BCP Investment Corporation Common Stock 2026 Q2 Earnings Call

Please go ahead, Ted. Good morning, and welcome to our second quarter 2026 earnings call.

I'm joined today by our Chief Financial Officer, Brandon Satoren, and our Chief Investment Officer, Patrick Schafer. Following my opening remarks on the company's performance and activities during the second quarter, Patrick will provide commentary on our investment portfolio and the broader market, and Brandon will discuss our operating results and financial condition in greater detail. During the second quarter, we continued the execution against our plan as we strengthened our balance sheet and improved our asset coverage. We continued to reposition the portfolio, and we saw further improvement in our non-accrual profile. Subsequent to quarter end, we amended and upsized our KeyBank facility and used it to refinance and retire our Great Lakes revolving credit facility with JPMorgan.

Net asset value declined during the quarter, driven predominantly by unrealized mark-to-market movements across the portfolio, which I will discuss in more detail. Taken together, the actions we took during the quarter have improved our financial flexibility and reduced near-term refinancing risk. During the quarter, we generated total investment income of $15.2 million and core investment income of $12.9 million, both above the second quarter of 2025. We generated net investment income of $5.5 million, or $0.45 per share, which exceeded our distribution for the period, with core investment income of $0.27 per share covering our base distribution. We also saw further improvement in underlying credit performance, with non-accruals declining on a net basis to 5.7% of the portfolio at amortized cost from 6.2% in the prior quarter, and the number of portfolio companies on non-accrual declining to seven from nine.

We paid total distributions of $0.30 per share during the second quarter, comprised of our $0.27 base distribution and $0.03 supplemental distribution declared on our first quarter earnings. We're also paying monthly base distributions of $0.09 per share for July, August, and September, as declared in May. Our board has now approved a fourth quarter 2026 base distribution of $0.27 per share, payable in monthly installments of $0.09 per share in October, November, and December. With our monthly dividend structure now well-established, we believe this framework provides shareholders with a regular cadence of cash distributions while maintaining the flexibility to declare supplemental distributions when supported by earnings. We also continue to enhance our capital structure through proactive liability management.

During the quarter, we used proceeds from the $50 million of 7.5% notes due 2029 that we issued in March to redeem $40 million of our 2026 notes at par, and we further reduced outstanding borrowings under our revolving credit facilities. In total, par borrowings declined by $56 million during the quarter to $286 million. Our asset coverage ratio improved to 162% from 156%, and gross leverage declined to 1.6 times from 1.8 times. Subsequent to quarter end, we amended our KeyBank Credit Facility, reducing applicable borrowing spreads during the reinvestment period by 30 basis points, extending the facility's reinvestment period and maturity, and increasing committed borrowing capacity from $75 million to $150 million.

In connection with the amendment, we used borrowings under the upsized facility to repay in full all outstanding borrowings under our Great Lakes revolving credit facility with JPMorgan, and the commitments under that facility were terminated. This consolidates our secure revolving borrowings into a single facility with a longer runway, improves our overall cost of capital, and provides greater financial flexibility as we continue to execute our investment strategy. Net assets per share declined to $14.49 per share this quarter, driven primarily by unrealized mark-to-market declines across the portfolio. Approximately 34% of this quarter's unrealized markdowns were attributable to investments classified as software in our consolidated scheduled investments, and approximately 47% when including software-exposed names, compared with approximately 40% and 70%, respectively, in the first quarter. We believe the majority of these markdowns continue to reflect sector-specific valuation pressure and broader market dislocation rather than fundamental credit deterioration.

Approximately 93.5% of our software exposure is rated low to medium AI impact under our internal review, concentrated in mission-critical, vertically specialized businesses with proprietary data, embedded workflows, and high switching costs. These are unrealized marks against the senior secured positions with contracted cash flows and covenant protection. Our approach to deployment has not changed, but the environment has. In a slower market, we would rather be selective than compromise on structure. What we are finding is our best opportunities continue to come from smaller, more complex situations and from borrowers and sponsors we already know, where we can dictate terms rather than respond to process. That is the same discipline we describe in our private quarters, and the difference this quarter is we are applying it to a narrower set of transactions.

As we look to the second half of 2026, we remain focused on active portfolio management, disciplined underwriting, and prudent capital allocation with the goal of driving long-term value for our shareholders. We are not relying on market-wide recovery and M&A transaction activity. Our focus is on the opportunities we are sourcing directly and on the pipeline we've built in our core market. With that, I will turn the call over to Patrick Schafer, our chief investment officer, for a review of our investment activity.

Thanks, Ted. Before turning to the quarter, a few comments on our core market. Our core market has not changed. We continue to focus on companies with $15 million-$50 million of EBITDA in industries or business models where we have an edge, and ideally non-sponsor or non-traditional sponsor situations where we have the ability to drive pricing and structure. Given the continued uncertain macro environment, overall activity in our market has remained low and terms on new deals have generally moved in our favor, with spreads on new issuance modestly wider than at year-end as our clients value certainty of execution over pricing. More importantly, credit markets were generally stable during the quarter. The B-rated loan index improved modestly, and the loan benchmarks we use in our valuation process ended the quarter flat to slightly tighter.

Software was the exception, with spreads widening further to a level several hundred basis points wide of the broader B-rated index. That divergence is an important context for our marks this quarter. Within software, our exposure continues to be concentrated in businesses with proprietary data, embedded workflows, and vertical market positioning. While the markets have generally differentiated between these credits in a positive way relative to those without these characteristics, we are still in a world where the syndicated markets view all software as a four-letter word. As a result of that lower activity level during the second quarter, our investment activity remains measured and selective. We completed three new portfolio company investments and four follow-on investments during the period. Repayments and sales remained elevated for the quarter, reflecting a mix of borrowers refinancing or being acquired and the resolution of two non-accrual positions.

As a result, originations for the quarter were $20.9 million, and repayments and sales were $34.9 million, resulting in net repayments and sales of approximately $14 million. A little over half of our originations by dollar amount came through increasing exposure to existing portfolio companies that we know and that are performing well. Overall, we are constantly evaluating our deployment levels relative to leverage levels and desire to repurchase stock. Turning to slide 10, the overall yield on par value of new debt investments during the quarter was 13.3%. This compares to a 12.2% weighted average annualized yield, excluding income from non-accruals and collateralized loan obligations as of June 30th, 2026, and a weighted average annualized yield of 12.8% as of March 31st, 2026. Our focus remains on credit quality, structure, and overall risk-adjusted return. Our investment portfolio as of June 30th, 2026, remained highly diversified.

We ended the quarter with a debt investment portfolio of $349.7 million at fair value, excluding our investments in CLO funds, equities, and joint ventures, spread across 71 different portfolio companies in 33 different industries, with an average par balance of $3.2 million per investment. Turning to slide 11, our non-accrual profile continued to improve on a cost basis during the quarter. At the end of the second quarter, we had 11 investments on non-accrual status attributable to 7 portfolio companies, representing 3.1% and 5.7% of the portfolio at fair value and amortized cost, respectively. This compares to 12 investments attributable to 9 portfolio companies on non-accrual status as of March 31st, 2026, representing 2.6% and 6.2% of the portfolio at fair value and cost, respectively.