11/6/2019 https://www.sec.gov/Archives/edgar/data/1655050/000110465919060503/a19-17620_110q.htm 10-Q 1 a19-17620_110q.htm 10-Q Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 814-01175 BAIN CAPITAL SPECIALTY FINANCE, INC. (Exact name of registrant as specified in its charter) Delaware 81-2878769 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 200 Clarendon Street, 37th Floor Boston, MA 02116 (Address of principal executive offices) (Zip Code) (617) 516-2000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, par value $0.001 per share BCSF New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes o No o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller reporting companyo Emerging growth company x If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.x https://www.sec.gov/Archives/edgar/data/1655050/000110465919060503/a19-17620_110q.htm 1/113 11/6/2019 https://www.sec.gov/Archives/edgar/data/1655050/000110465919060503/a19-17620_110q.htm Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x As of November 6, 2019, the registrant had 51,649,812.27 shares of common stock, $0.001 par value, outstanding. https://www.sec.gov/Archives/edgar/data/1655050/000110465919060503/a19-17620_110q.htm 2/113 11/6/2019 https://www.sec.gov/Archives/edgar/data/1655050/000110465919060503/a19-17620_110q.htm Table of Contents TABLE OF CONTENTS Page PART I FINANCIAL INFORMATION 4 Item 1. Consolidated Financial Statements 4 Consolidated Statements of Assets and Liabilities as of September 30, 2019 (unaudited) and December 31, 2018 4 Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 5 (unaudited) Consolidated Statements of Changes in Net Assets for the three and nine months ended September 30, 2019 and 6 2018 (unaudited) Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited) 7 Consolidated Schedules of Investments as of September 30, 2019 (unaudited) and December 31, 2018 8 Notes to Consolidated Financial Statements (unaudited) 17 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 51 Item 3. Quantitative and Qualitative Disclosures About Market Risk 79 Item 4. Controls and Procedures 80 PART II OTHER INFORMATION 81 Item 1. Legal Proceedings 81 Item 1A. Risk Factors 81 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 81 Item 3. Defaults Upon Senior Securities 81 Item 4. Mine Safety Disclosures 81 Item 5. Other Information 81 Item 6. Exhibits 82 Signatures 83 2 https://www.sec.gov/Archives/edgar/data/1655050/000110465919060503/a19-17620_110q.htm 3/113 11/6/2019 https://www.sec.gov/Archives/edgar/data/1655050/000110465919060503/a19-17620_110q.htm Table of Contents FORWARD-LOOKING STATEMENTS Statements contained in this Quarterly Report on Form 10-Q (the “Quarterly Report”) (including those relating to current and future market conditions and trends in respect thereof) that are not historical facts are based on current expectations, estimates, projections, opinions and/or beliefs of the Company, BCSF Advisors, LP (the “Advisor”) and/or Bain Capital Credit, LP and its affiliated advisers (collectively, “Bain Capital Credit”). Such statements involve known and unknown risks, uncertainties and other factors and undue reliance should not be placed thereon. Certain information contained in this Quarterly Report constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “seek,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” “target,” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of the Company may differ materially from those reflected or contemplated in such forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and are difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including, without limitation, the risks, uncertainties and other factors we identify in the section entitled Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended December 31, 2018 and in our filings with the Securities and Exchange Commission (the “SEC”). Although we believe that the assumptions on which these forward-looking statements are based are reasonable, some of those assumptions may be based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, the forward- looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in the section entitled Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Investors should not place undue reliance on these forward- looking statements, which apply only as of the date of this Quarterly Report. We do not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law. The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which preclude civil liability for certain forward- looking statements, do not apply to the forward-looking statements in this Quarterly Report because we are an investment company. 3 https://www.sec.gov/Archives/edgar/data/1655050/000110465919060503/a19-17620_110q.htm 4/113 11/6/2019 https://www.sec.gov/Archives/edgar/data/1655050/000110465919060503/a19-17620_110q.htm Table of Contents PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Bain Capital Specialty Finance, Inc. Consolidated Statements of Assets and Liabilities (in thousands, except share and per share data) As of As of September 30, 2019 December 31, 2018 (Unaudited) Assets Investments at fair value: Non-controlled/non-affiliate investments (amortized cost of $2,456,038 and $1,449,749, respectively) $ 2,431,395 $ 1,422,837 Non-controlled/affiliate investment (amortized cost of $6,720 and $6,720, respectively) 6,720 6,720 Controlled affiliate investment (amortized cost of $66,298 and $296,648, respectively) 68,619 298,249 Cash and cash equivalents 70,637 14,693 Foreign cash (cost of $1,066 and $589, respectively) 992 591 Restricted cash 86,402 17,987 Collateral on forward currency exchange contracts 64 4 Deferred financing costs 3,471 4,018 Interest receivable on investments 18,600 6,249 Prepaid insurance — 1 Receivable for sales and paydowns of investments 28,070 1,634 Other assets 2,147 — Unrealized appreciation on forward currency exchange contracts 9,308 9,322 Dividend receivable 1,037 8,709 Total Assets $ 2,727,462 $ 1,791,014 Liabilities Debt (net of unamortized debt issuance costs of $4,685 and $2,040, respectively) $ 1,657,578 $ 634,925 Offering costs payable 1,731 1,820 Interest payable 12,381 4,835 Payable for investments purchased 3,033 119,166 Base management fee payable 6,328 2,950 Incentive fee payable 3,567 3,300 Accounts payable and accrued expenses 3,443 1,281 Distributions payable 21,176 21,108 Total Liabilities 1,709,237 789,385 Commitments and Contingencies (See Note 10) Net Assets Preferred stock, $0.001 par value per share, 10,000,000,000