Golub Capital BDC (GBDC) 8 Aug 192019 Q3 Earnings call transcript

Welcome to Golub Capital BDC, Inc.'s June 30, 2019 Quarterly Earnings Conference Call.

Before we begin, I would like to take a moment to remind our listeners that remarks made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than the statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties.

Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Golub Capital BDC, Inc.'s filings with the Securities and Exchange Commission.

For materials the Company intends to refer to on today's earnings conference call, please visit the Investor Resources tab on the homepage of the Company's website, www.golubcapitalbdc.com, and click on the Events/Presentations link. release Investor available Resources earnings website the BDC's the in section. Capital is on also Company's Golub

As a reminder, replay purposes. this call is being recorded for

Chief I to Capital the turn Executive Golub, BDC. will Golub Officer call of now David over

ended that presentation issued proposed you. for here or today. joined back XXth going us presentation at Yesterday at you June I'm update Financial through Greg results start Golub by GBDC's for come for to throughout Simmons, the the more Jon we an Chief I'm on going Robbins the the our third Capital. to referring Golub Hello results GCIC. and We're Investment to posted going everybody take in with our XXXX. the detail, then Teune, to both today. we Thank is release an thanks our quarter and Officer; the on an joining quarter going is of earnings and Corporation, press Gregory Ross be with Managing to and afternoon for Directors Capital overview of earnings merger end call Ross website.

results ended And start headline investment income June some results. the start credit I'll solid main for had is headlines. by XXth. The another GBDC consistent net Let's with that very with driven quarter quarter, and strong

first focus middle providing to by investment resilient is, strategy backed partnership-oriented on inception senior to our been, are GBDC, equity those strong, of you to new firms. companies who For and since secured market has private healthy, lien loans

Gregory. over turn I'll that, With call to the

David. you, Thank

share income, XXXX. compared losses was the to from the $X.XX before Net or March quarter quarter compared it, increase as investment for per $XX.X operations, share, $XX.X $X.XX $X.XX per million quarter per for the $XX.X was the ended at look or $XX.X net and quarter. for per XXth or as quarter Net Let's assets credit million details income, we million to as XXth ended income March for share, share $X.XX XXst. June for resulting for June for net XX, the or call million the ended ended

$XX,XXX ended for per share, remained $X.XX a $XX.X we income have as provided Consistent Excluding compared per we gains per or previous excluding XXth for capital share, the gain for measure. NII adjusted the unchanged prior investment quarter. more quarter million, net the this approximately accrual quarters, investment share to incentive incentive the is $XX.X income June or fee meaningful net at fee, an $X.XX capital as million, with accrual think

loss unrealized currency realized and the was prior realized June Net loss foreign of unrealized share, losses net a and on result the This net on ended for of compares to XXXX less of currency unrealized of $X.XX $X.X per or net the $XXX,XXX or quarter depreciation. and quarter. realized million, per investments $X.XX investments and $XXX,XXX, than and $X.X foreign of million share, for XX,

senior New at companies XX% investments or the approximately commitments million secured one-stop loans, and million value approximately total ended in loans, quarter. investments the investment X% fair of totalled middle equity for decreased were quarter commitments were new securities. Overall, investment loans the Approximately during XX% X.X% June market by portfolio lien were in second X% $XXX.X were XX. $XX.X

can our $X.XX, the asset you XX, of incentive our before share at and investment income of per the June fee right column to net the the $XX.XX for see the share of income our per on $X.XX, share of net net value of top capital as Turning Slide accrual X, XXXX. gain per

in XXX companies of total X.X% well with slide, less investments the the company and average remains diversified investments. portfolio than of bottom the on shown portfolio of size different As portfolio

highlights portfolio to over it some detail. additional turn financial in now results will I the that, who provide and With discuss Ross, more will

Thanks, and total of our total of originations Starting $XXX.X of $XXX.X slide investments million, on exits and highlights this sales Great. Gregory. million. X, Slide

down As quarter, investments a originations. due LIBOR shown in on was new the increase yielding the X.X% bottom of senior modest table, the declining from primarily the weighted X.X% to of a average previous rate lower percentage quarter this rate and in secured on

the The based weighted rate X.X% investments that slightly interest funding. on contractual quarter, increased the average time on the new reminder, and a paid to prior rate is and loans off interest X.X% from as rate at of the

loans over floor. For LIBOR the rate current spread contractual would LIBOR, variable be calculating impact and the any rate LIBOR of using the

remained portfolio the mix Slide overall has X, with investment largest slide category to at one-stop to represent type by quarter-over-quarter our investment this consistent Turning shows XX%. continuing loans

portfolio X, average Turning that the an of Slide diversified investment remains less this slide than with illustrates well X.X%. size to

investment percentages in significant loans debt the predominantly floating portfolio no in Our industry classification over there and remains year. the been rate invested changes have past

the quarter, this and excluding focusing line, origination yield blue Turning the summarizes upfront earned the the investment on and income, net amortization the to this interest and Slide actual line fees. including but X, first for investments, portfolio graph fee income of spreads the light discounts amount yields represents on of

of other in LIBOR yield quarter basis due by quarters. The yield, and remained XX, over income fee XX fees or blue the line, quarter decreased June points X.X% income stable dark primarily due amortization prepayments a to increase and includes discounts, the to during The fees decrease investment at past which to income. an for X.X% ended the in two the

reset of debt, liabilities. CLO the blue flat or XX-day The due weighted at remained LIBOR of cost X.X% line, LIBOR our decreasing the despite on the to average primarily dates aqua timing rate,

XXX% from quarter of subsequent on which to next slides, increased fully recovery was repaid of remaining non-accrual the number three investments Flipping principal with four investments, end. to balance our two one the to

as X.X% and As cost were X.X%, of percentage value a of June investments respectively. investments total XX, non-accrual fair XXXX, and at

internal as on having rating XX. X quality credit of XXth, portfolio over strong with higher June of of in an Fundamental performance as investments slide the shown as of our remained XXth XX% June

independent firms approximately reminder, value quarter. XX% each our of a valuation As investments

Reviewing fair restricted billion, statement value at on $X.X Slides with and cash over cash billion. $X.X and of total and the balance sheet investments million, total $XXX.X we and XX, of ended just quarter income XX of assets the total

was issued rate of vehicles, in outstanding $X.X revolving facility. through our includes billion, debt credit fixed floating Total debt million in million debt debentures securitization million $XXX.X which of $XXX.X $XXX.X rate and our

Total net asset value per share at $XX.XX. remained

our target debt-to-equity regulatory ratio about was our was X.XXx, above times, X.XX slightly Our while GAAP GAAP of X.Xx leverage. debt-to-equity ratio

higher million, to from due for the total increase income. of income quarter was June of Flipping the fee million statement operations, XXth the quarter, primarily $XX.X to an $X.X investment ended prior

total On $XX.X prior an were million, of increase million from expense expenses side, the the $X quarter.

flat Excluding the quarter, capital gains the incentive expense quarter-over-quarter. $XXX,XXX reversal fee prior were in relatively expenses the in

slide, five the the a top following quarterly quarters. the provide to on of charts the our past summary distributions and on Flipping equity over average return

have fee. Our our capital which for share at per $X.XX the consistent regular share, GAAP investment remained distributions net gains accrual per income quarterly is stable the incentive with when excluding

return and per page annualized for past X.X% The quarterly based steady illustrates bottom in share of averaged increases history income on has of NAV over the long net frequent time. The the our quarters. five

our we presented NAV including special purposes, per comparison excluding historical distributions. and both For share

net in investments. X.X% Loan for Turning unrealized our offset XXXX XXXX. investments to investment company The at the at losses Slide from portfolio financial $XXX.X value investment on at annualized this by XX, Fund. was some declined highlights slide income Senior XX, zero few fair June a for quarter by return provides XX, million SLF SLF as to was March

credit XXXX June and our summarizes subsidiaries. capacity liquidity slide cash, XX, and facilities, through unrestricted and restricted of our available investment next revolving our in on as debentures form of The the SBIC availability

XX share declared payable to distribution terms on slide shareholders on lastly, $X.XX record of a XX, of Slide And summarizes facilities. XXXX. September our XX, the our of of as XX, Board August a debt XXXX

bit We to the this moved date including to the anticipated date, only, September. to payment changes merger meeting made other the shareholder a are of the in date. for being and distribution distribution, closing precede earlier the record No be

in We dates our our expect distribution resume record to next normal December. with

David provide I closing will who back the remarks. some David. will turn now to call

very Thanks tuned. with our balance want quick a I sum the finely increased a merger third further, of diversification up, on investment fiscal borrower Net strong Ross. credit close good, income update quarter remained GCIC. with sheet and proposed consistent, To GBDC to was had XXXX. was

in collected First, Votes GBDC GCIC the by where company important July when special does GBDC milestone joint joint from stockholders and proxy the by mid definitive both the effective XXXX, an filed and proxy companies of X, being XXXX. each both of statement of are merger July stand? the process September The scheduled for meetings which XX, currently and stockholder declared are achieved was are SEC. due GCIC their statement. On

other all our of is in the will transaction stockholder Subject expectation and satisfaction to approvals close precedent, current conditions September. that

the of the GBDC of Board favor reminder, has unanimously transaction-related Directors, included, in proposals. recommended a stockholders myself vote As that

a have please So, for not note stockholders already done who vote. so,

I is highlight we quick. I’ll believe shareholders. the for merger want GCIC Next, be compelling with why to Seven reasons, GBDC

of June to June NAV on as GCIC’s $XX.XX the is $X.XX transaction about share of would of XX, per the per be or estimated to accretive GBDC's GBDC's per share, approximately per as expected X.X%. NAV immediately First, the to NAV Based GBDC's accretion NAV XXXX, share. and XX, share be XXXX

per share quarters net to So income two equates that roughly of historical for GBDC.

potential GBDC's at to for share, premium has the additional transaction NAV over value GBDC the to GBDC creation that offers will because years. NAV to continues some the past on Second, average trade the transaction the three accretive assuming per approximately XX% at be traded

traded of the the externally each based fair company on Third, of would XX, XXXX. June largest fifth managed, BDC GBDC publicly value GCIC as combination of holdings by and of create the assets

improve the of market analyst lead coverage. merger the anticipated and Fourth, to GBDC liquidity increased cap is broader to following trading

the between Fifth, two it expect to the of overlap look portfolio lot portfolios. companies familiar; combined given GBDC will XX% like the we standalone look the

scale. access its expect opportunity company to the of as greater combined the a the we have given to market securitization better its consequence to company’s capital debt increased optimize combined Sixth,

all operational short, have it eliminating successful and GBDC/GCIC made redundant expenses. And gives seventh, believe GBDC expect elements we synergies advantages. number that from we combined of a the In some additional maintains the

the support GBDC's In merger, board's deliver this revisit closing share GBDC’s intention intention reserves earnings power to GBDC’s of market meaningfully the scale dividend the per increased to or will of prospects particular, board announced the think we change. if the to after the combined right that including provided benefits to GBDC conditions company quarterly $X.XX increase incremental

benefits note, A platform. direct addition I highlight to to is that advantages there benefit and Capital that’s continuation the also don’t in the we the GBDC's of of expected final think associated to competitive with enough, shareholders the access Golub merger, a the proposed

a about that under the scale, talking advantages the of management. balance sheet and platform in is just XX investment of market, big employees, not about years a with history middle enough. $XX billion talking XXX and not U.S. size, over professionals, I’m include capital operating XXX talking over today over I’m

I'm the repeat firm’s volume. talking have XXX equity in relationships. has sponsors, with done more accounted business or for of over Golub different recent XX% about private Capital periods sponsors repeat and origination a

I’m repeat borrowers. and talking market Capital today volume about middle firm’s the than come of origination XXX about more to incumbencies. these has lends typically XX% obligors Golub from

distinctiveness provide billion our suite. million to underwrites the to believe leader offer $X buy-and-hold and about talking ability is We market I’m our of quite and up solutions at Golub product up distinctive. to of one-stops is Capital $XXX

key and by talking Capital healthcare verticals our is finally, businesses. Golub believe seen expert industry I’m about expertise. in software, including the We consumer market as And

So, better record Golub shareholders. premium to believe Capital ever returns advantages be for from platform will its the post-merger delivering continue the of we and track benefit of positioned consistent long-standing than to GBDC

let’s time and that, floor today and your your me With partnership let for open you questions. thank for the

And you. of is go ahead. Fargo from Securities. our [Operator Wells Thank O'Shea Instructions] first line the question with Please Finn

volatility the here market, more highlighting and the up question, what’s what’s side? sort on in of risk-adjusted in or favorable more the larger return a is view better of unitranche core and some the are large larger core of middle seeing you terms the the First versus available, recent recently, you’ve shifting opening of available, middle positions, been

in think two the about terms think of it tend I of in terms in I market. three. to about don’t it actually segments

So, let’s just three. talk about the

now. driven segment new the It's traditional historically market of to very continue were describe market EBITDA. it be as has competitive would entrant right which would we historically been most better market the activity terms. portion our size down significant in and and $XX we’ve most would of in first companies million in. I documentation what to of active spreads million the and range market from the better where $XX that’s been be That So, active middle

range up segment how typically in. with we they’ve have second or I to In focus really traditional the are $XX conditions market $XX and competitive And The middle last say consistent strategy of transactions segment our pretty four would continuing of would that bear. for the three on market million years. bring advantages EBITDA, been active that that are would million that’s we've we to EBITDA is can we from where been most which be there which to market,

The go last syndication a syndicated with prefer market, segment million direct million a market ability borrowers would have EBITDA solution. the lender to $XX be where we those whether they lenders so to because to upper or companies, middle the $XX buy-and-hold choose compete as with with

receptive is see tend market is when more to you market market point buy-and-hold to in solutions. choppy, syndication be that the benefits volatility. hot, tends from borrowers the to As out, When harder compete be category, syndication with syndication to And it market. to the we tend last

a Right of where credits the hot been cold about syndication which We’ve now, is neither they -- the is like say kinds we’re like. don’t seen CLO selective. period market and I’d nor but have phase. investors say the they in which active, syndication picky market I’d it’s

So, as to would million to has focused period in $XX in be to recent that all expectation company that, EBITDA and that’s our a of range activity my $XX be size the consequence going continue. million tended

the of on, upfront the at upon economics Thank to of new the And advisor any prior just you. a retain does Golub allocation? loan, follow origination

in portion some So, GBDC in fee. there a treat in a disclosed original we in does, structuring There upfront is discount, the is funds some transaction, of structuring different we OID, all a fees. typical there of retain fee involved, a manner means how that very also and documentation, private or similar treat as our that number a is of to we advisor cases, the our and

color the of on generally, say amount and it the Sure. points, parameters half some figures? a a is Appreciate just general the upfront fees, on third, or of two generally the just

I'd Rather with to you than specifics. rather speculate, get back

some So, to let us and back you. work do come

you. Thank

with of Cheesman Anfield Our the next from is Please line question Ray Capital. go ahead.

with seeing not the in could give deals protected market you declining. LIBOR see you floor in your I’m what as to are it that be. you the if out included Wondering us, used your I many LIBOR seeing also on floors? in charts the in as What being us as are presentation past seeing?

pushing I LIBOR think for floors that's where accurate. We're can. we

down, reemergence to X% we LIBOR as the in when period standard. goes think a higher to standard as than the that I will meaningfully fade probably reasonably the But of rose started X%, floor. LIBOR see LIBOR

reemergence have floors, very the universe LIBOR of floor. observation is see we your the you think the I if today, period smaller a portion sustained you'd a X% see at right LIBOR, that the having on, of universe LIBOR So, we'll if likely decreasing I looked of think but standard

last set returned a rougher nothingness faded the to, the days parallel of that did do next of little all will months the the stress for up protection of be a of to topic waters a of and away and of you of what XXX loans, markets into people our some forward indentures to the technical kind and lack could we all that’s looking request recovery in On think term, bit happy with lead of wise deals? covenant-lite

Yes and no.

We're -- at of second that mean two I covenants is seeing financial leakage-related we bucket falling in call land, would describe and me could that into we there situation is it buckets. those. There I what look you let could provisions. by a one if So, each documentation bucket characterize the as call

implies, borrower coverage. level to covenants, or of financial a would would come these enable fails, as So, would borrower a tests the EBITDA discussion, the with have and charge or absolute name table debt-to-EBITDA be that test a to fixed if and be the lender

provisions box lending the restrictions assets are to second out with on that the do The Company's take ability category, leakage lenders to. to of have

called on to the on actually or to payments, is put ability so or restrictions might, or that Company on Company's place senior in debt the to debt, might restricted it be the be restrictions dividends, of restrictions existing ability structurally that repurchase for the So example, to debt.

a syndicated the for a seeing around particular direction that market documentation of very were and moving provisions we're is under were to the I that signs in in see think this lot provisions smarter linkage market year I leakage that about broadly I’m because was pleased the the bad industry. terms pressure earlier getting significant in and think

to to terms we're and see more pleased related XX sure to last days, that in more make I'm improved. pressure that So, to are leakage seeing on the arrangers XX documentation

I covenants. good size anytime see documentation become our I flipside transactions and several it don't soon. anticipate the predominant a is, terms anticipate the so, transactions. on broadly same going see to financial But see documentation that less as In transactions. number middle to including market, norm. has have on return to going one The related is syndicated I we’re pressure the the of XXXX-style we're a front, and we covenants phenomenon to financial in covenants retained or the larger “covy-lite” I see the market, don’t for financial middle that don't much terms news don’t market In

with the is Our of Debtwire. Bill go from Please next Weisbrod ahead. line question

of to to -- Dermatology. mark guys, thanks I change for the and Street the taking the wanted Hey saw a component addition Oliver -- call. a to I PIK

on ask So to going what's wanted there?

an appropriate going think your situation specific topic for I discussing question, for don’t but is Bill, Oliver like defer call. this a Thanks it I’m Street.

further no this at are time, There instructions] sir. question [Operator

after out next look reach to again any today. you everyone again we free discussion, please thanks feel time have Gregory that come to you your to And quarter. should or questions Well, of forward talking And up to great. Ross or any myself or today's Okay, Jon. for

conclude and call for disconnect line. That ask your We your the conference today. does you thank that you participation for please