DEFR14A: Barings BDC Seeks Stockholder Approval for Below NAV Share Issuance at 2024 Annual Meeting

Barings BDC is asking stockholders to approve a proposal that would allow the company to issue and sell shares of its common stock below its net asset value per share, providing greater flexibility in capital raising and investment opportunities.

Summary

• Barings BDC, Inc. is holding its 2024 Annual Meeting of Stockholders virtually on May 7, 2024.
• Stockholders will vote on three proposals: electing three Class III directors, approving a proposal to authorize the company to issue and sell shares of common stock below net asset value (NAV), and transacting other business.
• The proposal to issue shares below NAV would allow the company to issue and sell shares at a price below its then-current net asset value per share in one or more offerings, subject to certain limitations, including that the number of shares issued and sold does not exceed 30% of the company's then-outstanding common stock immediately prior to each such offering.
• The Board of Directors recommends voting 'FOR' all proposals.
• The record date for determining stockholders eligible to vote is March 8, 2024.
• The company intends to mail these materials on or about March 19, 2024.
• As of March 8, 2024, there were 106,067,070 shares of the company's common stock outstanding.
• The company has engaged Broadridge Financial Solutions, Inc. to assist in the solicitation of proxies at an anticipated cost of approximately $54,000 plus reimbursement of certain expenses and fees for additional services requested.

Sentiment

Score: 6

Explanation: The document is neutral in tone, presenting information about the annual meeting and proposals. While it highlights potential benefits of the share issuance proposal, it also acknowledges the dilutive effects, resulting in a balanced sentiment.

Positives

• Approval of the proposal would provide the company with greater flexibility in taking advantage of changing market and financial conditions in connection with an equity offering.
• Additional capital raised through an offering of the company's common stock may help the company generate additional deal flow.
• Issuing additional equity would allow the company to realign its debt-to-equity ratio and take steps to avoid negative consequences.
• Having a more favorable debt-to-equity ratio would also generally strengthen the company's balance sheet and give it more flexibility to fully execute its business strategy.

Negatives

• Any sale of common stock at a price below net asset value would result in an immediate dilution to existing common stockholders.
• If current stockholders of the company do not purchase any shares to maintain their percentage interest, regardless of whether such offering is above or below the then-current net asset value, their voting power will be diluted.
• Any sale of substantial amounts of the company's common stock or other securities in the open market may adversely affect the market price of the company's common stock and may adversely affect the company's ability to obtain future financing in the capital markets.
• Future sales of the company's common stock to the public may create a potential market overhang, which is the existence of a large block of shares readily available for sale that could lead the market to discount the value of shares held by other investors.
• In the event the company were to continue to sell its common stock at prices below net value for sustained periods of time, such offerings may result in sustained discounts in the marketplace.

Risks

• Capital markets may experience periods of disruption and instability, which could impact the company's ability to access capital.
• The company's common stock may continue to trade at a discount from net asset value or trade at premiums that are unsustainable over the long-term.
• Volatility in the capital markets may negatively impact the valuations of investments and create unrealized losses on certain investments.
• The company is dependent on its ability to raise capital through the issuance of its common stock.
• Exceeding the approximate 2:1 debt-to-equity ratio could have severe negative consequences for a BDC, including the inability to pay dividends, breach of applicable debt covenants and failure to qualify for tax treatment as a RIC.

Future Outlook

The company seeks to maintain consistent access to capital through public and private debt and equity markets to take advantage of investment opportunities as they arise.

Management Comments

• Eric Lloyd, Chief Executive Officer & Executive Chairman, cordially invited stockholders to the 2024 Annual Meeting and urged them to vote their shares.
• The Board of Directors believes it is desirable to have the flexibility to issue shares of the Company's common stock at a price below the Company's then-current net asset value per share in certain instances when it is in the best interests of the Company and its stockholders.

Industry Context

The document highlights the challenges and opportunities within the BDC sector, particularly the need for capital raising flexibility and the impact of market volatility on investment valuations.

Comparison to Industry Standards

• The document mentions Barings Capital Investment Corporation (BCIC) and Barings Private Credit Corporation (BPCC) as business development companies advised by Barings, providing a comparison point within the Barings fund complex.
• The document references the company's debt-to-equity ratio limit under the 1940 Act, which is a common regulatory requirement for BDCs.
• The document mentions that the company is seeking the approval of a majority of its stockholders of record to offer and sell shares of its common stock at prices that, net of underwriting discount or commissions, may be less than net asset value per share in one or more offerings, which is a common practice for BDCs.

Related Party Transactions

• The company is party to an Advisory Agreement with Barings, in which certain directors and officers of the company and members of the Investment Committee may have indirect ownership and pecuniary interests.
• Pursuant to the terms of the Administration Agreement between Barings and the company, Barings provides the company with certain administrative and other services necessary to conduct the company's day-to-day operations.
• In connection with the company's merger with MVC Capital, Inc., in December 2020, the company entered into a Credit Support Agreement (the MVC Capital Credit Support Agreement) with Barings, pursuant to which Barings has agreed to provide credit support to the company in the amount of up to $23.0 million relating to the net cumulative realized and unrealized losses on the acquired MVC Capital, Inc. investment portfolio over a 10-year period.
• In connection with the company's merger with Sierra Income Corporation, in February 2022, the company entered into a Credit Support Agreement (the SIC Credit Support Agreement) with Barings, pursuant to which Barings has agreed to provide credit support to the company in the amount of up to $100.0 million relating to the net cumulative realized and unrealized losses on the acquired Sierra Income Corporation investment portfolio over a 10-year period.
• Barings parent company, Massachusetts Mutual Life Insurance Company, holds $25.0 million in aggregate principal amount of the Series B Notes.
• Barings parent company, Massachusetts Mutual Life Insurance Company, holds $25.0 million in aggregate principal amount of the Series D Notes.
• Barings parent company, Massachusetts Mutual Life Insurance Company, and certain of its subsidiaries collectively hold $50.0 million in aggregate principal amount of the November 2026 Notes.
• Barings parent company, Massachusetts Mutual Life Insurance Company, holds $25.0 million in aggregate principal amount of the February 2029 Notes.

Stakeholder Impact

• Stockholders will be asked to vote on proposals that could impact the company's financial flexibility and investment strategy.
• The potential issuance of shares below NAV could dilute existing stockholders' equity.
• The company's ability to access capital markets could impact its ability to pursue investment opportunities and maintain a favorable debt-to-equity ratio.

Next Steps

• Stockholders are requested to vote on the proposals outlined in the proxy statement.
• The company will hold its 2024 Annual Meeting of Stockholders on May 7, 2024.
• The Board of Directors will review and approve any future sales of the company's common stock at a price below the then-current net asset value per share.

Key Dates

Keywords

Barings BDC, Annual Meeting, Proxy Statement, Net Asset Value, Share Issuance, Directors, Stockholders, Common Stock, Investment