INTRODUCTION: The BDC Credit Reporter – typically a subscriber only publication for anyone interested in keeping up with the most troubled portfolio companies at every BDC – has just published a free-to-all article. We’re re-publishing that article here for all our BDC Reporter subscribers as well . The subject at hand: the credit performance in the IQ 2024 of a mid-sized BDC that we’ve been writing about recently: Bain Capital Specialty Finance (BCSF).

Republished From the BDC Credit Reporter:

We’ve completed our review of Bain Capital’s credit performance through the IQ 2024 – relying both on the BDC’s own data and our own – and come away with a favorable picture.

May 30, 2024

We’ve now slogged through Bain Capital Specialty Finance’s (BCSF) IQ 2024 results. The “core middle market” BDC has portfolio assets at cost of $2,413,264,000 and fair market value of $2,405,952,000 – a very modest discount of (0.3%). There are 153 portfolio companies. There were neither material net losses or gains in the quarter.

BCSF reports that only $68mn worth of portfolio assets – by their estimate – were underperforming to varying degrees – 2.8% of the total. Amongst those underperformers, three companies are on non-accrual – same number as in the IVQ 2023 – with a FMV of $24mn, or 1% of the portfolio. Presumably the remaining $44mn of underperforming assets are in troubled businesses still paying their interest. The value of both underperforming and non-performing assets has decreased in the IQ 2024 versus the IVQ 2023. However, BCSF does not reconcile these sort of changes so the reduction may reflect additional write-downs or improvements that has caused some companies to be upgraded. With that said, these underperformance and non-performance metrics are amongst the lowest in the public BDC sector.

Our own analysis identified only 4 Important Underperformers in the portfolio with an aggregate cost of $79mn and a FMV of $61mn. Two of the companies we’ve recently written about e-commerce “aggregator” Thrasio Inc. (currently in bankruptcy and seeking to exit via a debt-for equity swap) and Walker Edison Furniture (recently restructured in a debt-for-equity swap and in trouble again). We also have Company Files that we’ve updated for Chase Industries, which “manufactures and distributes building products” and Efficient Collaborative Retail Marketing Company, LLC, which “offers retailers information, sales promotion, and advertising event management services“. Click here for a mini-database of all 4 businesses.

The good news for BCSF – based on the Credit Reporter’s estimates of potential future losses beyond the level at March 31, 2024 – is that any potential future damage is modest. In total, we estimate BCSF could lose ($15mn), barely over 1% of its net asset value.

BCSF has managed to increase its NAV Per Share for 6 quarters in a row thanks – amongst other things – to favorable credit metrics like these and the data we’ve collected suggests that’s likely to continue barring a new batch of underperformers arising from the performing ranks.