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Rating Action: Moody's assigns Baa3 first-time issuer rating to Bain Capital Specialty Finance; outlook is stableGlobal Credit Research - 25 Feb 2021New York, February 25, 2021 -- Moody's Investors Service, ("Moody's") has assigned a Baa3 long-term issuer rating to Bain Capital Specialty Finance, Inc. (BCSF), a business development company (BDC) externally managed by an affiliate of Bain Capital, LP, a large alternative investment firm. The outlook is stable.Assignments:..Issuer: Bain Capital Specialty Finance, Inc.....LT Issuer Rating, Assigned Baa3Outlook Actions:..Issuer: Bain Capital Specialty Finance, Inc.....Outlook, Assigned StableRATINGS RATIONALEBCSF's Baa3 long-term issuer rating reflects its baa3 standalone assessment, which is supported by deep credit expertise and wide management capabilities of Bain Capital Credit, Bain Capital's credit investing arm. The rating also reflects a focus on first lien senior secured loans, which should help mitigate unexpected losses, solid profitability, and low loan losses since inception. The rating also reflects BCSF's commitment to operating around a target debt-to-equity ratio of 1x-1.25x, consistent with other similarly-rated peers. This represents a shift from BCSF's previous operating target of 1x-1.5x debt-to-equity, which allowed for the possibility of higher leverage and therefore thinner cushion to the minimum regulatory 150% asset coverage ratio (ACR).BCSF was established in 2015 and commenced operations in 2016. It primarily invests in private first lien senior secured and unitranche loans in middle market firms with annual EBITDA between $10 and $150 million. As of 31 December 2020, BCSF had approximately $2.5 billion in investments at fair value. Bain Capital Credit had a total of $43.7 billion in asset under management as of 1 November 2020.BCSF recently announced a partnership with Pantheon, a private equity firm, to create a joint venture (JV) to invest in private direct loans to companies located outside the US. While BDCs must under law have at least 70% of their investments in US-based companies, BCSF maintains a higher proportion of investments in non-US companies relative to peers, which provides it with a degree of geographic diversification that benefits creditors. By transitioning assets to the international JV, BCSF was able to reduce its pro forma net leverage ratio to roughly 1.1x from 1.3x as of 31 December 2020, which provides it with a greater cushion to the 150% minimum ACR. The pro forma calculation has been based on BCSF's balance sheet and BCSF's initial contribution of assets to the JV, each as of 31 December 2020.The rating also reflects BCSF's less evolved funding profile, which includes a lower proportion of unsecured debt relative to peers, though this is offset by management's commitment to improving the funding profile through unsecured issuances in the near term. The baa3 standalone assessment also considers BCSF's limited operating history, having only commenced operations in 2016. It also incorporates the risks common to BDCs, including the illiquidity of private direct lending investments, covenant compliance and liquidity risks associated with the requirement that investments be marked to fair value, and high dividend payouts that increase its reliance on equity capital markets for growth capital.BCSF is currently contending with the effects of the ongoing coronavirus pandemic, which resulted in a significant decline in investment fair values and an increase in investments on non-accrual status during the first half of 2020, as economic conditions deteriorated. Since that time, as economic activity began to recover, supported by monetary and fiscal policy, investment fair values have mostly recovered and portfolio non-accruals have declines to nearly pre-pandemic levels.The stable outlook reflects Moody's expectation that BCSF will maintain stable asset quality, profitability and leverage in the next 12-18 months.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGThe rating could be upgraded if Moody's believes that debt-to-equity will remain consistently below 1x, and if the firm decreases the proportion of secured debt in its capital structure, improves liquidity and debt maturity laddering.BCSF's rating could be downgraded if the company increases leverage beyond 1.3x debt-to-equity target, increases investments that Moody's expects will increase the firm's asset and earnings volatility, suffers a significant decline in earnings, pays dividends that exceed net investment income on a regular basis, or materially increases reliance on secured debt.The principal methodology used in this rating was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The rating has been disclosed to the rated entity or its designated agent (s) and issued with no amendment resulting from that disclosure.This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Bruno Baretta Analyst Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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