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Insurance Solutions/Q2 2022[1]

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PRIVATE CREDIT IS A MAINSTREAM ASSET

One long-term implication of the 2008 Global Financial Crisis is that increased bank capital charges and regulatory constraints for below investment grade credit has led to rapid growth in private credit (see Exhibit 1). As a market-leading private credit manager, Bain Capital Credit (“BCC”) has extensive insight into the seismic shift from public to private credit. Bain Capital Credit’s Private Credit Group has a track record of investing in middle market private debt dating back to 1998 and has invested approximately $18 billion across over 400 portfolio companies since inception. The Private Credit Group currently manages $8 billion of capital[2].

Exhibit 1 Growth of Private Credit AuM ($Bn)[3]

$0$200$400$600$800$1,000$1,200$1,4002009201020112012201320142015201620172018201920202021

Private credit’s growth has been driven by value creation for borrowers and investors

Borrowers

Although publicly syndicated debt is typically less expensive than private credit, public markets do not serve all borrowers well. We believe borrowers with complex financing needs can be too small to be of interest to investment banks, and/or that have non-standard conditions or requirements that can often benefit from direct lending relationships. Private lenders can also provide certainty of capital and pricing, which can be crucial to borrowers pursuing an acquisition or with a critical capital expense deadline.

Investors

Investors who do not require high levels of liquidity are attracted to private debt by the spread premiums to public market equivalents.

Exhibit 2 Bain Capital Credit Spread Premium[4]

The average Bain Capital Credit spread premium over middle market (MM) loans was 136 bps[5] from 2015-2021

Many investors also value the ability of private debt managers to negotiate covenants. Covenants can enable the lender to take early actions to head off negative credit events.

Exhibit 3 Bain Capital Credit Cov-Lite vs. Market Cov-Lite[6]

As of December 2021, only 10% of the loans held in the Bain Capital Credit’s Global Direct Lending Strategy were covenant-lite vs 84%[7] for broadly syndicated leveraged loans

Private credit may provide a better risk – adjusted return for Solvency II insurers

BCCs private credit strategies invest primarily in unrated, non-publicly syndicated loans. BCC actively manages these loans through their entire life cycle. The “hold to maturity” approach of the BCC private credit strategies can provide significant advantages to Solvency II (SII) [HC1] insurers. Compared to publicly traded syndicated loans, BCC’s private credit returns have been higher and volatility has been significantly lower[8]. The lower volatility of private, unrated debt is, in our opinion, recognized under
Solvency II regulations.

We recently published a white paper[9] that compared the historical volatility of private vs publicly syndicated leveraged loans. The standard model Solvency II capital requirements are based on anticipating a 1 in 200-year (3σ) event. Our white paper concluded that the lower SII capital requirement for unrated loans[10] can be validated using publicly available private and public debt indices. Our findings are summarised in the table below.

Exhibit 4 Comparison of Historical Price Volatility and SII Capital Requirements[11]

Historical 3σ Volatility SII Capital Requirement
Public Syndicated Leveraged Loans[12] 13.77% 19.64%
Private Credit[13] 6.07% 9.20%

To illustrate the potential improvement to risk-adjusted returns, we selected a separately managed account for a U.S. insurance company within Bain Capital Credit’s Global Direct Lending strategy as a representative portfolio for allocators working within European Solvency II capital constraints. This conservative mandate contains primarily senior middle market loans. While the longer duration of high yield bonds can reduce asset-liability mismatches, combining private debt with interest rate swaps or long-dated investment grade bonds may provide more attractive risk-adjusted returns relative to holding more volatile high yield bonds.

Exhibit 5 2015-Q1 2022 Risk – Adjusted Returns on Below Investment Grade Credit

Asset Total Return USD to EUR Hedging Cost[14] CQS Weighted Average Duration Credit Spread - Risk Charge[15] Risk Adjusted Return[16] Worst Trailing 12M Total Return
(Euro Hedged)[17]
Bain Capital Credit Representative US Insurance Account[18] 6,5% Net
(7,9% Gross)
(1,8%) 3,0% 3,07 9,2% 52%[19] -1,4%
Credit Suisse US High Yield Index[20] 6,6% Gross (1,8%) 5,9%[21] 3,60 21,3% 22% -10,8%
Credit Suisse US Leveraged Loan Index[22] 4,7% Gross (1,8%) 6,4%[23] 3,07 19,6% 15% -10,7%

Disclaimers

In this material Bain Capital Credit, LP, Bain Capital Credit (Australia), Pty. Ltd., Bain Capital Credit, Ltd., Bain Capital Investments (Europe) Limited, Bain Capital Investments (Ireland) Limited, Bain Capital Credit CLO Advisors, LP, Bain Capital Credit U.S. CLO Manager, LLC, Bain Capital Credit (Asia) Limited, and BCSF Advisors, LP are collectively referred to as “Bain Capital Credit”, which are credit affiliates of Bain Capital, LP. Bain Capital Credit, LP, Bain Capital Credit CLO Advisors, LP, Bain Capital Credit U.S. CLO Manager, LLC, Bain Capital Credit U.S. CLO Manager II, LP, and BCSF Advisors, LP are investment advisers registered with the U.S. Securities and Exchange Commission (the "Commission"). Registration with the Commission does not constitute an endorsement by the Commission nor does it imply a certain level of skill or training. Bain Capital Credit (Australia), Pty. Ltd. is regulated by the Australian Securities and Investments Commission (“ASIC”). Bain Capital Credit, Ltd. and Bain Capital Investments (Europe) Limited are authorized and regulated by the Financial Conduct Authority (“FCA”) in the United Kingdom. Bain Capital Investments (Ireland) Limited is authorized by the Central Bank of Ireland. Bain Capital Credit (Asia) Limited and Bain Capital Private Equity (Asia) Limited are regulated by the Securities and Futures Commission in Hong Kong and are licensed to carry on Type 1 regulated activities under the Securities and Futures Ordinance. No securities commission or regulatory authority in the United States or in any other country has in any way passed upon the merits of an investment in a Bain Capital Credit investment vehicle or the accuracy or adequacy of the information or material contained herein or otherwise.

This written material provides a general introduction to Bain Capital Credit and its business and is intended for your sole use. It should not be relied upon as the basis for making any investment decision, entering into any transaction or for any other purpose.

Bain Capital Credit, its subsidiaries and affiliates and its and their respective employees, officers and agents make no representations as to the completeness and accuracy of any information contained within this written material. Information contained in this material is for informational purposes only and should not be construed as an offer or solicitation of any security or investment product, nor should it be interpreted to contain a recommendation for the sale or purchase of any security or investment product and is considered incomplete without the accompanying oral presentation and commentary.

Bain Capital Credit and its affiliates act for the funds and investment vehicles which they manage or advise (the “Vehicles") and will not be acting for anyone else. In particular, Bain Capital Credit will not advise potential investors on subscriptions in any Vehicle or co-investments and will not arrange transactions on behalf of anyone other than the Vehicles or provide advice on the merits of such transactions. No representative of Bain Capital Credit has the authority to represent otherwise. Bain Capital Credit is not responsible for providing you with the protections afforded to its clients and you are strongly advised to take your own legal, investment and tax advice from suitably qualified advisers.

An investment in the Vehicles is speculative and involves a high degree of risk, which may not be suitable for all investors. The Vehicles may often engage in leveraging and other speculative investment practices that may increase the risk of investment loss and the investments may be highly illiquid. The Vehicles are not required to provide periodic pricing or valuation information to investors. Investing in the Vehicles may involve complex tax structures, and there may be delays in distributing important tax information. Private funds are not subject to the same regulatory requirements as mutual funds, and private fund advisers and sponsors often charge high fees. An investment in the Vehicles involves a number of significant risks and other important factors relating to investments in limited partnerships generally, and relating to the structure and investment objectives of a given Vehicle in particular. Investors should consider risks associated with the following: illiquidity and restrictions on transfer; tax considerations; valuation risks, and impact of fees on returns. The foregoing list of risk factors does not purport to be a complete enumeration of the risks involved in an investment in the Vehicles. Prospective investors should reference the offering documents and consult with their own legal, tax and financial advisors before deciding to invest in the Vehicles. Refer to a particular Vehicle’s offering documents for additional details, risk factors and other important considerations, including registration requirements for certain jurisdictions.

This material contains proprietary and confidential information and analysis and may not be distributed or duplicated without the express written consent of Bain Capital Credit or its affiliates. Distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Bain Capital Credit or its affiliates to any registration requirement within such jurisdiction or country, is prohibited. By accepting this presentation, the recipient agrees to keep it confidential and return it promptly upon request.

The opinions and information contained in this material are provided for informational purposes only and represent the current good-faith views of the contributor at the time of preparation. These views are subject to change without notice of any kind. Contact your Bain Capital Credit representative for further information.

Certain information contained herein are not purely historical in nature, but are "forward-looking statements," which can be identified by the use of terms such as "may," "will," "should," "expect,“ "anticipate," "project," "estimate," "intend," "continue," or "believe" (or negatives thereof) or other variations thereof. These statements are based on certain assumptions and are intended to illustrate hypothetical results under those assumptions (not all of which are specified herein). Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements. As a result, investors should not rely on such forward-looking statements.

Certain information contained in this presentation has been obtained from published and non-published sources and/or prepared by third-parties and in certain cases has not been updated through the date hereof. Such information has not been independently verified by Bain Capital Credit, and Bain Capital Credit does not assume responsibility for the accuracy of such information (or updating the presentation based on facts learned following its issuance). All information contained herein is subject to revision and the information set forth herein does not purport to be complete.

This material has been provided to you solely for your information and may not be copied, reproduced, further distributed to any other person or published, in whole or in part for any purpose without the express written consent of Bain Capital or affiliates. Any other person receiving this material should not rely upon its content.

The Bain Capital square symbol is a trademark of Bain Capital, LP.

Endnotes:

Indices Information

1. These indices may not necessarily be indicative of the investment strategies for the investment vehicles advised by Bain Capital Credit. Assets and securities contained within indices are different than the assets and securities contained in Bain Capital Credit’s investment vehicles and will therefore have different risk and reward profiles. Prospective investors should note that there are significant differences between the investment vehicles advised by Bain Capital Credit and the investments included in the various indices described herein. The investment vehicles advised by Bain Capital Credit will not necessarily invest in any of the investments that are included in an index, and may invest in types of investments not included in any index. The investment vehicles advised by Bain Capital Credit may have higher levels of risk, including through the limited use of leverage and concentrated positions, and volatility.

2. The returns of the indices are provided solely as an illustration of the market and economic conditions generally prevailing during the periods shown. Indices are not investments, are not professionally managed and do not reflect deductions for fees or expenses. It is not possible to invest directly in an index. Investors pursuing a strategy similar to an index may experience higher or lower returns and will bear the cost of fees and expenses that will reduce returns.

3. The CDLI: Senior-Only (CDLI-S) is comprised of six BDC direct loan portfolios within the CDLI that Cliffwater has determined focus on investing in senior secured direct corporate loans. Data begins on September 30, 2010. Total return is comprised of income return, net realized gains (losses), and net unrealized gains (losses). Other industry participants may make different determinations regarding the focus of these BDC portfolios.

4. The Credit Suisse High Yield Index is designed to mirror the investable universe of the $US-denominated high yield debt market. The highest Moody’s/S&P ratings are Baa1/BB+ or Ba1/BBB+. Issues must be $US-denominated straight corporate debt, including cashpay, zero-coupon, stepped-rate and pay-in-kind (PIK) bonds. Floating-rate and convertible bonds and preferred stock are not included.

5. The Credit Suisse Leveraged Loan Index tracks the investable market of the U.S. dollar denominated leveraged loan market. It consists of issues rated “5B” or lower, meaning that the highest rated issues included in this index are Moody’s/S&P ratings of Baa1/BB+ or Ba1/BBB+. All loans are funded term loans with a tenor of at least one year and are made by issuers domiciled in developed countries.

6. S&P’s Leveraged Commentary & Data (LCD) is the world’s leading provider of leveraged loan news, analytics, and index products, also focusing on the high yield and investment grade bond markets.

7. Cliffwater CDLI – S index. The CDLI – S index in an index of private senior loans managed by US Business Development Companies (BDCs). Track record from Sept. 2010 to Dec. 2021. The inception date of the index was Sept. 2010.

Performance Disclosures[HC2]

1. The performance information contained in this presentation is intended solely to provide investors with information about funds and accounts advised by Bain Capital Credit. There can be no assurance that the results achieved by Bain Capital Credit will be achieved by other investments, including other investments made by Bain Capital Credit. Past performance should not be relied upon as an indication of future results. Actual results may vary. The recipient should also bear in mind that past or targeted investment characteristics may not be indicative of future investment characteristics and there can be no assurance that a fund will have comparable investment characteristics or that target investment characteristics will be achieved. There can be no assurance that a fund’s investment objectives will be achieved and investment results may vary substantially over time.

2. The information in this presentation has been prepared solely to assist interested parties in making their own evaluation of the strategy and does not purport to be complete or to contain all of the information that a prospective client or investor may consider material, or desirable, in making a decision to invest. The information contained herein is not a substitute for the recipient’s independent evaluation and analysis.

3. Investors should not assume that the performance of any specific investment or investment strategy will be profitable or similar to past performance levels. An investment or investment strategy is impacted by numerous factors, including market and economic conditions, which are out of the control of Bain Capital Credit, which may result in loss to investors. Investment in a fund may fluctuate and the value may decline as well as appreciate and an investment should only be made by those persons who could sustain a total loss on their investment.

4. Some of the performance information contained in this document does NOT reflect the performance of any specific Bain Capital Credit fund, unless specifically noted. Performance is being shown to demonstrate Bain Capital Credit’s relevant experience as an investment manager of the relevant assets. The returns of any Bain Capital Credit fund may be materially different from the returns shown. As such, investors should not construe the information contained in this presentation as an indication of potential performance of any Bain Capital Credit fund and should not rely on past performance when making an investment decision in any Bain Capital Credit fund. Full Bain Capital Credit fund returns are available upon request.

Notes Regarding Pro Forma Investment Returns

1. Some of the performance information presented in this presentation is pro forma and includes assets held in various Bain Capital Credit funds and separately managed accounts. Those funds and accounts also held other investments and no fund or account investor actually achieved the returns shown in this presentation. In addition, the pro forma information does not take into consideration any leverage that may have been used. These pro forma performance results may have inherent limitations, including that they are prepared with the benefit of hindsight. These are provided for illustrative purposes only, and no representation is made that any investor will or is likely to achieve returns similar to those shown. The information contained herein is unaudited, subject to change, and is provided for informational purposes only. Other performance calculations may produce different results.

2. Certain information herein reflect estimates, opinions, or predictions based on Bain Capital Credit’s models or the judgment of Bain Capital Credit investment professionals, which may change in the future. There is no guarantee that such estimates, opinions or predictions will be realized.

3. Returns are calculated in local currencies and then rebased into a single currency as though perfectly hedged.

Notes Regarding Pro Forma Bain Capital Global Direct Lending Strategy

1. The Bain Capital Global Direct Lending Strategy seeks to provide risk-adjusted returns and current income to its investors by investing primarily in middle-market companies. The strategy focuses on senior investments with a first or second lien on collateral and strong structures and documentation intended to protect the lender. The strategy may also invest in mezzanine debt and other junior securities and in secondary purchases of assets or portfolios, as described below. Investments are likely to include, among other things, (i) senior first lien, stretch senior, senior second lien, unitranche, (ii) mezzanine debt and other junior investments and (iii) secondary purchases of assets or portfolios that primarily consist of middle-market corporate debt.

2. The Bain Capital Global Direct Lending Strategy Track Record inception is November 23, 1999.

3. The Bain Capital Global Direct Lending Strategy Track Record consists of:

a) all investments from Bain Capital Credit legacy funds which were middle market investments, defined as investments originated or covered by Bain Capital Credit’s Private Credit Group and consistent with the Bain Capital Global Direct Lending Strategy made through April 13, 2010,

b) all investments in Bain Capital Middle Market Credit 2010, Bain Capital Middle Market Credit 2014, and Bain Capital Middle Market Credit 2018 that are consistent with the Bain Capital Global Direct Lending Strategy,

c) all investments in Bain Capital Direct Lending 2015 (Levered) that are consistent with the Bain Capital Global Direct Lending Strategy,

d) all investments in Bain Capital Direct Lending 2015 (Unlevered) that are consistent with the Bain Capital Global Direct Lending Strategy,

e) all investments in Bain Capital Specialty Finance, Inc. (which includes assets held through a joint venture and middle market CLOs) that are consistent with the Bain Capital Global Direct Lending Strategy, and

f) all investments in Separately Managed Accounts (SMAs) or 1940 Act vehicles that are consistent with the Bain Capital Global Direct Lending Strategy. The SMAs (including SMAs structured as funds of one with a GP/LP structure) and 1940 Act vehicles only include investment vehicles that have a mandate (or a component of its mandate) dedicated to investing in direct lending investments.

4. The Bain Capital Global Direct Lending Strategy Track Record generally does not include investments in broadly syndicated loans. Broadly syndicated loans are generally defined as meeting one or more of the following criteria at the time of investment: (i) arranged and syndicated by one or more regulated financial institutions, (ii) has a tranche size and fragmented holder base that provides for daily to weekly liquidity, (iii) provides a contractual spread or yield below middle market loans (e.g., <L+400), and/or (iv) was purchased in the secondary market for portfolio liquidity and cash management. Certain broadly syndicated loans may be included if they were purchased as part of a portfolio purchase, broader capital stack solution, or other limited circumstances.


[1] Represents Bain Capital Credit’s view as of the date of this presentation and is subject to change.

[2] As of December 31, 2021. Represents all investments made by the Private Credit Group within its Global Direct Lending Strategy and Middle Market Credit Strategy.

[3] Source: Pitchbook Annual 2021 Global Private Debt Report.

[4] Data as of Dec. 31, 2021. Source: Refinitiv LPC and Bain Capital Credit Analysis.

[5] Average credit premium of the loans included in the Bain Capital Credit Global Direct Lending track record to the S&P LCD Middle Market index from 2015-2021. Past performance is not indicative of future results. Actual results may vary. See endnotes for additional information.

[6] Data as of Dec. 31, 2021. Source: S&P LCD and Bain Capital Credit analysis.

[7] 84% of the loans included in the Credit Suisse US Leveraged Loan Index were categorized as covenant-lite as of Dec. 31, 2021. Data for Bain Capital Credit is for the Global Direct Lending strategy as of December 31, 2021. Financial covenant is defined as a loan that has one or more financial covenants or that benefits from another pari passu loan that has a financial covenant as a result of cross default provisions.

[8] See Exhibit 5 for a comparison

[9] “Estimating Risk Capital Consumption for Private Credit”, Bain Capital Credit, May 2022

[10] Delegated Regulation (EU) 2015/35, Article 176 (4) assigns a risk charge of 3% to unrated fixed income. In our white paper “Estimating Risk Capital Consumption for Private Credit”, we estimated the comparable risk charge for the Credit Suisse US Leverage Loan Index to be 6.40%

[11] See “Estimating Risk Capital Consumption for Private Credit”, Bain Capital Credit, May 2022

[12] Credit Suisse US Leveraged Loan Index. Track record from Sept. 2010 to Dec. 2021

[13] Cliffwater CDLI – S index. The CDLI – S index in an index of private senior loans managed by US Business Development Companies (BDCs). Track record from Sept. 2010 to Dec. 2021. The inception date of the index was Sept. 2010

[14] 2015-2021 Average of WM 12M USD to EUR swap rates from Reuters

[15] Calculated as SCRspread = bi * Modified Duration. See white Paper “Estimating risk capital consumption for private credit” Bain Capital Credit. May 2022 for details. The white paper is available upon request

[16] Calculated on a pre-tax basis. Calculated as Return on Risk Adjusted Capital (RoRAC) = [ Net Return – Hedging Cost – Risk free rate]/ SCRspread. Actual risk capital costs should be lower after considering diversification benefits. The Risk-free rate was assumed to be zero for 12 M Euro swap rates

[17] Worst 12-month performance based rolling total returns. Includes accrued and paid interest. Return includes average cost of hedging over the 12-month return period. Credit Suisse performance calculated on a rolling 12-month basis. Bain Credit Capital performance calculated using quarterly net time weighted returns

[18] Representative Account was incepted on Jan. 28, 2015. Performance numbers based on since inception returns from Jan. 28, 2015 to Mar. 31, 2022. Past performance is not indicative of future results. Actual results may vary. See endnotes for additional information.

[19] Calculated using the net return

[20] Credit Suisse US High Yield index returns from Feb. 1, 2015 to Mar. 31, 2022

[21] Based on an average weighting of 53% BB and 47% B from Jan. 30, 2015 to Mar. 31, 2022

[22] Credit Suisse US leveraged loan index returns from Feb. 1, 2015 to Mar. 31, 2022

[23] See Footnote 7 “Estimating Risk Capital Consumption for Private Credit”, Bain Capital Credit, May 2022 for details

[HC1]Define in first use

[HC2]Add and indices information section similar to the other document for indices now included

Bain Capital Credit By the Numbers

1998

founded

Bain Capital Credit founded as Sankaty Advisors to apply successful models of analysis to credit investing

379

employees

Bain Capital Credit employees work in fourteen offices worldwide

$57B

Assets Under Management

Invested across the full spectrum of credit strategies as of December 31, 2021