Executives at Bain Capital during a conference call Friday highlighted “significant improvements” in finances that would prepare it for strong future performance, even as the U.S. private equity firm’s investment activity fell to its lowest in years during the pandemic.
The world’s 13th-largest private equity firm by assets saw its net asset value per share, debt-to-equity ratio and net leverage ratio all improve from the previous quarter. Bain Capital is also holding a majority of its outstanding debt in collateralized loan obligations and unsecured debt.
These developments represent large gains for Bain Capital’s balance sheet, Chief Financial Officer Sally Dornaus said.
“These (debt) structures position the company with a stronger balance sheet as these facilities provide for greater durability periods of volatility,” Dornaus said. “Over time, we would like to see unsecured debt become a larger portion of our capital structure given the benefits they provide.”
Bain Capital Specialty Finance CEO Michael Ewald said a strong balance sheet will position his company to take advantage of future opportunities.
This past quarter, the Boston-based firm’s net investment activity dropped to just $29.2 million, a nearly 90% year-over-year reduction. Bain Capital’s quarterly new investments have been falling since the fourth quarter of 2019, and notably plummeted from $276.1 million to $49.2 million between the first and second quarters of this year, when the pandemic tightened its grip on much of the economy.
Michael Boyle, vice president of Bain Capital Specialty Finance, said that much of his firm’s $89.9 million in investment sales and repayments this quarter were largely revolver repayments and that more significant “change-of-control” repayments will occur more widely in the fourth quarter, which would free up capital to target high-yield investments.
“We just quite frankly haven’t found anything that is that compelling from a risk-reward perspective out there today,” Ewald said. “But certainly, if we did, we’d be happy to make that investment.”
Its $2.5 billion portfolio in 107 companies has limited exposure to industries most affected by the pandemic, according to Boyle. He emphasized the firm’s “significant liquidity” with cash and undrawn capacity of facilities being 2.4 times larger than its undrawn investment commitment.
Bain Capital released its third-quarter earnings Thursday, posting a $21.4 million net investment income for a 1.3% from the same period last year, although its earnings per share fell 20% year-over-year to 33 cents per share. Both its total investment income and overall expenses fell from last quarter as well as last year, driven respectively by a smaller portfolio due to repayments and by lower interest and debt-refinancing expenses.
The firm also declared a fourth-quarter dividend of $0.34, which Ewald expects to remain sustainable in current economic conditions. The firm was paying out a dividend of $0.41 for two years before it was reduced last quarter.
“We were pleased to deliver strong earnings to our shareholders this quarter notwithstanding the still challenging market backdrop,” Ewald said. “Our team continues to work hard in monitoring our existing investments to protect shareholder value, while also focusing on identifying attractive new investment opportunities in the current environment.”