Golub Capital BDC (GBDC) 11 Aug 222022 Q3 Earnings call transcript

Welcome to GBDC's June 30, 2022 Quarterly Earnings Call.

Before we begin, I'd 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 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 GBDC's SEC filings.

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

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

this being David call I'm reminder, a As is turn GBDC. call of pleased recorded. the over CEO to Golub, David? to that, With

Jon. for on the Managing today. joined posted Yesterday, us Capital. Director Financial Gregory website. quarter at by for June Director; Managing we Chief I'm Robbins, press issued our to we Golub presentation everybody, Senior thanks Ericson, our and Thanks, Hello XX, Officer; joining the and Chris referring Jon an be release earnings through call our earnings We'll and presentation ended this today. Simmons,

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

a that to and net headline were and stayed Let realized fundamentally this income quarter. a continue despite environment. me The uncertain remain low, despite losses downdraft well, investment headline strong. for volatile economic start GBDC's GBDC's results with markets and major borrowers is perform in the solid, and equity credit

primarily believe credit in due as on widening, While unrealized time. remain they're over losses We losses. and results, general minimizing credit we focused, likely usual, spread losses, that impact these not did issues due to realized fundamental are unrealized to to reverse

EPS was $X.XX. June NII share and XX, $X.XX, ended $X.XX loss quarter adjusted was was net the adjusted adjusted per For unrealized and realized

a NAV quarterly and decline was share, distribution per quarter, of a $X.XX ending During quarter-over-quarter. the of X.X% share GBDC $XX.XX made per

in X.X% relatively the resilience in of loan declined future We expect S&P and index high importantly, quarters. the our in GBDC's leveraged yield we the to the the the QX, comparison, believe And NAV reflects strategy. investment index decline reverse in XXX XX.X%. declined decline NAV modest X.X% For declined

elaborate investment on floor from I'll XX. Gregory, on Chris to you. we that, commentary quarter coming what Gregory, open GBDC's performance and Jon after hand the to line the ended June environment and to Then for over the some for questions. And I’ll the here. see Now provide I'll

begin Thank that themes on June how out they XX key X, going highlights several to quarter which in I'm you, slide played specifically GBDC. to ended David. the and relate

and The first realized and low equity a at the presentation. theme strong is is later of economy the borrowers, in to low and reflected net This well. We'll credit non-accruals Golub performance in in credit continued the results slowdown portfolio Despite losses. closer our Capital take portfolio ratings, downdraft strong in performance. the generally, companies stable US perform look this including internal data the markets

rates the different yet We loans GBDC of Bear funding with believe will lag, to floating rates base for higher haven't reset quarters. we mind of sources its XX% portfolio. continue rate. the that in full as about rising Federal base to rates. quarter high rate, be higher rate Short-term are GBDC The investments all environment interest and looked second GBDC's to will able base theme inflation. interest Reserve the increased some while during meaningfully the is floating quarter. a rates across fully seen are benefit as of so advantage higher in realized benefit future US in only base the Nearly rates take address the benefit got of are

GBDC. The want emphasize And of widen to credit interest classes rates third uncertainty all I word unrealized. in across net unrealized spreads and losses caused is higher for to unrealized This nearly resulted Market the theme credit. losses.

losses As time. likely will that remain David earlier, and mentioned over issues believe we rare fundamental unrealized credit reverse these

consistent and quarter in second XXXX. of Capital's was our the origination activity solid Golub Lastly, with calendar

repeat with over of XX% sponsor to incumbencies our QX from our continue relationships and roughly was with - repeat XX% and benefit originations sponsors was borrowers. strong We in

on to to NAV share X/XX decreased GBDC's from as Moving per NAV $XX.XX per bridge X. slide of a X/XX. its $XX.XX provides share This Slide as of

Let's $X.XX. and share per walk were during adjusted unrealized Adjusted quarter and net the share realized per $X.XX. through Dividends $X.XX NII paid share losses bridge. were was the per

We have spoken Golub be about past, that stockholders. aligned Capital firm are this believers we should in the strongly GBDC's with but

We have ways. created this alignment in multiple

incentive a of on both of through a First, to which in lifetime has our have BDCs cumulative only lookback this since incentive fee the of industry rate structure, fee. our inception limited highest the number fee a and We're type lookback. hurdle one

stock. of over point, With that $XX.X call the first trust to of the last million, XX, Simmons that, we Jon? Second, to results hand purpose $XX.X for XXXX, calendar Employee GBDC awarding the me ownership shares incentive detail. Golub I or Trust mention our have the months walk of the employees strong insider compensation On common purchased to Rabbi approximately our Capital. three let to Through Capital of you XXX,XXX or June more Golub stock of maintain the quarters over over common X.X shares the Grant two stock. during of through also this purchased want Program Jon to million sought in million, ended

in quarters. results the Slide the the on over right, as the as several are last Gregory. Thanks, summarizes June X XX column quarter, well our for which far shown

Slide to XX. Moving

Also, portfolio and other Each investments small relatively the loans. at rates factoring the by shows investments that of New base investment quarter. and consistent. over $XXX.X at and the slide X.X% Slide the million commitments on fair After type by term million unfunded by $XX.X sheet mix balance shows total XX rate portfolio new increased changes as or value points. net commitments XXth, liquidity with June and to of investments during of draw represent delayed quarter. while obligor basis fair sales these of one-stop spread overall Slide increased in totaled position. applicable fair investment of $XXX.X commitments million, with exits that GBDC's portfolio revolver commitments context due shows the weighted portfolio are million loans as XX consistent rates, average base that of we of investments activity, to had XX GBDC's on total value table in undrawn in quarter-over-quarter, continuing the for $XXX.X average undrawn quarter-over-quarter, of as million remained size an $XXX.X of the highly investment diversified remained The value. bottom approximately at of new over the GBDC's meaningfully rising XX% the on well remained

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

trends slide summarizes yields and This net XX. in our graph portfolio spreads. investment to Turning

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

prior repayments increased quarter, in origination income of from an During level fees. the XXth, unusually and fee ended quarter the in an which amortization increase June resulted in low

average is between investment by average basis XX investment line, difference spread, And weighted which yield quarter. is line, net during our X.X% which month rate income the debt, as green remained of points of last Our and the contracts the base the reset our flat to of portfolio of the cost the weighted majority have at the debt, investment that cost aqua increased the X%. blue

of result Chris yield next to over in results. for that, quarterly expect our continue that, a we will be With hand the I'll continued rise a the starting discussion to base Chris? rates as So GBDC's the positive call portfolio of quarter.

cost with of over a the June end, Flipping Jon. XX% investments as having our higher investments quality recovery and performance quarter the There which at X.X% full and in slides, non-accrual subsequent of credit one strong debt end. investments quarter XX. were an of June stable a or was percentage four of at respectively, par consistent as of remained as Thanks, fair with Overall, repaid and rating fundamental two internal to eight portfolio of X.X%, stayed non-accrual to total XXth. investments of value at next

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

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

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

as $XXX X.X% stockholders our September of a facilities. summarizes achieved which $X.XX will XX XXXX distribution liquidity record Slide on distributions XXth. to to of closing As terms June of various our illustrated, NAV investment cash, and XX our our of have in million available of investors Slide since restricted GBDC's on strong remained summarizes capacity credit inception. with cash, and over availability XX through IPO the a turn debt X, of Slide of declared some of September summarizes June I recent over for David? XXth, capital as David XXXX remarks. Most stockholders. as our And that, Board facilities to with XXXX. XX, recently, payable per quarterly it share IRR

believe GBDC resiliency its we up, wrap To Chris. quarter. demonstrated this Thanks,

perform well, realized losses not some low we spread unrealized of were and credit deterioration. and widening to Our saw market-wide generally were portfolio continued losses, fundamental results the companies while they from

about confusing for this outperform. the and open where GBDC in Let's our is is kind briefly times, The outlook to line poised the is I environment headline of talk we're before questions. exactly

right I don't an confusing in of of different unusual time Let at precedent are me with and now and have they're number Many There in pushing affecting directions. why we're occurring them powerful the times. think the vectors start same economy.

balance At rising in problems. call at low vectors. profit We're declining looking inventories, period high stimulus. the interest thank and also high very some revenue quantitative goods by start positive of and rates, most are low Let's sectors tightening and forces: consumer experiencing supply time, fiscal what powerful inflation, the from there I sheets, a durable same momentum sustained chain healthy you unemployment, growth bad

So And as where I economic we just historical honest downturn from is, a can parallel answer now. the sound intellectually a truth economic a no know. experiencing people cite what traditional are The I or right that reminiscent look but good Some went don't to the period going think characteristics of the don't collection through, precursors we is there's of confident, we they here? downturn. we're traditional of that

leaders interest GBDC's have pricing rise, words, of typically strategy and all with across its resilient be want GBDC's floating to on GBDC So in to make debt. given some that roughly a prudent and factors the that to think advantages rate Nearly market a on limited GBDC's while If industries sensitive through potential is rates benefit power stands to fixed to or lending higher continue that elevated, we I is scenarios for asset portfolio of sources low-cost key of are customers. to to have inflation strong focus range the that impact on of remains rate, wide seek We competitive think the investments pass its approach variety to equity we muted. If funding costs inflation them. are three-quarters can this strategies resilient. substitutes. balance the companies of prepare sheet. we that we In to context, them going think elaborate their to other investment lend resilient of be enables

rate there's even floating slowdown GBDC's first-lien, to resilient GBDC's our industries short-term portfolio As industries can higher companies with a secured of interest companies recession, impact conservatively. If generally like rates, in prevailing at is without default predominantly bonds a bear rates. positioned portfolio rates. interest more At will senior think borrowers cyclical we estate. exposure more and to is rates The expense the for capture economic time, energy base same benefits much on or minimal reset sustained or higher portfolio first-out GBDC real

I strategy; an our uncertainties focused We’ve growth those there's our so to side opportunities. risks able fact, us of muddling back. don't the and opportunities. in to uncertainties resilience to need the story. is rapid But same on to create pay of highlight three and risks economy GBDC's borrowers In for positive important a far These want today's fine be environment.

high First, yield amidst the sponsors. odds that the going as to makes environment, financing the Golub and the valuable the uncertain safety simplicity reliability investors are for and of volatile. This solutions BSL look are particularly markets Capital's to remain

direct for improved conditions lenders. Second, market the environment has

recent to in weeks We've has more see world been our to sponsor end Our business spreads, favorable the leverage finance small larger end. lender-friendly. and more from gotten getting pleased terms, across

we're our volatility to new win forward sheet add-ons. the to in cautiously optimistic in lot and that tends we're rock-solid GBDC's and during GBDC's particularly activity environment. Finally, know should M&A We enable doing position play that to experience, In offense our incumbencies see portfolio drive logos for opportunity from new going the of uncertain short, please borrowers With coming this valuable period. well love In to balance environment. prospects questions. incremental operator, and company are add-ons this in from. about pole business a this deals, open we that, line from market for the We conservative

is question from O'Shea Your Securities. of Finian Instructions] go [Operator Wells Fargo Please ahead. first

Your line is open.

morning. Good everyone. Hi,

outlook above strong high or the the is question, if so what back Are down, incentive takes you there? fee, hurdle quarter. it It's origination, would a stop just modeling retained seeing so, at of what whatnot. looking to would dividends, question effectively like look sort sounds credit I'll approaching sort a perhaps or But really. It -- here your supplemental on question earnings model there. expect what two-part be course, your of good. for was of First And we this

Sure.

think the So, their prepared higher at look, I are point enough point future, remarks. in important several earnings. I to we talked that remarks, think One our Gregory this made higher number results rates. quarter. resets in not loans a the the the of until calendar to of it's as discussed see the the there elements perhaps and benefit We the base Jon of reiterate, or benefit about Fin, And these both is just of at late even we because reflect quarter most in even rates, full either the of QX really our borrowers that base of or did don't time in higher their not end generally

improvement taken coming place, So, the in income then consequence investment of net we already embedded that of forward in base think are the are that we're going effect lag to further rates curve. the a see as in in meaningful increases have and increases quarters there

relates of let's Second presentation. page flip element which is important to the XX to,

about income debt our line rate more XX% of what's weighted think happen debt, you If teal an line, is to going about up X.X%. because triangles, meaningfully the has slowly going our than cost the move with cost average of which and the yield it's fixed to average of to is

I the that's lowest lowest or either think the the among in BDC industry.

assets So, income. we going have be are interest one to more benefit - our generating

benefit sensitive. second A a liability our fixed is it. have a spreads is structure We are third tailwind component that rate to has - improving. It asset significant very

new while of in originations in new for more on seeing coming deal be making. equity turn more on for or as away. challenging the and we and I'd loans I environment into quarter Now, as to we're impact to And caution add that's doesn't bit now. you going my activity the a to that okay impact deals. are a in seeing spreads right seeing the in portfolio even is decline new the anticipate more doesn't also results period, quarters this, going expectation a environment two QX debt higher in one right the continue It this need time we slowdown of generalized a it many result that over. a markets consequence, because a QX of in But are lender-friendly we're

out, I all in improving. here. clearly going give where to now So, guidance role but earnings a you direction to the not of shake I'm on think there are a of right is that think this I number I is improvement think play sources power prepared

so Index And there. out, the this high if asked guess the trend I've still slower still few for Golub is in anticipated was the part tiring I Yeah. put but earnings me David, headwinds give and revenue question That's question, the or rate a helpful. the as miss facing Altman any positive, topic I'll it a a second At in very tech showing the did interest you underwriting? you I on earnings. of there, I've bit. helpful – little can you bit – is side a quarters that's Revenue well. level is for a technology this good, on seeing portfolio, in is slower they're admit

across provides Golub Capital basis in is Market So also sure, Golub those who showed and Golub double-digit, in, called by growth, other you see the so to sustained familiar that it Altman way been solid Fin over reflecting slower margin we look we've the of some most in company while the again, are look Index not of growth revenues in the same that referencing sector. see think compression on and if our Altman is Index the a the what rate attractive, in technology a if context portfolios is prior growth index may And you sector, in you growth good quarterly details at than seen it, lower specifically be to recent that a And technology still inflation. Middle quarters, growth same but the I by EBITDA median recent publishes Capital with breakout EBITDA, portfolio in quarters. slower revenue Capital while And it's margin attributable quarter revenues, sectors. at an starting largely in in EBITDA, compression, still it's the

market think reflective conditions I generally. broadly of this is

within players. spaces remain and more do very confident is strong Fin, I our technology not that there a with and I market think from technology portfolio technology our comfortable think exposures. perspective, remains change, in very we're credit a we

seen sharp the markets, demand decreases not play consumer-oriented we that services Those prices. like in. significant very are So and technology in public slowdowns spaces web very and equity in in platforms have streaming sectors in

I to compelling inflationary what We environment, labor-reducing for think, all under seeing resilient keep become companies. is companies products software are mission-critical are sector demand the to efficient of looking business-to-business very software One on are solution. is actually focused that that the of costs And the more control services are providers. in continued that these backing part companies very in reason, we're products as and a

and our watch I assets I'm -- about to. additions portfolio. optimistic non-accrual expect quite sector, from remain seeing to We're to don't not that So list and software our

again. you, Thank

post-quarter Just was one you I was small that, the part can bonus Chris, post-quarter or in repay? question think of a underperforming, mentioned, in a -- or that that context looking notes repay, Chris my here. at of remind non-accrual the which mentioned you the us

Sure.

underperformed. the after details the control fair you Board sale -- flip non-accrual over and management, made story. at to off value a Golub in reached years the at That process that company's this take a went new non-accruals, Paradigm, end, sponsor $X.X If million company of end. a investments. and new an by XX. ultimately which position loan number was to the agreement Capital $XX.X to a full This operations page is with improve included shortly We worked competitor. million actually strategic recently, great a We on ago. had with quarter which company are company a page is quarter We purchased the in It paid through and called of

skills get we to outcome very credits I were here. talents that reflective workout managing and think able a of our very in it's good

much. so good. Very you Thank

of Paul go Johnson ahead. is Please question next KBW. Your from

line open. Your is

Good questions. morning. my Thanks taking for

kind the seen work avoiding but one slowed correctly pipeline a actually interest mentioned the works of questions. you on last sponsors perhaps and mild of equity as wondering, from quickly back recession few or just market you significant kind find that turn does sentiment But more usually Fin's One the or see of that with? do guess, recently in them sentiment I my But type so, how in and in you find the take sponsors and a quarters, here has here the markets recent that we've discounting you the to that recession. into, weeks middle turn answered your of in of questions of

Yes, it's question. a great

at in deal industry overall If in volume you down was QX, look the QX.

Golub in was And for year-over-year. up origination us. a Our was quarter second Capital actually record of the XXXX quarter

a quite was second it of the quarter, strong XXXX. So quarter calendar

market forward of part credit As we're currently saw by equity into downdraft I late And markets and in I both the the and we think rest that pointing the sentiment over out think being Golub quarter in We’ll the do of new year, think, new slow deal even calendar seen current look with I QX. impacted volume. the that fine relatively during I couple we're deal period. last shift be the -- that this still quite correctly we've Capital seeing weeks, of at you're the

new years. quarter XX% It's last have been for originations enormous of from the XX% our proportion an coming We to in almost any running add-ons. XX

like So positioned environment an we're well for this.

help. But say. think Clearly, new think this. in is that focused will start environment markets be a it's When Credit the by impacted firms are particularly more to to broadly right syndicated question more more now, that's markets. strengthen? that and improvement really the still a are going to seasonal tends to high are on low. hard great yield choppy, I and deal be dependent new August I that sentiment and its a recent

we're that activity to the into fall. I deal going reasonably likely it's continuing lower-than-normal see So think

sort in guess, Thanks And potentially benefit work on? mean, that, addition you potentially just I market volatility or second any some that out that you have able syndicated to bank quarter quarter great guess, answer. deals from, at of of seen, during in the quite for point -- broken that, quarter, deal broken the capitalize sort I were didn't have That's David. you this I a experienced to in particularly in any here appreciate last second I that. the

market? markets, that question. the hand, It's the the middle syndicated different while is relationship And market the answer asked loan the on broadly between We're often what's they're great distinct a they're and one markets.

the by other. the one's other hand, influenced On

lag saw downward And in difficulties secondary in What happened OIDs. syndicated so more have loan the saw look significant in if what you And late we and start move more they happens. And we as much. arrangers direct increased there movement terms was term, characterize appear But syndicated calendar I calendar the we placing start market immediate have typically what push didn't as unless And is, see a before They that in spreads what QX. nearly in prices. in started direct to to QX, favorable you is And market continued the quarter, to by move increased mean lending direction deals what as broadly they broadly lender-friendly in or the widening lending they at spread did. did appear. a to I happened deals. the calendar into

occur in So, the relationship market I been between market direct industry space us in will what's continue direct one of tends lending broadly the insulated, And syndicated the the direct to a think BSL in BSL but market lending happening all immune two is of from moves lending be not the the have space. the what's the with think the probably beneficiaries I in where in to and happening in market the lag.

for Got it. answers. it. taking congrats my a on thanks and Appreciate good Appreciate quarter. questions And those

you. Thank

next line is Your Please now Raymond is Robert your ahead, from of open. go James. question Dodd

Hi, David.

quarter quarter. market. tightly the on be with is widening, in question, But talked I spreads you point, prepared that to But which the now up to BSL spread origination it as [ph] are credit to I lag widening in your and ongoing -- trading in and the following say, tightening Just markets. remarks, obviously back mean spreads the seem wide-cap to market half trading choppy of really this think, you've still, David, far, so soft. spread private tends the about BSL The second

lending in do back space, and back think your have moves direction is I same Do a does the lenders So, think just market spread to with up going benefit the the is the lag? to seen that, little BSL more light the the And get light purely bit of, and that's With stick? you BSL lag. just about of more a [ph]? as your you active widening going tighten market if of current the a direct mean, spread point, direct it with or environment to kind comment again, widening

Again, that -- I lot great question, not well, Robert. I you confidence give have And a sure, answer to an of in. I'm can one,

I out, the is of the a come of including flows lot including in including think indicators economy broadly it factors, funds syndicated new doing, inflation depends on new market. numbers that how

there factors that's enormous that tell I you answer question. of than going feels continued now influence number can there So are are market meaningfully What I think – to in today pressure to ago. an right is to a pendulum that three And cause lender-friendly Factors more the the your months I don't in does and see out now would pushing coming economic the happen include sentiments. that borrower-friendly back environment. toward more data would improvement right

question. thoughts. a realize I it tough your appreciate I

On Index revenues. it and growing, largest than the in I healthcare, a portfolio it's healthcare biggest – a costs, can labor segments than in Technology you you can about Altman software or of material the other, there in the what's – and that. I Is that on technology call the second still Altman other I color that's can. anything earnings follow-up, give tough is a the is Index, it's see growing any color any if – I mean us think piece did surprisingly software. consumer the consumers on I Industrials the within other think the mean back it's not second decline is question but can by that maybe coming give quarter, still growing I your just sector going healthcare fairly mean, Let's on to in and EBITDA, still underperforming market and why and us you

that make. on I'd company points costs of part One, has labor margin reason been compression. couple of I the pressure you're healthcare for right A think

time cases, companies in reflecting more sectors. bit think element have companies to many to new than need I their their in adjust a other pricing and that, is healthcare second a pricing inflationary pressures

imagine imagine, monthly reliance company your that we're that on companies, insurance on are basis. get rates reset services under those that a Or are insurance don't that on contracts with those a Again, Medicare. not So reset reimbursed example, are at contracts month-to-month looking for basis.

So I – there number a large of factors. there think are

high I healthcare companies cases, inflationary most and we're in normalization. lags probably, saw the relate think immediate seeing to the revenues now adjusting – in think factors the margins some unusually important back I in post-COVID to labor But maybe costs many pressures. period, bounce and

you. appreciate Thank that. I

There call over further time. will at now are David closing remarks. turn I for questions no to this the Golub,

very update Golub you the I questions. So thanks, quarter, to Chris. us questions you together We'd to me always, for to reach we should free be to on Capital again, give feel much more the story. And answer have happy an today. out joining get or next appreciate any as please before opportunity to

today's This you Thank call. your for conference concludes participation.

disconnect. may You now