Q4 2021 Golub Capital BDC Inc Earnings Call
Welcome to G. B D. CS September 30th 2021 quarterly earnings Conference call.
Before we begin I'd like to take a moment to remind our listeners that remarks made during this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Statements other than statements of historical facts made during this call may constitute forward looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties.
Actual results may differ materially from those in the forward looking statements as a result of a number of factors, including those described from time to time in <unk> filings with the SEC.
For materials the company intends to refer to on today's call. Please visit the Investor resources tab on the homepage of the company's website Www Golub capital BDC Dot com and click on the events presentation link.
G. Bdc's earnings release is also available on our website in the Investor resources section.
As a reminder, this call is being recorded for replay purposes.
I'll now turn the call over to David Golub, Chief Executive Officer of Golub capital BDC.
Thank you Hello, everybody and thanks for joining us today I'm joined by Chris Erickson, Our Chief Financial Officer, Greg Robbins, Senior managing director and Jon Simmons managing director here at Golub capital.
<unk>, we begin I want to welcome Kristi Ericsson, Chris has been a key member of the Golub capital team for over a decade is deeply familiar with G. P. D. C. He was instrumental in driving a number of key strategic initiatives, including the company's merger with Golub capital Investment Corporation in 2019.
We're delighted to promote Chris to the company's leadership team and I also would be remiss if I didn't at the same time, thank outgoing CFO Russ to need for his many contributions to our shared success over the last 13 years.
With that let's get started yesterday afternoon, we issued our earnings press release for the quarter and fiscal year ended September 30th and we posted an earnings presentation on our website.
We're gonna be referring to that presentation throughout today's call for.
For those of you who are new to G. B D. C. 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.
The headline for this quarter is that you'd be D. C had another strong quarter capping off a strong fiscal year for the quarter. Adjusted NII per share was <unk> 30, adjusted EPS was <unk> 42 cents and ending NAV per share rose to $15 and 19 sense. The board also approved an increase in G. B D six quarterly distribution to <unk> 30.
Per share up from 29 said previously.
Slide five describes three key themes that contributed to G. B D. C success, both in the quarter ended September 30th and for the full fiscal year.
These three key themes.
They probably sound familiar because we discussed them on our last several earnings calls I'm going to summarize the themes now and then we'll go into greater detail on them later in the presentation.
The first theme is strong portfolio performance.
Credit metrics improved consistently over the last 12 months and we're now back to pre COVID-19 levels.
The second theme is continued balance sheet optimization in my view, the company's liquidity position and balance sheet flexibility has never been better.
The third theme is robust origination the gods capital platform is having its best year ever from an origination perspective, even as we remain highly selective on credit and that's led to robust portfolio growth at G. B D C.
Now I'll hand, the Florida, Gregory John and Chris to elaborate on G. Bdc's performance for the quarter and for the fiscal year following that I'm going to come back and provide some closing commentary and then we'll open the line for questions Greg.
Gregory over to you.
Thank you David let me elaborate on the key drivers of <unk> strong results.
To start on slide seven.
Two key themes I want to highlight.
First our portfolio continued to perform well.
I would call your attention to the golf capital Middle market report, our GC MMR for September 30th.
He published several weeks ago.
The GC MMR compared the revenue and earnings of Gollop capital Middle market borrowers in July and August 2021 to.
To the to those same companies results in July and August 2019.
The results were once again striking.
The median revenue and EBITDA growth rates from 2019, and 2021 exceeded 20%, which we believe are remarkable levels given the strength of the economy back in Q3 2019.
Strong earnings growth across JBT six portfolio was reflected in the four positive credit quality trends listed on the right hand side of the slide.
Well go into them in more detail shortly.
Second middle market, New deal activity remained strong across the Golub capital platform.
We'll see later in the presentation record middle market loan originations at Golub capital and by extension at G. B D. C drove robust net funds growth at the company.
Importantly, golf capital remained highly selective throughout the year closing less than 4% of new deal opportunities reviewed on a calendar year to date basis.
Let's now drill down on the four positive credit quality trends list on the right hand side of the slide starting with our internal performance ratings on slide eight.
We've seen continued upward migration in credit quality.
Steady increase in categories, four and five which are loans performing at or better than our expectations at underwriting and a corresponding decrease in category three which are loans that are performing or expected to perform below expectations.
Categories, four and five increased to 99% of the portfolio as of 930, an improvement of 12 percentage points year over year and right in line with fiscal year end 2019.
Similarly category, three which represented eight 1% of the portfolio as of 930 is right in line with our pre COVID-19 normal of around 10% as you can see from the fiscal year end 2018 in 2019 data on the far left of the slide.
Equally important portfolio copies performing materially below expectations in categories, one and two remain very few in number.
Those two categories constituted only 1% of the portfolio at fair value as of 930.
A second key indicator of continued credit improvement is the fact that non accruals remained very low just 1% of investments at fair value at quarter end.
The non accrual rate was unchanged quarter over quarter, but about 40% lower year over year will.
We will come back to this point in our usual discussion of <unk> financial results.
Slide nine shows two other indicators of improving credit quality net realized gains as well as net unrealized gains.
This slide provides a bridge from GBT $615.06 NAV per share as of 632, it's increased $15.19 NAV per share as of 930.
Let's walk through the bridge.
Adjusted NII per share was 30 cents in line with the increased quarterly dividend that David mentioned earlier.
No net realized losses were recorded during the quarter.
Fact, there were two cents per share of net realized gains.
Net unrealized gains were <unk> 13 cents per share, reflecting the continued reversal of unrealized losses incurred in the March 2020 quarter.
Let's now take a closer look at our results for the quarter and for that let me hand, the call over to John to walk you through the results in more detail John.
Thanks Gregory.
Slide 11 summarizes our results for the quarter.
Adjusted NII increased to 30 cents a share and credit results remained strong as G. B D. C generated 12 cents per share of adjusted net realized and unrealized gains.
As a result, our net asset value per share at September 30th increased to $15 and 19.
On November 19th 2021, our board declared a one cent increase to our quarterly distribution raising it from 29 to <unk> 30 per share.
This 30 cent per share distribution is payable on December 30th 2021 to stockholders of record as of December 10th 2021.
Turning to slide 12, as Gregory noted the quarter ended September 30th was another record originations quarter for G. B D C.
As new investment commitments totaled $971.4 million.
After factoring in total exits and sales of investments of $383 $8 million as well as unrealized appreciation and other portfolio activity.
Total investments at fair value increased by 10, 3% or $455 $3 million during the quarter.
Also as of September 30th 2021.
We had $42 $2 million of Undrawn revolver commitments and $298 $5 million of Undrawn commitments on delayed draw term loans.
These unfunded commitments are relatively small in the context of G bdc's balance sheet and liquidity position.
As shown in the bottom of the table the weighted average rate on new investments decreased slightly and the spread over LIBOR on new floating rate investments remained flat quarter over quarter.
Slide 13 shows that G bdc's portfolio mix by investment type.
Remained consistent quarter over quarter with one stop loans continuing to represent almost 80% of the portfolio at fair value.
Slide 14 shows that G. Bdc's portfolio remained highly diversified by obligor with an average investment size of less than 40 basis points.
As of September 30th 95% of our investment portfolio was comprised of first lien senior secured floating rate loans and defensively positioned in what we believe to be resilient industries.
Turning to slide 15.
This graph summarizes our 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 our investments, including interest and fee income but.
But excluding the amortization of upfront origination fees and purchase price premium.
The income yield decreased by 20 basis points to seven 2% for the quarter ended 930.
The investment income yield or the dark Blue line, which includes the amortization of fees and discounts also decreased by 20 basis points to seven 7% during the quarter.
Our weighted average cost of debt or the Aqua Blue line remained flat at two 8% when excluding certain onetime accelerated issuance costs on debt. We retired early.
Please note that these one time costs were offset by a $4 million management fee waiver by our adviser.
Our net investment spread or the Green line, which is the difference between the investment income yield and the weighted average cost of debt decreased by 20 basis points to four 9%.
With that I'll now hand, the call over to Chris to continue the discussion of our quarterly results Chris.
Thanks, John.
Flipping to the next two slides nonaccrual investments as a percentage of total debt investments at cost and fair value or one, 3% and 1% respectively as of September 30th.
During the quarter the number of nonaccrual investments remained unchanged at six portfolio company investments.
As Gregory discussed in his opening commentary as a result of continued strong portfolio company performance. The percentage of investments rated three on our internal performance rating scale decreased to eight 1% of the portfolio at fair value as of September 30.
As a reminder, independent valuation firms value at least 25% of our investments each quarter.
Slides 18, and 19 provide further details on our balance sheet and income statement as of and for the three months ended September 30th.
Turning to slide 20, the graph on the top summarizes our quarterly returns on equity over the past five years and the graph on the bottom summarizes our regular quarterly distributions as well as our special distributions over the same timeframe.
Turning to slide 21.
This graph illustrates our long history of strong shareholder returns since our IPO.
As illustrated investors and GBP six 2010, IPO have achieved a 10% IRR on NAV since inception.
Slide 22 summarizes our liquidity and investment capacity as of September 30th which remained strong with over 420 million of capital available through cash restricted cash and availability in our various credit facilities.
We also highlight our continued progress in optimizing the right hand side of our balance sheet.
Three key highlights include.
First on August 3rd we issued $350 million of 2027 unsecured notes, which bearing fixed interest rate of 2.05% and mature on February 15 2027.
Subsequently redeemed all of the $189 million of notes issued under the 2020 debt securitization, which were priced at three month LIBOR plus 2.44% on August 26, and all of the 97 million of outstanding Spic's six debentures on September 1st which had a weighted.
Average interest rate of two 3%.
Second on October 13th and 15th respectively. We issued an additional $200 million of 2026 unsecured notes at a price, resulting in a yield to maturity of 266, 7%.
And an additional $100 million of 2020 for unsecured notes.
Resulting in a yield to maturity of 180, 9%.
Third on November 19, we amended our revolving credit facility with JP Morgan primarily to increase the accordion feature which now allows us to increase the facility up to $1 5 billion.
In addition, we entered into agreements on October 14th in November 23rd to increase the aggregate commitments under the facility to $687 5 million and 1.0 $3 $75 billion from 475 million as of September 30th.
Slide 23 summarizes the terms of our debt facilities as of September 30th 2021.
Slide 24 summarizes our recent distributions to stockholders and most recently our board declared a quarterly distribution of <unk> 30 per share payable on December 30th.
Stockholders of record as of December 10th.
With that I'll now turn it over to David for some closing remarks.
Thanks, Chris so to sum up Q P. D. C had a strong quarter adjusted net investment income supported an increase in our dividend realized and unrealized gains were substantial and robust do origination enabled the portfolio to grow nicely.
Let's talk about our outlook for fiscal 2022, and then we'll take some questions.
I want to highlight for tail winds that lead us to have optimism about the prospects for golub capital in G. D C in the coming period.
I've spoken about several of these before but I think they'd be repeated.
The first <unk> strong portfolio performance, we've highlighted throughout today's presentation. The positive credit trends that we've seen since March 31 2020.
Our pre Covid underwriting has proven to be strong net realized and unrealized gains and losses for the period from Jan One 2020 through September 30th 2021 have netted to an annualized gain of about 80 basis points of the portfolio at cost.
And its Gregory describe the portfolio today is very low non accruals and minimal category one category two loans.
We won't be distracted by meeting to play defense on a troubled portfolio.
Our second tailwind is the strength and flexibility of G bdc's balance sheet.
Low cost highly flexible unsecured debt now constitutes about 50% of G. B D. C is that funding pro forma for the October unsecured issuances.
With this in place and with the first lien oriented focus and health of our portfolio, we're comfortable slightly raising GBP six target leverage range raising it to a 0.85 times to 1.25 times debt to equity.
We think that's pretty much in line with that of our peers.
As of September 30th G. V. D. C was operating at a one times debt to equity ratio. So we have some room to grow from here.
A third tailwind is the continued growth of the private equity ecosystem.
We believe the private equity ecosystem continues to grow for a very simple reason that the asset classes delivered for investors both on a long term basis and during the Covid period.
Research by Cliff water suggests that private equity has been the top performing asset class for state pension funds over both the last 10 years in the last 20 years.
This success keeps driving investors to allocate more capital to private equity and you can see this in reported fundraising results private equity funds have raised around $750 billion year to date and that's brought the total stock of private equity dry powder to over $1 seven trillion. According to data from frequent.
So based on this growth and private equity fund raising in the current level of dry powder, we think the private equity ecosystems on a flight path to likely double in size over the next three to five years.
And that the sponsor finance business, well, it's gonna grow alongside the private equity business.
We believe golub capital's a market leader and so it's well positioned to capitalize on this growth.
And then as a result, golub capital, we'll be able to provide an even greater number of opportunities for G. P. D C.
The last tailwind we'd highlight is the growth of the private equity ecosystem plays to our competitive advantages, we think leading private equity firms. They generally want all the same things.
They want relationship oriented lenders that they can trust to be reliable and rational committed to win win solutions and shared success.
They want lenders that can handle a lot of different kinds of deals for them small deals and large deals one stops in traditional first lien second lien deals both buy and hold deals in syndicated deals both U S deals and multi currency deals they want lenders with the creativity to deliver distinctive solutions they wont lend.
Who can scale up debt facilities as portfolio companies grow.
They want to work with.
Experts, who want to work with with with underwriting teams that have real expertise and don't need to get.
Get up to speed.
On the new situations that we're looking at.
They want underwriting teams that can add value during the underwriting process.
They also want discretion, they they want to work with lenders, who can be decisive and reliable when they're pursuing preempted bids or proprietary targets.
And they want to keep the situation under wraps.
And I want to know that their partners have the experience and resources to navigate unexpected challenges because as we've all seen through this COVID-19 period unexpected challenges come around.
If this all sounds familiar it's with good reason at Golub capital, we built our whole business around being the partner of choice for private equity sponsors and we think our scale our capabilities our.
Long term track record of reputation all of these put us in a very strong position to be one of a small number of lending partners and.
Key sponsors inner circle.
Two final thoughts.
First I've never been prouder of the Golub capital team.
<unk> strong performance is only possible because of the caliber of our team in my opinion in the last 12 months have been the best in the firms history and I'm grateful for the the person the perseverance and dedication through the challenges.
Travails of Covid, the commitment to excellence that our team demonstrates day in and day out.
Second I want to thank all of our shareholders for their confidence.
With that operator, please open the line for questions.
If you would like to ask a question you will need to press star one on your telephone.
All your question press, the pound or hash key.
By while we compile the Q&A roster.
And your first question is from Paul Johnson with <unk>.
Good afternoon, guys. Thanks for taking my questions congratulations on another good quarter.
My first question was Ah as far as the yields on new investments this quarter. It was fairly below the current portfolio yield.
You guys, obviously operate close to the low end of the of your hurdle rate.
I'm curious does this compel you to run with higher leverage to maintain the same row.
And I'd just like to get your thoughts on how call. It I guess thinks about spreads in the market versus its effect on on pre incentive fee income.
Honestly, we don't really think about those two as related and and I think it is premature to be looking at the spreads from Q from calendar Q3 and in.
Thinking that that that represents a meaningful change from prior periods. My sense is that that spreads are reasonably stable and this is more a mix issue than a than the spread issue.
So you know I do think it makes sense and we talked about it in our prepared remarks I do think it makes sense for G. B D C to take on some more assets. We're now running at a one one to one debt to equity ratio I think that's that's later than optimal.
And I think when we do that will be very much in the in the catch up which which I like to be in because it provides a lot of safety around our dividend coverage of the <unk>.
Our NII per share. So so I think we're in very good shape on on and on.
Where we're headed from a from a leverage standpoint, a bit higher than the one to one that we're at right now, but not too much higher and I think that puts us in a very good position from a from an ROE and a return on that investment income standpoint.
Thanks, I appreciate that's a great answer.
As far as your portfolio companies go I mean, theres been a pretty massive growth and recovery in EBITDA.
Over the last year or so.
As you look out into 2022 and 2023.
Where do you set the bar for your portfolio companies are you are you expecting again this continued robust growth.
Expect more challenges.
How do you look at that.
It's a good question there.
You're correct that if we look at the golf capital Index data for the last several quarters, we've seen very significant growth in both revenues and EBITDA for the median company in our portfolio.
North of 20% and in in both in the recent periods.
That is not.
In all likelihood a sustainable level, where we're likely to see that come down some.
That's okay right I mean at the end of the day where were lenders.
So we do.
Well in a slow growth environment in a fast growth environment. The only environment, we really don't do so well in is it is a deep downturn scenario. So.
I don't see signs right now of a meaningful likelihood of a deep downturn in fact, I think some of the supply chain shortages that that we're all reading about me.
Mitigate risk of of a deep downturn, because we've got inventory shortages through the system. So we've got a a macroeconomic need to rebuild inventory that's that's.
Uh huh.
Counter cyclical.
So I I'm.
Cautiously optimistic about the coming period, I'm I'm not going to tell you that I anticipate that we're going to see sustained 20 plus percent growth I think that's that's unlikely, but I think we're going to see sustained growth.
Great. Thanks, that's good to hear and then last question.
As you're one of the obviously the largest middle market lenders out there I was wondering if you could talk about brief.
Briefly on the shift from LIBOR to so sofa and whether you think thats potential challenge over the next year or two or you're leaving an option to switch reference rates and new loans you know what.
About existing loans, just any thoughts you had on that would be great.
Sure I I don't think it's going to be a big deal I think everybody is going to switch to sow for.
I think enough work has been done by the industry.
The industry Association the L. S. T E has been very involved in this and in preparing the industry for the transition.
I don't mean to minimize the amount of work that's.
Gone into and going into preparation for the transition, but I think it's going well and I don't anticipate any meaningful issues.
Great. Thanks, I appreciate you taking my questions. This afternoon.
My pleasure.
Your next question comes from Robert Dodd with Raymond James.
Hi, guys congratulations on the quarter.
The continued growth.
One another question on spreads per se.
Yields spreads stable with last quarter.
But it does look like there may be some incremental pressure on on lives.
Given the delta between the yield on your spread compressed.
On new originations this quarter versus again that being very stable in past quarters. So can you give us any color on what you're seeing you know maybe beyond the rules spread.
Stability of the other components.
Pricing out there in the market.
Is that being influenced by mix or.
But are you guys moving.
Market to do it and get a multibillion dollar unit tranches instead of merely.
The tranches.
I I think you can make a good point, Robert I think in the upper middle market and the large end of the scale of transactions that we work on it and that's maybe.
I don't know, 15%, 20% of our mix we're not.
There are other there are other lenders in our business who are much more focused on that upper middle market component.
Our our mainstay is companies that are in the $20 million to $50 million EBITDA range I'm talking about transactions meaningfully for companies that are meaningfully larger than that for those for those upper middle market small BSL type transactions. There is pressure on on LIBOR floors used to be very standard for deals to have a one person.
Sent LIBOR floor, it's increasingly common in that larger sized loan category to see 75 basis points in some cases, even even lower than that so so there is a bit of pressure there I again, I hesitate to call.
Called this really meaningful for G. B D C. Because it's it's up a portion of deals and a portion of our mix.
But I think it's I think it's a fair observation that there is there is some.
Competitive pressure to reduce LIBOR floors.
It fundamentally is coming from competition from the broadly syndicated market.
Got it.
And on on that question as well.
Okay.
When we look at.
I mean, you say, 20% is upper middle market Theres, a lot of tough life business done in the broadly syndicated market are you seeing indications of.
Coke light structures moving down into the private.
Private credit World are becoming more common in the upper middle market, obviously, only 20% of your portfolio and.
And do you have any concerns if that is the case about those kind of structures moving down.
Deep into the market and maybe into the other 80, 85% of your portfolio.
I'll start and keep them all kinds of stuff.
Yeah, so so what.
<unk> answered that is two questions. The first is what are we seeing in terms of covenant packages in the small b S. L. A large or upper middle market and then we'll we'll talk some more about documentation trends in the traditional middle market.
On the first question, there's always been pressure on documentation terms in those larger deals because the underlying borrowers and the sponsors are weighing a private solution against a broadly syndicated solution where in the broadly syndicated solution. They can get of light or they can get traditional broadly syndicated market terms.
So I I would say in many cases be the terms that we're seeing in those larger deals are are more reflective of traditional broadly syndicated terms than they are reflective of traditional middle market terms and and I I mean, I think that's to be expected.
Because.
That the borrowers have their choice as to which market they want to go too.
In the traditional middle market, you know, we've always seen a bit of.
A pendulum swing in the sense that conditions are at any given point in time always getting either more borrower friendly or more lender friendly and in the period since I'd say.
August of 2020.
They've been shifting to become more borrower friendly they became sharply more lender friendly.
At the onset of the pandemic I think you know that.
The overall documentation trends that we're seeing in the traditional middle market, they're not they're not moving.
Much theres, a little bit of change around the edges, but I'd say overall, we're not we're not seeing.
Really meaningful movement and and I.
Would tell you that that I think that the benefits of the strong economy. The strong economic performance the strong M&A market that we've seen the crew.
Proof of of sponsor value that we experienced through through the early Covid period, I mean, all of those leads me to the conclusion that market conditions right now are actually quite favorable for lenders.
I appreciate all that color, David if I got one more note about.
Pricing environment on the balance sheet side, I mean, congratulations I mean.
Cause of call it a little bit more than a year, you've gone from essentially zero unsecured debt.
Slightly over 50 I think.
Today.
You should we expect.
Continued rising I would certainly.
Correct me, if I'm wrong, I expect the pace of that to just slow or.
Would we should we expect given the.
The most one of the add ons that October was at a yield to maturity of under two which is obviously extremely compelling.
Would you should we expect that you would take that 50 up perhaps meaningfully higher to take advantage of the borrowing rates that you can get like now all expect that.
So slow give it used to have crossed the 50% line.
So I think we we we see where we are right now Robert as being a very good place. We've got a nice mix of unsecured notes of a very low cost revolver, a very low cost securitization liabilities and we like having all all three of those different kinds of death.
So at this point I would characterize what we're going to do from here is as.
Being.
Tweaking and optimizing as opposed to.
Large scale shifts and and that tweaking and optimizing is gonna be premised on better market conditions in the different places that we can borrow.
Because.
To your point that the cost of borrowing and.
The mix of different maturities those are those are key elements in making the decisions.
I appreciate it thank you and congrats again on the quarter.
Yeah.
Your next question is from Finian O'shea with Wells Fargo.
Hi, David Good afternoon, Thanks for taking my question.
Wanted to ask about the new or.
Or at least proliferation of <unk>.
Non traded Bdcs.
In the marketplace you've talked to.
A bit about the asset side or the origination competition.
On the call and the Q&A, so I'll move to.
The BDC.
<unk> capital base.
Part of the discussion.
What sort of impact do you think this has on new BDC formation.
As as one of the managers, who have grown the private to public way.
Is this new form of BDC capital raising.
That is it disruptive because it does it cannibalize that channel or are they able to live in harmony.
Look I think there always have been lots of different ways in which capital is formed to invest in.
The the direct lending space.
And I think.
For so long as as we and other managers do a good job we're going to see.
More capital entering the space just as we're seeing in the private equity universe right that the private equity ecosystem keeps growing in the recent period, it's been growing very rapidly so I.
I think the important element.
The thing is is not.
This is a private BDC or or or even the the structure that that some of the new private bdcs have taken.
The key issue is that you know this is a sign of the success of the asset class and in the success of of individual managers in the asset class.
I think at the end of the day.
We and other managers are going to have to.
Understand that our success or failure is gonna be premised on our our performance that's what we're focused on.
Sure. That's helpful. Thanks, and then just a.
Follow on on the new leverage target.
With with.
We mentioned earlier, you're on the low end of the hurdle.
I assume that next quarter it'll be.
Closer to the middle as usual given the strong nation, sorry strong origination this quarter correct me if I'm wrong.
But in terms of levering to the higher end or two or higher mid points.
Do you think is that a near term goal like do you think the best time is now given how how much new money. There is how good credit there is how good of.
The credit backdrop is or do you think waiting for a more volatile time in some sort would be better to push up the leverage.
So I guess I don't view this as being as major it changes your question implies where we're looking at it.
What I would view as a small tweak we were running below our our target at.
At the end of fiscal.
Fiscal Q3 calendar Q2, so we were seeking to increase the size of the balance sheet, we did that.
And in this most recent quarter I anticipate that we're going to continue to grow the balance sheet a bit but you know I I I don't think any of it.
I would not expect us to go to the high end of our range.
I would anticipate that we would go.
Well, a little higher than where we are now but not to the high end of our range and and I think to your point thin that the combination of the asset growth in the portfolio over the course of of calendar Q3, and the asset growth and in this quarter.
Meaningfully increase our net interest income so, we'll we'll be we'll be well into the catch up.
I anticipate.
Very well, thank you and that's all for me.
Your next question is from David Miyazaki with confluence investment.
Alright, thanks for taking my questions and kudos that her well deserved for progress in your outlook for both sides of the balance sheet.
Wanted to just follow up a little bit on the conversation you are having with Robert with regard to LIBOR floors, which to me.
Always seem to be.
A little bit of a mystery as to why Theres still common in the industry.
And a lot of ways BDC managers seem to use this as a way to protect against lower interest rates on the asset side of their portfolio.
Even if they have floating rate liabilities on the right side, so it'd be kind of a bit of an interest rate play. It works great. When the rates are coming down, but when we're looking at a period when rates could be going up.
A lot of people are going to facing this headwind so.
I'm curious if there's something that the sponsors prefer or is it something that the managers are.
Put in and if it's something of a manager or putting in wouldn't it make more sense just to not put the Florida in at all and then just take a wider spread.
You bought your liabilities and assets together.
Yeah.
So it's an interesting question, David and if we go back in time the origin of LIBOR floors goes back to when interest rates are.
Fell very low following the financial crisis, and the place where it started was the broadly syndicated market.
So in many ways the traditional middle market, followed the broadly syndicated market into adopting a convention of of LIBOR floors.
Hum.
Today, I I describe it more as an expectation or a norm then I would is something that's being pushed by either sponsors whereby whereby lenders respectively.
And you're right that if one could transfer all of the current difference between.
The LIBOR floor of 1% and current LIBOR, if one could could could transfer that into into spread but from a lender's perspective that'd be better.
Obviously were towards to that is yes, and from a borrower's perspective, it would be worse and so there'd be a negotiation over what what level is the right is the right level reflective of the expectations about future interest rates.
For us I would make one other point, which is we have a a meaningful degree now with our unsecured notes of fixed rate debt exposure.
And that gives us in some ways a bit of a buffer against the.
But the but the impact of rising LIBOR.
So I don't I don't anticipate that rising LIBOR is going to be a very big headwind for golub capital.
I agree with you David that it it may be a bigger a bigger issue for some other lenders.
Okay. Thank you know it's it's.
One of the ways that I like is it just seemingly.
As an industry.
And then for certain managers that there is effectively taken some interest rate bets.
And of course.
What what I think most investors are interested in is your ability to underwrite so.
As always seem to be kind.
Kind of a misplaced phenomenon and a LIBOR floor.
Moving on from that I wanted to also follow up on you.
Number.
Number three and number four of your tailwind.
With regard to private equity and its growth.
No other your peers in the industry, especially some of the larger ones have really sizeable and meaningful private equity verticals themselves and.
In discussing the potential conflicts.
Having different advocates on boards for a different part.
Parties on the debt side versus the equity side, there's always been some explanations that.
Seem to be reasonable, but it appears to me that.
Some of those kind of like I don't know that you can never really get away from.
And.
So can you talk a little bit about how you perceive your interaction with the private equity world.
As a lender versus others, who have a little bit more of a conflict.
And.
Is this does this actually but.
Your company your Golub capital and are positioned to benefit more from <unk> number three and number four.
I hope so David look I think that there's a purity about our business model. That's that's a positive it's a positive from the standpoint internally of giving us a singular focus. It's also a positive from an external perspective, I mean put yourself in the shoes of a major private equity firm.
Looking at gaining financing for some for some company X do you really want to share all your thoughts about industry dynamics all of the ways in which you do your due diligence all of your industry research with a firm that maybe competing with you on the next deal.
It's awkward so I I.
I mean, I think I think you're correct that we have not just one but a number of competitors who are successfully using this this business model of being in the private equity business and being in the private debt business, serving other sponsors at the same time.
But I think you know I think there are some challenges with that model and it's one of the things I like about about our singular focus.
Okay. Thank you very much and all the best in the holiday season.
You too David.
Thank you.
There are no further questions at this time I will now turn the call back over to David Golub with closing remarks.
Great. Thank you very much operator, I want to just reiterate something I I said during the.
Opening remarks, which is I want to thank all of you. This has been a challenging period through COVID-19 with a lot of surprises and need for attention to things that historically.
It didn't require so much attention. So we very much appreciate your your support through this period and your confidence in us and look forward to continuing to report on our progress and success over coming quarters have a great holiday season.
This concludes today's conference call. Thank you for participating you may now disconnect.