Barings Bdc, Inc. · NYSE:BBDC
Barings Bdc — Investor Day (October 2023)
61 slides from Barings Bdc's investor day presentation, October 2023
Slide 1: Barings BDC Investor Day
OCTOBER 4–6, 2023 Barings BDC Investor Day
Slide 2: Disclaimers & Cautionary Notes Regarding Forward-Looking Statements
Disclaimers & Cautionary Notes Regarding Forward-Looking Statements Cautionary Notice: Certain statements contained in this presentation are "forward-looking" statements. Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they
Slide 3: Barings Overview
Barings Overview BARINGS
Slide 4: Who We Are
BARINGS OVERVIEW Barings, a subsidiary of MassMutual, is a global investment manager sourcing differentiated opportunities and building portfolios across public Who We Are and private fixed income, real estate and specialist equity markets EXTERNAL AUM BY REGION 1 30% 43% 27% Global Headquarters Inv
Slide 5: Today's Barings
TIMELINE FOR Today’s Barings Babson Acquires Duke Street Capital Debt Management Barings Acquires Altis Property Partners Leveraged loan business that allows This acquisition helps build out firm to gain a presence in Europe our real estate platform in Asia Pacific David L. Babson & Co. Inc. (Babson
Slide 6: Global Investment Capabilities
PUBLIC PRIVATE $188.3 B $84.8 B PUBLIC FIXED INCOME 1 AUM PRIVATE CREDIT Global $11.6 B Investment $47.3 B Capabilities PUBLIC EQUITIES 1 REAL ESTATE 2 Barings leverages its depth and $5.8 B breadth of experience across public DIVERSIFIED ALTERNATIVE and private markets to help meet our EQUITY clien
Slide 7: A Strategic & Panoramic View of Private Markets
A Strategic & Panoramic View of Private Markets Active participation across the capital structure for a variety of assets informs our view Private Credit Real Estate1 Diversified Alternative Equity $84.8 B $47.3 B $5.8 B TRACK RECORD: 27+ YEARS TRACK RECORD: 55+ YEARS TRACK RECORD: 30+ YEARS We own,
Slide 8: Our Ownership Structure is Differentiated & Offers a Number of Benefits
Our Ownership Structure is Differentiated & Offers a Number of Benefits As a private company with deep experience managing assets on behalf of our parent company, MassMutual, we measure relationships in decades, not quarters Alignment of Interest We believe in aligning both our business and our capi
Slide 9: Private Credit Landscape
Private Credit Landscape BARINGS
Slide 10: What is Private Credit?
What is Private Credit? Private credit is a fixed income investment directly originated by an asset manager. Transactions may consist of corporate credit, infrastructure debt, or private placements in a variety of securities Private credit transactions often provide enhanced yield relative to liquid
Slide 11: Private Credit—Attractive Historical Returns with Low Volatility
Private Credit—Attractive Historical Returns with Low Volatility Private Credit acts as a diversification tool given low volatility/high return profile compared to other asset classes 16% 14% Private Equity 12% 10% Return Private Credit 8% S&P 500 Private Real Estate 6% High Yield Public REITs 4% Le
Slide 12: Barings BDC Investment Strategy
Barings BDC Investment Strategy
Slide 13: Barings BDC Franchise
Sponsor Backed Investments Barings BDC Franchise What is it? Financing the operating Typical Terms companies of issuers Owned by • <50% Loan to Value Private credit expertise delivering Private Equity firms • Maintenance Covenants comprehensive exposure to the • EBITDA between $15 and $75 Assets are
Slide 14: Barings' Strengths in Direct Lending
Barings’ Strengths in Direct Lending Barings offers clients unique access to private capital markets $50.0B+ 125 26 280+ COMMITMENTS INVESTMENT DEDICATED INSTITUTIONAL UNDER PROFESSIONALS ORIGINATIONS INVESTORS MANAGEMENT 1 PROFESSIONALS Global Team Insight Robust Origination Aligned Interests Colla
Slide 15: The Private Credit Landscape—Access Two Risk Premiums
The Private Credit Landscape—Access Two Risk Premiums Barings BDC Franchise Focus within Middle Market Credit COMPLEXITY RISK 3-6% PREMIUM “the hard to source and understand premium” ILLIQUIDITY PREMIUM Risk Adjusted Return 1–3% “the private markets premium” CREDIT RISK PREMIUM 3-4% “the investment
Slide 16: Corporate Leveraged Credit
Corporate Leveraged Credit Barings operates in the middle of the middle market, where loan-to-value and total leverage tend to be lower than in the large corporate and institutional segments LBO Total Equity Contribution Comparison LBO Total Leverage by Market Segment (Annual) 65% 7.5x Barings Focus
Slide 17: Core Middle Market Offers Greater Degree of Structural Protection
Core Middle Market Offers Greater Degree of Structural Protection Large corporate private credit strategies resemble broadly syndicated loan terms and structure Private Credit Public Credit Often Rarely Sometimes Core Large Corp Club Broadly High Yield Middle Market /Mega Cap Syndicated Loans Bonds
Slide 18: Middle Market vs. Large Corporate—Default & Recovery
Middle Market vs. Large Corporate—Default & Recovery Core middle market loans had lower defaults and higher recoveries than larger size loans historically Core Middle Market Has Outperformed • Core middle market deals have lower leverage, tighter documentation, and better covenants when compared to
Slide 19: Barings Has >30 Years of Experience Investing in Middle Market Companies
Barings Has >30 Years of Experience Investing in Middle Market Companies We have a strong, proven history of investing in middle market companies across the globe $50 $45 $40 $35 $30 $ billions $25 Acquired Duke Street European Formalised North Debt business and established American Senior $20 Europ
Slide 20: US Direct Lending League Table Deployment
2022 League Table (Deals Closed) 1 Ares 2 Churchill 3 Antares Capital 4 Audax Private Debt 5 Twin Brook Capital Partners 6 Golub Capital 7 BARINGS 8 Monroe Capital 9 BMO Financial Group US Direct Lending 10 PNC League Table Morgan Stanley Private Credit 11 12 Owl Rock Deployment 13 Varagon Capital P
Slide 21: Barings BDC Management
TEAM ORGANIZATIONAL SLIDE Barings BDC Management Eric Lloyd (33/10) Jeff Chillag, CFA Ian Fowler, CFA Matt Freund, CFA Bryan High (11/8) (34/10) (13/8) (20/16) Melissa Logan Joseph Mazzoli, CFA Elizabeth Murray Albert Perley (14/8) (11/1) (24/5) (10/2) SUPPORTED BY ROBUST ANALYTICAL & OPERATIONAL PL
Slide 22: Barings BDC Investment Process
Barings BDC Investment Process
Slide 23: Origination Network
Origination Network Barings Advantage Private Credit Sourcing INTEGRATION/CONNECTIVITY WITHIN THE FIRM Channels Core Strategy & UNIQUE MARKET ACCESS OUTSIDE THE FIRM Global Sponsor Dedicated coverage of financial sponsors Coverage around the world Delivering solutions without Negotiating leverage to
Slide 24: Significant Market Connectivity Drives Deal Flow
Significant Market Connectivity Drives Deal Flow Direct Sponsor Relationships Intermediaries Platform 5-15% Investments Targeted 5-10% Investment Strategy Mix 75-85% 24
Slide 25: A Typical Deal
A Typical Deal Barings evaluates every transaction in the context of three variables • How resilient are the Issuer’s end Key Considerations markets? • How did the Issuer perform during the GFC and COVID? • To what degree are sales diversified? • What are gross and EBITDA margins? Issuer Profile • W
Slide 26: Opportunity Sourcing & Conversion
Opportunity Sourcing & Conversion Barings leverages its broad and wide-reaching network across private equity sponsors and advisors to originate opportunities Sourcing Capabilities LTM Barings Deal Origination Process1 Internal Origination Channels 1,650 Deals Introduced and Reviewed Barings’ Networ
Slide 27: Investment Process
Investment Process Barings’ Three-Pronged Approach in Practice Introduction & Deals Passed Deals Receive Deals Closed Initial Review Screening Stage Final IC Approval & Funded Preliminary Review Management Meeting Final Approval Closing • Inbound received from financial • Attend presentation in pers
Slide 28: A Typical Deal, with Examples
A Typical Deal, with Examples Barings evaluates every transaction in the context of three variables, and structures the transaction accordingly Closed Transactions Declined Opportunity Specialty Home Owner of Logistics Services Marinas Provider Contractor Sponsored, Strong EV, Substantial Sponsored,
Slide 29: Ongoing Portfolio Monitoring
Ongoing Portfolio Monitoring Portfolio managers and original investment team monitor at investment and portfolio level with goal of addressing any issues well in advance of potentially adverse events Investment Team Committee and External Monitoring Monitoring • Hold regular watchlist reviews • Same
Slide 30: Managing Downside Risk
Managing Downside Risk Investment professionals possess extensive experience with managing portfolios of private credit investments across economic cycles. Extensive Experience Constant Communication All-Hands Approach Barings has been managing private debt (including Barings maintains constant cont
Slide 31: Credit Quality
Credit Quality Leveraged Loan Index Defaults by Industry—Last 5 Years2 Barings global private loan strategy has Barings generally avoids industries that have been overly experienced low default and loss rates represented in leverage loan defaults historically across the more than $45 billion investe
Slide 32: BDC Platform
BDC Platform BARINGS
Slide 33: BDC Growth
Total Assets: Public vs. Private BDCs ($B) $300 $280 $260 $240 $220 $200 $180 $160 BDC Growth $140 $120 BDC AUM within the $100 industry has grown $80 to nearly $300 billion $60 $40 $20 $0 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q06 3Q06 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q16 3Q16 1
Slide 34: BDC Platform Timeline
TIMELINE BDC Platform BBDC Acquires MVC Capital Publicly listed BDC; portfolio of 18 investments with then-current fair value of $185 million Barings Becomes Investment Manager to Triangle Capital Corporation (Renamed Barings BDC Inc.) BBDC Issues First 144A Bond Publicly listed business development
Slide 35: Growth in the Barings BDC Franchise
BDC Complex AUM ($B) $8.0 $7.0 Growth in the $6.0 Barings BDC Franchise $5.0 What started in August 2018 as $4.0 $600 million of cash following the TCAP $3.0 externalization has grown to $7+ billion $2.0 of assets. $1.0 $0.0 2018 2019 2020 2021 2022 June-23 AUM represents fair value of investment po
Slide 36: The Three Flavors of BDCs at Barings
The Three Flavors of BDCs at Barings There are three primary flavors of BDCs, each with distinct features to target three investor types Public (BBDC) Private Non-Traded (BCIC) Perpetual Private (BPCC) • Trades publicly on a national stock • Similar to a “draw down” fund where • Similar to an “open-
Slide 37: Platform Investments
Platform Investments BARINGS
Slide 38: Asset Based Lending
Asset Based Lending Industry Overview ABL Total Commitments ($B)1 • Asset based lenders advance funds to borrowers based on strictly defined and closely monitored $502 collateral values; asset based loans (“ABLs”) are $457 $410 $419 typically collateralized by accounts receivables or $398 inventory
Slide 39: Eclipse Business Capital
Eclipse Business Capital Eclipse Approach Outstandings by Collateral1 • Conservative Underwriting—Eclipse loans are 6% typically structured to advance <85-90% of the net 6% orderly liquidation value of the underlying collateral 18% • Stringent Review of Collateral—With a focus on A/R and Inventory:
Slide 40: Litigation Finance
Litigation Finance Industry Overview Rocade Capital LLC • The mass tort framework provides a mechanism for • Rocade is a well-known and regarded player in the mass resolving a large number of individual lawsuits against tort lending sector and is run by a management team the same (or substantially s
Slide 41: Questions
Questions BARINGS
Slide 42: 15 Minute Break
15 Minute Break BARINGS
Slide 43: Barings BDC, Inc.
Barings BDC, Inc. BARINGS
Slide 44: Barings BDC, Inc. Investment Portfolio Timeline
TIMELINE Barings BDC, Inc. Investment Portfolio at Fair Value Net Asset Value Per Share Acquisition Quarters $2,600 $13.00 $2,400 $12.00 $2,200 $11.00 Investment Portfolio ($M) $2,000 $10.00 $1,800 $9.00 $1,600 $8.00 $1,400 $7.00 $1,200 $6.00 $1,000 $5.00 $800 $4.00 $600 $3.00 $400 $2.00 $200 $1.00
Slide 45: Share Repurchase Program and Share Price
• Since the externalization in August of 2018, the board of directors has approved five separate share repurchase plans • The acquisitions of MVC and Sierra Income were accompanied with share repurchase plans of $15 million and $30 million, respectively • Share repurchases have been executed in 11 o
Slide 46: BBDC Focuses on Shareholders
BBDC Focuses on Shareholders BBDC takes a thoughtful approach to align interests with shareholders INCENTIVE FEE HURDLE RATE CREDIT SUPPORT AGREEMENTS Hurdle Rate 8.50% 8.00% $123 • BBDC Hurdle Rate: 8.25% 7.50% • Barings made a commitment to million • Average Externally- 7.00% protect investors sup
Slide 47: Manager Alignment
BDC Manager Ownership Percentages 20.0% Barings LLC owns 13.6 million shares of BBDC, a clear 18.0% demonstration of manager and shareholder alignment 16.0% 14.0% Manager 12.0% Alignment Amongst the top 20 10.0% largest publicly 8.0% traded BDCs, BBDC has the second 6.0% highest manager 4.0% ownersh
Slide 48: Credit Support Agreements
Credit Support Agreements What are the Credit Support Agreements (CSAs)? How will Barings LLC compensate Barings BDC investors for the losses? The CSAs are a form of manager support between Barings LLC and BBDC created in connection with the acquisitions of MVC and Sierra. First, Barings LLC will wa
Slide 49: Credit Support Agreements
Credit Support Agreements Based on current portfolio valuations, the Sierra CSA and the MVC CSA fully insulates BBDC shareholders from 100% of credit losses in the acquired portfolio Sierra Income CSA MVC Capital CSA REMAINING POSITIONS—45 REMAINING POSITIONS—4 $100.0 $100.0 $100.0 $80.0 $80.0 $60.0
Slide 50: BBDC Net Asset Value Per Share (NAV) Bridge
BBDC Net Asset Value Per Share (NAV) Bridge BBDC’s NAV has increased in 2023 to $11.34 (June 30, 2023) from $11.05 (December 31, 2022), an increase of 2.6%, driven primarily by net investment income exceeding the dividend, unrealized appreciation on investments and share repurchases. Total may not f
Slide 51: Portfolio Highlights
Portfolio Highlights Senior Secured Focus 3% 5% $2.51B 328 14% First Lien Second Lien PORTFOLIO SIZE ISSUER COUNT Mezz 4% Equity 6% JV 68% Structured 74% 90% SENIOR FLOATING RATE SECURED DEBT Diversified Industry Exposure 635 BPS 11.3% 15% Finance & Insurance Services: Business WEIGHTED YIELD AT 25%
Slide 52: Portfolio Composition
Portfolio Composition Investment Portfolio by Issuer Investment Portfolio Strategy1 • Barings BDC maintains a highly diversified portfolio, with the top • BBDC’s existing investments are substantially consistent with our issuer accounting for 6.1% of exposure and the top 10 issuers long-term strateg
Slide 53: Portfolio Composition Trends
Portfolio Composition Trends Consistent Focus on Secured Investments Active Rotation to Barings Originated Loans 3% 3% 3% 3% 3% 7% 6% 5% 5% 5% 13% 12% 10% 10% 10% 18% 3% 3% 3% 12% 12% 12% 13% 14% 4% 4% 4% 4% 6% 5% 4% 7 8% % 6% 7% 8% 87% 84% 86% 87% 87% 76% 65% 67% 69% 69% 68% MVC Sierra Acquisition
Slide 54: Risk Rating Trends
1 Issuer performing materially above expectations Risk Rating Trends 2 Issuer performing consistent with expectations Portfolio performance is reflected in the shifts between the risk rating categories shown at right 3 Issuer performing modestly below expectations Non-Accruals comprise approximately
Slide 55: Jocassee Partners LLC
Jocassee Partners LLC About Jocassee Partners LLC Portfolio Highlights • Joint Venture between BBDC (9%) and South Carolina Retirement System • Jocassee has $1.25 billion invested, with a liquid/illiquid split of 34%/66%, Investment Commission (91%) respectively • Invests primarily in senior secured
Slide 56: Selected Financial Highlights
Selected Financial Highlights Balance Sheet Highlights 2Q 2023 1Q 2023 4Q 2022 3Q 2022 2Q 2022 Investment Portfolio, at Fair Value $2,505.9 $2,556.1 $2,448.9 $2,332.5 $2,389.1 Total Debt Outstanding (Principal) $1,497.1 $1,494.1 $1,454.1 $1,376.0 $1,539.4 Total Net Assets (Equity) $1,207.6 $1,205.0
Slide 57: Debt Summary & Maturity Profile
Debt Summary & Maturity Profile BBDC’S DEBT IS SPLIT APPROXIMATELY 50/50 BETWEEN UNSECURED AND SECURED DEBT. As of 6/30/2023 As of 3/31/2023 As of 12/31/2022 As of 9/30/2022 Principal Principal Principal Principal Principal Principal Principal Principal Interest Maturity Amount Amount Amount Amount
Slide 58: Quarterly Dividends
BBDC Dividends Declared Per Share $0.28 $0.26 $0.26 $0.25 $0.25 $0.24 $0.24 $0.24 $0.24 $0.23 $0.22 $0.22 $0.21 $0.20 $0.20 $0.19 Quarterly $0.18 $0.17 Dividends $0.16 $0.15 $0.16 $0.16 $0.16 $0.14 Barings BDC $0.14 $0.13 $0.12 declared a 3Q23 $0.12 dividend of $0.26 per $0.10 $0.10 share, an increa
Slide 59: Questions
Questions BARINGS
Slide 60: Important Information
Important Information Any forecasts in this document are based upon Barings opinion of the market at the date of preparation and are subject to change without notice, dependent upon many factors. Any prediction, projection or forecast is not necessarily indicative of the future or likely performance
Slide 61: Barings
BARINGS Investing Together PUBLIC & PRIVATE FIXED INCOME | REAL ESTATE | SPECIALIST EQUITIES