Barings Bdc (NYSE:BBDC) outlined a steady fourth quarter and full-year 2025 performance on its earnings call, while also highlighting a leadership transition and an ongoing push to improve return on equity through portfolio actions and balance sheet management.
Leadership transition and strategic focus
Chief Executive Officer Tom McDonnell, who assumed the CEO role effective January 1, said the firm’s strategy and investment philosophy remain “firmly intact,” but he intends to accelerate existing initiatives and implement additional steps aimed at ultimately improving ROE. McDonnell emphasized what he described as a “best-in-class direct origination platform” focused on the core middle market, paired with disciplined underwriting and alignment with shareholders.
Quarterly results: NAV stable, NII down sequentially
For the fourth quarter, management reported net asset value of $11.09 per share, essentially flat versus $11.10 in the third quarter. Net investment income was $0.27 per share, down from $0.32 in the prior quarter. McDonnell said the quarter reflected strong net investment income and “excellent credit performance within the Barings-originated portion of the portfolio,” while also noting net repayments in the period consistent with prior guidance.
The board declared a first-quarter dividend of $0.26 per share, consistent with the prior quarter. Management said the dividend equates to a 9.4% yield on NAV based on the $11.09 quarter-end NAV.
Portfolio repositioning and legacy asset exits
Executives said the company continues to rotate out of legacy holdings acquired through the MVC Capital and Sierra transactions. McDonnell said the firm accelerated rotation of the Sierra portfolio during the fourth quarter, exiting about $50 million of legacy positions on a combined basis between directly owned assets and assets held in the Sierra joint venture.
Management highlighted that Barings-originated positions represented 96% of the portfolio at fair value at quarter-end, up from 76% at the beginning of 2022. The weighted average yield at fair value was 9.6%, which management said was slightly lower than the prior quarter primarily due to lower base rates.
Chief Financial Officer Elizabeth Murray provided additional detail on quarter-end NAV drivers, saying the slight quarter-over-quarter movement reflected modest realized losses of $0.05 per share, offset by $0.02 per share of unrealized appreciation, $0.01 per share from share repurchases, and net investment income exceeding the dividend by $0.01 per share. Murray said realized losses were driven primarily by the exit of investments in Ruffalo and Avanti and the restructuring of Eurofins, partially offset by sales of equity investments in Jones Fish and CJS Global.
Murray also described continued progress in reducing Sierra exposure. During the fourth quarter, the Sierra portfolio generated about $24.3 million of sales and repayments and a $21.9 million return of capital distribution from the Sierra JV. At year-end, the Sierra portfolio had 12 positions valued at roughly $32 million, down from 16 positions valued at $79 million as of September 30. She said the Sierra portfolio was reduced by roughly 75% year-over-year.
The valuation of the Sierra Credit Support Agreement increased by approximately $7.7 million to $60.5 million at December 31, from $52.8 million the prior quarter, which Murray attributed to activity within the underlying portfolio and updated assumptions regarding the maturity profile of remaining Sierra investments. She also noted that during 2025 the company completed early termination of the MVC credit support agreement, resulting in a one-time $23 million payment from Barings to BBDC, which management said reduced structural complexity and concentrated the portfolio into income-producing assets.
Credit metrics and sector exposure, including software discussion
President Matt Freund said the portfolio remained focused on secured lending, with 75% of the portfolio in secured investments and about 70% in first-lien securities. Weighted average interest coverage was 2.4x, which management said was above industry averages and consistent with the prior quarter.
Freund said risk ratings were stable, with issuers rated 4 and 5 at 7% combined, unchanged from the prior quarter. Non-accruals excluding assets covered by the Sierra CSA were 0.2% of assets at fair value, down from 0.4% in the prior quarter. Management said it exited one non-accrual investment, removed one from non-accrual after a restructuring, and added one new non-accrual during the quarter.
Software exposure was a key discussion point on the call. Freund said software-related issuers represent approximately 14% of the portfolio’s fair value, while noting that the company’s industry classifications follow the Moody’s hierarchy, which does not break out software as a standalone category. Freund said the company is under-indexed to software relative to many private credit portfolios because it has historically avoided ARR loans and highly levered software issuers.
During Q&A, McDonnell addressed investor questions about broadly syndicated software loan prices trading at discounts. He attributed much of the price pressure to market repositioning and headline-driven selling rather than fundamentals, and said he did not see a need for valuation marks down in BBDC’s software exposure based on those market levels. McDonnell also said BBDC does not have exposure to the more highly levered software credits that have traded at steeper discounts in the liquid market.
Leverage, funding, and shareholder returns
Murray said the company’s net leverage ratio was 1.15x at quarter end, down from 1.26x as of September 30 and within its long-term target range of 0.9x to 1.25x. She said the positioning was intentional to support origination activity and planned asset transfers to the Jakasa joint venture.
On funding, Murray said the company repaid $112.5 million of private placement unsecured notes in 2025, extended its corporate revolver in November, and issued $300 million of senior unsecured notes in September. She said unsecured debt made up roughly 84% of outstanding debt balances. Subsequent to quarter end, she said the company expects to fully repay $50 million of private placement notes at par on February 26, including accrued and unpaid interest.
Management also discussed capital allocation and dividends as rates decline. Murray said the forward SOFR curve suggests declining base rates could pressure net investment income in 2026 and that the regular dividend “may decrease from current levels.” She noted the company had approximately $0.80 per share of spillover income, which she said provides flexibility as rates normalize.
Share repurchases contributed $0.02 per share to NAV in 2025, with over 450,000 shares repurchased in the fourth quarter and more than 700,000 shares repurchased for the full year. Murray said the board authorized a new $30 million repurchase plan for 2026.
In closing remarks, McDonnell said the company plans to deepen engagement with investors and advance strategic priorities with a full BDC leadership team, adding that the firm remains focused on delivering consistent value for shareholders.
About Barings Bdc (NYSE:BBDC)
Barings BDC Inc (NYSE: BBDC) is a closed-end, externally managed business development company that provides flexible financing solutions to middle-market companies. As an investment vehicle organized under the Investment Company Act of 1940, BBDC seeks to generate both current income and capital appreciation by investing primarily in senior secured loans, second lien loans, mezzanine debt and equity co-investments. The company targets established businesses across a diverse range of industries, including healthcare, industrials, consumer products and business services.
The company is sponsored and managed by Barings LLC, a global investment manager and subsidiary of Massachusetts Mutual Life Insurance Company (MassMutual).
