Kayne Anderson Bdc Inc Stock

Hello, everyone. Thank you for joining us, and welcome to the Kayne Anderson BDC, Inc.'s Second Quarter 2026 Earnings Call. As a reminder, this call is being recorded. It is now my pleasure to turn the call over to Andy Wedderburn-Maxwell, Managing Director.

Good morning, and welcome to Kayne Anderson BDC, Inc.'s Second Quarter 2026 Earnings Call. Today, I'm joined by Ken Leonard and Doug Goodwillie, Co-CEOs of KBDC; Frank Karl, President; and Terry Hart, CFO. Following our prepared remarks, we'll be available to take your questions.

Today's call may include forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about the company, our current and prospective portfolio investments, our industry, our beliefs and our opinions and our assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict. Actual results may differ materially from those expressed or forecasted in the forward-looking statements. We ask that you refer to the company's most recent filings with the SEC for important risk factors.

Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time. Our earnings release, 10-Q and supplemental earnings presentation are available on the Financial section of our website at kaynebdc.com.

Now I'd like to turn the call over to Ken Leonard.

Good morning, everyone. I'm pleased to report that Kayne Anderson BDC delivered another quarter of solid performance, demonstrating the continued resilience of our value lending approach in what remains a challenging and bifurcated market environment. I'll provide an overview of KBDC's performance this quarter, Frank Karl will then provide a more detailed overview of our portfolio with some relevant market commentary, and Terry Hart will conclude with KBDC's financial results.

For the second quarter of 2026, we generated net investment income of $0.42 per share. Our Board of Directors has declared a regular quarterly dividend of $0.40 per share for the third quarter. This represents our annualized dividend yield of approximately 10% based on our current NAV per share. The dividend will be payable on October 16 to shareholders of record as of September 30. This payout represents a dividend coverage ratio of 105%. Our annualized return on equity based on net investment income was 10.5%, reflecting the attractive risk-adjusted returns we have continued to generate for our shareholders.

As communicated in our last 2 earnings calls, we remain confident in our ability to sustain this dividend through 2026. Net asset value per share as of June 30 was $16, representing a decline of $0.23 per share or approximately 1.4% from the prior quarter's $16.23. We experienced realized and unrealized losses totaling $0.26 per share during the quarter, driven primarily by fair market value adjustments on certain portfolio positions and our completion of our strategic rotation out of our remaining broadly syndicated loan positions. These losses were partially offset by net investment income exceeding the dividend combined with the impact of accretive share repurchases. Our overall credit quality remains strong. KBDC's nonaccrual rate was 2.7%, up just 20 basis points from last quarter. In terms of specific companies, we added 4 Over and Diverzify's last out tranche to nonaccrual status and took Sundance off nonaccrual as the position was fully realized during the quarter.

Turning to investment activity. We closed $138.7 million in new private credit commitments during the quarter, demonstrating our continued ability to source attractive opportunities that meet our rigorous underwriting standards. The pricing environment for new originations remains favorable with our new floating rate loans averaging 566 basis points over SOFR during the quarter, which was 17 basis points wider than in the first quarter. The current pricing environment reflects sustained demand for private credit amongst middle market borrowers, slowing capital formation in nontraded and private vehicles and a general increase in risk premiums.

Regardless, we remain disciplined and passed on numerous opportunities during the second quarter, where either risk-adjusted returns fell short of our standards, sector exposure raised concern or leverage profiles exceeded our comfort levels. We continue to see quality deal flow from sponsors who value our consistency, our ability to move quickly on transactions that fit our criteria and our track record as constructive partners. Our fundings for the quarter totaled $146.4 million, which included both new investments and draws on existing unfunded commitments from our portfolio companies. On the repayment side, we saw $67.9 million of activity, including $38.1 million of private credit repayments and $29.8 million from the sale of our remaining broadly syndicated loan positions, which we have discussed on our prior calls.

Turning to our balance sheet strength and liquidity position. We ended the quarter with a debt-to-equity ratio of 1.17x, comfortably within our target range of 1 to 1.25. This positioning gives us flexibility to be opportunistic when we see compelling investment opportunities while maintaining conservative leverage. Our total liquidity position as of June 30 was $476.7 million, consisting of $39.7 million in cash and cash equivalents and $437 million in undrawn committed debt capacity under our credit lines.

M&A activity in our core middle market segment shows encouraging signs. After muted activity in late 2025 and in the first half of 2026, deal flow has picked up modestly in recent months. Private equity sponsors are more active and financing markets, while selective, remain open for quality business. We continue to see opportunities in our target sectors and win our fair share of pursued deals based on our reputation and execution capabilities. For the second half of 2026, we expect to maintain this disciplined approach, deploying capital that meets our return and credit standards while preserving defensive positioning and sector diversification.

In closing, we are encouraged that investors are increasingly differentiating BDCs based on portfolio composition, sector exposure, credit performance and track record rather than treating the sector as homogenous. We expect this trend to continue as performance divergence among managers becomes more pronounced. Our conviction in our value lending strategy has never been stronger, and we remain fully committed to delivering sustainable value for our shareholders.

I will now pass the call over to Frank Karl to discuss our portfolio.

Thanks, Ken. As of June 30, our portfolio includes 104 companies with a fair value of $2.3 billion plus $293 million of unfunded commitments. Since quarter end, we have closed or are finalizing $69 million of new commitments as we've seen volumes remain relatively robust over the summer months. We do expect some realizations in third quarter, including some that slipped from second quarter to third quarter. As such, we are not expecting a significant change in leverage in the third quarter.

Investments in KBDC's portfolio, excluding those on our watch list and opportunistic investments, have a weighted average leverage of 4.5x, interest coverage of 2.4x and loan to enterprise value of approximately 43%. Weighted average EBITDA of our private middle market portfolio companies is $53.7 million, reflecting our focus on established middle market businesses with meaningful scale. Company count declined by 1, reflecting our exit from the broadly syndicated loan portfolio and some realizations in the quarter. The portfolio remains highly diversified. average position size is approximately 1% of fair value, and our top 10 investments are only approximately 20% of the portfolio.

Our top 5 industry sectors, health care, commercial services and supplies, distributors, food products and containers and packaging account for approximately 55% of the portfolio and have remained consistent quarter-over-quarter as we focus on avoiding sector concentration risks. Approximately 95% of our debt investments are floating rate, matched by a predominantly floating rate liability stack. Our only material fixed rate investment is the SG credit loan at an 11% coupon. The SG Credit platform continues to perform very well in the lower middle market asset-backed financing space.

Credit performance remains strong with 2.7% of debt investments at fair value on nonaccrual versus 2.5% last quarter. As previewed on our last call, Sundance came off nonaccrual in the second quarter. However, Regiment sale process is still ongoing, while the company's performance continues to improve. We look forward to providing an update on Regiment next quarter. As Ken mentioned, we moved 4 Over and Diverzify's last out tranche to nonaccrual this quarter, which did move our nonaccruals up 20 basis points.

Total PIK income for the quarter dropped to 4.5%, down 300 basis points from last quarter, given last quarter, we had elevated PIK income due to a onetime catch-up on Arborworks. Terry will provide more specifics. Weighted average yield was 10.2% on fair value, excluding nonaccruals, up slightly from 10.1% last quarter. As we continue to invest and manage our portfolio, we remain focused on the geopolitical and macroeconomic risks that require our constant attention. This reinforces our focus on borrowers with strong interest coverage and conservative leverage, providing meaningful cushion against continued rate pressure. We remain willing to be patient and wait for opportunities that meet our standards rather than deploy capital indiscriminately.

Broader market sentiment has kept BDC valuations depressed for several quarters. Headlines around redemption pressures at large nontraded BDCs creates a disconnect with higher-quality public BDCs, delivering strong operational performance, consistent dividend coverage, stable credit metrics and disciplined capital deployment. We believe that the higher quality managers will be able to close the price to NAV discounts as the market will increasingly reward BDCs like KBDC that demonstrate consistent returns, discipline and defensive market positioning.

With that, I'll turn it over to Terry.

Thanks, Frank. I'll begin by reviewing our financial results. During the second quarter, we earned net income per share of $0.16 and net investment income per share of $0.42 compared to $0.43 in the prior quarter and $0.02 above our dividend. Total investment income for the second quarter was $55.7 million as compared to $57.3 million in the prior quarter. The decrease in investment income was primarily a result of $2 million less PIK interest income related to our investment in Arborworks, which moved to accrual status in the first quarter and recognized income that had been deferred since the fourth quarter of 2023.

Interest income was also lower due to American Soccer being on nonaccrual status during the second quarter, but was offset by income from new investments and the rotation out of the remaining broadly syndicated loans. Accelerated amortization of OID related to realization activity was approximately $0.3 million during the quarter and PIK interest represented 4.5% of total investment income for the quarter. Additionally, the 10 basis point increase in our portfolio yield was primarily a result of rotating out of our remaining DSL positions into higher-yielding private credit investments.

Total expenses for the second quarter were $28.2 million compared to $28.4 million in the prior quarter. The decrease was primarily the result of $1.2 million lower incentive fees partially offset by a $0.7 million increase in interest expense on higher average credit facility borrowings during the second quarter. During the quarter, our incentive management fees were reduced by the 12-quarter incentive fee cap. During the second quarter, we had realized losses of $12.2 million related to the liquidation of our investment in Sundance that resulted in a realized loss of $9.4 million, the restructure of our debt investment in Diverzify that resulted in a $0.9 million realized loss, and we recognized $1.9 million in realized losses as we rotated out of our remaining broadly syndicated loans.

During the quarter, we had net unrealized losses on the portfolio of $4.6 million compared to unrealized losses of $9 million in the prior quarter. The unrealized losses were largely the result of negative fair value changes to our investments in American Soccer, 4 Over and Regiment Security, partially offset by the reversal of unrealized losses related to Sundance, Diverzify and the remaining broadly syndicated loans that were realized this quarter.

As of June 30, total assets were $2.3 billion and net assets were $1.1 billion. As of that date, our net asset value was $16 per share. The decrease of $0.23 from $16.23 per share as of March 31 was comprised of $0.26 per share related to net realized and unrealized losses, partially offset by $0.02 of net investment income in excess of our dividend and $0.01 related to accretive share repurchases during the second quarter. At the end of the second quarter, we had debt outstanding of $1.238 billion, and our debt-to-equity ratio was 1.17x, which is an increase from 1.05x at the end of the first quarter. The increase in leverage during the second quarter was largely a result of expected realizations being delayed rather than a deliberate move higher. We plan to operate around the midpoint of our debt-to-equity target range with some quarters being higher or lower depending on realization activity.

Now turning to our distributions. On August 5, our Board of Directors declared a regular dividend for the third quarter of $0.40 per share to shareholders of record on September 30. As of June 30, our undistributed net investment income was approximately $0.26 per share. And finally, for the remainder of 2026, we plan to stay focused on our value lending strategy, which we believe will continue to differentiate us from our competitors.

With that, operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Kenneth Lee with RBC Capital Markets.

Wondering about prepayment activity, and I realize it's difficult to predict, but any kind of outlook around where or what level of prepayment activity could trend over the near term there?

Thanks, Ken. This is Frank. I think you said it right. It is very hard to predict. We had a couple of names push from expected realizations in second quarter to third quarter. And I think we have for second half of the year, something around 5% of the portfolio scheduled as maturities. So I think broadly, something in line with that would be a reasonable expectation, absent some material pickup in exit activity inside the portfolio.

Got you. Very helpful there. And then one follow-up, if I may, just on the investment portfolio itself. Could you talk about any sort of watch list that you may have and perhaps where that's trending over the last few quarters?

Sure. And again, this is Frank. Watch list right now is at, call it, 5.5% of fair market value of the debt portfolio. That's been relatively consistent over a pretty extended period of time. I think we generally think something in that mid-single-digit range. Again, this is inclusive of nonaccrual investments, just to make that clear. But something in that range is, I'd say, our typical over, call it, the last decade plus is speaking at the platform level more broadly. Obviously, there are periods where you're a little bit lower than that, a little bit higher than that.

But I think we look at watch list broadly -- I'm sorry, watch list specifically and credit more broadly and think that we're sort of in a period where I think it would be disingenuous to say that there's no credit noise out there, right? I think every call we've listened to this quarter, and you can see it in our reporting, right? There is a little bit of signs of increased stress, more nonaccruals, more restructurings, picking comes up a little bit, et cetera, now it's down across the board. But I think we're seeing something of sort of a shallow slow -- slowdown is how I would characterize it. And I think you're seeing that in a relatively stable watch list number.

Your next question comes from the line of Paul Johnson with KBW.

So it sounds like the watch list is relatively stable quarter-over-quarter. But I mean, in terms of like the nonaccrual marks this quarter, I think most of them were pretty much -- pretty much most of them are marked lower quarter-over-quarter, putting you on the lower 50% or so, we'll call it, of fair value. I mean, what does that, I guess, suggest about your expectation of recoveries on those assets? And maybe how does that line up with the Kayne Anderson platform historically? And are you also just kind of leaving, I guess, or building in some level of conservatism there potentially for better-than-expected, I guess, recoveries?

Yes. Thanks, Paul. And again, this is Frank. Yes. I think we certainly saw some downward moves on the watch list broadly. I would call out that Regiment, the last out piece there, yes, there was a markdown in the second quarter. We're expecting an exit in the third quarter that has a little bit of upside to that current mark. So not all negative, broadly speaking. But as far as where these things are marked, I mean, I think we try to be conservative in our process, and it's the same process for the BDC portfolio as it is for all investments across our entire loan book, and that's almost 100% overlap between the private funds and separate accounts, et cetera, and BDC. So I don't think we want to get super specific about any of these situations other than to say we historically have thought of ourselves and try to act as conservatively as possible in situations that are sort of stressed and with some unknowns by their very nature.

Got it. Very helpful. My last question would just be on the BSL rotation this quarter. When you're rotating, I guess, maybe just speaking about this quarter, but the rotation there, what is kind of like the spread -- like roughly what's the spread pickup there in terms of what's going into the 566 direct lending origination spread this quarter? And I guess is the reason for the timing on that just more so not necessarily to draw down additional leverage on the portfolio and kind of access or monetize these assets? Or is it just more of an opportunistic sale that you saw during the quarter?

Yes. So we're out of all the broadly syndicated loans at this point. Those were ballpark SOFR plus 300 directionally. So you're picking up 250 basis points, plus or minus on a rotation out of those names. I don't think we were not looking to time the market specifically on an exit. I think we had opportunities to invest that capital in the core of our business, these middle market loans. And the BSL book was remaining names. And just to be clear, right, I think we were down to 3 or 4 of those names last quarter. Timing was right to move on as we've been communicating to you all and investors since our IPO that, that was a temporary position for us.

Your next question comes from the line of Finian O'Shea with Wells Fargo Securities.

So part of the storyline we're getting this quarter is competition in the sort of core lower middle market is continuing to pick up. A lot of the players there are still raising private funds and such. And then maybe more are looking at your sort of focus in the value sector. So seeing if you could give us some feel on what the competition is like, how much sort of wallet is showing up for the deals that you prefer?

Thanks, Fin. Look, I think market has been constructive. There's been a, I would say, decent amount of flow in the markets where we participate. I know we've seen a handful of folks in the upper market reporting slower quarters, and that doesn't surprise me when the last 5 years has been 25% or 30% software originations, there's much less of that right now. That's sort of like broad strokes on, hey, are there a decent amount of deals out there? I'd say, yes, for our segment specifically on the supply side -- sorry, on the demand side.

On competition and what we're seeing in different segments of the market, I think it's absolutely the case that what we would characterize as lower middle market, so call it, $15 million of EBITDA, maybe $20 million of EBITDA and below. That space is very competitive. It's usually one lender deals only takes sort of one person to show up, write the check, and those will clear sometimes at very tight spreads. I think we've seen, if anything, something of the opposite at the larger end of where we focus as you've seen a slowdown in the nontraded and just a little bit less net new capital being formed. So to the extent that people are focusing more on the segments where -- in industries where we've historically invested, I mean, we're not seeing that from the very large guys directly or if they are, it's been offset by a little bit less capital formed more broadly. I know that's a sort of generic response, but that's what we're seeing in real time. I think you see it in spreads, right? We look at some reporting that has spreads in, call it, upper market gapping out a little bit wider than lower market.

Fin, this is Doug. Thanks, Frank. You hit on most of the relevant points there. On the industry side, then I don't know that it's so much people coming into the value lending, call it, stable and staple industries in a purposeful way. I just think that higher growth businesses, software businesses and technology businesses are generally obviously not transacting. And so I think kind of the core segments of the market, the companies that are being sold or purchased at 7 to 10x are the ones that are going to market these days. So I think that's where you're seeing more people transact.

And I think just quickly to hit on Frank's point, I think when some of the nontraded and capital outflows in the upper mid-market sector are creating a -- it's not a severe dislocation by any means right now, but enough of a dislocation that putting together $400 million, $500 million clubs, if you will, there's a decent risk reward there right now in that $50 million to $100 million range of EBITDA where in certain markets that call them more liquid, more efficient, you'd see cov-lite or very loose covenants and pricing in the 4s. We're seeing reasonable covenants, reasonable documentation, small lender clubs with decent pricing in the 500s as it relates to, call it, the $10 million to $15 million EBITDA lower mid-market space.

Very helpful. Another sort of follow-up. In health care, we've seen more of that. There's a dental name this quarter. Is that whole -- that area has been a bit of a headwind again for the space. Is that something that's like become a deep and cheap sort of value sector as you describe it? Or is it perhaps more opportunistic as others are -- others might be pulling out from another sort of credit wave?

Yes. Good question, and we've certainly read and seen some of the credit stress there. I think historically, going back, I'd say, 4 or 5 years, you saw in those roll-ups where leverage would be 5 to 6x, but with aggressive add-backs as locations were being opened in the practice management space, whether it was dental or ophthalmology or dermatology, we largely stayed away from the space during that time.

Now I think over the last few years as people saw pullback after some of the headwinds a few years ago with labor costs and not being able to pass through slower growth -- or sorry, pass-through costs combined with slower growth, leverage multiples then really normalized in the 4 to 5x range. I think I'm not going to put Frank on the spot, but I would say our average leverage for our practice management businesses is probably still mid-4s. So I think when you structure those businesses right, when you work with the right sponsors and people aren't looking for aggressive add-backs on really aggressive location build-out, we still think that space is viable as long as you're not too aggressive on the structuring side.

And Doug, this is Ken. Just to add in, none of those medical practice management deals are on the watch list right now or trending that way.

Your next question comes from the line of Melissa Wedel with UBS.

I had one more follow-up on the rotation of the BSL. It's a little bit specific and in the weeds, so apologies. I'm wondering if there was anything in particular that we should be thinking about in terms of timing in rotating out of the BSL allocation. Was that front-end loaded or kind of sporadic throughout the quarter and the timing of redeployment back into higher-yielding portfolio assets. Was that -- was there any drag do you think during the quarter from that rotation?

Terry, do you have a perspective there?

Melissa, it's a good question, and I can follow up with you. I can't remember off the top of my head the timing of it. I do think that we had a fairly large chunk of the BSLs rotate out early, but we also had a decent amount of private credit deals that closed early in the quarter, too. So let me get a little bit more in the weeds with you on that one, but that's how I recollect at least part of it.

But Terry, in the absolute...

It's not a big move.

Yes. You're talking about -- I mean, the total was inside of $30 million principal during the quarter. So a fairly small amount. But like Frank said, the spread differential is definitely meaningful.

Yes. Okay. And then you talked earlier about not expecting much change in portfolio leverage and sort of aiming for that middle of the range with some plus or minus in any given quarter. When you think about it at sort of current levels and towards that middle of the range, do you think that gives you enough room for both deployment into new opportunities even if you don't have a lot of recycling of capital in the portfolio and still allow you to repurchase shares at these levels?

Yes. This is Frank, and I'll start and Terry jump in if you have anything else to add. I mean it's definitely a bit of a hard question to answer with specificity. I think we like to manage our leverage profile on the more conservative side for the market as a whole, such that we have some breathing room for the share repurchase program, capital to invest in new deals. But it's kind of a week by week and month by month on the new deal side as to what's coming back, what can we deploy, we're looking at it closely every quarter. So I think we're trying to sort of hit that middle ground of being fully deployed or as close to it as we can be while keeping some capacity for really attractive uses of that capital, whether it's new deals or repurchases.

There are no further questions at this time. I will now turn the call back to Ken Leonard for closing remarks.

We appreciate the continued support and engagement from all of our shareholders and analysts. We feel very good about where the business is positioned today. We have a clear strategy, a strong team and significant opportunities ahead of us. We know that ultimately, we'll be judged on execution, and that remains our focus each and every day. Thank you all for joining us today, and we look forward to updating you again next quarter.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, and welcome to Kayne Anderson BDC, Inc.'s Fourth Quarter 2025 Earnings Call (sic) [ First Quarter 2026 Earnings Call ]. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to turn the conference over to Andy Wedderburn-Maxwell, Senior Vice President.

Good morning, and welcome to Kayne Anderson BDC, Inc.'s First Quarter 2026 Earnings Call. Today, I'm joined by Doug Goodwillie and Ken Leonard, co-CEOs of KBDC; Frank Karl, President; and Terry Hart, CFO. Following our prepared remarks, we will be available to take your questions.

Today's call may include forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about the company, our current and prospective portfolio investments, our industry, our beliefs and opinions and our assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict. Actual results may differ materially from those expressed or forecasted in the forward-looking statements. We ask that you refer to the company's most recent filings with the SEC for important risk factors.

Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time. Our earnings release, 10-Q and supplemental earnings presentation are available on the Financial section of our website at kaynebdc.com.

Now I'd like to turn the call over to Doug Goodwillie.

Good morning, everyone. I'm pleased to report another quarter of solid performance that demonstrates the resilience and consistency of our value lending approach despite the headwinds that the sector has faced this year. I will provide an overview of our quarter and share our thoughts around how KBDC's differentiated portfolio has managed to perform in a more challenging environment. Frank Karl will then provide a more detailed overview of our portfolio and performance before Terry Hart concludes with KBDC's financial results.

For the first quarter of 2026, we generated net investment income of $0.43 per share, which represents strong coverage of our $0.40 quarterly dividend at 108%. While this was a slight decrease from the $0.44 per share we achieved in the fourth quarter, it reflects our disciplined approach to capital deployment in what continues to be an uncertain market environment. Our annualized return on equity for the quarter was a robust 10.6%, underscoring the effectiveness of our investment strategy.

Our net asset value per share ended the quarter at $16.23, down 55 basis points from $16.32 in the last quarter. The small decline was due in part to some markdowns in the portfolio, which was offset in part by origination activity, some positive portfolio marks and by accretive share repurchase activity. I'm pleased to announce that our Board of Directors has declared a regular quarterly dividend of $0.40 per share for the second quarter of 2026. This dividend will be payable on July 16 to stockholders of record as of June 30.

Looking ahead, we remain confident in our ability to sustain our dividend throughout 2026, as we stated on our last earnings call. This confidence is grounded in several key factors: our portfolio's defensive positioning with 93% in first lien investments, our value lending philosophy that focuses on companies in stable and staple industries, which allows for a conservative average borrower leverage profile of just over 4x. The weighted average yield on our portfolio of 10.1% provides a solid foundation for consistent income generation, while our minimal exposure to volatile sectors like software and technology at just 2% positions us well relative to many of our peers.

Our portfolio continues to demonstrate strong credit quality and resilience, particularly relative to the broader private credit market. As of March 31, 2026, nonaccrual investments represented 2.5% of our debt portfolio at fair value, up from 1.4% in the prior quarter. In terms of specific companies, we added Score and Regiment's last out tranches to the nonaccrual status during the quarter. We also moved Arborworks off nonaccrual, and we see a clear path to further improvement in the near term.

While many BDCs have significant exposure to software and technology companies, often 15% to 25% of their portfolios, our consistent adherence to underwriting standards that stress disciplined industry and loan level diversification has proven prescient, as we're witnessing the private credit market's first prolonged stress test since the early stages of the COVID era. We remain focused on traditional stable industry sectors, including industrial services, distribution, food products and business services, companies with durable cash flows, substantial tangible enterprise value and disciplined leverage profiles.

Turning to our investment activity for the quarter. We maintained our disciplined approach to capital deployment while continuing to find attractive opportunities that meet our stringent risk-adjusted return criteria. During the quarter, we made new private credit commitments totaling $93 million, demonstrating our ability to source quality deals even in a more selective market environment. The pricing environment for new originations remained favorable with our new floating rate loans averaging 549 basis points over SOFR during the first quarter, which was 20 basis points wider than in the fourth quarter.

Our total fundings for the quarter were $99.1 million, which included both new investments and draws on existing unfunded commitments from our portfolio companies. We received $74.6 million in private credit repayments and $17.4 million in BSL sales during the quarter, resulting in net funded investment activity of $7.1 million.

Our balance sheet remains exceptionally strong, and we continue to maintain a conservative risk profile. As of March 31, our debt-to-equity ratio stood at 1.05x, positioning us comfortably within our target leverage range of 1x to 1.25x. Our total liquidity position of $569.7 million provides substantial capacity for accretive capital deployment. This includes $32.7 million in cash and $537 million in undrawn debt capacity under our credit facilities.

The private credit market is going through a period of bifurcation in terms of performance across different investment strategies and market segments. While presenting challenges for some participants, it's creating opportunities for disciplined lenders. Our selective approach means we're comfortable maintaining higher liquidity levels to be more tactically opportunistic as spreads widen. M&A activity has remained lower than forecasted at the start of the year, as geopolitical tensions have kept the cap on activity. However, we continue to see steady transaction flow in our core middle market segment with a noticeable uptick in activity over the past 4 to 6 weeks. The quality of deal flow remains solid and spreads have started to widen in Q1.

I would be remiss if I didn't mention one of the bigger clouds hanging over our sector right now. The rapid advancement of AI and automation technologies has created significant uncertainty around business model durability and competitive positioning for many software companies. We're seeing several managers report pressure on net investment income per share, tighter dividend coverage and meaningfully declining NAV per share as they grapple with softening credit performance and increased markdowns on those positions. While we believe the general negative sentiment towards software loans is somewhat overblown, our minimal 2% exposure to the sector has insulated us from this pressure.

Public BDC valuations have lagged business fundamentals with many quality managers trading at discounts to net asset value despite maintaining strong operational performance. As the market continues to differentiate between managers based on actual performance rather than just asset growth, we believe KBDC's consistent approach will be increasingly valued by both investors and the private equity sponsors who drive our deal flow.

I will now pass the call over to Frank Karl to discuss our portfolio.

Thanks, Doug. As of March 31, our portfolio includes 105 companies with a fair value of $2.2 billion plus $289 million of unfunded commitments. Since quarter end, we have closed or are finalizing $150 million of new commitments as we've seen something of an uptick in activity in 2Q. Investments in KBDC's portfolio, excluding those on our watch list and opportunistic investments, have a weighted average leverage of 4.4x, interest coverage ratio of 2.4x and loan to enterprise value of approximately 43%. The weighted average EBITDA of our private middle market portfolio companies is $52.6 million, reflecting our focus on established middle market businesses with meaningful scale. Company count declined by 2, reflecting broadly syndicated loan rotation and realizations. The portfolio remains highly diversified, average position is approximately 1% of fair value and top 10 investments are only 20% of the portfolio.

Our top 5 industry sectors, commercial services and supplies, health care distributors, food products and containers and packaging account for just over 50% of the portfolio and have remained consistent quarter-over-quarter as we focus on avoiding sector concentration risks. Approximately 95% of our debt investments are floating rate, matched by predominantly floating rate liabilities. Our only material fixed rate investment is the SG Credit loan at an 11% coupon, where we increased our commitment in Q1 given strong platform growth.

Credit performance remains strong with 2.5% of debt investments at fair value on nonaccrual versus 1.4% last quarter. We do expect both Sundance and Regiment to come off nonaccrual over the next 1 to 2 quarters as Sundance is completing the final stages of its realization process, and Regiment is currently going through a sale. We look forward to providing an update on those credits on our next earnings call.

As Doug mentioned, we also moved Arborworks off of nonaccrual this quarter, which did have the effect of increasing our total PIK income rate for the quarter to 7.5%, up 10 basis points from last quarter, given that we recognized some accrued interest associated with the name in income. Terry will provide more specifics. Weighted average yield was 10.1% on fair value, excluding nonaccruals, down slightly from 10.3% last quarter. We've achieved this with materially lower leverage than many peers, while continuing our rotation out of the BSLs into higher spread private credit. Remaining BSL exposure was $29.8 million at quarter end, and the sell-down is continuing in Q2.

Activity has picked up in 2Q, but we have stayed selective, passing on deals where leverage asks pushed beyond our comfort or pricing was too aggressive. Against the backdrop of tariffs, AI risk and geopolitical tensions, we're looking to remain disciplined as always. We added a further $30 million delayed draw term loan to SG Credit, which now represents approximately 5% of the portfolio. That team has executed well. The position adds diversification and the 11% coupon offers an attractive return. Overall, outlook for investment activity looks healthy and our long-standing sponsor relationships continue to generate preferred lender status on attractive opportunities.

With that, I'll turn it over to Terry.

Thank you, Frank. Let's first review our financial results. During the first quarter, we earned net income per share of $0.26 and net investment income per share of $0.43 compared to $0.44 in the prior quarter and $0.03 above our dividend. Total investment income for the first quarter was $57.3 million as compared to $61.9 million in the prior quarter. The decrease to investment income was primarily a result of lower average reference rates, some spread compression and $2.1 million less accelerated amortization of OID and prepayment fees related to realization activity, partially offset by $2.2 million of PIK interest income related to our investment in Arborworks, which moved to accrual status during the first quarter.

Accelerated amortization of OID related to realization activity was approximately $0.5 million during the quarter, and PIK interest represented 7.5% of total interest income for the quarter, but it's worth noting that $2.2 million, or 3.9%, was related to PIK interest from Arborworks that had not been accrued since the fourth quarter of 2023. Additionally, the 20 basis point decrease to our portfolio yield was split evenly between lower reference rates and lower spreads.

Total expenses for the first quarter were $28.4 million compared to $31.8 million for the prior quarter. The decrease was primarily the result of lower reference rates on borrowings, lower average borrowings during the first quarter, lower incentive fees and $0.5 million of excise taxes incurred in the fourth quarter. During the quarter, our incentive management fees were reduced by the 12-quarter look-back incentive fee cap.

During the first quarter, we had $2.3 million of realized losses, mainly related to the restructure of our debt investment in Regiment Security Partners that resulted in a $2 million realized loss, and we recognized a $0.3 million realized loss due to the rotation out of one of our broadly syndicated loans.

During the quarter, we had net unrealized losses on the portfolio of $9 million compared to unrealized losses of $7.2 million in the prior quarter. The unrealized losses were largely the result of negative fair value changes related to our investments in Score, Siegel Egg, Tempo and 4 Over. Additionally, we had deferred income tax expense of $0.4 million related to unrealized gains on equity investments held in our taxable subsidiary.

As of March 31, total assets were $2.3 billion, and net assets were $1.1 billion. As of that date, our net asset value was $16.23 per share. The decrease of $0.09 from $16.32 per share as of December 31 was comprised of $0.17 per share related to net realized and unrealized losses, partially offset by $0.03 of net investment income in excess of our dividend and $0.05 related to accretive share repurchases during the first quarter.

At the end of the first quarter, we had debt outstanding of $1.138 billion and our debt-to-equity ratio was 1.05x, which is a small increase from 1.02x at the end of the fourth quarter. On February 20, we closed the term extension of our largest credit facility led by Wells Fargo, and reduced the interest rate on this facility by 20 basis points. And as mentioned earlier, during the quarter, we had share repurchases of $21.4 million at an average price to NAV per share of 86%, pursuant to our $100 million share repurchase program. On May 5, the program was extended for 1 year and the $100 million program amount was renewed starting May 25.

Now turning to our distribution. On May 5, our Board of Directors declared a regular dividend for the second quarter of $0.40 per share to shareholders of record on June 30. As of March 31, our undistributed net investment income was approximately $0.25 per share. As we continue to execute during the remainder of 2026, we plan to complete the rotation out of our remaining lower-yielding BSL positions, gradually optimize our leverage within our target debt-to-equity range of 1x to 1.25x and stay focused on our value lending strategy.

With that, operator, please open the line for questions.

[Operator Instructions] Our first question comes from Cory Johnson from UBS.

So you mentioned, I guess, passing on some deals because perhaps the terms weren't where you wanted them to be at. But I was just wondering because I've heard from some of the BDCs about how some of the terms on their things that they're looking at have actually strengthened so far. So I was just wondering, are you feeling any pressure possibly from upmarket? And I guess, similarly, are you seeing any opportunities given where you're at leverage-wise? And I guess, coming with a little bit of a cleaner balance sheet, any opportunities for you to either go upstream or just anything else that you're seeing in the market that you can take advantage of?

Sure. Thanks, Cory. This is Doug Goodwillie. And I would say just in general, as a backdrop, I think we always try to stay as disciplined as we can in any market in terms of leverage discipline as well as pricing discipline. And I think this quarter was not all that different for us in terms of that. I'd say the market in terms of M&A volume continues to be on a midrange, not fantastic, given what we've talked about geopolitical and other pressures on the market. But the opportunities that we have seen have still been good quality. And I think if you look at Q2, we've seen a slight uptick. I think we're tracking to almost $200 million of commitments for Q2 for the BDC. So we are using our balance sheet and liquidity to invest in what we think are attractive opportunities.

In terms of the piece of the question regarding the upper mid-market potentially kind of coming down into the core mid-market, not really the case at all. I think at this point, what we're seeing is the start of a dislocation where some of the upper mid-market players, I think, given some of the redemptions on the private BDC side, haven't been putting as much capital to work. So the $400 million and $500 million upper mid-market deals are actually seeing some better pricing for the first time in a while. And we've seen some of those opportunities where you can play in a $75 million to $100 million EBITDA business, get a covenant and get some decent pricing. So I think that's been more of an opportunity at this point. We haven't seen enough stress around sell-offs around software portfolios, and do believe that we're unlikely to see that over the long term. But hopefully, that answers your question.

[Operator Instructions] Our next question comes from Kenneth Lee from RBC Capital Markets.

I realize it's a little difficult to predict, but could you offer any kind of outlook around prepayments over the near term? Could you see it trending either lower or higher than a more normalized kind of environment there?

I'll start, and maybe, Frank, you can weigh in as well. I think it's been a relatively slow prepayment year and probably 2 to 3 years, I think just given the M&A market. So you've seen the average duration, which Ken and I have been doing this together 25 years. It's almost always, over the long term, around 3 years. And I think in a brisk M&A environment, it's going to 2.5, and I think we're seeing it closer to 4 for this post-COVID period. So this year, we're seeing -- and I'll toss it over to Frank, relatively kind of normal first half and projecting a pickup in Q4, but I'd say that's a bit dependent on the overall market.

Yes. I think we've got -- to Doug's point, we usually expect something of a back half more transaction volume, you'd expect a little bit of a pickup. That said, if you are in an environment where spreads are increasing 25, 50 basis points, maybe higher than that, that generally leads to something of a slightly more muted refinancing and transaction period of time. So I would argue we're probably expecting '26 to look maybe a little bit of a step up from '25.

Got you. Very helpful there. And just one more follow-up, if I may. Just in terms of the ongoing portfolio ramp, once again, just given the outlook, the macro conditions and obviously, what you're seeing, do you think you would lean for portfolio leverage to be closer to the lower end or the higher end of your target range there over the near term?

Thank you. I think we're comfortable with where we are between 1x to 1.1x. I think our view is -- we're kind of yet to see where this dislocation goes and whether it will be prolonged. And we'd like to certainly have a decent amount of liquidity going into the front end of a potential dislocation and certainly don't want to be at the upper end at 1.2x, 1.25x, and kind of dealing with potential borrowing base and things like that, that can occur if you really go into a prolonged dislocation. So I think we're pretty comfortable with where we are, and we're still seeing good opportunities, and we'll still deploy capital, but would not expect to get aggressive towards the 1.2x, 1.25x side on the leverage side.

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

It was nice to see the 20 basis points of improvement in spreads on a quarter-over-quarter basis. But like how are spreads trending today on deals that you're looking at?

Thanks, Derek. I'll start, and Ken and Frank, please weigh in. I think we've seen a slight uptick in the core mid-market, but something along the lines of potentially 20 basis points in our opportunity set, and I think that's translating into the core mid-market. I think you'd hear that in the upper mid-market, there has been slightly more than that, as I think you saw more of the start of the dislocation occurring there. We expect with capital coming out of the market, fundraising to be harder with a lot of the, whether it's right or wrong, negative press around private credit. So I think those factors bode well for spreads increasing, both in the upper mid-market as well as the core mid-market over the near term.

Yes. The other thing I would add is we've talked to investment bankers, and the pipeline seems to be increasing. That's always the front end of our investment process. And so as more volume comes in the market, we think there will be opportunity to take spreads up. And so we remain hopeful that, that's going to continue as that's generally a pretty good leading indicator.

Okay. And then in the prepared remarks, you guys had mentioned that the SG Credit add-on was on the delayed draw side due to just growth in that investment in general. So how should we think about maybe increasing your exposure on the equity side, just given that you're seeing strong growth overall in that vehicle?

Yes, I'll start there. I mean they're continuing to grow the book, obviously, one good way to do that and it's, over the long term, will support the valuation of our equity investment is via the incremental debt investment. We've talked about in the past, we do have an option to purchase the more equity in that vehicle. I think that, that's something that we will continually be discussing internally as that platform grows, we're not going to be on the phone next quarter saying, "Hey, we've made a substantially increased equity commitment to SG Credit."

Okay. And then the last one for me is, in your prepared remarks, you guys had mentioned that the -- you were continuing to monetize the BSL portfolio. Is that expected to be done in the first quarter? Or are there maybe a couple of investments in that portfolio that may have experienced some dislocation over the past 3 to 5 months and might take a little bit longer to monetize?

I'll toss it to Frank, who's a little closer on the exact timing, but we're down to 4 credits, 3 or -- I think the average leverage across those is mid-2s. There's one that's slightly marked down, which Frank can hit on. But we do expect to monetize that largely during this quarter, but some may slip into Q3.

Not much to add, right? There's 4 names, about $30 million at cost, about $27 million at FMV. I think it will just depend on, to Doug's earlier point, around how we want to manage leverage, what the opportunities look like, et cetera. But 3 of those are trading right around our cost basis.

And then you mentioned Tempo, that's Alight Solutions. That business has gotten knocked by some AI-related noise, although we do think it's more of a -- we don't think that's a fair characterization for that business, very small position that we are looking to unwind sooner rather than later.

We have no further questions. I'd like to turn the call back over to Doug Goodwillie for closing remarks.

Well, with that, I would like to thank everyone for joining us for this KBDC earnings presentation and for your continued interest in KBDC and our platform. We look forward to speaking again in August at our next earnings call.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Hello, and welcome to Kayne Anderson BDC, Inc.'s Fourth Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the conference over to Andy Wedderburn-Maxwell, Senior Vice President.

Good morning, and welcome to Kayne Anderson BDC, Inc.'s Fourth Quarter 2025 Earnings Call. Today, I'm joined by Ken Leonard and Doug Goodwillie, co-CEOs of KVDC, Frank Karl, President; and Terry Hart, CFO. Following our prepared remarks, we will be available to take your questions. Today's call may include forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about the company, our current and prospective portfolio investments our industry, our beliefs and opinions and our assumptions.

These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict. Actual results may differ materially from those expressed or forecasted in the forward-looking statements. We ask that you refer to the company's most recent filings with the SEC for important risk factors. Any forward-looking statements made today do not guarantee future performance and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time.

Our earnings release 10-K and supplemental earnings presentation are available on the financial section of our website at canebdc.com. Now I would like to turn the call over to Ken Leonard.

Good morning, and thank you for joining us today. I'll begin by providing an overview of our fourth quarter results and then share some thoughts on the current direct lending market conditions. I plan to highlight how KBDC's value lending strategy has created a unique portfolio well positioned to weather any current headwinds associated with the market dislocation related to software and/or tariffs. Frank Karl will then provide a more detailed overview of our portfolio and performance before Terry Hart concludes with KBDC's financial results. I'm pleased to report another solid quarter for KVDC as we closed out 2025 on a strong note.

For the fourth quarter, we generated net investment income of $0.44 per share. representing an increase from $0.43 per share in the third quarter and a premium to the declared dividend. This performance translates to an annualized return on equity of 10.8% and demonstrating our continued ability to generate attractive risk-adjusted returns for shareholders in what has otherwise been a noisy period for the BDC sector. Our net asset value per share was $16.32 at the quarter end, down slightly from $16.34 in the prior quarter, reflecting the impact of some marks of the portfolio, which was partially offset by new investment originations and our strategic share repurchase activity during the period.

Our dividend coverage ratio was 110%, supporting our regular quarterly distribution and our Board of Directors has declared a regular dividend of $0.40 per share for the first quarter, payable on April 16, 2026, to shareholders of record as of March 31, 2026. I would like to add that based on our current view of the market and our portfolio, we expect to be able to pay the $0.40 dividend for the entirety of 2026. Our portfolio continues to perform well from a credit perspective. with only 1.4% of the investments on nonaccrual status.

The portfolio's weighted average yield of approximately 10.3% and on our income-producing investments positions us well to continue generating attractive returns in the current interest rate environment. These results underscore the resilience of our investment approach and the quality of our portfolio construction with 93% of our portfolio structured as senior secured debt. As mentioned in my introduction, our value lending strategy deliberately avoids highly leveraged loans, what we call deep and sheet made to software businesses. while many BDC peers report more than 20% of the portfolio is allocated to software and technology companies, our portfolio has approximately 2% to these sectors. Instead, Ken Anderson Private Credit has a long track record of providing loans to core middle market companies, operating in traditional stable industry sectors such as industrial and business services, distribution and food products.

Our underwriting emphasizes durable cash flows, tangible enterprise value and disciplined leverage profiles. Our new originations have had average leverage to the borrower between 3.8 and 4.2x for the last 25 years. We believe this approach enhances downside protection and positions the portfolio to perform consistently across market cycles. Turning to our investment activity in the fourth quarter. We maintained our disciplined approach to capital deployment while continuing to successfully source attractive opportunities in the private credit markets. During the quarter, we committed approximately $113 million to new private credit investments.

Our total fundings reached $99.3 million, of which $72.3 million represented new investments and $27 million represented existing previously unfunded commitments. The funding activity reflects our selective approach to capital deployment, focusing on high-quality opportunities that meet our stringent underwriting standards. During the fourth quarter, we experienced repayments of $131.7 million, which represents a healthy level of portfolio turnover and activity within our core middle market borrower base. Additionally, we continued our rotation out of broadly syndicated loans with sales of $19.8 million. This repayment activity, combined with $99.3 million in new fundings resulted in a reduction in net funded investment activity of $52.2 million for the quarter, excluding 1 high-yielding opportunistic investment.

The average spread on our new floating rate loans in the fourth quarter was 529 basis points over SOFR. When including that opportunistic investment, the average spread on our new floating rate loans was 593 basis points over solver. So we continue to see a reasonably healthy premium in spreads in our core markets relative to the upper middle and broadly syndicated markets. But we have continued to see pressure on spreads overall relative to longer-term historical averages, albeit more or less at these levels for the last year. I'd like to provide just a quick reminder on our strategic positioning in some aspects of our investment philosophy that we think differentiates us in the current market landscape.

First, our portfolio is highly defensive by nature, with 93% of our investments in first lien senior secured debt positions. We also prioritize control in our agent or coagent in 75% of the investments we make providing us with higher closing fees, enhanced information rights and greater control and potential workout situations. Second, we are particularly conservative and selective on our capital deployment. -- prioritizing transactions where we can emphasize downside protection while capturing appropriate returns for the risk we're taking. This typically manifests itself in lower than market leverage levels across our portfolio. Third, our portfolio companies are backed by private equity sponsors.

We tend to provide best-in-class governance, operational expertise and additional capital to these businesses when necessary. Our selective capital deployment philosophy also means we're willing to maintain lower leverage and higher liquidity when we don't see compelling opportunities that meet our risk-adjusted return thresholds. At quarter end, our debt-to-equity ratio was 1.02x. This positions us at the lower end of our target leverage range of 1 to 1.25x with total liquidity of $588.4 million including $43.4 million in cash and $545 million in undrawn debt capacity, we maintained substantial flexibility for accretive capital deployment.

We have worked hard to create a foundation for consistent income generation and capital protection that we believe will continue to serve our shareholders well regardless of where we are in the credit cycle. Turning to the current environment for private credit and -- in Q4, conditions were characterized by a combination of lower base rates, relatively tight spreads and somewhat muted M&A activity and continued concerns around credit performance. These factors together have pressured industry returns and reduced sector-wide ROEs compared to recent years. This is before the recent pressure on most of the market for software-related exposure and associated AI risk, regardless of whether 1 feels those risks are overblown.

Despite the combination of headwinds, underlying credit fundamentals across middle market portfolios remain generally stable. Nonaccrual levels remain low in absolute terms across the sector, although managers continue to reference an elevated but manageable level of idiosyncratic credit stress within certain borrowers. I think it's fair to say that we and most of our peers feel that current public BDC valuations are not in line with the continued strong fundamentals we see in our businesses. Looking ahead, we believe the industry is entering a period that will likely be marked by increased dispersion and outcomes for managers across the sector.

As the potential for a prolonged AI software dislocation increases, Capital will become tougher to raise in private credit. When you add in the perception of undisciplined underwriting causing the potential for increased losses in the upper middle market, we think it is reasonably likely that spreads will widen over the next year or 2 as investors worry about the credit cycle. We believe that this will actually create a good environment for new originations and an attractive opportunity for KBDC to invest, while other BDCs indirect lending platforms are dealing with their software portfolios. On a relative basis, we believe KBDC is very well positioned to continue to be a strong performing BDC, delivering attractive risk-adjusted returns to our shareholders.

I will now pass the call over to Frank Karl to discuss our portfolio.

Thank you, Ken. I'll now look to provide a comprehensive overview of our portfolio composition and key performance metrics as of December 31, 2025. Our portfolio consists of 107 companies with a total fair market value of $2.2 billion, representing a well-diversified collection of core middle market investments. We maintain unfunded commitments of approximately $287 million across our existing portfolio companies, providing us with additional opportunities to support our borrowers' growth initiatives. Since December 31, 2025, KBC has closed or is in the final closing process on $50 million of new commitments, and we have seen a steady flow of opportunities so far this year. though it's too early to glean any sort of meaningful insights for total 2026 activity levels.

Investments in KBDC's portfolio, excluding those on watch list and our opportunistic investments, have a weighted average leverage of 4.5x interest coverage of 2.4x and loan to enterprise value of approximately 43%. And weighted average EBITDA of our private middle-market portfolio companies is $52.7 million, reflecting our focus on established businesses with meaningful scale. For the quarter, the number of companies in our portfolio declined by 1%, mainly due to our continued rotation out of the broad-based syndicated loan portfolio -- we continue to have a highly diversified portfolio with an average position size of approximately 0.9% of fair value and where our top 10 investments represent only approximately 20% of our portfolio. This approach allows us to maintain appropriate exposure to our best-performing assets while also maintaining prudent diversification across the broader investment base. 97% of our debt investments are floating rate, which mirrors our liabilities where the vast majority of our debt funding utilizes floating rate borrowings as well. the only fixed rate investment that we have is the SG credit loan that closed in early Q3 2025 and has an 11% fixed coupon. Credit performance across our portfolio remained strong to date with only 1.4% of total debt investments at fair value on nonaccrual, representing only 5 positions out of 107. That's flat quarter-over-quarter. SP-6 We continue to have financial covenants in all of our core first lien private middle-market investments. And lastly, we've built this conservative portfolio with a healthy weighted average yield of approximately 10.3% on fair value of investments, excluding nonaccrual -- and this reflects a small decline from 10.6% last quarter. this strong level of yield has been achieved with leverage levels at the borrower level that are considerably lower than many of our peers. And while we continue rotation out of Broadgate loans into higher spread private credit investments. Ken discussed the well-publicized headwinds affecting the sector and emphasize that we believe KVDC is well positioned to be a strong performer. While AI-related risks are difficult to fully mitigate we're confident that the businesses in our portfolio are much more likely to benefit from the use of AI than they are to be displaced by the technology. SP-7 We remain firmly committed to the disciplined lending strategy that our management team has executed and refined successfully across multiple market cycles for more than 2 decades. Our credit performance metrics continue to demonstrate the strength and quality of our portfolio construction. As mentioned earlier, nonaccruals were flat quarter-over-quarter and 1.4% of total debt investments we did see an uptick in PIC in the fourth quarter, predominantly due to 1 investment, where Terry will provide more detail on that situation later.

We view this as consistent with normal course credit management in a diversified portfolio. As a quick reminder, our portfolio construction philosophy has always emphasized a conservative approach to borrower level leverage and capital structure design, as I mentioned earlier, our weighted average borrower net leverage of 4.5x compares favorably to the broader market, where we're seeing -- still seeing many transaction leverage levels of 5x to 6x or higher.

We've maintained this disciplined approach as we believe that lending on cash flows as opposed to just loan to value, better positions the portfolio for periods of potential distress or in slower-growth environments. Looking ahead to 2026, we expect our near- to medium-term investment activity pipeline to remain solid, supported by a slowly increasing flow of M&A transactions. And while we expect market conditions to remain competitive, we believe that recent increases in overall uncertainty favor experienced lenders like us.

With that, I'll turn it over to Terry Hart to discuss KBDC's fourth quarter 2025 financial results.

Thanks, Frank. Let's first review results of operations. During the fourth quarter, we earned net income per share of $0.32 and net investment income per share was $0.44 compared to $0.43 in the prior quarter and $0.04 above our dividend. Total investment income for the fourth quarter was $61.9 million as compared to $61.4 million in the prior quarter. The increase to investment income was primarily driven by the full quarter impact of portfolio rotations at a broadly syndicated loans into middle market loans and an increase in accelerated amortization of OID and prepayments related to realization activity. Our portfolio yield decreased by 30 basis points, mainly related to lower reference rates and PIK interest for the quarter was elevated from prior quarters as a result of year-to-date interest income from our investment in regimen being converted to PIK during the fourth quarter.

PIK interest represented 7.4% of total interest income during the quarter, but continues to be relatively low at 3.9% for the full year. As mentioned, during the fourth quarter, we had approximately $2.6 million of accelerated amortization of OID and prepayment fees related to realization activity. Total expenses for the fourth quarter were $31.8 million compared to $31.3 million for the prior quarter. The increase was primarily the result of $0.5 million of excise taxes higher average borrowings and the issuance of notes during the fourth quarter, partially offset by $0.5 million of lower incentive management fees.

During the quarter, our incentive management fees were reduced by the 12-quarter look-back incentive fee cap. During the fourth quarter, we had a small realized loss of approximately $0.6 million related to the sale of several broadly syndicated loans, and we had net unrealized losses on the portfolio of $7.2 million compared to unrealized losses of $5 million in the prior quarter. The unrealized losses were largely the result of negative fair value changes related to our investments in SCOR Sports, regimen and Bell USA as well as accelerated amortization of OID related to repayment activity.

These items were partially offset by positive marks on Arbor works and Sinter line. Additionally, we had deferred income tax expense of $0.3 million related to unrealized gains on equity investments held in our taxable subsidiary. As of December 31, total assets were $2.3 billion and net assets were $1.1 billion. As of that date, our net asset value was $16.32 per share, a decrease of $0.02 from $16.34 per share as of September 30 and was comprised of $0.12 per share related to net realized and unrealized losses, partially offset by $0.04 of net investment income in excess of our dividend and $0.06 related to accretive share repurchases during the fourth quarter.

At the end of the quarter, we had debt outstanding of $1.13 billion and our debt-to-equity ratio was 1.2x, which is a slight increase from 1.01x at the end of the third quarter. On October 15, we funded and issued $200 million of notes that were priced in August at attractive rates. And as mentioned earlier, we had share repurchases of $24.9 million pursuant to our $100 million share repurchase program. Year-to-date through February 20, KBC has repurchased its shares valued at approximately $14.5 million at an average price to NAV per share of 87%.

Now turning to our distributions. On February 12, our Board of Directors declared a regular dividend for the first quarter of $0.40 per share to shareholders of record on March 31, 2026. As of December 31, our undistributed net investment income was approximately $0.21 per share. Our positioning to maximize earnings during 2026 centers on several key initiatives. First, we plan to complete the rotation out of our remaining lower-yielding BSL positions, which will provide additional capital to redeploy into higher-yielding direct lending opportunities. Second, we intend to gradually optimize our leverage within our target debt-to-equity range of 1x to 1.25x.

Our current leverage ratio of 1.0 and provides us with substantial capacity to increase earnings through prudent use of additional leverage. Third, we continue to work with our banking partners to reduce our borrowing costs. In fact, yesterday, we announced the term extension of our largest credit facility led by Wells Fargo and the reduction of the interest rate on this facility from SOFR plus 215 basis points to SOFR plus 195 basis points.

With that, operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of Michael Brown with UBS.

This is Corey Johnson on for Mike. I have a question. So in regards to like your NII for this quarter, I'm guessing there was a partial impact from Fed rate -- how much do you estimate that was in the fourth quarter? And how much would you expect to cut to impact the first quarter of this year.

Thank you for the question. This is Doug Goodwill. Terry, do you want to handle that?

Yes, sure. For the quarter itself, I can get you the exact details after the call. But I can say that we didn't see the full impact of the Fed rate cuts in this quarter. But during the first quarter, we would see the full impacts of that. So it was a partial impact during the quarter. We did see offsetting those cuts during the quarter -- we saw an uptick in the full quarter's activity and full investment in SG Credit. And so that helped offset some of those Fed cuts. And in addition to that, as we mentioned, we did see a full quarter impact of the rotation out of during the third quarter.

And then also in the fourth quarter, we saw additional rotations out of the BSLs. And so that offset some of those Fed cuts.

Great. And just 1 follow-up. You guys had mentioned about there possibly being opportunities for you to be able to take advantage of as other companies who other BDCs, which went more to software companies are sort of dealing with their credit issues. Can you maybe just talk a little bit more about like what opportunities that you expect to be able to see and take advantage of?

Yes. Thanks for the question. This is Doug Goodwill again. I think when we say capitalize on that, it's not capitalizing by buying loans from any other stressed BDCs, so to speak. -- we agree with some of the commentary in terms of probably a bit of an overcorrection in the public markets for the AI risk for some of those software portfolios. But what we're talking about there is when a BDC has 20%, 30%, 40% of their portfolio in software that, that becomes time-consuming if you're in any types of restructures or dealing with companies that could potentially be on a watch list that tends to take up time.

And then it also keeps valuations generally under a price to NAV of 1 in certain circumstances. So it allows those that are trading at better levels and those that have less stress in their portfolio to put more capital to work in the current market.

Our next question will come from the line of Kenneth Lee with RBC Capital Markets.

Just 1 on the targeted portfolio ramp any updated outlook in terms of time frames when you might get to the targeted range within the 1 to 1.25. And given the current environment and what you're seeing do you think you could be closer to the lower end or the higher end of the range in the near term back?

Thanks, Ken. This is Frank. I'll start there. Total deployments or net deployment for the quarter was effectively flat. I think we're seeing a decent amount of activity. I alluded to, we've got $50 million of commitments sort of in process for Q1. We are still working out of the broadly syndicated book which you did quarter-over-quarter and we'll continue to do in the first part of this year. Our repurchase program has been reasonably active. So there's a decent number of levers that we think will push that leverage ratio up a bit more towards the middle of the range. But putting any specific time frame on it is difficult to do and will depend on market conditions and deployment activity, which, again, I think we are reasonably and seeing signs of some increases in activity, but it will be a steady sort of progression over the next couple of quarters.

I think, Ken, at the -- this is Doug again. At the outset of what may be a bit of a dislocation in the credit markets to be at 1x with $550 million of dry powder, so to speak, we think is a good position to be in. So we would expect that to increase beyond the 1.02, I think where we are as of this quarter, but likely to remain somewhere in the 1 to 1.2 range over the next quarter.

Got you. Very helpful there. And just 1 follow-up, if I may, and I appreciate the portfolio with only 2% softer exposure there. Wondering if you could just talk a little bit more about any investments on current watch list -- any particular areas where you're seeing any kind of stress within the portfolio or otherwise challenges within the companies there?

Sure. This is Doug again. I'll start -- as it relates to software companies, there are no investments in software companies that we have that are on the watch list as we talked about. And Ken's section of the call, it's less than 2% of the portfolio. less than 10% of the entire portfolio is on the watch list. And I think from our perspective, there are, I think, 5 credits that are on nonaccrual. So we think that's kind of, frankly, a normal course watch list amount of nonaccrual kind of in the mid-1% range is fairly low, I think, in respect to competition.

So we're happy with the portfolio performance. I'd say, from our perspective, I'm not sure that anything that we've seen is all that new in terms of there's been continued pressure on the consumer affecting 2 or 3 of the companies on our watch list. And then, frankly, some management missteps that we are working with the sponsors and some management teams to correct. But those are really the 2 themes that don't really come back to what's going on around AI. I think what we've seen in terms of a theme in terms of stress has been a little bit more on the consumer side over the last 12 to 18 months.

Our next question comes from the line of Finian Osha with Wells Fargo.

Just to start a small follow-up on the preceding topic with Ken there. It looks like you have a pretty good clip of maturities. Is there a big overlay with that cohort and then the sort of underperformers as you described.

I think that when we think about -- I'll start on kind of just the repayment outlook. It's been relatively slow in the first quarter thus far, I think for the second quarter, Fan will go through it name by name. It looks like it picks up at a reasonable level into the third and fourth quarter. I'll turn it over to Frank, but I don't see a lot of overlap in terms of stress names coming out?

Yes. There's no concentration of like names on the watch list in 26 maturities.

Okay. That's helpful. And then we also wanted to ask about G&A broadly in in the context of like the size of your book, the size of your platform, you guys are just off the scatter plot in a good way in regards to G&A expense being very low. Can you walk us through as many specifics as you'll give as to what are the sort of conventional items that you let not to expense that, say, your advisers or consultants told you that you could. And then how can we be sure that you won't change your mind 1 day in the future?

Yes. Good question. I'll turn it over to Terry in terms of policy and what could be expense and maybe give some idea of that quantity too, Terry, as you answer the question?

Sure. Ben, yes, our agreements do allow us to pass through. And as you see other managers passing through the cost of the CFO in some cases, the cost of the Chief Compliance Officer and then their staff. We have a model where we outsource a lot of our administration fund accounting. And so we do pass that through. but that tends to be much cheaper than if we had our own staff and then charge back all of that time.

So in the magnitude, if you look at -- if you look at funds that are similar in size or BDCs that are in similar size, our ratio could be twice as high as it is today from 40 basis points, it could be 80 basis points or higher. If we were to charge some of those things through. I mean I think we take pride in having a low G&A cost just generally. And I think that we do the right thing for our investor -- so we want -- especially in an environment where coverage is tight. I think that we're going to be very mindful of our G&A expense as we grow, are we always going to have 0 for any of those costs? That's hard to say. But like I said, we're going to be very mindful of our G&A as it relates to coverage and our dividend policy.

[Operator Instructions] Come from the line of Paul Johnson with KBW.

Just wondering to get your thoughts just generally, what is kind of the, I guess, the supply chain sort of risk within the portfolio, just food companies, distributors, trading companies, those sorts of businesses, given the recent disruption in the shipping market in the Middle East.

Yes. I mean we -- you are right that I think when we talk about our value lending philosophy and the stable and stable industries, our biggest industries are industrial and business services, food products, health care. But the vast majority, and I'll let Lee or Frank way in as well, of the supply chain is from the U.S., we -- we took a deep dive on us when we were analyzing the prior and, I guess, potential tariff risk on the portfolio. finding it to be fairly minimal, but I'll let Frank give some specific stats.

I think it's not the same analysis as the tariff risk, but it gets back to, hey, is some of the downstream effects is inflation picking back up? And what does that mean over the sort of near and medium term for our borrowers. We think our book performed very well through a substantially elevated inflationary period. We think our book performed very well through tariffs and tariff uncertainty. And I think we'd expect more of the same admitting that it's hard to see around the corner for all potential scenarios and downstream effects.

Got it. And then in terms of the -- just kind of the remaining BSL rotation, you guys have already obviously taken a fairly measured approach to ramping the portfolio. loan prices are obviously trading at a more depressed level this quarter. If that kind of sustains itself, I guess, for in the next few quarters or so for any of the liquid names in the portfolio? How willing are you, I guess, to be selling out at a small loss to fund new originations as opposed to kind of holding out for the volatility to maturity.

Yes, it's a good question. This is Doug. I'll start. We're only down to -- or we are down to a handful BSL names at this point. I think it was less than $50 million at the end of the quarter, and it's down from there. put Frank on the exact spot. But we're actively -- we have been actively continuing to exit that portfolio in this quarter. I think the good part of where we're at from a leverage perspective is we've got still a decent ways to go before we're at the point of needing to make a decision around exiting a position at a loss, albeit very small dollars given the size of this book versus funding new private credit assets.

This concludes our question-and-answer session, and I'll hand the call back over to Doug Goodwilly for any closing comments.

Well, I'd like to thank everyone who joined our earnings call today for their time and continued interest in KBC and -- we hope you enjoyed the call and look forward to speaking again in a few months to discuss Q1 2026 performance. Thank you.

This concludes today's call. Thank you all for joining. You may now disconnect.

Hello, and welcome to Kayne Anderson BDC, Inc.'s Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to turn the conference over to Andy Wedderburn-Maxwell, Senior Vice President.

Good morning, and welcome to Kayne Anderson BDC, Inc.'s Third Quarter 2025 Earnings Call. Today, I'm joined by Doug Goodwillie and Ken Leonard, co-CEOs of KBDC; Frank Karl President; and Terry Hart, CFO.

Following our prepared remarks, we will be available to take your questions. Today's call may include forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about the company, our current and prospective portfolio investments, our industry, our beliefs and opinions and our assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict. Actual results may differ materially from those expressed or forecasted in the forward-looking statements.

We ask that you refer to the company's most recent filings with the SEC for important risk factors. Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time. Our earnings release, 10-Q and supplemental earnings presentation are available on the Financial section of our website at kaynebdc.com.

Now I'd like to turn the call over to Doug Goodwillie.

Thank you, Andy, and everyone for joining us on the call today. I'll begin by providing a high-level summary of our third quarter performance and share some thoughts on the broader market backdrop, both as it relates to the public market environment and what we're seeing in our private credit market generally. I will also walk through our strategic positioning and provide an update on our capital deployment activities. Before turning the call over to Frank Karl, to go over our portfolio makeup and performance. Finally, Terry Hart will conclude with details on KBDC's financial results.

After the close yesterday, we reported another quarter of solid results as we continue to grow our portfolio and execute on our strategy. Net investment income rose $0.03 per share to $0.43 per share, representing a 10.5% annualized return on equity and net income was stable at $0.35 per share. During the quarter, we distributed our $0.40 per share regular dividend, resulting in a dividend coverage ratio of 108%. Our NAV at quarter end was $16.34, a small $0.03 decline quarter-over-quarter due in large part to a few marks in the portfolio. At quarter end, our estimated spillover net investment income was $0.16 per share.

In the quarter, we had $296 million of gross new private credit investments. We funded a total of $274 million, of which $248 million represented new investments and $26 million represented existing previously unfunded commitments. This is an increase of 48% in private credit fundings over Q3 2024 fundings of $185 million. As highlighted on our last earnings call, the pickup in origination activity that we saw towards the end of Q2 has continued through Q3 and into Q4 of 2025. Our average spread on new floating rate loans in the quarter was 568 basis points over SOFR, a 28 basis point improvement over the second quarter. The majority of transactions reviewed in Q3 had spreads over SOFR in the 500 to 600 basis point range.

M&A-related financings have also become more frequent in Q3 and Q4 as the health of the market improves. We believe that the spread compression that affected the middle market in late 2024 and early 2025 has plateaued. While we are not seeing broad-based spread widening yet, we continue to be pleased with the spread premium that our market broadly and especially our portfolio generates relative to the larger credit markets.

Turning to the broader public market environment, BDC share prices saw notable pressure [indiscernible] as investors reevaluated their risk appetite over rising concerns regarding the potential pace of dividend rate cuts, continued spread compression in certain markets, concerns over credit quality and the potential negative impact that AI could have over the software sector. These fears have been exacerbated with a few high-profile bankruptcies that touched numerous financial institutions and created splashy headlines regarding systemic risk in the private credit space more broadly.

For the sake of clarity, KBDC has no direct or indirect exposure to these situations. I would also like to highlight, unlike most public BDCs, we have no exposure to highly levered financings in the software sector. While public market sentiment is one thing, our perspective of the current credit market landscape tells a different story, one of strong fundamentals and continued resilience in the core middle market. We've been in regular dialogue with our portfolio companies and our underwriting and credit monitoring teams, and we do not see any signs of broad-based stress in our assets.

Our portfolio remains high quality, senior secured and well diversified. Importantly, our nonaccrual rate dropped from 1.6% of fair value to 1.4% and remains well below historical averages for the sector. While financial regs regularly comment on the potential for a risk-reward dynamic in private credit that has become less favorable than in years past, we still see an environment where experienced investors in the middle market can earn near double-digit loan level returns for senior debt risk. Said differently, in a world of relative value, we continue to believe that our space offers a compelling value proposition versus other investment asset classes.

Turning to a short reminder regarding our positioning and strategy. At KBDC, we've built a portfolio designed to perform across market cycles. With approximately 94% of our investments in first lien senior secured loans where we are the agent or coagent 80% of the time, we are structurally well positioned to protect capital and generate consistent income even in uncertain markets. You will note that the percentage of first lien loans has declined from 98% in prior quarters. This is due to our 11% fixed rate investment in the SG credit asset-backed platform. As a reminder, that investment closed in early Q3 and is not included in first lien senior debt. With our strong origination network and ability to underwrite and lead investments, we continue to find attractive deployment opportunities. Most importantly, we remain highly selective when deploying capital, which we think is evident in our portfolio statistics and credit performance.

During the third quarter of 2025, repayments of private credit loans totaled $74 million, down from $83 million in the same period of 2024. Consistent with our strategic focus and supported by continued strength in the broadly syndicated loan markets, we further executed on our plan to reduce exposure to lower yielding BSL assets. Specifically, we sold down $113 million of BSL positions in the quarter and have continued this portfolio repositioning. Our goal remains to actively wind down the small remaining BSL portfolio of $67 million and redeploy that capital into higher-yielding private credit opportunities in Q4 and potentially into early Q1 2026.

When considering all new fundings and repayments in Q3 net investment activity for the quarter was approximately $87 million. This increase raised our debt-to-equity ratio to approximately 1.01x, above our second quarter 2025 debt-to-equity ratio of 0.91x. As previously mentioned, our long-term target leverage range is between 1x to 1.25x, so we have some balance sheet capacity there to be able to maximize earnings in future quarters.

Lastly, in September, we closed a privately placed offering of $200 million of unsecured notes. Given the strength in the private placement market in Q3, with spreads near their tightest levels compared to the public markets, we felt this was an opportune time to continue to diversify our sources of funding. This will be discussed in the financial results section further.

I will now pass the call over to Frank Karl to discuss our portfolio.

Thank you, Doug. Turning to our portfolio composition. As of September 30, 2025, KBDC's portfolio included 108 individual portfolio companies, representing fair market value of approximately $2.3 billion of investments. We have another approximately $277 million of unfunded commitments comprised of a mix of revolvers and delayed draw term loans for total commitments of approximately $2.6 billion. Since September 30, 2025, KBDC has closed or is in the final closing process on $129 million of new commitments, highlighting the continued improvement in market conditions previously touched on by Doug.

Investments in KBDC's portfolio, excluding those on our watch list, have weighted average leverage of 4.4x, interest coverage of 2.4x and loan to enterprise value of approximately 43%. Our portfolio did decline in a number of companies by 6%, mainly due to our rotation out of the broadly syndicated loan portfolio, which were generally smaller than average hold size such that total investments still increased. We continue to have a highly diversified portfolio with an average position size of approximately 0.9% of fair value, and our top 10 investments represent only approximately 20% of our portfolio.

Outside of the specific credit statistics associated with our portfolio, our investments are well structured, 94% of our portfolio is invested in first lien securities, as Doug mentioned, this number declined from 98% in prior quarters because of our classification of the SG credit investment. 99% of our private middle market investments are backed by private equity sponsors, additionally, all of our core first lien private middle market investments have financial covenants. 96% of our debt investments are floating rate, which mirrors our liabilities where the vast majority of our debt funding utilizes floating rate borrowings as well. The only fixed rate investment in our portfolio is the SG credit loan to close in early Q3, that has an 11% fixed coupon.

Credit performance across the portfolio remains strong to date with only 1.4% of total debt investments at fair value on nonaccrual, representing only 5 positions out of those 108. Lastly, we've built this conservative portfolio with a healthy weighted average yield of approximately 10.6% on fair value of investments excluding nonaccrual. This yield has been achieved with borrower level leverage levels that are considerably lower than that of many of our peers and while we continue our rotation out of BSLs and into higher spread private credit loans.

At the end of the third quarter, we still had approximately 3% of our portfolio invested in broadly syndicated loans, which we intend to trade out of by year-end or shortly thereafter. As Doug mentioned, there has been something of a wave of negative media coverage surrounding private credit and BDCs over the last few months. Over time, we've seen headlines attempt to call the top of the cycle or identify the next canary in the coal mine. While no lender gets every credit decision right, we believe that deep experience is critical to consistently originating loans that are repaid with interest. Our strategy has remained steady, investing in senior secured loans to middle market businesses. That consistency is rooted in the senior teams, 14 years at Kayne Anderson and more than 2 decades of prior experience across direct lending platforms, making ours one of the most tenured partnerships in the middle market.

Signs of a bubble would show elevated leverage levels, lower investment quality or deterioration in terms, none of which we have seen in our market to date. By maintaining a consistent focus on core middle market companies with strong free cash flows, operating and resilient industries, we believe we have mitigated certain credit risks, particularly in a higher rate, more challenging macro environment. We view our current nonaccrual as largely idiosyncratic rather than indicative of broader credit issues. We continue to closely monitor potential impacts from tariffs and based on recent conversations with sponsors and management teams, most of our portfolio companies, again, which are domestically focused, both in terms of revenue and supply chains have experienced minimal financial impact from these tariff-related policy changes.

Looking ahead, while we anticipate some continued market volatility, we are encouraged by the notable increase in investment activity in the third quarter, although overall M&A activity has been somewhat slow to rebound. We've observed a meaningful, if anecdotal, uptick in M&A-related financings brought to investment committees in September representing 72% of all investment opportunities reviewed. Our strong and long-standing private equity relationships continue to support a healthy pipeline of opportunities, offering attractive risk-adjusted returns. We believe our portfolio is well positioned to maximize earnings as we complete our rotation out of the remaining broadly syndicated loans and modestly increased our leverage toward the middle to upper bound of our target range of 1x to 1.25x in line with our peers.

With that, I'll turn it over to Terry Hart to discuss KBDC's third quarter 2025 financial results.

Thanks, Frank. Let's first review results of operations. During the third quarter, we earned net income per share of $0.35 and net investment income per share was $0.43 compared to $0.40 in the prior quarter and $0.03 above our dividend. We were able to increase net investment income from the prior quarter through higher interest income resulting from rotations out of lower-yielding broadly syndicated loans into middle market loans and our investment in SG Credit as well as interest income related to realization activity.

Total investment income for the third quarter was $61.3 million, as compared to $57.3 million in the prior quarter. As mentioned, the increase to investment income was primarily driven by portfolio rotations and the impact of net additions to the portfolio during the third quarter. Our portfolio yield was unchanged quarter-over-quarter and PIK interest remained relatively low at 3.5% of interest income for the quarter. Additionally, during the third quarter, we had approximately $1.4 million of accelerated amortization of OID and prepayment fees related to realization activity.

Total expenses for the third quarter were $31.3 million compared to $28.6 million for the prior quarter. The increase was primarily the result of higher average borrowings on our credit facilities and increased base management fees as a partial fee waiver was in effect during the second quarter. During the quarter, our incentive management fee was reduced by the 12-quarter look-back incentive fee cap. During the third quarter, we had a small realized loss of approximately $22,000 mainly related to the sale of several broadly syndicated loans, and we had net unrealized losses on the portfolio of $5 million compared to unrealized losses of $3.5 million in the prior quarter. The unrealized losses were largely the result of negative fair value changes related to our investments in Score Sports, Siegel Egg, and Trademark Global, partially offset by positive marks on ArborWorks and our broadly syndicated loan portfolio.

Additionally, we had $0.4 million of deferred income tax expense related to unrealized gains on equity investments held in our taxable subsidiary. As of September 30, total assets were $2.3 billion and net assets were $1.1 billion, as of that date, our net asset value was $16.34 per share, a decrease of $0.03 from $16.37 per share as of June 30, was comprised mainly of $0.08 per share related to net unrealized losses, partially offset by $0.03 of net investment income in excess of our dividend and $0.02 related to accretive share repurchases during the quarter.

At the end of the third quarter, we had debt outstanding of $1.153 billion and our debt-to-equity ratio was 1.01x which is an increase from 0.91x at the end of the second quarter. During the third quarter, we had higher utilization of our credit facilities resulting from robust origination and from share repurchases of $13.9 million pursuant to our $100 million share repurchase program. During the month of October, KBDC repurchased its shares valued at approximately $17 million at an average price to NAV per share of 85%. We expect that accretive share repurchases will be an additional use of leverage, moving us towards the middle or upper end of our debt-to-equity range of 1x to 1.25x.

As Doug mentioned earlier, on September 9, we closed a $200 million offering of senior unsecured notes to provide KBDC additional liquidity and credit facility flexibility. In connection with the transaction, we entered into interest rate swaps to more closely align the interest rates of the notes with our predominantly floating rate investment portfolio. We were very pleased that the transaction was significantly oversubscribed, which tightened final pricing. The notes were funded and issued on October 15.

Now turning to our distributions. On November 4, the Board of Directors declared the regular dividend for the fourth quarter of $0.40 per share to shareholders of record on December 31, 2025. As of September 30, our undistributed net investment income was approximately $0.16 per share. For the fourth quarter, we anticipate modest excess net investment income above our base dividend, reflecting the continued strategic rotation out of our lower-yielding broadly syndicated loan investments into middle market loans and additional accretive share repurchases.

With that, operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Douglas Harter with UBS.

Great. I'm hoping you could talk a little bit more about the investment in SG credit, just kind of thoughts about whether there's potential for growth in that investment and how to think about any upside beyond the coupon you mentioned?

Thanks, Doug. This is Frank. I appreciate the question. Part of the structure of our deal with those guys did include an unfunded delayed draw term loan commitment, which will be used to finance new investments and grow the book over time. So there's sort of a built-in, we're expecting more funded dollars as part of that debt investment. And then we did disclose in the Q, we do have a call option to purchase the majority of the equity in that business going forward. The terms are not disclosed. We won't discuss them here, but I think the short story is we think there's a lot of growth potential in asset-backed lending and particularly the types of asset-backed lending that these guys are doing.

So we are expecting it to be a growth engine and a larger piece of our business going forward. I think we talked about the last call, I mean we're not expecting this to be a huge portion of the portfolio, but larger than it is now, certainly. And we know the growth prospects are there.

And Doug this is Doug Goodwillie, just adding one thing. In addition to what Frank said, just to clarify, we do own through our investment at close, 22.5% of the equity of SG Credit as it stands today.

And then just you mentioned that you saw increased fees related with -- or interest income related to the repayments -- yet prepayments were down. Just hoping you could kind of flesh that out a little bit for us?

Terry, do you want to take the start there?

Yes, sure. We had 2 repayments that were driving those additional interest income from accelerated OID, but we also had some prepayment penalties or fees that were associated with that realization as well. And so the combination of those 2 items, whenever you -- whenever there's a realization prior to its stated maturity you get to bring forward all of that OID. So it was a combination of those items that resulted in. It was around $1.4 million of additional income related to those realizations alone this quarter.

Your next question comes from the line of Kenneth Lee with RBC Capital Markets.

One question I had was you mentioned in the prepared remarks that you're seeing some recovering the M&A activity, but perhaps a little bit slower to recover. I wonder if you could provide a little bit more color around that. Any thoughts as to key drivers that are potentially holding back some of the M&A activity you're seeing within? And I assume this is within the core middle market segment.

Yes. Thanks, Ken. I think for us, in the core middle market, in terms of the platform itself, we've seen pretty strong continued investment activity and are pleased with that. In addition, with rates lowering I think that's going to continue to help M&A activity as it goes forward. So we're sort of speaking broadly in terms of overall M&A activity, which has been modest relative to quarter-over-quarter increases. But I think for the Kayne Anderson Private Credit platform and KBDC, I think we've seen very nice activity. In addition, we've also seen spreads elevate in the third quarter modestly over the first half.

In addition, the pipeline we have for the fourth quarter looks very strong, consists of all new platforms right now, and those platforms are -- have weighted average spreads that are consistent with what we've seen in this uptick in the third quarter. So I think our general feeling is we're not making large macroeconomic predictions about the M&A market, but we think is SOFR comes down, we'll continue to see an uptick. But we've been very pleased that from a platform perspective, we'll be at or near a record year in terms of volume.

And just one follow-up, if I may. I wonder if you could just share any of the latest thoughts you may have about dividend coverage, especially given the outlook for rates there?

Yes. Sure, Ken. For the fourth quarter, we anticipate a modest excess net income -- net investment income above our base dividend, and this reflects the continued ramp of our portfolio and share repurchases as we operate in our target leverage range of 1x to 1.25x. We're also expecting to finish that strategic rotation out of our lower-yielding broadly syndicated investments into these core middle market higher-yielding loans, and that will take place in the fourth quarter or potentially roll over into that first quarter of 2026.

We believe our dividend yield and dividend coverage will more accurately reflect our steady state operations once KBDC is operating within its target leverage with the portfolio fully invested in middle-market loans. We also believe that we're well positioned to maintain our current base dividend rate for the foreseeable future despite the spread compression and reference rate headwinds that are affecting the broad market. While none of us are really immune to reference rate declines, we feel very good about the current spreads in our market, which have outperformed the upper middle market in many of our competitors. And we feel very good about that continuation into the fourth quarter.

Additionally, I'll add that we've been active in our share repurchase program, which we saw in the third quarter was accretive at these lower price levels, and that's going to continue into the fourth quarter. And then finally, we have spillover income of $0.16 to provide a buffer to our dividends during 2026, if needed. So we feel very good about our positioning here.

There are no further questions at this time. I will now turn the call back over to Ken Leonard for closing remarks.

Thank you, everyone, for joining today. We appreciate it. We're pleased to have reported a strong quarter and are also pleased with the continued strong performance heading into the fourth quarter. We continue to think our value lending philosophy and our long tenure in the private credit sector will differentiate KBDC as a conservatively focused, strong risk/reward oriented BDC. Thanks again, everyone, for joining today.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.