Barings BDC (BBDC) to Acquire Sierra Income Corporation for $624 Million

Barings BDC, Inc. (NYSE: BBDC) ("Barings BDC") and Sierra Income Corporation ("Sierra") announced today that they have entered into a definitive merger agreement under which Sierra will merge with and into Barings BDC (the "Transaction"). The combined company, which will remain externally managed by Barings LLC, is expected to have approximately $2.2 billion of investments on a pro forma basis. The boards of directors of both companies, the Sierra Special Committee, which is comprised of all of the independent directors of Sierra, and the independent directors of Barings BDC have unanimously approved the Transaction, which is currently expected to close in the first quarter of 2022.

Under the terms of the merger agreement, Sierra stockholders will receive aggregate consideration in the form of cash and stock consideration valued at approximately $623.7 million based on Barings BDC's June 30, 2021 net asset value ("NAV") of $11.39 per share and representing total book value consideration of $6.10 per fully diluted Sierra share. On a market value basis, based on the closing price of Barings BDC common stock on September 20, 2021, the Transaction represents total consideration for Sierra stockholders of approximately $588.6 million or approximately $5.76 per Sierra share, representing a premium of 6.1% to Sierra's NAV as of June 30, 2021.

Sierra's stockholders will receive 0.44973 shares of Barings BDC common stock for each share of Sierra common stock, resulting in approximately 46.0 million newly issued Barings BDC shares, having a total value of approximately $523.7 million, or $5.12 per fully diluted Sierra share, based on Barings BDC's June 30, 2021 NAV of $11.39 per share. In addition, Barings LLC will pay $100 million in cash, or approximately $0.98 per share, directly to Sierra stockholders at closing. Following the Transaction, Barings BDC's pro forma equity base is expected to be approximately $1.3 billion and Barings BDC stockholders and Sierra stockholders are expected to own approximately 58.7% and 41.3%, respectively, of the combined company.

In addition, Barings LLC will enter into a credit support agreement ("CSA") with Barings BDC, for the benefit of the combined company, to protect against net cumulative unrealized and realized losses of up to $100.0 million on the acquired Sierra investment portfolio over the next 10 years.

Additionally, Barings LLC will amend its current investment advisory agreement with Barings BDC to raise the incentive fee hurdle rate from 8.0% to 8.25%, effective as of closing.

Barings BDC will also provide up to $30.0 million in secondary-market support via accretive share repurchases over a 12-month period in the event the combined company's shares trade below a specific level of NAV per share following the completion of the first quarterly period ended after the consummation of the Transaction, subject to covenant and regulatory constraints (including Rule 10b-18 under the Securities Exchange Act of 1934).

Barings BDC has agreed that, on the closing date, it will increase the size of its board of directors and cause two current independent members of the board of directors of Sierra to be selected by Barings BDC to be appointed to the Barings BDC board of directors as Class II directors.

In connection with the closing of the proposed Transaction, Sierra will repay all outstanding amounts under its existing credit facility and any remaining obligations thereunder will be terminated.

Barings BDC believes that the increased size and scale of the combined company will create many strategic and financial benefits to shareholders and will position the combined company to capitalize on favorable market conditions. Including the financial support provided by Barings LLC, it is anticipated that the combination will provide the following benefits:

• NII and NAV Accretion: Barings BDC estimates net investment income per share to be $0.24 in the first full quarter post-closing compared to $0.22 per share during the second quarter of 2021. This would represent a net investment income yield of 8.25% on pro forma NAV. Barings BDC further estimates short-term NAV accretion of approximately 4% and additional long-term accretion to NAV as assets acquired are realized and repositioned into Barings BDC's directly originated investments;
• Barings BDC Share Liquidity: Barings BDC's pro forma trading liquidity profile after closing as implied by the public BDC peer set suggests an approximate 80% increase in Barings BDC's current 3-month average daily trading volume;
• Diversification: The combined portfolio will have 245 portfolio companies with top 10 companies representing approximately 17% of the portfolio on a pro forma basis;
• Business Resilience and Financial Flexibility: The combined entity will achieve greater business resilience and financial flexibility through increased access to the institutional, index-eligible investment grade debt capital markets at a lower cost of capital;
• Cost Synergy: Approximately $8.1 million of identified expense synergies associated with the combination driven by redundant general & administrative expenses across two platforms; and
• Best-in-Class Shareholder Alignment: Through an increased incentive fee hurdle rate from 8.0% to 8.25%, a $100 million credit support agreement, and up to $30 million in share repurchases.

"We are very excited to announce that we have entered into an agreement to purchase Sierra Income Corporation. This combination will create a scaled top-10 BDC with enhanced earnings profile, portfolio diversification, and best-in-class shareholder alignment," said Eric Lloyd, Chairman of the Barings BDC Board of Directors and Chief Executive Officer of Barings BDC.

"We believe the transaction provides significant immediate and long-term value for all shareholders and further distinguishes Barings as a leader in shareholder alignment. We would like to thank the Sierra Special Committee for their trust and diligent work on this transaction," said Jonathan Bock, Chief Financial Officer of Barings BDC.

"Following a robust strategic alternatives process conducted by the Special Committee, our Board unanimously determined that the merger with Barings BDC is the best outcome to maximize Sierra stockholder value and interests. The transaction provides our stockholders with liquidity and immediate cash value along with an immediately accruing strong dividend, a best-in-class fee structure as well as the opportunity to benefit from ownership in a larger and more diversified global investment platform with a track record of generating stable and consistent returns," said Stephen Byers, Independent Chairman of the Board of Directors of Sierra and Chair of the Sierra Special Committee.

Consummation of the Transaction is subject to Barings BDC and Sierra stockholder approval, customary regulatory approvals and other customary closing conditions.

Wells Fargo Securities served as sole financial advisor and Goodwin Procter LLP served as legal counsel to Barings BDC. Broadhaven Capital Partners served as financial advisor and Sullivan & Worcester LLP served as legal counsel to Sierra.

Conference Call to Discuss the Transaction

Barings BDC has scheduled a conference call to discuss the Transaction for Wednesday, September 22, 2021, at 9:00 a.m. ET.

To listen to the call, please dial 877-407-8831 or 201-493-6736 approximately 10 minutes prior to the start of the call. A taped replay will be made available approximately two hours after the conclusion of the call and will remain available until October 6, 2021. To access the replay, please dial 877-660-6853 or 201-612-7415 and enter conference ID 13723050.

This conference call will also be available via a live webcast on the investor relations section of Barings BDC's website at https://ir.barings.com/ir-calendar. Access the website 15 minutes prior to the start of the call to download and install any necessary audio software. An archived webcast replay will be available on Barings BDC's website until October 6, 2021.

A copy of the presentation that will be discussed during the call is available on the investor relations section of Barings BDC's website at https://ir.barings.com/presentations.

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