BCSF Reports Earnings

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DATE

Tuesday, Nov. 11, 2025 at 8:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Michael Ewald
• President — Michael John Boyle
• Chief Financial Officer — Amit Joshi
• Investor Relations — Katherine Schneider

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TAKEAWAYS

• Net Investment Income (NII) -- $0.45 per share, producing an annualized yield on book value of 10.3% and exceeding the regular quarterly dividend by 7%.
• Earnings Per Share (EPS) -- $0.29, reflecting an annualized return on book value of 6.6%.
• Net Asset Value (NAV) Per Share -- $17.40, down $0.16 from the prior quarter, primarily due to a single loan markdown not representative of wider portfolio issues.
• Dividend Declaration -- $0.42 per share for the fourth quarter, with an additional $0.03 per share, totaling $0.45 per share and representing a 10.3% annualized rate on ending book value.
• Gross Originations -- $340 million during the quarter, with a weighted average spread of approximately 550 basis points and weighted average leverage of 4.5 times for new companies.
• Portfolio Composition -- $2.5 billion at fair value across 195 companies in 31 industries; 64% first lien debt, 1% second lien debt, 4% subordinated debt, 6% preferred equity, 9% equity/other, and 16% in joint ventures.
• Yield Trends -- Weighted average yield of 11.1% at amortized cost and 11.2% at fair value, down from 11.4% in both categories the previous quarter, driven by falling reference rates; 93% of debt investments carry floating rates.
• Credit Quality -- Non-accruals at 1.5% by amortized cost and 0.7% by fair value, stable versus the prior quarter; median net leverage in the portfolio declined to 4.7 times from 4.9 times.
• Expense and Leverage -- Total expenses before taxes were $37.2 million, net leverage ratio ended at 1.23 times (up from 1.2 times prior quarter), and debt-to-equity ratio was 1.33 times.
• Liquidity -- $570 million at quarter end, including $457 million undrawn on the revolving credit facility, $86.8 million in cash and cash equivalents (including $26.2 million restricted cash), and $26.5 million of unsettled trade.
• Dividend Yield Relative to Stock Price -- Management cited a combined regular and special dividend yield of 13% at the current market price.
• Supplemental Dividends and Retained Earnings -- Q3 spillover income was $1.46 per share, or three times the regular dividend, with management noting "meaningful net investment income dividend coverage."
• New Investments by Type -- 89% first lien loans, 3% second lien, 1% subordinated debt, 5% equity, and 2% in investment vehicles for new fundings.
• Risk Ratings -- Watchlist investments (risk ratings three and four) comprised 5% of portfolio fair value, consistent quarter over quarter.
• Yield on Originations -- Weighted average spread across all originations was 610 basis points over base rates, driven by active add-on lending to existing portfolio companies.

SUMMARY

The company reported net realized and unrealized losses of $10.5 million for the quarter, with management emphasizing the losses were isolated to one portfolio company rather than signaling systemic deterioration. The Board explicitly reaffirmed confidence in maintaining the regular $0.42 quarterly dividend, citing several earnings levers—such as select joint venture and asset-based lending (ABL) investments, higher prepayment-related and other income as M&A activity increases, and targeted investment in the core middle market—to potentially offset headwinds from a lower rate environment and debt refinancing in 2026. Management stated, "we believe the company is well-positioned to continue driving attractive results," underlining both spillover income and historical credit discipline as supports for future performance. They also noted a lack of exposure to recent high-profile credit events, and outlined continued focus on on-balance sheet leverage between 1-1.25 times, coupled with portfolio diversification, as key risk-return safeguards.

• Michael Ewald stressed, "we do not have exposure to First Brands nor Tricolor," distinguishing BCSF's credit book from recent market concerns.
• Regarding potential risk from fixed rate maturities and incentive fees rising in 2026, Amit Joshi stated confidence that identified income levers "should be able to keep us above our regular dividend," and highlighted "decent cushion from a spillover income perspective."
• On the aircraft portfolio, Michael Ewald confirmed a "small write-down on some of our aircraft this quarter," attributing it to "potential exit valuation" rather than underwriting quality, and characterized future growth in the segment as stable, supporting portfolio diversification.
• Joint ventures (ISLP levered about 0.8 times; SLP slightly higher) are not expected to drive material off-balance sheet leverage, and management maintains ongoing dialogue with banking partners to optimize financing spreads within those vehicles as market conditions allow.

INDUSTRY GLOSSARY

• First Lien Loan: A senior secured loan with highest repayment priority and claim on collateral in the event of borrower default.
• SLP (Senior Loan Program): Bain Capital Specialty Finance's joint venture platform for originating and holding senior secured middle-market loans.
• ISLP: International Senior Loan Program, a joint venture investment vehicle primarily focused on first lien senior secured loans.
• Spillover Income: Undistributed net investment income retained by a BDC, which may be paid out in future supplemental dividends.
• PIK Income: Payment-in-kind interest or dividends, accrued non-cash earnings typically added to the loan principal rather than paid in cash.
• Net Investment Income (NII): Income generated from investments less operating expenses, before realized and unrealized gains or losses.
• Non-accrual: Loan status indicating interest is no longer being collected or accrued because management deems the borrower's likelihood of repayment to be sufficiently low.

Full Conference Call Transcript

Katherine Schneider: Thanks, Chloe. Good morning, everyone, and welcome to the Bain Capital Specialty Finance Third Quarter Ended 09/30/2025 Conference Call. Yesterday, after market close, we issued our earnings press release and investor presentation of our quarterly results, a copy of which is available on Bain Capital Specialty Finance's Investor Relations website. Following our remarks today, we will hold a question and answer session for analysts and investors. This call is being webcast, and a replay will be available on our website. This call and the webcast are property of Bain Capital Specialty Finance, and any unauthorized broadcast in any form is strictly prohibited. Any forward-looking statements made today do not guarantee future performance, and actual results may differ materially.

These statements are based on current management expectations, include risks and uncertainties, which are identified in the risk factors section of our Form 10-Q that could cause actual results to differ materially from those indicated. Bain Capital Specialty Finance assumes no obligation to update any forward-looking statements at this time unless required to do so by law. Lastly, past performance does not guarantee future results. So with that, I'd like to turn the call over to our CEO, Michael Ewald.

Michael Ewald: Thanks, Katherine, and good morning. Thank you all for joining us on our earnings call here today. Continuing the regular programming, we do want to take a moment just to recognize anyone on the call who has served or is serving in our armed services. We genuinely appreciate your service and want to recognize you today on Veterans Day. Thanks. I'm joined today by Michael John Boyle, our President, and our Chief Financial Officer, Amit Joshi. As usual, in terms of the agenda for the call, I'll start with an overview of our third quarter results and then provide some thoughts on our performance, the current market environment, and our positioning.

Thereafter, Mike and Amit will discuss our investment portfolio and financial results in greater detail, and we'll leave some time for questions at the end. Yesterday, after market close, we delivered another quarter of solid results for the third quarter ended September 30. Q3 net investment income per share was $0.45, representing an annualized yield on book value of 10.3% and exceeding our regular quarterly dividend by 7%. Q3 earnings per share were $0.29, reflecting an annualized return on book value of 6.6%. Our net asset value per share was $17.40, a decline of $0.16 per share from the prior quarter end.

This modest decline in our NAV this quarter was primarily due to a markdown on one of our loans that was idiosyncratic driven, not reflective of any broader credit issues apparent across our broader portfolio. Subsequent to quarter end, our board declared a fourth quarter dividend equal to $0.42 per share and payable to record date holders as of 12/16/2025. The Board also declared an additional dividend of $0.03 per share for shareholders of record as of 12/16/2025. As we previously announced in February, this brings total dividends for the fourth quarter to $0.45 per share or a 10.3% annualized rate on ending book value as of September 30.

During the third quarter, we saw new deal activity pick up across the middle market, driven by new LBO and M&A activity following greater clarity on tariffs and stability regarding economic indicators such as inflation and unemployment, both of which have remained elevated in the US but have not continued to accelerate. Against this backdrop, our private credit group continues to curate a strong pipeline of lending opportunities in the core middle market. Our depth of industry expertise and collaboration across Bain Capital's global platform enables us to identify attractive investment opportunities in more specialized industries.

Furthermore, our sponsors continue to view us as true business partners and value our ability to provide flexible capital solutions that support the financing and growth needs of their portfolio companies. During Q3, BCSS gross originations were $340 million. We remain disciplined on terms and structure in our segment of the market, with a weighted average spread on originations to new companies of approximately 550 basis points and weighted average leverage of 4.5 times. The vast majority of these commitments were to first lien borrowers. Now to quickly address the credit market headlines in recent weeks, we do not have exposure to First Brands nor Tricolor.

While these credit events have been broadly linked to the overall private credit market, they've occurred outside of the traditional direct lending segment. First Brands and Tricolor are large cap companies versus Bain Capital's private credit group's focus within the core middle market. We favor this segment of the market due to its attractive characteristics, including greater loan tranche control, reduced lender consensus risk, and the prevalence of covenanted structures that provide for stronger lender downside management. We believe the bankruptcies of First Brands and Tricolor are idiosyncratic and do not believe that they reflect broader stress in the private credit market. However, these recent credit events reinforce the importance of our rigorous investment due diligence process.

It incorporates scrutiny of off-balance sheet liabilities, collateral integrity, sources of liquidity, and corporate governance. Our processes also include deploying third-party legal advisers to perform legal due diligence and seeking to ensure that our borrowers have reputable auditors and quality of earnings providers. Finally, we also negotiate strict documentation for our loans, which includes not just financial covenants, but also broad reporting and inspection rights. All of which ensure we stay well informed about our portfolio company's performance, trends, and asset quality. While these are not new elements of our investment process, these recent credit events further support our emphasis on robust due diligence on every transaction we underwrite.

In fact, credit quality and fundamentals continue to be healthy across our portfolio. Investments on non-accrual represented just 1.5% and 0.7% at amortized cost and fair value, respectively, as of September 30. Non-accruals were relatively stable from the prior quarter end. Turning to our outlook on earnings and dividend coverage in light of market expectations for a lower interest rate environment ahead. First, as a reminder, when we increased our regular dividend level throughout 2022 and 2023, we set our dividend policy at an attractive level for shareholders of between 9-10%, and to a level that we believed could be earned throughout multiple market environments.

Since then, we've been operating with meaningful net investment income dividend coverage, which has provided excess income that has been distributed to our shareholders via supplemental dividends and also increased retained earnings driving healthy spillover income equal to $1.46 per share or three times our regular dividend level. Our Q3 net investment income has come down relative to peak levels in prior periods largely due to the decrease in base rates but notably still exceeds our regular dividend level. In the current environment, we believe we can maintain our regular $0.42 per share dividend.

The company has several earnings levers to potentially offset headwinds next year from a lower rate environment and our fixed rate debt maturities in 2026 beginning in March. These future growth levers include: higher earnings from select joint venture and ABL investments through the senior loan program SLP, and legacy corporate lending as our current dividend payout from those has been lower relative to their run rate earnings potential. Second, higher levels of prepayment-related income and other income as new M&A deal volumes increase. And finally, leveraging our private credit group platform's focus on the core middle market to drive attractive spreads on new investments.

Also selectively invest in junior debt investments as our flexible capital in today's market environment can be a valuable tool for middle market borrowers. Taking all of this together with the solid credit performance that we have demonstrated over the years, we believe the company is well-positioned to continue driving attractive results for our shareholders. Furthermore, we believe our current stock price valuation offers a compelling relative to our credit fundamentals. At BCSF's current market price as of yesterday's close, our dividend yield, inclusive of our regular and special dividend for Q4, represents a 13% annualized yield. We believe this is an attractive level for investors on both an absolute and relative value basis across the BDC sector.

I will now turn the call over to Michael John Boyle, our President, to walk through our investment portfolio in greater detail. Mike?

Michael John Boyle: Thank you, Michael, and good morning, everyone. I'll start with our investment activity for the third quarter and then provide an update in more detail on our portfolio. New investment fundings during the third quarter were $340 million into 101 portfolio companies, including $124 million in 14 new companies, $210 million in 86 existing companies, and $6 million into our SLP. Sales and repayment activity totaled approximately $296 million, resulting in net investment fundings of $44 million quarter over quarter. Our new investment fundings were comprised of 36% to new companies and 64% to existing portfolio companies. First lien senior secured loans continue to comprise the vast majority of our new investments, representing 89% of our new investment fundings.

The remaining 11% was comprised of 3% into second lien loans, 1% in subordinated debt, 5% in preferred and common equity, and 2% in our investment vehicles. We remain selective in our underwriting approach and continue to favor middle market-sized companies within the core middle market. While the market environment remains competitive with spread compression continuing in the broader market, we believe Bain Capital remains well-positioned to source new opportunities given our platform's breadth, scale, and longevity in the core middle market. As Michael Ewald highlighted earlier, the weighted average spread of our Q3 originations to new companies was approximately 550 basis points.

We were also particularly active this quarter with providing add-on capital to existing portfolio companies, which resulted in a weighted average spread across all of our originations in the quarter of 610 basis points over base rates. Our new investments during the quarter continued to favor defensive sectors such as healthcare, pharmaceuticals, aerospace and defense, and wholesale. Turning to the investment portfolio, at the end of the third quarter, the size of our portfolio at fair value was approximately $2.5 billion across a highly diversified set of 195 portfolio companies operating across 31 different industries.

Our portfolio primarily consists of investments in first lien senior secured loans, given our focus on downside management and investing at the top of capital structures. As of September 30, 64% of the investment portfolio at fair value was invested in first lien debt, 1% in second lien debt, 4% in subordinated debt, 6% in preferred equity, 9% in equity and other interests, and 16% across our joint ventures, including 9% in the ISLP and 7% in the SLP, both of which have underlying investments primarily consisting of first lien loans.

As of 09/30/2025, the weighted average yield on the investment portfolio at amortized cost and fair value was 11.1% and 11.2%, respectively, as compared to 11.4% and 11.4%, respectively, as of 06/30/2025. The decrease in yields was primarily driven by a decrease in reference rates across our portfolio, as 93% of our debt investments bear interest at a floating rate. Moving on to portfolio credit quality trends, credit fundamentals remain healthy. Median net leverage across our borrowers is 4.7 times as of quarter end, down from 4.9 times as of the prior quarter end. Median EBITDA was $46 million, which was relatively unchanged from the prior quarter end.

Watchlist investments as a percentage of our overall portfolio have remained stable quarter over quarter as indicated by our internal risk rating scale. These investments include our risk rating three and four investments, which comprised 5% of fair value. Our underlying portfolio companies within this category have also remained stable. We have not seen a large migration of any new names down the credit risk rating scale. Investments on non-accrual represented 1.5% and 0.7% of the total investment portfolio at amortized cost and fair value, respectively, as of September 30. This is compared to 1.7% and 0.6%, respectively, as of June 30. Turning it now to Amit, who will provide a more detailed financial review.

Amit Joshi: Thank you, Mike, and good morning, everyone. I'll start the review of our third quarter results with our income statement. Total investment income was $67.2 million for the three months ended 09/30/2025 as compared to $71 million for the three months ended 06/30/2025. The decrease in investment income was primarily driven by a decrease in other income from lower activity levels during the quarter. The quality of our investment income continues to be high as the vast majority of our investment income is driven by contractual cash income across our investments. Interest income and dividend income represented 98% of our total investment income in Q3.

Notably, the vast majority of our PIK income, which represents 11% of our total investment income in Q3, is derived from investments that were underwritten with PIK. Only a small portion of our PIK income is related to amended or restructured investments. Total expenses before taxes for the third quarter were $37.2 million as compared to $39.3 million in the second quarter. The decrease in expenses was driven by a lower incentive fee resulting from our three-year look-back on our incentive fee hurdle as well as lower interest and debt fee expenses. Net investment income for the quarter was $29.2 million or $0.45 per share as compared to $30.6 million or $0.47 per share for the prior quarter.

During the three months ended 09/30/2025, the company had net realized and unrealized losses of $10.5 million. As Mike highlighted earlier, our net losses this quarter were primarily driven by one of our portfolio company investments and not broad-based across our portfolio. Net income for the three months ended 09/30/2025 was $18.7 million or $0.29 per share. Moving over to our balance sheet, as of September 30, our investment portfolio at fair value totaled $2.5 billion and total assets of $2.7 billion. Total net assets were $1.1 billion as of 09/30/2025. NAV per share was $17.40, a decrease of $0.16 per share from $17.56 at the end of the second quarter.

As of September 30, approximately 60% of our outstanding debt was floating rate debt, and 40% was in fixed rate debt. For the three months ended 09/30/2025, the weighted average interest rate on our debt outstanding was 4.8% as compared to 4.9% as of the prior quarter end. The weighted average maturity across our debt investment was approximately 3.4 years at 09/30/2025. At the end of Q3, our debt to equity ratio was 1.33 times as compared to 1.37 times from the end of Q2. Our net leverage ratio, representing principal debt outstanding less cash and unsettled trade, was 1.23 times at the end of Q3 as compared to 1.2 times at the end of Q2.

Liquidity at quarter end was strong, totaling $570 million, including $457 million of undrawn capacity on our revolving credit facility, $86.8 million in cash and cash equivalents, including $26.2 million of restricted cash, and $26.5 million of unsettled trade, net of receivables and payables of investment. With that, I'll turn the call back over to Michael Ewald for closing remarks.

Michael Ewald: Thanks, Amit. In closing, we are pleased to deliver another quarter of attractive net investment income and credit fundamentals across our middle market borrower portfolio. Bain Capital Credit brings over twenty-five years of experience investing in the middle market and has demonstrated solid credit quality with low losses and non-accrual rates since our inception. We remain committed to delivering value for our shareholders by providing attractive returns on equity and prudently managing our shareholders' capital. Chloe, please open the line for questions.

Operator: Certainly. You may withdraw yourself from the queue at any time by pressing star 2. Again, that is star and 1. And we'll take our first question from Finian O'Shea with Wells Fargo Securities. Your line is open.

Finian O'Shea: Hey, everyone. Good morning. Michael, can you talk about to what extent the push for more spreads, leverage, off-balance sheet leverage, etcetera, to what extent that brings on more risk, and the sort of change in, say, expected loss rate on the go forward? Thanks.

Michael Ewald: Sure. So I do think running in line with our on-balance sheet leverage ratio between one and one and a quarter is what we continue to focus on doing. And so we don't have a particularly heavy reliance on off-balance sheet leverage. Both of our joint ventures do use leverage. The ISLP is levered about 0.8 times to one, and the SLP is levered slightly more than that but is a smaller position. So I think prudently managing to that on-balance sheet leverage ratio target is one thing that we do focus on, and I think that is a key part of the risk-return equation that we're doing for BCSF.

In terms of loss rates going forward, I do think, as we've noted on the call, there are idiosyncratic losses that come across any portfolio. But the fact that we have a very diversified set of companies, almost 200 companies in BCSF, puts us in a position where any individual loss won't drive a meaningful impact on the overall performance of the BDC. So I think that focus on-balance sheet leverage and then pairing that with diversification is a key part of why we're able to drive the risk-return that we have been delivering in BCSF.

Finian O'Shea: That I think is helpful. I just want to follow-up on the aircraft. Looks like a little bit of a mark there this quarter. Correct me if I'm wrong. I'm just seeing what sort of going on if it's airplane values or whatnot. And then the aircraft high level given that's a, you know, strength differentiator for Bain. Is this something you could expand, say, in a good asset or 30% bucket friendly way into more of the portfolio or say lever those vehicles more, safely a comment on that. Thanks.

Michael Ewald: Sure. So we did have a small write-down on some of our aircraft this quarter. But, really, that's just looking to potential exit valuation of some of the aircraft that we do own, and not reflecting a meaningful change in our underwriting thesis there. We do think underwriting hard assets is an important part of what we do and a big differentiator for BCSF. We've done that in aviation. We've also done that through legacy corporate lending, which is an asset-based financial company that we've supported and grown. And so I do think we are out there finding interesting opportunities across the asset-backed market, and we'll continue to have that be a substantial part of the portfolio.

I wouldn't expect meaningful growth from here, but I think some stability from that segment adds good diversification, and it's something we'll continue to find new investments in.

Finian O'Shea: Okay. Thanks so much.

Operator: Thank you, Finian. And once again for your questions, that is. We'll move next to Paul Johnson with KBW. Your line is open.

Paul Johnson: Yes, good morning. Thanks for taking my questions. So NII earnings just without the look back would obviously be a little bit lower. It was about 3¢ this quarter. I understand. I mean, it looks like fee and dividend income is also a little bit lighter this quarter just quarter over quarter. But if I kind of do the math on just the incentive fee or essentially the full incentive fee coming back in, that's roughly, like, 60-70 basis points on ROE plus you have roughly about half of your debt stack that's gonna have to reprice pretty significantly higher next year. So that's probably, you know, another, you know, call it 50 basis points or so.

Of an ROE hurdle that's just kind of coming in from the incentive fee and refinancing. So I guess the things that you guys kind of identified in terms of what makes you, you know, confident about the earnings coverage of the dividend. I mean, do you think that should be kind of able, I guess, to exceed you know, those items?

Amit Joshi: Yes. We do expect that as both Mike highlighted. I think we have different levers to pull from our perspective. And we have baked into account some of the points which you've highlighted about our debt coming for refinancing next year. Of course, we did issue a debt earlier this year. But we totally appreciate that they will be done at a different level, which will put some pressure. But as Mike highlighted earlier, the levers which we have should be able to keep us above our regular dividend in terms of meeting those thresholds. Along with that, as we highlighted, we do have decent cushion from a spillover income perspective too, which is healthy as well.

So among all of that, we feel comfortable.

Paul Johnson: Got it. Okay. And then, I guess, like, the financing within the joint ventures and the CLO, at this point, do you think there's any potential room to extract any improvement there at this point? Most of those financing arrangements are pretty tapped out.

Amit Joshi: We are continuously having discussions with our banking partners. So to your point, I would say yes. As spreads on the asset side have continued to tighten, we have been managing our liabilities as well appropriately. So my short answer would be yes. We are continuously looking at them. As you highlighted, some of them do have lock-in periods from that perspective, but again, as we have continued to grow, we have been having active dialogues. So in some cases, we have already done that. Like, in one of our joint ventures, ISLP, we did refinance the debt at a much tighter spread. So that's, again, something which we'll continue to do as we continue to look at those portfolios.

Paul Johnson: Got it. Thanks for that. And then last one for me was just the junior capital opportunities that you mentioned. Is that something that you're seeing now, or is that just something I guess, you know, because you've been able to do that in the past that's just, I guess, one of the levers that's available if, you know, opportunities come through the funnel.

Michael Ewald: Yeah. Thanks, Paul. Look, you know, the junior capital bit is part of the private credit group's calling card. It has been for over twenty-five years as well. So, you know, we've got a much larger platform, which has about $20 billion or so of AUM, of which BCSF is 2.5 billion of that. Across that entire platform. Again, junior capital is something that we've done for over twenty-five years, and that's something that we can lean into when appropriate, when there's a need for flexible capital. You know, we're cautious about just taking more risk for the sake of taking more risk.

It's more that, in today's market where base rates, though coming down, have stayed elevated, does seem to be an interesting air pocket in some companies' capital structures where you can charge a little bit more without taking some undue risk. Unfortunately, sometimes that does come with PIK income. But it is something that we can find where we can find some pretty interesting opportunities and have done so and continue to do so.

Paul Johnson: Okay. Thank you very much. That's all for me.

Michael Ewald: Thanks, Paul. And one

Operator: We'll pause another moment. And it does appear that there are no further questions at this time. I would now like to hand the call back to Michael Ewald for any additional or closing remarks.

Michael Ewald: Thanks, Chloe, and thanks again, everyone, for your time and attention today. We certainly appreciate your continued support of BCSF, and look forward to speaking with you again soon. Thanks.

Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful afternoon.

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