Bain Capital Specialty Finance, Inc. Stock

Hello, and welcome, everyone, joining today's Bain Capital Specialty Finance Second Quarter ended June 30, 2026, Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded. It is now my pleasure to turn the meeting over to Katherine Schneider, Investor Relations. Please go ahead.

Thanks, Nicky. Good morning, and welcome, everyone, to the Bain Capital Specialty Finance Second Quarter ended June 30, 2026, Conference Call. Yesterday, after market close, we issued our earnings press release and investor presentation of our quarterly results, a copy of which is available on Bain Capital Specialty Finance's Investor Relations website. Following our remarks today, we will hold a question-and-answer session for analysts and investors. This call is being webcast, and a replay will be available on our website.

This call and the webcast are property of Bain Capital Specialty Finance and any unauthorized broadcast in any form is strictly prohibited. Any forward-looking statements made today do not guarantee future performance, and actual results may differ materially. These statements are based on current management expectations, which include risks and uncertainties, which are identified in the Risk Factors section of our Form 10-Q that could cause actual results to differ materially from those indicated. Certain information contained in the presentation has been obtained from published and nonpublished sources and are prepared by third parties and in certain cases, has not been updated through the date hereof.

Such information has not been independently verified by Bain Capital Credit, and Bain Capital Credit does not assume responsibility for the accuracy of such information or updating the presentation based on facts learn following its issuance. Bain Capital Specialty Finance assumes no obligation to update any forward-looking statements at this time unless required to do so by law. Lastly, past performance does not guarantee future results. So with that, I'd like to turn the call over to our CEO, Michael Ewald.

Thanks, Katherine, and good morning, and thanks to all of you for joining us here this morning on our earnings call. I'm also joined by Mike Boyle, our President; and our Chief Financial Officer, Amit Joshi. In terms of agenda for the call, similar to past quarters, I'll start with an overview of our second quarter results and then discuss the broader market environment and our positioning. Thereafter, Mike and Amit will discuss our investment portfolio and financial results in greater detail.

And we'll leave some time, as always, for questions at the end. So beginning with our financial results, we reported solid financial results for the second quarter last night. Net investment income per share was $0.44, representing an annualized yield of 10.5% on equity, covering our base dividend of $0.42 per share by 105%. Q2 earnings per share were $0.22, representing an annualized return on equity of 5.2%. Importantly, credit quality across our portfolio remained healthy overall during the quarter despite a modest decline in NAV, and nonaccruals continue to remain low across the portfolio, which we view as a continued reflection of the underlying strength and resilience of our underwriting standards and portfolio construction process.

Subsequent to quarter end, our Board declared a third quarter dividend equal to $0.42 per share and payable to record date holders as of September 15, 2026. This represents a 10.1% annualized rate on ending book value as of June 30. So during the quarter, we were pleased to see new activity levels pick up meaningfully following a slower start to the quarter and broader economic indicators have remained sound, providing a constructive backdrop for investing.

BCSF continues to benefit from Bain Capital's private credit platform, which remains active and we believe is well positioned in the core middle market, a segment where we have long been established with deep relationships and expertise. This segment of the market has largely remained insulated from the retail outflows that have weighed on the larger end of the private credit market, reinforcing the relative stability of the core middle market as a segment in which to invest. This core middle market also offers greater liquidity premium, greater debt tranche control and tighter financial covenants, underwriting tenets that remain critical to us.

In the current environment, new deals have benefited from attractive spreads relative to the tighter levels seen at the end of 2025. The weighted average spread on new first lien originations during the second quarter for us was approximately 570 basis points. Net leverage of new portfolio company investments came in at 4.5x on average. This compared favorably to average sponsored middle market first lien unitranche loans of approximately 525 basis points in the second quarter and net leverage of 5.4x.

We also saw a healthy level of repayments during the quarter, including full repayments from 2 software companies despite the volatility that occurred across that sector earlier in the year, a testament to the underlying quality of those credits. On a year-to-date basis, however, repayment activity has remained low overall relative to normalized historical levels. Credit fundamentals across our underlying companies have remained resilient. At quarter end, median net leverage across our borrowers was 4.7x and median interest coverage remained healthy at 2.1x.

Nonaccruals saw a slight increase quarter-over-quarter, but remain low overall across the portfolio at 2.2% at fair market value as of quarter end. As it relates to software specifically, a topic we discussed at length last quarter, our exposure, including software adjacent companies, represents approximately 12% of our total portfolio. We've remained relatively underweight this sector versus the broader private credit market as we've taken a selective underwriting approach, which is largely focused on system of record and highly specialized vertical software.

Overall, fundamental performance across our software companies continues to demonstrate solid operating performance. Key performance indicators such as retention rates and revenue growth have not decelerated, and we are generally seeing many companies show continued improvement in profitability and EBITDA margins, a further testament to the underlying quality of the companies in which we've chosen to invest. As a reminder, we maintain a comprehensive risk assessment framework to evaluate the potential substitution risks that emerging AI technologies may pose across our portfolio companies.

Based on this ongoing analysis, the vast majority of our software-related investments carry a relatively low risk of AI-driven disruption, reflecting both the differentiated and resilient nature of these businesses and the discipline embedded in our investment approach from the time we first evaluated these companies. Only 4% of the total portfolio at fair value falls into our high and moderate risk ratings for AI disruption. For this smaller subset of companies with elevated AI disruption risk, we are actively monitoring new bookings and retention rates.

And notably, many of these companies have continued to demonstrate stable performance and modest growth improvement in the current environment. Turning now to our dividend outlook. We've been pleased to provide strong earnings for our shareholders in recent years with net investment income covering and/or exceeding our regular $0.42 per share dividend.

We remain focused on providing an attractive dividend level to our shareholders, and we plan to reevaluate that dividend level in the coming quarters, considering factors such as the interest rate environment, upcoming debt maturities of our lower cost unsecured notes and other income sources as new M&A deal volume is expected to increase. I will now turn the call over to Mike Boyle, our President, to walk through our investment portfolio in greater detail. Mike?

Thanks, Michael. Good morning, everyone. I'll start with our investment activity for the second quarter and then provide an update in more detail on our investment portfolio. New fundings during the second quarter were $182 million into 99 portfolio companies, including $73 million (sic) [ $73.4 million ] in 8 new companies and $109 million (sic) [ $108.6 ] in 91 existing companies. Sales and repayment activity totaled approximately $277 million, resulting in net sales and repayments of approximately $95 million quarter-over-quarter.

Our fundings were split between new and existing portfolio companies with new portfolios representing 40% of our total fundings versus 60% to existing companies. We remain focused on investing primarily in first lien senior secured loans with 91% of our new Q2 investment fundings in first lien structures, 1% in subordinated debt and 8% in preferred and common equity. We continue to favor core middle market sized companies given attractive terms and structure, combined with a large market opportunity of high-quality borrowers, consistent deal flow and more favorable competitive dynamics versus other market segments.

The median EBITDA across our new companies during the quarter was $31 million. Turning to our investment portfolio. At the end of the second quarter, the size of our portfolio at fair value was approximately $2.4 billion across a highly diversified set of 214 portfolio companies operating across 30 different industries. The average position size across our single name portfolio companies is approximately 40 basis points. Our portfolio primarily consists of investments in first lien senior secured loans, given our focus on downside management and investing in the top of the capital structure.

As of June 30, 63.4% of the investment portfolio at fair value was invested in first lien debt, 1.3% in second lien debt, 3.7% in subordinated debt, 7.7% in preferred equity, 7.5% in equity and other interest and 16.4% across our joint ventures, including 9% in the ISLP and 7% in the SLP. The vast majority of our underlying investments within the joint venture structures consist of first lien loans. As of June 30, 2026, the weighted average yield on the investment portfolio at amortized cost and fair value were 10.8% and 10.4%, respectively, as compared to 10.8% and 10.9%, respectively, as of March 31, 2026.

As of June 30, 2026, 95% of our debt investments bear interest at a floating rate. Moving on to portfolio credit quality trends. As Michael highlighted earlier, credit fundamentals across our portfolio have remained healthy. Median net leverage across our borrowers was 4.7x as of quarter end compared to 4.6x in the prior quarter. Median EBITDA was $40 million, which was relatively unchanged from the prior quarter at $42 million. Watch list investments increased slightly quarter-over-quarter as reflected in our internal risk rating scale. These investments, which include our risk rating 3 and 4 categories, comprised 6% of our portfolio at fair value, an increase of 1% from the prior quarter.

Investments on nonaccrual represented 3.2% and 2.2% of the total investment portfolio at amortized cost and fair value, respectively, as of June 30 compared to 1.4% and 0.6%, respectively, as of March 31. During the quarter, 2 new companies were added to nonaccrual and 4 companies were removed from nonaccrual status. While this resulted in a modest increase quarter-over-quarter, we still believe our nonaccruals remain low relative to broader industry averages. Amit will now provide a more detailed financial review.

Thank you, Mike, and good morning, everyone. I'll start the review of our second quarter results with our income statement. Total investment income was $62.3 million for the 3 months ended June 30, 2026, as compared to $66.2 million for the 3 months ended March 31, 2026. The decrease in investment income was primarily driven by lower interest income recognized on one of our joint venture investments, along with the impact of 2 new nonaccrual investments.

The quality of our investment income continues to be strong as the vast majority of our investment income is driven by contractual cash income across our investments. Interest income and dividend income represented 97% of our total investment income in Q2. PIK interest income represent 12% of our overall investment income in Q2, a modest decrease from the prior quarter. Notably, the vast majority of our PIK income is derived from investments that were underwritten with PIK, totaling 81% of total PIK income, with the remainder related to amended or restructured investments.

Total expenses before taxes for the second quarter were $33 million as compared to $37.9 million in the first quarter. The decrease in expenses was driven by lower incentive fee, driven by reduced pre-incentive fee net investment income and the look-back provision, partially offset by higher interest and debt fee expenses. Net investment income for the quarter was $28.6 million or $0.44 per share as compared to $27.4 million or $0.42 per share for the prior quarter. During the 3 months ended June 30, 2026, the company had net realized and unrealized losses of $14.6 million or $0.22 per share.

Our net realized loss during the quarter was driven by one of our restructured investment and an exit of a portfolio company. Net income for the 3 months ended June 30, 2026, was $14.1 million or $0.22 per share. Moving over to our balance sheet. As of June 30, our investment portfolio at fair value totaled $2.4 billion with total assets of $2.6 billion. Total net assets were $1.1 billion as of June 30, 2026. NAV per share was $16.65, a decrease of $0.21 per share from $16.86 at the end of first quarter, driven by net losses of $0.22 per share. As of June 30, approximately 80% of our outstanding debt was in floating rate debt and 20% was in fixed rate debt.

Our liability management efforts remain disciplined. By conducting an unsecured issuance this year and entering into an amendment of our existing credit facility subsequent to quarter end, which extended its maturity to 2031, we have prefunded and mitigated upcoming maturities in 2026, while simultaneously extending debt maturities and preserving the financial flexibility. For the 3 months ended June 30, 2026, the weighted average interest rate on our debt outstanding was 5% as compared to 4.6% as of the prior quarter end. The weighted average maturity across our total debt commitment was approximately 3.9 years at June 30, 2026.

At the end of Q2, our debt-to-equity ratio was 1.41x as compared to 1.34x from the end of Q1. Our net leverage ratio, which represents principal debt outstanding less cash and unsettled trade was 1.22x at the end of Q2 as compared to 1.28x at the end of Q1. Subsequent to quarter end, our gross leverage declined to 1.34x and was at 1.22x on a net basis as of July 31, 2026. Liquidity at quarter end was strong, totaling $806 million, including $606 million of undrawn capacity on our revolver credit facility, $130.6 million of cash and cash equivalents, including $18.5 million of restricted cash and $69.4 million of unsettled trades net of receivables and payables of investments. With that, I'll turn the call back over to Michael Ewald for closing remarks.

Thanks, Amit, and thanks, Mike, as well. Look, in closing, we are pleased to deliver another quarter of attractive net investment income and healthy credit fundamentals across our portfolio of middle market borrowers. Looking ahead, we believe the company is well positioned to continue driving attractive earnings for our shareholders, supported by our platform's positioning and investment discipline in the core middle market. We remain committed to delivering value for our shareholders by providing attractive returns on equity and prudently managing our shareholders' capital. Nicky, please open the line for questions at this point.

[Operator Instructions] We'll take our first question with Finian O'Shea with Wells Fargo.

Michael, a couple on the dividend. As you mentioned, I know there's a couple of variables, but any guide on sort of a target ROE target payout on NAV framework? And then sort of second part, target, I guess, spillover as well, sort of where you are there? And will that be sort of an input to your '27 plan?

Yes. Thanks. I'll let Amit talk about the spillover income. But as you point out, and as I said, there's a number of different variables here. So it's been an ongoing topic with our Board as we try to project out earnings. Obviously, it looks like base rates may well stay higher here for a while. That's a positive. We've got that unsecured that we got to payback coming up in October, so that's a negative. So there's a lot of puts and takes there.

We've certainly observed what's going on in the market in general, too, with some pressure on other folks' earnings. So it's not so much that we have a target as a percent of NAV. It's more that we want to be ensuring that we're amply covering our dividend in a consistent and sustainable manner. So as we get some more clarity in the back half of the year around base rates, around new deal volume, which generates fee income and our cost of debt going forward as well, I think that's when we'll end up reevaluating and see if we stick with the same or change our dividend. Amit, I don't know if you want to talk about the spillover income, too, that's certainly a source of cash, obviously, as well.

Yes. Just to add on to what Mike highlighted, we continue to look at our spillover income, though I would say we want to ensure we are earning NII to meet our dividend set in 2027. So that will be our primary focus. Along with that, again, we -- as you have seen it in the past, we will evaluate our special dividend distribution as required to manage our spillback income as well.

Okay. Appreciate it. And did you guys give the spillover this quarter?

We might have -- but if not, yes, it's around $1.26, $1.27.

Okay. And a follow-up on the unsecured. Is that something that might come down with the post-quarter expansion of the facility?

Yes. So unsecured, as you know, in October, we have a maturity as well, which is due will be paid down. And of course, we have done the extension of the facility as well. So that all will play a role to bring down the unsecured percentage.

Our next question comes from Derek Hewett with Bank of America.

So revenue from the JVs and specifically, I'm talking about the ISLP was down materially. So could you provide additional color on what happened there? And then should we expect that yield to remain under pressure in the near term?

Sure. Thanks for the question, Derek. So we did end up retaining some earnings in the ISLP rather than paying out full interest and dividends from that structure. That was a onetime event in the joint venture as we're particularly focused on continuing to build diversification and expand that structure alongside our joint venture partner. So that is not an indication of broader pressure on earnings in that structure, but more of a onetime event for the quarter.

As a reminder, the ISLP, International Senior Loan Program is about 1:1 levered. It is an off-balance sheet structure, but very comparable leverage level to what's on balance sheet and has been delivering kind of high single-digit IRR since inception. So it has been performing in line with expectation. As I said, it's more of a one-off event as we're looking at that what the exact future will be for the ISLP.

Okay. And then my follow-up is, was there any change in the terms of the revolving credit facility that was recently extended other than the elimination, it looks like of the credit adjustment spread.

In reference to revolver, yes, we did replace the credit adjustment spread, right? That through our amendment and extended, we were able to remove.

Okay. But nothing else in terms of like margin requirements or collateral type?

No, no other major changes. That was the big one.

[Operator Instructions] We will move next with Paul Johnson with KBW.

So I guess with leverage 1.2x, 1.3x or so, how should we think about just, I guess, balancing, I guess, the new activity with just new leverage and also the opportunity, I guess, to drop down some investments into the joint ventures. How should we kind of, think about thatI guess, balanced with what you're seeing in the market right now in terms of new deployment here over the near term?

Thanks for the question, Paul. So I would say we have been operating at the higher end of our leverage range, as you know. And part of that has been because there's been pretty limited paydowns, repayments across our portfolio, but also across the broader market in recent history. We do have some ability to drop loans down into our joint ventures, which does allow us some room to continue to originate in today's market. But I will say we are largely focused on being one in, one out.

So as loans are paying down, really adding new loans behind them to keep the structure fully invested. But we also have an eye towards moderating back down towards the middle of our net leverage range. So as a reminder, between 1 and 1.25 is our leverage range for the fund. I do think in future quarters, we're looking to pull that back down below that 1.25x that we've been recently operating at, while at the same time, using some of the other levers we have like JVs to facilitate some new investment opportunities for the fund over that time.

Got it. And is that more just because more from a capital management side, that's where you want to operate in this environment? Or would you say it's just more because the environment is maybe just not as attractive as you would like?

It's more of the former. So we have been largely originating first lien loans. And as I noted, over 80% of our originations in the quarter were in first lien structures. And so as we look at the risk of the investments we're making, we're also thinking about capital planning related to that. And so given the first lien skew of the portfolio today, we have been comfortable operating at the higher end of our targeted leverage range.

And I will say, as we noted in our remarks, new investment opportunities continue to be attractive. We've still been originating at spreads in the mid-500s for new first lien securities. And so we are still excited about finding new investment opportunities out there in addition to operating within that midpoint of our target leverage range.

My final question, maybe a little bit more of a technical one, but the 12% PIK income for this quarter, if I actually just try to calculate that from the cash flow statement, it looks like something that's quite a bit higher, something a little bit closer to like 19% or so through the 6 months through this year, running at around 19% for this quarter. But I guess can you help me explain what's the -- I guess, the difference between those 2 numbers, if there's some sort of onetime accrual item or something that's flowing through this quarter in terms of the PIK income?

We can look into this more detail and come back to you. But overall, again, our 12% number is more for this current quarter, while cash flow is 6 months. So as you said, in Q1, maybe the PIK income was higher. And then some of it might be driven by our preferred dividend, which at times could also be driving it, but we can look at it and come back to you.

And at this time, there are no further questions in queue. I will now turn the meeting back to Michael Ewald for closing comments.

Thanks, Nicky, and thanks again for all of your time and attention today. We look forward to speaking with you all again soon. Thanks very much. Cheers.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good day, and welcome to the Bain Capital Specialty Finance First Quarter Ended March 31, 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions] I'd now like to turn the call over to Katherine Schneider. Please go ahead.

Thanks, Jamie. Good morning, and welcome, everyone, to the Bain Capital Specialty Finance First Quarter ended March 31, 2026 Conference Call. Yesterday, after market closed, we issued our earnings press release and investor presentation of our quarterly results, a copy of which is available on Bain Capital Specialty Finance's Investor Relations website. Following our remarks today, we will hold a question-and-answer session for analysts and investors. This call is being webcast, and a replay will be available on our website. This call and the webcast are property of Bain Capital Specialty Finance, and any unauthorized broadcast in any form is strictly prohibited.

Any forward-looking statements made today do not guarantee future performance, and actual results may differ materially. These statements are based on current management expectations, which include risks and uncertainties, which are identified in the Risk Factors section of our most recently filed annual report on Form 10-K and any subsequently filed quarterly reports on Form 10-Q as well as other filings with the SEC that could cause actual results to differ materially from those indicated.

Forward-looking statements made today include, without limitation, statements regarding dividend sustainability, investment pipeline, leverage targets, credit quality trends and the potential impact of AI disruption on portfolio companies. Bain Capital Specialty Finance assumes no obligation to update any forward-looking statements at this time unless required to do so by law or by the rules of the NYSE on which our securities are listed. Lastly, past performance does not guarantee future results.

So with that, I'd like to turn the call over to our CEO, Michael Ewald.

Thanks, Katherine, and good morning, and thanks to all of you for joining us here today on our earnings call. I'm joined here by Mike Boyle, our President; and our Chief Financial Officer, Amit Joshi. In terms of the agenda for the call, I'll start with an overview of our first quarter results and then discuss the broader market environment and our positioning. Thereafter, Mike and Amit will discuss our investment portfolio and financial results in greater detail. And of course, we'll leave some questions for time -- we'll leave some time for questions at the end.

So beginning with our financial results. Net investment income per share for the first quarter was $0.42, representing an annualized return on equity of 10.0%. Our net investment income fully covered our regular dividend during the quarter, demonstrating the continued earnings power and resilience of our portfolio. Q1 earnings per share were $0.05, primarily driven by net unrealized losses across our investment portfolio. These losses were largely attributed to idiosyncratic credit weakness within certain portfolio companies as well as broader market-driven valuation adjustments stemming from credit spread widening and multiple compression during the quarter.

Subsequent to quarter end, our Board declared a second quarter dividend of $0.42 per share, payable to shareholders of record as of June 15, 2026. Our Q2 dividend equates to an annualized yield of 10.0% based on ending book value as of March 31, 2026. Credit performance across the portfolio remained fundamentally sound. Nonaccrual levels continue to remain low and stable as no new investments were shifted to nonaccrual during the quarter, and our borrowers generally demonstrated healthy operating performance and resilient credit fundamentals despite a more uncertain macroeconomic backdrop. In fact, the first quarter was an increasingly challenging market environment characterized by heightened public market volatility, investor concerns surrounding AI disruption risk on software valuations, renewed inflationary pressures fueled by geopolitical uncertainty and retail outflows from private credit vehicles.

These factors contributed to a more cautious and selective risk environment across broader credit markets. Against this backdrop, our pace of new investment activity moderated during the first quarter with our funding split between supporting new portfolio companies and providing add-on financings and fundings to existing borrowers.

BCSF continues to benefit from Bain Capital's private credit platform, whose long-standing presence, deep relationships and extensive expertise in the core middle market position us favorably in the current market. While much of the recent net retail outflows have been concentrated among large-cap private credit managers, potentially tempering new investment activity in that space, our platform remains well positioned to serve as a consistent long-term capital provider to our target core middle market borrowers. We remain focused on our long-standing investing tenets of disciplined underwriting, maintaining meaningful control over our debt tranches and strong financial covenant protections.

Spreads on our Q1 new originations averaged approximately 550 basis points on a weighted average basis, while net leverage levels remained prudent at 4.4x EBITDA. Looking ahead into the second quarter to date, we have begun to see a pickup in volumes for new investment activities. The current investing environment for lenders has been moderately more favorable as we have observed pricing widen by an additional 25 to 50 basis points, reflecting the market's increasingly cautious tone. As we discussed in detail on our previous earnings call, BCSF's software exposure, including software adjacent companies, represents approximately 13% of our total portfolio.

Our private credit platform has remained disciplined and highly selective in investing capital, enabling us to thoughtfully target the areas of the market where we see the most compelling risk-adjusted opportunities. While the past several years have been characterized by significant capital formation and heightened competition across sectors such as software and technology, we maintained a measured underwriting approach and resisted the broader trend toward increasingly aggressive structures.

In addition, given our history in the space and broad investment platform, we have expertise and experience in a large number of diverse industries, thereby limiting our overreliance on any one sector. Importantly, evaluating the potential risks and implications associated with AI-driven disruption is not a new exercise for our platform. We believe BCSF is uniquely differentiated amongst its peers through the breadth of expertise and institutional knowledge embedded across Bain Capital's broader credit platform as well as adjacent business units, including Ventures, Tech Opportunities and Private Equity. These teams have all been actively incorporating AI-related risk assessment and management frameworks into their investment process for several years, allowing us to continuously refine our underwriting standards and integrate best practices and proprietary insights into our own investment framework.

Over the years, our software investment strategies remained intentionally centered on mission-critical systems of record software and highly specialized vertical software businesses that serve deeply embedded and essential functions within their respective markets. During the first quarter, we conducted a comprehensive risk reassessment to evaluate the potential substitution risks that emerging AI technologies may pose across our portfolio companies. Based on this analysis, the majority of our software investments carry a relatively low risk of AI-driven disruption, reflecting the differentiated nature and resilience of these businesses as well as our disciplined approach, investment approach and framework when we first evaluated these companies.

Importantly, our software portfolio companies continue to exhibit strong underlying credit fundamentals, supported by healthy operational performance and consistent earnings growth since the time of underwriting. As of quarter end, median LTV in that segment is approximately 37% when adjusted for current enterprise value multiples, and these borrowers maintain solid interest coverage levels of approximately 2.0x.

Looking ahead, we believe BCSF remains well positioned to navigate the current market environment. Our portfolio continues to demonstrate solid underlying health and is supported by a well-diversified liability structure, strengthened by the issuance of unsecured debt earlier this year to proactively address our near-term 2026 maturity.

While we ended the quarter at the upper end of our target net leverage range of between 1.0 and 1.25x, we believe we remain in a position to capitalize on attractive investment opportunities as the portfolio continues to generate healthy levels of repayment activity. Against this backdrop, we believe BCSF's regular dividend of $0.42 per share can be maintained in the current environment. However, at the same time, we will continue to thoughtfully evaluate our dividend policy alongside our Board on a quarterly basis, consistent with our disciplined approach to capital management and long-term shareholder value creation. I will now turn the call over to Mike Boyle, our President, to walk through our investment portfolio in greater detail. Mike?

Thanks, Mike, and good morning, everyone. I'll start with our investment activity for the first quarter and then provide an update in more detail on our portfolio. New fundings during the first quarter were $243 million into 107 portfolio companies, including $124 million in 13 new companies and $111 million in 93 existing companies and $9 million into the Senior Loan Program, or SLP.

Sales and repayment activity totaled approximately $255 million, resulting in net sales and repayments of $12.2 million quarter-over-quarter. Our new investment fundings were split between new and existing portfolio companies with new fundings representing 51% of total versus 49% of fundings made to existing companies. This quarter, we remain focused on investing in first lien senior secured loans with 93% of our new fundings within first lien structures, 4% into investment vehicles, 2% in pref and common equity and 1% into subordinated debt.

New investment activity for the quarter continued to benefit from Bain Capital's deep industry expertise and long-standing sponsor relationships. We remain focused on investing in defensive sectors such as food and beverage, business services and health care, where we believe companies are best positioned to demonstrate resilience across varying economic environments.

We also continue to favor core middle market sized companies, a segment that we believe offers attractive terms and structure combined with a large market opportunity of high-quality borrowers, consistent deal flow and more favorable competitive dynamics relative to other market segments. Reflecting this focus, the median EBITDA across our new companies added to the portfolio during the quarter was $41 million. Sales and repayment activity remained healthy during the quarter, driven by a combination of full realizations and repayments as well as partial sales and repayment activity.

Turning now to the investment portfolio specifically. At the end of the first quarter, the size of the portfolio at fair value was $2.5 billion across a highly diversified set of 212 portfolio companies operating across 30 different industries. The average position size across single names in our portfolio was approximately 40 basis points. Our portfolio primarily consists of first lien investments, given our focus on downside management and investing in the top of capital structures.

As of March 31, 66% of the investment portfolio at fair value was in first lien debt, 1.2% in second lien debt, 3% in subordinated debt, 6.7% in preferred equity, 6.8% in common equity and other interest with 16% across our joint ventures, including 9% in the international senior loan program and 7% in the senior loan program, in both of which the vast majority of underlying investments are first lien loans. As of March 31, 2026, the weighted average yield on the portfolio at amortized cost and fair value was 10.8% and 10.9%, respectively, consistent with December 31, 2025. As of March 31, 2026, approximately 93% of our debt investments bear interest at a floating rate.

Moving on to portfolio credit quality trends. Fundamentals across the companies remained solid during the quarter, continuing to reflect the resilience and quality of our portfolio construction. Median net leverage across our borrowers was 4.6x EBITDA, representing a modest improvement from the prior quarter, and median interest coverage remained healthy at 2.1x across our borrowers. Watch list investments represented approximately 5% of the portfolio at fair value, in line with recent quarters. Importantly, the composition of these names has remained stable, and we have not observed a meaningful migration of new borrowers onto our watch list. Rather, the category continues to be concentrated within a limited number of idiosyncratic situations versus broad-based credit deterioration.

In addition, our exposure to these investments remain primarily positioned in first lien loans, providing us with what we believe to be favorable positions within each capital structure with greater potential for downside protection. Nonaccrual levels remained low across our portfolio as of quarter end, representing 1.4% at amortized cost and 0.6% at fair value. This reflected a modest improvement from the prior quarter's level of 1.6% and 0.8%, respectively. And notably, no new companies were added to nonaccrual during the quarter. Taking all of this together, the health and credit quality of our portfolio remains on solid footing. Amit will now provide a more detailed financial review.

Thank you, Mike, and good morning, everyone. I'll start the review of our first quarter results with our income statement. Total investment income was $66.2 million for the 3 months ended March 31, 2026, as compared to $68.2 million for the 3 months ended December 31, 2025. The decrease in investment income was primarily driven by decrease in effective yield on the existing debt investments, which reduced interest income. The quality of our investment income continues to be high as vast majority of our investment income is driven by contractual cash income across our investments.

Interest income and dividend income represented 98% of our total investment income in Q1. PIK interest income represented approximately 13% of our overall investment income in Q1. Notably, the vast majority of our PIK income is derived from investments that were underwritten with PIK, totaling 81% of our total PIK income. Only a small portion of our PIK income is related to amended or restructured investments. Total expenses before taxes for the first quarter was $37.9 million as compared to $37.7 million in the fourth quarter. The increase in expenses was driven by higher interest and debt fee expenses driven by the issuance of March 2031 note for $350 million in January, partially offset by lower management and incentive fee.

Net investment income for the quarter was $27.4 million or $0.42 per share as compared to $29.7 million or $0.46 per share for the prior quarter. During the 3 months ended March 31, 2026, the company had a net realized and unrealized losses of $24 million or $0.37 per share. As Mike highlighted earlier, our net losses were largely attributed to idiosyncratic credit weakness within a limited number of our portfolio companies, in addition to broader market-related mark-to-market adjustments. Net income for the 3 months ended March 31, 2026, was $3.4 million or $0.05 per share.

Moving over to our balance sheet. As of March 31, our investment portfolio at fair value totaled $2.5 billion and total assets of $2.6 billion. Total net assets were $1.1 billion as of March 31, 2026. NAV per share was $16.86, a decrease of $0.37 per share from $17.23 at the end of fourth quarter, driven by net losses of $0.37 per share. As of March 31, approximately 80% of our outstanding debt consisted of floating rate debt with the remaining 20% comprised of fixed rate debt. Our approach to liability management continues to reflect a disciplined and proactive strategy. Through a successful execution of unsecured debt issuance during the first quarter, we were able to effectively prefund and address upcoming 2026 maturities while simultaneously extending the duration of our debt profile and enhancing overall financial flexibility. For the 3 months ended March 31, 2026, the weighted average interest rate on our debt outstanding was 4.6%, consistent with the prior quarter. The weighted average maturity across our total debt commitment was approximately 4.1 years mature at March 31, 2026.

At the end of Q1, our debt-to-equity ratio was 1.34x as compared to 1.32x from the end of Q4. Our net leverage ratio, which represents principal debt outstanding less cash and unsettled trades was 1.28x at the end of Q1 as compared to 1.24x at the end of Q4. Liquidity at quarter end was strong, totaling $729 million, including $660 million of undrawn capacity on our revolver credit facility, $34.2 million of cash and cash equivalents, including $17.6 million of restricted cash and $34.6 million of unsettled trades net of receivables and payables of investments. With that, I'll turn the call back over to Mike Ewald for closing remarks.

Thanks, Amit. In closing, we are pleased with the continued execution of our investment strategy on behalf of our shareholders during the first quarter. Our portfolio continued to generate attractive levels of investment income, while credit quality across our middle market borrowers remained stable. We believe the company remains well positioned to capitalize on compelling new investment opportunities in the current market. We remain committed to delivering value for our shareholders through disciplined portfolio and liability management and producing attractive returns on equity, and thank you for the privilege of managing our shareholders' capital. With that, Jamie, please open the line for questions. Thanks.

[Operator Instructions] We'll take our first question from Paul Johnson with KBW.

So I mean, earnings were in line with the dividend this quarter. And as you mentioned, you evaluate the dividend each quarter. I would imagine you're taking a close look at that now. I'm just curious, though, I mean, as you approach those discussions, you have generally generated a higher operating ROE in the space in general for a few reasons. And I'm wondering, is that still sort of the goal in mind going forward? And if so, I guess, how much is under evaluation here in terms of not just the dividend level, but the fee structure and those sorts of things to continue to generate an above-market ROE?

Thanks, Paul. Look, on the dividend front, I mean, it is a continuous evaluation, right? And base rates certainly drive a fair amount of that discussion. They were on a somewhat downward trajectory there for a while. They have held here at a kind of intermediate level based on inflation forecast, everything else, I'm guessing they'll probably stick around here for a while. So that is certainly one driver of our decision regarding dividends. Clearly, earnings from JVs, things like that are also going to be impactful there. As I said in my remarks, the -- as we look at it, as we sit here today, we certainly feel comfortable with that $0.42 dividend for Q2, and then we'll continue to evaluate that going forward.

Regarding our ROEs, I wasn't sure which way you're going with that. If we have good ROEs, you suggest that maybe we even increase fees. I wasn't quite sure what you meant there. But the -- look, it's certainly something where we continue to ensure that we're competitive with other BDCs out there, both in terms of our return levels, our consistency of dividend and then taking into account what other folks are doing on pricing and how they're performing as well. So it is a continuous evaluation and discussion with our Board.

Got it. Appreciate it. That's helpful. And then just, I guess, in terms of the spread widening and your ability, I guess, to kind of capture a new vintage going forward here with investment activity. with leverage where it is where it is at 1.3x, how are you -- do you think you're able to, I guess, capitalize on that if you do see meaningfully increased activity at better terms? Is it -- do you have, I guess, better line of sight on repayments that you would expect over the course of the year or still capacity within some of the JVs to take on some of that activity? Just that would be great to hear. Thanks.

Yes. Look, you really touched on two of the big drivers there, right? One is repayments, which are somewhat notoriously difficult to forecast. We'll get a heads up a week before we're getting a repayment. So always difficult to tell what that schedule is going to look like, and we continuously get those. We certainly benefited from some of those in the first quarter. So we're able to rotate out some investments there. And then the second point you mentioned too is those JVs where there's still additional capacity and potentially the ability to add some more over time as well. So you'll notice that some of our repayments were actually sales down to those JVs. So there continues to be an opportunity to grow those as well.

[Operator Instructions] We'll hear next from Derek Hewett with Bank of America.

So it appears that Gale Aviation drove most of the unrealized loss this quarter. So what was the change in the investment thesis that caused the loss and then for you to exit the investment?

Overall, we exited the investment during the quarter. So it was more based on realization. We -- as you can appreciate, there are approximately five planes, which, as we have highlighted in the past, we've been trying to liquidate that investment. And as we were ironing things out, we have been revisiting based on our projection, the fair valuation. So I think based on -- compared to prior mark, it came very close to that, and we exited the investment during the quarter.

Again, as we have highlighted in the past, aviation is a sector. Overall, we do look at it. That's an area where our -- we have teams which are focused on it. So depending on how we look at it from a long-term perspective, we -- for this portfolio, we wanted to exit out of that investment, and that's what happened during Q1.

And I would just add, if you think about on the -- look, there's a number of asset-backed opportunities that we've always got going on in the background. Aviation is certainly one of those. The trade around leasing to airlines and planes has got a little bit more saturated. So the opportunity set isn't quite as attractive there as it was when we first got into it several years ago. So we made the decision to exit that. But as Amit mentioned, we still have a pretty strong positive view around aerospace and defense in general and continue to actively invest there and also opportunistically are looking at some other asset-backed plays as well.

Okay. And then of the $0.27 of unrealized losses during the quarter, like what percentage of that was just due to just your general kind of spread widening? And then what was just -- what was due to kind of specific credit issues?

Yes. Look, it's a little tougher to parse that out and be too exact there. If you have a company that misses its budget, but it's up 10% over last year, and there's a slight markdown there. Is that because it missed budget, it's still up over last year? Is that because of spread widening? So there's a whole bunch of little puts and takes across the portfolio. But what I would say is the majority of it was limited to companies on nonaccrual, which tend to bump around a little bit. We actually had a recent increase in one of our nonaccrual names this quarter as well. So there's always going to be a little bit of noise in that bucket as well as that spread widening piece.

Okay. Great. And then lastly for me, like what are the puts and takes of executing on your buyback? I believe it's roughly $50 million, which would be accretive kind of based on where the stock is trading today versus kind of new originations, just given the more investor-friendly environment where you can get like spreads of, I believe you said 25 to 50 basis points higher than what you were previously receiving.

Yes. Look, that's certainly another item of debate that we engage in with our Board at our quarterly meetings and even between those quarterly meetings as well. We're constantly evaluating the math around a potential bit of a short-term boost from buybacks versus being able to reinvest some of that capital in an existing attractive market. And there's also just the added governor of operating closer to the top end of our leverage range. So those are all considerations that we do take into account. To date, we haven't executed on that, but it certainly is an open topic. The other point on the stock buyback, too, is just it's not the most liquid stock as you can probably appreciate as well. So that can make stock buybacks a little bit difficult, too.

We'll return now to Paul Johnson with KBW.

Just one more follow-up. I was wondering if I could ask just about a specific credit, if you don't mind. I noticed that the maturity was pushed back from last quarter, and there's several other lenders in the loan, and I'm not sure if you're in a position of control or not. But I noticed your mark was lower than a few of your peers. But Premier Imaging, I was wondering if you could provide any sort of color on what the situation is there. I guess, if the sponsor has been supportive of the company. But then as well as just more broadly, with kind of all the volatility we've had, I guess, in the software technology market, has that impacted the M&A, I guess, environment within the health care sector at all, if that was also obviously has been a challenged sector for the last several years.

So I'd say we have not -- on the health care side to start, we really have not seen any meaningful degradation in the exposures we have to that space. And part of that's because we've been much more active in recent vintages. So I think 2023 and 2024 deals in health care when we felt like many of the issues, particularly around roll-ups were already exposed in the market. And so it allowed us to lend into companies at lower leverage points with lower adjustments. So we've continued to see the health of that portfolio be reasonably strong. And then on your specific name -- question about a name, it's one that we're actually a fairly small holder of the tranche. And so we do work with our third parties to evaluate the mark that we're using as we do with all the other assets in the portfolio. But this is one that we are not in a controlled position. And so that could be a component reflected in our valuation versus some peers that might have more of a control stake.

And with no further questions in queue at this time, I'd like to turn the floor back over to Michael Ewald for any additional or closing comments.

Thanks, Jamie, for all your help today, and thanks again for everyone's time and attention on the call. We were happy to report first quarter results here and look forward to speaking with you all again soon. Have great days. Thanks.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Hello, and welcome, everyone, joining today's Bain Capital Specialty Finance Fourth Quarter and Fiscal Year Ended December 31, 2025 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions].

It is now my pleasure to turn the meeting over to Katherine Schneider, Investor Relations. Please go ahead.

Thanks, Nikki. Good morning, and welcome, everyone, to the Bain Capital Specialty Finance Fourth Quarter and Fiscal Year ended December 31, 2025 Conference Call. Yesterday after market closed, we issued our earnings press release and investor presentation of our quarterly and annual results, a copy of which is available on Bain Capital Specialty Finance's Investor Relations website. Following our remarks today, we will hold a question-and-answer session for analysts and investors. This call is being webcast, and a replay will be available on our website. This call and webcast are property of Bain Capital Specialty Finance and any unauthorized broadcast in any form is strictly prohibited.

Any forward-looking statements made today do not guarantee future performance, and actual results may differ materially. These statements are based on current management expectations but include risks and uncertainties, which are identified in the Risk Factors section of our Form 10-K that could cause actual results to differ materially from those indicated. Bain Capital Specialty Finance assumes no obligation to update any forward-looking statements at this time unless required to do so by law. Lastly, past performance does not guarantee future results.

So with that, I'd like to turn the call over to our CEO, Michael Ewald.

Thanks, Katherine. Good morning, and thanks to all of you for joining us on our earnings call today. In addition to Katherine, I'm joined today by Mike Boyle, our President; and our Chief Financial Officer, Amit Joshi. In terms of the agenda for the call, I'll start with an overview of our fourth quarter and 2025 full year results and then discuss the broader market environment and our positioning. Thereafter, Mike and Amit will discuss our investment portfolio and financial results in greater detail. And we'll leave some time for questions at the end as usual.

So beginning with our financial results. Net investment income per share for the fourth quarter was $0.46, representing an annualized yield of 10.6% on equity. Our net investment income covered our base dividend of $0.42 per share by 110%. Q4 earnings per share were $0.43, representing an annualized return on equity of 9.9%. For the full year 2025, net investment income per share was $1.88 or an 11.1% return on equity. 2025 earnings per share were $1.53, representing a 9.0% return on equity. We are pleased to report that these results reinforce the consistency of our positive performance for our shareholders.

Over the prior 3-year and 5-year periods, BCSF has consistently delivered an annualized ROE of 10%, driven by strong earnings supported by healthy credit performance and fundamentals across our portfolio. Subsequent to quarter end, our Board declared a first quarter dividend equal to $0.42 per share and payable to record date holders as of March 16, 2026. This represents a 9.8% annualized rate on ending book value as of December 31.

Turning to the market today and how we are navigating the current environment amid the backdrop of some of the recent private credit headlines surrounding credit quality and software/AI disruption risk. We've been pleased to see new deal activity levels pick up throughout the second half of 2025 and into the fourth quarter, driven by higher new LBO activities and continued add-on activities as underlying economic indicators have remained constructive for new investments.

In today's market, BCSF continues to benefit from Bain Capital's private credit platform's long-standing presence in the middle market. Consistent with our long-term focus, we have been staying active within our market segment in the core middle market, where we believe we can demonstrate a greater spread premium and maintain tighter underwriting standards with control of our debt tranches.

As the markets have continued to be competitive, our long-standing presence in this segment has positioned us well with our sponsor relationships to be a trusted partner and capital provider. We've been able to achieve a greater spread premium while maintaining conservative capital structures and tight documentation. The weighted average spread on our new first lien originations during the quarter was 535 basis points with net leverage of 4.6x.

The weighted average spread on our new originations during 2025 was approximately 560 basis points. Our spread levels compared favorably to the average sponsored middle market first lien loans, which were approximately 500 basis points, both in the fourth quarter and throughout the year. Importantly, we have maintained discipline with our capital base across our private credit platform, which has allowed us to pick the spots where we want to invest across the market. The cornerstone of our investment philosophy continues to be rigorous, fundamental due diligence at the industry, company and individual security level.

BCSF benefits from not only our dedicated private credit investment team that brings deep experience and specialization across industries, regions and capital structures, but also from expertise across our firm that drives collaboration and deeper industry insights to source, diligence and underwrite investments, bringing the power of the Bain Capital platform to our investors. When underwriting and managing risk across our portfolio, this approach leads us to lean in and out of certain sectors over time and be less beholden to investing just in sectors that may be driving the highest new deal volumes in the market.

For example, our investors may recall that BCSF has historically had lower exposure to health care investments such as physician practice management companies as we shied away from many of these deals in the private credit markets during a period of high volumes as these transactions typically came with less favorable terms and structures in our view. Today, software and technology have been top of mind for investors given the increased volatility in the public sector due to potential AI disruption.

It's also been one of the largest sector allocations across the private credit market and garnered a lot of recent private market headlines. So we wanted to spend some time touching on our exposure and approach. This is a sector that Bain Capital has been investing in for quite some time, but notably also one in which we maintain a selective underwriting approach. Bain Capital has dedicated professionals that focus on technology within our private credit group, further supported by dedicated industry research, resources across our broader credit team and the more broadly as we seek to harness the insights and knowledge across other business units such as ventures, tech opportunities, private equity and more.

High-tech industries is one of our top sector exposures. However, only comprises approximately 11% of BCSF's total portfolio. Our focus within this sector over the years has been on systems of record software and/or highly specialized vertical software. We generally look for and support Tier 1 enterprise software assets that provide mission-critical products that have demonstrated value propositions, exhibit strong growth on a recurring revenue base across a highly diversified customer base, have several viable exit strategies and are led by talented management teams able to effectively grow the business.

We also seek to partner with private equity sponsors with extensive tech and software expertise and clear value creation plans to generate positive cash flow through their ownership, and we tailor our loan terms and structure to mirror those plans. Software categories have always had wide variability in levels of certain types of risks or credit attributes. The discourse about AI disruption over the last few years is largely focused on LMMs or large multimodal models, which increasingly excel at summarizing and analyzing disparate sets of data.

While this potential for AI disruption is not a new phenomenon, given the recent volatility across public software markets, we have reevaluated each of our portfolio companies by qualitative criteria regarding the risk of AI replacement. Overall, we believe our portfolio has low risk to AI disruption and is, in fact, more likely to be the natural beneficiary of AI functionality than other types of software and as many of the positive credit attributes for which we have historically screened.

Our software companies have demonstrated strong credit fundamentals where we have seen healthy levels of earnings growth across our borrowers since underwriting. As of year-end, median LTV is approximately 34%, even adjusting for current enterprise value multiples since close, and these borrowers have demonstrated healthy interest coverage of 1.7x.

Turning to our broader portfolio. Credit fundamentals across our underlying companies have remained resilient. At year-end, median net leverage across our borrowers was 4.7x, unchanged from the prior quarter and stable from 4.8x on a year-over-year basis. Median interest coverage is also healthy at 2.0x. Watchlist names comprise approximately 5% of our overall portfolio at fair value, which is also consistent with recent quarters. These names have also remained relatively stable and include a handful of companies that have been facing ongoing challenges in recent years due to various headwinds such as navigating through certain end market cyclicality, continued COVID headwinds and various idiosyncratic underperformance.

Our positioning across these names is comprised largely of first lien loans, so we feel confident about our positioning within those capital structures. Nonaccruals remain low across our portfolio at 1.5% at amortized cost and 0.8% at fair value as of year-end. This was stable quarter-over-quarter, and no new companies were added to nonaccrual during the fourth quarter. Taking all of this together, the overall health and credit quality of our portfolio remains on solid footing, and we believe there is a disconnect versus where the market trading valuations are today in the BDC sector, especially with regard to BCSF.

Looking ahead, we believe the company is well positioned to drive attractive earnings for our shareholders given our platform's positioning and investment discipline in the core middle market as well as stable credit performance. We believe BCSF can maintain its regular $0.42 per share dividend in the current environment.

While we expect to face earnings headwinds ahead from a lower rate environment and upcoming maturities of our lower-cost unsecured notes, we believe there are several future growth levers for the company to help offset this, including higher earnings from select joint venture and ABL investments and other types of income as new M&A deal volumes increase. We also have healthy levels of spillover income totaling $1.29 per share, equal to over 3x our regular dividend level.

I'll now turn the call over to Mike Boyle, our President, to walk through our investment portfolio in greater detail.

Thank you. Good morning, everyone. I'll start with our investment activity for the fourth quarter and then provide an update and more detail on our portfolio. New investment fundings during the fourth quarter were $167.9 million into 93 portfolio companies, including $68 million into 11 new companies and $99.6 million into 82 existing companies. Sales and repayment activity totaled approximately $193.2 million, resulting in net sales and repayments of negative $25.3 million quarter-over-quarter.

For the full year, investment fundings were $1.3 billion. Total sales and repayment activity for the year were $1.2 billion. As a result of this activity, the size of our portfolio is relatively stable year-over-year. Our investment activity was split between new and existing portfolio companies with new companies representing 41% of our total fundings versus 59% to existing companies. This quarter, we remain focused on investing in first lien senior secured loans with 89% of our new investment fundings in first lien structures, 1% in subordinated debt and 10% in preferred and common equity.

New investments during the quarter continued to benefit from Bain Capital's deep industry expertise. We favored defensive industries such as health care and pharmaceuticals, business services and other more niche sectors such as environmental industries, and aerospace and defense. As Michael highlighted earlier, we continue to favor core middle market sized companies given attractive terms and structure, combined with a large market opportunity of high-quality borrowers, consistent deal flow and more favorable competitive dynamics versus other market segments. The median and weighted average EBITDA across our new companies during the quarter was approximately $31 million and $41 million, respectively.

Turning to some more detail on the investment portfolio. At the end of the fourth quarter, the size of our portfolio at fair value was approximately $2.5 billion across a highly diversified set of 203 portfolio companies operating across 30 different industries. The average position size across our single name portfolio companies is approximately 40 basis points. Our portfolio primarily consists of first lien senior secured loans, given our focus on downside management and investing at the top of capital structures.

As of December 31, 64% of the investment portfolio at fair value was invested in first lien debt, 1% in second lien debt, 4% subordinated debt, 6% in preferred equity, 9% in equity and other interest and 16% across our joint ventures, including 9% into the international senior loan program and 7% into the senior loan program, both of which have underlying investments in those joint ventures consisting of first lien loans. As of December 31, 2025, the weighted average yield on the investment portfolio at cost and fair value was 10.8% and 10.9%, respectively, as compared to 11.1% and 11.2%, respectively, as of September 30, 2025. The decrease in yields was primarily driven by a decrease in reference rates across our portfolio as 92% of our investments bear interest at a floating rate.

Moving on to portfolio credit quality trends. Fundamentals across the portfolio have remained healthy. Median net leverage across our borrowers was 4.7x as of quarter end, consistent with the prior quarter. Median EBITDA was $44 million across the portfolio versus $46 million as of the third quarter. Watchlist investments have also remained stable quarter-over-quarter as indicated by our internal risk rating scale. These investments include our risk rating 3 and 4 investments, which comprised 5% of our portfolio at fair value.

Our portfolio companies within this category have remained relatively stable in recent quarters, and we have not seen a large migration of any new names onto our watchlist. Investments on nonaccrual represented 1.5% and 0.8% of the total investment portfolio at amortized cost and fair value, respectively, as of December 31, compared to 1.5% and 0.7%, respectively, as of September 30.

Now I'll turn it over to Amit to provide a more detailed financial review.

Thank you, Mike, and good morning, everyone. I'll start the review of our fourth quarter results with our income statement. Total investment income was $68.2 million for the 3 months ended December 31, 2025, as compared to $67.2 million for the 3 months ended September 30, 2025. The decrease in investment income was primarily driven by the decrease in reference rate during the quarter, which reduced the interest income. The quality of our investment income continues to be high as vast majority of our investment income is driven by contractual cash income across our investments.

Interest income and dividend income represented 98% of our total investment income in Q4. PIK interest income represent 11% of our total investment income in Q4. Notably, the vast majority of our PIK income is derived from investments that were underwritten with PIK, totaling 88% of our total PIK income. Only a small portion of our PIK income is related to amended or restructured investments. Total expenses before taxes for the fourth quarter were $37.7 million as compared to $37.2 million for the third quarter. The increase in expenses was driven by higher incentive fee resulting from our 3-year look back on our incentive fee hurdle rate, partially offset by lower interest and debt fee expenses.

Net investment income for the quarter was $29.7 million or $0.46 per share as compared to $29.2 million or $0.45 per share for the prior quarter. Net investment income for the full year 2025 was $1.88 per share. During the 3 months ended December 31, 2025, the company had a net unrealized and realized losses of $1.9 million. Net income for the 3 months ended December 31, 2025, was $27.8 million or $0.43 per share.

Moving to our balance sheet. As of December 31, our investment portfolio at fair value totaled $2.5 billion and total assets of $2.7 billion. Total net assets were $1.1 billion as of December 31, 2025. Our net asset value per share was $17.23 as of December 31, 2025, down $0.17 per share from prior quarter when it was $17.40 per share. This decrease was primarily due to onetime special dividend from excess spillover income earned in the prior period.

During the quarter, our Board of Directors declared a $0.15 per share special dividend payable to the record holder as of December 31, 2025, plus an additional $0.03 per share special Q4 dividend that was previously announced. Excluding the impact of these special distributions, which totaled around $0.18 per share, our NAV change quarter-over-quarter was relatively stable. As of December 31, approximately 59% of our outstanding debt was in floating rate debt and 41% was in fixed rate debt. Subsequent to year-end, we issued $350 million in aggregate principal of 5.95% notes due in 2031.

Our liability management effort remained disciplined. By conducting an unsecured issuance last year and another issuance this year in Q1 2026, we have prefunded and mitigated our upcoming maturities in 2026, while simultaneously extending debt maturity and preserving financial flexibility. For the 3 months ended December 31, 2025, the weighted average interest rate on our debt outstanding was 4.6% as compared to 4.8% as of the prior quarter end. The weighted average maturity across our debt commitment was approximately 3.6 years at December 31, 2025.

At the end of Q4, our debt-to-equity ratio was 1.32x as compared to 1.33x from the end of Q3. Our net leverage ratio, which represents principal debt outstanding less cash and unsettled trade was 1.24x at the end of Q4 as compared to 1.23x at the end of Q3. Liquidity at quarter end was strong, totaling $690 million, including $604 million of undrawn capacity on our revolver credit facility, $58.9 million of cash and cash equivalents, including $32.7 million of restricted cash and $26.7 million of unsettled trades net of receivables and payables of investments.

With that, I'll turn the call back over to Mike Ewald for closing remarks.

Thanks, Amit. In closing, we are pleased to deliver another quarter and solid year of attractive net investment income and healthy credit fundamentals across our middle market borrowers. Bain Capital Credit brings over 25 years of experience investing in the middle market and has demonstrated solid credit quality with low losses and nonaccrual rates since our inception. We remain committed to delivering value for our shareholders by providing attractive returns on equity and prudently managing our shareholders' capital.

Nikki, please open the line for questions.

[Operator Instructions]

Great. Well, it looks like there aren't any questions on this call, but thanks, everyone, for your time and attention, and we look forward to speaking with you all again soon. Thanks.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good day, everyone, and welcome to today's Bain Capital Specialty Finance Third Quarter ended September 30, 2025 Earnings Conference Call. [Operator Instructions] Please note, today's call will be recorded and I will be standing by if you need any assistance. It is now my pleasure to turn the conference over to Katherine Schneider with Investor Relations. Please go ahead.

Thanks, Kelly. Good morning, everyone, and welcome to the Bain Capital Specialty Finance Third Quarter ended September 30, 2025 conference call. Yesterday after market close, we issued our earnings press release and investor presentation of our quarterly results, a copy of which is available on Bain Capital Specialty Finance's Investor Relations website. Following our remarks today, we will hold a question-and-answer session for analysts and investors. This call is being webcast, and a replay will be available on our website. This call and the webcast are property of Bain Capital Specialty Finance and any unauthorized broadcast in any form is strictly prohibited.

Any forward-looking statements made today do not guarantee future performance, and actual results may differ materially. These statements are based on current management expectations, which include risks and uncertainties, which are identified in the Risk Factors section of our Form 10-Q that could cause actual results to differ materially from those indicated. Bain Capital Specialty Finance assumes no obligation to update any forward-looking statements at this time unless required to do so by law. Lastly, past performance does not guarantee future results. And with that, I'd like to turn the call over to our CEO, Michael Ewald.

Thanks, Katherine, and good morning, and thank you all for joining us on our earnings call here today. Before continuing on the regular programming, we do want to take a moment just to recognize anyone on the call who has served or is serving in our armed services, we generally genuinely appreciate your service, and I want to recognize you today on Veterans Day.

I'm joined today by Mike Boyle, President and our Chief Financial Officer, Amit Joshi. As usual, in terms of the agenda for the call, I'll start with an overview of our third quarter results and then provide some thoughts on our performance, the current market environment and our positioning. Thereafter, Mike and Amit will discuss our investment portfolio and financial results in greater detail, and we'll leave some questions -- some time for questions at the end. Yesterday after market close, we delivered another quarter of solid results for the third quarter ended September 30. Q3 net investment income per share was $0.45, representing an annualized yield on book value of 10.3%, exceeding our regular quarterly dividend by 7%.

Q3 earnings per share were $0.29, reflecting an annualized return on book value of 6.6%. Our net asset value per share was $17.40, a decline of $0.16 per share from the prior quarter end. This modest decline in our NAV this quarter was primarily due to a markdown on one of our loans that was idiosyncratically driven and not reflective of any broader credit issues, apparent across our broader portfolio. Subsequent to quarter end, our Board declared a fourth quarter dividend equal to $0.42 per share and payable to record date holders as of December 16, 2025.

The Board also declared an additional dividend of $0.03 per share for shareholders of record as of December 16, 2025, as we previously announced in February. This brings total dividends for the fourth quarter to $0.45 per share or a 10.3% annualized rate on ending book value as of September 30. During the third quarter, we saw a new deal activity pick up across the middle market driven by new LBO and M&A activity following greater clarity on tariffs and stability regarding economic indicators such as inflation and unemployment, growth of which have remained elevated in the U.S. but have not continued to accelerate.

Against this backdrop, our private credit group continue to curate a strong pipeline of lending opportunities in the core middle market. Our depth of industry expertise and collaboration across Bain Capital's global platform enables us to identify attractive investment opportunities in more specialized industries. Furthermore, our sponsors continue to view us as true business partners and value our ability to provide flexible capital solutions that support the financing and growth needs of their portfolio companies.

During Q3, PCSS gross originations were $340 million. We remain disciplined on terms and structure in our segment of the market with a weighted average spread on originations to new companies of approximately 550 basis points and weighted average leverage of 4.5x. The vast majority of these commitments were to first lien borrowers. Now to quickly address the credit market headlines in recent weeks, we do not have exposure to First Brands nor Tricolor. While these credit events have been broadly linked to the overall private credit market, they've occurred outside of the traditional direct lending segment.

First Brands and Tricolor are large-cap companies versus Bain Capital's Private Credit group's focus within the core middle market. We favor this segment of the market due to its attractive characteristics, including greater loan tranche control, reduced lender consensus risk and the prevalence of covenanted structures that provide for stronger lender downside management. We believe the bankruptcies of First Brands and Tricolor are idiosyncratic and do not believe that they reflect broader stress in the private credit market. However, these recent credit events reinforce the importance of our rigorous investment due diligence process, which incorporates scrutiny of off-balance sheet liabilities, collateral integrity and sources of liquidity and corporate governance.

Our processes also include deploying third-party legal advisers to perform legal due diligence and seeking to ensure that our borrowers have repeatable auditors and quality of earnings providers. Finally, we also negotiate strict documentation for our loans, which includes not just financial covenants, but also broad reporting and inspection rights, all of which ensure we stay well informed about our portfolio company's performance, trends and asset quality. While these are not new elements of our investment process, these recent credit events further support our emphasis on robust due diligence on every transaction we underwrite.

In fact, credit quality and fundamentals continue to be healthy across our portfolio. Investments on nonaccrual represented just 1.5% and 0.7% at amortized cost and fair value, respectively, as of September 30. Nonaccruals were relatively stable from the prior quarter end. Turning to our outlook on earnings and dividend coverage in light of market expectations for a lower interest rate environment ahead. First, as a reminder, when we increased our regular dividend level throughout 2022 and 2023, we set our dividend policy at an attractive level for shareholders of between 9% and 10% and to a level that we believe could be earned throughout multiple market environments.

Since then, we've been operating with meaningful net investment income, dividend coverage, which has provided excess income that has been distributed to our shareholders via supplemental dividends and also increased retained earnings driving healthy spillover income equal to $1.46 per share or 3x our regular dividend level. Our Q3 net investment income has come down relative to peak levels in prior periods, largely due to the decrease in base rates, but notably still exceeds our regular dividend level.

In the current environment, we believe we can maintain our regular $0.42 per share dividend. The company has several earnings levers to potentially offset headwinds next year from a lower rate environment and our fixed rate debt maturity in 2026 beginning in March. These future growth levers include higher earnings from select joint venture and ABL investments through the senior loan program, SLP and legacy corporate lending, as our current dividend payout from the structures has been lower relative to the run rate earnings potential. Second, higher levels of prepayment related income and other income as new M&A deal volumes increase; and finally, leveraging our private credit group platforms focus in the core middle market to drive attractive spreads on new investments.

We also selectively invest in junior investments as our flexible capital in today's market environment can be a valuable tool for middle market borrowers. Taking all of this together with a solid credit performance that we have demonstrated over the years, we believe the company is well positioned to continue driving attractive results for our shareholders. Furthermore, we believe our current stock price valuation offers a compelling opportunity relative to our credit fundamentals. At BCSF's current market price as of yesterday's close, our dividend yield, inclusive of our regular and special dividend for Q4 represents a 13% annualized yield.

We believe this is an attractive level for investors on both an absolute and relative value basis across the BDC sector. I will now turn the call over to Mike Boyle, our President, to walk through our investment portfolio in greater detail. Mike?

Thank you, Mike, and good morning, everyone. I'll start with our investment activity for the third quarter and then provide an update and more detail on our portfolio. New investment fundings during the third quarter were $340 million into 101 portfolio companies, including $124 million in 14 new companies, $210 million in 86 existing companies and $6 million into our SLP. Sales and repayment activity totaled approximately $296 million, resulting in net investment fundings of $44 million quarter-over-quarter.

Our new investment fundings were comprised of 36% to new companies and 64% to existing portfolio companies. First lien senior secured loans continue to comprise the vast majority of our new investments, representing 89% of our new investment fundings and the remaining 11% was comprised of 3% into second lien loans, 1% in subordinated debt, 5% in preferred and common equity and 2% in our investment vehicles. We remain selective in our underwriting approach and continue to favor middle market sized companies within the core middle market. While the market environment remains competitive with spread compression continuing in the broader market, we believe Bain Capital remains well positioned to source new opportunities given our platform's breadth, scale and longevity in the core middle market.

As Mike Ewald highlighted earlier, the weighted average spread of our Q3 originations to new companies was approximately 550 basis points. We were also particularly active this quarter with providing add-on capital to existing portfolio companies, which resulted in a weighted average spread across all of our originations in the quarter of 610 basis points over these rates. Our new investments during the quarter continued to favor defensive industries such as health care, pharmaceuticals, aerospace and defense and wholesale.

Turning to the investment portfolio. At the end of the third quarter, the size of our portfolio at fair value was approximately $2.5 billion across a highly diversified set of 195 portfolio companies operating across 31 different industries. Our portfolio primarily consists of investments in first lien senior secured loans, given our focus on downside management and investing at the top of capital structures. As of September 30, 64% of the investment portfolio at fair value was invested in first lien debt, 1% in second lien debt, 4% subordinated debt, 6% in preferred equity, 9% in equity and other interests and 16% across our joint ventures, including 9% in the ISLP and 7% in the SLP, both of which have underlying investments, primarily consisting of first lien loans.

As of September 30, 2025, the weighted average yield on the investment portfolio at amortized cost and fair value was 11.1% and 11.2%, respectively. As compared to 11.4% and 11.4%, respectively, as of June 30, 2025. The decrease in yields was primarily driven by a decrease in reference rates across our portfolio, as 93% of our debt investments bear interest at a floating rate. Moving on to portfolio credit quality trends. Credit fundamentals remain healthy. Median net leverage across our borrowers was 4.7x as of quarter end, down from 4.9x as of the prior quarter end.

Median EBITDA was $46 million, which was relatively unchanged from the prior quarter end. Watch list investments as a percentage of our overall portfolio have remained stable quarter-over-quarter as indicated by our internal risk rating scale. These investments include our risk rating 3 and 4 investments, which comprised 5% of fair value. Our underlying portfolio of companies within this category have also remained stable. We have not seen a large migration of any new names down the credit risk rating scale. Investments on nonaccrual represented 1.5% and 0.7% of the total investment portfolio at amortized cost and fair value, respectively, as of September 30.

This is compared to 1.7% and 0.6%, respectively, as of June 30. Turning it now to Amit, who will provide a more detailed financial review.

Thank you, Mike, and good morning, everyone. I'll start the review of our third quarter results with our income statement. Total investment income was $67.2 million for the 3 months ended September 30, 2025, as compared to $71 million for the 3 months ended June 30, 2025. The decrease in investment income was primarily driven by a decrease in other income from lower activity levels during the quarter. The quality of our investment income continues to be high, as the vast majority of our investment income is driven by contractual cash income across our investments.

Interest income and dividend income represented 98% of our total investment income in Q3. PIK income represent 11% of our total investment income in Q3. Notably, the vast majority of our PIK income is derived from investments that were underwritten with PIK. Only a small portion of our PIK income is related to amended or restructured investment. Total expenses before taxes for the third quarter were $37.2 million as compared to $39.3 million in the second quarter. The decrease in expenses was driven by lower incentive fee resulting from our 3-year look back on our incentive fee hurdle as well as lower interest and debt fee expenses.

Net investment income for the quarter was $29.2 million or $0.45 per share as compared to $30.6 million or $0.47 per share for the prior quarter. During the 3 months ended September 30, 2025, the company had a net realized and unrealized losses of $10.5 million. As Mike highlighted earlier, our net losses this quarter was primarily driven by one of our portfolio company investments and not broad-based across our portfolio. Net income for the 3 months ended September 30, 2025, was $18.7 million or $0.29 per share.

Moving over to our balance sheet. As of September 30, our investment portfolio at fair value totaled $2.5 billion and total assets of $2.7 billion. Total net assets was $1.1 billion as of September 30, 2025. NAV per share was $17.40, a decrease of $0.16 per share from $17.56 at the end of second quarter. As of September 30, approximately 60% of our outstanding debt was floating rate debt and 40% was in fixed rate debt. For the 3 months ended September 30, 2025, the weighted average interest rate on our debt outstanding was 4.8% as compared to 4.9% as of the prior quarter end.

The weighted average maturity across our debt investment was approximately 3.4 years at September 30, 2025. At the end of Q3, our debt-to-equity ratio was 1.33x as compared to 1.37x from the end of Q2. Our net leverage ratio, which represents principal debt outstanding less cash and unsettled rate was 1.23x at the end of Q3 as compared to 1.2x at the end of Q2. Liquidity at quarter end was strong, totaling $570 million, including $457 million of undrawn capacity on our revolving credit facility. $86.8 million of cash and cash equivalents, including $26.2 million of restricted cash and $26.5 million of unsettled trade net of receivables and payables of investment.

With that, I turn the call back over to Mike Ewald for closing remarks.

Thanks, Amit. In closing, we are pleased to deliver another quarter of attractive net investment income and healthy credit fundamentals across our middle market borrower portfolio. Bain Capital Credit brings over 25 years of experience investing in middle market and has demonstrated solid credit quality with low losses and nonaccrual rates since our inception. We remain committed to delivering value for our shareholders by providing attractive returns on equity and prudently managing our shareholders' capital.

Kelly, please open the line for questions.

[Operator Instructions] And we'll take our first question from Finian O'Shea with Wells Fargo Securities.

Hey, everyone, good morning. Michael, can you talk about to what extent the push for more spreads, leverage, off-balance sheet leverage, et cetera. To what extent that brings on more risk and the sort of change in, say, expected loss rate on the go forward?

Sure. So I do think running in line with our on-balance sheet leverage ratio between 1% and 1.25% is what we continue to focus on doing. And so we don't have a particularly heavy reliance on off-balance sheet leverage both of our joint ventures, do you leverage the ISLP is levered about 0.8x to 1 and the SLP is levered slightly more than that, but is a smaller position. So I think prudently managing to that on balance sheet leverage ratio target is 1 thing that we do focus on.

And I think that is a key part of the risk return equation that we're doing for PCSS. In terms of loss rates going forward, I do think, as we've noted on the call, there are idiosyncratic losses that come across any portfolio. But the fact that we have a very diversified set of companies, almost 200 companies in BCSF puts us in a position where any individual won't drive a meaningful impact on the overall performance of the BDC. So I think that focus on balance sheet leverage and then pairing that with diversification is a key part of why we're able to drive the risk return that we're -- we have been delivering in BCSF.

That is helpful. I guess one follow-up on the aircraft. It looks like a little bit of a mark there this quarter, correct me if I'm wrong, just seeing what sort of going on if it's airplane values or whatnot? And then aircraft high level, given that's strength differentiator for Bain? Is this something you could expand saying a good asset or a 30% bucket friendly way into more of the portfolio or, say, lever those vehicles more safely, any comment on that.

Sure. So we did have a small write-down on some of our aircraft this quarter. But really, that's just looking to potential exit valuation of some of the aircraft that we do own and not reflecting a meaningful change in our underwriting thesis there. We do think underwriting hard assets is an important part of what we do and a big differentiator for BCSF. We've done that in aviation. We've also done that through legacy core lending, which is asset-based financial company that we've supported and grown. And so I do think we are out there finding interesting opportunities across the asset-backed market, and we'll continue to have that be a substantial part of the portfolio.

I wouldn't expect meaningful growth from here, but I think some stability from that segment adds good diversification and is something we'll continue to find new investments in.

[Operator Instructions] We'll move next to Paul Johnson with KBW.

So NII earnings, just without the look back would obviously be a little bit lower, it was about $0.03 this quarter. I understand, I mean, it looks like fee and dividend income is also a little bit lighter this quarter, just quarter-over-quarter. But if I kind of do the math on just the incentive fee or essentially the full incentive fee coming back in, that's roughly like 60, 70 basis points on ROE plus. You have roughly about half of your debt stack that's going to have to reprice pretty significantly higher next year. So that's probably another, call it, 50 basis points or so of an ROE hurdle that's just kind of coming in from the incentive fee and refinancing.

So I guess the things that you guys kind of identified in terms of what makes you confident about the earnings coverage of the dividend? I mean, is -- do you think that, that should be kind of able, I guess, to exceed those items?

Yes. Yes, we do expect, as both Mike highlighted, I think we have different levers to pull from our perspective. And we have take into account some of the points which you've highlighted about our debt coming for refinancing next year. Of course, we did issue a debt earlier this year, but we totally appreciate that they will be done at a different level, which will put some pressure. But as Mike highlighted earlier, the levels which we have should be able to keep us above our regular dividend in terms of meeting those thresholds.

Along with that, as we highlighted, we do have decent cushion from a spillover income perspective too, which is healthy as well. So among all of that, we feel comfortable.

Got it. Okay. And then I guess like the financing within the joint ventures and the CLO at this point, do you think there's any potential room to extract any improvement there at this point. Most of those financing arrangements are pretty tapped out?

We are continuously having discussions with our banking partners. So to your point, I would say, yes, as spreads on the asset side have continued to tighten, we have been managing our liabilities as well appropriately. So my short answer would be, yes, we are continuously looking at them. As you highlighted, some of them do have lock-in periods from that perspective. But again, as we have continued to grow, we have been having active dialogues. So in some cases, we have already done that. Like in one of our joint venture ISLT, we did refinance the debt at a much tighter spread. So that's again something which we'll continue to do as we continue to look at those portfolios.

Got it. And then last one for me was just the junior capital opportunities that you mentioned. Is that something that you're seeing now? Or is it just something I guess, because you've been able to do that in the past that that's just, I guess, one of the levers that's available if opportunities come through the funnel.

Yes, Paul. Look, the junior capital bid is part of the private credit groups calling card and has been for over 25 years as well. So as you know, we've got a much larger platform, which has about $20 billion or so of AUM of which BCSF is $2.5 billion of that across that entire platform. Again, junior capital is something that we've done for over 25 years, and that's something that we can lean into when appropriate, when there's a need for flexible capital.

We're cautious about just taking more risk for the sake of taking more risk. It's more that in today's market where base rates to coming down have stayed elevated. There does seem to be an interesting air pocket in some company's capital structures where you can charge a little bit more without taking some undue risk. Unfortunately, sometimes that does come with PIK income, but it is something that we can find -- where we find some pretty interesting opportunities and have done so and continue to do so.

[Operator Instructions] And it does appear that there are no further questions at this time. I would now like to hand the call back to Michael Ewald for any additional or closing remarks.

Thanks, Clay, and thanks again, everyone, for your time and attention today. We certainly appreciate your continued support of BCSF and look forward to speaking with you again soon. Thanks.

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful afternoon.