Barings BDC, Inc. Aktie

At this time, I would like to welcome everyone to the Barings BDC, Inc. conference call for the quarter ended September 30, 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 under the Investor Relations section.

Please note that this call may contain forward-looking statements that include statements regarding the company's goals, beliefs, strategies, future operating. 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, 2026, and in other filings made 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, operator, and good morning, everyone. On the call today, I'm joined by Barings BDC's President and Co-Portfolio Manager; Matt Freund; and BBDC's Chief Financial Officer and Chief Operating Officer, Elizabeth Murray. I will begin with a brief overview of the quarter and then frame how we are viewing the market. Matt will follow with a more detailed discussion of the private credit environment, and Elizabeth will walk through our financial results.

Net asset value per share was $10.92 as of September 30, largely unchanged from $10.94 as of June 30. We remain active on the deployment front during the quarter. BBDC funded $196 million of investments, including 20 new portfolio companies and had $146 million of sales and repayments, resulting in net portfolio growth of approximately $50 million. The investment portfolio increased to approximately $2.5 billion at fair value, and the weighted average yield on debt and other income-producing securities was 10.2%, flat compared to the prior quarter. All told, the combination of a largely stable NAV and the strength of the underlying earnings profile of the portfolio produced a strong quarter.

During the quarter, we also continued to strengthen the balance sheet. Subsequent to quarter end, we addressed our November notes maturity ahead of schedule with a new CLO financing. Elizabeth will take you through the details, but I want to put it in context. Over the past several years, we have deliberately built the capital structure designed to hold up through a full cycle. A latter maturity profile access to multiple funding markets and revolver capacity to support our borrowers and pipeline. With this transaction behind us, our team can stay focused on investing and portfolio management.

Credit performance remains a key area of focus across the private credit market. For BBDC, nonaccruals increased modestly this quarter. But when excluding assets covered by the Sierra CSA, nonaccruals remain below 1% of the portfolio at fair value at 0.7%, and weighted average interest coverage remains healthy at 2.6x. We are actively managing each of these situations with a focus on maximizing recoveries.

One of the themes we have emphasized this year has been our expectation of greater manager dispersion in private credit. And we believe that dispersion is now clearly underway. For several years, abundant capital and benign credit backdrop allowed most managers to post similar results, masking meaningful differences in underwriting discipline. That is changing. As idiosyncratic credit issues surface and sponsors extend hold periods, differences in nonaccrual trends, NAV stability, dividend coverage and recovery outcomes are becoming more visible across the industry, and we expect that gap to widen as the cycle matures. Manager selection, underwriting, portfolio construction and workout experience matters.

In our views, the managers have performed from here will be distinguished by a few things. The quality of underwriting and documentation at origination, the depth of sponsor relationships when portfolio companies need additional support, disciplined diversification and position sizing and the experience and resources to work through stressed credits when they arise. These are not capabilities that can be built quickly in response to a turn in the cycle. Barings has invested through multiple credit cycles and the credit metrics I just described reflect that approach. We believe investors will increasingly differentiate between managers on these factors and that BBDC will benefit from that scrutiny.

With that overview, I will turn the call over to Matt to discuss the market backdrop and the BDC portfolio in more detail.

Thanks, Tom. After our first half of 2026 marked by a heightened scrutiny of private credit, investors are coming back to direct lending. The reasons are simple, and are the same ones that have drawn capital to the asset class for years, attractive income, diversification and defensive characteristics. Capital formation across the Barings platform was strong in the third quarter.

As BBDC shareholders know, we focus on the core of the middle market. We believe this segment is less competitive than the mega cap segment that has drawn so much attention during the past few years. Pricing in our core area of focus continue to offer compelling relative value compared to other credit strategies. New investments in the third quarter carried a weighted average spread of 541 basis points, in line with 540 basis points on repayments. That momentum has continued in the fourth quarter. And since quarter end, we have closed and funded $73.6 million of new investments, almost entirely first lien at a weighted average yield of 9.1%.

The scale of our existing portfolio and the breadth of our origination platform give us confidence that we can keep finding compelling risk-adjusted returns. The Barings Global Private Finance platform has deployed more capital year-to-date than it has at this point in 2025. Even so, buyout close rates are still near all-time lows as an uncertain macro backdrop keeps buyers cautious. Our pipeline is robust, but we expect the share of deals that close to stay low by historical standards. There is an upside to this dynamic. Slower deal activity also means lower repayments, which gives us a stable base of existing issuers. Our incumbent positions become a durable source of income and add-on opportunities.

Like many in our industry, we are paying close attention to private equity hold period and the rise of so-called zombie funds. In this environment, the quality of the sponsor matters more than ever. When an exit flips by 2 or 3 years, the outcome depends on whether the sponsor has capital, operating resources and willingness to keep supporting the company. It also depends on whether we have the kind of relationship that allows candid early conversations when plans change. Our portfolio is built around sponsors we have worked with through multiple cycles and that history is often what separates a constructive amendment from a contentious workout. In many instances, extending maturities to align with a sponsor's extended hold horizon may create an optimal outcome for all parties, but that is not always the case.

As we approach the maturity walls of 2028 and 2029, investors will be closely evaluating how lenders engage on these opportunities. Underlying all of this, our decisions at Barings start with capital preservation. Our portfolio continues to highlight why selectivity matters. Risk rating migration was modest this quarter. Investments rated 4 and 5, which is where we see the most stress, rose slightly to 7% of the portfolio from 6% last quarter. As Tom mentioned, weighted average interest coverage remained healthy at 2.6x. Nonaccruals ticked up modestly to 11 portfolio companies or 1.1% of the portfolio at fair value.

Excluding nonaccrual assets acquired in the Sierra transaction, which are covered by a credit support agreement, nonaccruals were 0.7% at fair value. We don't want to minimize the work these underperforming positions require. We are actively managing each of them with a focus on maximizing recoveries, preserving optionality and protecting shareholder value. AI remains a focus for our investors in every asset class. Early questions about direct lending centered on the stress and volatility AI could create for existing borrowers. As we said before, our internal analysis and discussions with industry experts show that BBDC's portfolio has very limited direct exposure to AI disruption. The longer-term effects on every industry are still unclear, but we are comfortable with the direct AI exposure and our current issuer base.

More recently, investors have asked whether we would pursue AI-related investments such as needle cloud issuers, ABS chip financing and data center real estate within the context of BBDC. To be clear, we do not believe that these strategies fit within BBDC's expected guidelines. BBDC exists to provide corporate credit exposure to middle market companies and the opportunity within that mandate is enormous. There are certainly attractive investments in the AI ecosystem, but investors should not look to BBDC for that risk profile.

To sum up, credit requires active management, and we remain focused on a small number of specific situations. Overall, the portfolio is diversified senior secured floating rate and positioned to generate attractive current income.

And with that, I will turn the call over to Elizabeth.

Thanks, Matt. As Tom mentioned, the third quarter was a steady one. And subsequent to quarter end, we took a significant step in our liability management strategy with the pricing of a $400 million CLO financing, which I will cover in some detail. I'll begin with our financial results and key balance sheet metrics for the third quarter.

Turning first to our results. NAV per share at September 30 was $10.92 and compared to $10.94 at June 30. The modest decline was driven by net realized losses of approximately $0.05, partially offset by net unrealized appreciation of approximately $0.02 per share while NII fully covered the dividend. Net investment income was $27.2 million or $0.26 per share compared to $0.28 last quarter. The decrease is primarily due to lower dividend income from certain equity positions that made elevated distributions in the second quarter and an increase in the income-based incentive fee.

NII of $0.26 per share covered our third quarter dividend of $0.26 per share, and year-to-date, NII has fully covered our dividend. We continue to maintain undistributed taxable deliver income of approximately $0.80 per share, and our Board declared a fourth quarter dividend of $0.26 per share, unchanged from the prior quarter. Looking ahead, we believe that the dividend remains well supported. Our predominantly floating rate portfolio benefits from the recent rise in base rates, which we expect to help offset the higher cost of refinancing or 3.3% notes.

Together with our spillover income, we believe we are well positioned to maintain this $0.26 quarterly dividend, and we'll continue to evaluate dividend levels as conditions evolve.

Moving to portfolio valuations and realized activity, net realized losses for the quarter were primarily associated with the exit of Varian and Biolam were largely offset by the reversal of previously reported unrealized depreciation. Net unrealized appreciation reflects gains in our foreign currency positions and hedges, which more than offset modest net depreciation on the portfolio, including markdowns on a small number of names.

Turning now to the CLO financing that Tom mentioned. As many investors are focused on our $350 million of 3.3% unsecured notes mature on November 23. On October 30, we priced a $400 million DLA financing, which we intend to use to fund the repayment of those notes at maturity. The CLO is expected to close mid-November and the floating rate notes carrying a weighted average interest rate of SOFR plus 164. Strategically, the transaction remains our largest near-term refinancing risk ahead of maturity as long-dated floating rig funding that is well matched to our 93% floating rate portfolio, diversifies our funding base and preserves revolver capacity for new investments and unfunded commitments. Because the 3.3% notes were issued at a very different rate environment, any refinancing will carry a higher cost. We believe the CLO is attractive relative to the alternatives available today.

Turning to the balance sheet. We ended the quarter with net leverage, which is defined as regulatory leverage net of unrestricted cash and net unsettled transactions of 1.24x and up from 1.18x at June 30, driven by net portfolio growth during the quarter as we funded $196 million of investments against $146 million for payments and sales. Leverage remains within our target range of 0.9x to 1.25x. We were comfortable operating toward the upper end of the range this quarter given the attractive investment opportunities we were seeing. And because we have visibility into a repayment pipeline, that we expected to be weighted toward year-end.

Looking ahead, we expect leverage to move back toward the middle of our target range by year-end driven by anticipated sales of portfolio investments to our joint venture with Dakas and expected repayments. Approximately 77% of our debt was unsecured at quarter end. That percentage will decline as we address our maturities to approximately 53% pro forma for the CLA. We believe that trade-off is the right one. And following the refinancing, our next maturity will not be until November 2027.

In closing, the third quarter delivered stable earnings in NAV with the pricing of our CLA, we have addressed our November maturity while further diversifying our funding sources. We believe our balance sheet is well positioned as we head into 2027.

And with that, I'll turn the call back to the operator.

[Operator Instructions] Our first question today is coming from Robert Dodd from Raymond James.

Congrats on the quarter, I mean, a very nice stable quarter. No surprises what BBDC investors want to see. A couple of questions. [indiscernible] really well, it's a quarter, but kind of topics you brought up. I think Matt said that sometimes it makes sense to extend the maturity on an outstanding loan to match up to the expected kind of exit for a sponsor, which makes a lot of sense, right? You don't want to extend beyond the sponsor's fund life necessarily or be sure. I mean how would you characterize the portfolio maturities today versus the expected sponsor fund life?

Because that also kind of ties in with 1 of your comments, Tom, the strength of the sponsor relationship and do they actually have the capital to support a business if it has issues. I mean it's all that together in the same kind of concept of where are you relative to the equity holder in the positions just like expected life in the portfolio. And that was a bit of a rampant question.

Yes. Robert, thanks for the question. I appreciate you dialing in this morning. And so I think that you're touching on a theme that is very top of mind for us as we evaluate any request to modify the duration of an existing position. And so maybe let me just offer a couple of statistics for you to reinforce how we're thinking about that. And so within the BBDC portfolio, approximately 8% of the underlying investments have a stated maturity. The largest 1 is actually an affiliate in security holdings. And so obviously, we have a lot of control over that structure itself. And then as we kick through the other hands full, we have reasons to believe that either sale processes are underway and/or the sponsors are looking on refinancing options where we've declined to provide incremental flexibility.

And so it's something that is incredibly important for us as we think about managing the duration of the book as well as candidly working towards a credit risk profile that we think is appropriate for our underlying LPs. And as part of that evaluation, the underlying fund life, the sponsor characteristics, where the sponsors are in their fundraising capacities, all inform the degree of receptivity that we have whenever these kinds of requests are making their way through our respective committees.

Got it. That's very helpful. Another 1 also kind of related to a comment made rather than the actual quarter. On the diversification side, obviously, the BBDC portfolio is not generally the control investor. That doesn't mean bearing system though, right? So could you give us any color? I mean, obviously, as you point out, credit trends are kind of, I think, going to be the key diversifier over the next several years and being in control of a process or at very least, being at the top table on a process can have a significant influence on an outcome there. So what proportion of the portfolio today, and I probably knew this 2 years ago, but what proportion of the portfolio today, are you bearing not necessarily BBDC, the control investor or control lender in a position. .

Yes, Robert. Yes, roughly 90% of our investments were either the lead or co-lead. And you're exactly right, being in that position, it does allow us to, in effect, somewhat control the outcome and help us inform decisions as to whether or not we want to extend the runway for the sponsor, et cetera. So I think, again, that's extremely important as we work through some of these situations and certainly being in that position gives us, like I said, that element of control, which we think is really important as we move forward.

Got it. I appreciate it. And again, congrats on the quarter. .

Thank you.

Your next question today is coming from Finian O'Shea from Wells Fargo.

I wanted to ask about ECLIPSE. It's a several -- 5 to 10 or so years, I think, since you bought it from another private equity firm just seeing where that sort of is and it's sort of half-life under your stewardship. Is it something you continue to seek to grow over the long term or maybe move out of?

Yes. Fin, great question. I appreciate you dialing in this morning. So ECLIPSE, the reason that ECLIPSE exists within this portfolio is to provide a combination of compelling kind of risk-adjusted return to the underlying shareholders, but also to provide a little bit of countercyclical exposure in the context of cash flow lending. It's longer in our belief that asset-based strategies are likely to outperform if and when broad-based cash flow strategy experienced a little bit of a wobble. And we have seen that in origination pipelines of the respective business units over the course of the past couple of years, where whenever we start to experience periods of economic volatility, Eclipse has really attractive opportunities for deployment. And perhaps interestingly, we're on the precipice of 1 of those periods now based on recent conversations we've had with the management team there.

In terms of our expected hold horizon, it's an asset that we have long patched as being willing and able to hold into perpetuity. I do think that over periods of time, different shareholder expectations they evolve and different return expectations on a forward basis may change. But as we sit here today, in October of 2026, we don't have any change of our plans with respect to the ownership structure as it exists.

Yes. Fin, I would just say we don't expect our investment there to increase in size. So it's going to be a sizable position here. But again, it's been 1 that's been a great performer for us, but not 1 we intend on increasing exposure and BBDC with.

Okay. Great. Can you guys update us on your spillover?

Yes, Fin, the spillover this quarter is about $0.80. And I anticipate that will likely decrease as we're heading at year-end. But we feel comfortable with where it is. And it's something that we monitor, but we feel comfortable with where it is and comfortable with where our dividend is at this point.

How will it decrease? .

There's just some various book-to-tax differences relative to our 2025 return that will flow through in the fourth quarter.

[Operator Instructions] Our next question is coming from Jason Stewart from Compass Point.

In terms of leverage and portfolio repayment activity, I guess just wondered if you could clarify, I get about $0.01 of fee income from repayments in the third quarter, that seems right to you. If you could just clarify that. And then is it your expectation that repayment activity is going to stay somewhat elevated in the fourth quarter? Or do you see opportunities for back leverage to bring leverage down? .

Yes. No. So I think, yes, we do expect repayments in the fourth quarter to be basically flat at this point. So we did run leverage a little higher in the third quarter, as you can see there. that was done on purpose with visibility towards a flattish repayment. We also, as you know, have the ability to sell loans down to [indiscernible] and we did not do that in the third quarter. we anticipate likely doing that in the fourth quarter. So as we've stated our target leverage, we look to bring that down probably to the 1.15, 1.16x as we move through the fourth quarter, something very similar that we did last year at this time as well.

Okay. And then just looking at spreads on new investments versus repayments that were basically flat this quarter. Any thoughts on where that's trending into the end of the year?

Yes. I think that if we look at the trended spreads over the course of the past 6 quarters, there was certainly an opportunity for more spread in Q1 and Q2 in light of broader private credit volatility. And I would say that, that has started to normalize in Q3. Our base case at this point is going to be that spread levels look very similar in Q4 as they did this particular quarter, but I would acknowledge that it wouldn't surprise me if a limited amount of LBO activity increases a bit of competition, and we could see a little bit of a narrowing of spreads as we move into the end of the year and the beginning of 2027. But very few data points to evidence that at this stage.

Next question is coming from Derek Hewett from Bank of America.

So PIC increased about to 10% of revenue from a little over 7% last quarter. Could you provide any additional color on that movement? And then just overall, what percentage of PIC revenue was built into the original underwrite versus amendment PIC?

Yes, sure. Thanks, Derek. Yes. And so really that for us really results from 1 investment called Policy Services. It's a nonstandard auto insurer investment that we have. And really, the market for that is primarily based in Florida. So just seeing a real softening in the rates that they charge on their insurance policies. It's really had an impact on the company's revenue and EBITDA line items. And we made the decision to allow them to pick interest for that third quarter in an effort to preserve liquidity and evaluate some of our options there. So we thought that was the prudent thing to do.

I will note that company in that market has a 40-year history of having a balance of volatility, if you will. And so quite a cyclical industry, and we do believe, ultimately, we feel like we bottomed out in terms of rate and win rate and buying rate there, and we do believe ultimately that, that will come back. But we thought it would be the prudent thing to do to have that go on pick for the quarter as we evaluate our options.

And then in terms of your question on, I think you're probably referring to whether good PIC, bad PIC overall the portfolio. Roughly 60% of the PIC in that line item is that which was structured at origination. And I would say 40% of that line item will be things we've had to do in terms of working with some of our investments that had credit issues. And so called out a kind of a 60-40 split between good and bad PIC.

Okay. And in terms of my follow-up, could you provide additional color on the dividend sustainability, just given that you're going to have some headwinds from a funding cost perspective as those low-cost bonds get refinanced? And then also in your analysis, are you assuming any additional movements in SOFR?

Yes. So Derek, it's a great question. It's something that we're spending a lot of time on currently with our modeling. And yes, good point top of mind for me is the fact that our funding costs do increase because we're moving from a 3.3% fixed to closer to SOFR to $1.64. The other thing that we're taking into account that both Matt and Tom have discussed in the past is the fact that we're in the process and looking to exit security holdings likely in the first quarter of 2027. And that currently is a big equity position that really doesn't generate any income producing it's not really income producing.

And so as that we're able to turn around and invest that into income-producing assets, that should help offset the higher funding cost. At the same time, if there are credit issues of any kind in the future, that could impact the dividend this point, we don't anticipate that. But if there are any -- and to your point, we do believe the uplift and where rates are going, could have a positive impact. I say all this that if for whatever reason there are credit issues, we will not we will decrease the dividend if we have to. We will not eat into NAV just to preserve a dividend.

We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Tom for any further closing comments.

All right. Thank you, operator, and thank you to everyone for joining us today. This was a quarter in which we earned our dividend, kept NAV stable addressed our largest debt maturity ahead of schedule. We believe the dispersion emerging across private credit will increasingly reward disciplined managers, and we intend to be 1 of them. We look forward to updating you next quarter.

Thank you. That does conclude today's teleconference. 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 would like to welcome everyone to the Barings BDC, Inc. Conference Call for the quarter ended June 30th, 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 under the Investor Relations section.

At this time, I'll 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 these projected and 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 30th, 2026, and in other filings made 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 am joined by Barings BDC's President and Co-Portfolio Manager, Matt Freund; and BBDC's Chief Financial Officer and Chief Operating Officer, Elizabeth Murray. I will begin with a brief overview of the quarter and then frame how we are viewing the market. Matt will follow with a more detailed discussion of the private credit environment and credit performance. Elizabeth will then walk through our financial results.

Second quarter was a strong quarter for BBDC. We generated net investment income of $0.28 per share and outearned our quarterly dividend of $0.26 per share. We believe that earnings power reflects the durability of the portfolio, the benefit of our floating rate asset base and the value of disciplined capital deployment. Net asset value per share was $10.94 as of June 30 compared to $11.02 as of March 31. The modest decline in NAV was driven primarily by net unrealized depreciation on select investments that were on our watch list in the prior quarter. These were partially offset by net realized gains and over-earning the dividend, all of which Elizabeth will discuss in greater detail momentarily.

Overall, while NAV was down modestly, the underlying earnings profile of the portfolio remains strong and credit quality remains stable. We are active on the deployment front during the quarter. BBDC originated $262 million of investments and had $167 million of sales and repayments, resulting in net originations of approximately $95 million. The investment portfolio increased to approximately $2.46 billion at fair value, and the weighted average yield on debt and other income-producing securities increased to 10.2% as of quarter end, up from 10.1% in the prior quarter.

The most significant structural accomplishment during the quarter was the termination of the legacy Sierra credit support agreement. That termination freed approximately $67 million for redeployment into income-producing assets, while a new smaller and more targeted CSA was put in place. We view this as a meaningful step in simplifying BBDC's balance sheet and continuing the transition away from legacy acquired assets toward a more fully Barings originated portfolio. Credit performance remains a key area of focus across the private credit market. For BBDC, credit quality was improved quarter-over-quarter. Nonaccruals not covered by the CSA represented only 0.2% of the portfolio at fair value and total nonaccruals represented 0.6% of the portfolio at fair value. Stepping back, private credit continues to face a significant amount of public attention.

Investor focus remains high around redemption activity in non-traded perpetual BDCs, AI-related disruption in software, geopolitical volatility and the path of interest rates. We welcome a more rigorous discussion of these issues. We have always believed that private credit is not a monolithic asset class. Manager selection matters, underwriting matters, portfolio construction matters and workout experience matters. One of the themes we have been focused on this year has been the expectation of manager dispersion, which we believe continues to unfold. The past several years have rewarded capital formation and scale.

The next stage of the cycle should reward disciplined underwriting, strong documentation, funding flexibility and the ability to manage through idiosyncratic credit issues. We believe BBDC is well positioned in that environment. Our strategy remains consistent. We focus on middle market issuers, senior secured investments, defensive sectors and directly originated opportunities where Barings can influence structure, documentation and outcomes. That discipline is particularly important as investors begin to look beyond headline yields and focus more deeply on the sustainability of earnings and the resiliency of portfolio companies.

With that overview, I will turn the call over to Matt to discuss market backdrop and BBDC portfolio in more detail.

Thanks, Tom. The second quarter continued to be defined by a disconnect between headlines and fundamentals. The headlines around private credit remain noisy. We saw continued scrutiny of non-traded perpetual BDC redemptions, renewed focus on software exposure and AI disruption, heightened political uncertainty and ongoing investor debate about timing and magnitude of future rate cuts. At the macro level, conditions were not meaningfully changed from the prior quarter. While renewed tariff concerns and Middle East conflicts contributed to volatility, the operating backdrop for most of our core middle market borrowers remained manageable. The most important change from our perspective is that private credit behavior is becoming more rational. Capital remains available, but less aggressively so.

Redemption activity in perpetual BDCs and more deliberate institutional pacing are reducing the marginal capital chasing new deals. That has begun to translate into better lender economics in parts of the market. New issue spreads have widened modestly, fee levels have improved and lenders are becoming more selective. This is important for BBDC. We have been saying for several quarters that slower capital formation could ultimately improve the deployment environment for disciplined lenders, and we are beginning to see that dynamic emerge. Public reports indicate that direct lending activity broadly declined during the quarter, driven by fewer mega deals and large corporate financing. At the same time, our core middle market issuance pipeline remains strong, where Barings has long-standing sponsor relationships and an established origination platform.

Let me spend a moment on software and AI because this remains one of the thematic topics we expect investors to focus on. AI-related concerns have clearly affected market perception of certain software credits. However, we think it's important to distinguish between broad headline risk and actual credit impairment. Our underwriting framework remains focused on business model durability across all industries. We are most comfortable with businesses that exhibit market leadership, high switching costs, granular customer bases and acyclical demand drivers. When evaluating software specifically, we are focused on issuers with specific domain knowledge, data moats, purpose-built workflows and end markets with heightened security, liability, regulatory and privacy requirements.

Given our avoidance of ARR lending historically, our portfolios are under-indexed to software, but we continue to see compelling opportunities in this vertical as some lenders with large software portfolios are avoiding this sector entirely. The portfolio experience to date supports the importance of selectivity. To date, stresses attributable to AI have been concentrated within issuers that were already under pressure, as Tom previously alluded. A chief example of this dynamic is reflected in our biggest unrealized appreciation during this quarter in FinThrive, a preferred equity position. Separate from this position, the risk rating migration during the quarter was largely modest.

Our primary areas of stress in the portfolio, characterized by risk ratings 4 and 5, were substantially unchanged at 6% of the portfolio during the quarter compared to the immediately preceding period. That said, we do not want to minimize the amount of work required to drive optimal outcomes to our underperforming positions. We are actively managing specific credits and continue to focus on maximizing recoveries, preserving optionality and protecting shareholder value.

Looking ahead, our origination outlook is constructive but selective. We do not view this as a market in which discipline should be relaxed, quite the opposite. Elevated investor scrutiny, changing funding flows and greater credit dispersion are creating a better environment for lenders who can be patient and selective. Our focus remains on core middle market first lien loans, global private finance opportunities and capital solution strategies with attractive co-investment opportunities where the Barings platform can create incremental value.

We also continue to see potential long-term opportunities for market dislocation. As some managers face redemption pressures or funding constraints, well-capitalized platforms should be better positioned to provide liquidity. As previously referenced, the termination of the Sierra CSA and resulting availability of capital deployment improves our ability to participate in that environment. In summary, the quarter showed improved earnings, a better deployment environment and continued progress in simplifying the BDC story.

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

Thanks, Matt. As Tom and Matt highlighted, Barings BDC delivered another quarter of solid operating performance despite continued market volatility and ongoing investor focus on the private credit sector. The quarter was highlighted by earnings that exceeded our dividend, the successful termination of the legacy Sierra credit support agreement and continued balance sheet flexibility.

Turning first to our results. Net asset value per share at June 30 was $10.94 compared to $11.02 at March 31, 2026. The sequential decrease in NAV was primarily driven by net realized and unrealized losses on investments, partially offset by strong net investment income during the quarter. While NAV declined modestly, we believe the overall portfolio continued to demonstrate resilience, and credit performance across the broader portfolio remains generally stable. Net investment income for the quarter benefited from continued portfolio growth as well as elevated dividend income from certain portfolio investments. As a result, we generated NII of approximately $0.28 per share, exceeding our quarterly dividend of $0.26 per share by roughly $0.02.

Importantly, we continue to maintain significant undistributed taxable spillover income of approximately $0.84 per share. Reflecting our earnings strength and confidence in the portfolio, our Board declared a third quarter dividend of $0.26 per share, unchanged from the prior quarter. We believe our substantial spillover income, industry-leading incentive fee hurdle and diversified income streams positions us well to support shareholder distributions through varying market environments. As always, we will continue to evaluate dividend levels relative to portfolio earnings power, base rate expectations and overall market conditions.

Moving to portfolio valuations and realized activities. We recorded net realized losses during the quarter, primarily associated with restructuring activity and legacy portfolio investments. During the quarter, we completed restructuring involving EMI Porta, Holdco and Medical Solutions. While these transactions resulted in net losses, the associated unrealized marks previously taken on these investments largely offset the impact to NAV. One of the most notable developments during the quarter was the successful termination of the legacy Sierra credit support agreement, as was mentioned by both Tom and Matt. As a reminder, the Sierra CSA was originally established in connection with the Sierra acquisition and provided important downside protection throughout the wind down of that legacy portfolio.

During the quarter, the agreement was terminated and Barings made a final settlement payment of approximately $67 million. The transaction generated a realized gain of approximately $22.6 million, which was largely offset by unrealized depreciation recognized as the value of the contract converged to its ultimate settlement amount. Just as importantly, the termination of the legacy agreement significantly simplifies the company's balance sheet and removes the complex legacy structure that has existed since the Sierra acquisition. While only a small number of Sierra investments remain, we simultaneously entered into a new credit support agreement with a notional amount of approximately $11 million, providing targeted protection on the remaining positions while materially reducing the overall size and complexity of the arrangement.

Turning to the balance sheet. We ended the quarter with net leverage, which is defined as regulatory leverage net of unrestricted cash and net unsettled transactions, of 1.18x, essentially unchanged from the prior quarter and comfortably within our target range of 0.9x to 1.25x. Our liability structure also remains a competitive advantage. Approximately 80% of our debt capital structure remains unsecured, which is among the highest levels in the public BDC sector and provides meaningful operational flexibility. Although we expect that percentage to decline modestly as we approach upcoming maturities, we remain very comfortable with our current funding profile and believe it positions us favorably relative to peers. As many investors are focused on, our next significant debt maturity is the $350 million unsecured notes due in November 2026.

We have been proactively evaluating multiple refinancing alternatives and remain in active dialogue with debt capital market participants. Given our substantial liquidity, access to both secured and unsecured finance markets and long-standing presence as an issuer in the public debt market, we believe we have several attractive options available to address the maturity. We expect to remain opportunistic and seek to refinance the maturity in a manner that preserves balance sheet flexibility while supporting attractive risk-adjusted returns for shareholders.

In closing, we believe the second quarter demonstrated the strength of the Barings BDC platform. We generated earnings in excess of the dividend, successfully terminated the legacy Sierra CSA, maintained leverage within our target range and preserved significant liquidity as we prepare for upcoming capital market activity. Supported by a high-quality portfolio, conservative balance sheet and robust earnings profile, we believe BBDC remains well positioned to navigate changing market conditions and continue creating long-term value for shareholders.

With that, I'll turn the call back to the operator for the Q&A session.

[Operator Instructions] Our first question comes from the line of Merrill Ross with Compass Point.

You spoke clearly about overlooked investments in dislocated sectors. But based on your long experience in the core middle market, are there any sectors where you don't think that current pricing adequately compensates you for risk?

Merrill, really appreciate you dialing in and asking -- sorry, getting us started this morning. And so I would say that more broadly speaking, I think that there are industries that we have historically avoided and will continue to avoid just based on cyclical considerations. And in a broad kind of volatile macroeconomic environment, that probably doesn't come as any surprise. So thinking about things that have any derivative exposure to oil and gas, logistics-related industries, and other industries that are going to be kind of subject to the whim of volatility that's outside of our control are probably going to be lower on our list of priorities, but that's not a deviation from past practice.

One observation I would make is that where we're seeing a really heightened degree of competition is actually in the lowest ends of the market. And so consider that to be issuers with EBITDA between, call it, $5 million and $15 million of underlying cash flows. And so I think that as we are reviewing opportunities in real time, the competitive landscape in that segment of the market, perhaps ironically, is extraordinarily competitive. And we continue to focus on what we define as the core area of our deployment strategies at $15 million to $75 million, but consistent with the industry verticals that we've historically targeted.

Our next question comes from the line of Ethan Kaye with Lucid Capital Markets.

Looks like deal activity was quite strong this quarter. We saw pretty muted, I think, numbers at some larger cap peers. I think some of that ostensibly has to do with capacity. But I'm wondering if there's kind of other factors you can point to that supported activity in 2Q and the pipeline going forward?

Yes. Thanks, Ethan, for the question. Yes, I think that, one, it speaks to the strength of our platform and what we've done there. And I think that, that is really a big driver. Our origination team is -- pipeline is quite full. So I think we've seen lots of good opportunities. I think we have been selective on that. So what you're seeing on deployment, I think it is really of a high quality, and we continue to see opportunities come through on that front through our group on that side.

I would also say that in our Capital Solutions group, we've seen quite robust activity. I think really the interesting thing there is we see quite a bit less competition on those deals, and we're getting compensated at 200 to 300 basis points wider than some of the private credit deals for what we view as equivalent risk. So I think a key differentiator in our platform is the Cap Solutions group, combined with what we do in our core GPF group, is really providing us with uplift as we look at pipeline, and it clearly showed in deployment in the second quarter.

Great. And then one quick follow-up on that. Do you have a sense of what share of, I guess, commitments this quarter were from new borrowers versus incumbent borrowers?

Yes. About 1/3 were going to relate in this particular quarter, I believe, related to existing relationships and about 2/3 would have been new issue relationships.

[Operator Instructions] Our next question comes from the line of Heli Sheth with Raymond James.

So obviously, a more active M&A market this quarter. Any further insight into what we should expect in terms of pacing of both repayments and originations? Can we expect them to just ramp from here? Or are there any catalysts that may drive more activity down the line?

Yes. I guess I'll start with that and turn it to Matt. We've seen the pipeline, as I mentioned, it is robust. And so one of the things we do is obviously how we model things is try to really get a view on what we think repayments are. We have a good view into that. We also have, I think, a fairly robust pipeline that I think what you've seen in the second quarter feels like it is carrying into the third quarter. Much past that, difficult to say.

In terms of the M&A pickup, there's been a lot of talk about that. I don't know necessarily that that's what's really driving this. I think it may be for us, a little platform-specific, but there will be a point where that breaks loose. But right now, I think we're in a good position with what we see on the GPF side and Cap Solutions side, and I think we see it that way.

Yes, Heli, I would say that for largely deployed portfolios, particularly on a granular basis, the activity on both repayments and deployment is going to move largely in lockstep. And so as we see activity refinance out or perhaps monetize out of the portfolio, presumably, that's being accompanied by an opportunity that we're also reviewing. And so I think that our outlook remains optimistic that we'll continue to see more turnover of the broad portfolios because it has been a little bit more muted over the course of the past few years. But that has been a pretty consistent expectation that has disappointed quarter in and quarter out. And so I think that while we have some confidence that we will continue to see an improvement in transaction velocity and activity, the narrative really hasn't changed from an overall hold duration perspective in private equity portfolios.

Got it. Appreciate the color. And then just switching to software. I think you mentioned that a lot of lenders are starting to avoid the sector just because of their large software exposure already. Are you seeing anything different in terms of spreads or pricing there given that?

Yes. Yes. There is a definitive software premium that exists for managers who are underwriting new software issuance. There's undoubtedly a dynamic there.

Yes. I would say we're not avoiding that, but we're certainly getting a pricing premium for the few that we've looked at and have committed to. So we're not out of the market for that. In fact, I think it actually represents a good relative value opportunity given what we see in pricing and some of the underlying companies that we're taking a look at in doing that. So we're going to be obviously very selective, but I do believe for -- there is an opportunity there, frankly. And so I think the pricing, just because of the noise in the greater software ecosystem is allowing us that opportunity, and we will take advantage of that.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. McDonnell for any final comments.

All right. 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 our shareholders.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

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.