Bain Capital Specialty Finance (BCSF) risk factors, 2026 10-K

Risks Relating to Our Business and Structure

1. 01We may be unable to meet our investment objectives or investment strategy31% rewritten
2. 02We are dependent upon key personnel of Bain Capital Credit and our Advisor
3. 03We may not replicate the historical results achieved by Bain Capital Credit, or by our Advisor or its affiliates
4. 04The due diligence process that our Advisor undertakes in connection with our investments may not reveal all the facts that may be relevant in connection with an investment
5. 05Adverse developments in the credit markets may impair our ability to enter into new debt financing arrangements
6. 06Our executive officers and directors, our Advisor, Bain Capital Credit and their affiliates, officers, directors and employees may face certain conflicts of interest27% rewritten
7. 07Bain Capital Credit’s Credit Committee, our Advisor or its affiliates may, from time to time, possess material non-public information, limiting our investment discretion
8. 08Our management and incentive fee structure as well as our lending relationship with our Advisor may create incentives for our Advisor that are not fully aligned with the interests of our stockholders and may induce our Advisor to make speculative investments
9. 09Conflicts created by the valuation process for certain portfolio holdings
10. 10Conflicts may arise related to other arrangements with Bain Capital Credit and our Advisor’s other affiliates
11. 11Our Advisor has limited liability and is entitled to indemnification under the Amended Advisory Agreement
12. 12We operate in an increasingly competitive market for investment opportunities, which could reduce returns and result in losses
13. 13We may need to raise additional capital
14. 14Our business could be adversely affected in the event we default under our debt agreements
15. 15Lastly, as a result of any such default, we may be unable to obtain additional leverage, which could, in turn, affect our return on capital
16. 16We are and may be subject to restrictions under our debt agreements and any future credit or other borrowing facility that could adversely impact our business
17. 17The majority of our portfolio investments are recorded at fair value and, as a result, there may be uncertainty as to the value of our portfolio investments
18. 18New or modified laws or regulations governing our operations could adversely affect our business
19. 19The Board may change our investment objectives, operating policies and strategies without prior notice or stockholder approval
20. 20Provisions of the Delaware General Corporation Law and of our certificate of incorporation and bylaws could deter takeover attempts and have an adverse effect on the price of shares of our common stock
21. 21Our Advisor and Administrator each have the ability to resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations
22. 22We are subject to certain risks as a result of our interests in the membership interests in the 2019-1 Issuer35% rewritten
23. 23We are subject to significant restrictions on our ability to advise the 2019-1 Issuer76% rewritten
24. 24The subordination of the Membership Interests will affect our right to payment38% rewritten
25. 25The holders of certain 2019-1 Notes will control many rights under the 2019-1 Indenture and therefore, we will have limited rights in connection with an event of default or distributions thereunder45% rewritten
26. 26Under the documents governing the 2019-1 CLO Transaction, there are two coverage tests (the “Coverage Tests”) applicable to the 2019-1 Notes44% rewritten
27. 27We may resign or be removed or terminated as portfolio manager of the 2019-1 Issuer50% rewritten

Risks Relating to the 1940 Act

1. 28We and our Advisor are subject to regulations and SEC oversight. If we or they fail to comply with applicable requirements, it may adversely impact our results relative to companies that are not subject to such regulations
2. 29Our ability to enter into transactions with our affiliates is restricted57% rewritten
3. 30accordance with our Advisor’s trade allocation practice. However, there can be no assurance that we will be able to participate in all investment opportunities that are suitable to usnew
4. 31shareholders and do not involve overreaching in respect of the Company or its shareholders on the part of any person concerned, and (ii)new
5. 32Our ability to sell or otherwise exit investments also invested in by other Bain Capital Credit investment vehicles is restricted
6. 33If 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
7. 34Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital
8. 35Certain investors are limited in their ability to make significant investments in us

Risks Relating to Our Investments

1. 36Our portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity, and rising interest rates may make it more difficult for portfolio companies to make periodic payments on their loans
2. 37Our debt investments may be risky, and we could lose all or part of our investments72% rewritten
3. 38While the Federal Reserve raised interest rates throughout 2022 and 2023, as inflation pressures have eased in recent periods, the Federal Reserve has relaxed its monetary policies and cut the interest rates to support the broader economy. In 2024 and 2025, the U.Snew
4. 39investments, a decrease in our operating expenses, including with respect to our income incentive fee, or a decrease in the interest rate ofnew
5. 40We may hold the debt securities of leveraged companies
6. 41We invest in middle market companies, which involve higher risks than investments in larger companies
7. 42The lack of liquidity in our investments may adversely affect our business
8. 43Price 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
9. 44Our investments in secured loans may nonetheless expose us to losses from default and foreclosure
10. 45Our investments in mezzanine debt and other junior securities are subordinate to senior indebtedness of the applicable company and are subject to greater risk
11. 46Our prospective portfolio companies may prepay loans, which may reduce our yields if capital returned cannot be invested in transactions with equal or greater expected yields
12. 47Our loans may have limited amortization requirements
13. 48We may invest in high yield debt, or junk bonds, which has greater credit and liquidity risk than more highly rated debt obligations
14. 49We may invest in equity securities, which generally have greater price volatility than fixed income securities
15. 50The prices of the financial instruments in which we invest may be highly volatile
16. 51Our investment in entire portfolios may not be as successful as acquiring the assets individually
17. 52Investments in financially troubled companies involve significantly greater risk than investments in non-troubled companies
18. 53Investments in “event-driven” special situations may not fully insulate us from risks inherent in our planned activities
19. 54We may be subject to lender liability and equitable subordination
20. 55Participation on creditors’ committees may expose our Advisor to liability
21. 56We cannot assure the accuracy of projections and forecasts used by our Advisor
22. 57We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited by the 1940 Act with respect to the proportion of our assets that may be invested in securities of a single issuer or industry
23. 58Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio
24. 59preserve or enhance the value of our investment
25. 60Our 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
26. 61The disposition of our investments may result in contingent liabilities
27. 62We may be subject to risks under hedging transactions and may become subject to risk if we invest in non-U.S. securities
28. 63because the Base Management Fee that we pay to the Advisor is based on the value of our gross assets, the receipt by us of PIK interestnew
29. 64We are subject to risks associated with investing alongside other third parties24% rewritten
30. 65potential for limited earnings and/or falling profit margins. These companies also face the risks that new services, equipment ornew
31. 66We will be subject to corporate-level income tax if we are unable to qualify as a RIC
32. 67Stockholders may be required to pay tax in excess of the cash they receive
33. 68We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash representing such income
34. 69We may retain income and capital gains in excess of what is permissible for excise tax purposes and such amounts will be subject to 4% U.S. federal excise tax, reducing the amount available for distribution to taxpayers
35. 70Our business may be adversely affected if we fail to maintain our qualification as a RIC
36. 71We may be impacted by changes in federal tax legislation

Risks Relating to Our Common Stock

1. 72Investing in our common stock involves an above average degree of risk
2. 73The market price of our common stock may fluctuate significantly
3. 74loss of a major funding source
4. 75We cannot assure you that a market for shares of our common stock will be maintained or the market price of our shares will trade close to NAV
5. 76Sales 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. 77Our stockholders will experience dilution in their ownership percentage if they opt out of our DRIP
7. 78We may in the future determine to issue preferred stock, which could adversely affect the market value of our common stock
8. 79There is a risk that you may not receive distributions or that our distributions may not grow over time and a portion of our distributions may be a return of capital
9. 80Our stockholders may experience dilution in their ownership percentage
10. 81We may incur significant costs as a result of being a public company
11. 82Global capital markets could enter a period of severe disruption and instability. These conditions have historically affected and could again materially and adversely affect debt and equity capital markets in the United States and around the world and our business
12. 83Economic recessions or downturns could impair our portfolio companies, and defaults by our portfolio companies will harm our operating results
13. 84The capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital markets, which may have a negative impact on our business and operations
14. 85We are highly dependent on information systems, and systems failures or cyber-attacks could significantly disrupt our business, which may, in turn, negatively affect the value of shares of our common stock and our ability to pay distributions
15. 86We are subject to risks associated with artificial intelligence77% rewritten
16. 87Use of AI could include the input of confidential information in contravention of applicable policies, contractual or othernew
17. 88exposed to the risks of AI use, any such inaccuracies or errors could have adverse impacts on us or our investmentsnew
18. 89Uncertainty about presidential administration initiatives could negatively impact our business, financial condition and results of operations
19. 90Inflation and actions by central banks or monetary authorities, including the U.S. Federal Reserve, to address inflation may adversely affect the business, results of operations and financial condition of our portfolio companies
20. 91We may experience fluctuations in our quarterly operating results
21. 92We may be the target of litigation or stockholder activism49% rewritten
22. 93commencing proxy contests to attempt to elect the activists' representatives or others to the Board, has increased in the BDC space innew
23. 94Geopolitical events have a material adverse impact on us and our portfolio companies
24. 95Our business is dependent on bank relationships and recent strain on the banking system may adversely impact us
25. 96We and/or our portfolio companies may be materially and adversely impacted by global climate change
26. 97We are subject to risks related to corporate social responsibility86% rewritten
27. 98specialize in investing in companies that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of such ESG measures to their investment decisionsnew