Q4 2022 Goldman Sachs BDC Inc Earnings Call

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Good morning. This is Austin theory, a member of the Investor Relations team for Goldman Sachs BDC, Inc, and I would like to welcome everyone to the Goldman Sachs BDC, Inc. Fourth quarter and year end 2022 earnings Conference call. Please note that all.

Participants will be in 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 companys belief regarding future events that by their nature are uncertain and outside of the company's control.

The company's actual results and financial condition may differ possibly materially from what is indicated in those forward looking statements. As a result of a number of factors, including those described from time to time in 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 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 Relations section, which include reconciliations of non-GAAP measures to the most directly comparable.

<unk> GAAP measures. These documents should be reviewed in conjunction with the company's annual report on Form 10-K filed yesterday with the SEC.

This conference call is being recorded today Friday February 24th 2023 for replay purposes.

Now I'll turn the call over to Alex Chi Co Chief Executive Officer Goldman Sachs BDC.

And good morning, everyone and thank you for joining us for our fourth quarter and year end 2022 earnings conference call.

Here today with my co Chief Executive Officer, David Miller, Gabriele <unk>, our Chief operating officer, and David Purser, Our Chief Financial Officer.

I'll begin the call by providing a brief overview of our fourth quarter results before discussing the current market environment in more detail.

I'll, then turn the call over to David Miller to describe our portfolio activity before we hand, it off to David Purser to take us through our financial results and finally, we'll open the line for Q&A.

So with that let's get to our fourth quarter results.

We recorded a strong quarter of earnings with net investment income per share of <unk> 66 cents.

Excluding the impact of asset acquisition accounting in connection with the merger with LLC.

Net investment income for the quarter was <unk> 65 per share equating to an annualized net investment income yield on book value of 17, 8%.

As was the case last quarter. The increase in returns is largely a reflection of the increase in base rates during the quarter.

For the year, we paid out $1 80 per share in dividends as compared to adjusted net investment income of $2 11 per share, which equates to a 117% coverage ratio for the fiscal year.

As we announced after the market closed yesterday, our board declared a <unk> 45 per share dividend payable to shareholders of record as of March 31 2023.

This marks the company's 30 <unk> consecutive quarter of a 45 cents per share dividend totaling $114 40 per share since our IPO, excluding the special dividends, we paid in 2021 post the merger with MLC.

Net asset value per share decreased to $14 61 per share as of December 31.

A decrease of approximately two 7% from the end of the third quarter with.

This decrease was primarily attributable to unrealized losses and more junior non first lien positions unfair.

Fair value basis first lien loans are 92, 6% of assets as of December 31.

It was 91, 7% as at the end of the third quarter, which leaves us well positioned to withstand potential headwinds in the current market environment.

In addition, we have an emphasis within our pipeline and sourcing first lien senior secured investments.

This quarter, we focus more on add on activity, taking advantage of our incumbent portfolio positions as overall deal volumes remain relatively muted.

We also continue to remain dedicated to directly originated private credit opportunities and have not participated in the secondary market for broadly syndicated loans.

Lastly, we're particularly.

Really excited to enhance our platform capabilities through the recent Exemptive relief that was granted by the SEC on November 16th 2022.

This approval expands our existing Exemptive relief to further benefit GSV, which can now invest alongside the Goldman Sachs balance sheet and additional senior credit vehicles on the Goldman Sachs private credit platform.

We believe that this development enhances the overall origination platform as a key solutions provider to companies and sponsors.

With that let me turn it over to my co CEO , David Miller, Thanks, Alex during the quarter, we originated $47 9 million of new investment commitments.

$3 $5 million of new investments to four new portfolio companies and $14 $4 million of follow on investments to three existing portfolio companies.

Primarily to finance M&A activity or.

New investment commitments were 100% in first lien senior secured loans.

Sales and repayment activity totaled $173 8 million, primarily driven by the full repayment of investments by forward portfolio of companies.

Turning to portfolio composition.

As of December 31, 2022 total investments in our portfolio were $3 5 billion at fair value comprised of 97, 6% senior secured loans, including 89, 3% in first lien three 3% in first lien last out Unitranche and 5.0% in second lien debt.

As well as the small amount of unsecured debt and two 2% and a combination of preferred and common stock and warrants.

We also had $371 1 million of unfunded commitments.

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Bringing total investments at fair value and commitments to $3 9 billion.

As of quarter end the company held investments in a 134 portfolio companies operating across 38 different industries.

The weighted average yield of our investment portfolio at cost at the end of Q4 was 11.0% as compared to nine 9% from the prior quarter.

The weighted average yield of our total debt and income producing investments at amortized cost increased to 11, 7% at the end of Q4 from 10, 4% at the end of Q3.

Turning to credit quality, the weighted average net debt to EBITDA of the companies in our investment portfolio had a slight uptick to six one times at quarter end from 6.0 times at the end of the third quarter.

This was down from six four times for the quarter ended December 31, 2021, which is in line with the decline in leverage we're seeing across the private credit space due to higher base rates that companies face.

Just as importantly, and in response to questions. Some of you have had in regards to macro headlines over the last few quarters, our portfolio of companies had both topline and EBITDA growth on a year over year and quarter over quarter basis.

Deal activity was muted through Q4 as M&A volume slowed for the calendar year, we expect M&A to pick up marginally as sponsors have record amounts of dry powder and are becoming more comfortable with the current macro environment. This.

This should provide a tailwind for pipeline activity.

While muted we've seen increased activity, where we are the incumbent lender with strong lean in VR investment banking funnel as public credit markets remain turbulent, thereby increasing the opportunity set for private lenders.

We remain selective from a credit and risk adjusted return perspective, and maintain our long term strategic view on capital deployment that is insulated by our orientation to first lien credit risk.

Weighted average interest coverage of the companies in our investment portfolio at quarter end was one six times versus one eight times in the prior quarter.

It's important to note that we calculate our coverage ratios based on the current quarter metrics, rather than on a trailing or LTM basis.

Are we to use the LTM calculation that our coverage ratio of the companies in our investment portfolio would be two three times.

And finally, turning to asset quality as of December 31, 2022 investments on non accrual status amounted to <unk>, 3% and two 1% of the total investment portfolio at fair value and amortized cost respectively.

Importantly, the slight increase in non accruals is primarily attributable to one junior non first lien position.

I will now turn the call over to David <unk> to walk through our financial results.

David We ended the fourth quarter and year ended 2022 with total portfolio investments at fair value.

Of $3 5 billion outstanding debt of 2 billion and net assets of $1 5 billion, our ending net debt to equity ratio decreased to 132 times from 134 times last quarter, which is slightly above our target level of 125 times.

Our targeted leverage profile portfolio remains the same as we expect our leverage metrics to come down as repayments pick up with an expected increase in M&A activity in the back half of this year.

At quarter end, 43% of the company's total principal amount of debt outstanding was in unsecured debt and $548 7 million of capacity was available under our secured revolving credit facility.

Before continuing to the income statement as a reminder, in addition to GAAP financial measures.

We also reference certain non-GAAP or adjusted measures. This is a tenant to make the companys financial results easier to compare to results prior to our October 2020 merger with MLC. These non-GAAP measures will move the purchase discount amortization impact from our financial results.

For Q4, GAAP and adjusted after tax net investment income was $67 6 million and $66 $6 million, respectively, as compared to $61 2 million and $56 7 million respectively. In the prior quarter the increase in quarter over quarter GAAP net investment income was.

Primarily due to the increase in benchmark rates.

Moreover, the NII was also enhanced by our policy of eliminating incentive fees due to unrealized losses, resulting from markdowns.

On a per share basis GAAP net investment income was 66.

And adjusted net investment income was 65.

As compared to 60.

56, respectively last quarter.

Our spillover taxable income is approximately $87 million or 84 on a per share basis.

Which we believe provides continued stability on a consistent dividend since inception.

Distributions during the quarter totaled 45.

Net asset value per share on December 31, 2022 was $14 61.

As compared to $15 in <unk> last quarter.

With that I'll turn it back to Alex for closing remarks. Thanks, David in conclusion. Thank you all for joining us on our call.

We think the environment ahead, maybe a little bit further volatility we are confident that our unique and differentiated private credit platform at Goldman Sachs will continue to provide attractive investment opportunities for <unk> in the quarters ahead as we maintain our focus on the portfolio.

Your time and attention today.

With that let's open the lines for Q&A.

If you would like to ask a question. Please signal by pressing star one on your telephone keypad.

Using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.

Please press star one to ask a question.

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There are no questions at this time.

Alright, Thank you very much very support.

Look forward to next quarter. Thank.

Thank you.

Yes.