Golub Capital BDC (GBDC) 11 Feb 222022 Q1 Earnings call transcript

Good day and thank you for standing by. Welcome to the Golub Capital BDC Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] With that, we'll begin the call.

to XX, welcome conference quarterly and call. afternoon GBDC's XXXX December earnings Good

I'd a uncertainties. than may may to our we of this the like Before begin, call Reform Litigation take historical within meaning remarks Act facts during Private during Securities statements Statements listeners made statements moment of this constitute forward-looking call other forward-looking contain XXXX. the of statements that remind a guarantees to made statements not or future results number from of materially of with and of as a forward-looking involve are and number including results those risks to time the of GBDC's performance from time Actual result the filings differ may SEC. factors, and in described in those a

on to today's on on refer to earnings Resources please the the www.golubcapitalbdc.com intend we homepage Events/Presentations materials the and visit tab our Investor of website, click call, link. For

Our earnings Resources available Investor also our the in on website release is section.

this is GBDC. purposes. a David, As of for away. call I'll take CEO turn replay that, it With call to Golub, the reminder, over David being recorded

presentation today. press earnings off throughout the to an presentation the at and for release quarter joining be earnings Simmons, the afternoon New Hello, Financial we Gregory for Yesterday Chris we referring ended Director; going our posted and to is Senior Year thanks Ericson, I'm the Capital. Golub Officer; XX this of today. behalf our issued Thank you, a great you. website. whole Managing here Jon. our joined Director everybody, Chief start call Managing On hope we us to December and We're Robbins, by Jon for team, on

quarter. had been, and it GBDC resilient partnership-oriented middle-market today new providing sponsors. who our private strong to you that senior headline consistent investment equity companies secured has strategy of healthy since is focus GBDC, are another is that by to strong lien first those backed The on loans are inception to for For

For adjusted $XX.XX quarter share and ended was $X.XX rose the NII share. to adjusted per $X.XX per was NAV EPS December XX, ending

During And sustained the made GBDC's decided to quarterly performance. light the company's the of distribution that XXXX in recall raise per November share. quarter of Board strong a dividend GBDC $X.XX in you'll

I'll the elaborate to to on and Now provide performance then And line I'll Jon the for Gregory, closing quarter. questions. to that, floor over hand commentary following Chris Gregory, open for GBDC's some the you. and

earnings continue. you, discussed six the XX. in key view describes good Thank David. Slide is that December a and expected calls them we to success thing. several on said that two quarter these contributed We've GBDC's more ended themes we've themes last same of to our our the In

weeks and the XXXX key continued period the same to across for GBDC's growth was the November from theme The pre-COVID third credit in the improvement call Market quarter. exceeded your Middle growth The several and strong XX, is EBITDA first which or December ago. performance. we Capital to published period for revenue the earnings consecutive XXXX in GCMMR median metrics. in of rates Report, portfolio October Strong reflected in I'd attention portfolio Golub XX%

portfolio second The strong. particularly from QX best led platform Golub origination. origination the theme an This its Capital to in calendar was XXXX robust The very had is and at calendar year perspective strong GBDC. ever growth

credit later growth a of data closer on attractive look metrics that portfolio very and in Importantly, the presentation. at came the new We'll the portfolio we investments. form believe in growth take

slide seven. Turning to

quarter relative two to XX. themes the Let's to ended NAV walk contributed in through per how our share key September growth

see, As per outearned now quarterly NII higher, its, of you dividend can GBDC $X.XX adjusted with share.

excellent $X.XX per credit unrealized share, reflecting GBDC's realized net of and portfolio. adjusted In quality totaled the addition, gains

you call over through our that the let to Let's in walk detail. me results at quarter. the Jon for now look the results more take a hand With Simmons Jon? closer to

Gregory. adjusted distributions. quarters, several EPS as and as during you, GBDC which strong summarizes well our achieved expanding Slide consistent gains, last and Thank NII, and unrealized the for adjusted results X net realized

XX. GBDC, quarter. value $XXX.X million. as was originations of with another Slide million for total commitments during as of the and million, X.X% strong total totaling investment at Turning by at or quarter activity, investments new in exits other and $XXX.X investments $XXX.X This After to appreciation unrealized sales well factoring fair portfolio increased

and commitments As sheet had both commitments of and are XX, loans. context of delayed on position. draw in balance undrawn December $XXX.X of of GBDC million $XX the GBDC's million These relatively revolver XXXX, liquidity undrawn term commitments small

and loans less the continuing fair points. than shows remained our basis that portfolio the bit XX% XX This XX that remained table bottom of shown investment approximately new GBDC's type at on portfolio by the LIBOR Slide in investment of to spread Flipping both investments with the by with obligor to mix represent quarter-over-quarter. one-stop portfolio average Slide an rate of shows slide As over a weighted average size consistent value. XX. diversified highly increased

first As to floating comprised portfolio we our lien resilient industries. be of of XX, rate in XX% loans believe secured December what and senior was of defensively positioned

several to XX. graph quarter quarters. over the and Turning net and Slide spreads the This investment yields portfolio summarizes for past

of points the to The fee on yield or represents the ended on income dark the the the blue actual X.X% flat decreased and for and includes or yield investment line XX/XX. excluding discounts at origination line which the the basis premium. for X.X% and investments amortization quarter. earned of income fees including quarter blue XX by yield the remained income income interest the first light purchase The upfront price amortization but fees Focusing amount this line,

the blue weighted X.X%. by of And spread line points decreased finally, is net between basis average which line, the difference to the the Chris? Chris of debt investment XX the investment debt to over cost continue the cost Our discussion or I'll weighted by aqua quarterly call and then basis increased to points green results. that X%. our income of the XX yield average our With hand to or

Jon. remained and X.X% two next to Non-accrual X.X%, a and of investments percentage respectively, slides. as of the at debt investments as low total Thanks, December fair XX. at cost Flipping value

quarter, During of six company portfolio due number one to the five from investment. of disposition the non-accrual declined investments the to

Gregory strong discussed expected the below of perform opening performance scale on portfolio company his value As a rated December of to or as portfolio fair decreased result at expectations XX. of performance, underwriting meaning of in of rating performing as to continued investments the percentage our internal commentary, X, companies X.X% our

statement value for ended the Slides details and further XXXX. December reminder, firms of three a quarter. at As least and independent on as XX XX, and of months XX provide balance investments sheet income each valuation our XX% the

Slide the on frame. to top summarizes summarizes XX. on past our the same years quarterly Turning over and quarterly The regular our the returns distributions over bottom distributions well time the five graph as as graph special the on our equity

our Turning shareholder graph illustrates long of to since This history returns XX. our IPO. Slide strong

As various billion restricted bit liquidity of in investors than of illustrated, with as current on a through our capital on higher that credit facilities. GBDC's and strong IRR since XXXX December which XX our and achieved have a XX% investment stock availability $X.X based cash, NAV inception in our summarizes over remains cash and capacity XXst, available Slide IPO price.

optimizing highlight also of progress highlights. the balance in key continued right-hand side our Two We our sheet.

a XXXX an we X.XXX%. price $XXX to XXXX of million X.XXX% of to in unsecured XXth, price resulting notes and XXth an October a on for $XXX million in unsecured additional at a maturity resulting issued of of maturity notes additional yield respectively, First, and yield the

to credit our with amended on to facility feature, November the $XXX.X increase accordion $X.X the increase revolving from allows XXth, us we now billion Second, million. primarily up to facility JPMorgan, which

turn to commitments the to JPMorgan summarizes of debt XXXX. stockholders over December from series outstanding Slide addition, the facility some distribution of to XX, to $XXX entered most agreements will as September I of summarizes recently XXXX. increase it remarks. aggregate payable In the Slide for our on stockholders. distribution With to we $X.XXXX quarterly as XX XX, March under facilities terms of as declared into Most record of XXXX our our million of that, of recently David Board December XXXX. per X, on XX share XX, March a a $X.XX closing XXth billion recent

Chris. Thanks

GBDC quarter net strong Realized We originations the investment and additional low-cost added for exceeded highly dividend. that ended borrowings period we new were XXst. recently grow So Adjusted our December to and a portfolio unsecured enabled to increased income had nicely. flexible and solid. sum-up, unrealized robust the had gains

tailwind, one for I expect Let's is period. same. and about questions. We the portfolio. outlook Golub our more strength a GBDC's in talk about quarters the earlier, recent line We is, our the coming optimistic remain overall prospects pointed Capital the used phrase Gregory outlook in To the GBDC of open to borrow for we of briefly before which

on the we level the A gains more Based think in the fixed levels, dry private private tailwind this in equity that equity the ecosystem GBDC's on unsecured A to funding. of to in is fundraising are ecosystem. flexible ratings growth his size are in that to than an we're and net flight sheet. will non-accruals finance highly low continued and be Capital double other a over path current in pre-COVID alluded second of next performance and be a private equity growing that powder, strength internal unrealized rate won't comments; tailwind in and equity GBDC's constitutes the three troubled position is of flexibility on Chris think it. attractive losses. now growth seeing debt third private words, play means, means along portfolio. market. rather business In needing the we to we is to balance a the distracted leader of and low-cost than Golub by five Our years. sponsor is with defense All debt half And with line grow realized

private Finally, market a to among They The wide have ecosystem players those range and stronger the the lenders. to the leading expertise a strongest getting in our do their consolidate lenders the competitive capabilities, play be our private partners strategic record are common? and long-term bigger few as transactions. the and equity relationships equity in biggest firms we believe on changes scale, select in of have What advantages. track

future. these We expect for the tailwinds going continue foreseeable four are to

inflation shareholders portfolio caution. we're open too about going But always, the chain be of optimism adventurism to platform of our to the and about the and resilience please we're the With Capital that serve course strength by coming and supply worry operator, line Golub the able about period. continue for issues. We questions. proven tempered potential on rates of optimistic GBDC's fast, the raise that, the to well for over Fed to is the about As based rush

comes O'Shea the of first from Securities. question Your line Fargo Instructions] Finian [Operator Wells with

want I in public and grew today. This Jordan late-stage these in a ask little bit like is looks of I'm to you've on the maybe how when is change afternoon. you the kind line Fin seen describe the like Good breather though November [ph] there pretty It even volatility quarter of or it book. names. for in demand about demand to SaaS Lawson take January? for whether solidly your for and a a lending maybe markets curious this public not software say capital loans fourth

Sure.

metrics of this a these because credit they're of companies at look of by these for on at that So is, We've been teams It's profitability of at expenses context a companies about at or to this of because rapid set We more marketing stage the when very made selling as have decision we're a lending who business, years. growth eight focus strategy. strategy the profitability. invest Capital. be the doing heavily in the than we owners that expense late-stage those using Golub for of rapid who of development phone management and about of to the software familiar been in are to a affirmative talking mode the a talk period are growth Jordan and may lending It's of long-standing decision on loans growth companies expense been give our growth. and successful and different as during not to

damper in to very, issuance choices of of been late-stage When lending have the that on the as business an are venture our have to we're market particularly issuance among choices because credit and Our the IPO low. market companies a late-stage lending equity business they the and our losses debt. have alternative lending puts are strong, very it

which deploy in valuations and venture periods capital, to high firms late-stage lending So harder during are eager it's find to opportunities. really attractive are

relatively of stock So robust, venture prices, venture the was one of periods. high fundraising fourth and quarter those deployment. It a was period relatively

unfavorable relatively a as it new period describe for lending I'd our in So business of terms activity. late-stage lending

a the prices in drop that stock as sector. market seen particularly companies. in young was in We for drop January tech tech significant And out have you point

a cautiously So in I'm that calendar pickup late-stage we're in to see our optimistic going lending XXXX. business

tends for this First bit your a seasonally slow, Does quarter like favorable piece that's our answer but it we're question, always business. Jordan? more into that a headed be to looks period of

good it does. and know. Yes, That's helpful to

topic. on So another to just to move

You easily with the best better they and not one it. would fee would hurdle. in that think industry guys it worse of your have rely BDCs the have been structures a lot had of probably return of total that done that We with for shareholders can have

to reorienting maybe giving -- in trades credit that through? BDC you make for the you or of value the way where given So a structure do show you is market that really the about really fee, have the now, it thought think

question. It's a good

I thought tell structure we to. you of is addition that part mind is some you to would that, hurdle really the think I maybe is in one a more the mentioned our features give important rate. my we in to key think need fee

incentive before hurdle favorable as I investment rate shareholders. overall manager been think of manager of -- public it's the to net the a really job a has important And years incentives structure done nice think course I it's income think from almost aligning have it shareholder think part I a of very and perspective. that's between a XX begins And the we've structure do over fee. an We the X% I well. receive

Thanks so much.

KBW. question next comes Ryan the from line with Your Lynch of

afternoon thanks taking for questions. Good and my

I First rates interest to of the side to of investor lot But wanted of of flip one, on there's impact kind been the a recently that on operating other rising BDC's earnings. labor portfolio is obviously, they're facing about material, or higher facing of but costs, talk standpoint Right this companies higher borrowers. input costs. a now and high-level the from raw today facing

are the the the came want extent going their have To these extent is most so to in -- floor flowing And they through to that that today, enough portfolio? other Fed costs rates -- you and Boller, rate out And credit and do up X% able borrowers interest how above think James your get loans the said rates can quality July. give paying be higher managing the to today interest Fed that rates support hold your addition to that there in they President to floors business? quick increase above by

Thanks for your question Ryan.

our look we -- I this if headwinds right and are context. putting and world facing. the And it's in they're So, talking at both from the now, think that of all about borrowers perspective tailwinds there we're

pre-COVID over And quarter, the over On the fourth Middle revenue impact continues the you well Capital the year-over-year Golub period. of Market the look and the median if up that to the side, note grow recent quarter two results XXXX most months nicely. tailwind economy you'll from for EBITDA were Index at and company first

of So, includes and is management consumer that are spending. growth teams now one one of situation the that the facing important right robust components

On headwind some industries. rising many Inflation facing costs. particular they're up costs sectors, other input hitting also many markets in seeing the and wages in side, go different we're across significantly. In is

think now more rates. right headwind are a inflationary I in those increases interest significant than costs rising much

see LIBOR that high small. quantum recent that the announcements rise expense to that going talking is levels. overall we're But You're right we're Fed's floor of the would about relatively reasonably about indicate levels likelihood Ryan we're increased the a that still interest overall above talking

on in meaningful of going and we're rates environment see impact rising So, I credit performance. don't have themselves which think to a an in

period. coming there are two performance credit I to risks principal in think the

companies things underwrite have that The of don't we pricing with the is pricing and is one power for first companies that power.

credit going this think They're be see big don't have I margins. are economy -- raise able as to shrinking Companies going to their to portfolio, but generally. it's So, to the I factor is big going to that up. be our for power shrinking pricing going be factor price are a not as a costs for going quickly think don't

significant across economy. be to I a factor the think that's going

to is mean February Fed purchasing agree now has expanding be to think program of February it's sheet most Fed it's The that your Fed I second for in doing. Fed risk the doing moved But implementing supposed end in the that it's that's balance March. kind slowly, its think I what right? thing we're head a it's hard scratch and be believe still actually believe quantitative to to-date moves quickly. and retrospect, XXXX. would But right I of still to the the securities seeing people too In too the easing in

So, where where second balance see and the about it of lower two carefully. concerned move the the economy Those rates slowly, too sheet. more about moved to expense we're may is of weakening than having may those its increased the very of too It size the it a it keys may inflationary too interest the am our two now fast gone borrowers. economy. risk reverse the recent watching the the through are growth point right a to in overshoot thinking in period I about pressures raise and I'm much significant P&L in we quickly and effort

near and who like lenders ecosystem platforms private large-scale and and you yourselves. doubling could talk credit years three market in in transacted I meaningfully, though, lenders kind of of, I what that has we particular revisiting that to rates the where term, resumed. positions multiples mean rising that the much depending until going That's next on all wholesome hold puts or the insight. over the down markets. years on which the prepared those for would last think, transact multiples, I about and public multiples I those curious, And very conversation who are sponsors really back and they may would about would frequent good standard already your remarks agree trickle to to -- have in on or the what the down less five think. activity. rising comments our to of the with, just valuations. go, private private push several appreciate on assume right direct rates, over higher-level down question potentially at In market they want takes certain Understood. we've potentially have longer those just into about I'm if now another that Kind position, seen kind of kind multiples equity in come is

can that kind sponsors for market, of maybe and you for a would overall transact? So comments tear willing addressable with I expanding headwinds with your with the on potential, to tailwind multiples secular total say, some

really it's question. a So interesting

So U.S. different ways. equity-backed private they're this think of businesses, now, are there principal couple different a the ownership They're companies kinds of and let's businesses. Right businesses owned publicly they're middle-market in family-owned about of three

because down, stocks typically companies that of a when market their have activity of would it So ownership? likelihood valuations contraction, some each you're of I those public on and would turn period increase we valuations And if M&A right, down. what of amount stemming forms likely we of think go to that and there's a see multiple private public of market different activity. of from impact public the and degree activity, go some in we'd catalyzes see see mispricing

standpoint. I public think, companies, an M&A be So a from that'd activity for plus

both for families equity in environment. in where see it's of waiting off a see both it dynamic a might might they'd plus minus: selling need because, ecosystem, be better and plus might businesses, better plus because, minus. And a happening a it the that private and a a minus be a same the a kind and family-owned liquidity; For I drive

some to to might longer. it that equity return taking right essence, to, private grow firms want dollar longer investment and their some portfolio in a hold by You're better to lead just on companies generate

return period the sponsors rates hand, of firms to on the make to return is of pressure equity holding achieve pattern. good it On harder show rates private holding periods this that longer the a other to seek. Longer mitigant

I'm complicated. you've the So I the point, netting all that not I think got how and I defined after see to spend There's coffers this the capital come being out. record last private back sure their is, to existing time which main going in fundraising it's have for a several need enormous been record within broken. firms that's quarters, on equity period. unused

of new both for think, equity robust I argue private So spending. those

balance equity-backed on decline, private a still still think I balance, environment. see equity you're market an So think I see on we if even M&A to likely robust

That's with GBDC. your has is of quarters. again, small a pretty just not portfolio. last to quarters still give it David, pass it's been has investments And at over That’s if one X% portfolio, still of a very commitment able one, all I on and small ago a size two And overall in commitments. right. I'll guys' quarter several commitments, your of One equity on as percentage to X% a can. if quarterly complete quarter look the portfolio of increased X% we And growing new basis clarity. but a a minor ago, I on But size being last see portion you the materially at helpful. future kind small this very, the on very a relative if look your But the

could small insights into any you a and a it's stood change, So but that huge to that was not still me. something out little know really provide that? it's I

Yeah.

in and that companies software a the and themselves continue in that I we mostly We have and to in. what conviction we to yield-oriented small, know some between very relatively companies low be in a some think debt is of small. what for are preferreds. it's lot equity. well These think plan a good it seen point. the we opportunities It loan-to-value nest point preferreds They're attachment have still call on but we attractive are basis

portfolio. it several part have we as attractive those the last quarters an we of So in more than see and the we've of new done historically done

Appreciate understood. the Okay, comment.

Robert of from with James. line next the Dodd Your comes question Raymond

and but a almost from Ryan's the follow-up quarter. congrats Hi to different direction question. on a And guys,

have I ecosystem, mean a of lot PE the growth. On we seen

We large is, course, larger that growth. or at continue larger deals for kind to larger which them. of see bigger of funds, and and necessitates platforms relatively element doing funds of But larger bigger

to mean, last you the your -- private think of large quote this is to may share unitranche Is segment of you talked of might et a and is target that extremely of in going about mix? require do there's do book and that do are a be But participating We market in grow like quarter the may still a larger going the PE -- plus So you cut obviously, percentage expected grow. larger to the the gaining doing and that unitranches not I in with growing $X that deals billion that share those credit think growth your ecosystem more. cetera? or that larger as deals be to

great know. see. a question It's and We'll I don't

going and our is element to think grow understood. I continue of want going market in the attractive. a the we be which a participation is are it make to really I that to think point, isn't important to whether sometimes opportunities But of function

these in roughly is I half lead in them. of XXXX, a were or While what do. XXXX, unitranches, we Golub It's Capital leader market in not most we calendar of think co-lead mega

form loans EBITDA. of less by of vast $XX in companies GBDC portfolio of with level to of in to do a the the portfolio of the preponderance XX% you the of million carving were the is EBITDA, than If neighborhood

When a strategy or the it's large only really the shrunk got for we're main that not we source of unexpectedly, if even So business. a take market not It's deal as area, see But if of this going to advantage deal that of part size market overheated, attractive them. opportunities market us. us of in source flow problem. to for committed in our we're big flow that

in but going volume were necessarily LIBOR in book I – of SOFR – is I One us to Yes LIBOR it plus Understood. appreciate I can. there? I has you portfolio your if was it XX% as significant deals – XX% as still I how we that than SOFR quarter phasing or going The done to still Kind from last and whether how I get mean just that without pipeline. mean curious. to grow think quarter. of it's last out gave to more Is question's color. transition asking today, rather the what XXXX LIBOR fair more into the be about January expected, I'm so the out heard going deals existing and to CSA about any There less being stickiness potentially to

sense market-wide is very transition smoothly. that My is the going

But this. done There'll prepare point an sure some arise. of enormous think amount issues by given smoothly. work grindiness, was the of will scope to and I industry the – nature for And transition. there my that some from be exceptionally date be the vantage to it's going

you. Thank it. Appreciate

from Cheesman Anfield of comes Ray Capital. the question of next Your line

question. my for you taking Thank

results that think have And you're do platform a of bit other has or guys started is billion the little Do do? better with. Robert's your you a or does corollary high-quality as the number force credit to deals built if side you currently to kind the I'm that is bigger, bigger want the optimal, before. you succeeding stable $X growth and do high-quality might you you a of at you're wondering or by saying of be not on and people that to getting mousetrap, portfolio. should kind path risk is very are business many of bigger big equation over the tremendous guys question You they cycles, the been reducing the

vehicles regularly. we So me Capital? right at GBDC Golub the for what's one It's the Golub let is one put of Again, wrestle them size a we that manage in with really question interesting Capital. context. that

a the about funds billion. private of series – Overall, across the private platform manage We also several we BDCs. and $XX manage

players this of marketplace. So we the sponsor of are largest the in one finance

largest of a players being advantages. creates the think lot important one of I

broad have suite. product We large help private a We companies with small company can both and equity financings. firms

expertise of get XXX a to team add different a in deep investment enables that a one us for equity of makes firm process largest, if after domain through standpoint process. or people not the diligence us have from ownership value to diligence it to easier private have largest speed and That over variety an industries. the We wide really up in

growing. buy-and-builds pioneer that sheet of leadership were and scale have we've it's transactions sponsors this time to want market of or unitranche the balance where one-stop who we for right-hand We again up through side as they're proven really a effective in their do way and a product, series to

They're in there's in result -- a a enabled in mind again. pattern develops to do comments group relationship of many our deals. that go developed They're larger they with that I earlier scale. and equity cases successful of the lenders just is deals. group of are firms markets equity given capital right private a in those successful firms those over also true. really what winning many most by things is So, My a year. whole Dodd doing firms are larger and some Robert more the small private more a ways point have pattern that over they back series is that I firms is or and had they we those that do doing things can who are have of a it's a that When that made

about but player a if product capabilities. reliability, if you're team. And Golub Capital you capabilities suite about reputation, with like And track those robust underwriting much about to more it's it's orientation, large-scale are it's important them, about big what's broad it's and a partnership also it's so think about a about record,

the going think future. to I is into continue that So, likely trend very going

gaining that has are the whole. are the share and well relative a winning of really firms think I a already equity that private to industry cohort as doing industry

to going small that's private that And relatively important debt I firms strategically also is the players think consolidate think going equity view continue. around to leading as partners. private of I industry a leading the group

of is have think is think it's going gain I a And terms next But So, part double to grow what heard on opportunity to think that does of your mean five our going And that what equity I over optimal earlier based to years. does roughly the question? in we from What view also that that you of we share. the is private three here. have I an mean in ecosystem size? to terms room to grow. me

And a not us with the mentioned the think to industry, also an I just consolidation as but that opportunity to grow than grow is gives I the industry. consolidating. faster industry bit

our Now, that's plan the we're methodical in growth the over forward. of anything has period believers to We're be done going growth. course not to careful, going public what in do that disciplined, been that's planned, and methodical we've game GBDC And big going super-fast.

you very answer. a Thank for robust

would There further this like questions are at back turn to I no to time. the over presenters. the call

time attention. everyone Very Thank your to us. free next as to And joining questions, always again Otherwise today. we you out reach to much feel look appreciate talking Great. and you for quarter. us if have forward

This concludes today's conference call.

now may disconnect. You