Barings BDC, Inc. Q4 2025 Earnings Call - New CEO Pushes Portfolio Rotation and ROE After NAV Holds at $11.09

Operator: At this time, I’d like to welcome everyone to the Barings BDC, Inc. conference call for the quarter and year ended December 31st, 2025. All participants are in listen-only mode. A question and answer session will follow the company’s formal remarks. If you’d like to be placed in the question queue, you may press star one at any time. 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’ll turn the call over to Joe Mazzoli, Head of Investor Relations for Barings BDC.

Joe Mazzoli, Head of Investor Relations, Barings BDC, Inc.: 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.

Tom McDonnell, Chief Executive Officer, Barings BDC, Inc.: 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 first. 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 define BBDC remain firmly intact. Our approach is working, and my focus is on enhancing the processes that already operate effectively and complementing the strengths 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 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 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 three, four, or even five 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 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 and 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, eleven dollars-- 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.

Matt Freund, President, Barings BDC, Inc.: Thanks, Tom. I would first like to comment on my excitement to have you as part of our team. Barings manages nearly $500 billion 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, we’re often not perceived to be competitive in the eyes of the issuers and sponsors for these software assets. We stuck to our historical knitting, and the resulting software exposure reflects this approach. With that said, we believe the rhetoric 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. 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 defaults, 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 their 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 their 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 three 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. While financings 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 remains strong, with weighted average interest coverage this quarter of 2.4 times, 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 Arcade Holdings, being strategic platform investments. These investments provide BBDC shareholders with access to differentiated, compelling opportunities to invest in asset-backed loans and litigation funding solutions. Two specialized areas we believe provide attractive total returns and diversification benefits. Turning to the portfolio quality. Risk ratings exhibited stability during the quarter as our issuers exhibiting the most stress, classified as risk rating 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 0.2% 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 one Non-Accrual investment, removed one asset from Non-Accrual status that was restructured, and moved one additional asset onto Non-Accrual. 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.

Elizabeth Murray, Chief Financial Officer, Barings BDC, Inc.: 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 on the exit of our investments in Ruffalo and Avanti, and the restructuring of our investments in Eurofins, partially offset by the sale of our equity investments in Jones 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 a 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 Barings 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 Arcade. 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 0.9x-1.25x. This reflects our intentional positioning to support origination activity and planned asset transfers to our Jakasa 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, 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 Jakasi. 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 26th, 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 that declining base rates, reflected in the trajectory of the forward SOFR curve, will likely put downward pressure on net investment income. As a result, our regular dividend may decrease from current levels. While our earnings profile remains resilient and benefits from our 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 spillover income of approximately $0.80 per share, representing about three-quarters of our regular dividend and offering flexibility as rates normalize. Taken together, although a lower regular dividend in 2026 is 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 continued 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: Thank you. We’re now conducting a question-and-answer session. If you’d like to be placed into the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you’d like to remove your question from the queue. One moment, please, while we poll for questions. Our first question today is coming from Finian O’Shea from Wells Fargo Securities. Your line is now live.

Finian O’Shea, Analyst, Wells Fargo Securities: Hey, everyone. Good morning. Start with, I guess, Tom, some interesting opening remarks on initiatives. Anything you find yourself working on, in terms of the, you know, accelerating existing initiatives part, and then also on the new ones, to, to, you know, improve our ROE as you outlined, any sort of heavy lifting or big changes we might anticipate there?

Tom McDonnell, Chief Executive Officer, Barings BDC, Inc.: Yeah. Thanks, Finn. So yeah, a number of initiatives, you know, that we’ve undertaken here. I think, in part, really, they are sort of a continuation of what the team has already done. So, you know, 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, you know, my focus has been really on trying to accelerate exits of those. Many of those, as you know, don’t 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, you know, for ROE. So that’s been a big focus of mine.

I think within the CSA, another area where, you know, 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, in protecting them, you know, from losses, but, you know, that thing is beginning to grow in size. And so, you know, as you know, earlier this year, we did terminate one of those. And so while we can’t guarantee anything, it is our effort.

It’s 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, you know, realize proceeds there and again, redeploy those into interest-earning assets... Along the same lines, you know, we continue to wind down, you know, some of the JVs, you know, that some of them have been problematic for us. You know, we’re focused on Jocasi, obviously, 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, you know, on that, 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 are, you know, that I think are gonna be very, shareholder friendly, ROE friendly, are going to be, you know, the hurdle rate, as you know, is quite high relative to our peers. I think as base rates come down, you know, that’s gonna be an immediate benefit to our earnings, to our ROE. Those are a couple of the initial ones. I would also, you know, sort of like to point out, as you all know, I’ve been here for at 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 gonna 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, you know, as we again continue to look to enhance ROE and returns to shareholders.

Finian O’Shea, Analyst, Wells Fargo Securities: Okay. A lot there. Yeah, interesting on expanding Jocasi. Would that look any different? Because you know, 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, you know, the person you wanna be is the account that gets that for free. So is there a way that this might tilt more return toward BDC shareholders?

Tom McDonnell, Chief Executive Officer, Barings BDC, Inc.: Yeah, no, I think that... You know, I don’t know that we increased the percentage ownership, but I certainly think we can increase our investment there and direct more activity down there, so, and therefore, increase absolute dollars back in, in sort of the form of the dividend. So, as we consolidate the other JVs and wind those down, and they’re virtually, at this point, wound down, you know, 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 Jocasi, and we 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.

I think it’s been very successful for us over time, and, you know, we continue to believe it will be.

Finian O’Shea, Analyst, Wells Fargo Securities: Appreciate that. Thanks. Do one final, sort of market question. I’m not sure if the esteemed Joe Mazzoli is microphone eligible, but a lot of news in the non-traded 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? Thank you.

Tom McDonnell, Chief Executive Officer, Barings BDC, Inc.: Yes. Yeah, yeah. So Joe’s not mic’d up, but I’ll certainly take that. We’re working hand in hand on that as a team as well. So obviously the headlines have not been our friends really for four months now, and, you know, clearly news this week is not helping on that front at all. You know, 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. You know, you know, our flows there have been good. You know, we haven’t seen any material degradation in the pace of flows, you know, 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 it end of the first quarter here on what redemptions might look like. But as of now, you know, we’re just sort of fighting the battle of the headlines, and we do believe that that is what it is. And so, you know, I think everybody here who is knowledgeable about the space and truly understands private credit, understands, you know, 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, you know, on that front.

Finian O’Shea, Analyst, Wells Fargo Securities: Thanks, Tom.

Tom McDonnell, Chief Executive Officer, Barings BDC, Inc.: Welcome.

Operator: Thank you. Next question today is coming from Casey Alexander from Compass Point. Your line is now live.

Casey Alexander, Analyst, Compass Point: Yeah, good morning. 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 gonna direct at Tom, because Tom, you have long history in the liquid credit markets.

Tom McDonnell, Chief Executive Officer, Barings BDC, Inc.: Mm-hmm.

Casey Alexander, Analyst, Compass Point: An issue that, you know, investors continue to raise and would like to hear some commentary on is that in the liquid credit markets, the average price for a software loan is actually trading in recent reports around 90. So I’d like to hear how much you think that matters and how much you think that influences Barings 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?

Tom McDonnell, Chief Executive Officer, Barings BDC, Inc.: Yeah, that’s a great question. You know, so I believe that, you know, in the broadly syndicated loan space, you know, the predominant player there are CLOs. And, you know, CLOs are very ratings sensitive. They’re also somewhat price sensitive, but, you know, the reality is there has just been so much noise around it, that I think people are just sort of hitting the sell button where they can. You know, $2-$3 million position, you have four or five people doing that, and immediately you’re gonna see a 2-3 point backup in that loan. It’ll 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 gonna 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, and the way that we, across the Barings platform, underwrite software, you know, is that it—the recurring nature, it’s gotta be, you know, sort of vertically integrated, enterprise value stuff. It’s sort of, you know, really integral to companies’ core operations. And so where we are invested is in companies like that.

So unfortunately, you know, 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-$3 million position, as many CLOs, you know, sort of have. So then, you know, so that sort of then leads to, all right, who’s gonna buy that? And so with all the headlines, folks don’t necessarily wanna back up the truck on names like that that are just trading at a 2-, 3-, or 4-point discount. It just doesn’t really make sense from a 3M-3 or 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 with that, you know, 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 how does that translate into our space? You know, 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 gonna translate into valuation.

You know, again, with our platform and the way that we look at it, you know, we don’t see any need at all, and don’t view there a need to be any reason for us and 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.

Casey Alexander, Analyst, Compass Point: Oh, well, that’s a great answer. Thank you for that. 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, you know, 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 down the road, if the mismatch between the liquid credit markets and the directly originated private credit markets gets too wide?

Tom McDonnell, Chief Executive Officer, Barings BDC, Inc.: Yes. Yeah, absolutely. We would, you know, consider that. You know, we are. You know, we have a lot—we do a lot of work with our high yield team. Obviously, you know, I came from that group, and so, a lot of respect for the team up there. And so, you know, they do a lot of work around this, and we will step into it, you know, where we think there’s opportunity there. And so that is something that is clearly on our screen. And, you know, the way we approach BSLs, we’ll be very tactical about it.

And so I do think there’s an opportunity there when you just see some of this air pocket and some of the names or if there’s just a general sell-off in BSLs, you know, 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 or, you know, see the market evolve in terms of pricing there.

Casey Alexander, Analyst, Compass Point: Thank you for taking my questions.

Tom McDonnell, Chief Executive Officer, Barings BDC, Inc.: All right. Thank you.

Operator: Thank you. Next question today is coming from Robert Dodd from Raymond James. Your line is now live.

Robert Dodd, Analyst, Raymond James: Hi, morning, everyone. Congratulations on the quarter. You’re one of the few green names on my screen today. On the two kind of like, you know, strategic initiatives, I mean, you talked about ideally liking to crystallize the Sierra CSA as well. But, I mean, where would you like... If that- if you did, right, in the not too distant future, where-- what are the areas that you’d like to put that capital into? I mean, obviously, you’re talking about, you know, putting more into Duquesne. That’s an equity, strategic equity, effectively, you know, Eclipse and Rocade 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 strategies you’ve done between straight lending, some strategic equity? I mean, what’s kind of the vision for the mix over the next, you know, couple of years, so to speak?

Tom McDonnell, Chief Executive Officer, Barings BDC, Inc.: Yeah. So I mean, again, across the platform at Barings, you know, we got great origination platforms everywhere. I think, you know, we’ve leaned into sort of our, our capital suite, 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, you know, we will continue to do. I think that is definitely one area, that, that we’ll look to do that. You know, as, as you know, I’m a big believer in, in diversification in 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, you know, very interesting opportunities there that come at 200-300 basis points wider on spread than what, you know, you can get right now in private credit. So that would be sort of one area of focus. You know, 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. Like, as we see more volatility in the space, you know, clearly the BSL piece would be an area where we could see some interesting opportunities. I think double BCLOs 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, you know, 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, you know, relative to GPF spreads and opportunities on 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.

Robert Dodd, Analyst, Raymond James: Got it. Got it. Thank you. And then flipping to software, if I can, I mean, to Katie’s point, I mean, the average liquid bid’s at 90. But that’s not a uniform 90, right? I mean, you know, it’s... You know, 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, you know, the 14% that you said is software. I mean, obviously, you’ve avoided the types of, or tried 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’s concerned about, the one in the liquid market, those are the ones that trade in the big discounts.

What exposure, if any, do you have to the same kind of businesses that the liquid market has really, you know, 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?

Tom McDonnell, Chief Executive Officer, Barings BDC, Inc.: Yeah. No, we don’t. We don’t have any that are... So you’re talking about the liquid loans that are trading now in the low 80s. You know, those are the ones that are-

Robert Dodd, Analyst, Raymond James: Mm-hmm.

Tom McDonnell, Chief Executive Officer, Barings BDC, Inc.: more highly levered, you know, 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 the, 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, you know? And so those are the ones that have been legacy investments for quite some time, and have been sitting around, you know, four or five 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, you know, significantly.

So, you know, we don’t have exposure to those on the GPF platform. You know, AI has not come along as something that is a risk that recently we identified. It’s been something that’s been core part of the underwriting for the team, you know, 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 will have, you know, 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.

Robert Dodd, Analyst, Raymond James: Got it. Thank you for that, Kyle. One more, if I can, to make Elizabeth’s life maybe more awful. Any consideration to shift through this categorization to GICS? I mean, GICS is increasingly become the standard. Most BDCs use it. The fact that you don’t does make it harder to compare between BBDC and, you know, the most of the universe, the liquid loan markets even disclose 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?

Elizabeth Murray, Chief Financial Officer, Barings BDC, Inc.: Yeah, Robert, thanks for the question, and it’s something that, you know, we have been talking about internally, again, especially with the software piece, right? I know Matt kind of alluded to it in his

Robert Dodd, Analyst, Raymond James: Mm-hmm.

Elizabeth Murray, Chief Financial Officer, Barings BDC, Inc.: commentary. So it is something that we are constantly looking at and discussing, especially from an SEC reporting perspective. But, you know, thank you for your question.

Robert Dodd, Analyst, Raymond James: Okay. Thank you.

Operator: Thank you. As a reminder, that’s star one to be placed into question queue. One moment, please, while we pull for further questions. We’ve reached the end of our question and answer session. I’d like to turn the floor back over for any further closing comments.

Tom McDonnell, Chief Executive Officer, Barings BDC, Inc.: 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.

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