First Eagle Alternative Capital BDC, Inc.
Q2 2022 Earnings Call Transcript

Published: 10 Aug 2022

[Operator:]

Good morning, and welcome to First Eagle Alternative Capital BDC, Incorporated Earnings Conference Call for its second fiscal quarter ended June 30, 2022. It is my pleasure to turn the call over to Sabrina Rusnak-Carlson of First Eagle Alternative Capital BDC, Incorporated, Ms. Rusnak-Carlson, you may begin.

[Sabrina Rusnak-Carlson:]

Thank you, operator. Good morning, and thank you for joining us. Joining me on today's call are Chris Flynn, President of First Eagle Alternative Credit; and Jen Wilson, our Chief Accounting Officer and Treasurer. Before we begin, please note that the statements made on this call may constitute forward-looking statements within the meaning of the Securities Act of 1933 as amended. Such statements reflect various assumptions by First Eagle Alternative Capital BDC concerning anticipated results that are not guarantees of future performance and are subject to known and unknown uncertainties and other factors that could cause actual results to differ materially from such statements. The uncertainties and other factors are in some ways beyond Management's control and include the factors included in the section entitled Risk Factors in our most recent annual report on Form 10-K as updated by our quarterly report on Form 10-Q and our periodic and other filings with the Securities and Exchange Commission. Although we believe that the assumptions on which any forward-looking statements are based on are reasonable, any of those assumptions could prove to be inaccurate. And as a result, the forward-looking statements based on those assumptions also could be incorrect. You should not place undue reliance on these forward-looking statements. First Eagle Alternative Capital BDC undertakes no duty to update any forward-looking statements made herein unless required by law. All forward-looking statements speak only as of the date of this call. Our earnings announcement and 10-Q were released yesterday afternoon, copies of which can be found on our website, along with our Q2 earnings presentation that we may refer to during this call. A webcast replay of this call will be available until August 10, 2023, starting approximately 2 hours after we conclude this morning. To access the replay, please visit our website at www.feacbdc.com. With that, I'll turn the call over to Chris.

[Christopher Flynn:]

Thanks, Sabrina. Good morning, and thank you for joining us on our earnings call today. On today's call, I'll review our second quarter results and share some portfolio highlights. I'll then hand the call over to Jen Wilson, who will discuss our portfolio on the financial results in more detail. The results for the second quarter were mixed. We ended the quarter with a net asset value of $5.30 per share, down 13.4% on a quarter-over-quarter basis. This drop in NAV can be broken down as follows

[Jennifer Wilson:]

Great. Thank you, Chris, and good morning, everyone. First, I'll start off with some investment and portfolio highlights. As Chris mentioned, Q2 was relatively muted quarter for new activity with 1 new addition to the portfolio at $4.6 million. However, we did have several follow-on investments in funding of commitments totaling an additional $21.3 million in capital deployed. The blended yield of new investments was 7.75% based on underlying benchmark rates and spreads as of June 30. Additionally, we had 7 notable realizations during the quarter, receiving total proceeds of $33.3 million. As of June 30, our portfolio was valued at $366.8 million, down from $400.7 million at the end of Q1. It was invested 80.4% in first lien senior secured debt and 16.5% in the Logan JV. As a reminder, the Logan JV is 99% invested in first lien assets. The remaining 3.1% of the BDC's portfolio was held in second lien debt and other non-income producing and equity holdings, including our restructured equity-like second-lien investment in OEM. The weighted average yield on the debt and income-producing portfolio, based on costs and including Logan was 6.8% as of the end of Q2, which is up slightly from 6.5% at the end of Q1. During Q2, we placed Matilda Jane, our first lien term loan and revolver on non-accrual. Additionally, Aurotech was paid off and no longer included in our non-accrual assets. Total non-accruals as a percentage of our portfolio at fair value and at cost were 2.3% and 7.4%, respectively. Now I'd like to address the financials for the second quarter. During Q2, we recognized $6.9 million of investment income primarily from interest and dividend income. Interest income increased approximately $866,000 from Q1 to $6.3 million for Q2. The increase was primarily driven by prepayment premiums of $552,000 earned on the realization of 2 of our positions. These realizations also contributed to the increase an accelerated amortization of OID of approximately $232,000. As expected, the dividend income from Logan JV decreased significantly from Q1 to $320,000 in Q2. This decrease is the result of certain one-time charges and write-offs associated with the termination of the Logan JV credit facility in connection with the issuance and refinancing of the Logan JV middle market CLO. Other income was up slightly to $263,000 in Q2. Total expenses, net of management fee waivers for the quarter were $4 million, down from $4.5 million in Q1. The biggest driver of this decrease was the $629,000 decrease in management fees due to a full waiver of our Q2 management fee. This decrease was offset slightly by an increase of approximately $143,000 of interest and fees on borrowings due to an increase in the underlying reference rate. From a leverage perspective, we ended Q2 with a debt-to-equity ratio of 1.42x. Our increase in our debt-to-equity ratio was driven by our decrease in net asset value at the end of the quarter. We continue to have ample borrowing capacity on our credit facility to continue to grow our portfolio and fund any calls on our untended commitments. With that, I'd like to turn the call back over to Chris.

[Christopher Flynn:]

Thanks, Jen. We sought to provide shareholders a clear time line on narrowing FCRD's discount to NAV and raising the dividend. We were able to raise the dividend this quarter as designed. As we have articulated previously, the current discount in NAV is not accepted, and we as management will not be satisfied until that is rectified. With that, I will turn the call back over to the operator.

[Operator:]

This concludes today's conference call. Thank you for participating. You may now disconnect.

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