Hello, welcome to Kayne Anderson BDC, Inc.'s Q4 2024 earnings call. A Q&A session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to Terry Hart, Chief Financial Officer of KBDC.
Good morning, and welcome to Kayne Anderson BDC, Inc.'s Q4 2024 earnings call. Today I'm joined by Doug Goodwillie and Ken Leonard, Co-CEOs of KBDC, as well as Frank Karl, Senior Vice President of KBDC. Following our prepared remarks, we will be available to take your questions. Today's call may include forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates, and projections about the company, our current and prospective portfolio investments, our industry, our beliefs, and our opinions, and our assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict.
Actual results may differ materially from those expressed or forecasted in the forward-looking statements. We ask you to refer to the company's most recent filings with the SEC for important risk factors. Any forward-looking statements made today do not guarantee future performance and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time. Our earnings release, 10-K, and supplemental earnings presentation are available on the financial section of our website at kaynebdc.com. I'd like to turn the call over to Ken Leonard.
Thank you, Terry, and thank you everyone for joining us on the call today. I'd like to start with a short overview of our financial results before discussing our investment activity during the quarter and portfolio makeup and performance. I'll then provide some voiceover on current market conditions before Terry Hart discusses KBDC's financial results in more detail. During the Q4, we're pleased to report that we generated net investment income of $0.48 per share and net income of $0.50 a share. During the quarter, we distributed our $0.40 of regular dividend and $0.10 per shares of a special dividend. The latter of which was declared around the time of our IPO. As a reminder, at year-end 2024, KBDC held approximately $0.32 per share of spillover income.
Turning to our private middle market investment activity in the Q4 of 2024, we made $231 million of total commitments across 16 different businesses during the period, of which $175 million was funded. This compares favorably to the Q4 of 2023, where we made new commitments of $153 million, of which $141 million was funded. $ 34 million of our existing unfunded commitments were funded or partially funded during the quarter, compared to Q4 2023, where $43 million of our existing unfunded commitments were funded or partially funded. Combined, we made fundings in the Q4 of 2024 of $209 million. This compares favorably to the Q4 of 2023, where gross fundings were $184 million.
We had repayments of $139 million during the period. That's up from $97 million in the Q4 of 2023, but still only around 7% of the average funded investments. During the Q4, our broadly syndicated loan portfolio experienced no new fundings. That's in line with our plan. $18 million of repayments for the total portfolio repayments of approximately $157 million. We plan to continue to wind down our broadly syndicated loan portfolio over the course of the year. When considering all funding and repayment activity, net funded deployment for the quarter was $52 million. This increase in fundings increased our debt-to-equity ratio to 0.72x , still below our target range of 1x to 1.25x , but above our Q3 2024 debt-to-equity ratio of 0.66x .
Turning to our portfolio composition. As of December 31st, KBDC's portfolio includes 110 individual portfolio companies representing $2 billion of fair value funded investments. We have another $186 million of unfunded commitments comprised of a mix of unfunded revolvers and delayed draw term loans for total commitments in excess of $2.2 billion. Of note, since December 31st, 2024, KBDC has closed or is in the final closing process on an additional $200 million of fundings, evidencing a very strong start to originations for 2025. In fact, Q1 2025 is on track to be one of KBDC's largest origination quarters since its inception in 2021, evidencing our continued ability to scale our portfolio over time.
As of December 31, 2024, investments in KBDC's portfolio, excluding investments on our watch list, had weighted average leverage of 4.2x, interest coverage of 3.1x, and LTV of approximately 42%, evidencing our practice of conservatism in loan structuring. We've also built a diversified portfolio with average position size of 0.9% of fair value, and where our top 10 investments represent only 18% of our portfolio. Outside of the specific credit statistics associated with our portfolio, our investments are very well structured. 98% of our portfolio is invested in first lien securities, and 99% of our private middle market investments are backed by private equity sponsors. Additionally, all of our four first lien private middle market investments have financial covenants.
100% of our investments are floating rate. That mirrors our liability, where the vast majority of our debt funding utilizes floating rate borrowings. Our portfolio has performed very well to date, with only 1.3% of total debt investments at fair value on nonaccrual, representing only three positions out of 110. We have built this conservative portfolio with a healthy weighted average yield of approximately 10.6% on fair value of investments. This yield has been achieved with approximately 13% of our portfolio invested in broadly syndicated securities. That's going to position the portfolio for upside in spreads relative to our competitors over the next few quarters as we rotate out of these lower spread, broadly syndicated investments.
Finally, our portfolio is diversified by end market and industry with a focus on stable, slower growing segments of the U.S. economy. As you can see in our earnings presentation, our largest industries are distribution, commercial services, food products, healthcare providers, and containers and packaging. With the largest representing only 15.1% of the total portfolio. With respect to overall credit quality, our perspective is that middle market private credit as an asset class is well insulated and should continue to perform well even during bumpier economic times, as it has over multiple decades. Enduring most of the recent periods of distress, including COVID-19, supply chain disruptions, geopolitical conflicts and associated uncertainty, substantial inflationary pressures, and increased reference rates. We see this in our portfolio. The vast majority of our investments are performing well, and we're extremely pleased with the quality of our loan book.
In the quarter, we added 1 position to nonaccrual, which represents 0.4% of the total fair market value of our portfolio. As mentioned, that brings our total nonaccruals to 1.3% of fair value of our portfolio. Turning to market conditions broadly, we feel the market enjoyed relatively robust levels of activity in the Q4 of 2024, at least relative to the last six to eight quarters. Sponsor middle market volumes were up 96% versus the Q4 of 2023. For 2024, middle market sponsor loan volumes were up 86% versus fiscal year 2023. We believe a substantial driver in this uptick in activity has been the private equity community moving to transact, rebounding from lower M&A volumes over the prior one to two years.
KBDC's existing portfolio of private middle market investments has a weighted average spread over SOFR of approximately 609 basis points. While we've seen some market compression, most of the new transactions we're reviewing today have a spread over SOFR of 500 basis points -600 basis points, and our private middle market investments in 2024 had an average spread of approximately 575 basis points. We're encouraged that as we sit here today, we continue to see very good risk-adjusted lending opportunities in the upper half of that range. While no one can predict where spreads will go in the future, we've seen some signs that spreads have begun to stabilize, driven in part by accelerating loan volumes. With that, I'll turn it over to Terry Hart to discuss KBDC's Q4 2024 financial results.
Thanks, Ken. Let's first review results of operations. During the Q4, we earned net income per share of $0.50 compared to $0.53 during the Q3, and net investment income per share was $0.48, or $0.49 excluding excise taxes, compared to $0.52 in the prior quarter. Total investment income for the Q4 was $56.3 million, as compared to $57.8 million in the prior quarter. The decrease to investment income was primarily driven by the reduction to SOFR and the $0.7 million impact of placing Sundance on nonaccrual status during the quarter. These reductions were partially offset by net additions to the portfolio during the Q4.
It's worth noting that over 80% of the decrease to our portfolio yield was related to lower reference rate. Only 1.1% of interest income for the quarter related to PIK interest. Additionally, during the Q4, we had approximately $1.1 million of accelerated amortization of OID as a result of realization activity. Total expenses for the Q4 were $22.3 million, compared to $20.8 million for the prior quarter.
The increase was primarily related to $0.8 million of excise tax expense on undistributed income and higher interest expense resulting from additional borrowings on our credit facilities to fund investment activity during the quarter. As a reminder, in connection with our IPO, Kayne Anderson instituted a 25 basis point fee waiver of our base management fee through May 23rd, 2025, and a full waiver of income-based incentive fees that expired on December 31st, 2024. During the Q4, we had a realized gain of $0.7 million on the sale of an equity co-investment, and we had net unrealized gains on a portfolio of $1.4 million, compared to unrealized gains of $0.5 million in the prior quarter.
The unrealized gains were a result of upfront fees on origination activity during the quarter, partially offset by quarterly amortization of original issue discounts and, to a lesser extent, changes in the fair value of some of our investments. Additionally, we had $0.7 million of deferred income tax expense related to unrealized gains on equity investments held in our taxable subsidiary. As of December 31st, total assets were $2.08 billion, and net assets were $1.2 billion. As of that date, our net asset value was unchanged at $16.70 per share. During the Q4, results of operations, including realized and unrealized gains, were $0.10 higher than our regular dividend of $0.40 per share, and we paid our first of three special dividends of $0.10 per share, resulting in NAV per share being flat quarter-over-quarter.
At the end of the Q4, we had debt outstanding of $858 million. Our debt-to-equity ratio was 0.72 x, which is an increase from 0.66 x at the end of the Q3. As Ken Leonard mentioned, Q1 2025 is shaping up to be one of the most robust origination quarters since inception, such that we will continue to grow our portfolio steadily and prudently. With this level of activity, we target achieving the low end of our debt-to-equity range of 1 x-1.25 x in the second or Q3 of 2025. During the Q4 of 2024, we continued to increase credit facility borrowings, improving the utilization of our facilities. We amended our corporate credit facility to extend the maturity date and decrease pricing to SOFR plus 2.1%.
In February, we amended both SPV credit facilities to extend the maturity dates, increase capacity, and decrease the interest rate on each facility. The reduction to our borrowing costs and higher utilization of our credit facilities resulting from robust origination should be beneficial to net investment income over the balance of the year. Looking forward, as we increase leverage on our credit facilities and achieve a low end of our debt-to-equity target range, we plan to opportunistically issue unsecured notes to provide additional credit facility capacity. In closing, I'd like to provide a few thoughts related to our distributions. On February 19th, our board of directors declared a regular dividend for the Q1 of 2025 of $0.40 per share to shareholders of record on March 31st, 2025.
In addition, we'll also be distributing two previously declared special dividends of $0.10 per share in March of 2025 and June of 2025. These follow the distribution of our first $0.10 per share special distribution in December of 2024. These special distributions were established to help support the stock price around share lockup release dates and pay out excess income earned in 2024. As of December 31st, our undistributed net investment income was approximately $0.32 per share. Of this amount, $0.20 per share will be distributed to shareholders through the two remaining special dividends, with the remainder expected to be paid out in the Q4 of 2025.
Throughout 2025, we anticipate relatively modest excess net investment income above our base dividend, reflecting the timing of the continued ramp of our portfolio to achieve target leverage ranges and a strategic rotation out of our lower yielding broadly syndicated loan investments into middle market loans. We believe our total dividend yield and dividend coverage will more accurately reflect our steady state operations when KBDC is operating at its leverage target with the portfolio fully invested in middle market loans. With that, operator, please open the line for questions.
Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. We will pause for just a moment. Again, if you would like to ask a question, please press star one on your telephone keypad. Your first question today comes from the line of Derek Hewett from Bank of America. Your line is open.
Good morning, everyone. In terms of the expectation that you'll re-achieve your target leverage at near the low end, during the either the Q2 or Q3 of this year, does that include the rotating the broadly syndicated loan portfolio? Is that included in that forecast?
Derek, this is Doug Goodwillie. Thank you for the question. That does not. It assumes that we're investing at the pace or that we've established thus far in Q1. To date, I think as Ken mentioned in his presentation, we funded over $200 million of commitments and are in process, you know, for close to another $100 for just Q1 of 2025. With that, and the robust pipeline into Q2, we would expect to achieve that target ratio towards the end of Q2 or at the latest, early Q3.
Okay. Thank you. My follow-up question is, have you assessed, kind of the risk for either kind of DOGE-related, types of exposure from your borrowers or, tariffs, especially since the portfolio is more kind of old economy, types of corporates?
I think across, you know, all portfolios, you know, you need to assess those risks. Also obviously tariff risk at the moment, obviously relevant today. We don't have many companies that are invested with what we call stroke of the pen risk. Where there's a lot of government funding as a key element to the cash flow. For us, I think that the DOGE risk is relatively minimal. You know, as we evaluate the portfolio, again, there's very few companies where government funding is a key source of the business.
This is Frank. I think just to address tariffs, you know, clearly I think for both these topics, uncertainty sort of feels like the name of the game, though, you know, obviously some news in the last few days around moving forward with, you know, some of the previously communicated tariffs. I think we think about tariffs specifically in two ways. First, clearly top of mind on new underwriting, so we're being very careful there. I will note that, you know, we've not seen much in the way of transactions that are, let's say, in importers from tariff impacted countries. I think the market is sort of pulling back a bit. If you're a seller right now, hard to bring a business with that sort of exposure to market.
Second, we did just complete an analysis on KBDC's portfolio, looking at all of our borrowers and you know, where they had substantial exposure. What we found is that something like a quarter of our portfolio imports more than 10% of COGS, which again, is a low bar at 10% of COGS from China. Another, call it 20% imports more than 10% of COGS, again, a low bar from Canada or Mexico. Of these, the vast majority, nearly all, have some reasonable level of ability to flex pricing. They're not into fixed price contracts with large customers, for example. We also saw this in 2018. Very few of the businesses where we're invested were impacted directly. Of course, tariffs and trade wars create uncertainty and unpredictability, so hard to see all the way around the corner.
We do think that, you know, U.S. focused portfolio like ours in conservative senior secured loans is well-positioned, even if there is some bumpiness here.
Yeah. Derek, don't wanna be dismissive of the DOGE question at all. I think, you know, I tried to hit it from the, you know, head on in terms of, you know, funding into businesses that are reliant on, you know, directly government funding. There are, you know, kind of the second derivative of that would be something like healthcare, where, you know, Medicaid, you know, and other government spending programs to fund healthcare come into question. I think for us, we have roughly 8% of the portfolio in healthcare providers and services. Within that, you know, it typically is in companies that have relatively low reimbursement risk.
There's always going to be, you know, some second level risk in any portfolio, when you get down to, you know, what DOGE could potentially do. I think we're continuing to monitor that on a, you know, daily and monthly basis and, you know, assess our portfolio risk as the changes occur in Washington.
Thank you.
As a final reminder, if you would like to ask a question, press star then the one on your telephone keypad. There are no further. I do apologize. We have a last minute question from the line of Paul Johnson from KBW. Your line is open.
Yeah, good morning. Thanks for taking my questions. Just with the new activity, I'm, you know, curious, you know, how have, you know, leverage multiples held up as well as just kind of, covenants and the bands around those, if those improved at all, you know, from kind of the more, refinancing heavy market last year, or that kind of, continued the pressure terms this year?
Thank you, Paul. This is Doug Goodwillie again. Leverage has been relatively consistent for us. you know, as we looked at 2024, it was still sub 4x for our new investment activity. As we look at the Q1 of this year, still again, you know, weighted average, you know, right around 4x. Leverage has been very consistent. As you may recall, Paul, for us that tends to be, you know, the case, you know, vintage by vintage. you may have a period where it's in the 3.8x or one where it's in the, you know, low 4x. That's a very consistent part of what we do with our value lending strategy. Where we've seen a bit of movement has been more on price.
I think the mid-market has been pretty disciplined on leverage and structure as it relates to, you know, not just leverage but also LTV. To give you a feel, I think Ken mentioned it in his part of the presentation earlier. Spreads were around 5.75% for the year in 2024. What we've seen thus far in 2025 has been closer to 5.50%. Closing fees around 2% last year, slightly below that in the Q1 of 2025. Where we've seen a bit of give, if you will, from the lending market, has been more on price.
That said, if you consider that, you know, over a 12-18-month period, something to the effect of, you know, 50 basis points -75 basis points in our market, which is relatively muted to what I think you would have seen, during that same time period in the upper mid-market, and the broadly syndicated market.
Thank you very much.
That concludes our question and answer session. I will now turn the call back over to Doug for closing remarks.
Thank you. With that, I'd just like to thank everyone on the call for their time and continued interest in KBDC. We look forward to a continued strong Q1 into our next earnings call in May. Thank you very much.
This concludes today's conference call. Thank you for your participation. You may now disconnect.