On February 22, 2023, KBRA assigned issuer and senior unsecured debt ratings of BBB with a Stable Outlook to Bain Capital Specialty Finance, Inc. (“BCSF” or “the company”).

The BBB ratings of BCSF reflect the company’s strong ties to Bain Capital, LP (“Bain Capital”) and Bain Capital Credit (“BCC”). The company’s advisor, BCSF Advisors LP (“the advisor”), is part of the broader BCC global direct lending platform. The ratings also consider BCSF’s excellent management team that has a long track record of working within the private debt markets (senior members of the company have over 23 years or more experience in leveraged finance). BCC's Private Credit Group invests across the capital structure (in large part senior secured loans) and allocates investments across its managed funds (of which BCSF is one). BCSF has a well-diversified ~$2.4 billion investment portfolio (at FV) as of 12/31/22, comprised mostly of senior secured, 1st lien debt (68% of total portfolio/83% when we “look through” JVs), to 132 middle market companies concentrated in non-cyclical, defensive sectors. The top three sectors, ex-JVs, include aerospace and defense, high tech industries, and business services.

As of year-end 2022, BCSF’s key financial metrics are solid with leverage of 1.25x and strong liquidity with no 2-year debt maturities. The company has ample regulatory asset coverage of 180%, with a cushion of 20% allowing BCSF to absorb increased market volatility as well as a potential increase in nonaccruals as we enter a more stressed economic cycle with rising and higher rates and inflation. Given BCSF’s investment focus, asset quality has been sound, and at year-end 2022 there were $38 million of non-accruing loans at fair value representing 1.6% of their total invested portfolio and 3% at cost. BCSF’s funding sources are diverse with access to bank lines and unsecured debt markets providing ample liquidity with no near-term maturities. At year-end 2022, the company had ~$317 million in liquidity in the form of unrestricted cash and available credit facilities. Unsecured debt as a percentage of total debt of 43% provides adequate unencumbered assets available for unsecured noteholders. These strengths are counterbalanced by the potential risk related to the company’s illiquid investments, retained earnings constraints as a Regulated Investment Company (RIC) and an uncertain macro-environment.

BCSF is an externally managed, non-diversified, investment management company that elected to be treated as a Business Development Company (BDC) under the 1940 Act and a RIC, which among other things, must distribute to its shareholders at least 90% of the company’s investment company taxable income. The company was formed as a Delaware Corporation in October 2015 and was publicly listed on the NYSE in November 2018. The company is managed by BCSF Advisors LP, a wholly owned subsidiary of Bain Capital Credit which has $43 billion of asset under management as of September 30, 2022. Bain Capital Credit is owned by Bain Capital, LP, an alternative asset manager with over $160 billion in AUM across multiple strategies at September 30, 2022.

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Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

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