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, 2020 , filed with theU.S. Securities and Exchange Commission ("SEC") onFebruary 24, 2021 . 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 throughMarch 31, 2021 , we have invested approximately$4.2 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
March 31, 2021 and December 31, 2020 , 99.1% and 99.2%, 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, if necessary, 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 withadministering our business, including payments made to third-party providers
of goods or services;
• 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;
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• 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.
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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$0.0 million for the three months endedMarch 31, 2021 and 2020, 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$0.1 million for the three months endedMarch 31, 2021 and 2020, 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 ofMarch 31, 2021 , 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 ofMarch 31, 2021 , the Company's asset coverage was
180%.
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. 84
As ofMarch 31, 2021 , 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 ofMarch 31, 2021 . 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. Investment Decision Process
The Advisor's investment process can be broken into four processes: (1) Sourcing
and Idea Generation, (2) Investment Diligence & Recommendation, (3)
Sourcing and Idea Generation The investment decision-making process begins with sourcing ideas.Bain Capital Credit's Private Credit Group interacts with over 1,500 global contacts as a means to generate middle market investment opportunities. Our Advisor also seeks to leverage the contacts ofBain Capital Credit's industry groups, Trading Desk,Portfolio Group and Restructuring team, including private equity firms, banks and a variety of advisors and other intermediaries.
Investment Diligence & Recommendation
Our Advisor utilizesBain Capital Credit's bottom-up approach to investing, and it starts with the due diligence performed by itsPrivate Credit Group . The group works with the close support ofBain Capital Credit's industry groups. This diligence process typically begins with a detailed review of an offering memorandum as well asBain Capital Credit's own independent diligence efforts, including in-house materials and expertise, third-party independent research and interviews, and hands-on field checks where appropriate. For deals that progress beyond an initial stage, the team will usually schedule one or more meetings with company management, facilities visits and also meetings with the sponsor in order to ask more detailed questions and to better understand the sponsor's view of the business and plans for it going forward. The team's diligence work is summarized in investment memoranda and accompanying credit packs. Work product also includes full models and covenant analysis.
If the reviewing team deems an investment worthy of serious consideration, it generally must be presented to the credit committee, which is comprised of at least three experienced credit professionals, who are selected based on strategy and geography. A portfolio manager leads the decision making process for each investment and engages the credit committee throughout the investment process in order to prioritize and direct the underwriting of each potential investment opportunity. For middle market holdings, the path to exit an investment is often discussed at credit committee meetings, including restructurings, acquisitions and sale to strategic buyers. Since most middle market investments are illiquid, exits are driven by a sale of the portfolio company or a refinancing of the
portfolio company's debt. Portfolio & Risk Management Our Advisor utilizesBain Capital Credit's Private Credit Group for the daily monitoring of its respective credits after an investment has been made. Our Advisor believes that the ongoing monitoring of financial performance and market developments of portfolio investments is critical to successful investment management. Accordingly, our Advisor is actively involved in an on-going portfolio review process and attends board meetings. To the extent a portfolio investment is not meeting our Advisor's expectations, our Advisor takes corrective action when it deems appropriate, which may include raising interest rates, gaining a more influential role on its board, taking warrants and, where appropriate, restructuring the balance sheet to take control of the company. Our Advisor will utilize theBain Capital Credit Risk and Oversight Committee .The Risk and Oversight Committee is responsible for monitoring and reviewing risk management, including portfolio risk, counterparty risk and firm-wide risk issues. In addition to the methods noted above, there are a number of proprietary methods and tools used through all levels ofBain Capital Credit to manage portfolio risk. 85
Environmental, Social and Governance
Our Advisor believes that environmental, social, and governance (ESG) management helps to create lasting impact for all of its stakeholder groups, including investors, portfolio companies, employees and communities. ESG risks can have a negative impact on an issuer's ability to meet its financial obligations. Therefore, strong ESG management aligns with our Advisor's goal to seek and generate attractive risk-adjusted returns with the capital it invests. Our Advisor considers ESG factors throughout its investment decision-making process. These factors include, but are not limited to, applying a negative screen to avoid investing in companies with outsized ESG risks; examining the impact a company has on society and the environment during the diligence process; seeking to consider ESG factors from a company-specific and sector-wide perspective; and engaging companies via proxy voting, corporate actions and board seats, where applicable.
Portfolio and Investment Activity
During the three months endedMarch 31, 2021 , we invested$386.3 million , including PIK, in 30 portfolio companies, and had$549.4 million in aggregate amount of principal repayments and sales, resulting in a net decrease in investments of$163.1 million for the period. Of the$386.3 million invested during the three months endedMarch 31, 2021 ,$25.7 million was related to drawdowns on delayed draw term loans and revolvers of our portfolio companies.
During the three months ended
The following table shows the composition of the investment portfolio and
associated yield data as of
As of March 31, 2021
Weighted Average Yield (1)
at
Percentage of Percentage of Amortized Market
Amortized Cost Total Portfolio Fair Value Total Portfolio Cost ValueFirstLien Senior Secured Loans$ 1,951,062 82.0 %$ 1,915,682 82.0 % 7.3 % 7.5 % Equity Interest 135,738 5.8 123,732 5.3 7.3 9.0 SecondLien Senior Secured Loans 128,839 5.4 124,307 5.3 9.6 9.9 Subordinated Note Investment Vehicles (2) 97,360 4.1 97,360 4.2 9.0 9.0 Preferred equity 33,612 1.4 43,046 1.8 15.0 14.9 Equity Interest in Investment Vehicles (2) 31,610 1.3 31,610 1.4 - - Warrants 2 0.0 2 0.0 N/A N/A Total$ 2,378,223 100.0 %$ 2,335,739 100.0 % 7.6 % 7.8 %
(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.
(2) Represents debt and equity investment in ISLP.
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The following table shows the composition of the investment portfolio and
associated yield data as of
As of December 31, 2020
Weighted Average Yield (1)
at
Percentage of Percentage of Amortized Market
Amortized Cost Total Portfolio Fair Value Total Portfolio Cost Value
First Lien
Senior Secured
Loans $ 2,193,827 87.0 % $ 2,164,910 87.1 % 7.1 % 7.2 %
Second Lien
Senior Secured
Loans 167,698 6.6 161,960 6.6 9.0 9.3
Equity
Interests 131,491 5.2 119,905 4.8 8.8 10.7
Preferred
Equity 29,723 1.2 37,713 1.5 15.0 15.0
Warrants - 0.0 - 0.0 N/A N/A
Total $ 2,522,739 100.0 % $ 2,484,488 100.0 % 7.3 % 7.5 %
(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
March 31, 2021
Number of portfolio companies 101
Percentage of debt bearing a floating rate (1) 99.1 %
Percentage of debt bearing a fixed rate (1) 0.9 %
(1) Measured on a fair value basis.
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The following table presents certain selected information regarding our
investment portfolio as of
As of
December 31, 2020
Number of portfolio companies 105
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 shows the amortized cost and fair value of our performing
and non-accrual investments as of
As of March 31, 2021
Percentage at Percentage at
Amortized Cost Amortized Cost Fair Value Fair Value
Performing $ 2,378,223 100.0 % $ 2,335,739 100.0 %
Non-accrual - 0.0 - 0.0
Total $ 2,378,223 100.0 % $ 2,335,739 100.0 %
The following table shows the amortized cost and fair value of our performing
and non-accrual investments as of
As of December 31, 2020
Percentage at Percentage at
Amortized Cost Amortized Cost Fair Value Fair Value
Performing $ 2,517,782 99.8 % $ 2,479,794 99.8 %
Non-accrual 4,957 0.2 4,694 0.2
Total $ 2,522,739 100.0 % $ 2,484,488 100.0 %
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 March
31, 2021 , there are no loans on non-accrual. This is compared to one loan on
non-accrual as of December 31, 2020 , comprising 0.2% of the Company's portfolio,
based on fair value.
The following table shows the amortized cost and fair value of the investment
portfolio, cash and cash equivalents and foreign cash as of March 31, 2021
(dollars in thousands):
As of March 31, 2021
Percentage of Percentage of
Amortized Cost Total Fair Value TotalCash and cash equivalents $ 36,248 1.5 %
$ 36,248 1.5 % Foreign cash 984 0.0 1,413 0.1 Restricted cash 76,730 3.1 76,730 3.1
First Lien Senior Secured Loans 1,951,062 78.3 1,915,682 78.1
Second Lien Senior Secure Loans 128,839 5.2 124,307 5.1
Equity Interests 135,738 5.4 123,732 5.0
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As of March 31, 2021
Percentage of Percentage of
Amortized Cost Total Fair Value Total
Subordinated Note in Investment
Vehicles (1) 97,360 3.9 97,360 4.0
Preferred Equity 33,612 1.3 43,046 1.8
Equity Interests in Investment
Vehicles (1) 31,610 1.3 31,610 1.3
Warrants 2 0.0 2 0.0
Total $ 2,492,185 100.0 % $ 2,450,130 100.0
(1) Represents debt and equity investment in ISLP
The following table shows the amortized cost and fair value of the investment portfolio, cash and cash equivalents and foreign cash as ofDecember 31, 2020 (dollars in thousands): As of December 31, 2020 Percentage of Percentage of Amortized Cost Total Fair Value Total
Cash and cash equivalents $ 53,704 2.2 %$ 53,704 2.1 % Foreign cash 976 0.0 972 0.0 Restricted cash and cash equivalents 27,026 1.0 27,026 1.1 First Lien Senior Secured Loans 2,193,827 84.3 2,164,910 84.3 Second Lien Senior Secured Loans 167,698 6.4
161,960 6.3
Equity Interests 131,491 5.0 119,905 4.7
Preferred Equity 29,723 1.1 37,713 1.5
Warrants - 0.0 - 0.0
Total $ 2,604,445 100.0 % $ 2,566,190 100.0 %
The following table shows the composition of the investment portfolio by
industry, at amortized cost and fair value as of March 31, 2021 (with
corresponding percentage of total portfolio investments) (dollars in thousands):
As of March 31, 2021
Percentage of Percentage of
Amortized Cost Total Portfolio Fair Value Total Portfolio
Aerospace & Defense $ 331,942 14.0 % $ 300,972 12.9 %
Consumer Goods: Non-Durable 194,534 8.1 194,667 8.3
High Tech Industries 192,493 8.1 193,544 8.3
Capital Equipment 179,699 7.6 186,522 8.0
Services: Business 167,735 7.1 159,847 6.8
Investment Vehicles (2) 128,970 5.4 128,970 5.6
Transportation: Cargo 120,032 5.0 121,385 5.2
Healthcare & Pharmaceuticals 119,593 5.0 118,804 5.1
Construction & Building 107,685 4.5 107,327 4.6Media: Diversified & Production 89,974 3.8 87,364 3.7 Wholesale 78,189 3.3 78,910 3.4 Chemicals, Plastics & Rubber 72,193 3.0
73,189 3.1
Energy: Oil & Gas 68,173 2.9 69,891 3.0
Services: Consumer 66,762 2.8 67,619 2.9
Transportation: Consumer 74,647 3.1 63,299 2.7
Consumer Goods: Durable 59,311 2.5 56,845 2.4
Automotive 52,516 2.2 53,132 2.3
Hotel, Gaming & Leisure 53,304 2.2 51,830 2.2
FIRE: Insurance 47,118 2.0 48,321 2.1
Retail 39,517 1.7 40,081 1.7
Telecommunications 39,758 1.7 39,512 1.7
Media: Advertising, Printing &
Publishing 46,788 2.0 37,470 1.6
Beverage, Food & Tobacco 7,423 0.3 16,991 0.7
Banking 15,196 0.6 15,459 0.7
FIRE: Finance (1) 13,212 0.6 13,498 0.6
FIRE: Real Estate (1) 10,909 0.5 9,725 0.4
Media: Broadcasting &
Subscription 433 0.0 447 0.0Containers, Packaging, & Glass 117 0.0
118 0.0
Total $ 2,378,223 100.0 % $ 2,335,739 100.0 %
(1) Finance, Insurance and Real Estate ("FIRE").
(2) Represents debt and equity investment in ISLP.
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The following table shows the composition of the investment portfolio by
industry, at amortized cost and fair value as of December 31, 2020 (with
corresponding percentage of total portfolio investments) (dollars in thousands):
As of December 31, 2020
Percentage of Percentage of
Amortized Cost Total Portfolio Fair Value Total PortfolioAerospace & Defense$ 331,174 13.1 %$ 296,553 11.9 % High Tech Industries 294,046 11.7 295,486 11.9 Healthcare & Pharmaceuticals 219,147 8.7 221,605 8.9 Capital Equipment 188,123 7.5 193,287 7.8 Consumer Goods: Non-Durable 190,216 7.5 189,229 7.5 Services: Business 181,037 7.1 175,560 7.1 Transportation: Cargo 118,320 4.7 118,352 4.8 Construction & Building 105,567 4.2 104,999 4.2 Services: Consumer 76,341 3.0 78,697 3.2 Wholesale 78,248 3.1 78,042 3.1 Chemicals, Plastics & Rubber 75,808 3.0 76,463 3.1 Energy: Oil & Gas 68,198 2.7 68,807 2.7 FIRE: Insurance (1) 65,017 2.6 67,125 2.7 Automotive 66,470 2.6 66,100 2.7 Transportation: Consumer 71,750 2.8 61,243 2.5 Consumer Goods: Durable 59,399 2.3 58,065 2.3 Hotel, Gaming & Leisure 52,389 2.1 49,893 2.0
Media: Diversified & Production 47,810 1.9 48,470 2.0
Media: Broadcasting &
Subscription 43,299 1.7 45,036 1.8
Media: Advertising, Printing &
Publishing 47,143 1.9 41,140 1.7
Retail 39,050 1.5 39,050 1.6
Telecommunications 21,680 0.9 21,543 0.9
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As of December 31, 2020
Percentage of Percentage of
Amortized Cost Total Portfolio Fair Value Total Portfolio
Energy: Electricity 21,979 0.9 21,249 0.9
Beverage, Food & Tobacco 12,087 0.5 21,024 0.8
Banking 14,058 0.6 13,622 0.5Containers, Packaging, & Glass 11,659 0.5
11,781 0.5
FIRE: Finance (1) 11,830 0.5 11,778 0.5
FIRE: Real Estate (1) 10,894 0.4 10,289 0.4
$ 2,522,739 100.0 % $ 2,484,488 100.0 %
(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, ifappropriate, 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 business trends 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).
• An investment is rated 4 if, in the opinion of our Advisor, the investment is
performing materially below underwriting expectations. 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.
91
The following table shows the composition of our portfolio on the 1 to 4 rating
scale as of
As of March 31, 2021
Fair Percentage of Number of Percentage of
Investment Performance Rating Value Total Companies(1) Total
1 $ 94,708 4.1 % 3 3.0 %
2 1,945,890 83.3 86 85.1
3 295,141 12.6 12 11.9
4 - 0.0 - 0.0
Total $ 2,335,739 100.0 % 101 100.0 %
(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, 2020
Fair Percentage of Number of Percentage of
Investment Performance Rating Value Total Companies Total
1 $ 42,942 1.7 % 3 2.9 %
2 2,121,057 85.4 87 82.8
3 315,383 12.7 14 13.3
4 5,106 0.2 1 1.0
Total $ 2,484,488 100.0 % 105 100.0 %
OnFebruary 9, 2021 , the Company and Pantheon ("Pantheon"), a leading global alternative private markets manager, formed theInternational Senior Loan Program, LLC ("ISLP"), an unconsolidated joint venture. ISLP invests primarily in non-US first lien senior secured loans. ISLP was formed as aDelaware limited liability company. The Company and Pantheon committed to initially provide$138.3 million of debt and$43.9 million of equity capital, to ISLP. Equity contributions will be called from each member on a pro-rata basis, based on their equity commitments. Pursuant to the terms of the transaction, Pantheon invested$50.0 million to acquire a 29.5% stake in ISLP. The Company contributed debt investments of$317.1 million for a 70.5% stake in ISLP, and received a one-time gross distribution of$190.2 million in cash in consideration of contributing such investments. As ofMarch 31, 2021 , the Company's investment in ISLP consisted of subordinated notes of$97.4 million , and equity interests
of$31.6 million . In future periods, the Company may sell certain of its investments or a participating interest in certain of its investments to ISLP. Since inception, the Company had sold$317.1 million of its investments to ISLP. The sale of the investments met the criteria set forth in ASC 860, Transfers and Servicing
for treatment as a sale. The Company has determined that ISLP, is an investment company under ASC, Topic 946, Financial Services - Investment Companies; however, in accordance with such guidance, the Company will generally not consolidate its investment in a company other than a wholly or substantially owned investment company subsidiary, which is an extension of the operations of the Company, or a controlled operating company whose business consists of providing services to the Company. The Company does not consolidate its investments in ISLP as it is not a substantially wholly owned investment company subsidiary. In addition, the Company does not control ISLP due to the allocation of voting rights among ISLP members. The Company measures fair value of ISLP in accordance with ASC Subtopic 820, Fair Value Measurements and Disclosures, using the net asset value (or its equivalent) as a practical expedient. The Company and Pantheon each appointed two members to ISLP's four-person Member Designees' Committee. All material decisions with respect to ISLP, including those involving its investment portfolio, require unanimous approval of quorum of Member Designees' Committee.
As of
92
Additionally, through a wholly-owned subsidiary, ISLP has entered into a $300.0
million senior secured revolving credit facility which bears interest at LIBOR
(or an alternative risk-free interest rate index) plus 225 basis points with JP
Morgan through its wholly-owned subsidiary, subject to leverage and borrowing
base restrictions (the "ISLP Credit Facility"). The maturity date of the ISLP
Credit Facility is February 9, 2026 . As of March 31, 2021 the ISLP Credit
Facility had $146.2 million of outstanding debt under the credit facility. As
of March 31, 2021 , the effective rate on the ISLP Credit Facility was 2.3%per annum.
Below is a summary of ISLP's portfolio at fair value:
As of March 31, 2021
Total investments $ 319,607
Weighted average yield on investments 6.1 %
Number of borrowers in ISLP 18
Largest portfolio company investment $
44,213
Total of five largest portfolio company investments $ 162,340
Unfunded commitments $ 5,794
93
Below is a listing of ISLP's individual investments as of:
Consolidated Schedule of Investments
As of March 31, 2021
(in thousands)
(unaudited)
Spread
Portfolio Investment Above % of
Currency Industry Company Type Index Interest Rate Maturity Date Principal/Shares Cost Market Value NAV
Australian
Dollar
Healthcare & Datix Bidco First Lien
Pharmaceuticals Limited Senior
Secured BBSW+
Loan 4.50% 4.74 % 4/28/2025 AUD 4,169 3,286 3,176
Healthcare &
Pharmaceuticals Total $ 3,286 $ 3,176 6.7 %
Information LEAP Legal First Lien
Technology Software PTY Senior
Services Ltd Secured BBSW+
Loan 5.75% 6.75 % 9/12/2022 AUD 30,244 22,868 22,807
Information Technology
Services Total $ 22,868 $ 22,807 47.8 %
Services: Zeppelin BidCo First Lien
Consumer Pty Limited Senior
Secured BBSW+
Loan 5.00% 5.23 % 6/28/2024 AUD 20,415 16,012 15,550
Services: Consumer
Total $ 16,012 $ 15,550 32.6 %
Australian Dollar Total $ 42,166 $ 41,533 87.1 %
British
Pounds
Healthcare & Datix Bidco Second
Pharmaceuticals Limited Lien
Senior GBP
Secured LIBOR+
Loan 7.75% 7.81 % 4/27/2026 £12,013 16,916 16,577
Datix Bidco First Lien
Limited Senior
Secured
Loan -
Revolver 10/28/2024 £- - -
Healthcare &
Pharmaceuticals Total $ 16,916 $ 16,577 34.7 %
High Tech Everest Bidco Second
Industries Lien
Senior GBP
Secured LIBOR+
Loan 7.50% 8.50 % 7/3/2026 £10,114 14,243 13,957
High Tech Industries
Total $ 14,243 $ 13,957 29.3 %
Media: International First Lien
Diversified & Entertainment Senior GBP
Production Investments Secured LIBOR+
Limited Loan 4.75% 5.27 % 5/31/2023 £8,599 12,109 11,866
Media: Diversified &
Production Total $ 12,109 $ 11,866 24.9 %
Services: Comet Bidco First Lien
Business Limited Senior GBP
Secured LIBOR+
Loan 5.25% 5.34 % 9/30/2024 £7,362 9,225 9,410
Services: Business
Total $ 9,225 $ 9,410 19.7 %
Services: Surrey Bidco First Lien
Consumer Limited Senior GBP
Secured LIBOR+
Loan 6.00% 6.50 % 5/11/2026 £4,954 6,651 6,512
Services: Consumer
Total $ 6,651 $ 6,512 13.7 %
British Pounds Total $ 59,144 $ 58,322 122.3 %
Canadian
Dollar
Healthcare & 9 Story Media First Lien
Pharmaceuticals Group Inc. Senior
Secured
Loan - CDOR+
Revolver 5.50% 0.00 % 4/30/2026 CAD 149 36 36
9 Story Media First Lien
Group Inc. Senior
Secured CDOR+
Loan 5.25% 6.25 % 4/30/2026 CAD 7,219 5,731 5,742
Healthcare &
Pharmaceuticals Total $ 5,767 $ 5,778 12.1 %
Canadian Dollar Total $ 5,767 $ 5,778 12.1 %
Danish
Krone
High Tech VPARK BIDCO AB First Lien
Industries Senior
Secured CIBOR+
Loan 4.00% 4.75 % 3/10/2025 DKK 56,429 9,231 8,914
High Tech Industries
Total $ 9,231 $ 8,914 18.7 %
Danish Krone Total $ 9,231 $ 8,914 18.7 %
European
Currency
Chemicals, Niacet First Lien
Plastics & Corporation Senior
Rubber Secured EURIBOR+
Loan 4.5% 5.50 % 2/1/2024 €3,437 4,110 3,988
Chemicals, Plastics &
Rubber Total $ 4,110 $ 3,988 8.4 %
Healthcare & Mendel Bidco, First Lien
Pharmaceuticals Inc. Senior
Secured EURIBOR+
Loan 4.50% 4.50 % 6/17/2027 €9,933 12,024 11,671
Mertus 522. First Lien
GmbH Senior
Secured
Loan -
Delayed EURIBOR+
Draw 6.25% 6.25 % 5/28/2026 €12,999 15,659 15,122
Mertus 522. First Lien
GmbH Senior
Secured EURIBOR+
Loan 6.25% 6.25 % 5/28/2026 €22,244 26,794 25,874
Healthcare &
Pharmaceuticals Total $ 54,477 $ 52,667 110.4 %
Media: Vital Holdco First Lien
Broadcasting & Limited Senior
Subscription Secured EURIBOR+
Loan 5.25% 5.25 % 5/1/2026 €7,838 9,535 9,210
Media: Broadcasting &
Subscription Total $ 9,535 $ 9,210 19.3 %
Media: 9 Story Media First Lien
Diversified & Group Inc. Senior
Production Secured EURIBOR+
Loan 5.25% 5.25 % 4/30/2026 €3,888 4,730 4,569
Media: Diversified &
Production Total $ 4,730 $ 4,569 9.6 %
European Currency Total $ 72,852 $ 70,434 147.7 %
Norwegian
Krone
High Tech VPARK BIDCO AB First Lien
Industries Senior
Secured NIBOR+
Loan 4.00% 4.75 % 3/10/2025 NOK 73,280 8,651 8,595
High Tech Industries
Total $ 8,651 $ 8,595 18.0 %
Norwegian Krone Total $ 8,651 $ 8,595 18.0 %
U.S.
Dollars
Automotive CST Buyer First Lien
Company Senior
Secured
Loan L+ 6.00% 7.00 % 3/1/2023 $ 14,927 14,927 14,927
Automotive Total $ 14,927 $ 14,927 31.3 %
Containers, Automate Second
Packaging, & Intermediate Lien
Glass Holdings II Senior
S.à r.l. Secured
Loan L+ 7.75% 7.86 % 7/22/2027 $ 11,752 11,665 11,693
Containers, Packaging,
& Glass Total $ 11,665 $ 11,693 24.5 %
Healthcare & Golden State First Lien
Pharmaceuticals Buyer, Inc. Senior
Secured
Loan L+ 4.75% 5.50 % 6/22/2026 $ 15,038 14,955 15,076
Healthcare &
Pharmaceuticals Total $ 14,955 $ 15,076 31.6 %
High Tech CB Nike First Lien
Industries IntermediateCo Senior
Ltd Secured
Loan -
Revolver 10/31/2025 $ - - -
CB Nike First Lien
IntermediateCo Senior
Ltd Secured
Loan L+ 5.00% 5.75 % 10/31/2025 $ 34,630 34,630 34,630
Utimaco, Inc. First Lien
Senior
Secured
Loan L+ 4.25% 4.51 % 8/9/2027 $ 14,701 14,701 14,701
High Tech Industries
Total $ 49,331 $ 49,331 103.5 %
Media: Vital Holdco First Lien
Broadcasting & Limited Senior
Subscription Secured
Loan L+ 5.25% 6.25 % 5/29/2026 $ 35,004 35,004 35,004
Media: Broadcasting &
Subscription Total $ 35,004 $ 35,004 73.4 %
U.S. Dollars Total $ 125,882 $ 126,031 264.3 %
Total $ 323,693 $ 319,607 670.2 %
Forward Foreign Currency Exchange Contracts
Unrealized
Appreciation
Currency Purchased Currency Sold Counterparty Settlement Date (Depreciation)
BRITISH POUNDS 1,341 AUSTRALIAN
DOLLARS 2,063 Goldman Sachs 04/21/2021 $ 278
EURO 481 AUSTRALIAN
DOLLARS 746 Goldman Sachs 04/19/2021 (3 )
EURO 1,973 BRITISH POUNDS
1,708 Goldman Sachs 04/19/2021 (36 )
EURO 5,597 BRITISH POUNDS
4,848 Goldman Sachs 04/19/2021 (108 )
EURO 145 CANADIAN
DOLLARS 221 Goldman Sachs 04/19/2021 (6 )
EURO 406 CANADIAN
DOLLARS 624 Goldman Sachs 04/19/2021 (19 )
EURO 232 DANISH KRONE
1,729 Goldman Sachs 04/19/2021 -
EURO 641 DANISH KRONE
4,773 Goldman Sachs 04/19/2021 (1 )
EURO 219 NORWEGIAN KRONE
2,246 Goldman Sachs 04/19/2021 (6 )
EURO 598 NORWEGIAN KRONE
6,198 Goldman Sachs 04/19/2021 (24 )
EURO 8,660 US DOLLARS
10,551 Goldman Sachs 04/19/2021 (373 )
EURO 3,235 US DOLLARS
3,908 Goldman Sachs 04/19/2021 (106 )DOLLARS 2,887 Goldman Sachs 04/19/2021 50
DOLLARS 7,988 Goldman Sachs 04/19/2021 242
18,768 Goldman Sachs 04/19/2021 558
6,611 Goldman Sachs 04/19/2021 108
DOLLARS 2,414 Goldman Sachs 04/19/2021(6 ) US DOLLARS 677 CANADIANDOLLARS 856 Goldman Sachs 04/19/2021 (4 )
18,476 Goldman Sachs 04/19/2021 106
6,694 Goldman Sachs 04/19/2021 29
US DOLLARS 23,629 EURO 19,416 Goldman Sachs 04/19/2021 810
US DOLLARS 5,015 EURO 4,152 Goldman Sachs 04/19/2021 135
23,994 Goldman Sachs 04/19/2021 25
8,693 Goldman Sachs 04/19/2021 4
$ 1,653
94
Below is the financial information for ISLP:
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