KBRA Affirms Ratings for Barings Capital Investment Corporation

KBRA affirms the issuer and senior unsecured debt ratings of BBB- for Barings Capital Investment Corporation ("BCIC" or "the company"). The rating Outlook is Stable.

Key Credit Considerations

BCIC's ratings are supported by the company's strong ties to Barings LLC ("Barings") with $421 billion in global fixed income assets under management (AUM), including $38 billion of commitments under management from Barings' Global Private Finance Group (GPFG) as of December 31, 2024. GPFG has more than 95 investment professionals globally who maintain strong sponsor and portfolio company relationships. Furthermore, the company's advisor, Barings LLC ("Adviser"), is affiliated with Massachusetts Mutual Life Insurance Company ("MassMutual") which was established in 1851 and had over $1 trillion of life insurance in force as of December 31, 2024. The size and reputation of the Barings franchise has the added benefit of MassMutual with deep industry relationships in addition to its 21.9% ownership in BCIC.

Ratings are further supported by BCIC's $1.36 billion diversified investment portfolio comprised mostly of senior secured loans at 77%, including 74% senior secured first lien loans at fair value (FV), and a strong management team with decades of experience in private credit. The company leverages the Barings platform, enhancing its ability to provide one-stop customized financial solution with hold sizes in excess of $250 million, extensive sourcing through Barings' global long-term relationships, and SEC exemptive relief to co-invest with the Barings' platform. As of December 31, 2024, the company's investment portfolio was comprised of 273 companies within 27 industries with the top three sector concentrations Business Services (19%), Finance and Insurance (17%), and Health Care and Pharmaceuticals (10%). The company focuses on the core middle market with the majority of loans backed by sponsors with solid track records and long-standing relationships within the Barings network.

The ratings are also supported by the company's adequate leverage of 1.08x, (1.01x on a net basis) which is within its target range of 0.90x to 1.25x and in line with peers. As of December 31, 2024, the company's regulatory asset coverage was 191%, comfortably above the 150% regulatory minimum requirement, allowing for solid cushion to absorb increased market volatility and potentially increased non-accruals in a weak economic environment. As of December 31, 2024, the company's credit quality was solid with non-accruals at fair value (FV) and cost at 0.4% and 0.9%, respectively. There were five portfolio companies on non-accrual but relatively small position sizes relative to the company's total investments. The company's funding sources are somewhat limited with a high proportion of secured debt at 86.7%. However, the company's liquidity remains adequate with $59.9 million of available credit lines and $53.8 million of cash with no short-term debt maturities and $123.6 million of unfunded commitments. A portion of the unfunded commitments are tied to covenants and transactions that are not expected to be drawn.

Rating strengths are counterbalanced by the potential risk related to BCIC's business as a regulated business development company (BDC), illiquid assets, high level of secured funding, and a relatively short operating history of less than five years. While KBRA views a larger percentage of unsecured debt as positive as it increases financial flexibility in more stressful market environments, KBRA believes that BCIC's funding sources and liquidity are adequate relative to its asset mix. Also, the company has a high level of non-qualifying assets at (24.9%) consisting primarily of non-U.S. first lien senior secured loans, mostly in Europe and equity investments in an asset-based lender and a litigation finance business.

Formed in July 2020, BCIC is a non-diversified, closed-end, non-traded BDC headquartered in Charlotte, North Carolina. The company is regulated under the Investment Company Act of 1940 and registered as a regulated investment company for tax purposes.

Rating Sensitivities

Given the Stable Outlook, a rating upgrade is not expected over the intermediate term. The Outlook could be revised to Negative, or the ratings could be downgraded, if a prolonged downturn in the U.S. economy has material impact on performance, including increased non-accruals and a significant rise in leverage. An increased focus on riskier investments or a change in current management structure and/or a change in strategy and risk management that negatively impacts credit metrics could also pressure ratings.

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