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 $381 billion in global fixed income AUM, including $53 billion of commitments under management from Barings' Global Private Finance Group and Capital Solutions as of December 31, 2023. Ratings are further supported by BCIC's $1.3 billion diversified investment portfolio comprised mostly of senior secured loans at 78% (73% first lien senior secured) and strong management team with decades of experience in private credit. While Barings recently experienced a large management exodus, BCIC is somewhat insulated due to its North American focus. Investment Committee members were replaced and include long-term, high level executives at Barings.

The company leverages the Barings platform, enhancing its ability to provide one-stop customized financial solutions with hold sizes in excess of $200 million, extensive sourcing through Barings' global long-term relationships, and with SEC exemptive relief to co-invest with Barings' platform. As of December 31, 2023, the company’s investment portfolio was comprised of 256 portfolio companies with an average EBITDA of $31.8 million across 27 sectors with an emphasis on non-cyclical sectors. The top three sectors were Banking, Insurance, and Real Estate (16.9%), Business Services (14.9%), and High-Tech Industries (10.5%). The majority of loans are backed by sponsors with solid track records with long-standing relationships within the Barings network.

Ratings are also supported by the company’s adequate leverage of 1.14x, which is within its target range of 0.9x to 1.25x, in line with peers, and appropriate given its asset mix. As of December 31, 2023, the company’s regulatory asset coverage was 189%, comfortably above the 150% regulatory requirement allowing for a solid cushion to absorb increased market volatility and potentially increased non-accruals in a less favorable economic environment. Given the company’s limited operating history and an unseasoned portfolio, BCIC had one portfolio company on non-accrual which accounted for 1.3% and 1.0% of total investments at cost and fair value, respectively, as of December 31, 2023.

Strengths are counterbalanced by the potential risk related to BCIC’s business as a regulated BDC, illiquid assets, high level of secured funding sources (87%), and short operating history of less than four years. While KBRA views a larger percentage of unsecured debt as positive as it increases the BDC’s financial flexibility in more stressful market environments and provides for more asset unencumbrance for the benefit of senior unsecured noteholders, KBRA believes BCIC’s funding sources and liquidity are adequate with $102 million of bank credit availability and cash with no near term maturities and $114 million of unfunded commitments. The $710 million revolving credit facility does not mature until April 2026 and the company has a diverse lender profile. While the company’s investment portfolio maintains a high level of non-qualifying assets (27%), the majority consist of non-U.S. first lien senior secured loans, mostly in Europe.

Formed in July 2020, BCIC is a non-diversified, closed-end, non-traded business development company headquartered in Charlotte, North Carolina, regulated under the Investment Company Act of 1940, and registered as a regulated investment company for tax purposes. The company’s advisor, Barings LLC, is affiliated with Massachusetts Mutual Life Insurance Company (“MassMutual”) which was established in 1851 and had over $1.0 trillion of life insurance in force as of December 31, 2023. MassMutual owns approximately 21% of BCIC.

Rating Sensitivities

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

To access rating and relevant documents, click here.

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