Financial Data and Key Metrics Changes - Q4 net investment income per share was $0.52, representing an annualized yield on book value of 11.8% with 124% dividend coverage [9][10] - For the full year 2024, net investment income per share was $2.09, equal to an 11.8% return on equity, with earnings per share at $1.85, representing a total return on equity of 10.9% [10][11] - Net asset value per share ended the year at $17.65, down from $17.76 in the previous quarter but up from $17.60 in Q4 2023 [12] Business Line Data and Key Metrics Changes - New fundings during Q4 totaled $547 million across 88 portfolio companies, with $317 million into 15 new companies and $230 million into 73 existing companies [26] - For the full year, fundings were $1.7 billion, more than double the volumes in 2023, with total sales and repayment activity for the year at $1.5 billion [26][27] - The investment portfolio size increased by 6% year-over-year, with 95% of new investment fundings into first lien structures [28] Market Data and Key Metrics Changes - In 2024, the company originated over $1.7 billion in loans, more than double the 2023 volumes, despite subdued broader M&A activity [15][16] - The weighted average spread on new originations was approximately 560 basis points, with a yield of 10.2% and median leverage levels of 4.4 times [18][19] - Credit quality remained strong, with investments on non-accrual decreasing to 1.3% at amortized cost and 0.2% at fair value as of December 31 [19][33] Company Strategy and Development Direction - The company remains focused on the middle-market segment, favoring higher spread premiums and stronger lending controls through financial covenants [17] - The strategy includes maintaining majority control positions in nearly 80% of debt tranches to drive outcomes [18] - The company is optimistic about increased M&A activity in 2025, positioning itself well to capitalize on growth opportunities [24][46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the execution of the investment strategy, highlighting stable credit quality and attractive levels of investment income [46] - The outlook for increased M&A activity in 2025 is expected to drive middle-market loan volumes higher [24] - Management noted that the spread tightening observed over the past two years has stabilized, with current spreads aligning with historical averages [51][59] Other Important Information - The company declared a first-quarter dividend of $0.42 per share, with total dividends for 2024 amounting to $1.80 per share, a 13% increase from 2023 [12][14] - The company has a strong liquidity position with $170 million of total available liquidity as of the end of Q4 [23][43] - The average non-accrual rates since inception remain low at approximately 1% of cost, significantly below the BDC sector averages [20] Q&A Session Summary Question: Can you talk about the spread dynamics and how they compare historically? - Management indicated that the fourth quarter originations had a spread over SOFR of about 560 basis points, which is about 20 basis points tighter than Q2 originations [50][51] Question: How do current spreads compare to term sheets submitted recently? - Management noted that current term sheets are in the 525 to 550 basis points range, indicating stability in spreads compared to previous years [55] Question: Is there a difference in terms of new LBO opportunities versus follow-on deals? - Management suggested that new LBO deals might be on the lower end of the spread range, while follow-on deals could be slightly higher, reflecting historical spread levels [58]

Bain Capital Specialty Finance, Inc. Fourth Quarter Ended December 31, 2024 Earnings Presentation DISCLAIMER PLEASE CONSIDER THE FOLLOWING In this material Bain Capital Credit, LP, Bain Capital Credit (Asia), Limited, Bain Capital Credit (Australia), Pty. Ltd., Bain Capital Credit, Ltd., Bain Capital (Ireland) Limited, Bain Capital Investments (Europe) Limited, Bain Capital Credit CLO Advisors, LP, Bain Capital Credit U.S. CLO Manager, LLC, and BCSF Advisors, LP are collectively referred to as "Bain Capital ...

Financial Position and Performance - As of December 31, 2024, the company had approximately $1,395.2 million in outstanding borrowings with a weighted average interest rate of 5.1%[217] - The company’s total assets were reported at $2,632.2 million, with net assets of $1,139.7 million as of December 31, 2024[220] - The actual asset coverage ratio was 182%, with hypothetical scenarios showing returns ranging from (29.38%) to 16.82% based on varying portfolio returns[220] Regulatory and Compliance Risks - The discontinuation of LIBOR could significantly impact the company's business, as it was a leading benchmark for various financial instruments[221] - The company may face challenges in transitioning to alternative benchmark rates like SOFR, which could affect the cost and value of variable rate debt[222] - The company’s debt agreements impose financial and operating covenants that may restrict business activities and limit financing options[218] - Changes in laws and regulations could adversely affect the company’s operations and financial condition, necessitating adjustments to investment strategies[234] - The company may be subject to additional costs and regulatory scrutiny due to legislative proposals affecting the financial services industry[235] - If the company fails to comply with applicable regulations, it risks losing licenses and facing civil fines or criminal penalties[235] - The company operates outside the regulated banking system, which may subject it to increased regulatory oversight and potential operational limitations[237] - The company is subject to regulations under the 1940 Act, which may limit operational flexibility and investment strategies[268] - The company must maintain at least 70% of total assets in qualifying assets to comply with BDC regulations[276] - Certain investors are restricted from acquiring more than 3% of the company's total outstanding voting stock under the 1940 Act[281] Market and Economic Risks - Recent governmental interventions in credit markets may lead to limited additional government actions during major market disruptions, increasing market risks[239] - Political uncertainties in U.S. and non-U.S. markets could heighten risks of default and economic instability, impacting investments[240] - Rising interest rates may hinder portfolio companies' ability to repay or refinance loans, increasing default risk[282] - Economic recessions could impair portfolio companies, leading to increased non-performing assets and decreased portfolio value[382] - Market disruptions may adversely affect debt and equity capital markets, impacting the company's ability to raise capital[384] - The company may face challenges in raising debt capital during periods of market volatility, affecting its ability to fund commitments[386] - Significant changes in capital markets may negatively impact investment valuations and the pace of investment activity[387] - An inability to access capital could have a material adverse effect on the company's financial condition and results of operations[388] Investment Risks - The company’s portfolio investments are primarily recorded at fair value, leading to potential uncertainties in valuation due to the lack of market quotations[229] - Debt investments are subject to credit and interest rate risks, with credit risk influenced by the issuer's financial strength and solvency[284] - The company may face losses from default and foreclosure despite investing in secured loans, emphasizing the importance of collateral value and borrower creditworthiness[297] - Mezzanine debt and other junior securities are subordinate to senior debt, increasing credit risk and potential for non-recovery in financial distress situations[302] - Many issuers of mezzanine debt may be highly leveraged, increasing the risk of insufficient cash flow to meet debt obligations[303] - Investments in zero-coupon or deferred interest bonds may experience greater market value volatility due to interest rate changes[304] - The company invests in high yield debt, which carries greater credit and liquidity risk, and a substantial portion may be rated below investment-grade[309] - Investments in financially troubled companies involve significantly greater risk, with uncertainties regarding the repayment of obligations[315] - The company is classified as a non-diversified investment company, increasing the risk of loss if there is a decline in the market value of any loan in which a large percentage of assets are invested[325] - The company may not make follow-on investments in portfolio companies, which could impair the value of its portfolio[328] - The company may invest in debt with limited mandatory amortization, increasing the risk that portfolio companies may not be able to repay or refinance the debt[308] - The company may face challenges in predicting the rate and frequency of loan prepayments, which depend on portfolio company performance and market conditions[306] - The market values of high yield debt may reflect individual corporate developments, leading to greater volatility[309] - The company may invest in equity securities, which generally have greater price volatility than fixed income securities[310] - Portfolio companies may incur debt that ranks equally with or senior to the company's investments, potentially affecting cash flow and repayment priorities[329] - The company may face risks from structural seniority of debt held by non-guarantor subsidiaries, which could be repaid before the company's loans in case of insolvency[332] - The company may not control actions regarding collateral due to intercreditor agreements, which could limit recovery in liquidation scenarios[333] - Investments may include Original Issue Discount (OID) and Payment-in-Kind (PIK) instruments, exposing the company to risks of accounting income recognition before cash receipt[340] Tax and Distribution Risks - The company must distribute at least 90% of its investment company taxable income to qualify as a Regulated Investment Company (RIC), with potential tax implications if this requirement is not met[345] - The company may incur contingent liabilities related to investments, including obligations from revolving credit facilities that have not yet been fully drawn[335] - Non-U.S. stockholders may be subject to U.S. federal income tax on distributions unless they qualify for an exemption, impacting the attractiveness of the company's stock[349] - The company may experience dilution in ownership percentage for stockholders who opt out of the Dividend Reinvestment Plan (DRIP) as cash distributions are automatically reinvested[365] - Changes in federal tax legislation could adversely affect the company's taxation and the value of investments for stockholders[358] - The company intends to make quarterly distributions to stockholders, but cannot assure specified levels or year-to-year increases due to various risk factors[369] - Distributions may exceed net ordinary income and capital gains, potentially constituting a return of capital for tax purposes, affecting stockholders' adjusted tax basis[370] - Stockholders may experience dilution in ownership percentage if additional equity interests are issued at or below NAV[372] - The company is generally prohibited from issuing shares below NAV, which may limit its ability to raise equity capital during adverse market conditions[373] - If the company retains income and capital gains beyond permissible limits, it will incur a 4% U.S. federal excise tax, reducing the amount available for distribution[354] Operational and Cybersecurity Risks - The company is highly dependent on information systems, and any failures or cyber-attacks could significantly disrupt operations and negatively affect financial condition and results of operations[389] - Increased reliance on mobile and cloud technologies due to remote work may heighten operational risks, including potential cyber-attacks and data breaches[390] - Compliance with privacy and data protection laws, such as the EU's General Data Protection Regulation and the California Consumer Privacy Act, introduces new obligations and potential liabilities[391] - Cybersecurity has become a top priority for lawmakers, and failure to comply with regulations could result in financial losses and reputational damage[392] Geopolitical and Environmental Risks - Geopolitical events, such as the ongoing conflict in Ukraine, have led to market disruptions that could adversely affect portfolio companies[402] - Recent strains on the banking system may impact the company's business and financial condition due to reliance on bank relationships[403] - Global climate change poses significant risks to the economy and may affect real estate and similar assets in the company's portfolio[404] - Increasing public scrutiny related to environmental, social, and governance (ESG) activities could impact the company's brand and reputation[405] Interest Rate Sensitivity - As of December 31, 2024, a hypothetical decrease of 100 basis points in interest rates would result in a net investment income decrease of $7,881 thousand[595] - A decrease of 200 basis points would lead to a net investment income decrease of $15,629 thousand[595] - An increase of 100 basis points in interest rates would yield a net investment income increase of $7,908 thousand[595] - An increase of 200 basis points would result in a net investment income increase of $15,817 thousand[595] - The company may utilize hedging techniques, such as forward contracts, to mitigate foreign exchange rate risks[596]

Financial Results Announcement - Bain Capital Specialty Finance, Inc. will release its financial results for Q4 and fiscal year ended December 31, 2024 on February 27, 2025[6] - The press release regarding the financial results was issued on February 5, 2025[6] Conference Call - A conference call to discuss the financial results is scheduled for February 28, 2025 at 8:00 a.m. Eastern Time[6]

Core Insights - Business development companies (BDCs) are favored for high yield due to their straightforward business models and risk profiles [1] - Recent interest rate cuts have revealed weaknesses in the BDC sector [1] - A hybrid investment strategy combining dividend growth stocks, BDCs, REITs, and closed-end funds can enhance investment income while achieving total returns comparable to traditional index funds [1] Investment Strategy - The approach involves creating a balanced portfolio that includes classic dividend growth stocks alongside BDCs and other income-generating assets [1] - This strategy aims to provide a robust total return that aligns with the performance of the S&P 500 [1] - The focus is on inspiring average investors to pursue early retirement without compromising portfolio safety [1]

Core Insights - Bain Capital Specialty Finance (NYSE: BCSF) is a business development company primarily investing in the US, Europe, and other regions, which is currently underappreciated by the market [1] Group 1: Company Overview - BCSF focuses on dividend investing as a means to achieve financial freedom, emphasizing its accessibility for investors [1] - The company operates in various sectors including technology, real estate, software, finance, and consumer staples, which form the core of its investment portfolio [1] Group 2: Investment Philosophy - The article highlights the importance of dividend investing as a straightforward path to building long-term wealth [1] - The author aims to share insights and experiences to make the process of dividend investing more approachable for others [1]

Financial Data and Key Metrics Changes - Q3 net investment income per share was $0.53, benefiting from high base interest rates, with an annualized yield of 11.9% on book value, covering the regular dividend by 126% [9] - Q3 earnings per share were $0.51, representing an annualized return on equity of 11.5% [9] - As of September 30, net asset value per share was $17.76, a 0.3% increase from the prior quarter [10] - Total investment income for Q3 was $72.5 million, slightly up from $72.3 million in Q2 [33] - Net investment income for the quarter was $34 million, or $0.53 per share, compared to $33.1 million or $0.51 per share in the prior quarter [34] Business Line Data and Key Metrics Changes - Gross originations during Q3 were $413 million, up 278% year-over-year and approximately 35% from Q2 levels of $307 million [14] - New fundings during Q3 included $331 million into 16 new companies and $82 million into 67 existing companies [23] - 97% of new investment fundings were in first lien structures, emphasizing a focus on downside management [23] Market Data and Key Metrics Changes - The private credit market continues to grow, with active deal flow driven by M&A and new LBO activity [11] - The weighted average yield on Q3 investments to new companies was 10.7%, with median leverage levels of 4.5 times [17] - 91% of debt investments bear interest at a floating rate, positioning the company favorably in the current higher interest rate environment [29] Company Strategy and Development Direction - The company aims to capitalize on new middle-market lending opportunities, leveraging its dry powder and industry expertise while maintaining disciplined credit selection [40] - The focus remains on investing in first lien senior secured loans, with a diversified portfolio across various industries [26][27] Management's Comments on Operating Environment and Future Outlook - Management expects active deal flow to continue into 2025, supported by private equity dry powder and a likely lower interest rate environment [12] - Credit fundamentals remain healthy, with leverage statistics across borrowers at 4.8 times and interest coverage at approximately 1.7 times [20] Other Important Information - The company declared a fourth quarter dividend of $0.42 per share and an additional special dividend of $0.03 per share, totaling $0.45 per share for Q4 [10][38] - Spillover income is estimated at approximately $113 per share, representing over two times the quarterly regular dividend [39] Q&A Session Summary Question: What drove the yield decline this quarter? - The yield decline was primarily driven by a decrease in dividend income from investments, particularly in the aviation sector, rather than a degradation in asset spreads [42][43] Question: How does the pipeline look in terms of spreads? - Management noted that spread compression has largely played out, with more bifurcation based on credit quality, allowing room for operation in the middle market [44][45] Question: What are the plans for addressing the $300 million bonds maturing in 2026? - The company intends to access the market in 2025 while managing liabilities through its revolving credit facility [55]

Bain Capital Specialty Finance, Inc. Third Quarter Ended September 30, 2024 Earnings Presentation BAIN CAPITAL SPECIALTY FINANCE, INC. Disclaimer In this material Bain Capital Credit, LP, Bain Capital Credit (Asia), Limited, Bain Capital Credit (Australia), Pty. Ltd., Bain Capital Credit, Ltd., Bain Capital (Ireland) Limited, Bain Capital Investments (Europe) Limited, Bain Capital Credit CLO Advisors, LP, Bain Capital Credit U.S. CLO Manager, LLC, and BCSF Advisors, LP are collectively referred to as "Bain ...

Financial Results Announcement - Bain Capital Specialty Finance, Inc. will release its financial results for Q3 2024 on November 5, 2024, after market close[6] - A conference call to discuss the financial results is scheduled for November 6, 2024, at 9:30 a.m. Eastern Time[6] - The press release regarding the financial results was issued on October 21, 2024[6] Regulatory Classification - The company is not classified as an emerging growth company under the Securities Act[5] - The financial results will not be deemed "filed" under the Securities Exchange Act of 1934[7] Data Format - The report includes an interactive data file formatted as Inline XBRL[8]

Investment Activity - As of September 30, 2024, the company has invested approximately $8,132.9 million in aggregate principal amount of debt and equity investments since operations began [329]. - For the three months ended September 30, 2024, the company invested $413.1 million in 83 portfolio companies, resulting in a net increase in investments of $165.1 million for the period [350]. - For the nine months ended September 30, 2024, the company invested $1,122.9 million in 134 portfolio companies, leading to a net increase in investments of $105.2 million [352]. - During the three months ended September 30, 2023, the company invested $114.2 million in 59 portfolio companies, resulting in a net increase in investments of $11.4 million for the period [351]. - The company invested $630.8 million in 91 portfolio companies during the nine months ended September 30, 2023, resulting in a net increase of $14.6 million [353]. Portfolio Composition - As of September 30, 2024, the investment portfolio comprised 159 portfolio companies, with 90.8% of the debt bearing a floating rate [358]. - The total amortized cost of performing investments as of September 30, 2024, was $2,367.96 million, with a fair value of $2,380.57 million [360]. - The total amortized cost of the investment portfolio as of December 31, 2023, was $2,301.83 million, with a fair value of $2,298.34 million [361]. - As of December 31, 2023, the company had 137 portfolio companies, with 93.8% of the debt bearing a floating rate [359]. Financial Performance - The company's asset coverage was 187.8% as of September 30, 2024, exceeding the regulatory requirement of 150% [342]. - The weighted average yield of the investment portfolio as of September 30, 2024, was 12.1% [354]. - The company reported a weighted average yield of 13.0% for the investment portfolio as of December 31, 2023 [356]. - The total fair value of the investment portfolio as of September 30, 2024, was $2,407,950, with 95.5% rated 2 [370]. Income and Expenses - For the three months ended September 30, 2024, total investment income was $72,540, compared to $72,390 for the same period in 2023, reflecting a slight increase [372]. - Net investment income for the three months ended September 30, 2024, was $33,984, down from $35,648 in the same period of 2023 [372]. - The composition of investment income for the three months ended September 30, 2024, included interest income of $55,420, down from $57,233 in 2023 [375]. - For the nine months ended September 30, 2024, total investment income was $219,310, a decrease from $222,842 in 2023 [376]. - The total expenses for the three months ended September 30, 2024, were $37,531, compared to $36,102 in the same period of 2023 [372]. - Operating expenses for the three months ended September 30, 2024, totaled $37.5 million, an increase of 3.9% from $36.1 million in the same period of 2023 [378]. Gains and Losses - Net realized gain for the three months ended September 30, 2024, was $2,808, contrasting with a loss of $51,767 in the same period of 2023 [372]. - Net realized gains on investments for the three months ended September 30, 2024, were $4.6 million, compared to a loss of $51.8 million in the same period of 2023 [388]. - For the nine months ended September 30, 2024, net realized gains on investments were $13.9 million, compared to $2.6 million in 2023 [394]. - The net change in unrealized appreciation on investments for the three months ended September 30, 2024, was $999,000, a decrease from $43.1 million in 2023 [391]. Cash and Liquidity - As of September 30, 2024, the company had $59.8 million in cash and cash equivalents, down from $112.5 million as of December 31, 2023 [404]. - Cash used in operating activities for the nine months ended September 30, 2024, was ($7.1) million, primarily due to investments totaling $1,097.8 million [405]. - The company had approximately $501.3 million of availability on its Sumitomo Credit Facility as of September 30, 2024, compared to $343.3 million at the end of 2023 [404]. Debt and Financing - The company has total debt obligations of $1,306,199,000, with significant maturities including $352,500,000 due in more than 5 years [437]. - The base management fee under the Amended Advisory Agreement is set at 1.5% of the average value of gross assets, decreasing to 1.0% if asset coverage falls below 200% [434]. - The weighted average interest rate on borrowings for the nine months ended September 30, 2024, was 5.1%, down from 5.2% for the year ended December 31, 2023 [381]. Risk Management - The company is subject to financial market risks, particularly changes in interest rates, and expects to value many investments at fair value due to lack of readily available market [438]. - The company may engage in foreign currency-denominated investments, which are subject to exchange rate fluctuations, potentially impacting financial results [439]. - Hedging techniques may be employed to mitigate foreign exchange risks, although effectiveness cannot be guaranteed [439]. - The company may utilize instruments such as forward contracts to hedge against currency exchange rate fluctuations affecting portfolio positions [439]. Regulatory and Compliance - The company intends to operate as a RIC and must distribute at least 90% of its net ordinary income and net short-term capital gains to maintain this status [414]. - The company plans to distribute net capital gains at least annually, but may retain some for investment purposes, incurring corporate-level tax [415]. - A dividend reinvestment plan allows stockholders to automatically reinvest cash dividends into additional shares of common stock [416]. Related Party Transactions - The company has entered into related party transactions, including an Amended Advisory Agreement and an Administration Agreement [419]. - The company has adopted a documented valuation policy for investments without readily available market quotations, which includes oversight by the Board [429].