Q1 2021 Goldman Sachs BDC Inc Earnings Call
Good morning, and this is Erica and I will be your conference facilitator today I would like to welcome everyone to the Goldman Sachs BDC, Inc. First quarter 2021 earnings Conference call. Please note that all participants will be in a listen only mode until the end of the call when we opened up.
Your line for questions before we begin today's call and I would like to remind our listeners that.
Today's remarks May include forward looking statements. These statements represent the company's belief regarding future events and by their nature are uncertain and outside of the company's control. The companys actual results and financial condition may differ possibly materially from what is indicated and those forward looking statements and so.
The result of a number of factors, including those described from time to time and the company's SEC filings. This audiocast is copyrighted material of Goldman Sachs BDC, Inc, and may not be duplicated reproduced or rebroadcast without our consent yesterday. After the market closed the company issued and earnings press.
The release and posted a supplemental earnings presentation, both of which can be found on the homepage of our website at www Dot Goldman Sachs BDC Dot com under the Investor Resources section. These documents should be reviewed in conjunction with the company's form 10-Q filed yesterday with the S.
This conference call is being recorded today Friday may 7th 2021 for replay purposes, I will now turn the conference over to Brendan Mcgovern, Chief Executive Officer of Goldman Sachs BDC.
Thank you Erika good morning, everyone and thank you for joining us for our first quarter earnings Conference call.
I'm joined on the call today by Jon Yoder, Our Chief operating Officer, and Joe D. Maria our interim Chief Financial Officer.
I'll begin the call by providing an overview of our first quarter results followed by a brief look back over the last year as we navigated the COVID-19 health crisis.
And then give a discussion of the current state and lending environment before turning it over to Jon Yoder to describe our portfolio activity and more detail.
And finally, Joe will take us through our financial results and more details before we open the line for Q&A.
So with that let's get to our first quarter results.
Q1, net investment income per share was <unk> 57.
On after tax net investment income of $57 6 million.
Excluding the impact of asset acquisition accounting and connection with the merger of MLC. Adjusted net investment income was <unk> 48 per share.
Net asset value per share increased to $16 per share as of March 31, and improvement of approximately 60 basis points from the end of the fourth quarter.
The increase reflected continued improvement and underlying portfolio company performance, coupled with ongoing market spread tightening.
As we announced after the close after the market closed yesterday, our board declared a <unk> 45 per share dividend payable to shareholders of record as of June 32021.
Further we paid the first of our three installments on <unk> per share special dividends on March 15th 2021.
The remaining two additional five cent per share special dividends and we've made to shareholders on record as of May 14th 2021, and August 16th 2021, respectively.
Suffice to say the past year presented a unique and challenging backdrop for G. S. P D as the social and economic tool from the COVID-19 health crisis weighed heavily on U S companies, particularly middle market companies that we target for our investment strategy.
Despite this negative backdrop GSP D has performed well and we are pleased that our long term shareholders have been rewarded along the way with stable income from and dividends and and near full recovery and net asset value from the lows of Q1, 2020.
As we look back over the past year, we would note. The following first asset quality has been strong and our portfolio companies have exhibited remarkable durability during the pandemic.
Despite the economic upheaval and only one G. SPD portfolio company. It was placed on non accrual over the last year amounting to just 30 basis points of total assets.
Our focus on companies and growing sectors of the economy with strong value propositions and non discretionary demand drivers has served us well and will continue to be the cornerstone of our approach.
In addition, we believe our balance sheet discipline and strong risk management culture was on full display during the crisis.
Exiting Q1 of 2020 as the pandemic was unfolding more than half of our liability structure was and termed out unsecured bonds.
The flexibility afforded by this structure and shorten our secured lenders remains significantly over collateralized, even as asset prices dropped during the early days of the pandemic.
With the benefit of a strong capital base, we were able to execute on opportunities, including the merger with MLC, which more than doubled the company's size and delivered significant deleveraging and a point in time when balance sheet strength was of Paramount importance.
This execution has enabled us to access.
Capital at attractive terms from the unsecured market.
While there may still be uncertainties regarding the pandemic and its impact we are very pleased that the business has exhibited exhibited remarkable resiliency during this period.
And as we look forward to reflation that has transpired on the back of the accommodated and fiscal and monetary policy has led to a very strong capital markets backdrop. As we noted last quarter. We came and activity has picked up in recent months and we see this trend continuing on the back of the strong M&A environment.
The platform remains well positioned to capture and grow share in the middle market lending space and we will remain disciplined on new opportunities keeping a strong focus on quality with that let me turn it over to Jon Yoder Alright. Thanks Brendan.
As Brendan mentioned, the strong capital markets environment during the quarter enabled the team to be active on the new origination front and.
Our new investment commitments remain focused on senior secured loans and included both new and add on opportunities to existing portfolio companies.
During the quarter, we made 13, new investment commitments four of which were to new portfolio companies and nine that were to existing portfolio companies.
Together with fundings of previously unfunded commitments total capital deployed was approximately $196 million.
Sales and repayment activity totaled 254 million and repayments driven by the full repayment of investments in 10 portfolio companies.
One notable repayment resulted and the monetization of a loan that we made originally in December of 2018 and included an equity co investment into a company called Reich.
SaaS based project management and cloud collaboration company, which was acquired by a strategic in March of this year.
The first lien loan repayment resulted in a 10, 4% IRR and was augmented by a three three times money multiple on the equity co investment.
Turning to portfolio composition.
And as of March 31, 2021, total investments and our portfolio or 3.202 billion at fair value comprised of 96, 8% and senior secured loans, including 78, 1% and first lien.
And four 3% in first lien last out Unitranche and 14, 4% in second lien debt as well as a negligible amount in unsecured debt and three 2% and preferred and common stock.
We also had $223 8 million of unfunded commitments as of March 31.
Bringing total investments and commitments to $3 billion $426 million.
As of quarter and the company had 118 portfolio companies operating across 38 different industries.
The weighted average yield of our investment portfolio at cost at the end of the quarter was eight 4%, which was the same as at the end of the fourth quarter.
The weighted average yield of our total debt and income producing investments at cost increased to eight 8% at the end of the quarter up from eight 7% at the end of the fourth quarter.
Turning to credit quality, the underlying performance of our portfolio companies overall was stable quarter over quarter.
The weighted average net debt to EBITDA of the companies and our portfolio was six times at quarter and again unchanged from the end of the fourth quarter.
The weighted average interest coverage of the companies and our investment portfolio was up slightly to two five times as compared to two six times at the prior quarter.
As of the end of the quarter investments on non accrual status were 0.3% and 0.7% of the total investment portfolio at fair value and amortized cost, respectively, which remained unchanged from the end of the fourth quarter.
I'll now turn the call over to Joe to walk through our financial results.
Thank you John.
We ended the first quarter of 2021 with total portfolio investments at fair value of $3 2 billion outstanding debt of $1 six 1 billion and net assets of 163 billion. We also ended the first quarter with a net debt to equity ratio of <unk> 96, compared to one at the end of the fourth quarter.
At quarter, and 63% of the company's outstanding borrowings were unsecured debt and $1 1 billion of capacity was available under <unk> secured revolving credit facility.
And the current debt position and available capacity, we continue to feel we have ample capacity to fund new investment opportunities with borrowings under our credit facility.
Before continuing to the income statement and balance sheet. As a reminder, and addition to GAAP financial measures. We will also reference certain non-GAAP measures. This is intended to make <unk> financial results easier to compare to the results. Prior to October 2020 merger with MLC These non-GAAP or adjusted <unk>.
<unk> removed the impact of the merger related purchase discount write off and subsequent amortization.
For Q1, 2021, GAAP and adjusted after tax net investment income was <unk>, 50, 758 million and $48 $44 million, respectively, as compared to 50 534 million and 40 523 million, respectively and the prior quarter.
The increase quarter over quarter was primarily due to the timing of the merger close and Q4 as well as increased income from GSP. These historic origination activity during Q4.
On a per share basis, GAAP and adjusted net investment income were 57, and 48 per weighted average share respectively as compared to 59, and 48, respectively and the fourth quarter of 2020.
The per share decrease is the result of an increase and post merger weighted average shares outstanding.
In addition to the 45 regular distribution declared in February and paid on April 27th the first of three five special distributions was paid on March 15th.
We will be paying the other two special dividends on June 15th and September 15th to eligible holders of record.
Earnings per share were <unk> 60, and the quarter fully covering both the regular and special distributions mentioned earlier.
This contributed to a net increase and net asset value per share of <unk> <unk> with ending NAV per share of $16, representing a 60 basis point increase quarter over quarter.
With that let me turn it back to Brendan for closing remarks.
Great. Thank you Joe.
As we have discussed we are pleased with the resilience of the business and the face some significant challenges posed by the COVID-19 health crisis.
I'd like to thank each and every member of the GSP and BD team for their outstanding focus dedication and professionalism over the past year and for all other efforts produced strong financial results for our shareholders and as always I'd like to thank you for the privilege of managing your capital with that Erica, Let's open up the line for Q&A.
Ladies and gentlemen, we will now take a moment to compile the Q&A roster.
Yeah.
Okay.
Your first question is from Finian O'shea with Wells Fargo Securities.
Okay.
Hi, guys. This is actually Jordan Watson, calling in some sense a day.
And just from a couple of questions on portfolio Hey, good morning.
My question is on the.
The portfolio, so coming through investments this quarter it looks like it was kind of tilted towards software.
Obviously, one quarter doesn't really make a trend, but can we kind of take that as maybe a hence I guess of where the portfolio sits on from here.
Yes, Jordan. Thanks for the question I don't think I would agree there's nothing notable in terms of a change in direction or anything and I think it would hint towards any different portfolio construction prospectively I think as you know technology and general growth year on areas of the economy certainly software in particular I have.
And then a very big theme and the portfolio going back several years and certainly as we look back over the past year and the volatility.
And the economy other.
Other business models that youre being a bit more cyclical in nature that area has served to be a very very good place to be.
There continues to be very good opportunities within within within that space for sure other themes within the portfolio would be other non discretionary ex.
And obviously sensitive areas of the economy I think other business services health care services and technology have also been strong proponents of the other portfolio here for a period. So overall I would say a lot of diversity.
And when we look at the portfolio today of 118 different underlies.
Very significant increase over the past several years and we've talked about this a bunch and benefiting from our from the growth and the broader platform. So I think overall very diverse portfolio and I think the sectors, where we've leaned into have been among the better performing sectors.
Okay.
Okay. That's great. Thank you and.
So another one and just looking at it.
And once again, mark down this quarter, it looks like and be.
Revenue and.
And so now for $5 million markdown this quarter it looks like some kind of combination of co working our meeting expenses, New York City, So and I appreciate it and this is the single name private company and maybe you could just give us.
And maybe a little more about that business and maybe why it's getting a mark here because it feels like were seemingly hopefully.
Coming out of the pandemic.
Yeah, that's right and I'm sure we've talked about this name in the past on on some prior calls one of the few businesses and the portfolio that you know what I'd say is squarely in the crosshairs of a lot of the.
Behavioral issues associated with that with the pandemic so convene.
Is focused on.
Providing shared meeting space services, and leading and states that it's a first lien investment on top of the capital structure, a very well structured leading into the pandemic are really performing quite quite well broadly benefiting from a trend around around people wanted to.
Optimize their real estate footprints.
Sufficient.
And your uses of your real estate is.
<unk> shared and meeting space that gets used on a less frequent basis, so a big secular tailwind driving their business, but of course in the lockdown environments, a lot of challenges and within that business really a remarkable I would say management effort to get the business's cost structure down significantly to reduce.
The the rent payments quite significantly as well.
And in addition, we've had.
Significant support from the equity shareholder base.
As a infuse additional liquidity into the company. So we like you are all looking forward to a bit more of a normalization.
Uh huh.
Dave you're up more broadly.
And I think in the current environment appropriate to mark that investment down, but like I like I noted, we do take comfort and junior capital beneath us coming into and into the business and more broadly.
And the vaccine Rollouts that are really starting to take hold here are resulting in a very different return to office for example, and I think I'd just add.
And more significant Soc.
Social interaction.
Awesome awesome.
Really helpful well, that's it from me and thanks for taking my questions.
Great.
Yeah.
Yeah.
Okay.
At this time and there are no further questions. Please continue with any closing remarks.
Great. Thank you Erika and force. Thank you everybody for dialing in and listening to the call to the extent you do have any additional questions. Please feel free to reach out directly to the team and I hope you enjoy a great weekend. Thank you.
Ladies and gentlemen, and this does conclude and the Goldman Sachs BDC, Inc. First quarter 2021 earnings Conference call. Thank you for your participation you may now disconnect.
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And then.
Okay.
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