8-K
Bain Capital Specialty Finance, Inc. (BCSF)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section
13 or 15(d) of the
Securities Exchange
Act of 1934
Date of report (Date of earliest event reported): February 28, 2023
BAIN
CAPITAL SPECIALTY FINANCE, INC.
(Exact name of Registrant as Specified in Its Charter)
| delaware | 814-01175 | 81-2878769 |
|---|---|---|
| (State or Other Jurisdiction <br><br>of Incorporation) | (Commission <br><br>File Number) | (IRS Employer <br><br>Identification No.) |
| 200 CLARENDON STREET, 37^th^FLOOR,<br><br> <br>Boston,<br> MA | 02116 | |
| --- | --- | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code:
(617
) 516-2000
N/A
(Former Name or Former Address, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, $.01 par value | BCSF | New York Stock Exchange |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging
growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 2.02. Results of Operations and FinancialCondition.
On February 28, 2023, Bain Capital Specialty Finance, Inc. (the “Company”) issued a press release announcing its financial results for the quarter and fiscal year ended December 31, 2022. A copy of the press release is attached hereto as Exhibit 99.1.
The information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 furnished herewith, is being furnished and shall not be deemed “filed” for any purpose of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such Section. The information in this Current Report on Form 8-K shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 8.01 - Other Events
On February 28, 2023, the Company issued a press release announcing the declaration of a first fiscal quarter 2023 dividend of $0.38 per share for stockholders of record as of March 31, 2023, payable on April 28, 2023. A copy of the press release is attached hereto as Exhibit 99.1.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
| 99.1 | Press Release, dated February 28, 2023 |
|---|---|
| 104 | Cover page interactive data file (formatted as Inline XBRL) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Bain Capital Specialty Finance, Inc. has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| BAIN CAPITAL SPECIALTY FINANCE, INC. | |||
|---|---|---|---|
| Date: February 28, 2023 | By: | /s/ Jessica Yeager | |
| Name: | Jessica Yeager | ||
| Title: | Secretary |
Exhibit 99.1
Bain Capital Specialty Finance, Inc. AnnouncesDecember 31, 2022 Financial Results and Declares First Quarter 2023 Dividend of $0.38 per Share
BOSTON – February 28, 2023 – Bain Capital Specialty Finance, Inc. (NYSE: BCSF, the “Company”, “our” or “we”) today announced financial results for the fourth quarter and fiscal year ended December 31, 2022, and that its Board of Directors has declared a dividend of $0.38 per share for the first quarter of 2023.
“BCSF delivered strong fourth quarter earnings and full year 2022 financial results including attractive levels of interest income and net asset value growth driven by solid credit performance across our largely senior secured portfolio,” said Michael Ewald, Chief Executive Officer of BCSF. “For the second consecutive quarter, we are raising our regular quarterly dividend by 6% to $0.38 per share which represents a 9% annualized yield on book value, reflecting our view of the Company’s higher earnings power.”
QUARTERLY HIGHLIGHTS
| · | Net investment income (NII) per share was $0.37,<br>equating to an annualized NII yield on book value of 8.7% and 9.3% for 2022^(1)(2)^; |
|---|---|
| · | Net<br> income per share was $0.67, equating to an annualized return on book value of 15.7% and 9.8%<br> for 2022^(2)^; |
| --- | --- |
| · | Net asset value per share as of December 31,<br>2022 was $17.29, as compared to $16.98 as of September 30, 2022; |
| --- | --- |
| · | Gross and net investment fundings were $220.7<br>million and $58.7 million, respectively; Ending debt-to-equity (net of cash) was 1.14x, as compared to 1.20x as of September 30, 2022; |
| --- | --- |
| · | The Company increased the amount of commitments<br>to its Sumitomo Credit Facility to $665.0 million, up from $635.0 million; |
| --- | --- |
| · | Subsequent to quarter-end, the Company’s<br>Board of Directors increased its quarterly regular dividend by $0.02 per share to $0.38 per share for the first quarter to stockholders<br>of record as of March 31, 2023^(3)^; and |
| --- | --- |
| · | In February 2023, Kroll Bond Rating Agency, LLC<br>(KBRA) assigned the Company an investment grade rating of BBB and Stable outlook. |
| --- | --- |
SELECTED FINANCIAL HIGHLIGHTS
| ($ in millions, unless otherwise noted) | Q4 2022 | Q3 2022 | ||
|---|---|---|---|---|
| Net investment income per share | $ | 0.37 | $ | 0.47 |
| Net investment income | $ | 24.2 | $ | 30.1 |
| Earnings per share | $ | 0.67 | $ | 0.17 |
| Dividends per share declared and payable | $ | 0.36 | $ | 0.34 |
| ($ in millions, unless otherwise noted) | As of December 31, 2022 | As of September 30, 2022 | ||
| --- | --- | --- | --- | --- |
| Total fair value of investments | $ | 2,387.0 | $ | 2,293.5 |
| Total assets | $ | 2,592.4 | $ | 2,521.4 |
| Total net assets | $ | 1,116.4 | $ | 1,096.1 |
| Net asset value per share | $ | 17.29 | $ | 16.98 |
PORTFOLIO AND INVESTMENT ACTIVITY
For the three months ended December 31, 2022, the Company invested $220.7 million in 44 portfolio companies, including $101.0 million in five new companies, $101.5 million in 38 existing companies and $18.2 million in International Senior Loan Program, LLC (“ISLP”). The Company had $162.0 million of principal repayments and sales in the quarter, resulting in net investment fundings of $58.7 million.
Investment Activity for the Quarter Ended December31, 2022:
| ($ in millions) | Q4 2022 | Q3 2022 | ||
|---|---|---|---|---|
| Investment Fundings | $ | 220.7 | $ | 433.0 |
| Sales and Repayments | $ | 162.0 | $ | 396.5 |
| Net Investment Activity | $ | 58.7 | $ | 36.5 |
As of December 31, 2022, the Company’s investment portfolio had a fair value of $2,387.0 million, comprised of investments in 132 portfolio companies operating across 31 different industries.
Investment Portfolio at Fair Value as of December31, 2022:
| Investment Type | in Millions | % of Total | ||
|---|---|---|---|---|
| First Lien Senior Secured Loans | 68.3 | % | ||
| Second Lien Senior Secured Loans | 3.9 | |||
| Subordinated Debt | 1.8 | |||
| Structured Products | 1.0 | |||
| Preferred Equity | 3.4 | |||
| Equity Interests | 8.8 | |||
| Warrants | 0.0 | |||
| Investment Vehicles | 12.8 | |||
| Subordinated Note in ISLP | 7.8 | |||
| Equity Interest in ISLP | 2.6 | |||
| Subordinated Note in SLP | 2.2 | |||
| Preferred and Equity Interest in SLP | 0.2 | |||
| Total | 100.0 | % |
All values are in US Dollars.
As of December 31, 2022, the weighted average yield on the investment portfolio at amortized cost and fair value were 11.4% and 11.6%, respectively, as compared to 10.2% and 10.6%, respectively, as of September 30, 2022.^(4)^ 94.5% of the Company’s debt investments at fair value were in floating rate securities.
As of December 31, 2022, three portfolio companies were on non-accrual status, representing 3.0% and 1.6% of the total investment portfolio at amortized cost and fair value, respectively.
As of December 31, 2022, ISLP’s investment portfolio had an aggregate fair value of $707.7 million, comprised of investments in 38 portfolio companies operating across 17 different industries. The investment portfolio on a fair value basis was comprised of 95.7% first lien senior secured loans, 2.8% second lien senior secured loans and 1.5% equity interests. 98.3% of ISLP’s debt investments at fair value were in floating rate securities.
As of December 31, 2022, SLP’s investment portfolio had an aggregate fair value of $546.7 million, comprised of investments in 48 portfolio companies operating across 21 different industries.^(5)^ The investment portfolio on a fair value basis was comprised of 96.0% first lien senior secured loans and 4.0% second lien senior secured loans. 98.2% of SLP’s debt investments at fair value were in floating rate securities.
RESULTS OF OPERATIONS
For the three months ended December 31, 2022 and September 30, 2022, total investment income was $62.4 million and $58.8 million, respectively. The increase in investment income was primarily due to an increase in interest income as a result of higher base rates.
Total expenses (before taxes) for the three months ended December 31, 2022 and September 30, 2022 were $37.3 million and $28.7 million, respectively. The increase was primarily driven by an increase in incentive fees due to a higher Cumulative Net Return under the Company’s incentive fee structure that has a total return three-year look back feature.^(6)^
Net investment income for the three months ended December 31, 2022 and September 30, 2022 was $24.2 million or $0.37 per share and $30.1 million or $0.47 per share, respectively.
During the three months ended December 31, 2022, the Company had net realized and unrealized gains (losses) of $19.3 million.
Net increase in net assets resulting from operations for the three months ended December 31, 2022 was $43.5 million, or $0.67 per share.
CAPITAL AND LIQUIDITY
As of December 31, 2022, the Company had total principal debt outstanding of $1,395.5 million, including $443.0 million outstanding in the Company’s Sumitomo Credit Facility, $352.5 million outstanding of the debt issued through BCC Middle Market CLO 2019-1 LLC, $300.0 million outstanding in the Company’s senior unsecured notes due March 2026 and $300.0 million outstanding in the Company’s senior unsecured notes due October 2026.
For the three months ended December 31, 2022, the weighted average interest rate on debt outstanding was 4.3%, as compared to 3.7% for the three months ended September 30, 2022.
As of December 31, 2022, the Company had cash and cash equivalents (including foreign cash) of $59.8 million, $207.3 million of capacity under its Sumitomo Credit Facility and $50.0 million of capacity under the Revolving Advisor Loan. As of December 31, 2022, the Company had $303.7 million of undrawn investment commitments.
As of December 31, 2022, the Company’s debt-to-equity and debt-to-equity (net of cash) ratios were 1.25x and 1.14x, respectively, as compared to 1.25x and 1.20x, respectively, as of September 30, 2022.
Endnotes
| (1) | The accounting classification of certain earnings as reported in the Company’s financial statements<br>on Form 10-Q for the quarter ended September 30, 2022 were reclassified. The reclassification is related to an earnings revision from<br>dividend income to realized gain on investments. The revisions do not have any impact on the Company’s net asset value per share<br>as of September 30, 2022 as previously reported. |
|---|---|
| (2) | Net investment income yields and net income returns are calculated on average net assets, or book value, for the respective periods<br>shown. Please refer to Note 12 in the Company’s Form 10-K for additional information regarding the 2022 return calculations. |
| --- | --- |
| (3) | The first quarter dividend is payable on April 28, 2023 to holders of record as of March 31, 2023. |
| --- | --- |
| (4) | The weighted average yield is computed as (a) the annual stated interest rate or yield earned on the relevant<br>accruing debt and other income producing securities plus amortization of fees and discounts on the performing debt and other income producing<br>investments, divided by (b) the total relevant investments at amortized cost. The weighted average yield does not represent the total<br>return to our stockholders. |
| --- | --- |
| (5) | SLP acquired 70% of the member equity interests of the Company’s 2018-1 portfolio (“2018-1”).<br>The Company retained 30% of the 2018-1 membership interests as a non-controlling equity interest. |
| --- | --- |
| (6) | The incentive fee based on income is subject to a cap of 17.5% of Cumulative Net Return during the relevant<br>Trailing Twelve Quarters, which is defined as (x) pre-incentive fee net investment income of the relevant Trailing Twelve Quarters less<br>(y) any Net Capital loss, if any, in respect of the relevant trailing twelve quarters. “Net Capital Loss” in respect of a<br>particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in respect<br>of such period and (ii) aggregate capital gains, whether realized or unrealized, in respect of such period. |
| --- | --- |
CONFERENCE CALL INFORMATION
A conference call to discuss the Company’s financial results will be held live at 8:30 a.m. Eastern Time on March 1, 2023. Please visit BCSF’s webcast link located on the Events & Presentations page of the Investor Resources section of BCSF’s website at http://www.baincapitalbdc.com for a slide presentation that complements the Earnings Conference Call.
Participants are also invited to access the conference call by dialing one of the following numbers:
| · | Domestic: 1-877-407-4018 |
|---|---|
| · | International: 1-201-689-8471 |
| --- | --- |
| · | Conference ID: 13736325 |
| --- | --- |
All participants will need to reference “Bain Capital Specialty Finance - Fourth Quarter and Fiscal Year Ended December 31, 2022 Earnings Conference Call” once connected with the operator. All participants are asked to dial in 10-15 minutes prior to the call.
Replay Information:
An archived replay will be available approximately three hours after the conference call concludes through March 8, 2023 via a webcast link located on the Investor Resources section of BCSF’s website, and via the dial-in numbers listed below:
| · | Domestic: 1-844-512-2921 |
|---|---|
| · | International: 1-412-317-6671 |
| --- | --- |
| · | Conference ID: 13736325# |
| --- | --- |
Bain Capital Specialty Finance, Inc.
Consolidated Statements of Assets and Liabilities
(in thousands, except share and per share data)
| 2021 | |||||
| Assets | |||||
| Investments at fair value: | |||||
| Non-controlled/non-affiliate investments (amortized cost of 1,846,172 and 1,921,970, respectively) | 1,774,947 | $ | 1,901,054 | ||
| Non-controlled/affiliate investment (amortized cost of 133,808 and 100,888 respectively) | 173,400 | 113,290 | |||
| Controlled affiliate investment (amortized cost of 439,958 and 288,526, respectively) | 438,630 | 274,761 | |||
| Cash and cash equivalents | 30,205 | 87,443 | |||
| Foreign cash (cost of 34,528 and 30,877, respectively) | 29,575 | 29,979 | |||
| Restricted cash and cash equivalents | 65,950 | 86,159 | |||
| Collateral on forward currency exchange contracts | 9,612 | 2,815 | |||
| Deferred financing costs | 3,742 | 2,178 | |||
| Interest receivable on investments | 34,270 | 19,269 | |||
| Receivable for sales and paydowns of investments | 18,166 | 30,334 | |||
| Prepaid Insurance | 194 | 193 | |||
| Unrealized appreciation on forward currency exchange contracts | 62 | 5,321 | |||
| Dividend receivable | 13,681 | 18,397 | |||
| Total Assets | 2,592,434 | $ | 2,571,193 | ||
| Liabilities | |||||
| Debt (net of unamortized debt issuance costs of 10,197 and 15,718, respectively) | 1,385,303 | $ | 1,414,982 | ||
| Interest payable | 12,130 | 7,058 | |||
| Payable for investments purchased | 34,292 | 7,594 | |||
| Base management fee payable | 8,906 | 8,792 | |||
| Incentive fee payable | 9,216 | 4,727 | |||
| Accounts payable and accrued expenses | 2,954 | 6,083 | |||
| Distributions payable | 23,242 | 21,951 | |||
| Total Liabilities | 1,476,043 | 1,471,187 | |||
| Commitments and Contingencies (See Note 10) | |||||
| Net Assets | |||||
| Common stock, par value 0.001 per share, 100,000,000,000 and 100,000,000,000 shares authorized, 64,562,265 and 64,562,265 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively | 65 | 65 | |||
| Paid in capital in excess of par value | 1,168,384 | 1,168,384 | |||
| Total distributable earnings (loss) | (52,058 | ) | (68,443 | ) | |
| Total Net Assets | 1,116,391 | 1,100,006 | |||
| Total Liabilities and Total Net assets | 2,592,434 | $ | 2,571,193 | ||
| Net asset value per share | 17.29 | $ | 17.04 |
All values are in US Dollars.
See Notes to Consolidated Financial Statements
Bain Capital Specialty Finance, Inc.
Consolidated Statements of Operations
(in thousands, except share and per share data)
(Unaudited)
| For the Year Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2020 | |||||||
| Income | |||||||||
| Investment income from non-controlled/non-affiliate investments: | |||||||||
| Interest from investments | $ | 138,984 | $ | 153,703 | $ | 170,914 | |||
| Dividend income | 634 | 514 | 787 | ||||||
| PIK income | 13,495 | 4,475 | 7,272 | ||||||
| Other income | 15,091 | 6,173 | 1,955 | ||||||
| Total investment income from non-controlled/non-affiliate investments | 168,204 | 164,865 | 180,928 | ||||||
| Investment income from non-controlled/affiliate investments: | |||||||||
| Interest from investments | 7,470 | 1,818 | 639 | ||||||
| Dividend income | 4,109 | — | — | ||||||
| PIK income | 1,542 | 5,622 | 1,227 | ||||||
| Other Income | — | — | 202 | ||||||
| Total investment income from non-controlled/affiliate investments | 13,121 | 7,440 | 2,068 | ||||||
| Investment income from controlled affiliate investments: | |||||||||
| Interest from investments | 19,819 | 11,822 | 2,644 | ||||||
| Dividend income | 18,401 | 12,601 | 8,537 | ||||||
| PIK income | — | 666 | 279 | ||||||
| Other income | — | — | 4 | ||||||
| Total investment income from controlled affiliate investments | 38,220 | 25,089 | 11,464 | ||||||
| Total investment income | 219,545 | 197,394 | 194,460 | ||||||
| Expenses | |||||||||
| Interest and debt financing expenses | 52,318 | 51,345 | 63,309 | ||||||
| Base management fee | 34,669 | 34,888 | 35,215 | ||||||
| Incentive fee | 19,572 | 24,028 | 4,473 | ||||||
| Professional fees | 2,959 | 2,854 | 2,626 | ||||||
| Directors fees | 707 | 725 | 726 | ||||||
| Other general and administrative expenses | 5,777 | 5,038 | 5,398 | ||||||
| Total expenses before fee waivers | 116,002 | 118,878 | 111,747 | ||||||
| Base management fee waiver | — | (4,837 | ) | (2,676 | ) | ||||
| Incentive fee waiver | — | (4,519 | ) | (674 | ) | ||||
| Total expenses, net of fee waivers | 116,002 | 109,522 | 108,397 | ||||||
| Net investment income before taxes | 103,543 | 87,872 | 86,063 | ||||||
| Excise tax expense | 837 | 134 | 232 | ||||||
| Net investment income | 102,706 | 87,738 | 85,831 | ||||||
| Net realized and unrealized gains (losses) | |||||||||
| Net realized gain (loss) on non-controlled/non-affiliate investments | (1,725 | ) | 25,084 | (33,824 | ) | ||||
| Net realized gain (loss) on non-controlled/affiliate investments | (1,355 | ) | — | — | |||||
| Net realized loss on controlled affiliate investments | — | (3,858 | ) | — | |||||
| Net realized gain (loss) on foreign currency transactions | 5,292 | (3,496 | ) | 130 | |||||
| Net realized gain (loss) on forward currency exchange contracts | 20,894 | (23,773 | ) | 6,472 | |||||
| Net realized loss on extinguishment of debt | (747 | ) | (4,859 | ) | — | ||||
| Net change in unrealized appreciation (depreciation) on foreign currency translation | (3,644 | ) | (936 | ) | 108 | ||||
| Net change in unrealized appreciation (depreciation) on forward currency exchange contracts | (5,259 | ) | 27,935 | (22,396 | ) | ||||
| Net change in unrealized depreciation on non-controlled/non-affiliate investments | (50,309 | ) | (568 | ) | (6,744 | ) | |||
| Net change in unrealized appreciation (depreciation) on non-controlled/affiliate investments | 27,190 | 12,576 | (174 | ) | |||||
| Net change in unrealized appreciation (depreciation) on controlled affiliate investments | 12,437 | 3,964 | (21,125 | ) | |||||
| Total net gains (losses) | 2,774 | 32,069 | (77,553 | ) | |||||
| Net increase in net assets resulting from operations | $ | 105,480 | $ | 119,807 | $ | 8,278 | |||
| Basic and diluted net investment income per common share | $ | 1.59 | $ | 1.36 | $ | 1.46 | |||
| Basic and diluted increase in net assets resulting from operations per common share | $ | 1.63 | $ | 1.86 | $ | 0.14 | |||
| Basic and diluted weighted average common shares outstanding | 64,562,265 | 64,562,265 | 58,670,518 |
See Notes to Consolidated Financial Statements
About Bain Capital Specialty Finance, Inc.
Bain Capital Specialty Finance, Inc. is an externally managed specialty finance company focused on lending to middle market companies. BCSF is managed by BCSF Advisors, LP, an SEC-registered investment adviser and a subsidiary of Bain Capital Credit, LP. Since commencing investment operations on October 13, 2016, and through December 31, 2022, BCSF has invested approximately $6.5 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits or repayments. BCSF’s investment objective is to generate current income and, to a lesser extent, capital appreciation through direct originations of secured debt, including first lien, first lien/last out, unitranche and second lien debt, investments in strategic joint ventures, equity investments and, to a lesser extent, corporate bonds. BCSF has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended.
Forward-Looking Statements
This letter may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts included in this letter may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in filings with the U.S. Securities and Exchange Commission. The Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this letter.
Investor Contact:
Katherine Schneider
Tel. (212) 803-9613
investors@baincapitalbdc.com
Media Contact:
Charlyn Lusk
Tel. (646) 502-3549
clusk@stantonprm.com
