Q4 2019 Earnings Call
Please continue to stand by your conference call will begin momentarily, we ask that you kindly remain on the line and we thank you for your patience.
[noise] welcome to Golub capital BDC at September Thirtyth 2019 quarterly earnings Conference call before we begin I would like to take a moment to remind our listeners that remarks me. During this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Yes.
Statements other than statements of historical facts made during this call may constitute forward looking statements that are not guarantees of future performance or results and involve a number risks and uncertainties.
Actual results may differ materially from those in the forward looking statements as a result of number of factors, including those described from time to time in Golub capital BDC Incs filings Securities and Exchange Commission.
For materials, the company's intends to refer to what today's earnings conference call. Please visit the Investor resources tab on the home page of the company's website Www Golub capital BDC Dot com and click on events presentations link.
All of Capitals Bdcs earnings release is also available on the company's website in the Investor Relations resources section as a reminder, this call is being recorded for replay purposes I wouldn't know I'll turn the call over to day look all Chief Executive Officer of Golub Capital BDC. Please go ahead.
Thanks, everyone. Thanks, operator, and Hello, everyone. Thanks for joining us today I'm joined by Ross tuning, our Chief Financial Officer, Gregory Robbins, and John Timmins, both managing directors your dollars capital.
I wish everyone in early happy Thanksgiving yesterday afternoon, we issued our earnings press release for the quarter in fiscal year ended September Thirtyth and we posted in earnings presentation on our website.
We'll be referring to the presentation throughout the call today.
For those of you were new to GBDC, our investment strategy is and since inception has been to focus on providing first lien senior secured loans to healthy resilient middle market companies backed by strong partnership oriented private equity sponsors.
Let me start today by talking about the quarter in fiscal year ended September Thirtyth and both the quarter end the fiscal year were landmarks and the history of GBDC.
On September 16th 2019, GBDC completed its merger with scholars capital investment Corporation, or GC IC I'll start todays call by talking about the impact of the merger on GBDC, both the benefits of the merger and the accounting implications for Gbdcs financial statements going forward Ross has been going to review Gbdcs.
Results for the quarter in fiscal year, and then Gregory is going to close with our outlook and plan for fiscal 2020.
Let's turn to slide three we said last year, when we first announced the merger with GCI to you did it had three key benefits for GBDC ended stockholders.
First we said the transaction would be meaningfully accretive to gbdcs net asset value per share.
Second we said it would increase the size and scale of GBDC without materially changing the risk or composition of its diversified high quality investment portfolio.
And third we said it would give GBDC greater earnings power going forward to support increased dividends.
Let me elaborate on how we're doing on each of these points.
Slide four shows that the GC IC acquisition drove.
Meaningful NAV per share accretion as Gbdcs September thirtyth NAV per share increased by 81 cents or 5.1% to $16.76.
This was meaningfully higher than our original expectation about 3.6% increase in NAV per share.
That we announced at that time and merger Im sorry that we announced when we announced the merger.
To give you a sense of scale the 5.1% NAV accretion is as if GBDC earned over night more than two and a half quarters worth of historic regular distributions per share.
As you can see on slide five GBDC achieved this substantial NAV accretion without materially changing its investment portfolio words credit risk exposure.
This slide shows that the pre merger GBDC portfolio in the post merger GBDC portfolio are substantially similar in terms of their diversity.
Vacation, both by asset type and by outlet or.
You'll recall that over 98% of Gbdcs investments at fair value overlap with those guys get the time. The merger. This is why we described the merger as in some ways GBDC buying more of itself a discount.
Post merger Gbdcs investment portfolio was $4.3 billion at fair value at September Thirtyth, making the company the fifth largest externally managed publicly traded BDC by assets.
One important implication that increased size and scale post merger GBDC is that it increases the companys earnings power going forward as result of its increased earnings power is the GBDC Board of directors declared an increased quarterly distribution of 33 cents per share from 32 cents per share payable on December thirtyth.
Just stockholders of record as of December 12, 2019.
Next I'm going to go into Gbdcs results for the quarter in fiscal year, but before I do so I think it's important to spend some time on slide six walking through the accounting treatment of the GC IC merger.
Starting from left to right. This slide provides an illustration of how the purchase premium that portion of the purchase price in excess of JCI sees NAV.
Now that purchased premium is treated for accounting purposes.
Since the merger was accounted for as an asset acquisition under GAAP.
Purchase premium was allocated pro rata to the former GC IP assets as a result, gbdcs initial cost basis in the former GC IP assets equal their fair value at the time of the acquisition plus the purchase premium.
But GBDC uses fair value accounting so immediately after the closing of the merger GBDC recognized a onetime unrealized loss equal to that same purchase premium effectively GBDC wrote up the former GC IC assets to fair value plus purchase premium and then route.
Down the former GC IC assets to their fair value.
This onetime loss of paper loss in accordance with gap is a noncash item that doesn't reflect any economic loss experience since GBDC.
Slide seven provides an illustration of how we expect the purchase price premium will flow through the income statement on a go forward basis in short GBDC will amortize the purchase premium over the life of the purchase loans through interest income as a reduction to net investment income were in Iowa.
Having said this the purchase premium amortization will result in any reduction to net income as any decreased at high will be offset by a corresponding reversal of the unrealized loss as shown in the middle graph.
In order to make Gbdcs post merger financial results easier to compare to pre merger results will be referencing some supplemental financial measurements. In addition to GAAP measurements each of which seeks to strip out the impact of the purchase premium write off.
Let me briefly described them.
I will talk about adjusted net investment income and adjusted net investment income per share. These will exclude the amortization of the purchase premium and the accrual for the capital gains incentive fee required under GAAP.
We'll also talk about adjusted net realized and unrealized gain loss and adjusted net realized and unrealized gain loss per share. These will exclude both the onetime unrealized loss, resulting from the purchase premium write down and the corresponding reversal of the unrealized loss from the amortization of the purchase premium.
And finally, we'll talk about adjusted net income and adjusted earnings per share. These will calculate net income and earnings per share based on adjusted net investment income and adjusted net realized and unrealized gain loss.
As depicted on this slide after the onetime unrealized loss on the purchase premium breakdown. Adjusted net income is expected to equal GAAP net income as any purchase premium amortization is anticipated to be offset by a corresponding reversal of the unrealized loss on the GC C malls acquired.
So with that by way of context, let's turn to slide eight and look at the results for the quarter.
Net investment income per share or as we call. It income before credit losses for the quarter ended September Thirtyth was 37 cents per share as compared to 32 cents per share for the quarter ended June thirtyth, excluding two cents per share in purchase premium amortization from the GC IC acquisition and a six cents per share.
Reversal in the accrual for the capital gains incentive fee adjusted net investment income per share for the quarter ended September Thirtyth was 33 cents per share. This compares to adjusted net income per share of 32 cents per share for the quarter ended June thirtyth.
Net realized and unrealized loss per share for the quarter ended September Thirtyth was a loss of $1.39 per share and that was comprised of two cents per share of net realized and unrealized gain on investments in foreign currency, a $1.43 loss per share of net unrealized depreciation resulting from the onetime write down of the DC.
See acquisition permit purchase premium and.
Negative to set reversal of unrealized loss, resulting from the amortization of the purchase premium.
Adjusted net realized and unrealized gain per share was two cents per share when excluding the dollar 43 loss per share of net unrealized depreciation resulting from the write down of the GC IC acquisition purchase premium.
Negative two cents reversal of unrealized loss, resulting from the amortization of the purchase agreement.
So this compares to net realized and unrealized loss per share of less than a penny per share during the quarter ended June thirtyth.
Earnings per share for the quarter ended September Thirtyth was a loss of one dollar two per share as compared to earnings per share of 32 cents for the quarter ended June Thirtyth again this loss per share does not represent an economic losses. It was the result of the onetime charge to net income from the write down to fair value of the guys you purchased premium adjusted earnings.
Through share for the quarter ended was 35 cents per share, which is calculated as the sum of adjusted net investment income per share, which is designated would be a in the slide and adjusted net realized unrealized gain per share which is designated by the fee in the slot.
Once again, you can see the increase in our NAV per share to $16 in 76 cents as of September thirtyth in the highlighted grow.
Finally, as I mentioned earlier on November 22nd our board declared a quarterly distribution of 33 cents per share an increase resulting from the incremental earnings power from the acquisition of GC IC.
Also approved the special distribution of 13 cents per share. Both of these are payable on December thirtyth to stockholders of record as of December 12.
Special distribution is due to taxable income exceeding distributions over the prior year I point out. This is the fourth consecutive year. We will have we will be paying a special distribution.
The quarter in fiscal year ended September Thirtyth were very strong for GBDC were particularly proud of Gbdcs, 12.8% return on NAV for the year, we calculate this using the change in NAV per share for the year plus distributions paid divided by NAV per share at the beginning of the year. We think this is a very important measure of.
Our work as manager.
The strong results were driven by consistent investment income good credit results and accretive merger I'll now hand, the call over to Ross to go through those in more detail.
Thanks, David I'll begin on slide nine this slide highlights our total originations of 130.
Point, Fourmillion and total exits and sales of investments of 43.7 million during the quarter.
As shown on the bottom table the weighted average rate of 7.4% a new investments this quarter was down from 8.1% in the previous quarter, primarily due to a declining LIBOR rate.
The rate on loans that paid off decreased to 7.8% from 8.8% in the prior quarter.
As a reminder of the weighted average interest rate on new investments is based on the contractual interest rate at the time of funding for variable rate loans. The contractual rate will be calculated using current LIBOR spread over LIBOR and the impact of any LIBOR floor.
Turning to slide 10, this slide shows that our overall portfolio mix by investment type has remained consistent quarter over quarter and consistent post acquisition with one stop loans continuing to represent our largest investment category at 81%.
Due to the GC IC acquisition Gbdcs average investment size increased to 17.3 million at September Thirtyth.
Important to note here is that despite the growth Gbdcs investment diversification by portfolio company remained below 0.5% as GC Icees portfolio was also highly diversified.
Turning to slide 11, our debt investment portfolio remains predominately invested in floating rate loans and defensively positioned in Brazilian industries.
Turning to slide 12, this graph summarizes portfolio yields and net investment spreads for the quarter.
Focusing first on the light Blue line. This line represents the income yield or the actual amount earned on the investments, including interest and fee income, excluding the amortization of upfront origination fees and purchase price premium.
The income yield decreased by 20 basis points to 8.4% for the quarter ended September thirtyth.
Primarily due to a corresponding decrease in LIBOR during the quarter.
The investment income yield or the dark Blue line, which includes amortization of fees and discounts decreased 8.8% during the quarter due to the decrease in LIBOR and also due to a decline in oil I'd amortization and prepayment fee income.
The weighted average cost of debt Aqua Blue line decreased by 20 basis points to 4% due to the corresponding decrease in LIBOR.
As a result, our net investment spread or the Green line, which is the difference between the investment income yield and the weighted average cost of debt declined by 20 basis points to 4.8%.
But has remained relatively steady or stable over the past few quarters.
Moving to the next two slides fundamental credit quality remains strong as nonaccrual investments as a percentage of total debt investments at cost and fair value decline from 0.7% and 0.4% respectively at June Thirtyth.
0.5% and 0.3% respectively as of September Thirtyth.
In addition, as shown on slide 14 over 90% of the investments in our portfolio have an internal performance rating of four or higher as of the ended the quarter.
As a reminder, independent valuation firms value approximately 25% of our investments each quarter.
Review the balance sheet and income statement on slides 15, and 16, we ended the quarter with total investments at fair value of 4.3 billion total cash unrestricted cash of 84.2 million.
And total assets or 4.4 billion.
Total debt was 2.1 billion, which includes $1.1 billion and floating rate debt issued through our securitization vehicles.
287 million of fixed rate debentures, and 70 $761.8 million of debt outstanding and our revolving credit facilities.
Total net asset value per share increased by 5.1% $16.76 as previously highlighted by David.
And our GAAP debt to equity ratio was 0.96 times, while our regulatory debt to equity ratio was 0.83 times.
Moving to the statement of operations total investment income for the quarter ended September Thirtyth was 49 million an increase of $6.9 billion from the prior quarter, primarily due to the acquisition of the GC IC investments on September 16.
On the expense side total expenses were 22.2 million a decline of point 5 million.
Our operating expenses were essentially flat quarter over quarter as higher interest expense from the from the assumption of GC IC debt facilities was offset by a full reversal of our crude capital gains incentive fee caused by the write down of the purchase price premium.
Excluding the impacts of the purchase price premium rate down and incentive fee reversal. Adjusted net investment income per share was 33 cents and adjusted earnings per share was 35 cents.
Turning to slide 17, this graph illustrates our long history of steady growth and net asset value per share since our IPO.
For historical purposes, we have presented NAV per share, both including and excluding special distributions.
Turning to slide 18, the graph at the top summarizes our annualized return on average equity over the past five years, which has averaged 8.6%.
The graph on the bottom summarizes our regular quarterly distributions, which have remained stable at 32 cents per share.
Which has generally been consistent with our pre GCI see acquisition net investment income per share when excluding the GAAP accrual for the capital gains incentive fee.
Turning to slide 19. This slide provides some financial highlights for our investments in our two senior loan funds.
The annualized quarterly returns for GBDC, SLF, NGC, IC, SLF were 14.3% and 8.1% respectively.
Total investments at fair value for GBDC, SLF NGC IC SLF as of September Thirtyth were 152.3 million and 111.6 million, respectively. A decrease of 1% for 1.5 million and 1.2% or 1.4 million from June Thirtyth.
The next slide summer summarizes our liquidity and investment capacity at the end of the quarter and their report and the form of restricted and unrestricted cash.
Liability on our revolving credit facilities and debentures available through our SP I see subsidiaries.
Slide 21 summarizes the Thats summarizes the terms of our debt facilities as of September Thirtyth.
The bottom of the slide this illustrates our continued focus on optimizing gbdcs funding with diversified long term and stable sources of debt capital.
Subsequent to quarter ended October 11, we amended our revolving credit facility with Morgan Stanley and increase the borrowing capacity from 300 million to 500 million.
In addition on October 20, Eightth, we increased the commitment on our unsecured line of credit would you see advisors to 100 million.
Lastly, on slide 21, or our board declared a regular distribution of 33 cents a share special distribution of 13 cents a share.
Both payable on December Thirtyth to shareholders of record as of December 12.
With that I'll turn it over to Gregory with some closing remarks.
Thank you Ross.
Before we got acumen A. I want to discuss two strategic themes for fiscal 2020.
Delivering benefits from the Golub capital platform and delivering benefits from the merger.
Let me first talk about the platform.
You've heard us talk in previous quarters about our strategy of leaning on our competitive advantages as one of the largest players and sponsor finance.
Advantages like sponsor relationships and come to the sees reliability industry expertise and breadth of financing solutions.
I want to highlight a new one today.
Our capacity to lead large one stops.
Prior to 2019, one stops in excess of $500 million in size were unusual.
There were a few click in 2016 comes to mind.
But so far in 2019, we're aware of 21, one stop deals in excess of $500 million.
This is an enormous market shaft.
Large one stops has emerged as a viable option for many larger deals.
And golub capitals to clear market leader in this emerging niche.
We'd led 12 of those 21 deals.
No other lender comes close to our market share.
We anticipate that the trend toward larger one starts will continue in fiscal 2020 and may even accelerate if the syndicated market gets choppier.
We think these loans represent very attractive risk reward in today's market.
Let me move on then discuss a second strategic themes.
We plan to take advantage of our large scale now that the merger is complete.
Two projects, we have underway now illustrate this we continue to study ways to further diversify and strengthen our liability structure.
And we're studying potentially ending our senior loan fund joint ventures.
There's a strong arguments that these funds introduce unnecessary and costly complexity post merger.
With that let me. Thank you for your time today and for your partnership and Jennifer If you could open up the why for questions.
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First question comes from the line of Fin O'shea with Wells Fargo Securities. Please proceed with your question.
Hi, good afternoon, Thanks for taking my question.
Graduations as well on the completion of the merger and the.
Better than expected results on the net asset value side.
At least Ken My first question can you expand a bit on.
Studying the sorry studying the ending of the SLF programs.
We've seen some bdcs do this and yes, it's less complex, but it's typically.
The immediate impact is more economics to the manager. So can you kind of give us your view of the major negative that that would maybe more than offsets that.
So let me go back in time, when when we created the SLS, we did in an environment, where traditional senior debt was much more attractive from a risk return standpoint, and where GBDC was constrained by the one times regulatory leverage limitation.
Clearly all those facts on the ground has now changed.
As Gregory mentioned, we are.
Now looking at exploring with our partners, whether it makes sense to wind down these programs and bring the assets on balance sheet. If you look at the information in our salt venture reporting you'll note that the leverage level in the SLS today or are comparable to the leverage.
Levels in GBDC balance sheet and been as you know based on.
Where where we stand in terms of our fee structure the difference in in fees associated with.
Moving forward with full consolidation of the SLS is it's not there is no material difference because any increase in management fees with would result in a decrease in incentive fees.
Under our under our catch up so this is purely about making our financial statements easier to understand we've gotten a lot of questions over the last couple of years about the SLS and it's clear that there's.
Price to be paid for the complexity and we don't we don't think that prices worth it.
Yes.
Fair enough, thank you and.
Another one just on the market and.
The the new or expanded opportunity and in large one stops.
I'll ask about a specific deal that was post quarter.
Parts town and it was reported that's.
The funds and the syndication business within the golf club.
Club to up to provide execution. So I guess one is is that correct of course meet our first question and then.
If so how does that solution come about so you know, what's the sort of how how you do that together and Thats why in terms of.
A good solutions for for both parts of your business.
Sure so so by way of context.
Berkshire partners bought parts down in mid November we worked with Berkshire to provide a compelling financial solution for four Berkshire in the context of that acquisition.
But less than the 900 million dollar facility.
It's a one stop.
It's.
Other sides where is.
Large is too large even for Gol capital to hold all of.
So we worked with Berkshire to develop a list of a partners to bring into the transaction.
And as you put it fin our cap markets team.
Worked with their their counterparts at Berkshire too.
Build the club to enable.
To enable berkshire to be able to take.
Take advantage of above financing structure, which they deem.
Far more advantageous to the company than a traditional broadly syndicated solution.
From a GBDC standpoint this was.
In my judgment at very attractive transaction, because GBDC got the opportunity to participate in the portion that that's all of platform held in the deal.
And from a Berkshire standpoint, it illustrated a lot of the strengths the competitive strengths of the goal of platform.
As Gregory mentioned, they've been 21 of these 500 million plus one stops and and we about capital have led more than half of them no no. Other Rangers close so.
This is a great example, when we talk about the being a strategically important partner to our sponsor clients.
This is this is what this is an example, what we mean, we were able to deliver a solution that very few others in any others would have had the capacity to be able to do.
That's very helpful. Thank you and and one more if I may for now.
Can you.
Greg you said that these your platform you're finding these larger deals attractive that I've been.
That have taken place in 2019 and continue.
Let's say, the plus 500 million side and private deals.
Can you give us some.
I guess recent historical context as to how.
You know understanding todays it's hard to find good paper, but more historically how attractive is it.
This paper in terms of the execution youre providing.
If there was a spectrum of private credit execution and.
Broadly syndicated execution.
Is this paper halfway in between or is it more toward one side or the other.
So.
I'm not completely sure I understand the question, but let me let me given the go ahead. Please come back to me if I, if I haven't answered exactly what you're looking for.
When we work with a private equity firm and talk about providing a unit tranche solution. There, obviously very smart and talented and have their own internal groups that are focused on on developing.
The right financing structure for the deal they are doing and they evaluate what there.
What they're going to choose by comparing all the different alternatives. So they'll work in this case that a one stop solution and compare that to.
First lien second lien broadly syndicated solution. They may compare it to a high yield issuance. It may have a variety of different approaches that there are exploring.
So.
It's never the case that we.
When a mandate to do a one stop where it's not.
The the.
Perceived to be the best answer what are the decision criteria that a sponsor uses in evaluating what I mean by best well one of the criteria would be would be rates would be spreads second would be quantum of data third would be.
Occupation, germs and covenants fourth would be ease of of of getting it closed certainty reliability capacity to scale it up over time without having to refinance and.
Hey, all of the origination fees over again.
Nature of the partnership that they have with.
The lender, whether it's a relationship.
Arrangement or whether it's more transactional all of these characteristics feed into the private equity firms decision about which kind of financing to choose.
I think when you look at these large one stops what you find is that the sponsors who choose these large one stops are choosing them because of the the the.
The pluses, which which would include.
Confidentiality reliability speed.
Reasonable costs.
So unlikely to me that the one stops or the cheapest option, but theyre, they're also not.
Meaningfully more extensive and dramatically improved flexibility and relationship orientation.
So.
Every time, a sponsor looks at the financing decision, they're going to need to make a judgment about which financing strategy makes the most sense, it's never going to be one size fits all we're never going to be in a world where where there is always one best answer. We're all deals every deal is going to need to be looked at.
Individually.
What I think has changed and this is the point Gregory was maybe is that.
Is it until very recently the large one stop wasn't one of the options on the table.
Now, it's one of the options and we think that it's growing in popularity and we'll continue to grow popularity and we think thats good for us it at all capital because we're we're we're in the cap receipt and market leadership in this emerging niche and we think it's good for GBDC because.
We think we think the paper that we are creating through these large one stops has very attractive risk reward characteristics.
I appreciate the thorough answer and thanks for taking my question.
Our next question comes from the line of Robert Dodd with Raymond James. Please proceed with your question.
Hi, guys, you've given us a lot of color about how how's that.
The nation CCRC.
Benefits investing et cetera et cetera.
What about kind of any color on on the liability side I mean, obviously, you got a very diversified liability structure right now.
But also you know some of that's resulting from the combination of the two entities I mean is that any thoughts.
I would have fashion analyzing all restructuring that liability structure in some way and and as the prospect of any.
And the.
You bet saving on the liability cost side, given your new found scale.
So I think the word I'd use rather than rationalize or or restructuring would be optimizing I think there are some opportunities for us to optimize the liability structure.
Thank you will probably always see in looking at.
Right side of Gbdcs balance sheet is a real focus on on risk mitigation on our liability side and what I mean by that specifically is we don't ever want to be too reliant on any one counterparty, we don't want to have.
Two to two too many dollars in a single facility.
Or with reinvestment end period dates all at the same time. So so we think having a significant number of different facilities with different counterparties with different reinvestment periods with different characteristics in terms of what kinds of loans fit best in them.
Those those are likely to be characteristics youre going to continue to see in looking at the right hand side of our balance sheet, having said that we are looking at additional securitizations were always going to continue to evaluate whether bond issuance makes any sense. There a lot of options that we have.
That we think it's appropriate to explore now all with the goal of optimizing the liability structure.
Got it thank you.
On on that sort of related.
Let me see there's a lot of overlap between the GC IC and GBDC portfolio as you said, 98% presumptively from that some of those overlaps.
In.
The.
Locations on the balance if you will yes on the GBDC side, you could have an asset an FDIC SPV and that on the GC C side, obviously, it didnt have any ASP CCEP presumptively got some some asset now that that exist in.
Yes.
Lack of events and different legally structure, that's PV vehicles to consolidate LTE abolishing does that create any.
Incremental.
The co PXI them as pledging them to your bank facility, Securitizations et cetera, and all any any potential cost savings that over time, if those structures.
That is below as kind of a much into a single location on on your balance sheet.
Not.
Neither I would say Robert I mean, we've operated even within GBDC NGC IP overtime with loans that we carved into pieces were one might be in one bank facility and another piece might be in a securitization or or even in multiple securitization. So so this is.
This is how we've always done it and the combination doesn't really change anything in respect of how we organize assets.
Okay got it appreciate that and then one more if I can on on the.
Got it overhead expense.
Put it in context, obviously as you said with the structure of high yet management fees out like now.
It really doesn't matter much to the two to shareholders in terms of generating them.
Because it just move the location of wet spring expenses show up but long.
Thats it for the newly in large business, what do you think the the because of overhead expense opex ratio to assets. However, you want to put it.
Could normalize out too because obviously you get it right now it doesn't matter.
Medically sometime in the distant distant future lakes do actually go up high enough that you come out of the catch up then then it.
Can potentially start to Matt so any color on that.
Yes, Robert it's John we believe the number we had disclosed previously when talking about the merger was expense energy's of of about $1 million on a combined basis and now working through things I don't think we have seen anything for us to materially revise that.
Got it so theres savings associated with for example, one audit instead of two audits.
Ones that have directories instead of two sets of directors things of that sort of I agree.
Got it I appreciate it thank you and that congrats on closing the deal.
Thank you.
As a reminder, if you wish to ask a question. Please press from one for on your telephone keypad.
Our next question comes from the line of Ryan Lynch with KBW. Please proceed with your question.
Hey, good afternoon.
Congratulations on officially closing the merger.
First question I had was on your comment about potentially ending year. Your SLS funds you mentioned as.
When you originally form those funds that you saw them as an attractive opportunity given that the senior debt was more attractive asset class at that time as well as you guys had leverage constraints of one to one leverage.
And now that asset class isn't as attractive and you guys don't have to lever constraints. So I'm wondering if you consider if you actually wind down be asked how laughs.
I would actually reduce some off balance sheet leverage and reduce actually the effective leverage within GBDC. So is there any plan on increasing the balance sheet leverage to offset that or do you plan on Ryan at the same target leverage range, even if those that LSR eventually wound down.
So.
We're entering into hypothetical and so let's let me start with the caution that we're entering in.
Hypothetical, but let me let me tell you how I think we think about this.
Right now if you look at the two SLS there on average operating at approximately the same debt equity ratio as GBDC. So.
If we were too.
Consolidate those today by for example, purchasing the stake held by our by our partner.
Impact on the leverage ratio of GBDC would be very small.
We if we.
Whether we go forward with that kind of plan or don't I would anticipate that we will continue to deemphasize investing in traditional middle market first lien debt and continue to emphasize.
One stops as we have been for many years now and you can see that in that.
Chart in the earnings deck that shows the composition of the portfolio by by loan type.
Okay.
The second part of your question is.
What is.
What is our thinking on on leverage ratio within GBDC and I would actually say that's a separate question from the question about the SLS.
We're always looking asked the question, what's the optimal leverage ratio for GBDC and when we got approval for being able to increase leverage what we what we said then and remains true today is is we're going to keep relooking at that with an eye toward figuring out what's the what's the best.
Level of leverage from a shareholder shareholder standpoint.
And I anticipate Brian that will continually revisit that question overtime.
Okay.
That's helpful and an understood.
I wanted to revisit your guys commentary around the 12 Unitranche deals this year that were.
Over 500 million Dollarss.
Could you give a ballpark.
Out of those 12 deals and the amount that you guys actually held across that the golf platform, what percentage, where those 12 unitranche deals as a percentage of the total capital you deploy because what I'm trying to get a sense others.
I don't know the ultimate size, if those deals sort of leverage on those deals, but just using simple math about 500 million dollar deal, which should be on the lower end. Because you said it was 500 million or Bob was six times leverage that would imply maybe an average EBITDA of 83 million. So those seem to be kind of more on the upper middle market.
Size deals and so I'm just wondering.
As a percentage of deal flow, what what percentage of the deal for our these larger deals.
On the deal for you guys did in 2019, and how are you guys thinking about lending to potentially some more of these these upper middle market companies versus kind of the core middle market, which I think you guys have really focused on historically.
Let me be clear, we're not changing our focus away from from what we've done historically this is an additional niche not a change in strategy.
We've historically been financing companies in.
With our sweet spot being in EBITDA range between 10 million about 75 million that is that has not changed that will not change.
What our capabilities.
I have enabled us to do is to become involved in somewhat larger transactions than we had been able to lead before and it's not just US. There is we've developed a market for these larger one stops and so when when they are larger than that we can hold across the guy.
Platform, we have a group of.
Like minded investors, who we can bring in to.
Make the solution work for sponsors.
I'm going to come back to you with the exact answer to your question because its calculable, we have publicly disclosed the amounts that gbdcs invested in these 12 deals and we can divide that by the total originations that gbdcs had over the course of the year. So.
I always rather use real data then speculation.
Bye bye.
Mike My Guesstimate is that it's not a huge portion of overall originations. My guess is in the in the 20% range, but let us come back to you with exact numbers.
Okay.
That'd be helpful and I would definitely give me a frame of reference of kind of how.
Is that more kind of one offs are just to add a tool in the toolbox box versus.
Strategy shift, which which it sounds like you guys aren't really doing so those are all my questions I appreciate the time today.
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And we showing no further questions on the audio lines at this time I'll turn the conference back over Q.
Thanks, operator and just.
Thank you all through your time today and on behalf of everybody about capital we want to wish you all very happy Thanksgiving.
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