BCP Investment Corp (BCIC) 2026 Q2 法說會逐字稿

Welcome to BCP Investment Corporation's second quarter and the June 30, 2026, earnings conference call. An earnings press release was distributed yesterday, August 6, after market close. A copy of the release along with an earnings presentation is available on the company's website at www.bcpinvestmentcorporation.com in the Investor Relations section and should be reviewed in conjunction with the company's Form 10-Q filed yesterday with the SEC. As a reminder, this conference call is being recorded for replay purposes.

Please note that today's conference call may contain forward-looking statements which are not guarantee of future performance or result and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors including those described in the company's filings with the SEC. BCP investment. Corporation assumes no obligation to update any such forward-looking statements unless required by law.

Speaking on today's call will be Ted Goldthorpe, Chief Executive Officer, President and Director of BCP Investment Corporation Brandon Saturin, Chief Financial Officer and Patrick Schaefer, Chief Investment Officer. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of BCP Investment Corporation. Please go ahead, Ted.

Good morning, and welcome to our second-quarter 2026 earnings call. I'm joined today by our Chief Financial Officer, Brandon Satorin, and our Chief Investment Officer, Patrick Schaefer.

Following my opening remarks on the company's performance and activities during the second quarter, Patrick will provide commentary on our investment portfolio and the broader market, and Brandon will discuss our operating results and financial condition in greater detail.

During the second quarter, we continued the execution against our plan as we strengthened our balance sheet and improved our asset coverage, we continued to reposition the portfolio and we saw further improvement in our non-accrual profile.

Subsequent to quarter end, we amended and upsized our KeyBank facility and used it to refinance and retire our Great Lakes revolving credit facility with JPMorgan.

Net asset value declined during the quarter, driven predominantly by unrealized mark-to-market movements across the portfolio, which I will discuss in more detail.

Taken together, the actions we took during the quarter have improved our financial flexibility and reduced near-term refinancing risk.

During the quarter, we generated total investment income of $15.2 million and core investment income of $12.9 million, both above the second quarter of 2025.

We generated net investment income of $5.5 million or $0.45 per share, which exceeded our distribution for the period with core investment income of $0.27 per share covering our base distribution.

We also saw further improvement in underlying credit performance with non-accruals declining on a net basis to 5.7% of the portfolio at amortized cost from 6.2% in the prior quarter and the number of portfolio companies on non-accrual declining to seven from nine.

We paid total distributions of $0.30 per share during the second quarter comprised of our base $0.27 base distribution and $0.03 supplemental distribution declared on our first quarter earnings. We're also paying monthly base distributions of $0.09 per share for July, August and September as declared in May.

Our Board has now approved a fourth quarter 2026 base distribution of $0.27 per share, payable in monthly installments of $0.09 per share in October, November and December.

With our monthly dividend structure now well established, we believe this framework provides shareholders with a regular cadence of cash distributions while maintaining the flexibility to declare supplemental distributions when supported by earnings.

We also continue to enhance our capital structure through proactive liability management. During the quarter, we used proceeds from the $50 million of 7.5% notes due 2029 that we issued in March to redeem $40 million of our 2026 notes at par, and we further reduced outstanding borrowings under our revolving credit facilities.

Par borrowings declined by $56 million during the quarter to $286 million.

Our asset coverage ratio improved to 162% from 156%, and gross leverage declined to 1.6 times from 1.8 times.

Subsequent to quarter end, we amended our KeyBank credit facility, reducing applicable borrowing spreads during the reinvestment period by 30 basis points, extending the facility's reinvestment period and maturity. And increasing committed borrowing capacity from $75 million to $150 million.

In connection with the amendment, we used borrowings under the upsized facility to repay in full all outstanding borrowings under our Great Lakes revolving credit facility with JP Morgan, and the commitments under that facility were terminated.

This consolidates our secured revolving borrowings into a single facility with a longer runway, improves our overall cost of capital and provides greater financial flexibility as we continue to execute our investment strategy.

Net assets per share declined to $14.49 per share this quarter, driven primarily by unrealized mark-to-market declines across the portfolio.

Approximately 34% of this quarter's unrealized markdowns were attributable to investments classified as software in our consolidated schedule of investments and approximately 47% when including software-exposed names, compared with approximately 40% and 70%, respectively, in the first quarter.

We believe the majority of these markdowns continue to reflect sector-specific valuation pressure and broader market dislocation rather than fundamental credit deterioration.

Approximately 93.5% of our software exposure is rated low to medium AI impact under our internal review, concentrated and mission-critical, vertically specialized businesses with proprietary data, embedded workflows, and high switching costs. And these are unrealized marks against the senior secured positions with contracted cash flows and covenant protection.

Our approach to deployment has not changed, but the environment has. Transaction volumes across the broader market were meaningfully lower this quarter, and in a slower market, we would rather be selective than compromise on structure.

What we are finding is our best opportunities continue to come from smaller, more complex situations and from borrowers and sponsors we already know where we can dictate terms rather than respond to process.

That is the same discipline we described in our private quarters, and the difference this quarter is we are applying it to a narrower set of transactions.

As we look to the second-half of 2026, we remain focused on active portfolio management, discipline underwriting, and prudent capital allocation with a goal of driving long-term value for our shareholders. We are not relying on market-wide recovery and M&A transaction activity. Our focus is on the opportunities we are sourcing directly and on the pipeline we've built in our core market.

With that, I will turn the call over to Patrick Schaefer, our Chief Investment Officer, for a review of our investment activity.

Before turning to the quarter, a few comments on our core market. Our core market has not changed. We continue to focus on companies with $15 million to $50 million of EBITDA in industries or business models where we have an edge and ideally non-sponsor or non-traditional sponsor situations where we have the ability to drive pricing and structure.

Given the continued uncertain macro environment, overall activity in our market has remained low and terms on new deals have generally moved in our favor, with spreads on new issuance modestly wider than at year-end as our clients value certainty of execution over pricing.

More importantly, credit markets were generally stable during the quarter.

The B-rated loan index improved modestly and the loan benchmarks we use in our valuation process ended the quarter flat to slightly tighter.

Software was the exception, with spreads widening further to a level several hundred basis points wide of the broader B-rated index.

That divergence is an important context for our marks this quarter.

Within software. Our exposure continues to be concentrated in businesses with proprietary data, embedded workflows and vertical market position.

While the markets have generally differentiated between these credits in a positive way relative to those without these characteristics, we are still in a world where the syndicated markets view all software as a four-letter word.

As a result of that lower activity level during the second quarter, our investment activity remains measured and selective. We completed three new portfolio company investments and four follow-on investments during the period.

Refinance and sales remained elevated for the quarter, reflecting a mix of borrowers refinancing or being required and the resolution of two non-accrual positions.

As a result, originations for the quarter were $20.9 million and repayments and sales were $34.9 million, resulting in net repayments and sales of approximately $14 million. A little over half of our originations by dollar amount came through increasing exposure to existing portfolio companies that we know and that are performing well.

Overall, we are constantly evaluating our deployment levels relative to leverage levels and desire to repurchase stock.

Turning to Slide 10, the overall yield on par value of new debt investments during the quarter was 13.3%. This compares to a 12.2% weighted average annualized yield excluding income from non-approvals and collateralized loan obligations as of June 30, 2026 and a weighted average annualized yield of 12.8% as of March 31, 2026.

Our focus remains on credit quality, structure and overall risk-adjusted return.

Our investment portfolio as of June 30, 2026, remained highly diversified. We ended the quarter with a debt investment portfolio of $349.7 million at fair value, excluding our investments in CLO funds, equities and joint ventures, spread across 71 different portfolio companies and 33 different industries, with an average par balance of $3.2 million per investment.

Turning to Slide 11. Our nonaccrual profile continued to improve on a cost basis during the quarter. At the end of the second quarter, we had 11 investments on nonaccrual status attributable to seven portfolio companies. Representing 3.1% and 5.7% of the portfolio at fair value and amortized cost, respectively.

This compares to 12 investments attributable to nine portfolio companies on non-accrual status as of March 31, 2026, representing 2.6% and 6.2% of the portfolio at fair value and cost, respectively.

The number of investments and companies on non-accrual, along with the amortized cost percentage both improved, though the fair value percentage increased, reflecting one additional investment placed on. During the quarter, alongside a lower total portfolio value.

On slide 12, excluding our non-accrual investments, we have an aggregate debt investment portfolio of $335.6 million at fair value, representing a blended price of 88.6% of par value and 79.4% of that portfolio was comprised of first-lane loans at par value.

Assuming par recovery, our June 30, 2026 fair value comply approximately $43.2.

Of incremental NAV value or a 24.1% increase to NAV.

Applying an illustrious 10% default rate and 70% recovery rate, the debt portfolio would imply approximately $2.57 per share of incremental NAV or a 17.7% increase as the portfolio rotates.

I'll now turn the call over to Brandon to further discuss our financial results for the period.

Thanks, Patrick. For the quarter ended June 30, 2026, the company generated $15.2 million in investment income, as compared to $17.6 million reported for the quarter ended March 31, 2026.

The decrease was largely due to net portfolio repayments and sales over the past several quarters, including $14 million in the second quarter.

The impact of placing one investment on non-accrual status and lower core paydown and non-recurring fee income.

For the same period, expenses were $9.6 million or $1.1 million below the $10.7 million reported for the prior quarter.

The decrease in expenses was primarily due to the absence of performance-based incentive fees during the quarter. As compared to approximately $0.9 million of incentive fees incurred in the first quarter of 2026.

Accordingly, our net investment income for the second quarter of 2026 was $5.5 million or $0.45 per share from $6.9 million or $0.55 per share reported for the prior quarter.

Core net investment income for the second quarter was $3.3 million or $0.27 per share compared to. Million or $0.33 per share for the first quarter of 2026. As of June 30, 2026, our net asset value or NAV totaled $179.5 million as compared to the prior quarter's NAV of $193 million. On a per share basis, NAV was $14.49 as of June 30, 2026, as compared to the prior quarter's NAV of $15.60. As Ted noted, the decline in NAB during the quarter was predominantly was driven predominantly by unrealized mark-to-market declines across the portfolio.

We also recorded a $10.5 million net realized loss relating primarily to the resolution of two positions that had been on nonaccrual and were carried at a significant discount to costs. So those losses were substantially reflected in the net asset value reported in prior periods.

Separately, the partial redemption of our 2026 notes resulted in a $0.4 million realized loss on extinguishment of debt from the write-off of unamortized deferred financing costs.

As of June 30, 2026, our gross and net leverage ratios were both 1.6 times respectively, compared to 1.8 times and 1.5 times in the prior quarter. The increase in net leverage reflects the use of cash on hand to reduce borrowings and a lower net asset value. At quarter end, our total outstanding borrowings were $286.1 million, with an asset. Ratio of 162% compared to $342.2 million and 156% respectively as of March 31, 2026.

As Ted mentioned, we redeemed $40 million of the 2026 notes during the quarter and reduced our outstanding borrowings under our revolving credit facilities.

As of June 30, 2026, our total borrowings carried a weighted average contractual interest rate of approximately 7%, and we finished the quarter with $86 million of available borrowing capacity under our senior secured revolving credit facilities, subject to borrowing-based restrictions. Subsequent to quarter end, we reduced.

We amended the credit facility, reducing the spread by 30 basis points, extending the reinvestment period and maturity by two years and increasing committed capacity from $75 million to $150 million.

We also reduced the unfunded fee.

In connection with the amendment. Certain portfolio investments previously securing the JP Morgan Great Lakes revolving credit facility were transferred into the KeyBank collateral pool, and borrowings under the amended KeyBank credit facility were used to repay.

All outstanding borrowings under the JP Morgan Great Lakes Revolving Credit Facility, which was then terminated. This will be reflected in the third quarter and provides us with greater financial flexibility as we continue to execute our investment strategy.

With that, I will turn the call back over to Ted.

Thank you, Brandon.

Ahead of questions, I'd like to re-emphasize our commitment to our shareholders. Our focus remains on active portfolio management, disciplined underwriting, and diligent capital management with a goal of delivering sustainable, long-term value creation for our shareholders.

Thank you once again to all of our shareholders, employees, and partners for your ongoing support. This concludes our prepared remarks, and I'll turn the call over for any questions.

(Operator Instructions)

At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A register.

Your first question comes from the line of Eric Zwick with Lucid Capital Markets. Your line is open.

Thank you. Good morning, guys.

You've made some nice progress on deleveraging the balance sheet and bringing the leverage ratio down.

I think there's still maybe, I'm curious if you agree, a little bit more room to go in terms of maybe reaching the targets that you had laid out before.

To some degree, I think the valuation marks worked against you this quarter and who knows where those go, hopefully, maybe next quarter reverse to some degree. But from what you can control. Curious, do you expect to continue using cash flow from the investments and repayments potentially to continue paying down some of the borrowings at this point or what are your kind of current thoughts on leverage and where it goes from here?

Yeah, thanks, Eric. So I think, as you mentioned, we are still a little bit above kind of what we view our kind of long-term average to be. And so I think kind of consistent with the last couple of quarters, you saw us be in a net repayment position, repayment for all deployments. I think you could probably reasonably expect that to kind of continue going forward, which is we do see a lot of good opportunity. Or good opportunities in the market and we believe we're being relatively prudent in terms of being selective on those new investments, but generally speaking, trying to take advantage of repayments to overall reduce leverage.

Okay. Thanks, Patrick. I appreciate that. And also nice to see that the non-accrual accounts go down quarter over quarter. For those.

Investments that are still in non-accrual, any noteworthy updates there of things that are maybe you've been working on for a little while and maybe getting a little closer to resolution that could potentially return to the accrual list at some point in the near future?

Yeah, good question. I would say there's definitely like a couple of them are in various different stages.

I would say probably on the margin between of the names in the list. I would say like what you'll generally see probably more likely is sort of a resolution and repayment of some amount of value, which again, we believe were kind of like recently marked relative to what we think a resolution would be and then to reinvest those proceeds into something new or paid on debt, et cetera, relative to, again, for the most part, sort of like either resetting, restructuring and kind of continue to be invested in these particular portfolio companies.

Got it, appreciate that. If you go down the list, sorry, just to follow-up, if you go down the list of them, like most of them are like legacy positions from different portfolios and they're generally speaking on like the longer end and you've got a number of different lenders within these different portfolio companies and kind of everyone is, everyone in the groups generally speaking are sort of looking to.

Looking to sort of move on from a and focus on new investments as opposed to I suppose to continue to stay in these capital structures. So it's not just us. But I think, again, when you kind of scan through the list of them, by and large, you've got lender groups who are probably more excited to exit and replace that with a new portfolio company as opposed to continuing on as a lender.

And last one, just thinking about the pipeline for new originations. You mentioned seeing some wider spreads and seeing some opportunities. Curious if there's any.

Themes there in terms of industries we're seeing stronger opportunities? And then also just in terms of, I guess, kind of the opportunities, are they more toward growth or M&A, I'm guessing not refinancing at this point given kind of wider spreads and where rates are, but just kind of curious what you're seeing from that perspective?

Yeah, a good question. I would say.

As you would imagine, so I'm not like, I'm not going down the limb with a hot take. A lot of the companies that we are seeing are companies that would believe to be quote unquote AI proof, right? Business services, things of that, distribution businesses, things of that nature where you obviously don't have or have a much lower component of AI risk that tends to be. More of what we are seeing. But having said that, you do still see and we are still seeing software deals being done in the private markets at reasonable leverage levels and not wider, but not insanely wide pricing with a good bid from private lenders. We haven't done a lot of that and certainly haven't done any of that in BCIC. But you are still I would say that the software market. In private credit is not completely shut down. In terms of use of proceeds, again, I think generally speaking, it is for M&A as opposed to refinancing. Again, I know we said activity level is low and it is lower, but it still exists out there. And again, particularly in our size of the market where you're looking at 15 to 50 of EBITDA, your sponsors, I think, are a lot more willing to write a $100 million to $che300 millions than. And if we were trying to fish in a $150 million to $400 million EBITDA business, I think there's a lot more reticence from the sponsor community to be writing a $1.5 billion, $2 billion equity check or something, kind of given a little bit of the macro.

Uncertainty. So I think in general, our market has fared a little bit better from an activity level. So again, to point, most of what we are seeing is, I'd say, new purchase, whether that is like a management team sort of buying out a minority investor that they've had in there or a flip from a founder to a sponsor or just kind of, again, a new founder or a founder who is kind of looking to do a dividend recap and growth for the first time. Those tend to be the majority of our deals.

Thanks for taking my questions this morning. Thanks.

Your next question comes from the line of Francis Lau with Lucity Capital. Your line is open.

Hey, Ted. Good morning. On the back of the software question, just want to have just a little bit more clarity on the unrealized depreciation. So half of that came from software in this quarter.

How do you get comfortable that this is not going to weigh on the NAS in the future quarters?

I'll speak first, then I'll turn it over to Patrick. I think from my perspective, software is now less than 13% of our portfolio. And as you mentioned earlier, almost all of it is mission critical with structural protections. The one thing I'd say is there is a big split in valuations in software between.

Like software valuations that have zero liquid securities in the capital structure versus ones that do. So if you look at our average dollar price, we tend to be in larger, more scaled software assets, which is good. And those tend to be marked lower because they have a liquid benchmark that people can point to. And so we feel like we've taken the vast majority of our pain in the space. Again, we think fundamentally, we think our assets are actually good. And so we actually think there's a decent amount of upside in the valuations here, but obviously there's still a lot of uncertainty in the space. And as Patrick said, deals are getting done at the software space still at L plus 550 at par on small assets and medium-sized assets, and yet we're marked at pretty big discounts to par. So there's a pretty big disconnect between broader public valuations versus where things are getting done in the private markets.

And I guess on that, so widening spread is good for capital deployment. I guess two questions here are, how do you feel about the cadence of deploying capital in this current market? Do you want to wait? Do you want to go faster? And the second thing is, given where the stock is trading at the massive discount to NAV, is that deployment into new deals better than buying back the stock here, being cognizant of the liquidity of the stock, obviously?

Yeah, it's a good question. I mean, I think our perspective is we think spreads are going to widen, given the redemption pressure, just generally speaking, in the space plus the slowdown in fundraising, the M&A market is just not that robust. So our pipeline is okay, it's not bad, it's just there's not a big M&A market right now.

And then to your second point, we should be buying back stock. So during open windows where we're not blacked out, it just makes a lot more sense for us to buy our stock back where it trades versus deploying new capital, but there's a limitation on how much we can actually buy. So it's always a balance between originating new assets that are accretive to our shareholders.

But obviously, we're trying to buy back as much stock as we can and buy stock personally and buy stock to our funds. We just think our stocks doesn't reflect what we think is fair market value. Thank you.

Your next question comes from the line of Christopher Nolan with Ludenberg Salmon. Your line is open.

Hello, guys. Should we expect the key facility just to absorb the borrowings in the Great Lakes facility in third quarter?

Yeah, that's right. That's right, Chris. I mean, we'll have incremental borrowing capacity above and beyond what the two stand-on facilities would otherwise have. But yeah, you should think of it as sort of just absorbing the assets in the JP facility as of now.

Yeah, and as a broader question, everyone talks about how AI and blah. How has that affected your diligence? I mean, you get a lot of these, and I would say idiots, loading in all the company's secrets into AI, and they have no idea where it goes. And at some point later on, and they're doing it for tokens, and at some point, that could be used against them. There's a lawsuit between Apple and Anthropic.

Anthropic basically has Apple secrets on polishing metal or something. And when you're underwriting an investment, how do you gauge the intelligence of management dealing with this stuff? It's sort of like people, on email when it first came out, when everyone's like saying anything on email before they realize their repercussions. And just trying to see whether or not you have a AI intelligence test for some of the managements that you deal with.

It's an interesting question. I mean, it's a hard one to answer. I mean, generally speaking, as Patrick said earlier, we're really trying to avoid sectors with AI risk. What you said specifically, any deal we do full IT diligence. Historically, it's focused on cyber. That's more where we spend our time in cyber insurance. What you just said is an evolving area.

I wouldn't say -- we have a big team at BC Partners that is AI experts, and we kind of try to apply that expertise into our portfolio companies. But what you just said, I mean, it's a fair question. We try to pick it up in our IT diligence, but again, it's evolving on a weekly basis. Okay. That's it. Thanks.

I will now turn the call back over to Ted Goldthorpe for closing remarks.

Great. Well, thank you all for attending our call. As always, please feel free to reach out to us with any questions, which we're happy to discuss. We look forward to speaking to you again in November when we announce our third quarter 2026 results and have a great end of the summer. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may no disconnect.