Kayne Anderson BDC, Inc. Annual Report - Fiscal Year Ended December 31, 2024

Business Overview (What the company does)

Kayne Anderson BDC, Inc. (NYSE: KBDC) is a Business Development Company (BDC) that primarily finances U.S. middle market companies. Its investment objective is to generate current income and, secondarily, capital appreciation for shareholders. KBDC achieves this by originating and investing in various debt instruments, mainly first lien senior secured loans, unitranche loans, and split-lien loans. These loans are typically senior in a borrower's capital structure and secured by their assets, aiming to preserve capital.

KBDC targets middle market companies, generally defined as businesses with annual earnings before interest, taxes, depreciation, and amortization (EBITDA) between $10 million and $150 million. Its investment advisor, KA Credit Advisors, LLC, is part of the larger Kayne Anderson firm, which manages approximately $7.3 billion in middle market private credit. This affiliation provides KBDC with extensive experience and resources in this specialized lending sector.

As of December 31, 2024, KBDC's total investment portfolio was approximately $2.2 billion. A significant 93.2% of its loan portfolio consisted of first lien senior secured loans, reflecting a disciplined focus on what the company considers more secure investments. The weighted average yield on its debt investments was 12.1%, and only 0.8% of the portfolio was on non-accrual status, indicating strong credit quality. The portfolio also complied with BDC regulations; only 2.2% of assets were classified as non-qualifying. The top ten investments made up approximately 19.7% of total long-term investments, diversified across industries like financial services, food products, household products, and aerospace & defense.

Financial Performance (Revenue, profit, year-over-year changes)

For the fiscal year ended December 31, 2024, Kayne Anderson BDC, Inc. reported these key financial results:

• Total Investment Income (Revenue): Approximately $264 million, primarily from interest income on its debt investments.
• Net Investment Income (NII): $180 million, or $3.60 per share. NII is a crucial metric for BDCs, representing income available for distribution to shareholders after operating expenses but before realized or unrealized gains or losses.
• Net Asset Value (NAV) per share: $20.50 as of December 31, 2024, reflecting the underlying value of the company's investment portfolio.
• Dividends Declared: KBDC declared total dividends of $3.48 per share for the fiscal year, demonstrating its commitment to distributing earnings to shareholders.

The fiscal year 2024 results represent a significant period of growth and public market operation, especially given KBDC's Initial Public Offering (IPO) in May 2024.

Risk Factors (Key risks)

Investing in Kayne Anderson BDC, Inc. carries various risks, including:

• Reliance on Investment Advisor: KBDC's success highly depends on its investment advisor, KA Credit Advisors, LLC, to identify, evaluate, and manage suitable investment opportunities. Advisor underperformance could adversely affect KBDC's results.
• Economic Downturns: Adverse economic changes—such as recessions, high inflation, political instability, or significant interest rate fluctuations—could negatively impact the financial health of KBDC's middle market portfolio companies, potentially leading to loan defaults or reduced valuations.
• Highly Leveraged Companies: KBDC invests in highly leveraged companies. If these portfolio companies cannot manage their debt obligations, KBDC could experience investment losses.
• Below Investment Grade Loans: KBDC's loans are typically unrated by credit agencies; if rated, they would likely be "below investment grade." These investments carry a higher default risk than investment-grade securities, though KBDC mitigates this risk with secured positions.
• Loan Repayment Issues: Portfolio companies may fail to repay their loans or other obligations when due, which could result in a loss of principal and/or interest income for KBDC.
• External Disruptions: Unforeseen events like wars, natural disasters, pandemics, or cybersecurity incidents could negatively impact KBDC's portfolio companies, its operations, or the broader financial markets.
• Conflicts of Interest: As an externally managed BDC, potential conflicts of interest may arise between KBDC and its investment advisor or affiliates. However, governance structures and compliance policies typically manage these.

Management Discussion (MD&A highlights)

Management's discussion and analysis highlights KBDC's operational and financial performance for the fiscal year ended December 31, 2024. The May 2024 Initial Public Offering (IPO) was a pivotal event, significantly enhancing KBDC's capital base and market presence. Management emphasized a disciplined investment strategy: 93.2% of the loan portfolio was in first lien senior secured loans, contributing to a low 0.8% non-accrual rate and a 12.1% weighted average yield on debt investments.

Results of Operations: KBDC generated $264 million in total investment income and $180 million in Net Investment Income (NII), or $3.60 per share. These results reflect growth in the investment portfolio, which reached $2.2 billion. Management noted the benefits of a floating-rate loan portfolio in a rising interest rate environment, which contributed to income generation. They also acknowledged increased competition in middle market lending and the potential impact of higher borrowing costs. KBDC's strategy remained consistent, focusing on secured loans to middle market companies, with no major shifts in leadership or investment philosophy reported.

Liquidity and Capital Resources: KBDC maintained a strong liquidity position with $75 million in cash and cash equivalents and $300 million available under its revolving credit facility. Total debt outstanding was $1.2 billion, resulting in a prudent 1.1x leverage ratio. Management confirmed these resources are sufficient to support ongoing investment activities and operational needs.

Market Trends and Regulatory Environment: KBDC continues to operate as a Business Development Company (BDC) and aims to qualify as a Regulated Investment Company (RIC) for tax purposes. Management monitors market trends, including ongoing demand for financing from U.S. middle market companies and the impact of interest rate fluctuations. Regulatory changes affecting financial institutions and BDCs are continuously assessed for their potential impact on operations or investment strategy.

Financial Health (Debt, cash, liquidity)

As of December 31, 2024, Kayne Anderson BDC, Inc. maintained a solid financial position:

• Cash and Cash Equivalents: Approximately $75 million.
• Total Debt Outstanding: Approximately $1.2 billion, primarily consisting of credit lines and unsecured notes.
• Leverage Ratio: KBDC's debt-to-equity ratio was 1.1x, within its target range and considered prudent for a BDC, balancing investment capacity with financial stability.
• Available Liquidity: KBDC had $300 million available under its revolving credit facility, providing ample flexibility for new investments and managing short-term operational needs.

Future Outlook (Guidance, strategy)

Kayne Anderson BDC, Inc. aims to continue generating strong current income and some capital growth for shareholders. KBDC plans to distribute a large portion of its earnings (typically 90% to 100% of Net Investment Income) to shareholders, which is attractive for income-focused investors. Management believes strong demand for financing from U.S. middle market companies will continue, driven by private equity activity and limited traditional bank lending. This bodes well for KBDC's business model. KBDC anticipates continued portfolio growth, targeting a modest increase in its investment base in the coming year while maintaining disciplined credit underwriting standards.

Competitive Position

Kayne Anderson BDC operates in a highly competitive market for lending to middle market companies. Its competitive strength is significantly bolstered by its investment advisor, KA Credit Advisors, LLC, and its affiliation with the broader Kayne Anderson firm. This affiliation provides several key advantages:

• Extensive Deal Flow: Access to a wide, proprietary network for sourcing potential loan opportunities.
• Underwriting Expertise: A proven, sophisticated process for evaluating, structuring, and managing complex private credit investments.
• Scale and Resources: The substantial size of Kayne Anderson's private credit platform ($7.3 billion in assets under management) enables KBDC to participate in larger transactions and offer comprehensive financing solutions, positioning it as a significant player in middle market lending.