Hello and welcome to Kane Anderson BDC Inc's second quarter 2025 earnings call. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to Andy Wedderburn-Maxwell, Managing Director. Please go ahead.

Good morning and welcome to Kane Anderson BDC Inc's second quarter 2025 earnings call. Today I'm joined by Doug Goodwilliam, Ken Leonard, co-CEOs of KBDC, Frank Carl, Senior Vice President, and Terry Hart, CFO. Following our prepared remarks, we will be available to take your questions. Today's call may include forward-looking statements. Such statements involve known and unknown risks, uncertainties, and other factors, and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates, and projections about the company, our current and prospective portfolio investments, our industry, our beliefs, and opinions, and our assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict. Actual results may differ materially from those expressed or forecasted in the forward-looking statement. We ask that you refer to the company's most recent filings with the SEC for important risk factors. Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time. Our earnings release, 10Q, and supplemental earnings presentation are available on the financial section of our website at canebbc.com. Now I'd like to turn the call over to Ken Leonard.

Thank you, Andy, and thank you, everyone, for joining us on the call today. I'd like to start with an overview of our financial results before discussing investment activity during the second quarter, current market conditions, and our recent investment in SG credit, announced just after the quarter end. I'll then turn over the call to Frank Carl to go over our portfolio makeup and performance. And finally, Terry Hart will conclude with details on KBDC's financial results. As of the close yesterday, we reported solid second quarter results, generating stable net investment income of $0.40 a share and net income of $0.35 a share, representing 9.8% annual return on equity. During the quarter, we distributed $0.40 per share regular dividend and a $0.10 per share special dividend in conjunction with the final of three lockup releases occurring on May 21st. Our NAV at quarter end was $16.37, a 0.8% decline quarter over quarter, due in part to our final 10-cent special dividend payment, coupled with some minor unrealized losses. At quarter end, our estimated spillover net investment income was 12 cents per share. Despite the trade and policy-related disruptions across most markets during Q2-25, we had $129 million of gross new private credit investments. In the quarter, we also funded a total of $129 million, of which $101 million represented new investments and $28 million represented existing previously unfunded commitments. This is in line with private credit fundings from Q2-24 of $136 million. While Q2-25 generally represented something of a market-wide slowdown, we remain quite active, particularly in the latter part of the quarter. We firmly believe that our ability to execute on our strategy, even in challenging market conditions, is representative of our value add to our private equity clients and shareholders alike. While Q225 was a slower quarter industry-wide, we're seeing signs of improving market landscape for transaction activity. Our deal team has seen a noticeable uptick in market sentiment in recent weeks, and we have seen a significant increase in total activity to match. We believe that this will lead to a solid second half of the year, anchored by a reasonably attractive macroeconomic backdrop along with rate cut prospects, but tempered by the likely continuation of tariff noise. Transactions that we have reviewed recently and in Q225 mostly have average spreads over SOFR in the 500 to 600 basis point range, and our second quarter middle market loans had an average spread over SOFR of approximately 540 basis points. As always, we remain very selective and disciplined in our capital allocation. Repayment of private credit loans during the quarter totaled $72 million, up from $41 million in the second quarter of 2024, but down from $86 million in the first quarter of 2025. Given the continued relative strength of the broadly syndicated markets and our success and originations, we continued our previously stated strategy to reduce the size of our broadly syndicated loan portfolio and replace those lower yielding credits with higher yielding loans within our lending strategy. In the second quarter of 2025, we had repaid or sold down $47 million of broadly syndicated loans and have continued to strategically exit these investments in the third quarter. We remain focused on winding down our broadly syndicated loan portfolio and rotating into wider spread private credit loans over the balance of the year. When considering all funding and repayment activity, net investment activity for the quarter was $10 million. This increase raised our debt-to-equity ratio to 0.91 times, above our first quarter 2025 debt-to-equity ratio of 0.86 times. The third quarter is off to a strong start, bolstered in part by our previously reported investment in SG credit, which we'll discuss later. We feel we're on pace to hit our target leverage range of one-to-one and a quarter in the third quarter. also continuing the execution of our arbitrage with respect to exiting our remaining broadly syndicated loans. Shifting to the portfolio, we are very pleased with the performance and health of our loan book, which remains conservatively positioned with 98% first lien senior secured loans with an average loan to value of approximately 43%. As a percentage of fair value, investments on non-accrual were flat quarter over quarter at 1.6% of fair value. Although we did add one very small position and non-approval status in the quarter. Given the high proportion of investments where we are lead or co-lead, coupled with our highly experienced workout team, we believe we are well positioned to drive positive outcomes for our shareholders in these situations. Turning to events post-quarter close, in mid-July, we announced an investment into SG Credit, a leading lower middle market credit platform. The investment, which is structured as an $80 million term loan, structured inside of NAV, with a $34 million delayed draw facility, is immediately accretive to earnings with a yield on funded debt north of 11%. KBDC made a $12 million equity investment for 22.5% ownership of SGCredit. Lastly, on August 5th, we launched a private placement unsecured notes offering and will provide further details post-pricing. Given the recent strength in the private placement market, with spreads near their tightest levels compared to public markets, we felt this was an opportune time to continue to diversify our sources of funding. I will now pass the call over to Frank Carl to discuss our portfolio in more detail.

Thanks, Ken. Turning to our portfolio composition, as of June 30, 2025, ABDC's portfolio included 114 individual portfolio companies representing fair market value of approximately $2.2 billion of investments. We have another $251 million of unfunded commitments, comprised of a mix of unfunded revolvers and delayed draw term loans, for total commitments of approximately $2.5 billion. Since June 30th, KBEC has closed, or is in the final closing process, on an additional $176 million of fundings, highlighting the continued improvement in market conditions previously touched on by Ken. This number also includes the investment into SG Credit. We have a number of other higher probability investments in process, such that we think there is a reasonable amount of upside to third quarter 2025 originations relative to these amounts. As of June 30, 2025, investments in KBDC's portfolio, excluding those on watch list, have weighted average leverage of 4.3 times, interest coverage ratio of 2.5 times, and loan-to-enterprise value of approximately 43%. We've also built a diversified portfolio with an average position size of 0.9% of fair value, and our top 10 investments represent only 18% of our portfolio. Outside of the specific credit statistics associated with our portfolio, our investments are well-structured. 98% of our portfolio is invested in first lien securities, and 99% of our private middle market investments are backed by private equity sponsors. Additionally, all of our core first lien private middle market investments have financial covenants. 100% of our debt investments are floating rate, which mirrors our liabilities, where the vast majority of our debt funding utilizes floating rate borrowings as well. Credit performance across our portfolio remains strong to date, with only 1.6% of total debt investments at fair value on non-accrual, represented by only five positions out of those 114. Lastly, we've built this conservative portfolio with a healthy weighted average yield of approximately 10.4% on fair value of investments. This yield has been achieved with approximately 8% of our portfolio still invested in broadly syndicated loans. While we have continued to rotate out of these positions, we still have some upside as we reinvest this capital into higher yielding private middle market investments. I want to take this opportunity to provide some additional context around our recent investment into SG Credit. The company was founded in 2013 and has originated over $1 billion in commitments in more than 200 companies across its three lending verticals, commercial finance, consumer products, and software and technology. The core lending strategies are focused primarily on asset-backed facilities, recurring revenue loans, and some cash flow lending, all in what we would consider the lower or middle market. Kane Anderson has a long history with many of the principles of SG Credit, including having overlapped at previous institutions. SG Credit has built a solid, diversified portfolio of loans to businesses in this smaller end of the market with an underwriting strategy and credit philosophy that mirrors much of what we do at KBDC. We believe that the investment we structured here represents a measured first step into this market where we can create indirect exposure for KBDC shareholders into a differentiated and attractive segment of the lower middle market via what is mostly a debt investment into a commercial finance company. The capital provided by KBDC to SC Credit will be used mostly for growth purposes. On a fully funded basis, this investment will be approximately 5% of our portfolio. Switching gears to at least touch on the tariffs issue, we've continued to monitor our portfolio company's performance as tariff policies have evolved. Deal teams are in regular dialogue with management teams, and we still feel confident that most of our borrowers will be largely unaffected by the policies, since most are domestically focused, both in terms of revenue and sourcing, resulting in minimal direct tariff exposure. For those businesses that do have direct or indirect exposure through their supply chains, we believe that most have pricing power to pass these increased costs on to buyers. With only one new non-equal representing 0.2% of our portfolio at fair value this quarter, we continue to see credit events as one-offs as opposed to as part of any meaningful trend. Looking ahead, while we expect some further volatility in markets, we're very happy with the increased level of investment activity so far in the third quarter. The strength of our originations, along with our extensive network of private equity relationships, means we can maintain a healthy pipeline of opportunities at attractive risk-adjusted returns. We believe our portfolio remains well-positioned for continued earnings upside in the future as we finalize our rotation out of our remaining broadly syndicated loans and increase leverage to our stated target range of 1 to 1.25 times. With that, I'll turn it over to Terry Hart to discuss KBDC's second quarter 2025 financial results.

Thanks, Frank. Let's first review results of operations. During the second quarter, we earned net income per share of $0.35 and net investment income per share was $0.40 compared to $0.40 in the prior quarter and fully covering our dividend. We were able to maintain net investment income at this level through higher interest income resulting from rotations out of the lower yielding broadly syndicated loans into middle market loans and despite the partial expiration of the base Management Fee Waiver. As a reminder, in connection with our IPO, Kane Anderson instituted a 25 basis point fee waiver of our base management fee through May 23, 2025. Total investment income for the second quarter was $57.3 million as compared to $55.2 million in the prior quarter. As mentioned, the increase to investment income was primarily driven by the portfolio rotations and the full quarter impact of net additions to the portfolio during the first quarter. These additions were partially offset by the $0.2 million impact of placing Bell USA on non-accrual status during the quarter. Our portfolio yield was unchanged quarter over quarter, and PIC interest remains relatively low at 3.6% of interest income for the quarter. PIC income was elevated from prior quarters because year-to-date interest income from Centerline Communications was converted to PIC during the second quarter. Additionally, during the second quarter, we had approximately $0.5 million of accelerated amortization of OID as a result of realization activity. Total expenses for the second quarter were $28.6 million compared to $26.5 million for the prior quarter. The increase was primarily related to higher average borrowings on our credit facilities and the partial expiration of the base management fee waiver. During the quarter, our incentive management fee was reduced by the 12-quarter look-back incentive fee cap. During the second quarter, we had a small realized loss of approximately $10,000, primarily related to the sale of several broadly syndicated loans, and we had net unrealized losses on the portfolio of $3.5 million compared to unrealized losses of $6.5 million in the prior quarter. The unrealized losses were primarily the result of negative fair value changes related to our investments in Trademark Global, Sundance, and Siegel Egg, partially offset by positive marks on our broadly syndicated loan portfolio and ArborWorks. works. Additionally, we had $0.3 million of deferred income tax expense related to unrealized gains on equity investments held in our taxable subsidiary. As of June 30th, total assets were $2.3 billion and net assets were $1.2 billion. As of that date, our net asset value was $16.37 per share. The decrease of $0.14 from $16.51 per share as of March 31st was primarily a result of paying the final special dividend related to our IPO of $0.10 per share during the quarter and $0.06 per share related to net unrealized losses during the second quarter. Of note, during the quarter, we had $0.01 of accretion related to our share repurchase program. At the end of the second quarter, we had debt outstanding of $1,054,000,000, and our debt-to-equity ratio was 0.91 times, which was an increase from 0.86 times at the end of the first quarter. We anticipate achieving the low end of our debt-to-equity range of one times to one-and-a-quarter times in the third quarter of 2025. During the second quarter, we continued to increase credit facility borrowings, improving the utilization of these facilities. The higher utilization of our credit facilities, resulting from robust origination during the third quarter, should be beneficial to net investment income over the balance of the year. As Ken mentioned earlier, during the third quarter, as we increase our leverage on our credit facilities and achieve the low end of our debt-to-equity target range, we plan to opportunistically issue unsecured notes to provide additional credit facility flexibility and capacity. Now turning to our distributions. On August 5th, our Board of Directors declared a regular dividend for the third quarter of 2025 of $0.40 per share to shareholders of record on September 30th, 2025. As of June 30th, our undistributed net investment income was approximately $0.12 per share. For the balance of 2025, we anticipate relatively modest excess net investment income above our base dividend, reflecting the continued ramp of our portfolio to achieve target leverage ranges and the strategic rotation out of our lower-yielding broadly syndicated loan investments into middle market loans. We believe our dividend yield and dividend coverage will more accurately reflect our steady state operations when KBDC is operating at its leveraged target with the portfolio fully invested in middle market loans. With that operator, please open the line for questions.

We will now begin the question and answer session. In order to ask a question, press star followed by the number one on your telephone keypad. Our first question will come from the line of Doug Harder with UBS. Please go ahead.

Hi, this is Corey Johnson on for Doug Harder. I just wanted a quick point of clarification just to see if I heard this correctly. So I think you have about $180 million left in syndicated loans on the portfolio. Did you say that you believe you'll be out of those loans by the end of the year?

Thanks, Corey. Yeah, this is Frank. Just to put a bit of a finer point on it. so in q3 we've already exited an additional about 100 million dollars of that book i think the um q2 number was still remaining about 176 million so we're down into the call it lower mid 70 million dollars of that portfolio um you know we'll look to strategically exit those throughout the rest of the year long way of saying you know yes got it thank you um and this is one one follow-up um so you you think you'll hit your uh target leverage as of uh the next quarter um just

thinking a little bit beyond that um you know once once you hit that where i guess do you expect um where do you expect it to sort of like hang out do you think you'll take it probably close to towards like the the midpoint of that range or do you feel like you can operate at the higher end And, you know, just I guess where do you think that'll wind up lying?

Yeah, Corey, this is Doug Goodwillie. Thank you for the question. Given the investment activity that we've seen in Q3 and that we're seeing in our immediate pipeline, we expect to hit one-to-one during this quarter, as Terry mentioned. And we would expect to operate over the long term, you know, in that range of probably 1.1. Obviously, that will ebb and flow given investment activity. but we will expect to be in that range of 1.1 over the long term.

Again, to ask a question, press star followed by the number one on your telephone keypad. Our next question will come from the line of Kenneth Lee with RBC Capital Markets. Please go ahead.

Hey, good morning. Thanks for taking my question. Just one on SG Credit. could you talk a little bit more about how you view the relative risk and return profile for originations within that business versus the rest of your core middle market investments? Thanks.

I'll start on that. This is Doug. Ken, thank you for the question. I think SG Credit, as Frank touched on, focuses on the commercial finance business, consumer AVL as well as a recurring revenue loan product. And they focus really in what we would consider the lower mid-market. If our average EBITDA median is usually high 30s in our direct lending product, they're focused on a different subset of the market, typically somewhere between zero to 10 million in EBITDA. Again, they're focused on the asset-based side of that in many of those companies so they tend to be smaller growth related businesses so they have a great proprietary origination system that they source you know over a thousand deals a year and their return profile has been you know really strong frankly what gross returns in the 15 range you know supported by two family offices in the past and obviously our investment both in the term loan as well as in the equity will help grow that platform from a loan perspective as well as investing into the actual structure and people of the business.

Gotcha. Very helpful there. And just one follow-up on that. It sounds like it's going to be structured. Obviously, there's a term loan component, but it's a strategic equity investment. and I think in the prepared remarks, it sounds as if there could be some incremental capital allocations over time. How meaningful could the overall allocation to SG Credit be over time? Is it close to – just wanted to get a little bit more color around that. Thanks.

Yeah, again, I'll start on that and Frank can weigh in as well. He worked on the deal with me on SG. I think we obviously have a significant delay draw term loan to help that business grow. as well as, you know, we think it's a great platform and ultimately, you know, have the ability to invest more equity into the business to help it grow. So, we think it's an attractive investment on both the, obviously, the term loan side. And clearly, we don't do a lot of, you know, when we do equity, we're doing, you know, small equity co-invest alongside our sponsor-backed transactions. But here, you know, we believe it's a strategic long-term investment into SG. So we think that, you know, a bit more equity is relevant and a good place to invest. And ultimately, Frank, I wouldn't see the investment being over, you know, 10% of the overall book.

But we think, again, it's a very attractive investment from both the debt and smaller equity investment as well yeah only thing i'll add and i mentioned it and you fully funded our existing commitments to that vehicle would be about five percent of the portfolio and to doug's point you know clearly there's um some capacity above that number but you know we're not expecting a you know outsized you know above something in that you know mid high single digits percentage of the portfolio range and that's you know it would take some time to get there so as we look at sort of the immediate to medium term future, you know, something in that 5% range is probably a reasonable assumption.

Gotcha. Very helpful there. Thank you.

Our next question will come from the line of Paul Johnson with KBW. Please go ahead.

Hey, good morning. Thanks for taking my questions. Just a few more on SGCredit. Maybe you can just kind of help us understand, I guess, what is the benefit of structuring the transaction with SG within the BDC versus, you know, maybe structuring something at more of the advisor level and sharing the benefits via like a JV structure or just, you know, deal flow or something of the like. Like, is it just the economics are better, or what makes it more, I guess, beneficial for the investment to be placed in the BDC?

I'll start on that, and then Terry and Frank can weigh in on maybe some of the non-consolidation issues. But, you know, Paul, you've seen it in the past. Other BDCs have made investments into commercial finance companies. It's a pretty efficient way to invest. For us to be able to invest in a strong cash pay debt security we think is attractive within the actual NAB of SG, and then actually invest $12 million into the finance company to have a minority ownership there as well. So from just a return perspective, we think it's a really attractive investment for the BDC and to have long-term ownership as well as a night-term loan, if you will, to help that business grow. And then Frank, Terry, you can comment a little bit more in terms of the structure and, you know, as a BDC and not facing consolidation issues, it makes it an attractive way to invest out of the BDC and how you consider, you know, leverage charges.

Yeah, I think that, you know, at a high level, structuring this through the BDC, I mean, none of this is necessarily simple and straightforward as you think about regular regulated vehicles, but for us as a platform, sort of the most straightforward way to invest in a business that we see as clearly accretive was through the BDC, matched up for return targets, strategy, hold size, et cetera, thought that the best place to house this was inside KBDC.

Yeah, and the only thing I would add, as Doug mentioned, we did structure this in a way that it won't be consolidated on the books of the BDC. And so it will look very much like any other investment that we have. We'll have additional disclosure just given the size of the investment. But yeah, pretty straightforward.

Appreciate that. And how do you feel, I guess, longer term about the ability to basically refinance that loan if that were ever something that you needed to do or or you know get the loan paid off i mean you feel pretty good about the ability if you know if anything were to happen down the road where this this uh partnership just didn't work out as this plan how do you feel about the uh the refinancing of the debt investment i i think we consider it you know similar to most of the investments we make into a uh you know it's obviously a finance company versus a more typical operating company it is in a liquid loan into a

you know privately owned business um that said uh we think it's a you know very strong loan and i think during this process if uh you know their chairman mac mcnarrow on he would say that you know there was a lot of uh interest in investing um into the debt security here and i think it was really a great fit between SG, you know, from the investment perspective, you know, we wanted to be more active in the asset-backed category, you know, from a cultural perspective in terms of knowing the founders and the principals there for decades, and even, you know, having a shared path at Cerberus as well.

So I think there was strong interest there, but, you know, to be clear, Paul, is still you know in a liquid loan like any of the private credit investments that we make um and that said we we expect to hold it and and it to be a strong performer appreciate that and lastly just on the accretive um comment towards earnings um from sg credit um are you able to provide i'm assuming that that means the creative in the sense that whatever the roe or return generated on kind of the aggregate investment is is you know greater than what you know the

portfolio on balance sheet is generating are you able to provide any kind of context around what the yield is on that debt investment at this point yeah this is frank i think we said that so it's fixed rate 11 stream rate there are also fees associated with that that'll be amortized over the life of the loan so on the debt side you know that 11 plus is accretive to the book Got it.

Appreciate it. Missed that part. Thank you very much. That's all for me. Thanks, Paul.

And that will conclude our question and answer session. I'll hand the call back over to Doug Goodwillie for any closing comments.

Thank you. And I want to thank everybody for joining us on the call today. We look forward to another strong quarter of KBDC investment activity in Q3, and also look forward to our next earnings call in mid-November.

That concludes today's call. Thank you all for joining. You may now disconnect.