Business Context and Reporting Period
This Form 8-K Current Report was filed by Bain Capital Specialty Finance, Inc. (NYSE: BCSF) on May 27, 2020. The filing discloses the entry into material definitive agreements regarding its credit facility and the pricing of a new senior unsecured notes offering.
Key Financial Metrics and Capital Structure
- Notes Offering: The Company priced an offering of $115 million aggregate principal amount of 8.500% senior unsecured notes due 2023.
- Interest Terms: Notes bear interest at 8.500% per year, payable semi-annually commencing December 10, 2020.
- Expected Proceeds: Net proceeds are expected to be approximately $115 million after placement agent fees and estimated expenses.
- Use of Proceeds: Intended to repay debt under the Company's secured credit facilities.
- Credit Facility Amendment: Amendment No. 2 to the amended and restated credit agreement permits a lien on assets purchased with rights offering proceeds and modifies cash maintenance requirements.
Material Changes and Agreements
Credit Facility Amendment (Item 1.01): On May 27, 2020, the Company entered into Amendment No. 2 to its credit agreement. Key changes include:
- Permission to incur a lien on assets purchased with proceeds from a rights offering.
- Removal of the requirement to maintain $50 million in unencumbered cash post-rights offering.
- Replacement of the cash maintenance requirement with a mandate to pay down $50 million within two business days after the closing of the rights offering.
Notes Offering (Item 8.01): The Company expects to close the $115 million notes offering on June 10, 2020. The notes mature on June 10, 2023, and include a "make-whole" redemption provision prior to June 10, 2022, and a change of control provision requiring an offer to prepay 100% of the principal within 15 days of such an event.
Guidance, Covenants, and Risks
Covenants: The Note Purchase Agreement includes affirmative and negative covenants, including:
- Maintenance of Business Development Company (BDC) status.
- Minimum shareholders' equity of 65% of the Company's shareholders' equity for the quarter ended March 31, 2020, plus 65% of net cash proceeds from certain equity sales.
- Minimum asset coverage ratio of not less than 150%.
- Minimum interest coverage ratio of 1.25:1.00.
- Unencumbered asset coverage ratio of 1.25:1.00.
Risks and Contingencies: The filing contains forward-looking statements regarding the closing of the notes offering and future performance, which are subject to risks and uncertainties. The notes are unregistered and may not be offered or sold in the United States absent registration or an applicable exemption. The Company undertakes no duty to update forward-looking statements.
Investor Verification Checklist
- Verify the closing of the $115 million notes offering on or around June 10, 2020.
- Confirm the execution of the $50 million paydown on the credit facility within two business days of the rights offering closing.
- Monitor compliance with the new minimum asset coverage ratio (150%) and interest coverage ratio (1.25:1.00) covenants.
- Review the upcoming Form 10-Q for the period ending June 30, 2020, for the full text of the Credit Facility Amendment.
- Assess the impact of the 8.500% interest rate on future earnings and cash flow distributions.