single B leveraged loan index continued to tighten in the third quarter and is now back inside middle-market levels. As we saw an increase in activity, direct lending spreads were generally within a 25 basis point range across the different sub-sectors relative to the second quarter. Switching gears to the Barings BDC portfolio on Slide 12, we show a summary of our investment activity for the third quarter. So we are on the same page, let me define cross-platform investments. We are categorizing investments here that take advantage of the breadth of the Barings investment platform, including items such as opportunistic liquid loan and bond investments, special situation investments, and structured products that include CLOs and asset-backed securities. Relative to a slow second quarter, the third quarter was much more active in terms of both middle-market and cross-platform investments. Net new middle-market investments totaled $53 million, with gross fundings of $96 million partially offset by sales and repayments of $43 million. New investments included seven new platform investments totaling $80 million and $16 million of follow-on investments and delayed draw term loan fundings. We also had $50 million of additional cross-platform investments and continued the rotation out of our initial BSL portfolio. Slide 13 provides a bridge of our portfolio from June 30 to September 30, which includes increases in the values of our portfolio investments that Jon will describe in more detail shortly. At a high level, I will say that overall, our portfolio has performed well during the pandemic. And you can see some of the key components of this if you turn to Slide 14. Here you can see an enhanced view of our total investment portfolio at September 30, including key portfolio characteristics such as revenue contribution and certain credit statistics. The goal of this slide is to provide further details on the three primary components of our portfolio, which are our initial BSL portfolio, our middle-market portfolio, and our cross-platform investments. Here are a few high-level points of note. Our initial BSL portfolio, which at one point totaled roughly $1.2 billion is now down to $96 million, with further reductions expected in the fourth quarter. In terms of our core portfolio, we were invested in roughly $758 million of private middle-market assets at quarter-end, which included $92 million of unfunded commitments and $186 million of cross-platform investments, which included the remaining $42 million of unfunded commitments to our joint venture investments. The $906 million funded total portfolio was spread across 125 portfolio companies and 28 industries, as we continue to focus on diversification within our portfolio. As Eric mentioned, we have no investments on non-accrual status. And just as importantly, we had no material modifications to the cash payment terms of our debt investments. For any lender, it is ultimately the conversion of investment income into cash that’s key, which is why I want to draw your attention to the income contribution section of this chart. Here you can see that only 2% of our revenue consisted of tech interest, with no restructured PIC investments for portfolio companies facing liquidity challenges and unable to pay their cash interest. In addition to the strong performance of the current investment portfolio, I believe it is worthwhile to outline the premium spread on our new investments relative to liquid credit benchmarks. Jump to Slide 15. As many investors have become accustomed to Barings, we as a team seek attractive illiquidity and complexity premium across our wide investment frame of reference. This enhanced diversification drives improved investor outcomes and allows us to remain disciplined in not over-allocating to one core market. As outlined here, Barings BDC deployed $145 million at an all-in spread of 921 basis points, which represents a 372 basis points spread premium to comparable liquid middle-market indices at the same risk profile. Diving deeper into our core middle-market segment across Europe and North America, we average a 270 basis points spread relative to liquid market indices. And within the cross-platform investment category, you can see the incremental premium that this asset category provides with premiums ranging from 500 to almost 1,200 basis points. We've discussed the benefits of our wide investment frame of reference, and Slide 16 provides a graphical depiction of relative value across the BBB, BB, and single B asset classes. It continues to show the relative value opportunities that can exist for investors at different levels of credit risk and how the value of choice across markets provides a meaningful benefit to BDC investors, leading to the actual results I outlined on the prior slide. Our Top 10 investments are shown on Slide 17, with no investment exceeding 3.1% of the total portfolio and the top 10 representing only 24% of the total portfolio. Our portfolio remains diverse and with limited exposure to any single investment or industry. With that, I'll turn the call over to Jon to provide additional color on the financial results.
Jonathan Bock, CFO
Thanks, Ian. On Slide 19, you can see the bridge of the company's net asset value per share since last quarter, showing an increase of $0.74 per share. While our net investment income outpaced our dividend by $0.01 per share, the primary driver of the increase was net unrealized appreciation on our investment portfolio and foreign currency transactions of $1.17 per share. This appreciation included a $0.59 per share reclass adjustment to more than offset the $0.43 per share net realized loss on investments in foreign currency. These net realized losses were driven primarily by sales of investments in our initial BSL portfolio, with roughly 80% of those losses coming from the complete exit of position win Fieldwood Energy and Men's Wearhouse. You can see a further breakdown of our net unrealized depreciation on both dollar and per-share basis on Slide 20. The $1.17 per share of net unrealized appreciation, which equates to approximately $56 million included an appreciation of approximately $17 million on our middle-market investment portfolio, of which $14 million was attributable to lower spreads in the broader market for middle-market debt investments, and $1 million of which was attributable to underlying credit or fundamental performance. Both our cross-platform investments and our initial BSL portfolio saw appreciation of $7 million. And we have $28 million of reclassification adjustments I mentioned that more than offset the $21 million of net realized losses we incurred in the quarter. I'd like to point out that Slide 20 provides a further breakdown of the value for our cross-platform investments in special situation, opportunistic liquid, structured products, and our joint venture investments as we continue to look for ways to increase the clarity and transparency around our investment portfolio. Slides 21 and 22 show our income statement and balance sheets for the last five quarters. As we've discussed, our net investment income per share increased to $0.17 for this quarter. In addition to the total investment income elements that Eric mentioned, I'd like to point out that our fee income included only $91,000 of non-recurring fee income. So our gross and net investment income for the quarter was not driven by one-time fees that will go away in future quarters. We also saw a $0.9 million decrease in our interest expense for the quarter as a result of lower LIBOR and lower spread on our senior credit agreement due to the investment-grade credit rating we received in the third quarter. From a balance sheet perspective on Slide 22, the high level of short-term investments driven by sales within our initial BSL portfolio was fully used to repay our debt securitization on October 15. We also issued $50 million in our first series of unsecured notes during the quarter. This $50 million issuance was the first series of draws under our $100 million unsecured debt commitment we announced in early August. Our debt to equity ratio at September 30 was 1.32x or 0.74x after adjusting for cash, short-term investments, and unsettled transactions. Details on each of our borrowings are shown on Slide 23, which shows our debt profile for each of the last two quarters as well as pro forma for certain financing activities that occurred subsequent to quarter-end. In addition to the full repayment of both classes of CLO notes in October, last week, we completed a new $175 million unsecured debt issuance comprised of $62.5 million of five-year notes with a coupon of 4.25% and $112.5 million of seven-year notes with a coupon of 4.75% for a blended coupon of 4.57%. As part of this new issuance, the remaining $50 million commitment from our August unsecured debt issuance was reduced to $25 million. And following both issuances, we now have total unsecured debt outstanding of $225 million split evenly between five-year and seven-year maturities with an additional commitment to purchase up to $25 million of unsecured debt. This diverse liability structure better positions Barings to take advantage of the wide investment frame of reference across the Barings platform and provides more flexibility during periods of market volatility. Jump now to Slide 24. Barings BDC has available borrowing capacity under our $800 million senior secured corporate credit facility, which was further enhanced by the $175 million unsecured note offering, as well as our remaining $25 million unsecured debt commitment. The chart on Slide 24 outlines the impact of using this available liquidity on our net leverage, including the impact of funding our unused capital commitments. While Barings BDC does not have any revolver exposure, we have $92.4 million of delayed draw term loan commitments to our portfolio companies, as well as $41.9 million of remaining commitments to our joint venture investments. This table shows how we have the available capacity to meet the entirety of these commitments if called upon while maintaining cushion against our regulatory leverage limits. Slide 25 updates our paid and announced dividends since Barings took over as the advisor to the BDC. As Eric mentioned, we announced yesterday that our fourth quarter 2020 dividend will be $0.17 per share, an increase of $0.01 per share compared to the third quarter. I'll wrap up with two final points starting on Slide 27, which summarizes our new investment activity so far during the fourth quarter and our investment pipeline. We've been active since October 1 with approximately $155 million of new commitments, of which approximately $131 million have been closed and funded. Of these new commitments, 98% are in first lien senior secured loans and the weighted average origination margin was 8.2%. We've also funded approximately $9 million of previously committed delayed draw term loans. The current Barings global private finance investment pipeline is approximately $2.4 billion on a probability-weighted basis. And it's predominantly first lien senior security investments. As a reminder, this pipeline is estimated based on expected closing rates for all deals in our investment pipeline. And finally, I believe it's important to highlight the incentives point that we've discussed on previous calls. As many of you know, Barings seeks to ensure that its incentive fee structure provides the adequate latitude to make the right loan in the right structure throughout credit cycles. And this is a concept we often like to outline as investment math, whereby we seek to answer an important question asked by LP: What do you need to lend at in order to generate the ROE promised? As a part of the MVC transaction, Barings is seeking to lower its base management fee to 1.25%, down from 1.375%. As one compares this investment math relative to that of other fee structures, it becomes clear that Barings BDC can sufficiently pursue its 8% targeted ROE NAV while maintaining the freedom to invest in lower-split collateral relative to other examples posted here. In our view, this high degree of investor alignment, when combined with our wide frame of reference, can lead to superior investor outcomes over time, as it limits the requirement to stretch for yield and income only to see NAV degradation in the future. Also related to the MVC merger, as we continue to work towards the closing, we have not made any share repurchases under our repurchase plan for 2020. And as a reminder, in connection with the merger Barings BDC has committed up to $15 million in share repurchases following the closing of the transaction. Now, 2020 challenges will follow us and follow the market into 2021. We look forward to meeting those challenges with enhanced liquidity, a quality investment portfolio and a strong origination outlook centered on investment discipline and a multi-channel origination approach with a very wide investment frame of reference. And with that operator, we'd like to open up the line for questions.
Operator, Operator
Thank you, ladies and gentlemen, the floor is open for questions. In the interest of time, we do ask that participants limit themselves to one question and one follow-up before rejoining the queue for additional questions. Our first question is coming from Fin O'Shea of Wells Fargo. Please, go ahead.
Fin O'Shea, Analyst
Hi, everyone. Sorry about that. Thanks. Appreciate everybody's opportunistic strategy breakout, and now it looks like you'll have more of an unsecured debt profile. So I guess, first question for Eric, does this mean we'll see a shift in strategy, or perhaps a more fluid strategy on the origination side? Obviously, the BDC started out mostly oriented to the middle-market, but it looks like you started to get opportunistic in the volatility this year, which is obviously great. And now we're seeing more clear language. So, any just high level on what this means for how we look at the BDC going forward.
Eric Lloyd, CEO
Thank you, Ben. For those who joined us over two years ago when we executed the triangle transaction, we were newcomers to the BDC space. I mentioned back then that our initial priority was to establish credibility with our shareholders, analysts, and within the industry, and to follow through on our commitments. Our main focus has always been on directly originating first-lien senior secured loans. As Jon noted, our fee structure supports that from a strong credit perspective, reflected in the absence of non-accruals in our current BDC portfolio, while still delivering the returns we aim for our investors. Over the past quarters, we have aimed to share insights into the Barings platform. If you recall, we introduced some European deals a year ago and have begun to highlight our other capabilities within the BDC regarding investor returns. This is not a shift in strategy; rather, it is our responsibility as managers to seek the best risk-adjusted returns across our broad range of investment capabilities at Barings for our investors, where we are also the largest investor in the BDC. So, we are not changing our strategy; we still stand by the principle of "boring is beautiful." The core of our portfolio will remain focused on directly originated, first-lien senior secured loans. However, you will continue to see a portion of that 30% bucket being utilized to find the best risk-adjusted returns, especially during market volatility, and we are open to opportunities across all areas of Barings. This is a Barings BDC, extending beyond just our private finance platform.
Fin O'Shea, Analyst
Sure, that's very helpful. Thank you. And another one on platform verticals, on middle-market, Europe, that appears to have been very robust this quarter. A lot of that was sold to the JV. Just trying to get a feel as to, was that for the BDC's appetite or was that to create space for MVC? I know they have Europe as well, but just on a higher level, on allocation, how does the BDC and JV fit in line? Are they both equals in claiming allocation to European deals? Or does the BDC get its fill and then the JV gets its fill of that? Any color on how we can think of where Europe fits in for, I guess, essentially, the BDC shareholders.
Jonathan Bock, CFO
Certainly. We'll begin with an overview of how we believe the joint ventures can be beneficial. It's crucial to understand that managing the 30% limit is about diversifying returns across a wide range of investments rather than excessively leveraging middle-market or BSL investments to address any issues. When the BDC engages, it does so in European and U.S. loans under the same criteria as our clients. However, the BDC is restricted from holding a significant portion of European loans due to the 30% limitations. Consequently, there will be diversification through loan transfers or sell-downs to the joint venture, allowing the BDC to maintain exposure while avoiding over-concentration in just a few names across Europe. A diversified portfolio is advantageous. Moving forward, transfers that occurred will be loans from Europe completed in the previous quarters, and you can expect future transfers to occur, aligning with the BDC's intention to maintain some level of European exposure while monitoring diversification effectively. Participation begins with what the BDC onboarded and later transfers to the joint venture if both partners agree on the opportunity. Ultimately, the emphasis is on diversification. In this quarter, as Ian indicated, we saw attractive direct lending opportunities while ensuring broad diversification in both the joint venture and the BDC portfolio within that 30% limit.
Fin O'Shea, Analyst
Thanks. And can you remind us of the JV's target leverage profile?
Jonathan Bock, CFO
I think when we announced the transaction nearly a year and a half ago, there was an expectation of roughly 2x. This involves an equity position where the BDC participates with about $50 million in capital investment and our joint venture partner contributes around $500 million in equity.
Robert Dodd, Analyst
Good morning, everyone. Congratulations on the quarter and the disclosures. Some of that information is extremely helpful for us and for investors, especially the restructured PIC. Although it's zero for you, it presents a very compelling picture for your portfolio compared to others in the market. Regarding the spreads you observed, on Chart 14, the average spread for the middle-market business is currently 536, which has only slightly increased from 528 at the end of 2019. Meanwhile, the leverage in that portfolio has risen from 47 at the end of 2019 to 52 now. Considering the context of Chart 15, where your deployments were at 730 with significantly higher spreads, can you explain the changes in spread to leverage and how that connects to the much wider spreads you experienced in Q3, which were 200 basis points above the average for the quarter? I'm trying to understand the relationship between risk, leverage, pricing, and how that's evolving.
Ian Fowler, President, Co-Head of Global Private Finance
Robert, it's Ian. I'll start, and Eric or Jon can add in. There are several factors to consider here. First, when comparing the portfolios in Europe to that in the U.S., European deals are usually bilateral with a single tranche of debt, which tends to be priced a bit higher than in the U.S. market. However, the OID and spreads may also be higher, making it an appealing investment on a relative value basis. For the U.S. market, any company that is obtaining financing and attracting new capital in the third quarter should be viewed as a high-quality entity. These companies have performed well and have potential for growth, even amidst uncertain market conditions. The spread in the U.S. is fairly flat, which differs from Europe, and leverage has declined by about a quarter turn. However, the significant change in the North American market is the rise in OID. This can be attributed to a limited number of available deals, causing sponsors to seek partners who can provide reliable capital and quick responses to help finalize those deals. Consequently, they are willing to pay more through OID. For agents leading these transactions, this higher OID represents a benefit. In our portfolio, the OID is around 3%, which is noticeably higher than pre-COVID levels. With North America experiencing slightly lower leverage, improved documentation, and high-quality deals, this creates very appealing investment opportunities. You can evaluate these opportunities in relation to the liquid market and consider the illiquidity premium or assess returns by analyzing leverage.
Robert Dodd, Analyst
Thank you, I appreciate that. To build on that point, regarding slide 27 and Q4 originations, the DMVs and spreads are not equivalent. However, that 8.2% seems to be holding steady. Considering where spreads were in Q3, can you provide some insight into the Q4 originations so far? Is any of this related to the high spread opportunistic deals from Q3 that we noticed on Slide 15? Or is it more focused on middle-market deals where you're still able to find attractive spreads and DM margins in Q4, even with increased competition?
Ian Fowler, President, Co-Head of Global Private Finance
I'll begin with the middle-market, and then I'll allow Eric and Jon to chime in. We continue to find the deals we are pursuing to be appealing from that viewpoint. There is a significant amount of capital available, and we expect that increased competition will lead to some compression in returns over time. Additionally, it's important to note that after experiencing a dislocation, high-quality businesses are the ones that can attract new capital. There are certainly companies that may not be of high quality but are seeking financing. It’s crucial to select the right opportunities. We will avoid taking excessive risks for the sake of returns, so we will maintain our discipline. Our situation is strong because during the entire COVID situation, unlike other platforms that faced capital and liquidity challenges, we navigated through without any issues. As a result, the market perceives us as a stable and reliable source of capital, leading to an influx of portfolio companies and new platform opportunities reaching out to us, particularly in light of what certain sponsors observed during the market turbulence. In some instances, we have even taken over existing agents. We are currently very active in terms of our pipeline. However, we recognize that this situation will not last indefinitely, and we anticipate a return to a more competitive environment. Eric and Jon, feel free to add anything.
Eric Lloyd, CEO
I think, Ian, you answered it very well on there. Just specifically, Robert, that does refer to not exclusively, but very much our core directly originated in middle-market business. So think of those deals that were funded in October; those were probably August type of initial due diligence and transactions now as time goes. And so as Ian said, nothing lasts forever. So, it's a more competitive today than it was in August, but we're still finding some really attractive opportunities.
Robert Dodd, Analyst
I understand, thank you for that. Additionally, if I may ask, your pro forma leverage for cash or short-term investments in these deployments seems quite favorable. If the MVC deal receives shareholder approval, would that increase your leverage further? Even with that leverage in mind, your earnings are strong and have led to a dividend increase. Considering the good returns you’re achieving with this leverage profile, have you given any thought to possibly aiming for a lower leverage? If you can generate earnings at a lower level of leverage, it could minimize risk altogether. What are your thoughts on this?
Eric Lloyd, CEO
We began by focusing on managing the liability side of our balance sheet, aiming to make it a key differentiator for us. The results with our cost of capital and unsecured debt issuances have been encouraging, especially as we stagger out maturities. In examining our pipeline for August and September, we saw strong prospects for October closings. As Jon mentioned, the probability-weighted pipeline looking ahead, along with the strength of the liquid market, led us to the decision to shed some liquid collateral, which introduced volatility to our underlying NAV but also generated cash. This move improved our net leverage to a more attractive level. We have always emphasized buying optionality, including more revolver capacity than we initially sought. We are prepared to generate the right returns for shareholders even with lower leverage, prioritizing the flexibility to seize market opportunities when they arise for the benefit of our investors.
Ryan Lynch, Analyst
Good morning. Thank you for addressing my questions. I understand we are examining just one quarter of data, and I appreciate the details on investments in the middle-market compared to cross-platform. This quarter, about two-thirds of your originations came from the middle-market while a third came from cross-platform, which seems quite high. Do you believe this breakdown can be maintained, or is the current economic uncertainty driving more activity in the cross-platform area? Moreover, do you have any long-term expectations for the percentage of the portfolio that you aim to allocate to the cross-platform strategy, considering its potential for higher yields?
Eric Lloyd, CEO
Thanks, Ryan. It's Eric. The market opportunity is what guided our decisions. While the middle-market wasn't particularly strong this quarter compared to our cross-platform investments, we identified some valuable opportunities there and aimed to take advantage of them. Looking at the October figures, you'll see a significantly higher percentage of directly originated, first-lien senior secured loans. As we approach Q4, I consider this to be the core of our strategy that we've discussed before. We don't set specific targets; instead, we focus on managing our 30% allocation carefully to avoid exceeding it too much. The core of our portfolio should consistently represent over 75% of our activities. However, when we spot good opportunities, Barings can benefit our shareholders due to our extensive and capable teams across the U.S. and Europe, as well as our structured credit and ABS teams. This diverse deal flow provides us with a strong value assessment. For context, in Q4 two years ago, we experienced slow origination primarily due to volatility in liquid markets, causing us to pull back on the middle market since we didn't find value there. But where we do see value, we will act to enhance shareholder returns. This approach shouldn't be seen as a shift in strategy or a target but rather as a method for utilizing that 30% allocation to differentiate ourselves from other managers.
Bryce Rowe, Analyst
Thanks. Good morning, I wanted to maybe talk about a topic we haven't talked about for the last couple of quarters because of the ongoing acquisition. But with that expected to close here by the end of the year, just curious what the appetite might be for more stock repurchases given your action in the past? I assume that they're still up for grabs, so to speak.
Eric Lloyd, CEO
Yes, so we announced as part of the transaction that we'll do $15 million of share buybacks post the transaction, the closing of the MVC. And we work with our board on that strategy on an annual basis, depending on factors. And so it's always something that will be in discussion that we'll evaluate using equity as a form of return to shareholders if it's attractive. At the same time, we want to make sure we balance the scale and liquidity of the underlying corpus of equity too, so that combination with our board is something we look at on an annual basis. But we've already committed to the $15 million post-transaction.
Operator, Operator
Thank you. At this time, I'd like to turn the floor back over to Mr. Lloyd for closing comments.
Eric Lloyd, CEO
I just want to thank everybody for dialing in and your time. I know that the financial community, y'all are very busy at this time. I appreciate the compliments on our transparency and the quality of the deck and Jonathan Bock and Elizabeth Murray and their team. They've really put a lot of effort into that, and so I'm glad it's recognized by people in the investor community. If we can answer anything else, always let us know. We're always here. Everybody, stay healthy. Stay positive out there. And thanks for your time and support.
Operator, Operator
Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time, and have a wonderful day.