Barings BDC (BBDC) risk factors, 2025 10-K

Other

1. 01The following is a summary of the principal risk factors associated with an investment in our securities. Further details regarding each risk included in the summary list below can be found further below

Risks Relating to Our Business and Structure

1. 02We are dependent upon Barings’ access to its investment professionals for our success
2. 03Our business model depends to a significant extent upon strong referral relationships, and our inability to maintain or develop these relationships, as well as the failure of these relationships to generate investment opportunities, could adversely affect our business
3. 04Our financial condition and results of operations will depend on our ability to manage and deploy capital effectively
4. 05Our investment portfolio is and will continue to be recorded at fair value as determined in accordance with the Adviser’s valuation policies and procedures and, as a result, there is and will continue to be uncertainty as to the value of our portfolio investments
5. 06We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses
6. 07There are potential conflicts of interest, including the management of other investment funds and accounts by Barings, which could impact our investment returns
7. 08Barings may exercise significant influence over us in connection with its ownership of our common stock
8. 09Barings, its Investment Committee, or its affiliates may, from time to time, possess material non-public information, limiting our investment discretion
9. 10Our ability to enter into transactions with Barings and its affiliates is restricted
10. 11We are subject to risks associated with investing alongside other third parties
11. 12The fee structure under the Barings BDC Advisory Agreement may induce Barings to pursue speculative investments and incur leverage, which may not be in the best interests of our stockholders
12. 13decreased during the then-current quarter and creates an incentive for Barings to incur leverage, which may not be consistent with our stockholders’ interests
13. 14Barings’ liability is limited under the Barings BDC Advisory Agreement, and we are required to indemnify Barings against certain liabilities, which may lead Barings to act in a riskier manner on our behalf than it would when acting for its own account
14. 15Barings is able to resign as our investment adviser and/or our administrator, and we may not be able to find a suitable replacement within that time, or at all, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations
15. 16Our long-term ability to fund new investments and make distributions to our stockholders could be limited if we are unable to renew, extend, replace or expand our current borrowing arrangements, or if financing becomes more expensive or less available
16. 17We may be subject to PIK interest payments
17. 18Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital
18. 19Additionally, some of these securities or other indebtedness may be rated by rating agencies, and in obtaining a rating for such securities and other indebtedness, we may be required to abide by operating and investment guidelines that further restrict operating and financial flexibility
19. 20Our financing agreements contain various covenants, which, if not complied with, could accelerate our repayment obligations thereunder, thereby materially and adversely affecting our liquidity, financial condition, results of operations and ability to pay distributions
20. 21We are exposed to risks associated with changes in interest rates
21. 22We may invest in derivatives or other assets that expose us to certain risks, including market risk, liquidity risk, and other risks similar to those associated with the use of leverage
22. 23Incurring additional leverage may magnify our exposure to risks associated with changes in leverage, including fluctuations in interest rates that could adversely affect our profitability
23. 24(40.1) % (25.2) % (10.3) % 4.6 % 19.5 %
24. 25(2) Assumes $3,548.3 million in total assets, $2,341.1 million in debt outstanding and $1,190.4 million in net assets as of December 31, 2024, and an average cost of funds of 5.250%, which was the weighted average borrowing cost of our borrowings at December 31, 2024
25. 26We may in the future determine to fund a portion of our investments with preferred stock, which would magnify the potential for gain or loss and the risks of investing in us in the same way as our borrowings
26. 27Our Board of Directors may change our investment objectives, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse
27. 28We will be subject to corporate-level U.S. federal income tax if we are unable to maintain our tax treatment as a RIC under Subchapter M of the Code, which will adversely affect our results of operations and financial condition
28. 29We may not be able to pay distributions to our stockholders, our distributions may not grow over time, a portion of distributions paid to our stockholders may be a return of capital and investors in any debt securities we may issue may not receive all of the interest income to which they are entitled
29. 30We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income
30. 31There is no assurance that any share repurchase programs we implement will result in repurchases of our common stock or enhance long-term stockholder value, and repurchases, if any, could affect our stock price and increase its volatility and will diminish our cash reserves
31. 32We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect our liquidity, financial condition and results of operations
32. 33We are subject to risks associated with artificial intelligence and machine learning technology
33. 34Our business and operations may be negatively affected by securities litigation or stockholder activism, which could cause us to incur significant expense, hinder execution of our investment strategy and impact our stock price
34. 35We are currently operating in a period of capital markets disruption and economic uncertainty

Risks Relating to Our Investments

1. 36Inflation could adversely affect the business, results of operations, and financial condition of our portfolio companies
2. 37Our investments in portfolio companies may be risky, and we could lose all or part of our investment
3. 38The lack of liquidity in our investments may adversely affect our business
4. 39Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our NAV through increased net unrealized depreciation
5. 40Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio
6. 41Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies and such portfolio companies may not generate sufficient cash flow to service their debt obligations to us
7. 42There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims
8. 43Second priority liens on collateral securing loans that we make to our portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us
9. 44Covenant-Lite Loans may expose us to different risks, including with respect to liquidity, price volatility, ability to restructure loans, credit risks and less protective loan documentation, than is the case with loans that contain financial maintenance covenants
10. 45Our investments in foreign companies may involve significant risks in addition to the risks inherent in U.S. investments
11. 46We may expose ourselves to risks if we engage in hedging transactions
12. 47If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business strategy
13. 48Business — Regulation of Business Development Companies” included in this Annual Report on Form 10-K
14. 49We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer
15. 50We generally do not control our portfolio companies
16. 51Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity
17. 52Any unrealized losses we experience on our loan portfolio may be an indication of future realized losses, which could reduce our income available for distribution
18. 53Defaults by our portfolio companies may harm our operating results
19. 54Changes in interest rates may affect our cost of capital, the value of our investments, and results of operations
20. 55We may not realize gains from our equity investments
21. 56Our investments in asset-backed securities are subject to additional risks
22. 57Our investments in collateralized loan obligation vehicles are subject to additional risks
23. 58intend to target. Fluctuations in interest rates may also cause payments on the tranches of CLO vehicles that we hold to be reduced, either temporarily or permanently
24. 59We may be subject to risks associated with syndicated loans
25. 60Our special situations investments involve a high degree of credit and market risk

Risks Relating to Our Securities

1. 61Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their NAV and may trade at premiums that may prove to be unsustainable
2. 62Investing in our securities may involve an above-average degree of risk
3. 63The market price of our securities may be volatile and fluctuate significantly
4. 64We may be unable to invest a significant portion of the net proceeds raised from our offerings on acceptable terms, which would harm our financial condition and operating results
5. 65Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock
6. 66If we sell common stock at a discount to our NAV per share, stockholders will experience immediate dilution in an amount that may be material
7. 67Provisions of the Maryland General Corporation Law and our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock
8. 68If we issue preferred stock and/or debt securities, the NAV and market value of our common stock may become more volatile
9. 69There is a risk that investors in our common stock may not receive a specified level of dividends or that our dividends may not grow over time and that investors in any debt securities we may issue may not receive all of the interest income to which they are entitled
10. 70Terms relating to redemption may materially adversely affect your return on any debt securities that we may issue
11. 71We may not be able to prepay the August 2025 Notes, the November Notes, the February Notes, the November 2026 Notes or the February 2029 Notes upon a change in control
12. 72Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which could dilute our existing stockholders and may be senior to our common stock for the purposes of distributions, may harm the value of our common stock
13. 73You may have a current tax liability on distributions reinvested in our common stock pursuant to our dividend reinvestment plan or otherwise but would not receive cash from such distributions to pay such tax liability
14. 74A downgrade, suspension or withdrawal of the credit rating, if any, assigned by a rating agency to us or any of our outstanding unsecured notes, or change in the debt markets could cause the liquidity or market value of our securities to decline significantly
15. 75so, and we may not timely anticipate or manage existing, new or additional risks, contingencies or developments, including regulatory developments in the current or future market environment
16. 76Terrorist attacks, acts of war, national disasters, or public health crises (such as outbreaks or pandemics) may affect any market for our securities, impact the businesses in which we invest and harm our business, operating results and financial condition
17. 77and financial markets around the globe. Any such market disruptions could affect our portfolio companies’ operations and, as a result, could have a material effect on our business, financial condition and results of operations
18. 78We are subject to risks related to corporate social responsibility
19. 79We may experience fluctuations in our quarterly results
20. 80Economic recessions or downturns could impair our portfolio companies and harm our operating results
21. 81Uncertainty about presidential administration initiatives could negatively impact our business, financial condition and results of operations
22. 82Changes to U.S. tariff and import/export regulations may have a negative effect on our portfolio companies and, in turn, harm us
23. 83Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy
24. 84have in the past and may in the future lead to market-wide liquidity problems, which could adversely affect our, our Adviser’s and our portfolio companies’ business, financial condition, results of operations, or prospects