BCP Investment Corp. (BCIC) Q4 FY2025 Earnings Call Transcript & Summary

Hello, and welcome to BCP Investment Corporation's Fourth Quarter and Full Year Ended December 31, 2025 Earnings Conference Call. An earnings press release was distributed yesterday, March 5, 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-K 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 guarantees of future performance or results 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 and Investment Corporation assumes no obligation to update any such forward-looking statements unless required by law. Speaking on today's call will be Ted Gold, Chief Executive Officer, President and Director of BCP Investment Corporation; Brandon Satoren, Chief Financial Officer; and Patrick Schafer, Chief Investment Officer. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of BCP Investment Corp. Please go ahead, Ted.

Good morning. Welcome to our fourth quarter and full year 2025 earnings call. I'm joined today by our Chief Financial Officer, Brandon Satoren; our Chief Investment Officer, Patrick Schafer, and the rest of the team. Following my opening remarks on the company's performance activities during the fourth quarter and full year, Patrick will provide commentary on our investment portfolio and our markets, and Brandon will discuss our operating results and financial condition in greater detail. I'd like to start by discussing some highlights as 2025 was a transformational year for the company. In July, we completed our merger with Logan Ridge. And in August, we successfully completed a rebranding and name change. The merger meaningfully strengthened our platform, expanded our scale and broadened our portfolio diversification. . At the same time, our rebranding better reflects our affiliation with the broader BC Partners credit platform and is a representation of our long-term vision as we position the company for its next phase of growth. In December, we completed our tender offer by purchasing roughly 558,000 shares at an aggregate cost of approximately $7.6 million, which was accretive to NAV by $0.18 a share. Consistent with our diligent capital market management strategy, during the year, we also proactively extended and laddered our unsecured debt maturities, issuing $75 million of 7.75% notes due October 2030 and $35 million of 7.5% notes due October 2028, while also redeeming our 4 7/8% notes due 2026. These actions further diversified our funding base and provide us with enhanced financial flexibility. As a result of this year's performance and the successful execution of multiple strategic initiatives, the Board of Directors approved a quarterly base distribution of $0.32 a share for the quarter ended March 31, 2026. Additionally, the Board also approved the transition of the company's base dividend payment schedule from quarterly to monthly beginning in the month of April 2026, while retaining the potential for quarterly supplemental distributions. We believe this change better aligns our distribution schedule with shareholder interests. The Board approved a regular monthly base distribution of $0.09 per share for each of the months of April, May and June 2026. Also consistent with previous years, on March 4, 2026, the Board authorized a renewed stock purchase program of up to $10 million for approximately a 1-year period. All these initiatives I've discussed are designed to enhance shareholder value and reaffirm our commitment to shareholders. During the quarter, we generated net investment income of $7.4 million or $0.57 a share compared to $8.8 million or $0.71 per share in the prior quarter. For the year, we generated $25.1 million or $2.28 per share compared to $24 million or $2.59 per share for 2024. We remain focused on executing our strategic initiatives, managing expenses, optimizing portfolio positioning to support earnings and distribution coverage over time. Before handing the call over, I'd like to take a moment to address recent developments in the broader credit markets, specifically regarding the software segment. Over the last several weeks, we've seen a notable risk-off move in public software valuations, driven largely by uncertainty and speculation around how quickly AI adoption might change competitive dynamics rather than broad-based fundamental deterioration across the sector. As a reminder, BCIC remains broadly diversified with investments across 34 industries and software representing approximately 12.5% of the portfolio's fair market value. We've been proactive in evaluating our software-related exposure through AI disruption lens. Based on our internal review, the overwhelming majority of software exposure we track is assessed as low to medium AI impact and only a small portion is viewed as high impact. We also believe the market will increasingly differentiate between companies that are mission-critical and embedded in customer workflows, often supported by proprietary data, higher switching costs and customers operating in regulated industries versus simpler point solutions that may be more vulnerable if they fail to incorporate AI into their products and operations. As a result, our focus remains on selectivity and credit quality structure with underwriting and monitoring that emphasizes revenue durability, retention, pricing power and downside protection. Looking ahead, while macroeconomic headwinds persist, we believe current market dynamics continue to create compelling opportunities for our disciplined strategy. We anticipate that 2026 will bring increased activity in the M&A market and expect to capitalize on opportunities in our portfolio. With a larger, more diversified platform and a stronger balance sheet heading into the year, we believe we are well positioned to drive continued earnings growth and long-term value creation. With that, I will turn over the call to Patrick Schafer, our Chief Investment Officer, for a review of our investment activity.

Thanks, Ted. During the fourth quarter, we were intentionally prudent in new investment deployment as we executed on several key capital initiatives, including our debt refinancing and tender offer. We view this as disciplined capital management, and we are looking to deploy into attractive opportunities as conditions warrant. Competition remains elevated across sponsor-backed drug lending, particularly for higher quality assets, and we continue to see lenders competing not only on spreads, but also on terms and certainty of execution. In environments like these, we continue to stay disciplined, prioritizing transactions where we can achieve appropriate economics alongside strong documentation and downside protections. Where pricing returns are compelling. We are comfortable stepping back and continuing to be selective from a credit quality perspective to focus on maximizing risk-adjusted returns for our shareholders. Turning to Slide 10. Originations for the fourth quarter were $9.6 million and repayments of sales were $40.4 million, resulting in net repayments in sales of approximately $30.8 million. Overall yield on par value of new debt investments during the quarter was 11.8%. This compares to a 12.9% weighted average annualized yield, excluding income from nonaccruals and collateralized loan obligations as of December 31, 2025. Our investment portfolio at year-end remained highly diversified. We ended the year with the debt investment portfolio when excluding our investments in CLO funds, equities and joint ventures, spread across 74 different portfolio companies in 34 different industries, with an average par balance of $3.5 million per investment. Turning to Slide 11. At the end of 2025, we had 13 investments on nonaccrual status which were attributable to 10 portfolio companies, representing 4.0% and 7.1% of the portfolio at fair value and cost, respectively. This compares to 10 investments attributable to 8 portfolio companies a noncall status as of September 30, 2025, representing 3.8% and 6.3% of the portfolio at fair value and cost expense. On Slide 12, excluding our nonaccrual investments, we have an aggregate debt investment portfolio of $391.7 million at fair value, which represents a blended price of 92.7% of par value. and is 81.5% comprised of first lien loans at par value. Assuming of our recovery, our December 31, 2025, for values reflect a potential of $30.9 million of incremental net value or a 14.8% increase to NAV. When applying an illustrative 10% default rate and 70% recovery rate, our debt portfolio would generate an incremental $1.46 per share of NAV or an 8.7% increase as it 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 December 31, 2025, the company generated $17.5 million in investment income. A decrease of $1.4 million as compared to $18.9 million reported for the quarter ended September 30, 2025. The decrease in investment income was primarily driven by the distribution from our Great Lakes joint venture coming in $1.3 million lower than the prior quarter and historical levels as a result of a nonrecurring item as well as the impact of 2 additional investments on nonaccrual and decreases in base rates. For the year, total investment income was $61.2 million compared to $62.4 million in 2024. For the quarter ended December 31, 2025, total expenses were $10.1 million, which represents a $0.2 million decrease as compared to $10.3 million reported for the prior quarter. The decrease in expenses was primarily driven by lower incentive fees in general and administrative expenses partially offset by higher financing costs associated with 30 days of duplicative interest expense associated with calling the company's April 2026 notes, which amounted to $0.5 million. For the year, total expenses were $36.2 million or a $2.2 million decrease as compared to $38.4 million in 2024. The decrease in expenses compared to the prior year was primarily driven by lower incentive fees. Accordingly, our net investment income for the fourth quarter of 2025 was $7.4 million or $0.57 per share, which constitutes $1.5 million decrease or $0.14 per share from $8.9 million or $0.71 per share reported for the prior quarter. Core net investment income for the fourth quarter was $4.1 million or $0.32 per share compared to $5.2 million or $0.42 per share in the third quarter of 2025. For the year, net investment income was $25.1 million or $2.28 per share compared to $24 million or $2.59 per share in 2024. As of December 31, 2025, our net asset value totaled million, a decrease of $22.1 million or 9.6% from the prior quarter's NAV of $231.3 million. On a per share basis, NAV was $16.68 per share as of December 31, 2025, representing an $0.87 decrease for as compared to the company's prior quarter NAV per share of $17.55. And Notably, the difference between the 9.6% decrease and 5% is the accretive impact of the tender offer and our buyback program. Broadly speaking, the decline in NAV was due to $14.5 million and net realized and change in unrealized losses on the portfolio as well as core net NII not covering the dividend paid during the quarter by approximately $2 million. As it relates to the right side of our balance sheet, we ended the year with gross and net leverage ratios of 1.5% and 1.4x, respectively, which compares to gross and net leverage ratios of 1.4x and 1.3x, respectively, for the prior quarter. Specifically, as of December 31, 2025, we had a total of $312.3 million of borrowings outstanding with at current weighted average contractual interest rate of 6.9%. This compares to $324.6 million in borrowings outstanding as of the prior quarter with a weighted average contractual interest rate of 6.1%. The company finished the year with $124.7 million of available borrowing capacity under the senior secured revolving credit facilities, which are subject to borrowing base restrictions. Finally, I'm pleased to share that during the quarter, the company refinanced its $108 million of unsecured notes maturing in April 2026 by issuing a $75 million of 7.75% notes due October 2030 and $35 million of 7.5% notes due October 28. These actions reduced near-term refinancing risk and better ladder the company's debt capital structure by staggering the company's maturities, which improves the company's balance sheet. With that, I will turn the call back over to Ted.

Thank you, Brandon. Ahead of questions, I'd like to reemphasize our commitment to our shareholders. Our focus remains on disciplined capital allocation, maintaining a high-quality portfolio and delivering attractive risk-adjusted returns. The large or diversified platform and a strengthened balance sheet, we believe we are well positioned to drive continued earnings growth and value creation in the quarters and. Thank you once again to all our shareholders, employees and partners for ongoing support. This concludes our prepared remarks, and I'll turn the call over for questions. Thank you.

[Operator Instructions] We will take our first question from Erik Zwick from Lucent Capital Markets.

Good morning, everyone. Ted, in your prepared comments, you mentioned the actions that you took in 2025 reflect the long-term vision as you position the company for its next phase of growth. I'm curious just kind of from your perspective, if you think about the next year or what do you think the mix of growth looks like from an organic and acquisition mix. And I guess I'm kind of curious on that latter potential source of growth acquisitions. What the pipeline looks like in terms of opportunities? And I guess if I add another piece in there, are there any other initiatives for growth that you're considering at this point as well?

Yes, it's a great question. So I don't see us pursuing organic growth. I mean if anything, given where our stock trades, it makes sense for us to continue to buy back stock. So the tender plus share buybacks, obviously, were a pretty nice tailwind for us or not per share. In terms of like all this recent choppiness in the market and all the recent headlines, our M&A pipeline is probably bigger than it's ever been. And that includes both public entities and listed entities. So we expect to be able to grow our platform. We had to get Logan Portman done. And that sets us up to do continued M&A. So as you know, we've kind of rolled up a number of BDCs over the last couple of years, and it's a key part to our strategy to basically continue to do that, optimize the portfolios and continue to buy back stock.

That's helpful. And then so I guess, thinking about the pipeline, organic growth and maybe the size of the portfolio? It sounds like you still consider that the buyback of pretty attractive use of capital at this point. Is that the right read on your comments there?

Yes. You can see our originations like our Payments and sales are way higher than originations. And the reason for that is it's more accretive for us to basically take the liquidation and buy back stock, that's what we'll be doing. On a go-forward basis, we're very, very cautious in terms of new deployment. really various where we can deploy capital at very wide spreads. And again, those opportunities is few and far between. So we think there's a little bit of a disconnect between actual risk and the way risk is being priced. And so we are being pretty judicious on deploying new capital.

That's great color. And last one maybe for Brandon. Just looking at the dividend income, that you recognized in the quarter. I think it was around $200,000 or so many, 100 money. And that was quite a bit below the prior kind of 4-quarter average closer to like $1 million. So just curious if there's something noteworthy that, that changed in the fourth quarter? And what the run rate of dividend income might look like going forward?

Yes. That's -- so that's right, Eric. That's -- the decrease was driven by the much lower rate Lakes -- our -- great Lakes joint ventures distribution this quarter. There was a nonrecurring item associated with -- it's an evergreen product. And every 3 years, it rolls into a new series that occurred in the prior quarter. And that impacted the -- Great Lakes distribution this quarter. It's very much a nonrecurring item. The product is sensitive to rates. So where it was previously earning and distributing is probably -- is higher than what we're modeling going forward, but it still should generate, call it, low teens return on near-term basis going forward.

And I'd also make the distinction, the nonrecurring item was just the difference between rock versus income. So it wasn't -- it wasn't necessarily a cash distribution. Question was sort of how we kind of -- had to or we're supposed to recognize the cash in terms of ROC versus income. That's right.

Our next question comes from the line of Christopher Nolan from Laderman.

The declining dividend, is that -- should we use that as a proxy for the earnings run rate going forward in the second half of the year?

No. That was the nonrecurring item that Erik had just asked about, Chris. So next quarter, we would expect that to return to more normalized historical levels. .

Okay. And then the driver on the realized loss?

So -- the largest driver on the realized was a portfolio company called CP Flex. Patrick, do you want to give some color .

Yes. I mean, to be honest, Chris. So we -- it was a company that was going through a sale process. The sale prices will be going on some time we had a bid that fully -- that was fully covering par plus accrued interest, and we're working towards the end and to be entirely honest, in the last like couple of weeks of the transaction.they were assuming junior lenders in the capital structure that basically created a massive amount of holdup value. And we were kind of the lenders were forced into this discussion of whether we should like file a company for a prepack and then -- and get these guys out and move on. And Again, we were a small part of the syndication, but there is just an overall view that between the costs associated with the prepack and the risk that the buyer would move away from us that lenders were kind of willing to accept, again, would have amounted to a good amount of hold up value at the end of the day. And so the difference effectively between what we had it on the books at and what we ended up realizing was sort of that last little bit of a couple of folks holding a hostage.

Got it. And then, I guess, for unrealized depreciation, were there any big drivers there?

Unrealized depreciation.

Yes, please.

Yes. yes. Sorry, thank appreciation. I just want to sure I ask 1 question. The biggest one is called HTC Hostway, again, kind of a similar story, but they are working through LOIs and they have 2 different business units and selling 2 different business units that ultimately completed the sale of 1 of the business units, but the other one, effectively the buyer came back and retreat us like $0.50 discount or something like that, which obviously didn't make any sense of were going to take. We sort of said no, they came back at a higher valuation, but still not something that the company comfortable with, and there's a large lender that's leading the process there. So ultimately, the conclusion was to sell the first business where we kind of continue -- where we got a reasonable cash offer and pay down debt. And then we'll kind of take that second business back to market at some point this year would be my guess. But for valuation purposes, we're using that sort of like lower retraded valuation for purpose of that. So that is kind of the driver of the unrealized depreciation.

And that's a big needle mover there.

Got it. And then I guess, strategically, on your comments in terms of growth drivers, acquisitions, are there a lot of potential BDC sellers out there? And is the pricing for these things going down? I mean what sort of color can you provide?

I would say that there's a lot of permanent capital as for sale. I think the choppiness is going to just exasperate it. I mean scale matters. And I think there's a lot of subscale vehicles that are in a hard time with originations costs and kind of growth in fundraising. So as I said, our pipeline is really robust, and it's a mix of both private public entities. So actually, we're pretty excited about the M&A, Marco. And we think it's a real way to create value for our shareholders.

Our next question comes from the line of Angelo Guarino from a private investor.

So this is going to be a little bit of a tough talk. Big picture, a tough talk. I'm really trying to understand where you guys are focused on? So here's a couple of data points. June 30, 2019, a couple of quarters after you took take out NAV per share, split adjusted, $37 a share. Over that time, you've distributed $16 per share split adjusted to shareholders. And now we're sitting $20 a share NAV below that. And I've been a big supporter of you. I've been a big supporter of mid-band and a big supporter of the strategy and growing. But you keep using terms like risk-adjusted returns, shareholder value, continued growth and shareholder value. I'm trying to understand why it seems to me that Quarter after quarter, your Harrison on fire about drip of the base value of our investment which is NAV, you have to agree that BDCs are rare that are going to trade at huge multiples to NAV. And why aren't I seeing or hearing you talk about being far and far about what's been happening to NAV ever since you took kick-out.

Okay. I'll [indiscernible] I mean I don't necessarily subscribe everything you said. But the reality is, I mean, we probably bought back more stock than any BDC as a percentage of our business. So when we say things like that, we're trying to be judicious about how we allocate capital. So we've obviously inherited a series of portfolios that were at the relative tail end of winding those down. So if you look at a lot of the headwinds to our NAV, a lot of it has come from inherited positions. But again, when we took those on, we obviously have been working those out over the last -- in the start date you used was, but it's still for the last 7 years. in the meantime, we bought back stock. We've refined capital structure, and we've done a number of actions that we think are shareholder friendly. So we -- I totally hear what you're saying and the math is the math. But when you say our hair is on fire, I wouldn't necessarily say that. I mean, I would say we have a good command...

I guess what I'm saying is I want your hair to be on fire. I don't hear a lot of discussion about I don't know what increasing shareholder meetings if quarter after quarter, year after year, NAV is just going down, down, down. And it doesn't -- I don't hear you addressing it and in a way that is clear of where that turning point is going to be. We're going to be seeing at least stable NAV at the same time, it doesn't -- sure, you did the stock buybacks. It was a good deal, but even in the face of stock buybacks, we had a decrease of NAV of $0.80 in just 1 quarter. And that's just not -- that's not just a one-off. This has been going quarter after quarter after quarter. So I guess what I'm trying to ask -- I'm asking you as someone who is a supporter that has been very supportive all -- since you bought KCAP because I'm a KCAP, I was a KCAP older. So I've been here for this whole ride. We are not hearing what I think I need to hear that tells me when this is going to -- when this drift in the stop and this thing is going to turn. So I mean just saying that I've bought that stock at a good deal, fine. But over 6.5 years, I've lost $20 in NAV and I've gotten $16 in distribution side pay taxes on that distribution. So it would have been better off to just liquidate KCAP and give it to me 6.5 years ago, and let me put them in treasuries. I'm trying to understand where this is going and when and why I'm not hearing you address in these conference calls, where this turn is going to occur? Is that a better way of putting it?

Yes. I mean listen, I think -- listen, we're very open-minded to having a broad discussion. And maybe just take this offline, we're happy to sit down with you and take you through it and maybe optimize our communication next quarter. So -- why don't we take it offline, and we're happy to listen to you, of course, and listen to all of our shareholders, and happy to have that conversation.

Our next question comes from the line of Paul Johnson from KBW.

Yes. I just wanted to echo that a little bit. I mean I just want to understand as well, kind of where you really can provide value for shareholders just given where we're at. In my opinion, at least at this point, I don't think that you've necessarily demonstrated that the mergers have been positive for shareholders. This happened that any of these has worked out. And it's clear that buying some of these assets at NAV has not necessarily been a good deal. So it sounds like that is still the consideration in the plan going forward, but mean hasn't been a great way to increase shareholder NAV for you guys. So what other ways can we, I guess, stabilize what's in the portfolio today and you can provide shareholders aside from trying to scale up through mergers going forward.

Yes. I mean we used to provide a lot of disclosure about where we bought the assets versus where we monetize them, and we should put that back in the presentation and walk people through why we think a number of the actions we've taken were the right prudent actions. So again, we'll provide additional. We've historically disclosed that in a lot of detail. And obviously, we should just continue to do that. and this lay out the road map for why we think that makes sense.

Thank you. There are no further questions in the queue. I will now turn the call back over to our CEO, Ted Goldthorpe for closing remarks.

Great. Well, thank you all for attending our call. And as always, please feel to reach out to us with any questions, which we're happy to discuss. We look forward to speaking with you again in May when we announce our first quarter 2026 results. Thank you.

The meeting has now concluded. Thank you all for joining. You may now disconnect.