Good day, and welcome to the Bain Capital Specialty Finance 1st quarter ended March 31st, 2026 earnings conference call. I'd now like to turn the call over to Katherine Schneider. Please go ahead.
Thanks, Jamie. Good morning, welcome everyone to the Bain Capital Specialty Finance first quarter ended March 31st, 2026 conference call. Yesterday, after market closed, 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 most recently filed annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q, as well as other filings with the SEC that could cause actual results to differ materially from those indicated. Forward-looking statements made today include, without limitation, statements regarding dividend sustainability, investment pipeline, leverage targets, credit quality trends, and the potential impact of AI disruption on portfolio companies. Bain Capital Specialty Finance assumes no obligation to update any forward-looking statements at this time unless required to do so by law or by the rules of the NYSE on which our securities are listed. Past performance does not guarantee future results. With that, I'd like to turn the call over to our Chief Executive Officer, Michael Ewald.
Thanks, Katherine, good morning, and thanks to all of you for joining us here today on our earnings call. I'm joined here by Michael Boyle, our President, and our Chief Financial Officer, Amit Joshi. In terms of the agenda for the call, I'll start with an overview of our first 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. Of course, we'll leave some time for questions at the end. Beginning with our financial results, net investment income per share for the first quarter was $0.42, representing an annualized return on equity of 10.0%.
Our net investment income fully covered our regular dividend during the quarter, demonstrating the continued earnings power and resilience of our portfolio. Q1 earnings per share were $0.05, primarily driven by net unrealized losses across our investment portfolio. These losses were largely attributed to idiosyncratic credit weakness within certain portfolio companies, as well as broader market-driven valuation adjustments stemming from credit spread widening and multiple compression during the quarter. Subsequent to quarter end, our board declared a second quarter dividend of $0.42 per share, payable to shareholders of record as of June 15th, 2026. Our Q2 dividend equates to an annualized yield of 10.0% based on ending book value as of March 31st, 2026. Credit performance across the portfolio remained fundamentally sound. Non-accrual levels continued to remain low and stable as no new investments were shifted to non-accrual during the quarter.
Our borrowers generally demonstrated healthy operating performance and resilient credit fundamentals despite the more uncertain macroeconomic backdrop. In fact, the first quarter was an increasingly challenging market environment characterized by heightened public market volatility, investor concerns surrounding AI disruption risk on software valuations, renewed inflationary pressures fueled by geopolitical uncertainty, and retail outflows from private credit vehicles. These factors contributed to a more cautious and selective risk environment across broader credit markets. Against this backdrop, our pace of new investment activity moderated during the first quarter, with our funding split between supporting new portfolio companies and providing add-on financings and fundings to existing borrowers. BCSF continues to benefit from Bain Capital's private credit platform, whose long-standing presence, deep relationships, and extensive expertise in the core middle market position us favorably in the current market.
While much of the recent net retail outflows have been concentrated among large cap private credit managers, potentially tempering new investment activity in that space, our platform remains well-positioned to serve as a consistent long-term capital provider to our target core middle-market borrowers. We remain focused on our long-standing investing tenets of disciplined underwriting, maintaining meaningful control over our debt tranches and strong financial covenant protections. Spreads on our Q1 new originations average approximately 550 basis points on a weighted average basis, while net leverage levels remain prudent at 4.4x EBITDA. Looking ahead into the second quarter to date, we have begun to see a pickup in volumes for new investment activities. The current investing environment for lenders has been moderately more favorable, as we have observed pricing widen by an additional 25 basis points-5 0 basis points, reflecting the market's increasingly cautious tone.
As we discussed in detail on our previous earnings call, BCSF software exposure, including software adjacent companies, represents approximately 13% of our total portfolio. Our private credit platform has remained disciplined and highly selective in investing capital, enabling us to thoughtfully target the areas of the market where we see the most compelling risk-adjusted opportunities. While the past several years have been characterized by significant capital formation and heightened competition across sectors such as software and technology, we maintained a measured underwriting approach and resisted the broader trend toward increasingly aggressive structures. In addition, given our history in the space and broad investment platform, we have expertise and experience in a large number of diverse industries, thereby limiting our over-reliance on any one sector. Importantly, evaluating the potential risks and implications associated with AI-driven disruption is not a new exercise for our platform.
We believe BCSF is uniquely differentiated amongst its peers through the breadth of expertise and institutional knowledge embedded across Bain Capital's broader credit platform, as well as adjacent business units, including ventures, tech opportunities, and private equity. These teams have all been actively incorporating AI-related risk assessment and management frameworks into their investment process for several years, allowing us to continuously refine our underwriting standards and integrate best practices and proprietary insights into our own investment framework. Over the years, our software investment strategies remain intentionally centered on mission-critical systems of record software and highly specialized vertical software businesses that serve deeply embedded and essential functions within their respective markets. During the first quarter, we conducted a comprehensive risk reassessment to evaluate the potential substitution risks that emerging AI technologies may pose across our portfolio companies.
Based on this analysis, the majority of our software investments carry a relatively low risk of AI-driven disruption, reflecting the differentiated nature and resilience of these businesses, as well as our disciplined approach, investment approach, and framework when we first evaluated these companies. Importantly, our software portfolio companies continue to exhibit strong underlying credit fundamentals, supported by healthy operational performance and consistent earnings growth since the time of underwriting. As of quarter end, median LTV in that segment is approximately 37% when adjusted for current enterprise value multiples, and these borrowers maintain solid interest coverage levels of approximately 2.0x . Looking ahead, we believe BCSF remains well positioned to navigate the current market environment.
Our portfolio continues to demonstrate solid underlying health and is supported by a well-diversified liability structure, strengthened by the issuance of unsecured debt earlier this year to proactively address our near-term 2026 maturity. While we ended the quarter at the upper end of our target net leverage range of between 1.0x- 1.25x , we believe we remain in a position to capitalize on attractive investment opportunities as the portfolio continues to generate healthy levels of repayment activity. Against this backdrop, we believe BCSF's regular dividend of $0.42 per share can be maintained in the current environment. However, at the same time, we will continue to thoughtfully evaluate our dividend policy alongside our board on a quarterly basis, consistent with our disciplined approach to capital management and long-term shareholder value creation.
I will now turn the call over to Michael Boyle, our President, to walk through our investment portfolio in greater detail. Mike.
Thanks, Mike. Good morning, everyone. I'll start with our investment activity for the first quarter and then provide an update in more detail on our portfolio. New fundings during the first quarter were $243 million into 107 portfolio companies, including $124 million in 13 new companies and $111 million in 93 existing companies and $9 million into the Senior Loan Program or SLP. Sales and repayment activity totaled approximately $255 million, resulting in net sales and repayments of $12.2 million quarter-over-quarter. Our new investment fundings were split between new and existing portfolio companies, with new fundings representing 51% of total versus 49% of fundings made to existing companies.
This quarter, we remain focused on investing in first lien senior secured loans, with 93% of our new fundings within first lien structures, 4% into investment vehicles, 2% in preferred and common equity, and 1% into subordinated debt. New investment activity for the quarter continued to benefit from Bain Capital's deep industry expertise and long-standing sponsor relationships. We remain focused on investing in defensive sectors such as food and beverage, business services, and healthcare, where we believe companies are best positioned to demonstrate resilience across varying economic environments. We also continue to favor core middle market size companies, a segment that we believe offers attractive terms and structure combined with a large market opportunity of high-quality borrowers, consistent deal flow, and more favorable competitive dynamics relative to other market segments.
Reflecting this focus, the median EBITDA across our new companies added to the portfolio during the quarter was $41 million. Sales and repayment activity remained healthy during the quarter, driven by a combination of full realizations and repayments, as well as partial sales and repayment activity. Turning now to the investment portfolio specifically. At the end of the first quarter, the size of the portfolio at fair value was $2.5 billion across a highly diversified set of 212 portfolio companies operating across 30 different industries. The average position size across single names in our portfolio was approximately 40 basis points. Our portfolio primarily consists of first lien investments, given our focus on downside management and investing in the top of capital structures.
As of March 31st, 66% of the investment portfolio at fair value was in first lien debt, 1.2% in second lien debt, 3% in subordinated debt, 6.7% in preferred equity, 6.8% in common equity and other interests, with 16% across our joint ventures, including 9% in the International Senior Loan Program and 7% in the Senior Loan Program. In both of which the vast majority of underlying investments are first lien loans. As of March 31st, 2026, the weighted average yield on the portfolio at amortized cost and fair value was 10.8% and 10.9% respectively, consistent with December 31st, 2025. As of March 31st, 2026, approximately 93% of our debt investments bear interest at a floating rate. Moving on to portfolio credit quality trends.
Fundamentals across the companies remained solid during the quarter, continuing to reflect the resilience and quality of our portfolio construction. Median net leverage across our borrowers was 4.6x EBITDA, representing a modest improvement from the prior quarter, and median interest coverage remained healthy at 2.1x across our borrowers. Watch list investments represented approximately 5% of the portfolio at fair value, in line with recent quarters. Importantly, the composition of these names has remained stable, and we have not observed a meaningful migration of new borrowers onto our watch list. Rather, the category continues to be concentrated within a limited number of idiosyncratic situations versus broad-based credit deterioration.
In addition, our exposure to these investments remained primarily positioned in first lien loans, providing us with what we believe to be favorable positions within each capital structure with greater potential for downside protection. Non-accrual levels remained low across our portfolio as of quarter end, representing 1.4% at amortized costs and 0.6% at fair value. Notably, this reflected a modest improvement from the prior quarter's level of 1.6% and 0.8% respectively, and no new companies were added to non-accrual during the quarter. Taking all of this together, the health and credit quality of our portfolio remains on solid footing. Amit will now provide a more detailed financial review.
Thank you, Mike, and good morning, everyone. I'll start the review of our first quarter results with our income statement. Total investment income was $66.2 million for the three months ended March 31st, 2026, as compared to $68.2 million for the three month ended December 31st, 2025. The decrease in investment income was primarily driven by decrease in effective yield on the existing debt investments, which reduced interest income. The quality of our investment income continues to be high as 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 Q1. PIK interest income represented approximately 13% of our overall investment income in Q1.
Notably, the vast majority of our PIK income is derived from investments that were underwritten with PIK, totaling 81% of our total PIK income. Only a small portion of our PIK income is related to amended or restructured investments. Total expenses before taxes for the first quarter was $37.9 million, as compared to $37.7 million in the fourth quarter. The increase in expenses was driven by higher interest and debt fee expenses, driven by the issuance of March 2031 note for $350 million in January, partially offset by lower management and incentive fee. Net investment income for the quarter was $27.4 million or $0.42 per share as compared to $29.7 million or $0.46 per share for the prior quarter.
During the three month ended March 31st, 2026, the company had a net realized and unrealized losses of $24 million or $0.37 per share. As Mike highlighted earlier, our net losses were largely attributed to idiosyncratic credit weakness within a limited number of our portfolio company, in addition to broader market related mark-to-market adjustments. Net income for the three month ended March 31st, 2026 was $3.4 million or $0.05 per share. Moving over to our balance sheet. As of March 31st, our investment portfolio at fair value totaled $2.5 billion and total assets of $2.6 billion. Total net assets were $1.1 billion as of March 31st, 2026.
NAV per share was $16.86, a decrease of $0.37 per share from $17.23 at the end of fourth quarter, driven by net losses of $0.37 per share. As of March 31st, approximately 80% of our outstanding debt consisted of floating rate debt, with the remaining 20% comprised of fixed rate debt. Our approach to liability management continues to reflect a disciplined and proactive strategy. Through a successful execution of unsecured debt issuance during the first quarter, we were able to effectively pre-fund and address upcoming 2026 maturities, while simultaneously extending the duration of our debt profile and enhancing overall financial flexibility. For the three month ended March 31st, 2026, the weighted average interest rate on our debt outstanding was 4.6%, consistent with the prior quarter.
The weighted average maturity across our total debt commitment was approximately 4.1 year at March 31st, 2026. At the end of Q1, our debt- to- equity ratio was 1.34x as compared to 1.32x from the end of Q4. Our net leverage ratio, which represent principal debt outstanding less cash and unsettled trades, was 1.28x at the end of Q1 as compared to 1.24x at the end of Q4. Liquidity at quarter end was strong, totaling $729 million, including $660 million of undrawn capacity on our revolver credit facility, $34.2 million of cash and cash equivalent, including $17.6 million of restricted cash and $34.6 million of unsettled trade net of receivables and payables of investments.
With that, I'll turn the call back over to Michael Ewald for closing remarks.
Yeah, thanks, Amit. In closing, we were pleased with the continued execution of our investment strategy on behalf of our shareholders during the first quarter. Our portfolio continued to generate attractive levels of investment income while credit quality across our middle market borrowers remained stable. We believe the company remains well-positioned to capitalize on compelling new investment opportunities in the current market. We remain committed to delivering value for our shareholders through disciplined portfolio and liability management and producing attractive returns on equity. Thank you for the privilege of managing our shareholders' capital. With that, Jamie, please open the line for questions. Thanks.
Thank you. At this time, if you would like to ask a question, please press star one on your keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star one to signal for a question and star two to remove yourself from the queue. We will pause for just a moment to allow questions to assemble. We'll take our first question from Paul Johnson with Keefe, Bruyette & Woods. Please go ahead.
Thanks. Good morning. Thanks for taking my questions. I mean, earnings were in line with the dividend this quarter, and as you mentioned, you evaluate the dividend each quarter. I would imagine, you're taking a close look at that now. I'm just curious, though, I mean, as you approach those discussions, is You know, you have generally generated a higher operating ROE than the space in general, for a few reasons. I'm wondering, is that still sort of the goal in mind going forward? You know, if so, I guess how much is under evaluation here in terms of, you know, not just the dividend level, but the fee structure and those sorts of things to continue to generate an above market ROE?
Thanks, Paul. Look, on the dividend front, I mean, it is a continuous evaluation, right? Base rates certainly drive a fair amount of that discussion. They were on a somewhat downward trajectory there for a while. They have held here at a kind of intermediate level based on inflation forecast, everything else. I'm guessing they'll probably stick around here for a while. That is certainly one driver of our decision regarding dividends. You know, clearly earnings from JVs, things like that are also going to be impactful there. As I said in my remarks, as we look at it, as we sit here today, we certainly feel comfortable with that $0.42 dividend for Q2.
We'll continue to evaluate that going forward. Regarding our ROEs, I wasn't sure which way you're going with that. If we have good ROEs, are you suggesting that maybe we increase fees? Wasn't quite sure what you meant there. Look, it's certainly something where we continue to ensure that we're competitive with other BDCs out there, both in terms of our return levels, our consistency of dividend, and then taking into account, you know, what other folks are doing on pricing and how they're performing as well. It is a continuous evaluation and discussion with our board.
Got it. Appreciate it. That's helpful. Then just I guess in terms of, you know, the spread widening and, you know, your ability, I guess, to kind of capture, you know, a new vintage going forward here with investment activity. You know, with leverage is where it is at 1.3x . How do you think, you know, you're able to, I guess, capitalize on that if you do see meaningfully, you know, increased activity, you know, at better terms? Do you have, I guess, better line of sight on, you know, repayments that you would expect over the course of the year, or is there still capacity within some of the JVs to take on some of that activity? Just that'd be great to hear.
Thanks.
Yeah. Look, you really touched on two of the big drivers there, right? 1 is repayments, which are somewhat notoriously difficult to forecast. You will get a heads-up one week before we're getting a repayment. Always difficult to tell what that schedule is going to look like, and we continuously get those. We certainly benefited from some of those in the first quarter, so we're able to rotate out some investments there. The 2nd point you mentioned too is those JVs where there still is additional capacity and, you know, potentially, the ability to add some more over time as well. You'll notice that some of our, quote-unquote, repayments were actually sales down to those JVs. There continues to be an opportunity to grow those as well.
Appreciate it. That's all for me. Thanks.
Thanks, Paul.
Once again, ladies and gentlemen, that is star one, if you would like to signal for a question. We'll hear next from Derek Hewett with Bank of America. Please go ahead.
Good morning, everyone. It appears that Gale Aviation drove most of the unrealized loss this quarter. What was the change in the investment thesis that caused the loss and for you to exit the investment?
We exited the investment during the quarter. It was more based on realization. We, as you can appreciate, there were approximately 5 planes which, as we have highlighted in the past, we have been trying to liquidate.
That, that investment. As we were ironing things out, we have been revisiting based on our projection, the fair valuation. I think based on compared to prior mark, it came very close to that, and we exited the investment during that quarter. Again, as we highlighted in the past, aviation is a sector overall. We do look at it. That's, that's an area where we have teams which are focused on it. Depending on how we look at it from a long-term perspective, we, for this portfolio, we wanted to exit out of that investment, and that's what happened during Q1.
Okay.
Yeah. I would just add, if you think about, on the Look, there's a number of asset-backed opportunities that we've always got going on in the background. Aviation certainly one of those. The trade around leasing to airlines and planes has got a little more saturated. The opportunity set isn't quite as attractive there as it was when we first got into it several years ago. We made the decision to exit that. As Amit mentioned, we still have a pretty strong positive view around aerospace and defense in general and continue to actively invest there. Also opportunistically are looking at some other asset-backed plays as well.
Okay. Thank you for that. Of the $0.27 of unrealized losses, during the quarter, like, what percentage of that was just due to just your general kind of spread widening? What was just, what was due to kind of specific credit issues?
Look, it's a little tougher to parse that out and be too exact there. You know, if you have a company that misses its budget, but it's up 10% over last year, you know, and there's a slight mark down there. Is that because it missed budget? It's still up over last year. Is that 'cause of spread widening? There's a whole bunch of little puts and takes across the portfolio. What I would say is the majority of it was limited to companies on non-accrual, which tend to bop around a little bit. We actually had a-
Okay.
We actually had an increase in one of our non-accrual names this quarter as well. There's always gonna be a little bit of noise in that bucket as well as that spread widening piece.
Okay. Great. Then lastly for me, like, what are the puts and takes of executing on your buyback? I believe it's roughly $50 million, which would be accretive kind of based on where the stock is trading today versus kind of new originations, just given the more investor-friendly environment where you can get, like, spreads of, I believe you said 25 basis points- 50 basis points higher than what you were previously receiving.
Yeah, look, that's certainly another item of debate that we engage in with our board at our quarterly meetings and even between those quarterly meetings as well. We're constantly evaluating the math around, you know, a potential bit of a short-term boost from buybacks versus being able to reinvest some of that capital in an existing attractive market. There's also just the added, the added governor of, you know, operating close to the top, you know, end of our leverage range. Those are all considerations that we do take into account. To date, we haven't executed on that, but it certainly is an open topic.
That's all for me. Thank you.
Thank you.
Oh, sorry.
We'll return now.
Derek, Sorry, the other point on the stock buyback too is just it's not the most liquid stock, as you can probably appreciate as well. You know, that can make stock buybacks a little bit difficult too.
Yeah. Understood.
We'll return now to Paul Johnson with Keefe, Bruyette & Woods. Please go ahead.
Yeah. Thanks. Just one more follow-up. Thanks for taking me. I was wondering if I could ask just about a specific credit, if you don't mind. I noticed the maturity was pushed back from last quarter, and there's several other lenders in the loan, and I'm not sure if you're in a position of, you know, control or not. I noticed your mark was lower than a few of your peers. Premier Imaging, I was wondering if you could provide any sort of color on what the situation is there. I guess if, you know, the sponsor has been supportive of the company.
You know, as well as just more broadly, you know, with kind of all the volatility that we've had, I guess, in the software, you know, technology market, has that impacted the M&A, I guess, environment, you know, within the healthcare sector at all? If that was also obviously has been a challenged sector for the last several years.
I'd say we have not, on the healthcare side to start, we really have not seen any meaningful degradation in the exposures we have to that space. Part of that's because we've been much more active in recent vintages. Think 2023 and 2024 deals in healthcare when we felt like many of the issues, particularly around roll-ups, were already exposed in the market. It allowed us to lend into companies at lower leverage points with lower adjustments. We've continued to see the health of that portfolio be reasonably strong. And then on your specific name, question about a name, it's one that we're actually a fairly small holder of the tranche.
We do work with our third parties to to evaluate the mark that we're using as we do with all the other assets in the portfolio. This is one that we are not in a controlled position, and so that could be a component reflected in our valuation versus some peers that might have more of a control stake.
Got it. Thank you. That's all for me.
Sure. Thank you.
With no further questions in queue at this time, I'd like to turn the floor back over to Michael Ewald for any additional or closing comments.
Thanks, Jamie, for all your help today. Thanks again for everyone's time and attention on the call. We're happy to report first quarter results here and look forward to speaking with you all again soon. Have great days. Thanks.
Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.