Bain Capital Specialty Finance, Inc. 2026 Q2 Earnings Call

Good morning and welcome everyone to the Bain Capital Specialty Finance second quarter ended June 30, 2026, 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, which 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. Certain information contained in the presentation has been obtained from published and non-published sources and are prepared by third parties, and in certain cases, has not been updated through the date hereof. Such information has not been independently verified by Bain Capital Credit, and Bain Capital Credit does not assume responsibility for the accuracy of such information or updating the presentation based on facts learned following its issuance. 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. With that, I'd like to turn the call over to our CEO, Michael Ewald.

Thanks, Katherine, and good morning, and thanks to all of you for joining us here this morning on our earnings call. I am also joined by Michael Boyle, our President, and our Chief Financial Officer, Amit Joshi. In terms of agenda for the call, similar to past quarters, I will start with an overview of our second quarter results and then discuss the broader market environment and our positioning. Thereafter, Mike and Amit will discuss our investment portfolio and financial results in greater detail. We will leave some time, as always, for questions at the end. So beginning with our financial results, we reported solid financial results for the second quarter last night. Net investment income per share was $0.44, representing an annualized yield of 10.5% on equity, covering our base dividend of $0.42 per share by 105%.

Q2 earnings per share were $0.22, representing an annualized return on equity of 5.2%. Importantly, credit quality across our portfolio remained healthy overall during the quarter, despite a modest decline in NAV, and non-accruals continue to remain low across the portfolio, which we view as a continued reflection of the underlying strength and resilience of our underwriting standards and portfolio construction process. Subsequent to quarter end, our board declared a third quarter dividend equal to $0.42 per share and payable to record date holders as of September 15, 2026. This represents a 10.1% annualized rate on ending book value as of June 30. During the quarter, we were pleased to see new activity levels pick up meaningfully following a slower start to the quarter, and broader economic indicators have remained sound, providing a constructive backdrop for investing.

BCSF continues to benefit from Bain Capital's private credit platform, which remains active and we believe is well-positioned in the core middle market, a segment where we have long been established with deep relationships and expertise. This segment of the market has largely remained insulated from the retail outflows that have weighed on the larger end of the private credit market, reinforcing the relative stability of the core middle market as a segment in which to invest. This core middle market also offers greater liquidity premium, greater debt tranche control, and tighter financial covenants, underwriting tenants that remain critical to us. In the current environment, new deals have benefited from attractive spreads relative to the tighter levels seen at the end of 2025. The weighted average spread on new first lien originations during the second quarter for us was approximately 570 basis points.

Net leverage of new portfolio company investments came in at 4.5 times on average. This compared favorably to average sponsored middle market first lien unitranche loans of approximately 525 basis points in the second quarter in net leverage of 5.4 times. We also saw a healthy level of repayments during the quarter, including full repayments from two software companies, despite the volatility that occurred across that sector earlier in the year, a testament to the underlying quality of those credits. On a year-to-date basis, however, repayment activity has remained low overall relative to normalized historical levels. Credit fundamentals across our underlying companies have remained resilient. At quarter end, median net leverage across our borrowers was 4.7 times, and median interest coverage remained healthy at 2.1 times.

Non-accrual saw a slight increase quarter-over-quarter, but remained low overall across the portfolio at 2.2% at fair market value as of quarter end. As it relates to software specifically, a topic we discussed at length last quarter, our exposure, including software adjacent companies, represents approximately 12% of our total portfolio. We've remained relatively underweight this sector versus the broader private credit market, as we've taken a selective underwriting approach, which is largely focused on system of record and highly specialized vertical software. Overall, fundamental performance across our software companies continues to demonstrate solid operating performance. Key performance indicators such as retention rates and revenue growth have not decelerated, and we are generally seeing many companies show continued improvement in profitability and EBITDA margins. A further testament to the underlying quality of the companies in which we've chosen to invest.

As a reminder, we maintain a comprehensive risk assessment framework to evaluate the potential substitution risks that emerging AI technologies may pose across our portfolio companies. Based on this ongoing analysis, the vast majority of our software and related investments carry a relatively low risk of AI-driven disruption, reflecting both the differentiated and resilient nature of these businesses and the discipline embedded in our investment approach from the time we first evaluated these companies. Only 4% of the total portfolio at fair value falls into our high and moderate risk ratings for AI disruption. For this smaller subset of companies with elevated AI disruption risk, we are actively monitoring new bookings and retention rates. Notably, many of these companies have continued to demonstrate stable performance and modest growth improvement in the current environment. Turning now to our dividend outlook.

We have been pleased to provide strong earnings for our shareholders in recent years, with net investment income covering and/or exceeding our regular $0.42 per share dividend. We remain focused on providing attractive dividend levels to our shareholders, and we plan to reevaluate that dividend level in the coming quarters, considering factors such as the interest rate environment, upcoming debt maturities of our lower cost unsecured notes, and other income sources as new M&A deal volume is expected to increase. I will now turn the call over to Michael Boyle, our President, to walk through our investment portfolio in greater detail.

Mike. Thanks, Michael. Good morning, everyone.

I will start with our investment activity for the second quarter and then provide an update and more detail on our investment portfolio. New fundings during the second quarter were $182 million into 99 portfolio companies, including $73 million in 8 new companies and $109 million in 91 existing companies. Sales and repayment activity totaled approximately $277 million, resulting in net sales and repayments of approximately $95 million quarter-over-quarter. Our fundings were split between new and existing portfolio companies, with new portcos representing 40% of our total fundings versus 60% to existing companies. We remain focused on investing primarily in first lien senior secured loans with 91% of our new Q2 investment fundings in first lien structures, 1% in subordinated debt, and 8% in preferred and common equity.

We continue to favor core middle market size companies given attractive terms and structure, combined with a large market opportunity of high-quality borrowers, consistent deal flow, and more favorable competitive dynamics versus other market segments. The median EBITDA across our new companies during the quarter was $31 million. Turning to our investment portfolio. At the end of the second quarter, the size of our portfolio at fair value was approximately $2.4 billion across a highly diversified set of 214 portfolio companies operating across 30 different industries. The average position size across our single name portfolio of companies is approximately 40 basis points. Our portfolio primarily consists of investments in first lien senior secured loans, given our focus on downside management and investing in the top of the capital structure.

As of June 30th, 63.4% of the investment portfolio at fair value was invested in first lien debt, 1.3% in second lien debt, 3.7% in subordinated debt, 7.7% in preferred equity, 7.5% in equity and other interests, and 16.4% across our JVs, including 9% in the ISLP and 7% in the SLP. The vast majority of our underlying investments within the JV structures consists of first lien loans. As of June 30th, 2026, the weighted average yield on the investment portfolio at amortized cost and fair value were 10.8% and 10.4% respectively, as compared to 10.8% and 10.9% respectively as of March 31st, 2026. As of June 30th, 2026, 95% of our debt investments bear interest at a floating rate. Moving on to portfolio credit quality trends. As Michael highlighted earlier, credit fundamentals across our portfolio have remained healthy.