Q1 2022 Goldman Sachs BDC Inc Earnings Call
Okay.
Good morning. 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 2022 earnings Conference call. Please note that all participants will be in a listen only mode until the end of the call. When we will open up the line for questions.
Before we begin today's call 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 that by their nature are uncertain and outside of the company's control the company's actual results and financial conditions may differ possibly materially from what is <unk>.
Indicated in those forward looking statements as a result of a number of factors, including those described from time to time in the Companys 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 close the company issued an earnings press 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 and which include reconciliation of non-GAAP .
Measures to the most directly comparable GAAP measures. These documents should we should be reviewed in conjunction with the company's quarterly report on Form 10-Q filed yesterday with the SEC. This conference call is being recorded today Friday may six 2022 for replay purposes I will now.
Now I'll turn the call over to Alex Chi Co Chief Executive Officer of Goldman Sachs BDC.
Thank you Erika and good morning, everyone and thank you for joining us for our first quarter earnings Conference call I'm here today with my co Chief Executive Officer, David Miller, Gabrielle and screening, our Chief operating officer, and Carmine <unk>, our Chief Financial Officer.
I'm excited to present the quarter together for the first time in the company's management team.
Begin the call by providing a brief overview of our first quarter results before discussing the current market environment in more detail I will then turn the call over to David to describe our portfolio activity before we hand, it to Carmine, let's take us through our financial results and finally, we'll open the lines for Q&A.
So with that let's get to our first quarter results.
Net investment income per share was 49.
Excluding the impact of asset acquisition accounting in connection with the merger with Eminase first quarter. Adjusted net investment income was <unk> 45 per share.
Net asset value per share decreased slightly to $15 80 at March 31, a decrease of approximately 38 basis points for <unk>.
From the end of the fourth quarter.
As we announced after the market closed yesterday, our board declared a <unk> 45 per share dividend payable to shareholders of record as of June 32022.
With respect to our business. This past March the BDC platform is integrated into the broader direct lending business within the asset management Division of Goldman Sachs.
This innovation brought together the combined platform of almost 100 investment professionals and the Americas focused solely on the private credit market.
One of the primary reasons for the integration wants to provide the company with access to the broader Goldman Sachs platform and a significant flow of additional investment opportunities as well as the enhanced scale of capital that the broader private credit platform can provide.
Very well, thus far and we've already begun to see the benefits of the integration.
Fact within just the last three weeks of the quarter, but the BDC was part of the integrated platform. We already had one new investment that was a direct result of these benefits. We're excited that there are a number of attractive investments in the pipeline that came through other channels within the broader private credit platform and other parts of Goldman Sachs. We look forward to highlighting these.
<unk> and further discussing the benefits of our integrated private credit platform in the coming quarters.
With respect to the market environment. During the first quarter, we continued to experience volatility, which is highlighted by a continued period higher raw material and labor cost inflation.
Supply chain disruptions, the military conflict between Russia and Ukraine.
Increases in interest rates.
Given where current LIBOR and software base rates are and projections for future rate increases.
Anticipate that this rising rate environment will provide a positive tailwind to our earnings in the coming quarters, given substantially all of our assets are floating rate.
Lastly, we as a management team, we will continue to actively make decisions, which serves the best interests of our shareholders.
To this end, we've decided to support our shareholders through this period of volatility by extending incentive fee waiver specifically.
Specifically through and including the fourth quarter of 2022.
We intend to voluntarily waived incentive fees if necessary.
An amount to achieve at least 45 of adjusted net investment income per share on a quarterly basis.
We believe that the support reflects our management team's outlook on the strength of the company's portfolio and ability to generate stable returns. While also factoring in the volatile market conditions with that let me turn it over to my co CEO David Miller.
Thanks, Alex.
During the quarter, we originated $132 million in new investment commitments.
$40 million in new investments to four new portfolio companies and $92 million of follow on investments to 11 makes sense to portfolio companies, primarily to finance M&A activity.
Our juul investment commitments remain focused on first lien senior secured loans.
Sales and repayment activity returned to more normalized levels this quarter totaling $120 million driven by the full repayment of investments in two portfolio companies and the partial sell down of an investment in one portfolio company.
Turning to portfolio composition.
As of March 31, 2022.
Total investments in our portfolio were $3 47 billion at fair value.
From price of 97, 2% in senior secured loans.
<unk> 86, 4% in first lien two 9% in first lien last out unit tranche and seven 9% in second lien debt as well as a negligible amount of unsecured debt and two 8% in a combination of preferred and common stock and warrants.
We also had $453 million of unfunded commitments as of March 31, bringing.
Bringing total investments and commitments to $3 93 billion.
As of quarter end the company held investments in 124 portfolio companies operating across 38 different industries.
Weighted average yield of our investment portfolio at cost at the end of the quarter.
Q1 was seven 9% unchanged.
Unchanged from the prior quarter.
The weighted average yield of our total debt and income producing investments at cost increased to eight 5% at the end of Q1 from eight 4% at the end of Q4.
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 in our investment portfolio decreased to six two times at quarter end as compared to six four times from the prior quarter.
The weighted average interest coverage of the companies in our investment portfolio at quarter end was two five times, which is unchanged from the prior quarter.
While base rates are rising our portfolio of companies have significant breathing room that we believe supports increased interest expense without stressing underlying positions we have.
Estimate that 100 basis point increase in base rates would reduce interest coverage for our companies from two five times to two two times.
And finally, turning to asset quality.
Nonaccrual investments as at quarter end increased slightly to two 8% and two 2% of the portfolio cost and fair value respectively.
As we indicated on our last earnings call, we placed our investment in convene on non accrual in Q4 2021.
Subsequent to Q1 2022, we monetize them fully exited our investment in <unk> as part of its acquisition by Hudson's Bay Company, the parent company in sacs.
After including all.
Accrued interest fees and expenses investment yielded a three 8% IRR and one eight times, Mike since inception.
There will be investment fell short of our initial expectations, we're satisfied with the outcome and believe the exit was in the best interest of our shareholders. Because we are now positioned to reinvest the capital and the income producing.
Assets.
Pro forma nonaccrual status for the disposition of <unk> prior to quarter end would represent 4% and 9% of the portfolio at fair value and cost respectively.
With that I'll now turn the call over to the Carmike to walk through our financial results.
Thank you David we ended the first quarter of 2022 with total portfolio investments at fair value of $3 5 billion outstanding debt of $1 87 billion and net.
Assets of $1 six 1 billion.
We also ended the first quarter with a net debt to equity ratio of one five times, which is a slight increase from $1. One four times at the end of Q4.
Average net debt to equity for the quarter was $1, one six times as compared to 1.02 times in the prior quarter.
At quarter end, 54% of the company's outstanding borrowings were unsecured debt and $833 million of capacity was available under our secured revolving credit facility.
Subsequent to quarter end on April <unk>. The company has a $155 million four 5% convertible notes reached their maturity.
The notes matured out of the money for conversion and repayment was funded using capacity under our secured revolving credit facility.
In addition post quarter end, we closed an amendment to our secured revolving credit facility, which extended the maturity date from August 2026 to May 2027.
<unk> certain financial covenants and replace the LIBOR benchmark with the sulfur benchmark.
Before continuing to the income statement as a reminder, in addition to GAAP financial measures. We will also reference certain non-GAAP or adjusted measures.
This is intended to meet the company's financial results easier to compare to results prior to our October 2020 merger with MLP.
These non-GAAP measures remove the purchase discount amortization impact from our financial results.
For Q1, GAAP and adjusted after tax net investment income were $50 2 million and $45 9 million, respectively, as compared to $57 3 million and $48 9 million respectively in the prior quarter.
The decrease in quarter over quarter GAAP net investment income was primarily due to a reduction in accelerated accretion as a result of lower repayment levels this quarter as compared to last quarter as well as a slight increase in interest and other expenses.
On a per share basis GAAP net investment income was 49.
Compared to <unk> 56 in the fourth quarter.
Adjusted net investment income was <unk> 45, compared to <unk> 48 in the fourth quarter.
Distributions during the quarter totaled 45 cents.
Net asset value per share on March 31, 2022 was $15 <unk> as compared to <unk> 86 as of December 31, 2021.
With that I'll turn it back to Alison Davis for closing remarks. Thanks.
Thanks, Carmen and conclusion. Thank you all for joining us on our call.
Notwithstanding the current market backdrop platform delivered solid results this quarter and we believe we have the portfolio primarily positioned in segments of the economy that are less vulnerable to the volatility associated with the current economic and geopolitical backdrop.
Very excited about the prospects for the company.
As a part of the broader direct lending platform at Goldman Sachs. We appreciate your time and attention today that turn the call over to Erica to open the line for Q&A.
Ladies and gentlemen, we will now take a moment to compile the Q&A roster.
Your first question comes from the line of Shannon O'shea with Wells Fargo.
Hi, everyone. Good morning.
My first question.
On the dividend.
And the fee waivers.
Appreciating that you are.
Extending.
Those waivers another year to.
To meet the dividend it sounds like.
The question sort of at this point is.
Why a year.
Given you're seeing very.
Committed to earning it and keeping it so sort of touch on the meeting meaningless.
Yes.
That timeline and and also in today's market.
What are the sort of levers you'll pull to get there.
Assuming a combination of.
Yields in leverage just just where you see.
Where you see yourself driving there from a returns perspective.
Hey, good morning, Tim Thanks for the question yes.
The dividend and the waiver.
As he said were voluntary waiver net through the end of the year, we do believe that there is.
A few factors at play here number one a rising interest rate environment, which is going to benefit the platform.
Number two reinvesting the proceeds from Columbia that we can do now.
Earning assets and number three.
Incremental leverage that we think we can put it on the platform, we feel very good where it does.
The portfolio is positioned today, primarily first lien senior secured debt.
Think leverage can pick up a little bit and all three of those factors will be able to increase this and support the dividend.
Probably in the third or fourth quarter, we're not exactly sure where that's going to play out we'll have to see where rates go too, but we feel pretty confident that we can cover the dividend in the back half of this year.
Okay. Thanks, that's helpful and then if you could.
An update on.
The the platform integration and co invest in others.
A couple of applications out there on that.
That grant you.
The ability to invest with parts of the <unk> that you were previously.
Unable to.
Just any any update on that that progress if any co investments is now happening.
Yes.
Hey fin, it's Alex Thanks for the question so as I mentioned, we brought the businesses together.
In early March so we had three weeks within the quarter and we already had one new investment that was a result, bringing the business together and in that particular incident we.
We were able to speak for a larger part of the deal by bringing the platforms together and so that allowed us to take a leadership position in the investment. So that's just one of the examples of how.
We've been able to realize the benefits of bringing the businesses together.
It's going very well thus far.
The teams are very familiar with the various pools of capital that we have and with respect to the second part of your question.
We are still waiting for the Exemptive relief from the SEC, which would allow the.
Firm to co invest the balance sheet alongside the BDC, we're very confident that we will receive that release in very short order.
So that's the update.
Sure. That's helpful. And then I guess, just a small follow up on that.
You have the main platform funds and those other.
Origination verticals I understanding their own more integrated now.
Adding the final piece.
Which.
As the proprietary accounts correct me if I'm wrong.
How how different does that make it from.
From where you are now having having merged the platforms, what's the sort of additional.
That benefit or or change in origination when you.
Please.
Complete the entire integration.
Yes from my perspective, the balance sheet investing just gives us the ultimate flexibility. It's the most flexible capital we have of course, it's the firm capital we can go up and down the balance sheet.
And so being able to deploy that side by side with the BDC vehicles is just going to give us much more flexibility.
I'm a senior loan vehicles that we have have more specific mandates and so when we bring on the balance sheet capital, it's just going to be able to enhance the overall platform as it's the most flexible.
Okay great.
All for me thanks, so much.
At this.
There are no further questions. Please continue with any closing remarks.
Again, thank you very much everyone for attending the call and we appreciate your support thank you very much thanks, everyone.
And ladies and gentlemen, this does conclude the Goldman Sachs BDC, Inc. First quarter 2022 earnings Conference call. Thank you for your participation you may now disconnect.
Okay.
[music].
Yes.
Yeah.
Yes.
Okay.
[music].
Continental.
[music].
Right.
Okay.
[music].
Okay.
Okay.
Sure.
[music].
Yes.
Okay.
Hum.
<unk>.
[music].
Okay.
[music].
Alright.
Okay.
[music].