Goldman Sachs BDC Inc. Q1 2023 Earnings Call
Good morning, It's Austin here I remember the asteroid relations team for Goldman Sachs BDC, Inc, and I would like to welcome everyone to the Goldman Sachs BDC, Inc. First quarter 2023 earnings conference call.
Please note that all participants will be in listen only mode until the end of the call and 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 condition may differ possibly materially from that 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.
Audiocast is copyrighted material of Goldman Sachs, BDC, Inc, and may not be duplicated reproduced or rebroadcast without our consent yes.
Yesterday after the market closed 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 dotcom.
Baxter relations section and which includes reconciliations of non-GAAP measures to the most directly comparable GAAP measures.
Documents 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 5th 20 twenty-three for replay purposes.
I'll now turn the call over to Alex Chi Co Chief Executive Officer of Goldman Sachs BDC.
Austin Good morning, everyone and thank you for joining us for our first quarter 2023 earnings conference call.
I'm here today with my co Chief Executive Officer, David Miller, Gabelli screening, our Chief operating Officer, David Tessa <unk>, our Chief Financial Officer.
I'll begin the call by providing a brief overview of our first 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 tester to 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.
Our net investment income per share for the quarter was 46 cents.
Excluding the impact of asset acquisition accounting in connection with the merger with MLC.
Adjusted net investment income for the quarter was 45 cents per share equating to an annualized net investment income yield on book value of 12, and a half per cent.
The increase how much parents is largely a reflection of the increase in base rates during the quarter.
As we announced after the market closed yesterday, our board declared a <unk> 45 cents per share dividend payable to shareholders of record as of June 30th 2023.
This marks the company's 33rd consecutive quarter of 45 cents per share dividend totaling $14 85 per share since our IPO, excluding the special dividends, we paid in 2021 post the merger with LLC.
Net asset value per share decreased to $14 44 per share as of March 31st a decrease of approximately one 2% from the end of the fourth quarter.
This decrease was primarily attributable to unrealized losses anymore junior non first lien positions.
On a fair value basis first lien loans are 92, 6% of assets as of March 31st, which leaves us well positioned to withstand potential headwinds in the current market environment.
As I stated last quarter, we havent emphasis within our pipeline and switching first lien senior secured investments.
So continue to remain dedicated to directly originated private credit opportunities that have not participated in a secondary market for broadly syndicated loans.
During the quarter, we completed a follow on public offering of common stock at an accretive offering price above NAV per share.
This resulted in net cash proceeds of $97 $6 million, David will expand on this in more detail below.
Despite the continued need of deal environment as a result of macroeconomic uncertainty coupled with the recent headwinds from the regional banking crisis during the quarter, we believe that the coming quarters, I mean likely witness increased steel volumes the more strategic corporate actions, such as take private transactions or divestitures as well as secondary L. B O S.
This view has further informed by increasing pipeline activity as well as the close dialogue, we have with the Goldman Sachs investment banking colleagues.
With that let me turn it over to my co CEO they didn't learn.
Thanks, Alex during the quarter, we originated 2.1 billion in new investment commitments half of the amount and new investments to one new portfolio company and have as part of a follow on investment one existing portfolio company.
Primarily to finance M&A activity.
Our new investment commitments were 100% in first lien senior secured loans.
Sales and repayment activity totaled $12 6 million, primarily driven by the full repayment of investments by one portfolio company.
We are pleased to note that this full repayment was by trial and error, which was previously a watch this name for us in a position that was a three on our risk matrix.
Note trying to it was marked at 94 as of quarter end December 31st and was repaid at par.
Turning to portfolio composition.
As of March 31, 2023 total investments in our portfolio were $3 5 billion at fair value.
Comprising 97, 4% in senior secured loans, including 89, 3% in first lien three 3% in first lien last out unit tranche and four 8% in second lien debt.
Well, it's a negligible amount in unsecured debt and two 4% and a combination of preferred and common stock and warrants.
We also had $325 2 million of unfunded commitments as of March 31, bringing total investments at fair value and commitments of $3 8 billion.
As of quarter end the company held investments in 133 portfolio companies operating across 37 different industries.
The weighted average yield of our investment portfolio at cost at the end of Q1 was 11, 6% as compared to 11.0% from the prior quarter.
The weighted average yield of our total debt and income producing investments at amortized cost increased to 12, 2% at the end of Q1 from 11.7% at the end of Q4.
Turning to credit quality the.
The weighted average net debt to EBITDA of the companies in our investment portfolio had a slight decrease to 6.0 times at quarter end from six one times at the end of the fourth quarter.
Given the level of existing base rates, we would anticipate that future originations and transactions should reflect lower leverage metrics.
Just as importantly, and in response to your questions. Some of you have had with regard to macro headwinds over the past few quarters, our portfolio companies had both the topline and EBITDA growth on a year over year and quarter over quarter basis.
As Alex discussed earlier deal activity was muted throughout the quarter.
Nonetheless, we expect sponsored dry powder, coupled with management and active shareholder activity to six current opportunities in the marketplace to drive future pipeline activity.
We remained selective from a credit and risk adjusted return perspective, and maintain a long term strategic view on capital deployment that is insulated by our orientation to first lien credit risk.
The weighted average interest coverage of the companies in our investment portfolio at quarter end was one six times, which was flat relative to our prior quarter.
It's important to note that we can calculate our coverage ratios based on current quarter metrics, rather than a trailing or LTM basis.
But we do use an LTM calculation and our coverage ratio of the companies in our investment portfolio. It would be two three times.
And finally, turning to asset quality.
As of March 31st 2023 investments on nonaccrual status amounted to 0.6% and one 6% of the total investment portfolio at fair value and amortized cost respectively.
Versus 0.3% and two 1% at fair value and amortized cost respectively as of the quarter ended December 31 2022.
We had one junior non first lien position placed on non accrual and one portfolio company removed from nonaccrual status as we exited the position.
Now I'll turn the call over to David but person to walk through our financial results. Thank you. David We ended the first quarter of 'twenty to 'twenty three with total portfolio investments at fair value of $3 5 billion outstanding debt of $1 9 billion and net assets of 1.6 billion, our ending net debt to equity Ray.
<unk> decreased to 1.2 times from 1.32 times last quarter as Alex mentioned on March six we Opportunistically completed a follow on public offering of common stock at an accretive offer and priced above NAV per share the offering resulted in net cash proceeds.
$97 6 million, which we used to reduce our leverage the lowered leverage levels allow us to deploy capital into attractive risk adjusted opportunities in the current market.
At quarter end 44, 3% of the company's total principal amount of debt outstanding was an unsecured debt.
$612 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 will also reference certain non-GAAP or adjusted measures. This is intended to make the company's financial results easier to compare to results prior to our October 2020 merger with M. L C.
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 $48 million and 47.1 million, respectively, as compared to 67 6 million and $66 6 million respectively in the prior quarter.
The increase in quarter over quarter top line investment income was primarily primarily due to the increase in benchmark rates.
The decrease in net investment income was due to the increase in our incentive fee.
As a reminder, our incentive fee calculation is based on a 12 quarter look back inclusive of the total return limiter, where any unrealized losses, resulting from markdowns offset pre incentive fee net investment income.
For the current quarter results from Q1, 'twenty 'twenty were removed from the calculation, which included results from the initial impact of COVID-19, and meaningfully limited the amount of incentive fees that could be earned during the trailing 12 quarter period.
Further we voluntarily waived a portion of our fees during that same period, including the quarter ended March 31, 2023, exemplifying, our commitment and orientation to being shareholder friendly.
On a per share basis GAAP net investment income was 46 cents and adjusted net investment income was 45 cents as compared to 66 cents and 65 cents, respectively last quarter.
Our spillover taxable income is approximately $85 million or 78 cents on a per share basis, which we believe provides continuous stability on a consistent dividend since inception.
Distributions during the quarter totaled 45 cents.
Net asset value per share on March 31, 2023 was $14.44 as compared to $14 61 last quarter.
With that I'll turn it back to Alex for closing remarks. Thanks.
Thanks, David.
Thank you all for joining us on our call.
Did you all environment, there's need it again this quarter, we are encouraged by some green shoots developing as our pipeline begins to improve.
Over our improved leverage profile allows us to capitalize on new opportunities as soon as that actually volumes evolve.
Appreciate your time and attention today with that let's open the line for Q&A.
If you would like to ask a question at this time. Please take note by pressing star one on your telephone keypad.
We're using a speaker phone. Please make sure your mute function is turned off to allow the signal to reach our equipment again press star one if you'd like to ask a question and we'll pause for just a moment to allow everyone the opportunity to signal for questions.
And we will take our first question from Mark Hughes with Truest. Please go ahead.
Yes. Thank you very much I wonder if you could could you refresh me on kind of your maturity schedule on your debt your credit facility.
Any motivation to make any changes there on your balance sheet.
Yes.
Morning, Mark This is Dave has a.
Looking at our debt stack, we have a senior secured revolving credit facility that has a maturity date of 2027 on the unsecured side, we have a two notes one.
2025 notes and at 2020 six notes.
They come due in February of 'twenty five in January of 26, right now I think our liquidity profiles right right in the mix of where we want to be between secured and unsecured.
Where the market is we will continue to assess our liquidity levels and meetings.
At this time I don't think we're going to really do anything, but again opportunistically, we'll assess where the market is and in the event, we want to reenter the unsecured market at a given point we will.
Great and then.
Anything could spread now.
Obviously deal activity was low in Q1, I think you describe the pipeline building.
How would you characterize the spread I think you've mentioned leverage you would look to be lower but just a little more on.
What we might anticipate when when things start to happen here.
Hey, Mark it's Alex Thanks for the question and thanks for joining the call. Okay. As you described the environment continues to be very attractive and also leverage levels have come down on average while enterprise value multiples on deals that have continued to hold up at a very attractive elevated levels.
Low leverage levels have come down as you all know just given the fact that base rates have gone up.
So these companies can.
There was a debt load that they have to service them certainly those amount to come down. Okay. So the spreads are still very attractive and there's still you know well into the six hundreds.
I would say that and to your point just given the needed pipeline to the extent that there are some very attractive low levered and loyalty video deals out there you can see some pressure on spreads, but but for the most part our spreads continue to hold up quite well I would not be surprised over time again I know, we're all at very very attractive long minutes.
Some point spread to start to go back to more normalized levels, but for the moment, we're still seeing yeah quite healthy spreads.
Yes, it's David I might just add from that perspective look really attractive assets out there you are seeing a slight spread compression plus OID.
Going from what was very attractive 97.
In the 90 890 97 range. So we do anticipate when M&A picks up and you talked to our investment bankers, yeah, they've got a decent pipeline of M&A opportunities.
We go into the year that you know hopefully spreads stay where they are in Hawaii, and we can take advantage of very attractive market for private credit.
And then one final one within your portfolio any end market.
Yeah.
You may be seeing a little more deceleration in the growth.
Growth or.
Interest coverage that.
They may not be so obvious where where are you seeing perhaps some signs of.
A different performance.
If if anywhere just sort of curious if anything.
And obviously, that's showing up within the portfolio.
Yeah, I wouldn't say, there's any broad themes. There you know look it's going to be very company specific and market specific.
But you know when we take a look at our very first slide portfolio, we don't notice any noticeable trends.
From a slowdown in activity our portfolio's continued company for kidney continued to perform well with both topline and EBITDA growing year over year quarter over quarter. So we feel good about that.
And one other.
And you'll trend we're seeing is the fact that although revenues and EBITDA are still growing quarter over quarter year over year, I mean, EBITDA is not growing as quickly as topline stomach as companies continue to face some some margin pressure and so we see just a slight bit of margin compression across the portfolio, but other than that no notable trends.
Understood. Thank you.
Thank you.
As a reminder, if you would like to ask a question. Please press star one.
Next to Erinn Saigon Revich with Citi. Please go ahead.
Your interest income increased slightly quarter over quarter, but I would have expected a little bit more with given the move in the base rates is there was there anything.
No kind of onetime in nature, there reverse a little non accrual interest or something in the prior quarter that was somewhat elevated.
No nothing from this quarter in terms of reversal of a non accrual that was sizable last quarter did have some nonrecurring income from prepayment activity.
From a couple of names that that's really the change quarter over quarter that was about $3 million last quarter and repayment activity repayment activity. This current quarter. It was pretty muted. If you look at our recurring levels are that did increase quarter over quarter by about four and a half million dollars.
So it's really the change in the nonrecurring side, that's making it look a flat period over period.
Got it alright, thanks, and then.
In terms of the green shoots you're seeing in your investment pipeline.
How how are these are rising or are these just a more normal natural kind of M&A or they are follow ons or are you seeing any kind of pullback from traditional banking where clients might be looking for alternatives relative to how they normally would finance.
That's a good question I think that a couple of things.
First with respect to our activity as you know, it's it's driven in large part by sponsor M&A.
Although overall levels are still muted certainly versus prior year say that the the green shoots you're seeing or the fact that we're seeing more deal flow. There's lots community as you know the amount of dry powder that sponsors have you continue to sit at record levels.
I think now that there's a bit more stability in the market I think that's going to unleash.
More M&A activity as there's more confidence that's out there and so for those those factors and we're starting to see some more activity.
You know as we skew more towards the larger side I think you're going to see some more take private activity you're going to see some more divestitures that are coming out of public companies that also are looking for liquidity and more value creation. So for all those reasons I think we're going to see some additional deal flow and in addition, you know the existing portfolio of companies continue to see very.
Add on opportunities. So we're starting to see more deal flow from that perspective, so for all those reasons I think.
We're starting to see some green shoots and as you know just given up our platform.
Given that we're part of the broader institution given our dialogue that we have with our investment bankers and they continue to tell us that.
Even more activity at our backlog continues to increase and so I think that that sets up well for a better deal flow environment in the second half.
As far as the regional banks and some of the issues going on there you know we've seen a few opportunities from that I think we're early days, we are optimistic about the opportunity set in around credit.
Tightening credit standards at some of the regional banks, which should bode well for some opportunities in the middle market.
Thank you.
Again, if you would like to ask a question at this time. Please press star one and we will pause for just a moment.
And it appears we have no further questions at this time I will now turn the conference back over to today's speakers for any additional or closing remarks.
So thank you very much for attending our call and have a great weekend.
And this concludes today's call. Thank you for your participation and you may now disconnect.
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Okay.
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