DEF: Barings BDC Seeks Stockholder Approval for Below NAV Share Issuance at 2025 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 net asset value (NAV) under certain conditions at the annual meeting on May 8, 2025.

Summary

• Barings BDC is holding its 2025 Annual Meeting of Stockholders virtually on May 8, 2025.
• Stockholders will vote on electing three Class I directors and approving a proposal to authorize the company to issue and sell shares of common stock below its net asset value (NAV) per share, subject to certain limitations.
• The proposal would allow the company to issue shares below NAV during the 12 months following approval, with the number of shares not exceeding 30% of the company's outstanding common stock immediately prior to each offering.
• The Board of Directors unanimously recommends voting 'FOR' each of the proposals.
• As of March 7, 2025, there were 105,408,938 shares of the company's common stock outstanding.
• The company's common stock has traded both above and below its net asset value per share since its IPO.
• As of March 7, 2025, the company's common stock traded at $9.76 per share.
• The company is seeking approval to sell shares below NAV to take advantage of market conditions, pursue investment opportunities, and maintain a favorable debt-to-equity ratio.
• The company's independent directors will receive an annual board retainer of $150,000 for the year ending December 31, 2025, with additional retainers for the lead independent director and audit committee chair.
• KPMG LLP has been selected as the company's independent registered public accounting firm for the fiscal year ending December 31, 2025.

Sentiment

Score: 7

Explanation: The document is neutral in tone, presenting facts and proposals for stockholder consideration. The potential for dilution is acknowledged, but the overall sentiment is cautiously optimistic about the company's ability to leverage the proposed authorization for future growth.

Positives

• Authorizing the company to issue shares below NAV could provide 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.
• 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

• Periods of market disruption and instability may recur and adversely affect the company's access to sufficient debt and equity capital.
• Volatility in the capital markets may negatively impact the valuations of investments and create unrealized losses on certain investments.
• 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, encourages stockholders 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

BDCs are generally prohibited from issuing shares below NAV without stockholder approval, making this proposal a common practice for BDCs seeking financial flexibility.

Comparison to Industry Standards

• Other BDCs, such as Ares Capital Corporation (ARCC) and Main Street Capital Corporation (MAIN), also seek stockholder approval for similar proposals to issue shares below NAV.
• The 30% limit on shares issued below NAV is a common restriction to protect existing shareholders from excessive dilution.
• The requirement for independent director approval of any below-NAV issuance aligns with industry best practices for corporate governance.

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.
• The company reimburses Barings, in its capacity as administrator, for the costs and expenses incurred and billed to the company by Barings in performing its obligations and providing personnel and facilities under the Administration Agreement.
• In connection with the company's merger with MVC Capital, Inc., in December 2020, the company entered into a 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 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

• Approval of the proposal could provide the company with greater financial flexibility, potentially benefiting shareholders through increased investment opportunities and a stronger balance sheet.
• However, the issuance of shares below NAV could dilute existing shareholders' equity and voting power.
• The company's ability to maintain a favorable debt-to-equity ratio is important for meeting regulatory requirements and debt covenants, which could impact the company's ability to pay dividends and maintain its tax status.
• The company's relationships with Barings and Massachusetts Mutual Life Insurance Company, as disclosed in the related party transactions, could create potential conflicts of interest that stakeholders should be aware of.

Next Steps

• Stockholders to vote on the proposals at the Annual Meeting on May 8, 2025.
• Board of Directors to determine whether to proceed with any issuance of shares below NAV, subject to the conditions outlined in the proposal.
• Company to file a Current Report on Form 8-K with the SEC within four business days following the Annual Meeting to publish the final voting results.

Key Dates