Q3 2020 Golub Capital BDC Inc Earnings Call

Ladies and gentlemen, you sound bite health until beginning momentarily. Thank you <unk>.

[music].

Welcome to Gbdcs June Thirtyth Twentytwenty 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.

Occasionally 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 involve a number risks and uncertainties.

Actual results may differ materially from those into forward looking statements as a result of a number of factors, including those described from time to time and Gbdcs filings with the FCC.

For materials the company intends to refer to on todays earnings conference call. He used to visit the Investor resources top on the home page of the company's website Www Golub Golub capital PBC Dot com and they couldn't event slash presentations link Gbdcs earnings release is also available on the company's website.

In Investor Resources section.

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

Thank you agreed hello, everybody and thanks for joining us I'm, drawing virtually today by Ross Kuni or Chief Financial Officer, and Greg Robinson, John Simmons, both managing directors that golf capital.

We and the rest of the goal of capital team Hope that you and your loved ones are all safe and these challenging times.

This morning, we issued our earnings press release for the quarter ended June Thirtyth than we posted in earnings presentation on our website, we'll be referring to that presentation throughout todays call.

We start with two headlights. The first headline is that Gbdcs results for fiscal Q3 were consistent with the estimates we filed on July 15th adjusted net investment income per share was 28 cents. Adjusted EPS was 94 cents and NAV per share was $14.05.

The second headline is that our fiscal Q3 results were strong the portfolio generated solid adjusted net investment income and demonstrated strong resilient credit results, including the reversal of a meaningful portion of the unrealized losses that depressed performance in fiscal Q2.

I'm going to start by reviewing key performance drivers for fiscal Q3, and then I'm going to go through Gbdcs results for the quarter in detail with lot of help from my colleagues on the phone after that we'll we'll take it will take your questions.

On slide six we've outlined three themes Bianca good underwriting that we believe drove GBDC strong fiscal third quarter.

First the U.S. economy began reopening sooner than expected second gbdcs portfolio companies generally performed better than expected, especially the ones and cobot impacted subsectors and third our private equity sponsors have generally stepped up to support their portfolio companies.

Let me elaborate on each of these three.

First the economy reopened faster than we expected.

When we did our risk assessments in late March and April our base case was a meaningful reopening by mid summer. Our downside case was a bit after labor day, and our upside case was the end of June.

In fact, we saw substantial reopening in May now, maybe dr. fell cheese right and this was too soon from the standpoint of controlling covered but we believe the earlier reopening gave a substantial boost to many borrowers and gbdcs portfolio.

Second theme within Gbdcs portfolio in general borrowers performed better than expected, especially those in covert impacted subsectors.

You'll recall from our fiscal second quarter earnings presentation that we focused on five industry sub sectors, where we saw more risk of covert impact restaurants, dental care I care fitness franchises in retail.

In fiscal Q3 were encouraged to see that many of Gbdcs obligors in these industry subsectors performed better than expected.

In general most of.

Gbdcs restaurant and retail Obligors found ways to stay open to cut costs to.

Pivot to emphasize takeout delivery curbside or Internet based models.

Some of the Obligors in these industry Subsectors actually posted same store sales gains during the quarter.

And our dental an eye care Obligors, who were closed for a period of time have also in general open stronger and better than we expected.

Third theme, our private equity sponsors are generally stepping up to support their portfolio companies.

We worried in March and April at the beginning of co visit sponsors would have so many problem children they wouldn't have.

Bandwidth or sufficient capital to be able to address them.

So for those worries are not playing out we're seeing sponsors contributing time expertise operating executives and in many cases capital.

We think this reflects the strength of our borrowers the strength of our sponsors and the strength of golf capitals relationships with those sponsors.

Gbdcs credit results for fiscal Q3 reflect these three themes on the right hand side of slide six we've highlighted for impacts on GBDC that will discuss further over the course of today's presentation, let's start with the first of those impacts improved internal performance ratings for the GBDC portfolio as a whole.

Please turn to slide seven.

You'll recall, we highlighted in last quarters earnings presentation, the downward migration in our internal performance ratings from categories four and five those are loans that are performing at or better than expectations that underwriting.

Category, three which are loans that are performing or expected to perform below expectations category three increased from 7.2% of the portfolio at fair value at December 31% to 26.5% of the portfolio at March 31.

The percentage of the portfolio performing materially below expectations and categories, one and two was essentially unchanged in the March 31 quarter.

In the quarter ended June thirtyth, consistent with borrowers performing better than our expectations.

We saw improved performance rating, specifically, we sold loans in categories, four and five increased from 71.5% of the portfolio at fair value at March 31% to 76% of the portfolio at June Thirtyth.

Category three loans went down from 26.5% of the portfolio at March 31% to 22.3% of the portfolio at June Thirtyth.

Even better the percentage of the portfolio in categories, one into those are loans performing materially below expectations decreased.

While the improvement in risk ratings is encouraging I don't want to gloss over the fact that the proportion of the portfolio rated three is still higher than the range. We typically soft pre cove, it but I want to put that difference in context, given today's unusually uncertain environment were quick to downgrade loans to category three when.

Loan migrates to category three it automatically triggers an increased level of scrutiny and oversight.

Our approach is designed to take full advantage of the breadth and depth of resources of the golf capital platform category, three Doesnt mean defaults or losses are necessarily going to occur case in point being the material subset of Gbdcs loans rated three in the March 31 quarter that migrated this quarter up to categories for Inphi.

Hi.

We've always believed that really identification of problems or potential problems leads to better outcomes down the road.

Let's continue our discussion of how the key themes, we highlighted earlier impacted gbdcs fiscal Q3 results.

We mentioned that new non accruals remain low we'll come back to that point in our usual discussion of Gbdcs financial results, but in brief non accruals as a percentage of total investments at fair value increased modestly to 2%.

Net realized losses also remained low and we saw reversal in net unrealized losses, you can see both the low net realized losses in the high unrealized gains in the NAV bridge on slide eight.

We start with March 31, NAV per share of 13, 49, Thats pro forma for the dilution from the rights offering.

From there we add adjusted NII of 28 cents per share, we deduct our dividend of 29 cents per share.

And you can see in the next column that realized credit losses during the quarter were very low at three cents per share.

The big driver of the improvement in NAV per share was net unrealized gains net unrealized gains of 74 cents per share in fiscal Q3 reversed a meaningful amount of the net unrealized loss in fiscal Q2.

Now we continue to see our job as being all about minimizing realized losses and generating more of these unrealized losses.

I want to spend a little time on this call describing our approach for this task and to do that let me hand, the microphone to Greg Robbins is going to offer us an update.

Thank you David.

Let's start by reviewing GBDC strategic responds to covert 19 on slide 10.

Last time, we talked about three key goals GBDC has pursued while navigating the cobot 19 crisis.

First proactively managing its highly diversified.

First lien senior secured investment portfolio.

Second supporting existing portfolio companies through credit enhancing incremental investments and amendments.

And third.

Fortifying its balance sheet and preparing to capitalize on attractive new investment opportunities.

We believe GBDC strong fiscal Q3 results suggest that our strategy is working.

As a starting point slide 11 shows the overall composition of Gbdcs portfolio as of June Thirtyth.

The data on the left shows that Gbdcs portfolio roaming large diversified granular and focused at the top of the capital structure.

The portfolio has over 250 investments with an average investment size of less than 40 basis points of the portfolio at fair value.

On the right you can see that Gbdcs portfolio was designed to be resilient.

You focus since inception lending to companies, we believe will retain value even at a downside recession scenario.

In most cases these borrowers also cobot 19 resistant.

Over 80% of the portfolio June Thirtyth consisted of investments in industries. We believe are relatively insulated from cobot 19.

Areas like enterprise software business services financial services anymore.

By the same token less than one person on the portfolio consist of investments in sectors. We now have been particularly hard hit by Cobot 19, like Airlines Entertainment hotels energy and others.

Most of our proactive portfolio management has focused on the roughly 20% of the portfolio in industry sub sectors, we identified as less insulated from cover 19.

Turning to slide 12, you'll recall that we described the three part strategy for proactive portfolio management.

First gather information second develop strategic plans and third execute their strategic plans.

Over the period since March we first gathering information and dealt with our most impacted borrowers.

We're now in phase three of our strategy and we are implementing game plans for each borrower working with sponsors management teams and junior capital lenders.

This strategy is also an already produced meaningful results.

Our team has executed more than 50 credit enhancing maintenance.

We define credit enhancing its any amendments involving a pricing increase.

You've documentation terms or incremental equity infusion by the sponsor.

Our proactive engagement with sponsors and they are encouraging degree of support for their portfolio company meant that we had only one defaults on principal interest payments in the quarter.

Slide 13 provides two illustrative examples of the types of credit enhancing activities, we've completed and expect to complete in the coming months.

Slide 14 shows how GBDC has fortified its balance sheet.

On June Thirtyth GAAP leverage was 0.86 times, which is at the low end of our target range.

Regulatory leverage was less than 0.75 times.

GBDC had $435 million liquidity in the form of cash and borrowing capacity at quarter end.

GBDC also took steps to optimize its debt capital structure.

We amended the Morgan Stanley credit facility in late June to increase long term borrowing capacity from 200 million a 400 money.

We also fully repaid and terminated the two SLF credit facilities with Wells Fargo that were in wind down.

And finally, we priced at new low cost 300 million dollar CLL last week.

As a result of these initiatives GBDC has substantial flexibility in firepower.

This flexibility in firepower puts GBDC in the great position to capitalize on attractive opportunities.

As illustrated on slide 15 leverage levels decreased dramatically after the global financial crisis, and dollar capital was able to capitalize significantly on those opportunities.

We believe recent mark event market events will likely lead to sustain lender friendly environment.

Much like we saw for the last recession.

Lower leverage higher spreads improved covenants and enhance downside protection our components of what we expect to see come out of the current market environments.

And as we've discussed in prior quarters and illustrated on Slide 16, we believe GBDC has powerful competitive advantages, which will help us deliver premium shareholder returns going forward.

So with that let me hand, it over to Johnson has to go through our financial results for the quarter ended June Thirtyth in more detail John.

Thanks, Greg.

As a reminder, please note that in addition to the GAAP financial measures in the Investor presentation. We've also provided certain non-GAAP financial measures.

These non-GAAP measures, which we refer to as adjusted measures seek to strip out the impact of the GC I see merger related purchase premium write off and amortization. There further described in the appendix of the earnings presentation, we'll refer to them throughout the conference call where appropriate as we think there.

Better indicators of our performance and are consistent with how we evaluate our results.

With that let's turn to slide 18 to look at the results for the quarter in more detail and I'm going to talk about the column on the right hand side of the page.

Adjusted net investment income per share or as we call. It income before credit losses for the June Thirtyth quarter was 28 cents consistent with our expectations and inline with our quarterly dividends.

Adjusted net realized and unrealized gain per share was 66 cents. This.

This compares to adjusted net realized and unrealized loss per share of $2.04 for the March quarter.

The adjusted net realized and unrealized gain this quarter was primarily driven by the reversal of unrealized losses recorded in the prior quarter for the reasons that David mentioned in his opening remarks.

Adjusted earnings per share for the June quarter was 94 cents per share. This compares to an adjusted loss per share for the March quarter of $1.71.

Our adjusted net asset value per share at June Thirtyth was $14.05, which factors in the earnings in excess of our dividend this quarter offset by the dilution from the rights offering.

On June 29, we paid a quarterly distribution of 29 cents per share and finally on August 4th 2020, Our board declared a quarterly distribution of 29 cents per share payable on September 29, 2020 to shareholders of record as of September Eightth 2020, the distribution is consistent with our.

Historical dividend approach of of seeking to pay distributions at an annualized rate of approximately 8% of anything.

With that I'll hand, the call over to Ross to go through the quarterly results in more detail Ross.

Great. Thanks, John turning to slide 19, this slide highlights our total originations.

15.7 million and total exits and sales of investments at 88.4 million for the quarter ended June Thirtyth.

Factoring in unrealized appreciation and other portfolio activity.

All investments at fair value increased by 1% or 40.2 million.

As of June Thirtyth, we had 28.3 million of Undrawn revolver commitments.

And $80.9 million of Undrawn commitments on delayed draw term loans.

The unfunded commitments are relatively small in the overall context of gbdcs balance sheet and liquidity position.

As shown on the bottom of the table the weighted average rate of 7.5%, a new investments and the weighted average spread over LIBOR or a new floating rate investments of 6.3% both increased from 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 would be calculated using current LIBOR spread over LIBOR and the impact of any LIBOR floor.

The top a slide 20 showed that gbdcs portfolio remained highly diversified by obligor with an average investment size of less than 40 basis points.

The bottom of the slide shows that our overall portfolio mix by investment type has remained consistent quarter over quarter with one stop loans continuing to represent our largest investment category at 83%.

Turning to slide 21, 97% of our investment portfolio remains in first lien senior secured floating rate loans.

And defensively positioned and what we believe to be resilient industries.

Turn to slide 22, the graph summarizes portfolio yield and net investment spreads for the quarter.

Focusing first on the light Blue line. This line represents the income yields or the actual amount earned on the investments.

Including interest and fee income, but excluding the amortization of upfront origination fees and purchase price premium.

The income yield decreased modestly by 10 basis points to 7.7% for the quarter, primarily due to the continued decline in LIBOR.

The investment income yield or the dark Blue line, which includes amortization of fees and discounts also decreased by 10 basis points.

0.1% during the quarter ended June thirtyth due to the decline in LIBOR.

However, with most loan subject to a 1% LIBOR floor of the decline in the income yield and the investment income yields were not nearly as steep as the decline in LIBOR as shown on the bottom of the slide.

On the other hand, because our variable rate debt facilities are not subject to a LIBOR floor, a weighted average cost of debt or the.

Blue line decreased by 50 basis points to 3.2%.

As a result, our net investment spread the Green line, which is the difference between the investment income yield and the weighted average cost of debt increased by a net 40 basis points to 4.9%.

Flipping to the next to slide nonaccrual investments as a percentage of total debt investments at cost and fair value remained low but increased modestly to 2.8% and 2% respectively as of June thirtyth.

During the quarter the number of nonaccrual investments remained at 10 as the disposition of to nonaccrual investments.

We're offs were offset by the addition of two investments to nonaccrual.

As David discussed in this open commentary as a result, the stronger portfolio company performance of the percentage of investments rated three on our internal performance rating scale decreased to 22.3% of the portfolio at fair value as of June Thirtyth.

As a reminder, independent valuation firms value at least 25% of our investments each quarter.

For the quarter ended June Thirtyth total percentage of portfolio company investments valued by the independent valuation firms was over 30%.

Slides 25, and 26 provide provide further details on our balance sheet, an income statement as open for the three months ended June thirtyth.

Turning to slide 27, the graph on the top summarizes our quarterly returns on equity over the past five years than the graph on the bottom summarizes our regular quarterly distributions as well as ours special distributions over the same timeframe.

Turning to slide eight this graph illustrates our long history of strong shareholder returns since our IPO.

The next slide summarizes our liquidity and investment capacity as of June Thirtyth.

In the form of restricted and unrestricted cash availability, our revolving credit facilities and debentures available through our Sps you subsidiaries.

Gregory just previously highlighted we made some enhancements to our liability structure during the quarter, which included an amendment to the Morgan Stanley revolving credit facility, which increased the borrowing capacity through the full term of the credit facility from 200 million to 400 million.

In addition, we repaid and terminated the two SLF credit facilities.

Which we're past the reinvestment periods and significantly under Levered.

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Slide 30 summarizes the terms of our debt facilities as of June thirtyth as well as our focus on diversified long term and stable sources of capital.

With that I'll turn it back to David for some closing remarks.

Thanks, Ross so to sum up GBDC had a strong fiscal Q3 net investment income was solid and we made good progress executing on our post kit covert strategy before we turn to Q in a I do want to be clear in saying that while we saw encouraging signs in the fiscal third quarter. We think this cold.

Bus trip still has a ways to go we're worried about elevated case counts in large number of parts of the country. We're mindful of the possibility of more restrictions, perhaps even more lockdowns, we're paying careful attention to the potential indirect effects of covert, particularly in the form of changes in consumer spending and business investment.

The message we want to leave you with today is that we've taken prudent steps to prepare GBDC for a wide range of potential scenarios. We've got a solid strategy. We've got a fortress balance sheet and we've got access to the competitive advantages of the Gallup capital platform. As a result, we think gbdcs very well positioned.

With that let's open the line for questions.

Thank you if you like to Register question. Please press Star one followed by the for telephone you'll hear three Tong pumps. This onto your question. If your question has been answered and you would like to with dry weather station. Please press star one fell by that please.

Piece for the first question.

My first question comes from the line of Finian O'shea with Wells Fargo. Please proceed with your question.

Hi, good afternoon, Thanks for taking my question.

He is first to start with the dividend payout.

Looking at the model here, there's of course, a few moving parts, but it.

Looks like the way things will settle that.

On next quarter's equity base that the.

You know hurdle will no longer.

Support the payout threshold, so you'd have to go through the dividend and that that could change if you.

Recoup some unrealized losses.

Correct me, if I'm wrong through all thinking about all this but how do you.

Anticipate your road to dividend coverage on the 29 cents level.

As the the.

The incentive fee kicks in.

More thoroughly going forward.

So I think you're right. There there are a number of moving parts and when we set the dividend policy at at 29 cents. We knew there were a.

Bunch moving parts.

I think we've made progress in fiscal Q3 in moving NAV per share up to a level that makes the 29 cents sustainable we thought that would be the case and we're cautiously optimistic that that we're going to see continued trends going forward that bidders.

Part of that so I think I think we're on the right track here and.

Ultimately in this period of unprecedented uncertainty nobody can be sure of much.

But I think we're on the right track toward.

Focusing on on.

Storing unrealized losses through unrealized gains and in the process.

Increasing our NAV per share.

And getting to a point, where the 29 cents is a level that's not only sustainable but we can build upon overtime and as you know fin. That's that's that's our history. Our history is to a change change dividends slowly.

Cautiously overtime and until until we got hit with Cove. It was consistently in an upward direction.

Okay, that's helpful and.

Can you give your.

In terms of.

Going on offense.

I appreciate it all the color you provided on your co would expose booking you're handling of that.

Obviously, you're in a pretty favorable position.

Originations were understandably light this quarter, but assuming that.

Right now and going forward you're out there looking.

At the market. So just any high level color on on what Youre seeing is the pipeline building back off in and how we should think about the opportunity and origination for you guys.

So short answer is yes, we're seeing.

Green shoots in the M&A market and that is leading us to be somewhat more optimistic about the.

Prospects for increased originations in coming months.

As we discussed last quarter.

The early reaction to covert based uncertainty was near shutdown of the M&A market and it's not surprising buyers and sellers couldn't agree on.

On value in the context of uncertainties that were in the market.

Sellers chose not to bring companies for sale unless they had really strong reasons to do so.

With the improved results of recent months and with a large proportion of our.

Industries, we cover.

Proving to be quite covered resistant we're seeing an increase in M&A activity in financing opportunities.

Is it back to normal yet no.

But we're seeing a striking improvement from from a couple of months ago, and I think as we look at the quality of these opportunities we're seeing that.

The pattern Gregory alluded to in the call is holding which is to say post a dislocation we tend to see opportunities that offer some combination of lower leverage better documentation terms and higher spreads.

And I think I think thats that that's what we're seeing now.

Okay. That's helpful and that's all for me for now thank you.

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

Right.

Hey, good afternoon, and thanks for taking my questions.

First one kind of following up on that that market environment question.

Your next slide 15 that shows a good indication of how.

Leverage levels.

Coming out of the last recession I'm just wondering if you think that that this one trends you potentially different just given that there's so little deal activity going on today.

Potentially.

Because it does this sudden shops stop economic shutdown and then at some point of recovery, which is happening today could come on and accelerate.

At a pretty quick pace once we do fully open out we obviously don't know one that I could occur.

Versus the other downturn was a little bit it feels like a like a little bit slower recovery over multiple years on had really good terms and structures and companies for multiple years I'm. Just wondering if you think that that this downturn or this recovery from the downturn could play out or will play out differently than the last one.

So great question, Ryan and its 64000 dollar question I don't think anybody really knows those those the answer with confidence to that.

Let me give you a couple of observations.

One is it's a very rare downturn or dislocation that doesn't lead to a period of improved have improved lending opportunities. So so I think it's highly likely that we'll see a an environment that's attractive for lenders going forward, but the question is how attractive and how long will it last so.

Now, let's let's let's zone in on what are the key factors that are going to impact how attractive and how long. It will last one of those factors is the unprecedented amount of private equity dry powder, that's available out in the marketplace right now.

It is it is not only at record levels, but it is.

Right now not being utilized at a pace that would be consistent with all of it being deployed.

Again, if history is it is a good guide and I think in this sense. It probably will be that argues for an acceleration of private equity capital deployment once the covered related uncertainties ease a bit further.

A third factor supporting the idea that we're going to see sustained.

Lender friendly terms is that we have seen a significant number of players in middle market lending who've been significantly hurt by by Cove, It and whose fundraising has been hurt by coated and and that again is fairly consistent pattern that tends to happen in downturns and can lead to.

To a reduced level of.

Competition that that can be that can be helpful.

I'm not.

Telling you right and that did I think for sure. This this downturn is going to look like 2008, nine I don't know.

What I can tell you is I think this recovery is likely to.

Take some time due to very high unemployment rates.

And at some point in the reasonably near future reductions in government spending.

But but this is this is because there's an unprecedented period no no one's live through.

A global pandemic like this before and seen this kind of government response, so we all need to plan for a variety of different scenarios. One of the themes. You've heard me talk about a lot since covert began as is our emphasis on exactly that on planning for a number of different scenarios.

Okay.

Sense.

GBDC and has primarily been known as a first lien on top of the capital structure type of lender, but.

When you were running.

Private credit funds coming out at the previous downturns you guys.

Out in recovery paid prior downturns, we're willing to do more junior capital.

As that market became more attractive.

I would assume are probably too early in the recovery phase hurts UBI seem to be considering that strategy, but is that something or can can you give me some commentary on your willingness to pursue that strategy at all further coming out of this downturn in GB if the opportunity arises.

Well you said two things there. So let me let me see if I can parse it a little bit.

Do I think that in the near term that Golub capital BDC is going to change its core strategy away from senior debt first lien debt toward junior debt. The answer is that is no.

I think it's it's highly likely that we're going to sustain our focus on on first lien and one stops.

Second part of the question was would we ever consider.

Deploying a portion of our capital base meaningful portion of our capital base in junior debt.

And I would not say never to that because.

As you point out we have a quite successful history as an organization in.

Investing in junior debt in in the right market situations.

I just I don't think we're we're there right now.

Okay fair enough.

You know.

Post the equity raise.

Your balance sheet seems to be in in really good shape, you guys have a lot of dry powder.

That said.

Are you guys, considering or you guys evaluating changing your liability structure at all.

So Brian.

Pursuing our a portion of it and unsecured debt going forward.

Sure. So I give it answers similar to the answer I think I gave last quarter on this.

We've said on a number of prior earnings calls that we're big believers in the benefits of unsecured debt and and we think that it makes sense to.

Add up a layer of unsecured debt into gbdcs liability structure overtime as you pointed out we have the luxury right now of a lot of liquidity. So we're in no rush we.

We we were operating at the low end of our leverage.

Our leverage targets.

Our our plan is to.

Time, the introduction of unsecured debt appropriately so that we're doing it on attractive pricing and other terms.

Okay.

Fair enough are those all my questions I appreciate the time afternoon.

Okay.

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

Hi, guys.

Robert Ryan just partly I sort of my job expanded a little bit.

Well I mean portfolio looks to be good shape.

Given the environment more and so looking at the liability side and I. Appreciate the ATSI just gave David but when I look to.

You got two of your bank facilities, leaving that would be investment not maturity the investment in the first quarter next year.

So would.

Would it be reasonable to expect that maybe the unsecured would come in ahead of that or is that just not not a factor. When you. Just kinda currently expect could just extend that extend those facilities and the investment time frames.

Okay.

The.

The answer Robert is we have great relationships with with our bank partners I have.

Enormous confidence that if we thought the right answer was to.

Extend those those those facilities, we we would have no problem being able to do so as we recently.

Extended one of those facilities of Morgan Stanley facility.

Question is not can we are.

Question is what's what's the optimal capital structure for GBDC and and the the tricky piece here is that.

The timing of unsecured issuance is surprisingly important <unk>. This is long term fixed rate debt.

Pricing on it has changed very dramatically just in the last couple of months. So we want to be very smart about how we do it.

As as you know last week, we we priced at a new securitization BDC.

The pricing on that was a new post covance low for for securitization financing our triple A.'s were LIBOR plus 235, so one of the one of the ways. We've made money for shareholders over time as by keeping our liability costs very low and we're intently on.

Accomplishing two goals simultaneously, one is adding unsecure to the stack and the second is maintaining very low liability costs.

That's that's completely found yes, the CLL price adjustment quite attractive I mean, the other part obviously ties into its having under utilized if you do add unsecured and then you have.

For credit facility of evolve as that end up on an underutilized those become a little expensive to your point that you just terminated two SLS because they want efficient anymore.

So from that perspective, I mean would you expect to continue running for.

Credit facilities, if if and when a unsecured gets added to the stack anything.

Any color on that about what the optimum number or size all Volvo capacity is so the business.

Yeah, I mean, I think if if you flashforward to a period when we when we have.

Hey, Hey capital stack that includes unsecured it probably has fewer.

Fewer bank revolving revolving credit facilities, and and a smaller total amount of bank revolving credit facilities.

Got it I appreciate that if I can.

Seven.

Different different topic on you talked about green shoots starting to emerge.

But this time.

Deployments and some of that you've got plenty had plenty of liquidity right now.

Can you give us any time, you, mostly looking to add on acquisitions potentially platform acquisitions, I mean, because obviously an add on maybe the due diligence is easier.

In an environment, where I suddenly haven't got on planes since March.

Okay, and you know versus an add on where the due diligence may need to be.

Or expansions in nature, and they required travel and when can you give us any color on.

The type how the due diligence is being done exceptional.

Yeah. It's a very good question. So, let's let's just broaden your question and talking about what what's the.

Fuel environment of the future going to look like and first lets contextualize. If we look at the past four golub capital BDC and and and I don't think were terribly different from from Aries or some of the other very large platforms about half of our deal activity has historically been well.

With existing borrowers and your 100% right that if you think about doing deals in the covert error era, it's a lot easier to.

Do deals with existing borrowers than it is with companies you don't know.

You already know the management team you already know the company you've already got a relationship you've you've done detailed in person due diligence in the past.

It's just much easier.

So so absolutely existing portfolio is going to be a significantly higher than usual proportion of new deal activity going forward.

Having said that I think there will be some new platform activity and it will be with sponsors who we know well and industry sectors that we know well because you can't do perfect diligence in today's environment for all the reasons you were just alluding to.

I think that.

Creates a new source of competitive advantage for.

Dominant players like us.

We have the really close relationships that you would want to have with the top sponsors in this environment, we have deep industry knowledge and domain expertise in a number of areas, including software, including franchising businesses.

Including some parts of health care that are particularly attractive in this in this post coated world. So I think your questions are really good question, Robert I think I think.

At least in the near term post coated.

Investing activity is going to look a bit different from pre covert investing activity and it's going to give particular advantages to some players over others.

Got I appreciate that thank you yes.

Our next question as a follow up from the line of Ryan Lynch with KBW. Please proceed with your question.

Hey, I just had one one more question.

You know I know historically.

You guys have never really use unsecured debt on your balance sheet, but David you mentioned you whenever I can see you're always going to add to it.

To utilize that are at the right time.

I'm just curious why was there never.

Desire or the ability.

To get an investment grade rating from one of the major rating agencies just to have back.

On file in case, you guys did look to the markets became attractive are now could you guys could pursue that a little bit use you're giving your guys. You guys have a great historical track record of defense reposition portfolio.

Is that that rating never pursuit or achieve Tim asset.

I.

Don't want to spend a lot of time going going into the past other than to tell you that we we did look into.

Unsecured offerings in great depth, including a.

Being being a in discussions with with rating agencies. So I don't think your premise is correct.

But it's something that we we didnt or couldn't do.

But you know I think the key point is we are we are where we are so we are in a position where I I look at our balance sheet and I think we're in a very strong position, we've got up a lot of liquidity.

And and we've got the opportunity if it makes sense to pursue an unsecured offering prospectively.

Okay.

Okay. Thanks, a follow up.

Mystic, although there are no further questions at this time I'll now turn call back to you.

Thank you and grid. So once again. Thank thank you to all of you for joining US today really appreciate youre your attention and interest and your partnership and as always if you have any questions that.

We're not addressed today or that you come up with post todays call. Please feel free to reach out in the meantime, I look forward to speaking with you all next quarter.

That does conclude the conference call, but today, we thank you for your participation Sep disconnect your lines.

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