BAIN CAPITAL SPECIALTY FINANCE, INC. You should read the following analysis of our financial condition and results of operations in conjunction with our financial statements and related notes appearing in our Annual Report on Form 10-K (the "Annual Report") for the year endedDecember 31, 2019 , filed with theU.S. Securities and Exchange Commission ("SEC") onFebruary 26, 2020 . The information contained in this section should also be read in conjunction with our unaudited financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q (the "Quarterly Report"). Overview
Bain Capital Specialty Finance, Inc. (the "Company", "we", "our" and "us") is an externally managed specialty finance company focused on lending to middle market companies. We have elected to be regulated as a business development company (a "BDC") under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the "1940 Act"). We are managed byBCSF Advisors, LP (our "Advisor" or "BCSF Advisors "), a subsidiary ofBain Capital Credit, LP ("Bain Capital Credit"). Our Advisor is registered as an investment adviser with theSEC under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). Our Advisor also provides the administrative services necessary for us to operate (in such capacity, our "Administrator" or "BCSF Advisors "). Since we commenced operations onOctober 13, 2016 throughSeptember 30, 2020 , we have invested approximately$3.7 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits or repayments. We seek to generate current income and, to a lesser extent, capital appreciation through direct originations of secured debt, including first lien, first lien/last-out, unitranche and second lien debt, investments in strategic joint ventures, equity investments and, to a lesser extent, corporate bonds. Our primary focus is capitalizing on opportunities within our Senior Direct Lending strategy, which seeks to provide risk-adjusted returns and current income to our stockholders by investing primarily in middle-market companies with between$10.0 million and$150.0 million in annual earnings before interest, taxes, depreciation and amortization ("EBITDA"). However, we may, from time to time, invest in larger or smaller companies. We generally seek to retain effective voting control in respect of the loans or particular classes of securities in which we invest through maintaining affirmative voting positions or negotiating consent rights that allow us to retain a blocking position. We focus on senior investments with a first or second lien on collateral and strong structures and documentation intended to protect the lender. We may also invest in mezzanine debt and other junior securities, including common and preferred equity, on an opportunistic basis, and in secondary purchases of assets or portfolios but such investments are not the principal focus of our investment strategy. In addition, we may invest, from time to time, in distressed debt, debtor-in-possession loans, structured products, structurally subordinate loans, investments with deferred interest features, zero-coupon securities and defaulted securities. We generate revenues primarily through receipt of interest income from the investments we hold. In addition, we generate income from various loan origination and other fees, dividends on direct equity investments and capital gains on the sales of investments. The companies in which we invest use our capital for a variety of reasons, including to support organic growth, to fund changes of control, to fund acquisitions, to make capital investments and for refinancing and recapitalizations. Investments Our level of investment activity may vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity for such companies, the level of investment and capital expenditures of such companies, the general economic environment, the amount of capital we have available to us and the competitive environment for the type of investments we make. Due to the impact of COVID-19 and related measures taken to contain its spread, the future duration and breadth of the adverse impact of COVID-19 on the broader markets in which the Company invests cannot currently be accurately predicted and future investment activity of the Company will be subject to these effects and the related uncertainty. As a BDC, we may not acquire any assets other than "qualifying assets" specified in the 1940 Act, unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in "eligible portfolio companies." Pursuant to rules adopted by theSEC , "eligible portfolio companies" include certain companies that do not have any securities listed on a national securities exchange and public companies whose securities are listed on a national securities exchange but whose market capitalization is less than$250 million .
As a BDC, we may also invest up to 30% of our portfolio opportunistically in
"non-qualifying" portfolio investments, such as investments in non-
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Revenues
We primarily generate revenue in the form of interest income on debt investments
and distributions on equity investments and, to a lesser extent, capital gains,
if any, on equity securities that we may acquire in portfolio companies. Some of
our investments may provide for deferred interest payments or payment-in-kind
("PIK") interest. The principal amount of the debt investments and any accrued
but unpaid interest generally becomes due at the maturity date. In addition, we
may generate revenue in the form of commitment, origination, structuring or
diligence fees, fees for providing managerial assistance and consulting fees.
Loan origination fees, original issue discount and market discount or premium
are capitalized, and we accrete or amortize such amounts into or against income
over the life of the loan. We record contractual prepayment premiums on loans
and debt securities as interest income.
Our debt investment portfolio consists of primarily floating rate loans. As of
September 30, 2020 and December 31, 2019 , 99.2% and 99.0%, respectively, of our
debt investments, based on fair value, bore interest at floating rates, which
may be subject to interest rate floors. Variable-rate investments subject to a
floor generally reset periodically to the applicable floor, only if the floor
exceeds the index. Trends in base interest rates, such as LIBOR, may affect our
net investment income over the long term. In addition, our results may vary from
period to period depending on the interest rates of new investments made during
the period compared to investments that were sold or repaid during the period;
these results reflect the characteristics of the particular portfolio companies
that we invested in or exited during the period and not necessarily any trends
in our business or macroeconomic trends.
Dividend income on preferred equity investments is recorded on an accrual basis
to the extent that such amounts are payable by the portfolio company and are
expected to be collected. Dividend income on common equity investments is
recorded on the record date for private portfolio companies and on the
ex-dividend date for publicly traded portfolio companies.
Expenses
Our primary operating expenses include the payment of fees to our Advisor under
the second amended and restated investment advisory agreement (the "Amended
Advisory Agreement"), our allocable portion of overhead expenses under the
administration agreement (the "Administration Agreement") and other operating
costs, including those described below. The Base Management Fee and Incentive
Fee compensate our Advisor for its work in identifying, evaluating, negotiating,
closing and monitoring our investments. We bear all other out-of-pocket costs
and expenses of our operations and transactions, including:
· our operational and organizational cost;
· the costs of any public offerings of our common stock and other
securities, including registration and listing fees;
· costs of calculating our net asset value (including the cost and
expenses of any third-party valuation services);
· fees and expenses payable to third parties relating to evaluating,
making and disposing of investments, including our Advisor's or its
affiliates' travel expenses, research costs and out-of-pocket fees and
expenses associated with performing due diligence and reviews of
prospective investments, monitoring our investments and, ifnecessary,
enforcing our rights;
· interest payable on debt and other borrowing costs, if any, incurred to
finance our investments;
· costs of effecting sales and repurchases of our common stock and other
securities;
· distributions on our common stock;
· transfer agent and custody fees and expenses;
· the allocated costs incurred by the Administrator in providing
managerial assistance to those portfolio companies that request it;
· other expenses incurred by BCSF Advisors or us in connection with
administering our business, including payments made tothird-party
providers of goods or services;
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· brokerage fees and commissions;
· federal and state registration fees;
· U.S. federal, state and local taxes;
· Independent Director fees and expenses;
· costs associated with our reporting and compliance obligations under
the 1940 Act and applicable U.S. federal and state securities laws;
· costs of any reports, proxy statements or other notices to our
stockholders, including printing costs;
· costs of holding stockholder meetings;
· our fidelity bond;
· directors' and officers' errors and omissions liability insurance, and
any other insurance premiums;
· litigation, indemnification and other non-recurring or extraordinary
expenses;
· direct costs and expenses of administration and operation, including
printing, mailing, long distance telephone, staff, audit,compliance,
tax and legal costs;
· fees and expenses associated with marketing efforts;
· dues, fees and charges of any trade association of which we are a member; and
· all other expenses reasonably incurred by us or the Administrator in
connection with administering our business.
To the extent that expenses to be borne by us are paid byBCSF Advisors , we will generally reimburseBCSF Advisors for such expenses. To the extent the Administrator outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis without profit to the Administrator. We will also reimburse the Administrator for its costs and expenses and our allocable portion of overhead incurred by it in performing its obligations under the Administration Agreement, including certain rent and compensation paid to or compensatory distributions received by our officers (including our Chief Compliance Officer and Chief Financial Officer) and any of their respective staff who provide services to us, operations staff who provide services to us, internal audit staff, if any, to the extent internal audit performs a role in our Sarbanes-Oxley internal control assessment and fees paid to third-party providers for goods or services. Our allocable portion of overhead will be determined by the Administrator, which expects to use various methodologies such as allocation based on the percentage of time certain individuals devote, on an estimated basis, to our business and affairs, and will be subject to oversight by our Board of Directors (our "Board"). We incurred expenses related to the Administrator of$0.0 million and$0.2 million for the three months endedSeptember 30, 2020 and 2019, respectively, and$0.0 million and$0.8 million for the nine months endedSeptember 30, 2020 and 2019, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. The sub-administrator is paid its compensation for performing its sub-administrative services under the sub-administration agreement. We incurred expenses related to the sub-administrator of$0.1 million and$0.2 million for the three months endedSeptember 30, 2020 and 2019, respectively, and$0.4 million and$0.5 million for the nine months endedSeptember 30, 2020 and 2019, respectively, which is included in other general and administrative expenses on the consolidated statements of operations.BCSF Advisors will not be reimbursed to the extent that such reimbursements would cause any distributions to our stockholders to constitute a return of capital. All of the foregoing expenses are ultimately borne by our stockholders. Leverage We may borrow money from time to time. However, our ability to incur indebtedness (including by issuing preferred stock), as ofSeptember 30, 2020 , is limited by applicable regulations such that our asset coverage, as defined in the 1940 Act, must equal at least 150%. In determining whether to borrow money, we will analyze the maturity, covenant package and rate structure of the proposed borrowings as well as the risks of such borrowings compared to our investment outlook. As ofSeptember 30, 2020 , the Company's asset coverage
was
169%.
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Impact of COVID-19
In late 2019 and early 2020, a novel coronavirus (SARS-CoV-2) and related
respiratory disease ("COVID-19") emerged in China and spread rapidly to across
the world, including to the U.S. This outbreak has led and for an unknown period
of time will continue to lead to disruptions in local, regional, national and
global markets and economies affected thereby. The extent to which the COVID-19
pandemic will adversely impact the Company's business, financial condition,
liquidity and results of operations will depend on future developments, which
are highly uncertain and cannot be predicted, including the scope and duration
of this outbreak, and any future outbreaks.
It is clear that these types of events are negatively impacting and will, for at
least some time, continue to negatively impact the Company and portfolio
companies and in many instances the impact will be profound. For example,
smaller and middle market companies in which we may invest are being
significantly impacted by these emerging events and the uncertainty caused by
these events. With respect to loans to such companies, the Company will be
impacted if, among other things, (i) amendments and waivers are granted (or are
required to be granted) to borrowers permitting deferral of loan payments or
allowing for payment-in-kind ("PIK") interest payments, (ii) borrowers default
on their loans, are unable to refinance their loans at maturity, or go out of
business permanently, and/or (iii) the value of loans held by the Company
decreases as a result of such events and the uncertainty they cause. Such
emerging events, to the extent experienced, will cause the Company to suffer a
loss on its investments or interest thereon. The Company will also be negatively
affected if the operations and effectiveness of the Adviser or a portfolio
company (or any of the key personnel or service providers of the foregoing) is
compromised or if necessary or beneficial systems and processes are disrupted as
a result of stay-at-home orders or other related interruptions to regular
business operations.
With respect to the Company's investments, we have taken incremental steps in
actively overseeing all of our individual portfolio companies. These measures
include, among other things, (i) frequent communication with our portfolio
company management teams and related private equity sponsors to understand the
expected financial performance impact of the COVID-19 pandemic; (ii)
re-underwriting our portfolio companies to understand the impact if the current
economic environment persists; and (iii) the creation of an internal working
group focused on understanding the potential financial needs of our portfolio
companies and engaging with these companies and their private equity sponsors,
as needed.
The effects of the COVID-19 pandemic on economic and market conditions have increased the Company's demands to provide capital to its existing portfolio companies. During the month ofMarch 2020 , we received unprecedented draw requests on revolving credit and delayed draw facilities we provided to our portfolio companies as many of them sought to husband excess cash as a defensive measure in these uncertain times. All of those draws were met in a timely fashion and we maintain adequate cash and additional borrowing capacity in reserve to meet any further such draw requests. The Company experienced a significant reduction in our net asset value as ofSeptember 30, 2020 as compared to our net asset value as ofDecember 31, 2019 . The significant decrease is primarily the result of unrealized depreciation across the fair value of the Company's investments resulting from the COVID-19 pandemic and the dilution impact from the Company's rights offering. As ofSeptember 30, 2020 , the Company was in compliance with its asset coverage requirements under the 1940 Act. In addition, the Company was in compliance with all financial covenants within its credit facilities as ofSeptember 30, 2020 . However, any continued increase in realized or unrealized depreciation of our investment portfolio or further significant reductions in our net asset value as a result of the effects of the COVID-19 pandemic or otherwise increase the risk of breaching the relevant covenants and requirements. Any breach of these requirements may adversely affect the Company's access to sufficient debt and equity capital. The effects of the COVID-19 pandemic may also cause the Company to limit distributions. It is impossible to determine the scope of this outbreak, or any future outbreaks, how long any such outbreak, market disruption or uncertainties may last, the effect any governmental actions will have or the full potential impact on the Company, the Adviser and portfolio companies.
Portfolio and Investment Activity
During the three months endedSeptember 30, 2020 , we invested$30.8 million , including PIK, in 24 portfolio companies, and had$89.9 million in aggregate amount of principal repayments and sales, resulting in a net decrease in investments of$59.1 million for the period. Of the$30.8 million invested during the three months endedSeptember 30, 2020 ,$11.9 million was related to drawdowns on delayed draw term loans and revolvers of our portfolio companies. 53 During the three months endedSeptember 30, 2019 , we invested$274.6 million , including PIK, in 39 portfolio companies, and had$184.2 million in aggregate amount of principal repayments and sales, resulting in a net increase in investments of$90.4 million for the period. During the nine months endedSeptember 30, 2020 , we invested$357.7 million , including PIK, in 59 portfolio companies, and had$337.7 million in aggregate amount of principal repayments and sales, resulting in a net increase in investments of$20.0 million for the period. Of the$357.7 million invested during the nine months endedSeptember 30, 2020 ,$197.0 million was related to drawdowns on delayed draw term loans and revolvers of our portfolio companies. During the nine months endedSeptember 30, 2019 , we invested$953.3 million , including PIK, in 80 portfolio companies, including ABCS as a single portfolio company, and had$754.5 million in aggregate amount of principal repayments and sales, resulting in a net increase in investments of$198.8 million for the period. These amounts exclude the ABCS distribution transaction onApril 30, 2019 . OnApril 30, 2019 , the Company received a distribution from ABCS. The portfolio of investments that were distributed comprised of 25 senior secured unitranche loans with a fair value of$919.0 million .
The following table shows the composition of the investment portfolio and
associated yield data as of
As of September 30, 2020
Weighted Average Yield (1)
at
Percentage of Percentage of Amortized Market
Amortized Cost TotalPortfolio Fair Value Total Portfolio Cost
Value
First Lien Senior Secured Loans$ 2,180,248 86.2 %$ 2,128,629 86.5 % 6.6 % 6.8 % First Lien Last Out Loans 16,936 0.7 17,223 0.7 10.9 10.8
Second Lien Senior Secured Loans 166,137
6.5 155,542 6.3 8.6 9.2 Subordinated Debt 14,787 0.6 15,000 0.6 12.7 12.5 Equity Interests 120,836 4.8 107,373 4.4 7.8 8.3 Preferred Equity 29,722 1.2 35,890 1.5 15.0 15.0 Warrants - 0.0 - 0.0 N/A N/A Total$ 2,528,666 100.0 %$ 2,459,657 100.0 % 6.9 % 7.1 %
(1) Weighted average yields are computed as (a) the annual stated interest
rate or yield earned on the relevant accruing debt and other income
producing securities, divided by (b) the total relevant investments at
amortized cost or at fair value, as applicable. The weighted average
yield does not represent the total return to our stockholders.
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The following table shows the composition of the investment portfolio and
associated yield data as of
As of December 31, 2019
Weighted Average Yield (1)
at
Percentage of Percentage of Amortized Market
Amortized Cost TotalPortfolio Fair Value Total Portfolio Cost
Value
First Lien Senior Secured Loans$ 2,167,932 85.4 %$ 2,165,844 85.7 % 7.5 % 7.5 % First Lien Last Out Loans 28,315 1.1 29,300 1.2 9.9 9.5
Second Lien Senior Secured Loans 187,565
7.4 175,670 7.0 9.7 10.0 Subordinated Debt 14,752 0.6 15,000 0.5 13.5 13.3 Corporate Bonds 22,412 0.9 17,508 0.7 8.5 10.8 Equity Interests 96,736 3.8 99,293 3.9 7.7 7.5 Preferred Equity 19,551 0.8 24,318 1.0 15.1 15.1 Warrants - 0.0 122 0.0 N/A N/A Total$ 2,537,263 100.0 %$ 2,527,055 100.0 % 7.8 % 7.8 %
(1) Weighted average yields are computed as (a) the annual stated interest
rate or yield earned on the relevant acquiring debt and other income
producing securities, divided by (b) the total relevant investments at
amortized cost or at fair value, as applicable. The weighted average yield
does not represent the total return to our stockholders.
The following table presents certain selected information regarding our
investment portfolio as of
As of
September 30, 2020
Number of portfolio companies 107
Percentage of debt bearing a floating rate (1) 99.2 %
Percentage of debt bearing a fixed rate (1) 0.8 %
(1) Measured on a fair value basis.
The following table presents certain selected information regarding our
investment portfolio as of
As of
December 31, 2019
Number of portfolio companies 114
Percentage of debt bearing a floating rate (1) 99.0 %
Percentage of debt bearing a fixed rate (1) 1.0 %
(1) Measured on a fair value basis.
The following table shows the amortized cost and fair value of our performing
and non-accrual investments as of September 30, 2020 (dollars in thousands):
As of September 30, 2020
Percentage at Percentage at
Amortized Cost Amortized Cost Fair Value Fair Value
Performing $ 2,523,708 99.8 % $ 2,455,792 99.8 %
Non-accrual 4,958 0.2 3,865 0.2
Total $ 2,528,666 100 % $ 2,459,657 100 %
The following table shows the amortized cost and fair value of our performing
and non-accrual investments as of
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As of December 31, 2019
Percentage at Percentage at
Amortized Cost Amortized Cost Fair Value Fair Value
Performing $ 2,523,110 99.4 % $ 2,523,626 99.9 %
Non-accrual 14,153 0.6 3,429 0.1
Total $ 2,537,263 100.0 % $ 2,527,055 100.0 %
Loans or debt securities are placed on non-accrual status when there is
reasonable doubt that principal or interest will be collected. Accrued interest
generally is reversed when a loan or debt security is placed on non-accrual
status. Interest payments received on non-accrual loans or debt securities may
be recognized as income or applied to principal depending upon management's
judgment. Non-accrual loans and debt securities are restored to accrual status
when past due principal and interest is paid and, in management's judgment, are
likely to remain current. We may make exceptions to this treatment if the loan
has sufficient collateral value and is in the process of collection. As of
September 30, 2020 , there had been one loan placed on non-accrual in the
Company's portfolio, comprising 0.2% of the Company's portfolio, based on fair
value. This is compared to two loans on non-accrual as of December 31, 2019 ,
comprising 0.1% of the Company's portfolio, based on fair value.
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The following table shows the amortized cost and fair value of the investment
portfolio, cash and cash equivalents and foreign cash as of September 30, 2020
(dollars in thousands):
As of September 30, 2020
Percentage of Percentage of
Amortized Cost Total Fair Value TotalCash and cash equivalents $ 43,020 1.6 %$ 43,020 1.7 % Foreign cash 2,029 0.1 2,009 0.1 Restricted cash 78,895 3.0 78,895 3.1 First Lien Senior Secured Loans 2,180,248 82.1 2,128,629 82.3 First Lien Last Out Loans 16,936 0.6 17,223 0.7 Second Lien Senior Secured Loans 166,137 6.3 155,542 5.9 Subordinated Debt 14,787 0.6 15,000 0.6 Equity Interests 120,836 4.6 107,373 4.2 Preferred Equity 29,722 1.1 35,890 1.4 Warrants - 0.0 - 0.0 Total$ 2,652,610 100.0 %$ 2,583,581 100.0 % The following table shows the amortized cost and fair value of the investment portfolio, cash and cash equivalents and foreign cash as ofDecember 31, 2019 (dollars in thousands): As of December 31, 2019 Percentage of Percentage of Amortized Cost Total Fair Value Total Cash and cash equivalents $ 36,531 1.4 %$ 36,531 1.4 % Foreign cash 854 0.0 810 0.0 Restricted cash and cash equivalents 31,505 1.2 31,505 1.3 First Lien Senior Secured Loans 2,167,932 83.2 2,165,844 83.4 First Lien Last Out Loans 28,315 1.1 29,300 1.1 Second Lien Senior Secured Loans 187,565 7.2 175,670 6.8 Subordinated Debt 14,752 0.5 15,000 0.6 Corporate Bonds 22,412 0.9 17,508 0.7 Equity Interests 96,736 3.7 99,293 3.8 Preferred Equity 19,551 0.8 24,318 0.9 Warrants - 0.0 122 0.0 Total$ 2,606,153 100.0 %$ 2,595,901 100.0 % 57 The following table shows the composition of the investment portfolio by industry, at amortized cost and fair value as ofSeptember 30, 2020 (with corresponding percentage of total portfolio investments) (dollars in thousands): As of September 30, 2020 Percentage of Percentage of Amortized Cost Total Portfolio Fair Value Total Portfolio
High Tech Industries$ 384,197 15.2 %$ 380,859 15.5 % Aerospace & Defense 329,736 13.0 298,542 12.1 Healthcare & Pharmaceuticals 220,682 8.6 216,723 8.9 Consumer Goods: Non-Durable 192,532 7.5
190,042 7.8
Capital Equipment 179,015 7.1 181,509 7.4
Services: Business 181,525 7.2 171,961 7.0
Transportation: Cargo 114,130 4.5 112,991 4.6
Construction & Building 103,806 4.1 102,724 4.2
Wholesale 80,105 3.2 77,362 3.1
Energy: Oil & Gas 69,545 2.8 70,011 2.8
FIRE: Insurance (1) 66,507 2.6 66,644 2.7
Automotive 65,802 2.6 65,097 2.6
Consumer Goods: Durable 59,498 2.4 59,033 2.4
Transportation: Consumer 65,686 2.6 55,897 2.3
Hotel, Gaming & Leisure 52,674 2.1 49,861 2.0
Media: Diversified & 47,830 1.9 46,909 1.9
ProductionMedia: Advertising, Printing 52,153 2.1
46,292 1.9
& Publishing
Media: Broadcasting & 43,266 1.7 44,638 1.8
Subscription
Services: Consumer 30,560 1.2 30,695 1.2
Retail 28,672 1.1 28,672 1.2Chemicals, Plastics & Rubber 25,734 1.0
26,182 1.1
Telecommunications 21,774 0.9 21,524 0.9
Energy: Electricity 22,027 0.9 21,235 0.9
Environmental Industries 16,936 0.7 17,223 0.7
Beverage, Food & Tobacco 12,069 0.5 15,693 0.6
FIRE: Finance (1) 15,289 0.6 15,399 0.6
Banking 14,081 0.6 13,364 0.5
Containers, Packaging, & 11,653 0.5 11,752 0.5
Glass
FIRE: Real Estate (1) 10,856 0.4 10,901 0.4
Forest Products & Paper 10,326 0.4 9,922 0.4
Total $ 2,528,666 100.0 % $ 2,459,657 100.0 %
(1) Finance, Insurance and Real Estate ("FIRE").
The following table shows the composition of the investment portfolio by
industry, at amortized cost and fair value as of December 31, 2019 (with
corresponding percentage of total portfolio investments) (dollars in thousands):
As of December 31, 2019
Percentage of Percentage of
Amortized Cost Total Portfolio Fair Value Total Portfolio
High Tech Industries $ 356,086 14.0 % $ 356,073 14.1 %
Aerospace & Defense 305,111 12.0 307,863 12.2Healthcare & Pharmaceuticals 255,579 10.1 254,014 10.1 Consumer Goods: Non-Durable 195,602
7.7 196,653 7.8 Capital Equipment 183,618 7.2 186,913 7.4 Services: Business 165,286 6.5 165,862 6.5 Transportation: Cargo 116,074 4.6 116,237 4.6 Construction & Building 107,413 4.2 108,176 4.3 Wholesale 79,542 3.1 78,225 3.1 Energy: Oil & Gas 77,264 3.0 77,979 3.1 Automotive 66,522 2.6 67,374 2.7 Consumer Goods: Durable 63,712 2.5 63,394 2.5 Transportation: Consumer 62,473 2.5 61,662 2.3
Media: Advertising, Printing & Publishing 59,419
2.3 54,765 2.2 FIRE: Insurance (1) 52,367 2.1 54,086 2.1 Hotel, Gaming & Leisure 52,866 2.1 53,074 2.1
Media: Broadcasting & Subscription 43,165 1.7 44,247 1.8 Media: Diversified & Production 35,670 1.4 36,403 1.4 Retail 34,774 1.4 34,827 1.4 Chemicals, Plastics & Rubber 32,288
1.3 32,446 1.3 Services: Consumer 30,458 1.2 30,794 1.2 Banking 25,656 1.0 25,466 1.0 Energy: Electricity 22,172 0.9 22,134 0.9 Telecommunications 21,323 0.8 21,343 0.8 Beverage, Food & Tobacco 30,687 1.2 19,531 0.8 Environmental Industries 16,814 0.7 17,612 0.7
Containers, Packaging & Glass 11,637
0.5 11,633 0.5 FIRE: Real Estate (1) 10,786 0.4 10,443 0.4 Forest Products & Paper 10,301 0.4 9,700 0.4 Utilities: Electric 12,598 0.6 8,126 0.3 Total$ 2,537,263 100.0 %$ 2,527,055 100.0 %
(1) Finance, Insurance, and Real Estate ("FIRE").
Our Advisor monitors our portfolio companies on an ongoing basis. It monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action for each company. The Advisor has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:
· assessment of success in adhering to the portfolio company's business
plan and compliance with covenants;
· periodic or regular contact with portfolio company management and, if
appropriate, the financial or strategic sponsor to discuss financial
position, requirements and accomplishments;
· comparisons to our other portfolio companies in the industry, if any;
· attendance at and participation in board meetings or presentations by
portfolio companies; and
· review of monthly and quarterly financial statements and financial
projections of portfolio companies.
Our Advisor rates the investments in our portfolio at least quarterly and it is
possible that the rating of a portfolio investment may be reduced or increased
over time. For investments rated 3 or 4, our Advisor enhances its level of
scrutiny over the monitoring of such portfolio company. Our internal performance
ratings do not constitute any rating of investments by a nationally recognized
statistical rating organization or represent or reflect any third-party
assessment of any of our investments.
· An investment is rated 1 if, in the opinion of our Advisor, it is
performing above underwriting expectations, and the businesstrends and
risk factors are generally favorable, which may include the performance
of the portfolio company or the likelihood of a potential exit.
· An investment is rated 2 if, in the opinion of our Advisor, it is
performing as expected at the time of our underwriting and there are
generally no concerns about the portfolio company's performance or
ability to meet covenant requirements, interest payments or principal
amortization, if applicable. All new investments or acquired
investments in new portfolio companies are initially given a rating of
2.
· An investment is rated 3 if, in the opinion of our Advisor, the
investment is performing below underwriting expectations and there may
be concerns about the portfolio company's performance or trends in the
industry, including as a result of factors such as declining
performance, non-compliance with debt covenants or delinquency in loan
payments (but generally not more than 180 days past due).
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· An investment is rated 4 if, in the opinion of our Advisor, the
investment is performing materially below underwritingexpectations.
For debt investments, most of or all of the debt covenants are out of
compliance and payments are substantially delinquent.Investments rated
4 are not anticipated to be repaid in full, if applicable, and there is
significant risk that we may realize a substantial loss on our
investment.
The following table shows the composition of our portfolio on the 1 to 4 rating
scale as of
As of September 30, 2020
Fair Percentage of Number of Percentage of
Investment Performance Rating Value Total Companies(1) Total
1 $ 47,427 1.9 % 3 2.8 %
2 2,086,072 84.8 87 81.3
3 321,882 13.1 16 15.0
4 4,276 0.2 1 0.9
Total $ 2,459,657 100.0 % 107 100.0 %
(1) Number of investment rated companies may not agree to total portfolio
companies due to investments across investment types and structures.
The following table shows the composition of our portfolio on the 1 to 4 rating
scale as of
As of December 31, 2019
Fair Percentage of Number of Percentage of
Investment Performance Rating Value Total Companies Total
1 $ 140,892 5.6 % 4 3.5 %
2 2,355,401 93.2 106 93.0
3 27,333 1.1 3 2.6
4 3,429 0.1 1 0.9
Total $ 2,527,055 100.0 % 114 100.0 %
Antares Bain Capital Complete Financing Solution
Prior toApril 30, 2019 , the Company was party to a limited liability company agreement withAntares Midco Inc. ("Antares") pursuant to which it invested inABC Complete Financing Solution LLC , which made investments through its subsidiary,Antares Bain Capital Complete Financing Solution LLC (together withABC Complete Financing Solution LLC , "ABCS"). ABCS, an unconsolidatedDelaware limited liability company, was formed onSeptember 27, 2017 and commenced operations onNovember 29, 2017 . ABCS' principal purpose was to make investments, primarily in senior secured unitranche loans. The Company recorded its investment in ABCS at fair value. Distributions of income received from ABCS, if any, were recorded as dividend income from controlled affiliate investments in the consolidated statements of operations. Distributions received from ABCS in excess of income earned at ABCS, if any, were recorded as a return of capital and reduced the amortized cost of controlled affiliate investments. We and Antares, as members of ABCS, agreed to contribute capital up to (subject to the terms of their agreement)$950.0 million in aggregate to purchase equity interests in ABCS, with us and Antares contributing up to$425.0 million and$525.0 million , respectively. Funding of such commitments generally required the consent of bothAntares Credit Opportunities Manager LLC and the Advisor on behalf of Antares and us, respectively. ABCS was capitalized with capital contributions from its members on a pro-rata basis based on their maximum capital contributions as transactions were funded after they had been approved.
Investment decisions of ABCS required the consent of both the
59
On April 30, 2019 , we formed BCSF Complete Financing Solution Holdco, LLC ("BCSF
CFSH, LLC ") and BCSF Complete Financing Solution, LLC ("BCSF Unitranche" or
"BCSF CFS, LLC "), wholly-owned, newly-formed, subsidiaries. We received our
proportionate share of all assets which represented 44.737% of ABCS. The
portfolio of investments that was distributed to us comprised of 25 senior
secured unitranche loans with a fair value of $919.0 million and cash of
$3.2 million . We also assumed the obligation to fund outstanding unfunded
commitments of $31.4 million . In connection with the distribution, we recognized
a realized gain of $0.3 million . We are no longer a member of ABCS. The assets
we received from ABCS have been included in the Company's consolidated financial
statements and notes thereto.
In conjunction with the distribution from ABCS, on April 30, 2019 , BCSF CFS, LLC
entered into a loan and security agreement (the "JPM Credit Agreement" or the
"JPM Credit Facility") as borrower, with JPMorgan Chase Bank, National
Association , as Administrative Agent, and Wells Fargo Bank, National Association
as Collateral Administrator, Collateral Agent, Securities Intermediary and Bank .
On the date of the ABCS distribution, the Company had $577.5 million outstanding
on the JPM Credit Facility.
Below is selected statements of operations information for the three and nine
months ended
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