GBDC Golub Capital BDC

David Golub Chief Executive Officer
Ross Teune Chief Financial Officer
Gregory Robbins Managing Director
Christopher Testa National Securities Corporation
Robert Dodd Raymond James
Ryan Lynch KBW
Joe Mazzoli Wells Fargo Securities
Call transcript
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Welcome to the Golub Capital BDC, Inc.’s December 31, 2017 Quarterly Earnings Conference Call.

Before we begin, I would like to take a moment to remind our listeners that remarks made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than the statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks or uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time-to-time in Golub Capital BDC, Inc.’s filings with the Securities and Exchange Commission.

For a slide presentation that the company intends to refer to on today’s earnings conference calls, please visit the Investor Resources tab on the homepage of the company’s website, and click on the Events/Presentations link to find the December 31, 2017 Investor presentation. release Investor available Resources earnings website the BDC’s the in section. Capital is on also company’s Golub

As a over reminder, BDC. replay Chief purposes. this Officer call is would Executive turn being now the Golub call of to Golub, I David Capital recorded for

David Golub

you, Gregory thanks joining December Robbins, our Yesterday we I everyone Managing us our Chief earnings and Ross we posted on and presentation issued for XXXX ended joined Director. XX, by Teune, Hello, the press Financial Katy. today. Thank earnings for am Officer quarter website. release and afternoon, an our

are that for the year. today. XXXX call We continue We be to December another prior fiscal was going to referring from GBDC. presentation throughout XX, momentum ended quarter to were the quarter strong able The our

discussion GBDC, resilient you strategy partnership by that focus start and at on some strong of remarks the for of who in investment quarter and detail will first fiscal am you going since come has secured will to senior middle-market is equity oriented healthy GBDC’s lien to private new are loans been XXXX, our inception those to for companies to results providing providing to overview Ross today’s sponsors. and the I is of through then questions. take more results the going an end back I by backed take For are we first closing

per to or per for for September September income results. quarter as I as quarter share call $X.XX $X.XX million compared credit get compared quarter’s XX. for $XX.X or was in assets the the XX. or losses share $X.XX quarter income into or per Net let’s Net XXXX words, from that, or investment ended $XX.X million $XX.X this it XX, to million million the as quarter share before was ended for like other the in with income $X.XX to increase operations, share So, per resulting December net $XX.X net ended

quarters, previous NII income the gains you for million $XX.X share measure. If $X.XX a capital accrual Net share more as the capital investment September per of the this fee unrealized this result was $XX.X accrual million $X.X share incentive $X.X income were fee, investment $X.X net $X.XX million to think million ended distribution excluding and quarter the gain $X.XX of million compares $X.X Consistent net gains or $X.X XX. per or to per compared exclude on per for million net and or per we we million realized special December and gains for as share of gain investments unrealized incentive paid realized we prior XX, quarterly with also quarter distribution and quarter. per the provided adjusted paid appreciation. meaningful on XXXX, and $X.XX a net of share $X.XX of was for we the share and per borrowings net On share. This realized or of a $X.XX secured investments unrealized as

as increased $X.XX our distribution, value regular share XXXX, of asset special per have December distribution would our of share. of per per earnings the quarterly Excluding $X.XX net our XX, share because exceeded

from per the of $XX.XX to NAV as result a our December of of share declined distribution, $XX.XX As special XX. XX September as

or approximately one-stops in investments were Approximately commitments for increased were new XX% and investment were X% companies by portfolio this quarter equities. for of in quarter. the million value commitments $XXX.X X.X% XX% senior secured ended at million fair total investments Overall, bonds, December $XX.X middle-market New the totaled XX. investment

value income fee earned NII perspective. $X.XX earned per per are accruals incentive perspective net capital $XX.XX. from net Slide share in Turning see can per of from for a before asset share you gains to we X, $X.XX tables The the share and we our

As over bottom to and diversified of it million companies will the going provide to some investments detail. an in who portfolio different I portfolio per the turn slide highlights additional am $X.X in average the well Ross and shown discuss financial portfolio on were the with XXX results size investment. of earnings With that, more

As at I then the will I will remarks we end closing come take for mentioned back some and questions.

Ross Teune

with funds Great. investments turn to This turn the $XX.X for of of million by continuing Slide our $X.X growth million payoffs, size for an to the very quarter. of Slide investment million. to at level exits of that Total loans normalized X, remained slide Thanks $XXX.X more will can investment which a one-stop to highlights consistent David. I were I type will see, overall to quarter returned the I this mix illustrates sales fact million X. will has largest with category and investment you as last our well originations to $XXX.X quarter-over-quarter represent remain on slide slide diversified X, total and our contributing shows total net continues the December elevated quarter of average XX%. XX. to turn portfolio this Slide portfolio that ended

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

the plus that general, remained at off investments the increase market in of quarter rate average increase X.X% on pricing paid to rate LIBOR average Slide This increase quarter. prior was from in from an An on the LIBOR LIBOR. cause also rate to new was on the in investments during Turning on new X, X%. quarter. quarter in our weighted was The the investments for weighted new X.X% up this unchanged previous primary due In stable. primarily average investments the weighted remained

average the of weighted contractual investments based interest time at new of the on reminder, rate the a rate is As funding.

portfolio the For LIBOR investment LIBOR, spread. to summarizes variable the the and would rate any rate graph current right over Shifting be impact the side, of hand loans, this using graph on calculated spread floor. LIBOR the contractual

its investment the and fee the on upfront fees. interest yield increased including in to the discounts, due amortization investments the excludes line, this quality line, unchanged the increase debt on income cost again chart, to quarter, XX. the one credit the weighted was consistent but investment increased due portfolio of to remained strong LIBOR an percentage value and at fair respectively. of quarter X.X% as The at amount as the includes the or on Last liquidated LIBOR. an in and mark discounts in prior next income, with light income September represents X.X% primarily X.X%, a and cost company a average first of at earned or amortization green the this fees Focusing of this income investments X.X%. line value rate. of to which with increase X.X% from total the percentages The blue decreased slide, again, Flipping These yield, investments remains at non-accrual to yield for

the Turning highest portfolio. or of and investments rated risk represent our to X over remained percentage XX, categories XX% quarter-over-quarter stable Slide X of the two continues to

of million independent cash slides. fair with debt debt to share As the $XXX.X $X.X quarter. and billion. vehicles, value asset in $XXX balance of value just issued facility. XX% $XXX and our million rate credit investments billion, $XX.XX. includes of firms two a total and are our the approximately total income the ended each total our $XXX.X This of fixed The securitization following was sheet $XX.X investments value quarter Total statement on We continued floating of at through cash reminder, valuation million of and restricted million revolving Total debt assets per debentures over $X.XX rate review of net outstanding million. was of

dividend our regulatory the total was Our the ratio the GAAP debt X.XXx. investment for investment was while of operations, but This debt loan X.XXx, below senior income the to to to $X.X to XX million. an Flipping was quarter still targets. due December up of increase quarter are ended prior income received prior our statement our from both fund. increase equity These primarily an ratio in million quarter, $XX.X from was equity in from

expense. expense were side, million, due the $XX.X of to which million, fee was expenses primarily an total higher caused increase On incentive $X.X

past on top share, our following consistent investment fee. net the when distributions income is our distributions the share incentive have provide per the gains summary to a the remained quarterly a tables which at quarters, regular excluding return and slide, over with capital five stable Turning quarterly on $X.XX equity accrual the the of our for

year. history net share past quarters. five return mentioned as bottom earlier, we during averaged share our distribution over for income of paid page David illustrates a NAV GAAP our X.X% income was calendar annualized the of X% of exceeded has As XX and on increasing based quarter the this The per time. long quarterly net The $X.XX per income December the special quarter for taxable ended net investment and the

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

to some X.X% senior we improved provides investment held the to XX.X% fair experienced December valuations. quarter. save highlights reduced by at in Turning investments credit loan Total slide $XXX.X investment quarters, $XXX basis to the as Slide pricing declined an for primarily downsized improve return past quarterly Due million performance gain with financial by due total to investments is to new of the annualized XX. for this points the loan to ended an million, facility our the increase fund, unused the quarter to returns. $XXX senior few net and fees a from in This on showed prepayments mark-to-market over XX, which decline we in fund, million activity on slower during and value also by XX

terms as million we SBIC X. approximately revolving remarks. and to additional of our cash, at availability will to our a on through available of quarter. last Turning slide, $XXX holders credit the to David the XX quarterly provide closing will the restricted capital new turn next Slide call March who back facilities debentures share had the distribution end summarizes now Board our the per for and facility and debt of Slide of declared of to $X.XX on March record unrestricted subsidiaries some investments payable XX, XX of on I our

David Golub

another themes as and on outset, last environment. on want that comes the I fiscal I despite that To close sum three with solid XXXX quarter. highlighted of GBDC up, borrower back I at friendly the had the quarter mentioned a an continued strong update to

XXXX that to pricing, suggests In were We to First, beginning the abating. right. we words, we that accounts, remain likely issuers. trend middle-market XXXX flow of last and continued are At for larger credit a and Industry leverage are executions on year the leverage on become These continue no have our all conditions the the to end are higher. data terms. high-quality, likely space. other time, to XX By into inflation. at to likely turn most common factors see us continues and of points for borrower-friendly near-term. suggest shows covenant-lite terms same market market quarter versus about that spreads said were basis The was to X.X continue X.XX Documentation about was tighter capital record sign fundraising. pressure average for increasingly to we borrower-friendly to see XXX

that capital do going influx the everybody’s Second, sign trend returns of This abating. we would pressure we other put quarter than also of shows that although last increased new better on In market no to dispersion. our lenders was a anticipated lot others. said to words some that

We striking focused underperforming of our brethren to on reporting market, trends some credit in competitors see continue junior a borrowers, our especially were debt. but generally the solid of number industry

by law to potential eliminating has debt. trend think law this deductions of for by forward, to expense with The highly and exacerbate interest high new downturns carry-backs. Looking we amplify leveraged new the issuers tax limiting cost the XX% NOL tax EBITDA could

with the significant winners on focus platforms a and senior are continue healthy to competitive to going loans We companies. be to first expect lien resilient advantages large

with cycles have to view credit end that that gradually The the by third end, In current said two way this talked long suddenly. Ernest point past about our and theme different. in how time credit the quarter will then our We on last apologies that cycles standards and is cycle was not cycle this we observation although this seems we and discussed ways Hemingway, experience hasn’t historical changed.

a gradual It’s to conditions in certainly now. and the it’s phase early that surge a quickly reminder are point, in market unexpectedly. if change volatility We tell the too can constitutes recent turning but

our today a improve. challenging you stay short, steady is competitive the to help on our And unchanged prepare when and this conditions questions. lean We in your for to in line much in Katy, largely will to leverage us losses continue environment. please quarter We outlook market to think for modulate also for approach is and your plan last new So to very from time more unchanged. if earnings play Thanks and predictable selective investments, and credit plan can offense to very our open advantages deliver partnership. and


our the And from proceed your Securities question National Testa comes question. Absolutely. Christopher with [Operator Please Corporation. Instructions] first line of with

Christopher Testa

this guys. Hi, good just Thank away guys one-stop curious because XX% loans from for are from because drop-off XX% light just on of taking of in the being being saw pushed or after you kind quarters. Is you range loans we fallback of my afternoon, couple questions. down leverage backing David, has M&A more sponsors? the kind the that's one-stop previous towards been plus

David Golub

and out share We credits of that percentage to at investments disproportionate Actually to are the those neither. specified business drive we look come a and which of they figure We attractive. a that hit don’t of run are as a target them particular our opportunities attractive new category. win in in see

that quarters depends one-stop. higher the and this what’s or senior in are secured what natural what you is I quarter a variation. with really lower on sponsors market works seeing It want, think of just traditional Some percentage out on versus our

Christopher Testa

or structures would SLF-type allocating I terms with facility it mean, the see in have to fair. reverse, current and I an how the vehicle? in had conducive smaller of yields much becomes the SLF would todays, pointing many have capital be more to are mean not to of allocation kind you just curious to Okay, that obviously, before And they you for capital that’s how to priority I environment. credit a where reduced we being guess,

David Golub

question. great a It’s

have to I It’s the question in the to Right not question in a a don’t think take niche finance. real sponsored is change priced answer the is middle-market small we the and going order days, we in marketplace. risk way of what’s number know. it’s now, of it of called got perceived

firms amount got be providers, it taking amount to get deployed the for both have by We so about if at a debt enormous equity an you to pessimistic to that’s that’s ready be could change. been capital get circumstances long raised, one private well looking capital of that’s waiting by and of time pessimistic used,

a happens know many is in in downturn from patterns markets volatility downturn the On markets, when syndicated we syndicated from leads spreads the and other the hand, that turn volatility prices broadly typically in high-yield the market. the higher in lower loan loan prior equity that drop what then market equity which capital to market, tends has secondary or away turn the that broadly then, And the to impacts in middle-market.

likely I think that we see same pattern are recur. to

not weakness markets. the loan secondary broadly are in We syndicated prices yet in seeing meaningful

So there trading changes. going days lag before And should start market. I middle think are think more I be we to some meaningful going to that and got we anticipate the today– like to is see liquid the we have between a markets

Christopher Testa

rightfully really a pointed looking like it that you of basically and to going to take raised Is a else funds in for see it. that couple that’s Got yielding terms? backup debt out large to us imploding the given it’s that capital been safe everything say all it’s

David Golub

am far. go I not would that I sure

a I land is think there into market yield flow of substantial amount the and the capital middle can in of is middle land. syndicated out market that broadly opportunistically high that

markets two on and in that a I think so in perceptions market. those will related pricing risk middle the impactful very change risk And be

Christopher Testa

me lighter income activity a last what relative fee slight last the And for in repayment one our drove Okay, quarter, increase great. quarter just to this lot with quarter-over-quarter?

David Golub

my off to answer let’s the back of but top sure not on of you head, the am that. get I

Christopher Testa

my you Thank questions. for problem. taking no Okay,

Ross Teune

to $X.X But a was one transactions. the dividend that went increased to was income two million. big income the was the from which think attributable mostly just fee an $XXX,XXX, the Obviously, a That’s from so on went and $XXX,XXX increase. And big loan fee senior income increase to front. $X I And Yes. fee amendment million dividend from the prepayment $XXX,XXX maybe dividend income. increase or

Christopher Testa

Got it. Thank Ross. you,



question Robert from of proceed Please line Dodd Raymond Our comes with your with next question. James.

Robert Dodd

guys. Hi,

have that rates moving today on mean, mean I achievable what’s to look market your portfolio, have impact a at either I yield presentation, obviously one will rates at do that now those characterized it I re-pricings we because are the eat be it so floating the LIBOR likely and the mean how – that? David, environment pricing only you should is moved right, again on of to exposure have Just yet your chart competition, competitive you a ago you if the it’s middle X.XX level view yields X, etcetera how portfolio, obviously or on got up less up majority rates, rate think this have points, be basis chart, potential a obviously positive or moves, got view rising of got the a year competition income it any you your that honest, and XX go a of or beneficial on to and

David Golub

these your as So as question view don’t connected two being implies. as closely I

are there So both and happening. are two phenomena they

be The you LIBOR anticipates want to I going thought remarks, to separate you the spreads spreads has first tell on going that to indicates period the entering that were signaling appears expectation my the I and that on LIBOR the desire phenomenon to terms competitive further anticipate where spreads The increase. time. have for increasing forward was we said additional pointed and pressure some wish expressly have phenomenon was and seen competitive say out tightening in pressure continue LIBOR market the anticipated we seems is quarter that some that that some down. continuing. leverage continue opposite. about is to new I caused is see debt going I closing I that talked is we how we spread over were that are a spreads, and increases Robert LIBOR going increases. Fed there that very be U.S. on right— that that market continuing and that certainly that last to pressure strong to we though is and come and could A to pressure to as widening. pressure economy is I we the is

Robert Dodd

it. appreciate Thank you. I Okay,



from Our Please the with of comes with proceed next Ryan question. your KBW. question Lynch line

Ryan Lynch

Hey, good afternoon.

$XXX about debt this securitization more. as in As guys I approaching liability now of million period look you guys your and approximately at of $XXX in to any have is that are debt you structure, million of issue XXXX, unable reinvestment

So as out you looking how envision months you the guys like say liability from your kind and XXXX plan XX of now? envision structure composition do of

David Golub

So, just organized rules this date have risk before effective. securitizations the Ryan BDC great managed date of is that an that no we rules. risk two longer to a retention new became for the and effective risk rules, externally contextualize everyone, issue post in we new And GBDC and securitization question, to compliance XX and for within with retention retention the simultaneously possible be the Act it the with

need exactly different take capital, to. have GBDC this about SEC prefer the use going potential in Catch-XX SEC we we no of to I permit when capital lot and for continue from are if securitizations. be optimistic I successful to going place the we relief have once news receiving sure a time some debt are again use sources that will We that securitizations. relief. with of to to in that action get of we that been And discussions the securitizations we be the to not to good is am

different of including don’t our if that’s shareholders, access market, variety an and for other potential but sources look will to bank we capital, think a at debt of facility. its better the expansion that I of company we have

we options ourselves we but have period reinvestment company am extend again, So that hopeful that the resolve of I BDC. and order in absence being be other the this in issue issue so, the are there to debt summarize, capital I the of the will to able got do to avail facility has to that think of we’ll of most in securitizations able that

Ryan Lynch

That’s helpful.

case you as debt debt guys you Now, low grant the it you actions, you they not get pretty are I well. securitization that’s as relief mentioned positioned cost the are sounds to to sounds But like you think guys don’t if credit that and other is very positively mean, the you very take it securitization and cost. refinance, the can – facility low forced is but

up most that don’t that is hypothetical that your I a debt I guys look put debt facility, that you all little put have refinanced. to if a can’t think much and again also look credit ask you investors facility, issue meaningfully would facility go I some to would unsecured or reason costs know know securitization which credit favorably credit balloon bit Would facility to and And all the on higher. the everything you on higher. guys it’s credit don’t the down to to debt want only it then this or guys the view is, because you I concentration have could get you think if just

David Golub

have think analogous at create to bank other cost our facilities we other current to debt facility. I options

I a better think goal of I could not going agree it’s we So securitizations, would – in to diversification to to in permission job can’t. if could of go our we do enormous with back doing but lender, with achieve you that result cost be reasonable cost, debt of that if I that increases of we don’t you get period. reinvestment diversification we reasonable reasonable it agree desired

Ryan Lynch

sponsors and get of and you can higher load, level, is of looking but out that mean key guys it, you Okay, guys indication higher with to here that’s are usually going quality kind of as that getting are market just they you higher tax the questions a higher things helpful. have the one very passing, am with I companies PE And less a I sponsors this handle guys you deductibility, and reform question, obviously borrowers because had leverage are I to a and know borrowers pulse any are debt a sure because lot well. the with they can guys then have one evaluate they leverage, or on working interest quality are I focus good on with very those companies use you because positioned level

that So, to any sponsors of tax you that, to indication looking any are market use PE leverage bit reform are seeing less in through? the due the going

David Golub

No, increased structuring, tax by attention we’re seeing some tax to everybody. planning

think tax their activities out of I that are institutional the individual law which appropriate major given to and there figure can investors It’s a investors. optimize adjust for ways rules. includes everybody change in context in their their look they practices at and changed all to whether tax results

will We in of that am signs that, but seeing not are I borrowing. that lot seeing less a result

Ryan Lynch

Okay, thank my you great. for taking questions. David,


And with of next with your Securities. question. Wells line Bock question Alright. Please Jonathan from our the comes Fargo proceed

Joe Mazzoli

Good in Jonathan Mazzoli Bock. afternoon, Joe filling for

the market question around million of Mr. those I of middle syndicated the so deal Doctor the in market markets, guess could curious where deals unitranche first not more lower potentially $XXX just options market? you relates maybe million in Golub am the step find of The to kind to kind I versus appropriate, opportunistically are cost could end sizes issuers $XXX syndicated value of where seeing million plus like larger lower $XXX is but Year, of in could bank middle various Eye easily solutions color New really you into, provide if segments competition David middle the finding We've in some the of large seen the kind market.

David Golub

question right. MyEyeDoctor seeing And your syndicated able that you And I in think including broadly very attractive $XX to let saying are to facilities with of meaningful case the Well, by using refinance facilities number market, loan savings facilities would for is obligors, middle-market absolutely with million larger debt us the the that them borrowers in obligor. say a are had we it a in. conditions that syndicated we reflection are me if are debt market I are the broadly have up say EBITDA borrowers, that’s are who were you and today reframe

that that for of of better those whom may have more somewhat scalability, may attributes a justify variety speed, others. justify extensive added We other pricing include continue covenants. attributes facilities Those to because lender find of borrowers value better are high some larger debt very we somewhat better other confidentiality, our higher

So biggest opportunities our competitive to our in we have challenge which to we that continue in. advantages environment right now. That’s an got operate matter in find

got on our advantages situations are We where financing competitive and have to lean compelling. our identify solutions

If you today, bet. are that asking you is harder

Joe Mazzoli

deal? consistent if part or of if percentage what fairly GBDC’s equity quite as comfortably That’s just you that that dividend very doubt community this remind no is so next provides have the and valuable. estimate certainly us GAAP in so gains, is certainly most the Golub is you is helpful and this investment the very investments and quarter-after-quarter, is what so kind interesting of to question very partnership notable is a that co-investments bit to GBDC The is, the equity this appreciates also related new EPS also of modest NOI covering cases consistently above dividend about above NOI, I the think but of had much could is of

David Golub

number. an the of – the Page new to investments third. can you what answer invest of the be we X% get My want What I that and exact if X%, that percentage you in have that off-the-cuff has of can am proportion to an companies back it terms do if me aggregate time. a proportion I I I new to over presentation X that equities of represent that guess, flip And to tell XXX asked have, steady don’t we been of platforms would with the of will give in. of pretty number equity period the extended we you portfolio positions and that

Joe Mazzoli

kind were going not then core helpful. to very with I saw think just really KKR question additional is I evaluate but into this more here, because valuable. And Management that was a potentially that’s thematic, of yes kickers are today strategy, am curious a – know certainly very of your Okay, final we C-Corp, And converting announced equity is I is certainly next the there Board kind the not the thoughts but lower the tax be as tax if as given come this leverage partnership rate, opportunities given the the focus Golub corporate could of benefits changes in leverage consider the through the on more something bill who put that substantial if especially BDCs a – you like might that for the more on example secured to doesn’t platform not maybe were think am I portfolio? wanted senior and curious

David Golub

pass are I so fact rising BDCs starting the as many entities as favorable. that and pretty management that better I that’s their to to have shareholders from that’s as non-taxable tax And not anytime position in tax, soon, lawyers that the many going they have a puts that’s the are don’t conclusion end The being long over coming I the that accountants that changes tax by tax teams all think think throughs tax capacity are not distribute in BDCs to off C-Corps. pay currently that studied bill being earlier income they process country. and companies mentioned the are that a are

would for that C-Corp create a what advantage is the is think create any the investors doing I about So would it non-taxable thinking relative for ones. would disadvantage becoming to that consider need to BDC so taxable potentially

the a have is this first will say all to where I be the I yet. think don’t I answers challenging area

Joe Mazzoli

my perspective. you And questions. Thank helpful. thanks taking very That’s for for your


[Operator at It further appears questions there Instructions] Alright. time. this no are

David Golub

thank listening and everyone thanks for today. Katy you, Great. Well,

we and your always your time partnership. appreciate As

we or we did cover out quarter. next forward to If you to to And talking please look have you that feel not free reach or to to any Gregory Ross today, questions myself.


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