Barings BDC, Inc. Aktie

Greetings. At this time, I would like to welcome everyone to the Barings BDC, Inc. Conference Call for the quarter ended March 31, 2026. [Operator Instructions] Today's call is being recorded, and a replay will be available approximately 2 hours after the conclusion of the call on the company's website at www.baringsbdc.com, under the Investor Relations section.

At this time, I would like to turn the call over to Albert Perley, Head of Investor Relations for Barings BDC.

Please note that this call may contain forward-looking statements that include statements regarding the company's goals, beliefs, strategies, future operating results and cash flows. Although the company believes these statements are reasonable, actual results could differ materially from those projected in forward-looking statements.

These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled Risk Factors and Forward-Looking Statements in the company's quarterly report on Form 10-Q for the quarter ended March 31, 2026 and as filed with the Securities and Exchange Commission. Barings BDC undertakes no obligation to update or revise any forward-looking statements unless required by law.

I will now turn the call over to Tom McDonnell, Chief Executive Officer of Barings BDC.

Thanks, Albert, and good morning, everyone. On the call today, I'm joined by Barings BDC's President, Matt Freund; Chief Financial Officer, Elizabeth Murray; Barings Head of Global Private Finance and BBDC Portfolio Manager, Bryan High. Before turning to the quarter, I'll offer a brief perspective as we move through 2026 following the leadership transition earlier this year.

As you know, I assumed the role of CEO on January 1. With nearly 30 years in the credit business across multiple cycles, my background is in fundamental credit underwriting, portfolio management and leading leverage credit platforms. That experience reinforces my conviction in the durability of BBDC's investment process and the importance of rigorous underwriting discipline as dispersion across credit markets becomes more pronounced.

Indeed, we saw evidence of that dispersion in the past quarter, and we believe it will be a clear differentiator for BBDC going forward. Our best-in-class direct origination platform focused on the core middle market, is a key factor behind this differentiation.

Our sourcing strength, conservative deal structures and strong alignment with the shareholders remain central to BBDC's ability to generate attractive risk-adjusted returns through the cycle. Our strategy, process and philosophy remain firmly intact. My focus is on execution, optimization of asset-level yields and enhancing returns on equity without compromising credit quality.

Now turning to the quarter. Despite an onslaught of negative headlines in the private credit sector during the first quarter, BBDC delivered solid net investment income and maintained good credit performance, particularly within the Barings originated portion of our portfolio.

Net deployment in Q1 was slightly negative. We originated $109 million of investments against $126 million of repayments for net repayments of roughly $17 million. As a result, our total portfolio size and leverage remained essentially unchanged quarter-over-quarter.

Our portfolio remains highly diversified and defensively positioned, and we continue to benefit from a benign credit environment. Our focus on top of the capital structure, senior secured investments in core middle market issuers, which tend to have lower leverage and stronger risk-adjusted returns has served us well.

In addition, our emphasis on defensive noncyclical sectors and Barings global footprint provides a level of stability to our portfolio across all market environments. We believe this combination of senior secured lending, a core middle market focus, defensive noncyclical sectors and a global origination offers our investors strong relative value and meaningful differentiation within the broader BDC landscape.

Overall, BBDC's portfolio performed largely as designed this quarter. Our diversified issuer base and disciplined credit approach have built an all-weather portfolio that we expect to hold up well through various macro conditions which, as Matt will touch on in a moment, we view as broadly favorable at present.

We are, however, beginning to see increased dispersion and performance across the BDC space, underscoring the importance of our disciplined credit selection and proactive credit management.

Turning to our results. Net asset value per share was $11.02 as of March 31, 2026, slightly lower than $11.09 at the end of 2025. This modest decline was primarily driven by the write-down in a legacy MVC asset. The core Barings portfolio continued to perform well. Net investment income for the first quarter was $0.25 per share compared to $0.27 per share in the fourth quarter of 2025.

Digging a bit deeper into the portfolio, we continue to actively maximize the value in legacy holdings acquired from MVC Capital and Sierra. During the first quarter, we continued the rotation out of the Sierra portfolio exiting approximately $19 million of legacy positions on a combined basis between directly owned assets and assets held in the Sierra JV, as Elizabeth will comment on shortly.

The benefits of active portfolio rotation are coming into sharper focus. Today, BBDC shareholders are benefiting from a nearly fully repositioned portfolio that can selectively deploy capital into the most attractive middle market opportunities across the Barings platform.

Turning to the earnings power of the portfolio. The weighted average yield on debt and other income-producing securities at fair value was 10.1%. With the stabilization of base rates and spreads in private credit, we believe that portfolio yields are supportive of recent dividend declarations.

Our Board declared a second quarter dividend of $0.26 per share, consistent with the prior quarter. On an annualized basis, the dividend level equates to a 9.4% yield on our net asset value of $11.02. As Matt will discuss momentarily, we believe BBDC is well positioned to navigate the current market volatility and to deliver consistent risk-adjusted returns for our shareholders in the quarters ahead.

I'll now turn the call over to Matt.

Thanks, Tom. As you mentioned, there has been no shortage of headlines during the past few months related to the trends in private credit. These headlines have brought attention to the asset class, reflecting a mixed understanding of private credit both what it is and how it is positioned in underlying investor portfolios.

We believe that we are currently in a period of time where the news rhetoric has become a greater source of attention than fundamental performance. The rapid adoption of private credit within the retail wealth channel has turbocharged the broader industry.

In a post-COVID world, sometimes referred to as the golden age of private credit, investors readily embrace the returns of private credit with good reason. That dynamic drove substantial fundraising, increased competition, and in many cases, tightening spreads and looser structures. We are now seeing a shift.

Retail flows into non-traded vehicles have become more volatile due to heightened investor caution and institutional allocators are pacing commitments more deliberately, reducing the incremental capital entering the space.

From our perspective, this is a healthy development. A slower pace of capital formation should translate into reduced competitive pressures on new originations and upward pressure on spreads. We are already seeing early signs of this in the market.

While base rates remain elevated, all in yields have held firm and underlying credit conditions have remained largely stable. For disciplined lenders like BBDC, this is beginning to look like a more attractive deployment environment.

Looking ahead, as we mentioned on our prior call and as Tom alluded to, we expect 2026 to usher in a period of manager dispersion. During periods of abundant liquidity and benign credit conditions, returns across the BDC sector tend to compress. When defaults are low, liquidity is plentiful and refinancing is readily available, weak underwriting can be masked.

In that environment, beta often overwhelms alpha. We believe that period is ending. Portfolio decisions made over recent years will drive divergent outcomes ahead. Managers who chased higher leverage, looser documentation or cyclical sectors are now more exposed. While those who have maintained discipline, focusing on resilient business models, conservative capital structures and robust creditor protections are better positioned to weather volatility.

One topical example of a trend within our ecosystem, was the increasing frequency of annual recurring revenue loans in some BDC portfolios, which are highly correlated with software issuance.

Notably, BBDC does not have any loans to issuers structured on recurring revenue. We took a conservative stance in avoiding such transactions even if it meant occasionally ceding deals to other lenders. Our public filings use a broad industry classification that doesn't isolate software as a stand-alone category.

However, by our analysis, roughly 13% of our holdings are primarily software related. This figure compares to approximately 14% in the prior quarter. Importantly, this is an underweight allocation relative to most private credit portfolios and industry benchmarks. As BDC indices indicate that software often comprises over 20% of assets in our sector.

The software companies we do finance are typically vertically integrated providers with robust cash flows, diversified customer bases and significant equity cushions. We are focused on the potential AI disruption within the software sector, but believe these risks will likely take several quarters, if not years, to play out.

In the meantime, our cautious approach leaves Barings BDC well positioned should turbulence persist in the sector.

Turning to the macroeconomic backdrop. The current opportunities within private credit appear more compelling than they have in recent quarters. That said, we remain vigilant to broader macro risks. Barings private credit strategies deliberately avoid investing in highly cyclical sectors, among them oil and gas, metals and mining and construction.

While our issuers are not immune to volatility within the energy markets nor the possibility of economic contraction, we feel that our defensive portfolio is well positioned against an uncertain economic backdrop. Meanwhile, the path to monetary policy remains uncertain.

While there is ongoing debate around the timing and magnitude of potential rate cuts, base rates remain elevated relative to the past decade. This back pattern continues to support strong current income generation for our predominantly floating rate portfolio.

We believe this environment creates a compelling case to be invested in BBDC, which offers attractive distribution yields on a defensive portfolio.

Consistent with our messaging from the prior quarter, our outlook for M&A opportunities in the coming 12 months remains cautious. We see significant interest in early-stage activity, but the conversion rates to close transaction remain low industry-wide.

In comparison to our large market peers, BBDC issuers do not have the ability to access liquid credit markets to affect the refinancing of their facilities. They simply lack the scale. As a result, we are retaining some of our strongest issuers when EV multiples do not meet the sell-side expectations.

Turning to an overview of our current portfolio. 75% consists of secured investments with approximately 70% of investments constituting first lien securities, both unchanged from the prior quarter. Interest coverage within the portfolio remained strong with weighted average interest coverage this quarter of 2.6x above industry averages and slightly improved from the preceding quarter.

We believe strong interest coverage demonstrates the merits of our approach to focusing on leading companies in defensive sectors and thoroughly underwriting their ability to weather a range of economic outcomes.

The portfolio remains highly diversified with the top 2 positions within the portfolio, Eclipse Business Capital and Rocade Holdings being strategic platform investments.

Turning to the portfolio quality. Risk ratings exhibited stability during the quarter as our issuers exhibiting the most stress, classified as risk ratings 4 and 5 were 6% on a combined basis, down slightly from the 7% on a combined basis in the immediately preceding quarter.

Non-accruals remain modest and are below industry levels, excluding assets covered by the Sierra CSA, which protects us from legacy Sierra portfolio losses, non-accruals at fair market value amounted to only 0.6% of the portfolio versus 0.2% in the prior quarter.

On an inclusive basis, non-accruals were roughly 1.0% of the portfolio at fair value and 2.0% at cost, which is among the lowest in our industry. During the quarter, 3 investments were placed on non-accrual EMI, Terrybear and the Junior Capital position in Eurofins. Our team remains proactive in managing credit issues and remain confident in the credit quality of the underlying portfolio.

We expect BBDC's differentiated reach and scale, coupled with its core focus on the middle market and unmatched alignment with shareholders to continue driving positive outcomes in the quarters and years to come. As previously noted, BBDC is a through-the-cycle portfolio designed to withstand a variety of economic environments.

I'll now turn the call over to Elizabeth.

Thanks, Matt. As both Tom and Matt highlighted, BBDC delivered solid first quarter results in a dynamic market environment, achieving stable earnings and advancing our balance sheet strength. I'll now walk through our financial results and key balance sheet metrics for the first quarter of 2026.

NAV per share stood at $11.02 as of March 31, down modestly from $11.09 at year-end 2025. This 0.6% sequential decrease of NAV was primarily driven by net realized losses on a few portfolio exits partially offset by net unrealized appreciation on investments, CSA and foreign currency.

Net investment income for the first quarter was $0.25 per share. This compares to $0.27 per share in the fourth quarter of 2025 and $0.25 per share in the first quarter of last year. The decline in NII largely reflects slightly lower interest income due to a small dip in our weighted average portfolio yield, fewer calendar days in the quarter and the absence of non-recurring fee income, we benefited from in Q4, such as onetime prepayment and amendment fees.

On the expense side, we saw a lower incentive fee accrual this quarter. Our base management fee was stable and interest expense declined approximately 10% reflecting lower average debt outstanding. Net investment income per share of $0.25 fell just short of our $0.26 quarterly dividend under earning by $0.01. We've anticipated this possibility given the exceptional overearning in recent quarters and a slightly lower portfolio income this quarter.

Importantly, we maintain substantial spillover income of approximately $0.79 per share, providing us a cushion to support dividend income. In line with our commitment to consistent shareholder returns, the Board declared a quarterly dividend of $0.26 per share for the second quarter of 2026 and change from prior levels.

This dividend represents a yield of roughly 9.4% on our current NAV of $11.02 per share. We will continue to manage our payout prudently.

As we look ahead, we recognize that a higher for longer interest rate environment has bolstered our earnings over the past year. But if base rates begin to decline, we may see some natural compression in earnings and dividend coverage. Rest assured, we intend to carefully evaluate the dividend on an ongoing basis to ensure it remains appropriately aligned with our sustainable net income.

Our spillover income in our industry-leading 8.25% incentive fee hurdle provides us with flexibility to maintain stable dividends even as short-term earnings fluctuate.

Shifting to realized and unrealized gains and losses, we recorded net realized losses of $10.8 million in the quarter. These losses, approximately $0.08 per share were primarily driven by a few discrete events, including the exit of our loans to Dexter Rec and the sales of five CLO investments in the legacy Sierra portfolio.

As well as the restructuring of our debt investment in Transportation Insight during Q1. These realized losses were partially offset by a gain on the sale of our equity stake Ocelot following the portfolio company's exit during the quarter.

It's important to note that the impact of these losses on NAV was largely muted by prior period unrealized depreciation. In other words, we had already marked down these investments in previous quarters, so a significant portion of the realized loss is effectively a reclassification from unrealized to realized and did not materially reduce our current NAV.

Our portfolio experienced net unrealized appreciation of $4.9 million this quarter or roughly $0.05 per share of NAV accretion. Key positive valuation movements included further increases in the fair value of our Sierra CSA, which I'll detail in a moment, as well as gains on select performing investments in the portfolio such as Skyvault and Security Holdings.

This appreciation helped offset unrealized write-downs on a few challenged positions including legacy MVC Audit and our debt investment and EMI. Overall, net realized and unrealized results for the quarter amounted to an approximately $5.9 million decrease in net assets, which drove the slight dip in NAV, I have mentioned earlier.

Our Sierra CSA continues to serve as its intended purpose of insulating our NAV from the wind down of the acquired Sierra portfolio. The valuation of the Sierra CSA increased by approximately $5.3 million from $60.5 million in the fourth quarter to $65.8 million as of March 31. This increase reflects continued paydowns and asset sales within the remaining Sierra portfolio, which is now down to only 7 issuers with a total fair value of approximately $18 million versus 12 issuers and $32 million at year-end.

As well as updated assumptions around an accelerated termination time line for the CSA. In fact, the Sierra joint venture exited its remaining investment and returned $16.4 million of capital to us during the first quarter. We are optimistic about terminating the CSA in the near-term, which should eliminate structural complexity in our balance sheet and provide approximately $65 million for redeployment and income-producing assets.

Our balance sheet remains conservatively dispositioned. We ended the first quarter with a net leverage ratio, which is defined as regulatory leverage, net unrestricted cash and net unsettled transactions at 1.17x at quarter end, which is squarely within our target range of 0.9 to 1.25x. This net leverage of 1.17x ticked up only slightly from 1.15x at year-end.

We continue to prudently manage our capital structure which remains predominantly comprised of long-term unsecured debt. As of quarter end, roughly 80% of our outstanding debt was in unsecured notes, among the highest proportion of unsecured funding in the BDC industry, which provides us significant flexibility in managing our liabilities.

We ended Q1 with ample liquidity, about $95 million of cash and foreign currency on hand and over $530 million of available borrowing capacity of our $825 million credit facility. In total, we have well over $600 million of dry powder at quarter end to support our financing needs and future investment opportunities.

We remain active and opportunistic participants in investment-grade debt markets, giving us confidence in our ability to address future financing needs while preserving our balanced funding profile.

Lastly, a quick note on capital allocation. As Tom mentioned, we remain focused on delivering value to our shareholders through both stable dividends and repurchases. During Q1, due to a company blackout period, we did not repurchase any shares. However, our Board authorized a new $30 million share repurchase program for 2026, reflecting our commitment to opportunistically buy back shares when trading at a meaningful discount to NAV.

We intend to employ this buyback program as appropriate going forward, subject to market conditions and other factors.

In summary, Barings BDC's first quarter demonstrated the resilience of our earnings and the benefit of our disciplined approach. While we plan to carefully manage through potential interest rate normalization and credit headwinds, our diversified portfolio of senior secured investments, robust liquidity and conservative balance sheet leave us well positioned to continue delivering attractive risk-adjusted returns to our shareholders.

And with that, I'll turn the call back to the operator for question and answers.

[Operator Instructions] Our first question today is coming from Finian O'Shea from Wells Fargo Securities.

Question on the new non-accruals, just a few smaller names, but previously, they were marked in the low 90s. I'm not sure if that applies to the European one, given the currency input. But can you talk about the sort of big picture, the why? Is it a tariff inflation, commodities and if this is sort of a concerning trend in that regard?

Yes. This is Matt. And so there are 3 adds to that list this quarter in concert with removing some. With respect to the European position, that actually, I believe, was carrying a fair market value of 0 last quarter. And so the consequence to the portfolio is immaterial.

With respect to the 2 U.S. platforms, I would describe those events as being continued challenges in the portfolio. They do both have some element of export, import exposure, but that's not really the reason that catalyzed the move to non-accrual. Both are just operating in slightly more challenged end markets at the current moment.

And after some negotiations with other members of the investor base, both on the debt and the equity side, we made the decision that it would likely be prudent to move those assets to non-accrual. In the case of one of them, we actually are in process of restructuring it and expect that to be a relatively short-lived presence with respect to the non-accrual designation. But of course, time will tell.

Okay. That's helpful. And then, Elizabeth, you talked a bit about the CSA. I think I caught all of that. So just to tease that out. To the extent you may settle the newer one early as you all did with the last one, is that something near-term, just a matter of doing the paperwork? Or are there a certain amount of exits on the runway before we might see a conclusion of the other CSA?

I would say that we're optimistic that the termination will happen earlier rather than later and likely at some point this year.

[Operator Instructions] If there are no further questions at this time, I'd like to turn the floor back over for any further closing comments.

Thank you, operator, and thank you to all who participated today. I look forward to deepening our engagement with investors and advancing our strategic priorities with the full BDC leadership team. BBDC is strongly positioned for the future and we remain focused on delivering consistent value for shareholders. Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

At this time, I'd like to welcome everyone to the Barings BDC, Inc. Conference Call for the quarter and year ended December 31, 2025. [Operator Instructions] Today's call is being recorded, and a replay will be available approximately 2 hours after the conclusion of the call on the company's website at www.baringsbdc.com on the Investor Relations section. At this time, I'll turn the call over to Joe Mazzoli, Head of Investor Relations for Barings BDC.

Please note that this call may contain forward-looking statements that include statements regarding the company's goals, beliefs, strategies, future operating results and cash flows. Although the company believes these statements are reasonable, actual results could differ materially from those projected in forward-looking statements. These statements are based on various underlying assumptions that are subject to numerous uncertainties and risks, including those disclosed under the sections titled risk factors and forward-looking statements in the company's annual report on Form 10-K for the fiscal year ended December 31, 2025, as filed with the Securities and Exchange Commission.

Barings BDC undertakes no obligation to update or revise any forward-looking statements unless required by law. I will now turn the call over to Tom McDonnell, Chief Executive Officer of Barings BDC.

Thanks, Joe, and good morning, everyone. On the call today, I'm joined by Barings BDC's President, Matt Freund; Chief Financial Officer, Elizabeth Murray; Barings' Head of Global Private Finance and BBDC Portfolio Manager, Bryan High. Before I discuss our quarterly and annual results I'd like to take a moment to speak about the leadership transition that we recently implemented and my involvement with the BDC franchise going forward. As many of you know, I assumed the role of CEO of Barings BDC effective January 1. Prior to stepping into this position, I spent most of my career deeply rooted in fundamental credit research and underwriting, portfolio management and investor alignment across multiple strategies within Barings.

Having navigated multiple credit cycles and managed leverage credit businesses for decades, I bring a perspective that reinforces my conviction in the strength and durability of our investment process. And importantly, in our continued ability to deliver value for our shareholders. What has been immediately clear in my early months is what I long believed to be true. Barings BDC benefits from a best-in-class direct origination platform focused on the core middle market. This differentiated sourcing capability paired with our disciplined underwriting and strong alignment with shareholders represents a powerful combination, one that positions us well to drive attractive long-term risk-adjusted returns. While I bring a fresh perspective, the strategy, process and philosophy that defined BBDC remain firmly intact.

Our approach is working and my focus is on enhancing the processes that already operate effectively and complementing the strength of an exceptional existing team. It is my intention to accelerate existing initiatives and implement additional initiatives, all with a clear focus on ultimately improving ROE. I've had the privilege of connecting with many of our stakeholders following the leadership transition, and I look forward to continuing that dialogue in the weeks and months ahead. In the fourth quarter, BBDC delivered strong net investment income accompanied by excellent credit performance within the Barings originated portion of the portfolio. Origination activity across the platform during the fourth quarter reflected continued success in our core strategies.

Net deployment was influenced by fund-level leverage and the fourth quarter reflected a period of net repayments consistent with our prior guidance. A strong and highly diversified portfolio, combined with a benign credit environment and our focus on top of the capital structure investments in middle market issuers has continued to serve our investors well. We focus on the core middle market given its lower leverage and stronger risk-adjusted returns, making it the most compelling segment for BBDC and our shareholders. In addition, our emphasis on sectors that performed resiliently across economic environments provides an additional level of stability to our portfolio. This combination of senior secured financing solutions, core middle market focus, defensive noncyclical sectors and a global footprint offers our investors strong relative value and a meaningful differentiation within the broader BDC landscape.

BBDC's portfolio has performed largely as designed. Our defensive diversified issuer base is built as an all-weather portfolio. We believe this approach serves investors well regardless of the broader macroeconomic conditions, which, as Matt will touch on momentarily, we feel are broadly favorable. At the same time, we are beginning to see increased dispersion across managers in the space. Our experience suggests that underwriting rigor often reveals itself over multiyear periods rather than quarters. As investors in private credit know, it can take 3, 4 or even 5 years for the portfolios to season and for credit performance to materialize.

Importantly, we have avoided ARR loans, deeply cyclical issuers and creative financing structures that appear to be presenting headwinds to the sector. As we continue through 2026 and into 2027, we are confident that BBDC will continue to demonstrate the merits of rigorous credit underwriting, fundamental credit analysis and a long-term -- long track record within the asset class. Turning to our results. Net asset per value was $11.09 per share, substantially unchanged from the prior quarter. Net investment income for the quarter was $0.27 per share compared to $0.32 per share in the prior quarter. These results reflect continued strength in Barings' originated investments, ongoing credit stability and disciplined capital allocation.

Now digging a bit deeper into the portfolio, we continue to actively maximize the value in legacy holdings acquired from MVC Capital and Sierra. During the fourth quarter, we accelerated the rotation of the Sierra portfolio, exiting approximately $50 million of legacy positions on a combined basis between directly owned assets and assets held in the Sierra JV, as Elizabeth will comment on shortly. As of quarter end, Barings originated positions now make up 96% of the BBDC portfolio at fair value, up from 76% at the beginning of 2022.

Turning to the earnings power of the portfolio. The weighted average yield at fair value was 9.6%, reflecting a slight reduction from the prior quarter due to a reduction in base rates. Our Board declared a first quarter dividend of $0.26 per share, consistent with the prior quarter. On an annualized basis, the dividend level equates to a 9.4% yield on our net asset value of $11.09. As Matt will cover momentarily, BBDC is well positioned to navigate the current market volatility and deliver consistent risk-adjusted returns in the quarters ahead. I'll now turn the call over to Matt.

Thanks, Tom. I would first like to comment on my excitement to have you as part of our team. Barings managed nearly $0.5 trillion of capital, primarily in credit and credit-related investments. We recognize the increasing convergence between various markets and know that your significant experience in high yield, stressed and distressed markets augments the capabilities of our team and enhances our portfolio management efforts that will benefit our investors in the quarter to come. Turning to the topic on many investors' minds, software and the prospects of AI impacting underlying credit portfolios. Software accounts for approximately 14% of the fair market value of the BBDC portfolio. For those that follow our public filings, you will notice that we have long used the Moody's industry hierarchy for our industry classifications, which does not separate software as a distinct industry. .

Nevertheless, after reviewing our information, 14% of the portfolio is invested in issuers, primarily providing software to their underlying customers. Our portfolio is under-indexed relative to other private credit portfolios as we have historically avoided both annual recurring revenue loans as well as highly leveraged software issuers. We rarely provided the most aggressive leverage packages, as a consequence were often not perceived to be competitive in the eyes of the issuers and sponsors for these software assets. We step to our historical knitting and the resulting software exposure reflects this approach. With that said, we believe the rhetorics related to an existential crisis within the software vertical is overblown.

The current market tone is reminiscent of a few other periods in recent memory. During 2018, the U.S. initiated a trade war with China, with justified concerns that industrial and manufacturing businesses would experience headwinds causing bankruptcies across the country. At the onset of COVID pandemic during 2020, logical arguments were made that healthcare companies would be forever transformed and loans to healthcare issuers would face a reckoning. And in March of 2022, interest rates began a historical rise, ultimately leveling off at more than 500 basis points by mid-2023. The rapid rise in interest rates caused many investors to express concern about indebted companies and the confidence and sustainability of various industries.

Within the context of Barings' managed portfolios, we did not experience a wave of industrial default, healthcare defaults or general industry defaults due to any of these events. What we did witness however, was that during these periods of rapid industry change, businesses with weak management, poor business models and questionable value propositions did experience stress. And some companies did fail, but it was not the macroeconomic events that drove losses. It was the fact that macroeconomic events exacerbated weaknesses that already existed. We believe we stand on the precipice of another period of rapid industry evolution and in this case, within the software ecosystem. Business models will be tested and some may ultimately fade away but well-run businesses managed by smart and capable people are expected to continue exhibiting success.

Poorly run businesses will experience the same business cycle that all poorly run businesses ultimately experience. Products will become obsolete, customers will leave and the relevance will be diminished. One area we are most interested to follow in the months to come is the performance of ARR-related businesses, as both Tom and I have commented on. And in particular, those that were expected to transition to cash flow or EBITDA-based covenants, but have not. While we do not have exposure to issuers such as these, we would encourage investors to try and stratify the risk to these kinds of financings as we anticipate headwinds will be over-indexed in this segment of the software ecosystem in the quarters to come.

Turning now to the state of originations. We ended 2025 with sequential improvement in deployment as compared to the prior 3 quarters. Our outlook into 2026 takes a more measured tone. As the new year is upon us, we are again hearing early indications that 2026 will represent a banner year for M&A opportunities in the coming 12 months. Given our strategy to focus on the core of the middle market, large market transactions, which we define as financings for issuers with more than $100 million of EBITDA are less relevant to our business. And while financing of this size may materialize, it will have a muted impact on our overall deployment at Barings.

Our continued commitment to the core of the middle market will benefit from our incumbent positions, which is likely to provide compelling deployment opportunities regardless of what the future may hold. We are highly focused on the trends in both base rates and interest rate spreads. Base rates continue to gradually migrate lower from post-COVID highs, while narrowing spreads have begun to show some level of support. The benefits of the active portfolio rotation we have previously discussed are coming into sharper focus. BBDC shareholders benefit from a largely invested portfolio that can selectively redeploy capital into the most attractive middle market opportunities from across the Barings franchise.

Given the size of the portfolio and the illiquid nature of the underlying positions, our ability to rotate the portfolio takes quarters, not months, but we are continuing to see the benefits of this effort. Turning to an overview of our current portfolio. 75% consists of secured investments with approximately 70% of investments constituting first-lien securities. Interest coverage within the portfolio remained strong with weighted average interest coverage this quarter of 2.4x, above industry averages and consistent with the prior quarter. We believe strong interest coverage demonstrates the merits of our approach of focusing on leading companies in defensive sectors and thoroughly underwriting their ability to weather a range of economic conditions.

The portfolio remains highly diversified with the top 2 positions within the portfolio, Eclipse Business Capital and Rocade Holdings being strategic platform investments. These investments provide BBDC's shareholders with access to differentiated compelling opportunities to invest in asset-backed loans and litigation funding solutions, two specialized areas, we believe provide attractive total returns and diversification benefits. Turning to the portfolio quality. Risk rating exhibited stability during the quarter as our issuers exhibiting the most stress, Crossfire risk rated 4 and 5 were 7% on a combined basis and unchanged from the immediately preceding quarter.

Nonaccruals, excluding the assets that are covered by the Sierra CSA, accounted for 0.2% of assets on a fair value basis versus 0.4% of assets on a fair value basis in the immediately preceding quarter. During the quarter, we exited 1 nonaccrual investment, removed 1 asset from nonaccrual status that was restructured and moved 1 additional asset on to nonaccrual. We remain confident in the credit quality of the underlying portfolio. We expect BBDC's differentiated reach and scale, coupled with its core focus on middle market credit and unmatched alignment with shareholders to continue driving positive outcomes in the quarters and years to come. As previously noted, BBDC is a through-the-cycle portfolio designed to withstand a variety of macroeconomic conditions. With that, I'd now like to turn the call over to Elizabeth.

Thanks, Matt. As both Tom and Matt highlighted, BBDC continues to deliver strong, consistent earnings, maintain exceptional credit quality and provide attractive risk-adjusted returns for our fellow shareholders. Turning to our results for the fourth quarter. NAV per share ended the year at $11.09, which was essentially flat compared to the third quarter at $11.10, representing less than 0.1% decrease quarter-over-quarter. The slight quarter-over-quarter movement reflects a combination of modest realized losses of $0.05 per share, offset by $0.02 per share of unrealized appreciation, $0.01 per share from share repurchases and continued stable earnings generation from the portfolio over earning the dividend for the fourth quarter by $0.01 per share. The net realized loss on the portfolio was driven primarily by the loss of -- on the exit of our investments in Ruffalo and Avanti and the restructuring of our investments in Europe in, partially offset by the sale of our equity investments in James Fish and CJS Global.

These exits and restructures were predominantly reclassed from net unrealized depreciation. The valuation of the Sierra credit support agreement increased by approximately $7.7 million from $52.8 million in the third quarter to $60.5 million as of December 31. This increase was primarily driven by the sales, repayment and return of capital within the underlying portfolio as well as updated assumptions around the maturity profile of the remaining Sierra investments. During the fourth quarter, the Sierra portfolio generated approximately $24.3 million of sales and repayments, along with a $21.9 million return of capital distribution from the Sierra JV. At year-end, we had 12 positions remaining in the portfolio with the value of approximately $32 million, down from 16 positions and $79 million as of September 30. On a year-over-year basis, we reduced the Sierra portfolio by roughly 75% including about $70 million of repayments, sales and return capital. In addition, during the year, we completed the early termination of the MVC credit support agreement resulting in a one-time $23 million payment from bearings to BBDC.

This strategic action reduced structural complexity within BBDC and further concentrated our portfolio with income-producing assets. We reported net investment income of $0.27 per share for the quarter versus NII of $0.32 per share in the prior quarter and $0.28 per share for the fourth quarter of 2024. For the year, net investment income was $1.12 per share compared to $1.24 per share for 2024. Net investment income was primarily driven by recurring interest income across our diversified senior secured portfolio complemented by contributions from our joint ventures and our platform investments in Eclipse and Rocade.

The decrease in net investment income year-over-year was primarily due to sales and repayments on the portfolio and declining base rates. It's important to note that net investment income exceeded our regular dividend of $1.04 per share. Our net leverage ratio, which is defined as regulatory net leverage of unrestricted cash and net unsettled transactions was 1.15x at quarter end, down from 1.26x as of September 30, well within our long-term leverage target of 0.9 to 1.25x. This reflects our intentional positioning to support origination activity and planned asset transfers to our Jikafi joint venture. Our capital structure continued to strengthen in 2025 as we repaid $112.5 million of private placement unsecured notes, completed the annual extension of our corporate revolver in November and further diversified our funding sources with the issuance of $300 million of senior unsecured notes in September.

More broadly, our funding profile remains strong and thoughtfully aligned with our disciplined approach to asset liability management. Our liabilities are well diversified by duration, seniority and structure with an industry-leading share of unsecured debt in our capital structure at roughly 84% of our outstanding debt balances. Liquidity remains robust and well diversified, supported by undrawn capacity on our revolving credit facility and incremental flexibility from our joint venture with Jakafi. Near-term maturities remain limited and our continued access to a broad set of funding markets positions us to proactively navigate refinancing needs while maintaining balance sheet strength.

Subsequent to quarter end, on February 26, we will fully repay $50 million of private placement notes at par, including accrued and unpaid interest. Now on to capital allocation. Our net investment income for the quarter of $0.27 per share covered our regular dividend of $0.26 per share. As previously mentioned, the Board continued its strong focus on returning capital to shareholders and declared a first quarter dividend of $0.26 per share, representing a 9.4% distribution yield on NAV. Looking ahead to 2026, we expect the declining base rates reflected in the trajectory of the forward safer curve will likely put downward pressure on net investment income. And as a result, our regular dividend may decrease from current levels. While our earnings profile remains resilient and benefits from an industry-leading 8.25% hurdle rate, low base rates naturally reduce the income generated on our floating rate portfolio.

Even so, our diversified portfolio of senior secured investments, well laddered capital structure and disciplined underwriting continue to provide meaningful support to earnings. In addition, we currently hold deliver income of approximately $0.80 per share, representing about 3/4 of our regular dividend and offering flexibility as rates normalize. Taken together, although a lower regular dividend in 2026 as possible given the rate backdrop, the durability of our earnings and the strength of our balance sheet positions us well to navigate this transition and continue delivering attractive risk-adjusted returns.

Share repurchase activity continued during the year and contributed $0.02 per share to NAV. We repurchased over 450,000 shares in the fourth quarter for a total of over 700,000 shares for 2025. In addition, the Board authorized a new $30 million share repurchase plan for 2026, underscoring our commitment to enhancing shareholder value. Stepping back, 2025 was a year of steady earnings, strong liquidity and active portfolio rotation. Despite lower base rates, we continue to produce durable NII, maintain solid credit performance and execute on our balanced approach to capital allocation, including consistent dividends and meaningful share repurchases. As we look ahead to 2026, we remain confident in the resilience of the portfolio and the strength of our platform, and we are well positioned to continue delivering attractive risk-adjusted returns for our shareholders. And with that, I'll turn the call back to the operator for questions.

[Operator Instructions] Our first question today is coming from Finian O'Shea from Wells Fargo Securities.

Start with, I guess, Tom, some interesting opening remarks on initiatives anything your -- you find yourself working on in terms of the accelerating existing initiatives part? And then also on the new ones, to improve ROE, as you outlined, any sort of heavy lifting or big changes we might anticipate there? .

Yes. Thanks, Ben. So yes, a number of initiatives that we've undertaken here. I think in part, really, they are sort of a continuation of what the team has already done. So as you know, we've got many sort of assets on the balance sheet, legacy assets that have come over from some of the integration of the other companies we have acquired. So my focus has been really on trying to accelerate exits of those, many of those, as you know on earn interest. So as we can redeploy some of those proceeds into interest-earning assets and accelerate our exit from those, obviously, that's an immediate enhancement for ROE. So that's been a big focus of mine. I think within the CSA, another area where we've tried to make an effort to wind down the assets there to the extent that we can, we know that the CSA has clearly been a story for us for quite some time.

I think it's been very beneficial for shareholders and protecting them from losses, but that thing is beginning to grow in size. And so as you know, earlier this year, we did terminate one of those. And so while we can't guarantee anything, it is our effort is going to be a strong effort of ours as a team. to make sure we address that in a timely manner and again, to try to have some sort of an event around that where we could potentially realize proceeds there and again, redeploy those into interest-earning assets. Along the same lines, we continue to wind down some of the JVs that some of them have been problematic for us. We're focused on okay, obviously, Jakafi is a JV that's worked -- to our benefit, we continue to believe that, that's actually a great partnership and look to continue to potentially expand on that one as well.

So those are a couple of the initiatives, I would say, initiatives we don't have to take, but exist or that I think are going to be very shareholder-friendly. ROE-friendly, are going to be the hurdle rate, as you know, is quite high relative to our peers. And I think as base rates come down, that's going to be an immediate benefit to our earnings to our ROE. So those are a couple of the initial ones. I would also sort of like to point out, as you all know, I've been here for Barings for 20-plus years. there's just many other parts of Barings, other private asset things that we can consider. Clearly, our core is always going to be GPF in this strategy, but there are a number of things, I think, that we can explore that we have expertise in across the platform here at Barings. And so I think that we will bring some of those to bear as potential investment opportunities as we, again, continue to look to enhance ROE and return to shareholders.

Okay. A lot there. Yes. Interesting on expanding Jocassee. Would that look any different because some -- I've had some discussions with investors, and there's a view that you sort of don't get enough of the pie there. You're something like 9% in the -- of the equity and the partner also gets the equity-like return. It's not a preferred return. And it looks like something that could be better. That's not to say it's bad. It's doing what it's supposed to do in mid-teens, but it looks like the person you want to be is the account that gets that for free. So is there a way that this might tilt more return toward BDC shareholders? .

Yes. No, I think that -- I don't know that we increased the percentage of ownership, but I certainly think we can increase our investment there and direct more activity down there. So -- and therefore, increased absolute dollars back in sort of form of the dividend. So as we consolidate the other JVs and wind those down and they're virtually at this point, wound down. I think we redirect investment into that entity. And again, we share all the same risk at the BDC level. as we do down at GECAS and I'm going to get the benefit of the leverage down there and the enhanced return to shareholders. So I think that will be a focus as we move forward. And I think it's been very successful for us over time, and we continue to believe it will be.

Appreciate that. Do one final sort of market question. I'm not sure if the esteemed Joe azole is microphone eligible. But a lot of news in the nontraded BDC market, it feels like the ground is shaking again this week. Anything you all are seeing or feeling on the ground of private retail investor sort of reluctance or hesitation or jitters on that sort of product format. .

Yes. So Joe is not miked up, but I'll start and take that. We're working hand in hand on that as a team as well. And so Obviously, the headlines have not been our friends really for 4 months now and clearly news this week is not helping on that front at all. So for us, it's up to us really to reach out to investors and be a little more front-footed as we address some of the issues in the market. And I think we've done a good job with that. Our flows there have been good. We haven't seen any material degradation and the pace of flows relative to what we saw last year. So we continue to believe that, that's the case moving forward in the first couple of months of this year. I guess everybody will see at end of the first quarter here on what redemptions might look like. But -- as of now, we're just sort of fighting the battle of the headlines, and we do believe that, that is what it is. And so I think everybody here who is knowledgeable about the space and truly understands private credit, understands that it is very viable. And I think we're in a good position there, but it's on us really to get that message out and to make sure that we alleviate investor concerns on that front.

Next question today is coming from Casey Alexander from Compass Point.

Yes. And Matt, I appreciate your comments trying to bring some relative perspective to the software market, but I do have a follow-up question to that, that I'm actually going to direct it Tom, because, Tom, you have a long history in the liquid credit markets. And an issue that investors continue to raise and would like to hear some commentary on is that the -- in the liquid credit markets, the average price per software loan is actually trading at recent reports around 90. So I'd like to hear how much you think that matters and how much you think that influences bearings and the third-party independent valuation firms, when they go to mark the books at the end of the first quarter, is that a relevant comp? Does it come into it? How much does it influence it? And what should investors expect?

Yes, that's a great question. So I believe that in the broadly syndicated loan space, the predominant player there are CLOs. And CLOs are very ratings-sensitive. They're also somewhat price sensitive. But the reality is there has just been so much noise around it that I think people are just sort of hitting the cell button where they can. $2 million, $3 million position, you have 4 or 5 people doing that immediately, you're going to see a 2- to 3-point backup in that loan. It will be a perfectly good credit. There'll be no issues with it. reasonable leverage, good cash flow. The businesses in our opinion, are good. We've got a great analyst that covers that up there. So I think that a lot of that has to do with not necessarily forced selling, but repositioning ahead of potential downgrades and I don't even see that really as something that's coming in the near term.

We're going to have to see multiple quarters of results to see if some of this -- the negative headlines come to fruition. Our personal belief is that it does not happen in the way that we across the Barings platform underwrite software is the recurring nature, it's got to be sort of vertically integrated enterprise value stuff that's sort of really integral to company's core operations. And so where we are invested is in companies like that. So unfortunately, the headlines just force people into that sort of sell mode, sell first and sort of ask questions later, especially if it's only a $2 million or $3 million position as many CLOs sort of have. So that sort of then leads to who's going to buy that. And so with all the headlines, folks don't necessarily want to back up the truck on names like that, that are just trading at a 2- or 3- or 4-point discount, just doesn't really make sense from a 3-year DM perspective that they look at on buying and then also just increasing software exposure becomes more of a story that managers have to tell their investor base.

So -- so with that, you get the price gap when you see sellers move in like that. And again, not based on fundamentals, in my opinion, because it just doesn't warrant that. So -- so how does that translate into our space? I don't know necessarily that it does because these are broadly syndicated loans that, again, they're liquid, but only to a certain point and to a certain depth and then you begin just to see marks that don't make sense. So I don't know how that's going to translate into valuation, again, with our platform and the way that we look at it. We don't see any need at all and don't view their need to be any reason for us on our software exposure to be making any marks down associated with that. So we feel pretty good about our exposure.

There will clearly be a knock-on effect from that. It's the sort of topic of the hour, if you will, and what's going on in the space. But again, we believe that it's overblown and people are just reacting to headlines, and it's our job to get in front of that with our investors and make sure that they understand the stability of the underlying credits in our portfolio, particularly as it relates to software.

Well, that's a great answer. My follow-on would be, in the past, when the liquid credit markets have offered a better risk-adjusted rate of return than the directly originated markets have, Barings has been willing to step into that market and try to take advantage of it to create some positive NAV accretion as some of those opportunities present themselves. Is that something that you're watching, thinking about? Is that a possibility at some point time down the road if the mismatch between the liquid credit markets and the directly originated private credit markets gets too wide?

Yes, yes, absolutely, we would consider that. We are -- we have a lot -- we do a lot of work with our high-yield team. Obviously, I came from that group. And so a lot of respect for the team up there. And so they do a lot of work around this, and we will step into it where we think there's opportunity there. And so -- that is something that is clearly on our screen. And the way we approach BSLs will be very tactical about it. And so I do think there's an opportunity there as we you just see some of this air pocket and in some of the names or if they're just general sell-off in BSLs, we do know what sort of the top picks up there are. And so you can move in there, take very little credit risk and just take advantage of the volatility in some of those names. And so you could see us potentially do that. It is a strategy that we're considering as we see that spacing -- see the market evolve in terms of pricing there.

Your next question today is coming from Robert Dodd from Raymond James.

Congratulate on the quarter, You wanted some few green names on my screen today. On the time kind of like strategic initiatives. I mean you talked about ideally liking to crystallize the Sierra CSA as well. But I mean, where would you -- if that -- if you did, right, in the not-too-distant future, -- what are the areas that you'd like to put that capital to? I mean, obviously, you're talking about putting more into Jucathat's an equity, strategic equity effectively, Eclipse and locate have been great, but they are -- they do show up as equity. They are income producing, very different thing from what normal equity is. I mean, how would you like to allocate incremental capital across the different types of strategy you've done between straight lending, some strategic equity. I mean, what's kind of the vision for the mix over the next couple of years, so to speak?

Yes. So I mean across the platform, Barings, we got great origination platforms everywhere. I think we've leaned into sort of our capital -- the complexity piece of private credit and got excellent returns there. You referenced Rocade and Eclipse, those are two. We continue to work with the group there. I'm actually on that investment committee as well. And so there are some really interesting risk-adjusted return investment opportunities on that platform that we will continue to do. I think that is definitely one area that we'll look to do that. As you know, I'm a big believer in diversification and credit. So as more opportunities come there, I think you could see us diversify holdings in some of those names that have the complexity premium and very interesting opportunities there that come at 200 to 300 basis points wider on spread than what you can get right now in private credit.

So that would be sort of one area of focus as well across the platform, some of the asset-based lending opportunities, I think that we may have as well could be interesting as well as being tactical, right? Because we see more volatility in the space. Clearly, the BSL piece would be an area where we could see some interesting opportunities. I think BB CLOs is an opportunity for us. So I think what you'll see us do is be just a little more tactical in areas like that. And then again, always focused on the core of our GPF assets, but I think looking at a number of the origination platforms here on the private credit side at Barings, there's just a lot of opportunity for us.

So we'll continually evaluate where those stack up relative to GPF spreads and opportunities there. So there's a lot of sort of choices we can make along that. And so that is part of my focus. One of the strategic initiatives, again, is to utilize the entire Barings origination platform to find the best sort of risk-adjusted return opportunities and put them to work here.

Got it. And then flipping to software, if I can. I mean to an I mean the average liquid is -- but that's not a uniform, right? I mean it's -- there's a lot trading higher than that, and there's a few trading much lower than that, for example. When you look at your book, the 14% that you said is software. I mean, obviously, you've avoided the types of -- or try to avoid the types of businesses that are particularly vulnerable to AI displacement and those are the ones that are trading the ones that the market is concerned about the one in liquid market, those as the ones that trade in the big discounts, much exposure, if any, do you have to the same kind of businesses, the liquid market has really taken out behind the woodshed, so to speak. I mean, obviously, I think it's low, you've been avoiding it, but do you have any?

Yes. No, we don't have any that are -- so you're talking about the liquid loans that are trading now in the low 80s. Those are the ones that are more highly levered names that are clearly the ability for AI to disrupt some of those models is much more evident. And I think those are the ones. So there's been massive dispersion. So good, high-quality names in software and broadly syndicated are probably in the mid-90s at this point to 98% and just trading because of they're associated with software and then the ones that actually have real credit concerns, as you mentioned, are in the mid-80s and even lower. And so those are the ones that have been legacy investments for quite some time and have been sitting around 4 or 5 years. .

Many of them have already faced or are facing LME type events. And so then you'll see the trading price really gap down significantly. So -- we don't have exposure to those on the GPF platform. We have -- AI has not come along as something that is a risk that recently we identified. It's been something that's been a core part of the underwriting for the team going back years now. So I think that's always something that has been considered, and we just don't have anything on our radar screens that would indicate that we have issues like that, where AI is an immediate disruptor. And therefore, we'll have future impacts on quarterly earnings and EBITDA, et cetera. So we feel pretty good about our investments in that space within the 14% exposure we have there.

Got it. One more, if I can to make Elizabeth's life maybe more awful. Any consideration to shift through categorization to I mean GICs has increasingly become a standard. Most BDCs use it. The fact that you does make it harder to compare between BBDC and most of the universe, the liquid loan markets even disclosed in GICs categories now. I mean, so yes, Moody's has been your industry categorization for a long time. But -- would there be value in your view to actually switching to what's becoming more the industry standard?

Yes, Robert, thanks for the question. And it's something that we have been talking about internally, again, especially with the software piece, right? I know Matt kind of alluded to it in his commentary. So it is something that we are constantly looking at and discussing especially from an SEC reporting perspective. But thank you for your question.

[Operator Instructions] We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Okay. Thank you, operator, and thank you to all who participated today. As I begin my tenure as CEO, I look forward to deepening our engagement with investors and advancing our strategic priorities with a full BDC leadership team. BBDC is strongly positioned for the future, and we remain focused on delivering consistent value for our shareholders. Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

Greetings. At this time, I'd like to welcome everyone to the Barings BDC, Inc. conference call for the quarter ended September 30, 2025. [Operator Instructions] Today's call is being recorded, and a replay will be available approximately 2 hours after the conclusion of the call on the company's website at www.baringsbdc.com under the Investor Relations section.

At this time, I will turn the call over to Joe Mazzoli, Head of Investor Relations for Barings BDC.

Good morning, and thank you for joining today's call. Please note that this call may contain forward-looking statements that include statements regarding the company's goals, beliefs, strategies, future operating results and cash flows. Although the company believes these statements are reasonable, actual results could differ materially from those projected in forward-looking statements. These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled risk factors and forward-looking statements in the company's quarterly report on Form 10-Q for the quarter ended September 30, 2025, as filed with the Securities and Exchange Commission. Barings BDC undertakes [indiscernible].

[indiscernible] by Barings BDC's President, Matt Freund; Chief Financial Officer, Elizabeth Murray; Baring's Head of Global Private Finance and BBDC Portfolio Manager, Bryan High, as well as Barings BDC's newly announced incoming Chief Executive Officer, Tom McDonnell. .

Before I discuss our quarterly results, I'd like to take a moment to speak about the leadership transition that we announced yesterday. As you saw in our press release, effective January 1, 2026, Tom will succeed me as Chief Executive Officer of Barings BDC. While I will continue to serve as Executive Chairman of the Board of BBDC and in my ongoing role as President of Barings LLC. This marks an important and exciting milestone for our company.

Over the past decade, Barings has grown into one of the leading middle market lenders anchored by a long-term perspective, disciplined underwriting and strong alignment with our shareholders. Barings BDC is an efficient access point into the Barring's direct lending franchise and reflects the full strength within our business. I'm incredibly proud of what our team accomplished together and confident that the next chapter will build on that foundation.

Tom is a proven leader within bearings. During his nearly 2 decades at the firm, he has played a pivotal role across our U.S. high yield and global loan strategies, overseeing complex portfolios through multiple market settles and helping to shape our credit platform into what it is today. His deep investment experience and commitment to our culture make him exceptionally well suited to lead BBDC going forward. From my vantage point, this transition represents continuity, not change. Tom and I have worked very closely together for many years, and we will continue to do so in the months ahead to ensure a seamless handoff. I wholeheartedly believe he is the right person to step into this role at this time.

Importantly, I will remain actively involved as Executive Chairman of the Board of [ BBDC ] and as President of Barings LLC supporting Tom and the overall leadership team as we continue to execute on our long-term strategy. I want to thank our shareholders, partners and the entire Barings team for their continued trust and support. We have built something enduring here, an institution with the scale and discipline to thrive across market environments. And I am confident that under Tom's leadership, BBDC will continue to deliver strong consistent results for our investors in the years ahead.

Now turning to our results. In the third quarter, BBDC delivered strong net investment income accompanied by excellent credit performance within the bearings originated portion of the portfolio. Origination activity across the platform during the third quarter reflected continued success in our core strategies. Net deployment was influenced by fund-level leverage and the third quarter reflected a period of net repayments consistent with our prior guidance. A strong portfolio combined with benign credit environment and our focus on the top of the capital structure investments in the middle market issuers has continued to serve our investors well. We focus on the core of the middle market given its lower leverage and stronger risk-adjusted returns, making it the most compelling segment for BBDC and our shareholders.

Further, [indiscernible] on sectors that perform resiliently across economic environments provides an additional level of stability to our portfolio. This combination of [ senior ] secured financing solutions, core middle market focus, defensive noncyclical sectors and a global footprint offers our investors strong relative value and meaningful differentiation within the broader BDC landscape.

Turning to the specifics of BBDC's financial performance in the quarter. Net asset value per share was $11.10. Net investment income for the quarter was $0.32 per share compared to $0.28 per share in the second quarter. Now digging a bit deeper into the portfolio, we continue to actively maximize the value in the legacy holdings acquired from MVC Capital and Sierra. We are seeking to divest these assets at attractive valuations as we did in the first quarter. As of quarter end, bearings originated positions now make up 95% of the BBDC portfolio at fair value, up from 76% at the beginning of 2022.

Turning to the earnings power of the portfolio. The weighted average yield at fair value was 9.9%, reflecting a slight reduction from the prior quarter due to a reduction in base rates. Our Board declared a fourth quarter dividend of $0.26 per share, consistent with the prior quarter. On an annualized basis, the dividend level equates to a 9.4% yield on our net asset value of [ $11.10 ]. We believe our portfolio is on strong footing, and we're advancing our strategic imperatives. As Matt will cover momentarily, BBDC is well positioned to navigate the current margin volatility and deliver consistent risk-adjusted returns in the quarters ahead.

I'll now turn the call over to Matt.

Thanks, Eric. I would like to spend a minute commenting on recent headlines and how they relate to BBDC. The private credit ecosystem has grown meaningfully in the past decade. As our investors know, we have been investing in core middle market strategies since the mid-'90s and have stayed true to strategy in terms of how we deliver compelling value to our shareholders. While this sounds like will sound familiar to those who have dialed into our prior calls, we feel that [ Barings ] repeating this quarter as the news media works to paint a private credit industry with an overly broad brush. BBDC does not have any exposure to first brands, Tricolor and broadband telecom.

As many on this call probably know, [ First Brands ] was a broadly syndicated loan issuer and all 3 of these issuers were out of strategy from the opportunities our direct lending business pursues. Article suggesting that these developments are tantamount to a [ canary in the coal mine ] are in our view, hyperbolic. Due to alleged in proprieties in these companies' financial statements, the core issues surrounding certain recent bankruptcy filings appears to be related more to factoring facilities than to the loans we would consider to be considered private credit. As part of our underwriting process, we proactively evaluate any factoring facilities within the issuer base. While we do not have a strict prohibition on factoring, the size and utility of factoring lines often combine to make for unattractive investments relative to other opportunities we have in our portfolio.

During our prior call, we discussed our private credit managers have expanded rapidly in recent years. We declined to [ comment ] on whether recent market activity is reflective of broader trends, but we do believe that remaining consistent with the manager strategy is paramount within private credit platforms. We remain convinced that our unparalleled alignment with shareholders and our ultimate parent, MassMutual is unequaled within the BDC landscape.

Now turning to the current state of the M&A environment. As you have seen from our results and those of other credit managers reporting this quarter, market activity continues to show sequential improvement quarter-on-quarter from both the new buyout perspective and add-on [indiscernible] the middle market, for this reason, industry reported data trends occasionally diverge from our own experience. During the third quarter, it appears that all segments of the market, lower middle [indiscernible] margin market and a large corporate market has shown increased activity. In early 2025, there were rumblings about pent-up M&A demand among middle market private equity firms that was [indiscernible].

Looking forward into the balance of 2025 and into 2026, we anticipate a measured increase in deployment opportunities that will continue to favor scaled franchises such as our own [ this points ]. while the weighted average spread on new investments was above 560 basis points. The benefit of active portfolio rotation we have previously discussed are coming into sharper focus. BBDC shareholders benefit from a largely invested portfolio that can selectively redeploy into the most attractive middle market opportunities across the Barings franchise. Given the size of the portfolio and the illiquid nature of the underlying positions, our ability to rotate the portfolio takes quarters, not months, but we are beginning to see the benefits of this effort in the current quarter.

Turning to an overview of our current portfolio. 74% of the portfolio consists of secured investments with approximately 71% constituting first [ lien ] securities. Interest coverage within the portfolio remained strong with weighted average interest coverage this quarter of 2.4x, above industry averages and consistent with prior quarter. We believe strong interest coverage demonstrates the merits of our approach, focused on direct lending in defensive sectors and thoroughly underwriting and issuer's ability to weather a range of economic conditions.

The portfolio remains highly diversified with the top 2 positions within the portfolio, Eclipse Business Capital and Rocade Holdings being strategic platform investments. These investments provide BBDC shareholders with access to differentiated compelling opportunities to invest in asset-backed loans and litigation funding solutions to specialized areas we believe provide attractive total return and diversification benefits.

Turning to portfolio quality. Risk ratings exhibited stability during the quarter. As our issuers exhibiting the [ most stress ] classified as risk ratings 4 and 5 were 7% on a combined basis and unchanged from the immediately preceding quarter. Non-accruals excluding the assets that are covered by the Sierra CSA accounted for 0.4% of the assets on a fair value basis compared to 0.5% on a fair value basis in the immediately preceding quarter. .

During the quarter, we removed 1 asset from nonaccrual status that was restructured and moved 1 asset on to non-accruals that is covered by the Sierra CSA. As our internal marks [ and ] Sierra accounts remain below the CSA support amount, any prospective losses at the current marks will offset upon settlement of the CSA. We remain confident in the credit quality of the underlying portfolio. We expect BBDC's differentiated reach and scale, coupled with its core focus on middle market credit and unmatched alignment with shareholders to provide positive outcomes in the quarters and years to come. BBDC's portfolio is a through-cycle portfolio designed to withstand a variety of economic environments and prevailing interest rate levels.

With that, I would like to now turn the call over to Elizabeth.

Thanks, Matt. As that Eric and Matt highlighted, BBDC continues to deliver strong, consistent earnings, maintain exceptional credit quality and provide attractive risk-adjusted returns for our fellow shareholders. On Slide 16, we provided a detailed bridge of the NAV per share movement for the third quarter. As of September 30, NAV per share was $11.10, representing a 0.7% decrease quarter-over-quarter. The decrease was driven by net unrealized depreciation on the portfolio credit support agreement and foreign exchange of $0.08 per share and net realized losses on investments and FX of $0.01 per share. This was partially offset by NII per share exceeding both the regular and special dividend by $0.01 per share, reflecting the resilient earnings profile of the portfolio. .

We recorded a net realized gain in the portfolio, driven primarily by a gain from the partial sale of our equity position in accelerant. This is partially offset by the restructuring of our position in synergy which was predominantly reclass from unrealized depreciation. The valuation of the Sierra credit support agreement increased by approximately $1.6 million from $51.2 million in the second quarter to $52.8 million as of September 30. This increase was predominantly due to unrealized losses and a reduced discount rate driven by spread compression in credit markets, decreasing base rates and rolling maturity.

During the third quarter, the Sierra portfolio had sales and repayments of approximately $3.9 million and had 16 positions remaining in the portfolio at a total value of approximately $79 million, down from [ 18 ] positions as of June 30. We reported net investment income of $0.32 per share for the quarter, an increase from $0.28 per share in the prior quarter and $0.29 per share for the third quarter of 2024.

Higher earnings were primarily driven by dividends from our preferred equity investment in [ Flywheel ] and lower incentive fees quarter-over-quarter due to the incentive fee cap and unrealized depreciation on the underlying portfolio. Our net leverage ratio, which is defined as regulatory leverage net of unrestricted cash and net unsettled transactions was 1.26x at quarter end, down from 1.29x as of June 30, largely in line with our long-term target range of 0.9 to 1.25x. During the third quarter, we sold approximately $90 million of assets to [ Jakafi ]. As we at year-end, we anticipate continued sales to [ Jakafi ] and additional portfolio repayments.

More broadly, our funding profile remains strong and thoughtfully aligned with our disciplined approach to asset liability management. Our liabilities are well diversified by duration, seniority and structure with an industry-leading share of unsecured debt and our capital structure at roughly 78% of our outstanding debt balances. We further increased the share and strengthened our balance sheet during the third quarter by issuing $300 million of senior unsecured [ notes ]. We are very pleased with the execution at [ T plus ] 200 basis points over and view this funding as being competitively priced and allowing BBDC to generate attractive shareholder returns.

We used the proceeds from this offering to pay down our credit facility and cover the upcoming maturities of our private placement notes, further enhancing our capital structure. Subsequent to quarter end, on November 4, we fully repaid $62.5 million of private placement nets at par, including accrued and unpaid interest.

Now on to capital allocation. Our net investment income for the quarter of $0.32 per share covered both our regular dividend of $0.26 per share as well as the final of 3 special dividends of $0.05 per share that was paid during the quarter. As previously mentioned, the Board declared a fourth quarter dividend of $0.26 per share, representing a 9.4% distribution yield on NAV. Looking ahead, we remain comfortable with the stability of our regular dividend. While the current shape of the forward curve does imply lower rates in the near term, our net investment income continues to demonstrate resilience.

Our industry-leading hurdle rate of 8.25% provides additional protection as rates decline, reinforcing our focus on shareholder alignment. Our structure is differentiated and allows BBDC to be well positioned amongst BDC peers to deliver attractive returns. This confidence is underpinned by our diversified portfolio of senior secured investments and a well-laddered capital structure, giving us a strong foundation heading into next year. Additionally, we currently have [ deliver ] income of [ $0.65 ] per share, which equates to more than 2 quarters of our regular dividend, reflecting the continued strength of our earnings and portfolio performance, taken together the durability of our earnings and the meaningful spillover provides a solid foundation as we move into 2026.

To close, I'll offer a little additional color on the fourth quarter. To date, BBDC has made $73.5 million of new commitments in Q4, of which approximately $41 million are closed and funded. Our overall liquidity remains strong with over $500 million of available capital. We continue to feel that we are well positioned to navigate evolving market conditions, and we'll continue to pursue attractive investment opportunities while being a reliable capital partner to sponsors and borrowers.

With that, I would like to open the call up for questions.

[Operator Instructions] And the first question is from the line of Heli Sheth with Raymond James.

So with repayment activity elevated this quarter as base rates come down and with the second Fed cut in October, do you expect to see repayments remain at 3Q levels? Or are you seeing any sort of moderation there?

Yes. Hey, good question. And so as we think about the activity in Q3 and how you perceive kind of the repayments, a meaningful percentage of the repayment line that you're seeing is actually sales [ to ] our joint venture within BBDC. And so I would say that we continue to utilize our joint venture really to actively manage our leverage profile as well as provide capacity for the broader BBDC ecosystem. That said, as we kind of look across the broader landscape, we do anticipate a moderate uptick in terms of repayment velocity as we move to the end of the year. That's based on kind of payoffs that were made -- that we've been made aware of through today to be candid, but do not anticipate that it's going to have a meaningful needle mover in the context of the deployed capital within BBDC as a fund. .

Okay. Got it. And historically, you've had $86 million in share buybacks, so they've slowed in recent quarters. with the recent contraction in industry multiples across the board? Are there any plans to ramp up buybacks while your stock is trading at such a discount? .

It's something that we consistently evaluate. Over the course of the past quarter, we were a little bit more restricted in the context of when we could be actively in market. And so as a consequence of that, we were not able to take full utility of the share buyback program as it's been approved by the Board. It is, however, something that we consistently evaluate and you could -- it's very likely that you will see some degree of activity on that in the quarters to come. .

[Operator Instructions] At this time, I'll turn the floor back to Eric for closing comments. .

Well, thank you, everyone, for joining the call, and we look forward to supporting you in the quarters ahead.

This will conclude today's conference. Thank you for your participation. You may now disconnect your lines at your time, and have a wonderful day.

At this time, I would like to welcome everyone to the Barings BDC, Inc. Conference Call for the quarter ended June 30, 2025. [Operator Instructions] The question-and-answer session will follow the company's formal remarks. [Operator Instructions]

Today's call is being recorded, and a replay will be available approximately 2 hours after the conclusion of the call on the company's website at www.baringsbdc.com under the Investor Relations section. At this time, I will turn the call over to Joe Mazzoli, Head of Investor Relations for Barings BDC. .

Good morning, and thank you for joining today's call. Please note that this call may contain forward-looking statements that include statements regarding the company's goals, beliefs, strategies, future operating results and cash flows. .

Although the company believes these statements are reasonable, actual results could differ materially from those projected in forward-looking statements. These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under the sections titled Risk Factors and forward-looking statements in the company's quarterly report on Form 10-Q for the quarter ended June 30, 2025, as filed with the Securities and Exchange Commission.

Barings BDC undertakes no obligation to update or revise any forward-looking statements unless required by law. I will now turn the call over to Eric Lloyd, Chief Executive Officer of Barings BDC. .

Thanks, Joe, and good morning, everyone. We appreciate you joining us for today's call. Please note that throughout today's call, we'll be referring to our Second Quarter 2025 earnings presentation that is posted on the Investor Relations section of our website.

On the call today, I'm joined by Barings BDC's President, Matt Freund, Chief Financial Officer, Elizabeth Murray; and Baring's Head of Global Private Finance and BBDC Portfolio Manager, Bryan High.

In the second quarter, BDC delivered another strong and consistent set of results fueled by leading credit performance and supported by the scale of our franchise. We are pleased to announce strong net investment income that was accompanied by excellent credit performance within the portfolio.

Meanwhile, origination activity during the second quarter was consistent with what we experienced during the preceding period, with gross originations of nearly $200 million and net originations of $32 million. Robust deployment, combined with a benign credit environment and our focus on the top of the capital structure investments in middle market issuers combined to serve our investors well.

We focus on the core middle market due to its lower leverage and stronger risk-adjusted returns, making it the most compelling segment for BBDC and our shareholders. Further, our focus on sectors that will perform resiliently across economic environments provides an additional level of stability to our portfolio.

This combination of senior secured financing solutions, core middle market focus, defensive noncyclical sectors and our global footprint offers our investors strong relative value and portfolio differentiation compared to the broader BDC sector. Consistent with how we defined our approach in past discussions, our portfolio strategy is outlined in greater detail on Slide 6, where we show the breakdown between sponsored, nonsponsored and platform investments in the portfolio.

We continue to successfully invest across the market and deliver compelling returns for our shareholders. As Matt will touch on in a moment, we continue to maintain cautious optimism about the broader economy. The first half of the year was marked by uncertainty on a range of fronts, and we feel that BDC is well positioned to withstand a variety of economic developments.

With that said, we believe BDC investors should be more focused on alignment with the investment adviser than ever before. Private credit managers have expanded rapidly in recent years. Private equity firms have launched current strategies. Publicly traded asset managers have entered the space to enhance fee earning assets and smaller niche players have sought to gain a foothold in the increasingly crowded market.

What sets Barings part is our alignment of interest -- we are backed by patient long-term capital with decades of experience through multiple market cycles. This foundation allows us to build durable portfolios that can perform across economic environments. We're also proud that BDC maintains the highest hurdle rate of any listed BDC. This reflects our commitment to accountability and our focus on delivering strong, sustainable value for shareholders. Barings is a $456 billion credit-focused asset management franchise. Credit is not simply a vertical at Barings, it's our specialty and what we have developed an expertise in across countless strategies.

More specifically, we have been investing in middle market companies through many cycles, which positions us well to deliver value for our shareholders amidst the market volatility that we face today. We believe our expertise in credit with scale and track record that outstrips the broader BDC landscape will continue to differentiate us among the broader industry.

Turning to our expectations for deployment in the current environment. We articulated during the first quarter that the pace of buyout opportunities was subject to a number of variables that were difficult to predict. As we move further into 2025, and we will take the opportunity to reiterate that forecasting origination activity is always more of an art than it is a science, and it's especially difficult in the current environment.

Market sentiment fuels reminiscent to 2024 specifically, there are a handful of factors that we experienced last year that are now repeating themselves. First, our pipeline is building with more nascent opportunities, which is often preceded periods of greater LBO financings. Second, qualitative guidance from sell-side investment banks indicate that the number of companies looking to transact is very strong.

And lastly, the hold period for middle market private equity portfolios is stretching to some of the longest on record. All of these reasons point to increased M&A activity in the back half of the year. However, as we have experienced in the past, similar fact patterns may have a meaningful uptick in volumes. We are cautious that these leading indicators could be another false positive for activity levels in the second half of 2025.

Turning to the specifics of BBDC's financial performance in the quarter. Net asset value per share was $11.18, reflecting a modest decline compared to the prior quarter. Net investment income for the quarter was $0.28 per share compared to $0.25 per share in the first quarter. The improvement in net investment income was related to certain onetime fees and distributions received from our portfolio of companies which Elizabeth will discuss in more detail momentarily. Now digging in a bit deeper into the portfolio.

We continue to actively maximize the value in legacy holdings acquired from MVC Capital and Sierra. We are seeking to divest these assets at attractive valuations as we did in the first quarter. As of quarter end, Barings originated positions now make up 95% of the BDC portfolio at fair value up from 76% at the beginning of 2022. Our investment portfolio performed well during the second quarter with the nonaccrual rate improving to 50 basis points at fair value as of June 30, well below industry averages and comfortably below our long-term expectations.

There is no substitute for fundamental credit analysis which has always been at the core of our investment philosophy and is reflected in the health of the BBDC portfolio today. Turning to the earnings power of the portfolio. The weighted average yield at fair value was 10.1%, unchanged from the prior quarter. Our Board declared a third quarter dividend of $0.26 per share, consistent with the prior quarter.

On an annualized basis, the dividend level equates to a 9.3% yield on our net asset value of $11.18. As we previously announced, our Board declared $0.15 of supplemental dividends that will be paid in 3 quarterly installments during the calendar year 2025, the 1/3 of which will be paid alongside our regular third quarter dividend. We believe our portfolio is on the strong footing and we're advancing our strategic imperatives. As Matt will cover momentarily, BBDC is well positioned to navigate the current market environment and deliver consistent risk-adjusted returns in the quarters ahead.

I'll now turn the call over to Matt.

Thanks, Eric. During our prior earnings call, we discussed how the rapidly evolving macroeconomic landscape was impacting our issuer base and how we work to understand Triage anticipated challenges. .

Following the presidential inauguration, our team began analyzing the impacts of prospective tariffs should the administration choose to pursue them, and the net takeaway was that issuers were on alert and in some cases concerned about the future financial results, but we're unable to excite a confident view of the outcome for calendar 2025, particularly after April. As we have continued throughout the year, we have continued to view the economic outlook as uncertain and believe that our intentional durable portfolio construction is what will help us navigate the operating environment ahead.

As we look ahead for opportunities in the second half of 2025, it is important to underscore the advantages of investing a long kind of scaled platform backed by long-term capital. At BBDC, our structure allows us to take a patient and selective approach to capital deployment, prioritizing quality over speed. In contrast, some publicly traded asset managers have increasingly focused on growing assets rather than carefully allocating them.

And over recent quarters, this shift has raised questions about the consistency of the relative value discipline. Our approach remains centered on thoughtful underwriting, long-term positioning and a commitment to delivering durable value for shareholders. With that, I would like to offer a few observations that will help guide our areas of focus.

Both interest rates and spreads have exhibited compression over the course of the past 12 months. Historically speaking, interest rates and spreads move in opposite directions. When rates increase, spreads contract and vice versa. And another interesting post-COVID development, both rates and spreads increased in tandem and have now been declining in similar capacities.

We're optimistic that during the course of the next interest rate cycle, the historic relationship between interest rates and spreads will revert such that reductions in interest rate levels will somewhat be offset by increases in interest rate spreads. That said, regardless of the direction of interest rates, investors in BBDC will continue to see a disciplined approach to investing in middle-market issuers backed by both sponsored and nonsponsored ownership groups.

While interest rates will ebb and flow, we believe that there is a compelling complexity premium that can accompany both sponsored and nonsponsored opportunities if the manager is able to source them. Barings in the history of being able to source transactions that entail a complexity premium, and we anticipate leaning into these opportunities in a more intentional fashion for the duration of the year.

The Barings network of sourcing opportunities is vast, and BBDC shareholders are appropriately positioned to take advantage of deployment into middle market corporate issuers. Eric referenced onetime fees and dividend income during the period, and we are pleased to report that some of these fees were derived exactly from the kind of unique sponsor sourcing opportunities that I have just referenced. Post June 30, we anticipate that assets underwritten with the complexity premium will continue providing tailwinds to our results for the balance of the year.

While we are pleased with the financial results of the quarter, we are also encouraged by the credit trends in the portfolio. While we're mindful of the broader economic landscape, we have observed that macroeconomic events have not historically produced wide thread defaults. Rather, idiosyncratic risk unique to the specific issuers has created the biggest challenge. Fail acquisitions, poor management teams and both DRP implementations have been responsible for more underperformance and portfolios than exogenous factors.

We underwrite every transaction is that we will experience a recession during our hold period and are encouraged about the positioning of the portfolio today. For this reason, we are comforted by our current nonaccrual percentage among the strongest in the sector, a small percentage of PIK again, leading in the industry and a very small number of risk-rated 5 issuers in the BBDC portfolio.

Turning to an overview of our current portfolio. consists of secured investments with approximately 71% of investments constituting first lien securities. Interest coverage within the portfolio remained strong with weighted average interest coverage this quarter of 2.4x above the industry averages and consistent with prior quarter.

We believe strong interest coverage demonstrates the merits of our approach of focusing on leading companies in defensive sectors and thoroughly underwriting their ability to weather a range of economic conditions. The portfolio remains highly diversified with the top 2 positions in the portfolio, Eclipse Business Capital and arcade Holdings being strategic platform investments.

These investments provide BBDC shareholders with access to differentiated compelling opportunities to invest in asset-backed loans and litigation funding solutions, 2 specialized areas we believe provide attractive total return and diversification benefits. The positive movement during the quarter as our issuers exhibiting the most stress classified as risk ratings 4 and 5 or 7% on a combined basis as compared to 8% in the immediately preceding quarter. The improvement in the underlying risk ratings was driven by certain upgrades to issuers that have been experiencing temporary performance challenges. The number of issuers with the greatest stress are at the lowest level since we have been disclosing these statistics, a fact that we feel is Important in light of the broader macroeconomic uncertainty. Nonaccruals accounted for 0.5% of assets on a fair value basis and 1.4% on a cost basis.

Eric and Matt have said, BBDC continues to demonstrate the durability of our core earnings, uphold best-in-class credit quality and provide strong, reliable yields to our fellow shareholders. As announced during our Q1 earnings call, the early termination of the NBC CSA, which resulted in a $23 million payout in June further enhances our ability to generate attractive returns by redeploying capital into additional income-producing investments.

On Slide 16, we provided a detailed bridge of the NAV per share movement for the second quarter. As of June 30, NAV per share was $11.18, representing a 1% decline quarter-over-quarter. The decline was driven by net realized losses on the portfolio, credit support agreements and FX which came to $0.14 per share. This was partially offset by net unrealized appreciation on the investments, credit support agreements and FX of $0.06 per share. The net realized loss on the portfolio was primarily due to the exit of the Black Angus position.

However, this is largely offset by the reversal of unrealized depreciation and was covered by the Sierra CSA. The valuation of the Sierra credit support agreement increased by approximately $6.4 million from $44.8 million in the first quarter to $51.2 million as of June 30. During the second quarter, the Sierra portfolio had sales and repayments of approximately $2.7 million and had 18 positions remaining in the portfolio, down from 20 positions as of March 31.

We reported net investment income of $0.28 per share for the quarter, an increase from $0.25 per share in the prior quarter. This growth was primarily driven by higher interest income resulting from increased originations, a onetime dividend from our security holdings position in an elevated onetime fee income.

These gains were partially offset by higher incentive fees, which included the impact of the catch-up provision excluding the catch-up incentive fees would have been approximately $8 million. Our net leverage ratio, which is defined as regulatory leverage net of unrestricted cash and net unsettled transactions was 1.29x at quarter end, up modestly from 1.24x as of March 31.

This puts us slightly above our long-term target range of 0.9 to 1.25x. The increase in leverage was primarily driven by elevated origination activity during the quarter. We expect leverage to trend back within our target range in the second half of 2025 supported by continued asset sales to Jakafi and anticipated repayment activity. This ensures we will maintain the capacity to pursue attractive opportunities that may result from either increased turbulence in markets or an uptick in deals and potentially spreads that may result from a benign environment and reduced production rates.

More broadly, our funding profile remains well structured and aligned with our disciplined approach to asset liability management. Our liabilities are well diversified in terms of duration, seniority and structure with an industry-leading percentage of unsecured debt in our capital structure. As of quarter end, our unsecured debt accounted for approximately $1 billion of our funding and representing roughly 65% of our outstanding balances. Subsequent to quarter end, on August 4, we fully repaid $50 million of private placement notes at par, including accrued and unpaid interest. Additionally, as of June 30, we had $322 million of available capacity under our revolving credit facility providing continued flexibility to meet funding needs and support future unsecured issuances.

Now on to capital allocation. Our net investment income for the quarter was $0.28 per share, which more than covered our regular dividend. In addition, our net investment income for the first half of 2025 fully covered our year-to-date regular distributions. As previously mentioned, the Board declared a third quarter dividend of $0.26 per share which, when combined with the previously declared special dividend of $0.05 per share brings the total dividend for the quarter to $0.31 per share, representing an 11.1% distribution yield on that.

Looking ahead, we feel confident in the level of our regular dividend. The durability of our portfolio's net investment income underpinned by a diversified mix of senior secured investments and a well-laddered capital structure gives us conviction in our ability to maintain this level. Our views are further supported by the current shape of the forward super curve which we believe will continue to provide a constructive backdrop for net investment income generation in the near term.

We continue to actively use our 2025 share repurchase plan and repurchased 100,000 shares during the quarter bringing the total shares repurchased under the current plan to $250,000. We will continue to exercise this plan as a way to deliver value to shareholders and to demonstrate our belief in the long-term value of our portfolio. I'll offer a little color on the third quarter. To date, Barings BDC has made $59.3 million of new commitments in Q3, of which approximately $39 million closed and funded.

Our overall liquidity remains strong with over $322 million of available capital at quarter end, and we are well positioned to navigate uncertain market conditions and be a reliable capital partners, sponsors and borrowers through such uncertainty, which we expect will result in compelling investment opportunities for us to pursue on behalf of BBDC shareholders.

With that, I would like to open the call up for questions.

We will now be conducting a question-and-answer session. [Operator Instructions]

Our first questions come from the line of Finian O'Shea with Wells Fargo Securities.. .

Elizabeth, you talked about more sales to Joe Casey Can you expand on maybe the profile of those, if that's going to -- if that would be something in more of the front book or the back book and and/or more of a GPF or a solutions bent. And then on its overall leverage, you already up that leverage this quarter how much more -- it sounds like more? What's the target leverage again on that? .

I'll start with with leverage. Let me just clarify. Are you asking about leverage at the BDC? Or are you asking about leverage. I want to make sure I answer. .

That's okay.

Yes. So I'll go ahead and hop in. in, in the context of kind of how Jakafi's currently structured and funded today, there's ample liquidity in that vehicle to absorb incremental investment capacity. I think that as we manage the leverage at BBDC itself. I'm sure that folks recognize that it was at the higher end of our range, this I think in light of kind of broader uncertainties around deployment opportunity, it's our expectation that we will continue to run it towards the higher end of the range as well as the fact that we feel really supported by strong credit quality in the portfolio. .

So this combination of factors give us confidence that running at closer to the high end of our range is both an appropriate measure as well as a prudent 1 in terms of driving returns for shareholders. As we think about the investment capacity actually in the JV vehicle itself, I can report that it has ample capacity to absorb incremental investments.

And you referenced kind of the front book or the back book. We think about portfolio construction in Jakafi, the same way we think about it throughout all of our portfolios. So we're looking to drive diversification both from kind of an underlying industry perspective.

We're looking to drive it from a vintage perspective. We're looking to drive it from a yield perspective where appropriate. And so -- it's hard to say that it's going to largely be transfers of kind of recent vintage versus older vintage. I would anticipate it will be a mix of all of the above. .

Okay. And I guess that brings to the next question. Can you talk about where the larger, maybe largest new name screen vision -- where does that sort of fit in the Barings platform? And then can you kind of talk about in the past year, I guess, post Currentia how much -- like to what extent have the GPF and Cap Solutions platforms blended together? Is it sort of like 1 unit now, but just taking a barbelled approach of of 450 stuff and 850 stuff?

Yes. Finian, it's Bryan. Just to answer that question. Obviously, there's been a lot of collaboration across the platform, not just between the teams that you referenced. But certainly in the way that we're operating across all of our investment teams, their individual investment committees depending on the asset class. But from a sourcing perspective, it's pretty centralized from an underwriting perspective, it's pretty seamless. It's basically the same process, but perhaps different skill sets or areas where you may look to originate assets.

So I wouldn't say that there's no difference in terms of the underwriting standards and the way that investments get into the BDC and the collaboration continues to be consistent with the way it's been at Barings since I've been here. .

Yes. And to highlight what Bryan emphasized there, Ben, is each 1 has a separate and distinct investment committee for that particular asset class or strategy. .

And the only thing I would add specific to the issuer, Fin, is that in a small world phenomenon. That asset that you noted was actually reviewed by myself years ago. We ultimately lost it due to financing situation that just got too tight. And so it's a name that's been familiar to Barings for a long time. And I think that the fact that it's a sponsored first lien physician kind of fits a number of pools of capital within our organization. .

It's first lien and second lien, right? .

Yes.

.

Our next questions come from the line of Ellie Schutz with Raymond James. .

Obviously, you had a strong quarter of originations. Can you provide any breakdown to how much the follow-ons for existing borrowers versus new borrowers. .

Yes. So across the franchise, the number over the course of the past quarter has been between 60% and 70%, depending on the underlying portfolio. And I think that BBDC falls kind of squarely within that within that range for this quarter. .

Got it. And how is the pipeline looking after the second quarter close? I know repayments were kind of high this quarter? Are they still going to be in that range? Or are they down? .

Yes. Look, in referencing Eric's commentary, we have reasons to feel very optimistic around forward visibility on origination. And so we're certainly hopeful that deployment trends will continue to be very attractive. That said, again, in keeping with Eric's comments, the fact is that this is the same profile of an economic outlook that we had a year ago and candidly, 2 years ago. And so we want to be careful around kind of booking these originations before they actually materialize.

I think that 1 of the overriding principles that we think about on the portfolio management front for BBDC will be to keep the portfolio invested in high-quality credits. It's a very granular portfolio. And so even to the extent we start having repayments, I don't think that we have any concerns around delivering strong return through the balance of 2025.

Okay. Got it. That's helpful. And with like all your new originations this quarter, how does the yield on those compared to like the overall yield was, I think, 10.1%, -- was it higher or lower kind of .

Yes. It was about -- on the weighted average yield for new issuance this quarter was about 10 basis points than the overall portfolio basis points higher than the overall portfolio. So call it 10.2 on a fair value basis against the current portfolio, it's 10.1%. .

Okay. Got it. And then 1 more quick one. You previously sized tariff impact is less than 5% of the portfolio. with like the recent like a little bit of clarity we fund, do you have any updates there as it shifted at all? .

No. No. it's impossible to say that the tariff risk is higher. But I think that what's much more pervasive is just a sense of uncertainty. Hiring has been delayed throughout the issuer base. Capital investment has been delayed throughout the issuer base. And I think that people are moving into a very defensive position. And so we -- our credit concerns, I would say, are probably lower than they were a quarter ago, but the uncertainty more broadly from a macro perspective is definitively higher. .

Our next questions come from the line of Derek Hewett with Bank of America. .

So dividend coverage was relatively good even after adjusting for the onetime items on the revenue and expense side. So -- how should we think about the sustainability of the dividend, given the forward curve? And it looks like, I guess, the first 50 basis points of rate cuts are only a $0.01 quarterly headwind based on the sensitivity table in the Q. So I'd love to get your thoughts on that issue. .

Yes. From a dividend coverage perspective, you did point out we had some onetime dividend and onetime fees, and those offset the higher incentive fee. So when we think about over the next few quarters with where the current Super curb is. We have confidence in earning our dividend. Now again, if things change with rate cuts, that would could potentially change the outlook. But right now, with where the super curve is, we feel good about the $0.26.

Okay. And then credit continues to be kind of remarkably strong for most kind of excluding some of the kind of the usual suspects. So I guess where do you think we are in the credit cycle? And like maybe just for the industry, how should we think about credit going Forward? Do you think over the next year or 2, we're going to be kind of in the kind of in the same general vicinity -- or do you think credit could worsen for the overall industry? .

Yes. I think looking out 2 years is maybe a little bit difficult. But if you just sort of look at the backdrop today in terms of modest growth in North America, call it, stable inflation and unemployment where it is today. The setup is pretty constructive for credit, I would say. How that might change over the next 12 to 24 months is really anybody's guess. But in terms of the amount of activity that we're seeing some visibility and a little bit more certainty around how some of the noise back in April is going to play out.

It has been helpful, I would say, in terms of building a pipeline of opportunities. And certainly, as I mentioned, kind of the the right backdrop for credit at this point in the cycle.

Okay. And then maybe 1 more. Just in terms of the amendment activity for the second quarter versus the first quarter, did you guys mention that in your prepared remarks. .

Not with respect to amendment activity, no, but it was -- I would assess that it was lower than average. What I'd point you to is kind of the risk rating trends. And so those most -- the pool of most criticized assets having shrunk quarter-on-quarter, I think is a good reflection of what was likely the target of our time on the underperforming side. And as a general theme, it's lower in the Q2 period than it was in prior quarters.

Our next questions come from the line of Casey Alexander with Compass Point. .

I know shareholders appreciate the historical $86 million worth of share repurchases. But the last couple of quarters, the share repurchases have been of a much more modest nature, about 0.1% of shares outstanding. And yet the stock trades at 1 of the widest discounts in terms of price to NAV within its peer group. So I'm just wondering what the temper is in the prosecution of the share repurchase program and why maybe we're not taking a little bit more advantage of this exaggerated discount -- and what other measures do you think that you can take to help shrink that discount in terms of price to NAV? .

Yes. I mean, Casey, great question. Candidly, a focus of ours, day in and day out. In terms of the tactical element of it, the reality of how our quarterly cadence works is that the blackout period and our ability to repurchase shares is influenced by when our valuation cadence starts. And if you think about it over the course of the past couple of quarters, where there was more opportunistic buying available. We've been talking internally about doing more strategic things like the termination of the CSA.

And so whenever we start talking about terminating the CSA, then that kind of expands those blackout windows. And so while we think that we're doing -- we firmly believe that we are doing shareholder accretive activities that then kind of put us in a period where we just cannot be as active on the share repurchase front. I do think that it is a core form of how we are returning capital to shareholders, how we are increasing the share price and it will continue to be a pillar of how we execute the strategy going forward.

But of course, we'll be subject to some constraints with respect to when we can actually do that based on what's happening kind of within the vehicle itself. I think that as it relates to maybe -- as it relates to kind of our focus on narrowing the gap, I think that our long-term expectation is that we will continue to drive improvements in ROE. And as we are able to do that by rotating out of some of the nonincome-producing assets, I think that we're going to see a natural pull pull Northford where that ROE will then continue to support and justify a higher share price and therefore, narrowing the gap between NAV and the ultimate trading level.

All right. My second question is that a number of BDCs in this reporting cycle have characterized, in fact, August, specifically as 1 of the busiest months in a couple of years in terms of indication of interest of new deal activity, are you guys seeing the same thing? And -- how can you manage inflow of new deals relative to a leverage ratio that's already pretty high?

Yes. Look, I love the hyperbole within our industry. You just said that August has been 1 of the busiest months in recent memory. Well, we're only 8 days in. And this is only the first full week. And so for people to be making assessments about kind of August being a really active one, I think, is just kind of an interesting data point. I would say that our pipeline is higher for sure. If you took to the origination professionals in our business, they would echo that sentiment for sure. .

I think it's a little bit early in terms of calling it and to say that this will be 1 of the most active quarters on record. But I think that to your point, in terms of balancing deployment with the opportunities. We actually included a new slide this quarter, Slide 5 in our earnings deck that just kind of shows the capital base that's supporting our GPF franchise.

And 1 of the reasons that we wanted to introduce this is to reflect the fact that we have very balanced forms of capital. And so we are not driven by short-term expectations to deploy, to deploy, to deploy, only to drive fee earning revenue. What we're going to do, and as we have always done, is that we are going to deploy capital in a measured way to ensure that these vehicles are performing in a diversified fashion for the benefit of the underlying investor.

You've seen that we've run our leverage level at BBDC a little higher this quarter. That was a conscious decision that we made. I think that we will continue to run it towards the higher end of our range, but we anticipate keeping the capital deployed in assets that we feel like are very compelling and don't anticipate any challenges doing that throughout the balance of 2025.

We have reached the end of our question-and-answer session. I would now like to hand the call back over to Eric Lloyd for closing comments. .

Thank you, operator, and thank you all who participated in today's call. BBDC is well positioned to perform in today's operating environment with strong support from our manager and decades of experience to draw from our senior secured portfolio of global investments will continue to deliver for our fellow shareholders.

We look forward to updating you further this fall. Everybody, have a great weekend.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.