Golub Capital BDC (GBDC) 7 May 242024 Q2 Earnings call transcript

Hello, everyone, and welcome to GBDC's earnings call for the fiscal quarter ended March 31, 2024, 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 homepage 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 Officer GBDC. call Executive pleased recorded. the over Chief to Golub, of to that, With

us Hello, I'm Chris Matt our joined and Officer. today. Chief everybody, CFO; for Operating our by thanks Benton, and joining Ericson,

are senior those backed orientation. middle-market focused on is of investment our strategy resilient equity private you For strong healthy first by who secured lien firms GBDC, companies partnership to are that new to a loans providing with

is with since issued years this presentation This We'll the for XX, in with and IPO, Matt through start of headlines and same call the quarter the press earnings the earnings during posted and with and had And strategy our the coming up we outlook website. I'm our period answers. are for presentation Yesterday, we referring ended questions with going our for to March Then financial we've and going be ago. Chris usual a to release to today. quarter XX go finally, our I'll an on more the for quarter. wrap some summary as detail. results performance

basis. the Adjusted XX.X% GBDC XX. that annualized NII ROE highest net the right ever in investment an preliminary It adjusted quarter. per had line company's is corresponds headline April per GBDC's share. income The was on with filed quarterly company results excellent an results of that's $X.XX, on to were adjusted that NII share an the

stable saw the quarter saw an decrease nonaccruals, in a low We no share, for defaults. annualized We Overall of this and percentage small came realized had XX.X% saw performance we and credit of corresponds internal results Adjusted on to an to ratings. of strong. share adjusted $X.XX, already earnings gain unrealized new net a were we ROE per basis. an per $X.XX

by $X.XX increased of share XX. per $XX.XX as March quarter-over-quarter NAV to

into about really First, announcements your the GBDC While in entered GBDC GBDC's excited GBDC surviving as and made certain GBDC X strategic results sometimes announcements, shareholder with even more X. with We company these refresh definitive that announced we're for BDC that X Capital Golub To customary of that closing it proud X, recollection subject a the call on agreement quarter, to merger approvals conditions. we're January.

Second, in to by in proposed merger. proposed Adviser X, The be going gain effective and reduce It the XX% made waiver the fees agreed January GBDC's merger. pendency as was of Investment of XXXX, merger. of the from to during upon permanent the closing support income capital incentive reduction of become to connection it's incentive XX%, and to GBDC's will and fee fee with incentive in effect continue

proxy materials merger, second recently XXXX. anticipate close the of will We related to in the and calendar distributed we merger that the quarter

XX% X% incentive X, a a GBDC's BDCs. gold incentive X% since has You'll new standard GBDC company's shareholder July a previously the and among fee, management the of rate cap, reduction an annum, publicly a fee permanent for recall Adviser cumulative effective management X% with traded from alignment to X.XXX% XXXX, announced Investment fee set per base hurdle fee, inception

in our we I'd so exciting to think website and floor hand And encourage so with Matt to more through let me and X on proxy detail. learn you walk results to GBDC's are review the presentation to investor important. announcements the more the that, these why about

David. to Thanks, Slide X. on going start I'm

as per ROE share GBDC's X/XX outpaced to this was XX/XX/XX Adjusted David excellent. and quarter an X/XX/XX As the previewed, were the NII corresponding adjusted share NII just GBDC's quarter earnings XX.X%. quarters, NII of for per highest $X.XX, ever. Adjusted

of XX.X%. GBDC's share QX strong an year-over-year was fiscal ROAE share XXXX, corresponding $X.XX, profitability factors. or of earnings Adjusted NII to to per adjusted by GBDC's adjusted X per about compared increased was XX%. $X.XX And by key driven

First more in into I'll a detail and moment. foremost, go performance. strong credit

rates lower XX% reduction expenses sustainably that with highlighted first base and consistent time took to base incentive for quarters; which recent in and fee, quarter. in GBDC's XX%, took earlier high July in the this effect Second, reduction third, the the of management XXXX which effect David due from fee to

$XX.X leverage. changes. of Net GBDC [indiscernible] Let our targeted pace sequentially, summarize constrained and unrestricted in bring GAAP right portfolio intentional. with range. down investments the quarter debt-to-equity me briefly GBDC's net ended by is line ratio, a this million funds sheet of GBDC's X.Xx balance declined new We to cash with

GBDC's of portfolio performance strong. credit overall The investment remained

a we saw nonaccrual. in reduction First,

As of at debt fair percentage decreased March X.X% nonaccruals X.X% XX, total to value, investments XX, XXXX. from at a at December XXXX,

remained at fair Investments performance of XX ratings in rating X, total the portfolio strong. Second, value. and internal basis points represented categories X just

higher sequential on shareholders share a to share period. is than NAV points XXX this even $X.XX year, NAV GBDC per to by during as basis increased delivered distributions prior now $XX.XX. higher basis per the

$X.XX to Board a share of share. per distributions $X.XX The regular now. quarterly and per fiscal distribution supplemental distribution $X.XX distributions, QX Let's approved a per share of of turn

yield an per XX, XX.X%, together, share annualized on Taken to NAV XXXX. of based these March as correspond of distributions GBDC's dividend

of regular the per a regular the the corresponding quarterly share quarterly the in the XXX% incentive and Board distribution, regular As distribution with NII proposed Adjusted resulting company's coverage share. merger distribution significantly in per distribution a conjunction to on fee. of share company's $X.XX exceeded announced per per increased ratio previously in increased reduction we that announcement from share reminder, $X.XX quarterly $X.XX

the distribution company's a $X.XX per share distribution The variable on supplemental based Board of also authorized supplemental framework.

plan generate growth GBDC to on all and shareholders recall balance to the introduced with this continue You'll the the hand likelihood our other focus NAV on equal we on income, was framework that to resilience that in XXXX understand will excess how else help X hand.

fiscal dates for Page of record dates on information the earnings on XX You XX. variable framework about QX and distribution find can the supplemental Page presentation distributions about more and payment the

to detail over Chris to now results. on it turn to going more provide our I'm

Thanks, Matt.

X. Turning to Slide

during You how and unrealized the per drivers, by share with investment of share. during into These higher appreciation driven per see quarter. exit the adjusted during per associated the meaningfully quarter, $X.XX of portfolio unrealized depreciation company per recognized per quarter. a per share Record realized net unrealized of share reversal of realized the by one $X.XX partially just can share was earnings NII was the $X.XX portfolio Matt of offset growth dividends the $X.XX out across than described NAV were in and share translated gains the paid of the net gain key loss

per to share the $XX.XX, Together, drove up prior share from results asset per a $X.XX these value quarter. increase net

statement merger of to In proxy Speaking increases, NAV NAV also GBDC XX, GBDC estimated GBDC's the for from on on NAV accretion April approximately $XX.XX NAV of XXXX, of we joint of stock based XX/XX/XX X.X% the accretion with X, a XXXX. share $X.XX we related X. April anticipate level filed as of per price

share was upon NAV $XX.XX. share that of approximately on price GBDC's closing would GBDC's X, accretion X.X% stock XXXX, per imply NAV or of per $XX.XX, level XX, $X.XX a March May XXXX,

of As you investor GBDC's close. ratio additional to I'd a NAV the the on the upon exchange detail. level website presentation encourage of reminder, accretion in review the achieved proposed a merger function for merger is

through Let's quarter the results of now GBDC's the XXXX. go XX, details ended financial for March

by as We'll start investments million, decreased new fair net exits, the investment origination activity Net delayed loan funds by outpaced approximately and of and quarter-over-quarter summarizes of $XX.X on the growth investments. XX, term draw Slide value which our changes quarter. of for existing sales were impact the fundings commitments

improved the across March XX Market-wide platform Capital both deal activity quarter. in Golub and origination the

We to over the Having expect of improve GBDC said sought in holdings this, our reduced achieve originations which in goals, resulted it adjust to proactively the leverage continue remainder new order during the year. at to GBDC's quarter. we to

did X% our over quantity. during on XXXX. has end on that closing Subsequent typical selective, lower X% remained leverage X% target, at calendar financial to to GBDC increased That's highly reduced leverage of deals based its focus of our allocations selectivity profile. being quality its to reflects quarter and end see approximately Capital Golub and we reviewed on year reflect GBDC the rate

of new in loans. the The investments asset shown of mix middle one-stop predominantly the remain slide,

the the average shows GBDC's bottom slide, new stable rate quarter-over-quarter weighted of Looking was Slide at XX%. on mix. investments overall the XX at portfolio

continuing by represent to the see, you loans As fair around consistent investment quarter-over-quarter, with the of XX% portfolio type value. can one-stop at portfolio remained breakdown

Slide basis company average points. by approximately diversified highly that size XX GBDC's remains with XX of an shows investment portfolio portfolio

continue will of believe cycles. are cycles well to through We the position risk in on previous important has size, believers we future big GBDC credit and modulating in which be credit served context credit

XX, loans to March of XX% be rate change. XXXX, consisted of borrowers diversified what economic a our portfolio show range of analysis The floating resilient across first on As to we senior believe industries. XX Slide little investment quarter-over-quarter secured of lien

interpret which yield. how through investment walk dark the start We is to our chart. Let's the line, with blue income

yield base investment the basis GBDC's reminder, income of a to basis, modestly increasing is amortization XX investment points fees leveled in and a Consistent with discounts. XX.X%. on out As quarters, yield recent sequential rates, interest income includes up the

basis points line, by debt, Our XX teal of cost the increased modestly to X.X%.

the prior compression, investment net our quarters, market-wide quarter spread, reduction a did X.X%. seeing We the of result, consequence over gold this some in reflected line as a to yields see but quarter's As we GBDC's not slightly average this numbers. in increased weighted in future income anticipate spread

over Matt Going to back to now. hand it

Thanks, Chris.

XX look and a quality Let's at move credit The take is metrics. remains stable. Slides and on solid headline that credit to and closer XX

decreased fair this nonaccrual you continuation has XX, quarter of the The by March status decreased investments of company portfolio on total trend XXXX. ended remained as XX/XX/XXXX. This basis of the level XX, debt number points value. sequentially as On can Slide basis nonaccruals since at X%, consistently points investments XX see represents at of to XX a

performance the XX on ratings in trend GBDC's investments. Slide shows internal

fair which points than X at significant performing impairment approximately see of they're are likely portfolio very at expected XX, rated value. March which underwriting. basis loans or of to were or GBDC's low credit investments the The X,X, we means remain most expected As XX as better the XXXX, believe XX% of at proportion loans of rated are X,

The from loans rated X decreased XX.X% to sequentially. XX.X% proportion of

have detail capacity skip As we history up and investment this on through Slides statements, on XX reviewing usually These Slide metrics. wrap I'll financial key XX dividend to other GBDC's GBDC's going XX. by XX. we're and past and do, liquidity slides more section

key on on First, XX. let's focus the Slide takeaways

the includes was debt our group. ranging the peer end is of from of our cost average XXXX of in notes notes lowest unsecured the laddered notes, XXXX we X.X%, weighted which in maturities unsecured XX% to among with this quarter funding unsecured is on post-quarter which XXXX. Our of believe debt repayment April the form remaining

due XXXX floating rate say average The X.X%. you've weighted we fixed swap notes issued out heard with occasions, prior a and for coming XXXX And were rate them us not coupon as did in of exposure. on

GBDC entered into swap an quarter, with the of and And bonds During rate of million X.XXX%. July of floating with maturity X%. a interest stated fixed rate coupon plus a issued issuance in XXXX connection SOFR to $XXX of a X.X-year the

quarter ladder, our respect December XXXX, maturing end. with subsequently notes the which while to improve we notes, successfully maturity of upon debt post April along issuance, with million addressing risk XXXX refinancing $XXX in paid GBDC's This off unsecured

attractive a borrowing second funds entered we which April, and our in floating XXXX resulting swap combined notes, XXXX the XXX unsecured unsecured of weighted basis In average XXXX notes points, on into a rate cost of is plus the SOFR believe rate December interest in on highly of secured we context the a costs. notes versus

XXXX position the by enhanced cash, commitments provided We adviser. quarter corporate our and unused billion by issuances. approximately with undrawn February December revolver revolver $X.X Overall, the strong XXXX of our liquidity ended meaningfully liquidity unsecured and the on remains notes and unrestricted greatly our from collateralized unsecured over

BDC ratings cost-effective investment funding stronger payment. notes, unsecured represents of XX.Xx impact of unfunded repayment more of Moody's flexibility at from robust X.Xx XXXX for liquidity ratings element and of GBDC's for that asset million is our the low diversification, its cost unsecured XXXX April deeper high Incorporating access for liquidity the inclusive rated the to GBDC's underpins sector important $XXX approximately remained available Fitch, Fitch X relative current the GBDC and $X.X commitments billion. to S&P. Moody's grade or notes structure of has provided XXXX majority The the the markets. debt in and an and

Now it closing back can remarks, Q&A. to open I'll up hand and over we it David for to

Matt. Thanks,

per calendar fees, X GBDC up, XXXX. together period. base for a merger well the strong and had the record as We X lower tailwinds NII are drove to quarter company sum think start rates credit Strong another to as high drivers performance pending for share. GBDC results, for So all adjusted coming the these with powerful

speaking pending merger, Special is And scheduled of the XX. of Meeting May for the XXXX Stockholders

you already who've thank you. those of For your submitted vote,

who so. ask you investors voted, we do haven't yet those For that please

While the did questions. about opening those it and want headwinds, quarter was before I some talk strong, present for the headwinds call to

The relatively slow. remains headwind, middle market first M&A

term, activity CEOs said long that over activity short may term. of recall last were number You turn accelerate. were cautious about the medium that of we deal the the were predicting bank quarter while we to the about around year, we But more a accelerating M&A would optimistic

justified. our hindsight, in And caution was

While activity it's it's it and XXXX, the ago taking a market, we'd better than weak par first The a was as the basis normal. dislocated we to which taking still time spring XXXX, of about quarter long relative longer to much of recalibrate, with M&A what M&A see year in than a on on was quarter fourth compared like.

syndicated was headwind credit industry investment grade to to spreads yield tightening second markets loans A from the broadly of significant high credit. private to across generally,

new repriced the points our entirely on narrowed XXX a tightening. middle repricings the basis in spreads were Many on few focus loans our spread and more. to more existing businesses are Now effect portfolio core XX Broadly by and weren't helped of even syndicated market loan insulate on from immune. We cases, way. full-on transactions

GBDC in market, is we continue market, it pressure the think across across While whole spread been resilient core range bigger well we've market. than spread to of compression before and is wide a the time face to GBDC to in we story middle has times these that balance, too, We've been large core some market a has story middle built in the many a for deal headwinds. On positioned said scenarios. potential going anticipate the be

the post-merger than especially backdrop. to expect ever, resilient more be current of market GBDC the context We in

is is large gives middle over cult. of periods versus going to on prove been heavily important very providers, the market Our of market when is the specter core better focus credit And We've companies BSL to the during bigger strength. be the never overweight resurgent large private truth that members leverage as a especially now. execution the borrowers' is it is

competitive fee light despite we to M&A advantages, expect outperform. permit to So our including to our industry-leading structure and tightening GBDC spreads, continue

up dispersion of expect Let in quarter me recently, bad in or at unrealized instability more BDCs. seen Every form BDC coming our the news, several for losses. and usually outlook with I firm of one more announcing managers. BDCs been the among high realized also leadership wrap levels We've period. unexpected there's

surprises. see aren't I going over. trends negative more to think these We're

I to This because borrowers manager complementary on things Capital positioned favorable is a this, the the think resilient believe focus of dispersion said Having We on well. spectrum. does resilient be in Golub GBDC end of we really well industries. set is

relationships make Our good partner. preferred underwriting. and a We're at us incumbencies unusually

time be and us Our of protocols to us helps with competitive best expertise enable mission address sponsor identify in and credits investment advantages built achieve problem early finance. processing We've managing these our value. to over depth preserve our issues intent to and in

With that, the open line questions. operator, please for

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

the comments on in compression. interested We're spread

sort on out? or of repricing more some meaningful that of book is put level Or new back you on Are of there. play this And what versus could origination? to bone the you the kind you're the expecting spread mostly seeing meat activity? If is seeing

Sure. Thanks, Fin, for your question.

In -- make there syndicated distinctions seen size months, about. resurgent So the some in it's borrower what we've last the larger important market. between to X we're market, talking a broadly

CLO giant formation way. a in come has back

and pitching enormously, back, deals. take reluctant have risk private aggressively underwriting market syndicated formerly now of refinancings broadly the broadly take in prices syndicated risk prepared are to who credit Secondary were very risen underwriting banks to and

M&A in a market and spread relatively this into activity in that of some and with combined my level lot comments, low translating I repricing is situation, repricing compression. activity larger of refinancing to alluded That a activity is of activity that in resulting refinancing

that. the seen publicly compression large syndicated it's providers and refinanced unitranche accept larger If of data being you look cases, the at spread market I actually for the between the approximately many lower broadly XX released of I'd is QX, than XXX say credit it and spread shows out. BX in we've compression. points. pricing of basis private basis degree market In instead in points But market, XX think the

a borrowers syndicated deals. And soon. number trend We're sponsors seen of credit choose new both those cases, we've don't with seeing in this phenomenon. to replace we've seen I ending deals broadly and private think is

we're calendar here I see to about that's unique think it what to private is QX phenomenon going results. credit. continue some I that talking don't we're think in to

I think backed It's we're it grade in understanding investor is seen key land. broad phenomenon. to in and sentiment. significant investment seeing very spread and liability very And shift I compression that in yield think a asset CLO a high we've the

was you a very we was There a into of sentiment an was that If that overriding lot year negative. were the back concern expectation deep a a might ago, investor going recession. go recession. There be

in investor the very about rates, economy for of buoyant. when economy. we're is the cuts still the prospects general interest the the strength the is There more and about view debate today, much to going think I but positive get mood generally a illustrates debate

core the in changes We're we're -- is moves not the about middle middle the Now more modulated. compression comments than activity larger the market. from immune market the less and talk I'm the market, insulated. larger always larger spread when we But In market. the those repricing It's market. focusing on

degree we're we're continue to spread the middle I think see I that some compression to some And going seeing market. well. as expect compression in of there spread

I and is It's where we're of lender-friendly. now time, think were credit now. this the period in conditions, they period facing been is biggest more a a long for borrower-friendly where universe right results, the private quite swinging toward very strong pendulum a headwind the

headwind. to as bit helpful. that the felt thinking That's first like And with on a GCIC it follow-up a came it back one, technical merger, a the of

then, shareholder the it's course, versus through you've dynamic far? different a Of turnover so you discussions had of now market similar a anticipate if we're but seeing

So way of the GBDC, that by investors. alluding Finn the expressed concerns that time merger, what to of we'd in amount at selling GCIC by were context, see sustained some is there is merger of that the GCIC

GBDC will some my to We the will have choppiness have we fact, to the did that had In recollection that perform didn't. We'll following My this will really up is well, I'm stock shareholders we'd be going want to that expectation is the that the folks We'll and time X, the larger, reasonably see lighten not some in similar. want not fears take context investors saw be GBDC fruition. merger it's positions. to exciting. larger of becoming who optimistic in positions. who, come

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

no software. And them in I them When the One None particularly in to the on have we them X your small very quality of care, seems really nonaccruals combined, credit but at tiny. did X you mean negative of new in health of quarter. the Just look side. point,

These color where coming business -- the exists revenue? we're Were small are a any they looking indicators in there or of has that? of the been kind recurring software of you're cash were is anything both trends a those margin Or pressure of shift but flow again? So on where Any in either is business? numbers, for stress here. seeing or terms

Robert, So think again, question. context it. great a some put And it's I let around me

heavily that industry is sometimes, particular at, are you can well, or you So see subsector weakness there themes say, dependent and showing trends look this this expense. when in are businesses credit, on you "Oh, or that compensation can

having are difficulties. They

we've able challenges seeing have in think able prices businesses to there able about labor in increases to the to talk talk businesses. years way. some with to able been I costs. talk pace We particularly couple Service that where that We about Health they were costs, at that weren't last were the over some increase same of were been times challenges Care

those across degree, industry. X some the trends To seeing we're still

market, syndicated I our out issues where and think portfolio. of still trends think X much going the that health-care challenges levels of having we're across of expect those power. with broadly and But absence play cost you're a much structures of with number reimbursement to are because that BDC those and trends through market significant pretty there's of related see I companies I'd an within both across the pricing

at right in I'd idiosyncratic. now, all nonaccrual, point, If X to To our additions small. what the as it look describe portfolio you very are we're very your seeing our

a One I But We've care. I continue to recurring them good had of that revenue don't is We've there success we'll challenges being loan. very companies. with see that. had working them draw out. health in about software trend in time to some conclusions from anticipate any time

the cetera, environment it. fee little in up. just packages, this. like in color some bit was compression et are Can kind spread how give as well, spread that weighted dramatically compression lenders have in shifting, structures, if is quarter down the us Got but losses -- at rigorousness then covenant you how so only when all? on typically any average upfront a is But all a an thing the also Usually, giving the not of And

phenomenon, near-term that of or risk. mean credit, that there? the the Or than in any to point credit the spread weaken the concern compression that's spread a said you the a primary we becomes but way more public thoughts if future structures right compression? that's a now Is I is

the -- right you think speaking, point, more we're toward which pendulum an very make borrower-friendly either always or important environment you're generally where either more I is So is a lender-friendly. that, we're in moving

spread of to terms, direction not emphasize terms I moving documentation borrower-friendly, in to tends terms most of more we've my seen of it's move leverage, today the structure. also it think in just of comments because it terms I And move in the in movement. that's area terms significant in in the of tends when spread

important larger source that think changes particularly a differentiation who highlight relationships another this all expertise, managers. this have scale larger these have who strength it I going opportunities environment point, managers of aplomb strong to with and depth a is mean of gets coming of become more they're don't have and those of by is than where folks loans. which sponsors lot because to advantages of find I much the origination going amongst who portfolios be attractive And navigate to is What large with you have harder incumbency really able to environment much with kind kinds that is of --

next Your of comes Paul the Instructions] line question from [Operator Johnson of KBW.

philosophy On versus those on [indiscernible] spread what those situations the accepting of go? where possibility you one at lower spread borrowers compression. lower I overall refinancing mean, is letting incumbent are facing fee or [pre-seed], compression

So we're think on folks know quantity really I more do in distinction the are in silly in business. than investments the apple but sounds important marketplace that quality. I compete it's actually a where because some pie, focused we make good

So Paul. based on our risk make we assessments of all reward,

lower borrower answer requesting yes. spread conclusions we that And who's a that say is to come to right do the a sometimes

cases, were can I no out. said of we say in of think And also some And refinanced number no. last We quarter, where sometimes. we the examples in a

the book originations discipline. Part maintaining being keep don't think, so to discipline you of maintain I Important, the where to your feel to unattractive it's just full. because good that risk pressured situation So reward accept a you on is credit need is at

thoughtful my this the That was basis question on portfolio points. makes in the I higher sense. last yield, appreciate the just ticked XX change by And it there. And answer quarter

Just [indiscernible] kind forward great. be to but maybe more would about specific of [indiscernible] spread there any the a on compression through that there drive basis, given we're talking there's anything color if just

compression. draw agree that in that. I of just I surprising it's any the context noise. with of from wouldn't that, spread conclusions you think I the theme seems

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

to Great. Well, we to thanks, forward you quarter. everyone, for look today, talking and again joining next us

reach you please questions always, As meantime, free if feel any out. to in the have

concludes and today's Thank Thank that you. joining. Ladies gentlemen, call. all you for

disconnect. You may now