Q3 2023 Golub Capital BDC Inc Earnings Call
Hello, everyone and welcome to G. B D. C is June 30th 20, twenty-three quarterly earnings 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 nine.
Speaker 1: Hello everyone and welcome to GBDC's June 30th, 2023 quarterly earnings 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.
95 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>.
Speaker 1: 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 GBDC's SBCC filing.
B D CS SEC filings.
Speaker 1: For materials we intend to refer to on today's earnings call, please visit the Investor Resources tab on the homepage of our website, which is www.gallabcapitalbdc.com, and click on the events presentations link. Our earnings release is also available on our website in the Investor Resources section. As a reminder, this call is being recorded. With that, I'm pleased to turn the call over to David Galleb, Chief Executive Officer of GBDC.
For materials, we intend to refer to on today's earnings call. Please visit the Investor resources tab on the homepage of our website, which is www dot Golub capital BDC Dot com and click on the events presentations link our earnings release is also available on our website in the Investor Resources section as a reminder, this call is being.
Recorded with that I'm pleased to turn the call over to David Gala, Chief Executive Officer of G. B D C.
Hello, everybody and thanks for joining us today I'm joined by Chris Eric <unk>, Our CFO and Matt Bengtsson, Our Chief operating officer for those of you who are new to <unk>. Our investment strategy is and since inception has been to focus on providing first lien senior secured loans to healthy resilient middle market companies that are back.
Speaker 2: Hello everybody and thanks for joining us today. I'm joined by Chris Erickson, our CFO and Matt Benton, our Chief Operating Officer.
Speaker 2: For those of you who are new to GBDC, our investment strategy is, and since inception, it's been to focus on providing first lean senior secured loans to healthy, resilient middle market companies that are backed by strong partnership oriented private equities.
By strong partnership oriented private equity sponsors.
Speaker 2: We have a lot to talk about today. It was an eventful quarter. Record adjusted net investment income of 44 cents per share, strong credit results, an eight cent per share dividend increase, four cents of that from an increase in the base dividend and four cents from implementation of a new variable supplemental dividend framework.
We have a lot to talk about today. It was an eventful quarter record adjusted net investment income of 44 cents per share.
Credit results in each cent per share dividend increase or sense of that from an increase in the base dividend and four cents from implementation of the new variable supplemental dividend framework.
Speaker 2: a 10 cent per share increase in NAV, and a permanent reduction in the base management fee going forward to 1%.
A 10 cent per share increase in NAV in a permanent reduction in the base management fee going forward to 1%.
Speaker 2: Yesterday, we issued press releases describing both GBDC's quarterly earnings and the management fee reduction. We also posted two presentations on our website, and we'll be referring to both of them on this call. I'm going to start by discussing the management fee reduction, and then my colleagues and I will walk you through the quarter. We'll plan on taking questions at the end.
Yesterday, we issued press releases, describing both G Bdc's quarterly earnings and the management fee reduction. We also posted two presentations on our website and will be referring to both of them on this call.
I'm going to start by discussing the management fee reduction and then my colleagues and I will walk you through the quarter, we'll plan on taking questions at the end.
Speaker 2: On August 3rd, GBDC's board approved a permanent reduction in the base management fee rate from 1.375% per annum to 1% per annum effective July 1. The basis for computing the management fee is unchanged. It's based on the fair value of assets other than cash.
On August 3rd <unk> Board approved a permanent reduction in the base management fee rate from $1, 375% per annum to 1% per annum effective July one the basis for computing. The management fee is unchanged. It's based on the fair value of assets other than cash.
Speaker 2: As you can see from the chart, all other terms of the company's investment advisory agreement remain unchanged. In other words, the lower base management fee rate applies in addition to the existing best in class features of GBDC's fee structure. And that includes one of the highest hurdle rates in the industry and a cumulative incentive decaf that looks back to the company's inception.
As you can see from the chart all other terms of the Companys investment Advisory agreement remain unchanged in other words, the lower base management fee rate applies in addition to the existing best in class features of G. Bdcs fee structure and that includes one of the highest hurdle rates in the industry and a cumulative incentive fee cap it looks.
Back to the company's inception.
Slide four illustrates how the new lower management fee permanently increases G. Bdc's earnings power I want to walk you through the chart.
Speaker 2: Slide four illustrates how the new lower management fee permanently increases GBDC's earnings power. I wanna walk you through the chart. The left column reflects GBDC's actual results for the quarter ended June 30th. And the right column reflects GBDC's pro forma results as if the lower fee rate had a celestial growth factor compared to the most connector Characterized roll ratio on Powija. And while this fatly Jeans and affects Christine the lower Shape sales will remain at almost two billion dollars in suggested
The left column reflects G. Bdcs actual results for the quarter ended June 30.
In the right column reflects GBT six pro forma results.
As if the lower fee rates had applied for the quarter.
Speaker 2: The rows outlined in gold show the key differences between the actual and pro forma results.
The Roes outlining gold show the key differences between the actual and pro forma results.
Speaker 2: So you'll see the base management fee decreases significantly in the pro forma analysis. And at the same time, the NII incentive fee increases slightly because pre-incentive fee earnings are higher.
So you'll see the base management fee decreased significantly in the pro forma analysis and at the same time, the NII incentive fee increases slightly because pre incentive fee earnings are higher.
Speaker 2: Pro forma for the management fee reduction, GBDC's adjusted NII increases by between two and three cents per share on a quarterly basis, or over 10 cents per share on an annualized basis.
Almost for the management fee reduction G. Bdcs adjusted NII increases by between two and three <unk> per share on a quarterly basis or over 10 cents per share on an annualized basis.
Speaker 2: Now, the exact impact of the fee change is going to depend on a number of assumptions. But one way to interpret this analysis is that the lower management fee rate increases GBDC's expected profitability both today and its average level of profitability across various market and interest rate cycles.
Now the exact impact of the fee change is going to depend on a number of assumptions, but one way to interpret this analysis is that the lower management fee rate increases <unk> expected profitability, both today and its average level of profitability across various market and interest rate cycles.
Speaker 2: So that covers the what, now let's turn to slide five and talk about the why.
So that covers the what now let's turn to slide five and talk about the why.
Since <unk> IPO 13 years ago, we've always sought to be at the front end of raising the bar for alignment between the company's shareholders and its investment advisors GB.
Speaker 2: Since GBDC's IPO 13 years ago, we've always sought to be at the front end of raising the bar for alignment between the company's shareholders and its investment buys.
Speaker 2: GBDC pioneered the cumulative incentive fee cap, and that set the standard for aligning BDCs and investment advisors on long-term credit performance.
<unk> pioneered the cumulative incentive fee cap and that set the standard for aligning Bdcs and investment advisors on long term credit performance now.
Speaker 2: Now, many things haven't changed since 2010. Our investment strategy I started out today's call describing it's the same. So is our focus on delivering the attributes that we think BDC investors care most about, including strong risk adjusted returns on equity, a stable and well-covered dividend and consistent nav growth over time. What has changed is GBDC's scale. In terms of total assets, GBDC today is over 15 times the size it was at the time of the IPO.
Now many things haven't changed since 2010.
Our investment strategy I started out today's call describing its the same.
So it was our focus on delivering the attributes that we think BDC investors care, most about including strong risk adjusted returns on equity.
Stable and well covered dividend and consistent NAV growth over time.
What has changed is G BDC scale.
In terms of total assets G. BDC today is over 15 times the size. It was at the time of the IPO.
Speaker 2: With that growth has come higher management, fee revenues for Gallup capital. And consistent with God capital's focus on win-win solutions. God capital proposed to GBDC board last week. Did it share the benefits of GBDC's growth by lowering its management?
With that growth has come higher management fee revenues per dollar of capital and.
And consistent with Golub Capital's focus on win win solutions golf capital propose to G. Bdcs Board last week that its share the benefits of <unk> growth by lowering its management fee.
Speaker 2: We believe this move is consistent with Gallup Capital's long-standing commitment to having a BDC industry leading shareholder friendly fee strut.
We believe this move is consistent with Golub capital's long standing commitment to having the BDC industry, leading shareholder friendly fee structure.
Speaker 2: Let's turn to slide six to wrap up this part of today's call. In our view, GVDC's value proposition to shareholders was compelling before this change. Now, now it's even more compelling.
Let's turn to slide six to wrap up this part of today's call.
In our view <unk> value proposition to shareholders was compelling before this change now now it's even more compelling.
Speaker 2: We believe GBDC has the right strategy for today's environment, a focus on floating-rate senior secured loans to resilient sponsor backed companies.
We believe <unk> has the right strategy for today's environment, our focus on floating rate senior secured loans to resilient sponsor backed companies.
Speaker 2: With base rates and spreads both high, now is a particularly attractive time for sponsor finance.
With base rates and spreads both high now is a particularly attractive time for sponsor finance.
Speaker 2: Second, we think GBDC's investment advisor is the right manager to execute on the company's strategy.
Second we think Gee Bdc's investment advisor is the right manager to execute on the company's strategy.
Speaker 2: GOLF Capital has powerful competitive advantages you've heard me talk about on many prior calls. These competitive advantages include scale and sponsor relationships and incumbencies, a wide breadth of solutions, and industry expertise.
Golf capital has powerful competitive advantages you've heard me talk about on many prior calls these competitive advantages include scale and sponsor relationships incumbencies, a wide breadth of solutions and industry expertise.
<unk> capital has also proven its credit progress through a 20 year track record of low defaults and low credit losses.
Speaker 2: Gallo Capital has also proven its credit prowess through a 20-year track record of low defaults and low credit loss.
Speaker 2: There's a reason private debt investor just named Gollop Capital both lender of the decade and senior lender of the decade.
Theres a reason private debt investor just named Golub capital, both lender of the decade and senior lender of the decade.
Speaker 2: Third, we think GBDC's funding model gives it low cost leverage and structure resilience.
Third we think Gbc's funding model gives us low cost leverage and structural resilience.
Speaker 2: And finally, we believe GBDC's fee structure is very attractive, even more attractive going forward, and that it creates strong alignment between the company's shareholders and its investment advisor on the goal of long-term shared success.
And finally, we believe GBT six b structure is very attractive even more attractive going forward and that it create strong alignment between the company's shareholders and its investment advisor on the goal of long term shared success.
Speaker 2: I'll now turn the floor over to Matt to start us off in the earnings presentation.
I'll now turn the floor over to Matt to start us off and the earnings presentation.
Thanks, David.
Speaker 2: Thanks, David. Now let's turn to our usual earnings presentation. I'm going to start on slide space.
Now, let's turn to our usual earnings presentation I'm going to start on slide six.
Speaker 2: GBDC's earnings for the quarter ended June 30th for record setting. Adjusted NII per share increased to 44 cents from 42 cents per share in the quarter ended March 31st. This equates to an adjusted NII ROAE of 11.9%.
<unk> earnings for the quarter ended June 30th were record setting adjusted NII per share increased to 44 cents from 42 cents per share in the quarter ended March 31.
This equates to an adjusted NII Aro AE of 11, 9%.
Speaker 2: Adjusted NII per share significantly exceeded the company's quarterly dividend. We'll come back to that point in a moment.
Adjusted NII per share significantly exceeded the company's quarterly dividend will come back to that point in a moment.
Speaker 2: Net income per share increased to 43 cents from 34 cents per share in the prior quarter. This equates to an ROE of 11.6%.
Net income per share increased to 43 from 34 cents per share in the prior quarter. This equates to an ROE of 11, 6%.
Speaker 2: GBDC's NAD per share increased by 10 cents to $14.83 per share as of June 30.
<unk> six <unk> per share increased by 10 cents to $14 83 per share as of June 30.
Speaker 2: The Portfolio and Balance Sheet update generally reflects the continuation of trends from the March 31st quarter.
The portfolio of balance sheet update generally reflects the continuation of trends from the March 31 quarter.
Speaker 2: Net funds growth remain muted as the market wide deal drought.
Net funds growth remained muted as the market wide deal crowd continued overall credit performance of the G. D. C portfolio remained solid despite rising interest rates and slower economic growth, we've been anticipating the degree of credit migration, but today, we've seen less credit migration than we expected in.
Speaker 2: Overall credit performance of the GBDC portfolio remains solid, despite rising interest rates and slower economic growth. We've been anticipating a degree of credit migration, but today we've seen less credit migration than we expect.
Speaker 2: Internal performance ratings remain stable and non-equals decrease to 1.5% of total debt investments at fair value.
Internal performance ratings remained stable and non accruals decreased to one 5% of total debt investments at fair value.
Speaker 2: On the right side of the balance sheet, GBDC's debt funding remained low cost and highly flexible, with unsecured debt representing about 46% of the million.
On the right side of the balance sheet <unk> debt funding remained low cost and highly flexible with unsecured debt represented about 46% of the mix <unk> ended the quarter with nearly $900 million of total available liquidity.
Speaker 2: GBDC ended the quarter with nearly $900 million of total available footage.
Speaker 2: The last highlight on the page is an exciting change to GVDC's dividend policy. The board raised GVDC's regular quarterly distribution by four cents, the 37 cents per share. This higher distribution is well covered with a coverage ratio of 119%.
The last highlight on the page is an exciting change to GBT CS dividend policy. The board raised GBP six regular quarterly distribution by four cents to <unk> 37 per share this higher.
Distribution is well covered with a coverage ratio of 119%.
Speaker 2: The board also authorized a supplemental distribution of 4 cents per share on top of the new hire-based dividend.
The board also authorized a supplemental distribution of four cents per share on top of the new higher base dividend.
Speaker 2: The supplemental dividend was consistent with the new variable supplemental distribution framework that GBDC expects to implement going forward. Chris will discuss this in more detail shortly.
The supplemental dividend was consistent with the new variable supplemental distribution framework that GBT expects to implement going forward, Chris will discuss this in more detail shortly.
In total the board approved 41 cents per share of distributions in respect of fiscal Q3 performance. This corresponds to an annualized dividend yield of more than 11% based on JBT sees the NAV per share as of June 30.
Speaker 2: In total, the board approved 41 cents per share of distributions in respect of fiscal Q3 performance.
Speaker 2: This corresponds to an annualized dividend yield of more than 11% based on GBDC's NAV per share as of June 30.
Speaker 2: I'm going to turn it over to Chris now to provide more detail on our results. Chris? Thanks, Matt. Turning to slide seven, you can see how the key earnings drivers we mentioned earlier translated into solid growth in NAV for share.
I'm going to turn it over to Chris now to provide more detail on our results Chris. Thanks.
Thanks, Matt turning to slide seven you can see how the key earnings drivers, we mentioned earlier translated into solid growth in NAV per share.
Speaker 3: We've talked for several quarters about GVDC's enhanced fundamental earnings power in the current environment.
We've talked for several quarters about GBT sees enhanced fundamental earnings power in the current environment.
Combination of high short term interest rates attractive credit spreads and GBP six low cost leverage profile drove a continued trend of record adjusted NII per share.
Speaker 3: Combination of high short-term interest rates, attractive credit spreads, and GBDC's low-cost leverage profile drove a continued trend of record-adjusted NII per share.
Speaker 3: As you can see, GBDC out-earned its dividend considerably in the fiscal third quarter.
As you can see GBC outlined its dividend considerably in the fiscal third quarter.
Speaker 3: We've also said that our confidence in GBDC's forward-looking earnings potential meant that we expected to reassess our approach to dividends in the future, and we did. Let's turn to slide 8.
We've also said that our confidence in <unk> forward looking earnings potential meant that we expected to reassess our approach to dividends in the future and we did.
Let's turn to slide eight to walk through the details.
Slide eight provides additional detail on the two key changes to GBT CS dividend policy that Matt highlighted.
Speaker 3: Slide eight provides additional detail on the two key changes to GBDC's dividend policy that Matt highlighted.
Speaker 3: We believe it's important for investors to understand the rationale for the change in supporting framework. So let's walk through the details.
We believe it's important for investors to understand the rationale for the change in supporting framework, So let's walk through the details.
First the board increased <unk> base dividend by over 12% to 37 cents per share.
Speaker 3: First, the board increased GBDC's base dividend by over 12% to $0.37 per share.
Speaker 3: We believe this changes appropriate in light of GBDC's enhanced profitability.
We believe this change is appropriate in light of <unk> enhanced profitability.
Speaker 3: The new base dividend is well covered by GBDC's adjusted NII and was assessed in the context of our objective to maintain a stable and growing nav op-
<unk> based dividend is well covered by GBT seas adjusted NII. It was assessed in the context of our objected to main a stable and growing NAV over time.
Speaker 3: Second, the Board approved a supplemental distribution that was based on the variable supplemental distribution framework that GVDC expects to implement going forward.
Second the board approved a supplemental distribution that was based on the variable supplemental distributions framework that <unk> expects to implement going forward.
Speaker 3: The goal of this framework is to give shareholders a clear line of sight into how we plan to balance the likelihood that GBDC will continue to generate excess income, all else equal, on the one hand, with our focus on NAV stability and resilience on the other.
The goal of this framework is to give shareholders a clear line of sight into how we plan to balance the likelihood at GBC will continue to generate excess income all else equal on the one hand with our focus on NAV stability and resilience on the other hand.
Speaker 2: In short, the variable supplemental distribution framework will propose supplemental distributions paid quarterly in arrears based on 50% of the amount by which quarterly adjusted NII exceeds the regular quarterly distribution, subject to NAV stability requirements and the board's discretion, oversight and approval.
In short the variable supplemental distribution framework will proposed supplemental distributions paid quarterly in arrears based on 50% of the amount by which quarterly adjusted NII exceeds the regular quarterly distributions subject to NAV stability requirements and the board's discretion oversight and approval.
Speaker 2: For fiscal Q3, the supplemental distribution amount is $0.04 per share payable in September .
For fiscal Q3, the supplemental distribution amount is four cents per share payable in September .
You can find additional detail about the variable supplemental distribution framework on page 24 of the earnings presentation.
Speaker 2: You can find additional detail about the variable supplemental distribution framework on page 24 of the earnings present.
The chart at the bottom of the slide shows how the two changes to GBP six dividend policy translate into a higher go forward dividend yield.
Speaker 2: The chart at the bottom of the slide shows how the two changes to GBDC's dividend policy translate into a higher go forward dividend yield.
Speaker 2: We estimate that the increase in GBDC's base dividend to $0.37 per share corresponds to a 1.1 percentage point increase in GBDC's annualized dividend yield on NAV as of June 30th from 8.9% to 10%
We estimate that the increase in <unk> based dividend to <unk> 37 per share corresponds to a one one percentage point increase in <unk> annualized dividend yield on NAV as of June 30th.
From eight 9% to 10%.
The supplemental distribution shown in light blue further increases gcc's dividend yield on 630, NAV by another 1.1 percentage point to 11, 1% annualized.
Speaker 2: supplemental distribution shown in light blue further increases GBDC's dividend yield on 630 Nav by another 1.1 percentage point to 11.1 percent and
Speaker 2: We're excited that these policy changes set the stage for more GBC's enhanced earnings power to be distributed to shareholders in a manner we believe is prudent and understandable.
We're excited that these policy changes set the stage for more GBP six enhanced earnings power to be distributed to shareholders in a manner. We believe is prudent and understandable.
Speaker 2: Let's now go through the details of GBDC's financial results for the quarter ended June 30.
Let's now go through the details of <unk> financial results for the quarter ended June 30th.
Speaker 2: We've covered the key points on slide 10, so we'll start on slide 11, which summarizes our origination activity for the.
We've covered the key points on slide 10, so let's start on slide 11, which summarizes our origination activity for the quarter.
Speaker 2: Net funds increased modestly quarter over quarter as new investment commitments and delayed draw term loan funding succeeded exits sales and fair value changes of existing
Net funds increased modestly quarter over quarter, as new investment commitments and delayed draw term loan fundings exceeded exits sales and fair value changes of existing investments.
Speaker 2: Market-wide deal activity has been slow since last year and remains slow in the June 30th quarter.
Market wide deal activity has been slower since last year and remained slow in the June 30 quarter.
Speaker 2: We're seeing a modest improvement in our pipeline for the second half of the calendar year, but our sense is that a significant acceleration in deal activity is more likely to be a 2024.
We're seeing a modest improvement in our pipeline for the second half of the calendar year, but our sense is that a significant acceleration in deal activity is more likely to be at 2024 events.
Speaker 2: The asset mix of new investments shown in the middle of the slide remain predominantly one stop long.
The asset mix of new investments shown in the middle of the slide remain predominantly one stop loans.
Speaker 2: Looking at the bottom of the slide, the weighted average rate on new investments increased by 20 basis points this quarter, primarily due to higher basis.
Looking at the bottom of the slide the weighted average rate on new investments increased by 20 basis points. This quarter, primarily due to higher base rates the weighted average spread on new investments tightened by 50 basis points to six 6%.
Speaker 2: The weighted average spread on new investments tightened by 50 basis points to 6.6.
Speaker 2: Spreads in the market are reasonably stable. This quarter over quarter change is primarily due to fluctuations resulting from modest origination activity rather than about a change in market conditions.
Spreads in the market are reasonably stable this quarter over quarter change is primarily due to fluctuations, resulting from modest origination activity rather than about a change in market conditions.
Speaker 2: Having said this, we have seen some signs of spread tightening in recent.
Having said this we have seen some signs of spread tightening in recent months.
Slide 12 shows <unk> overall portfolio mix as you can see the portfolio breakdown by investment type remained consistent quarter over quarter with one stop loans continuing to represent around 85% of the portfolio at fair value.
Speaker 2: Slide 12 shows GBC's overall portfolio mix. As you can see, the portfolio breakdown by investment type remained consistent quarter over quarter with one-stop loans continuing to represent around 85% of the portfolio at Fairview.
Slide 13 shows that <unk> portfolio remained highly diversified by obligor with an average investment size of approximately 30 basis points.
Speaker 2: Slide 13 shows that GBDC's portfolio remained highly diversified by Obligor with an average investment size of approximately 30 basis points.
Speaker 2: As of June 30th, 2023, 94% of our investment portfolio consists of first-learn, senior secured floating rate loans to borrowers across a diversified range of what we believe to be resilient industry.
As of June 32023, 94% of our investment portfolio consisted of first lien senior secured floating rate loans to borrowers across a diversified range of what we believe to be resilient industries.
Speaker 2: The economic analysis on slide 14 continues to showcase the asset-sensitive nature of GBDC's balance sheet in an environment of rising interest rates. Let's walk through how...
The economic analysis on slide 14 continues to showcase the asset sensitive nature of <unk> balance sheet and in an environment of rising interest rates, let's walk through how to interpret the chart.
Speaker 2: Starting with the dark blue line, which is our investment income yield. And as a reminder, investment income yield includes the amortization of fees and discus.
Starting with the dark Blue line, which is our investment income yield and as a reminder, investment income yield includes the amortization of fees and discounts.
Speaker 2: GBDC's investment income yield increased by 40 basis points, primarily from rising interest.
<unk> investment income yield increased by 40 basis points, primarily from rising interest rates at.
Speaker 2: contrast or cost of that the teal line only increase 30 bases.
By contrast, our cost of debt the Teal line only increased 30 basis points as a result, our weighted average net investment spread the gold line increased by 10 basis points over the prior quarter.
Speaker 2: As a result, our weighted average net investment spread to gold line increased by 10 basis points over the prior quarter. As a result, our weighted average net investment spread to gold line increased by 10 basis points over the prior quarter.
I'm going to hand, it back over to Matt now.
Speaker 4: Thanks Chris. Let's move on to slide 15 and 16 and take a closer look at credit quality.
Thanks, Chris let's move on to Slide 15, and 16 and take a closer look at credit quality metrics.
Speaker 4: The overall message is that credit trends remain solid and stable. On slide 15, you can see that non-accurals decreased by 20 basis points quarter over quarter to 1.5% of total debt investments that they're buying.
Overall message is that credit trends remained solid and stable on slide 15, you can see that non accruals decreased by 20 basis points quarter over quarter to one 5% of total debt investments at fair value.
As a percentage of amortized cost non accruals decreased by 80 basis points to one 8% of total debt investments, we disposed of one non accrual investment in fiscal Q3 for proceeds slightly higher than the investments fair value as of March 31.
Speaker 4: As a percentage of amortized cost, non-equals decreased by 80 basis points to 1.8% of total budgeting.
Speaker 4: We dispose of one non-coral investment fiscal Q3 for proceeds slightly higher than the investment center value as of March 31st. And we completed restructurings of two long time watchless companies, both of which have previously been on that.
And we completed restructurings of two long time watch list companies, both of which had previously been on non accrual.
Those two restructurings underpinned the majority about the realized loss and unrealized gain this quarter also in fiscal Q3, one small in one tiny investment were placed on non accrual status.
Speaker 4: Those two restructurings underpin the majority about the realized loss and unrealized gain the
Speaker 4: Also in fiscal Q3, one small and one tiny investment replaced on non-accurals.
Speaker 4: Slide 16 shows the trend in internal performance ratings on GVD season.
Slide 16 shows the trend in internal performance ratings on DVD season investments as of June 30th round, 86% of GBT cease investments four rated four five which means they are performing as expected or better than expected at underwriting.
Speaker 4: As of June 30th, around 86% of GBDC's investments were rated 4 or 5, which means they're performing as expected or better than expected at underwriting.
Speaker 4: The proportion of loans rated one and two, which are the loans we believe are most likely to see significant credit impairments, fell from an already very low 1.2% of the portfolio at fair value to 30 basis points. That's the lowest level it has been.
The proportion of loans rated one and two which are the loans. We believe are most likely to see significant credit impairments fell from an already very low one 2% of the portfolio at fair value to 30 basis points. That's the lowest level. It has been since March of 2018.
Speaker 4: The proportion of loans rated three increased modestly to 13.7.
The proportion of loans rated three increased modestly to 13, 7%.
Speaker 4: You'll recall that Category 3 loans are performing below expectations or are expected to perform below expectations.
Youll recall the category three loans are performing below expectations or are expected to perform below expectations when alone migrates to category three get automatically triggers heightened scrutiny and oversight. It doesn't mean that we necessarily expect that default or loss.
Speaker 4: When a loan migrates to Category 3, it automatically triggers heightened scrutiny and oversight. It doesn't mean that we necessarily expect that the fault will...
Now if we take a step back what we're seeing in terms of overall credit quality is meaningfully better than our expectations at the start of the year.
Speaker 2: Now, if we take a step back, what we're seeing in terms of overall credit quality is meaningfully better than our expectations at the start of the year.
Speaker 2: We expected a degree of credit migration, given rising interest rates and swelling economic.
We expected a degree of credit migration, given rising interest rates and slowing economic growth.
Speaker 2: To date, we've seen less credit migration in our portfolio than expect.
To date, we've seen less credit migration in our portfolio than expected.
Speaker 2: Not zero migration is shown by the mod of Stupcic in the Reagan III category, but very heartening in terms of the movement in one...
Zero migration is shown by the modest uptick in the rate and three category, but very heartening in terms of the movement in one centers. We also said that we expected to see increased dispersion on lighter performance, what we've seen from BDC earnings season is consistent with us.
Speaker 2: We also said that we expected to see increased dispersion and lighter performance. What we've seen from BDC-Armin season is...
Speaker 2: Finally, we talked about how our view on dispersion made us laser focused on a relatively small tail of our own bar.
Finally, we talked about how our view on dispersion made us laser focused on a relatively small tail of our own borrowers.
Speaker 2: About a year ago, we first described the multifaceted portfolio resiliency analysis we under to screen borrower by borrower for potential vulnerability on a range of factors like interest rates, inflation, recession sensitivity and quality of earnings.
About a year ago. We first described a multifaceted portfolio resiliency analysis, we undertook to screen borrower by borrower for potential vulnerability.
A range of factors like interest rates inflation recession sensitivity and quality of earnings issues.
We talked then about how we identified a small tail of borrowers that vulnerabilities and how we were working with our sponsors and management teams to increase their margin for error.
Speaker 2: We talked then about how we identified a small tail of borrowers with vulnerabilities and how we were working with our sponsors and management teams to increase their margin for error.
We continue to do this work.
Speaker 2: Our underwriting team has taken advantage of the slow down and deal activity to shift resources to early detection and early action.
Underwriting team has taken advantage of the slowdown in deal activity to shift resources to early detection and early action.
Speaker 2: We're now updating our analyses on a quarterly basis for most of our portfolio. Looking in particular at trends in actual versus projected revenue growth, earnings, and liquidity.
We're now updating our analysis on a quarterly basis for most of our portfolio looking in particular at trends in actual versus projected revenue growth earnings and liquidity.
Speaker 2: So far, our work continues to give us confidence that the vast preponderance of the portfolio isn't good shape.
So far our work continues to give us confidence that the vast preponderance of the portfolio is in good shape now.
Speaker 2: Now, let me be clear, we're not yet declaring victory on credit through this cycle. It's too early. But we are encouraged by the fact that we've had few new credit surprises. We think we have a robust set of resources to work our problem children, and we're seeing a lot of data points suggesting the vast preponderance of our companies are adapting well to the current environment.
Now, let me declare we're not yet declaring victory on credit through the cycle. It's too early but we are encouraged by the fact that we've had few new credit surprises I think we have a robust set of resources to work a problem children and we're seeing a lot of data points, suggesting the vast preponderance of our companies are adapting well to the current environment.
We're going to skip past slide 17 through 20, these slides to add more detail on <unk> financial statements dividend history, and other key metrics. The only item we would call. Your attention to is that we continue to be active under our share repurchase program this past quarter.
Speaker 2: We're going to skip past slide 17 through 20. These slides have more detail on GVDC Spanish will statement, stint and history and other key methods.
Speaker 2: The only item we would call your attention to is that we continue to be active under our show Repurchase Program this past quarter.
Speaker 2: During the quarter, we repurchased approximately 544,000 shares, bringing in our total repurchase activity year-to-date to nearly 1.3 million shares repurchased at a weighted average price per share of $12.90.
During the quarter, we repurchased approximately 544000 shares bringing our total repurchase activity year to date to nearly one 3 million shares repurchased at a weighted average price per share of $12.96.
Speaker 2: As a result, GVDC shares outstanding decreased to 169.6 million from 170.1 million on the quarter end of June 30th.
As a result, <unk> shares outstanding decreased to $169 6 million from $170 1 million in the quarter ended June 30.
You can see this detail on slide 18.
I'll wrap up this section before turning it back over to David to close this out by reviewing <unk> liquidity and investment capacity on slides 21 and 'twenty two.
Speaker 2: I'll wrap up this section before turning it back over to David to close this out by reviewing GBDC's liquidity and investment capacity on slides 21 and 22. Let's start by
Let's start by focusing on the key takeaways on slide 22.
Speaker 2: Our wedding average cost of debt for the quarter ended June 30th, 2023 was 5.1%. Which we believe is among the lowest in our peer group of publicly traded
Our weighted average cost of debt for the quarter ended June 32023 was five 1%, which we believe is among the lowest in our peer group of publicly traded bdcs.
Speaker 2: 46% of our debt funding is in the form of unsecured notes, the majority of which have maturities in 2026 and 2027.
46% of our debt funding is in the form of unsecured notes the majority of which have maturities in 2026 and 2027.
Speaker 2: We issued these fixed rate notes for the weighted average scoop on a 2.7% and did not swap any of them out for floating radics.
We issued these fixed rate notes with a weighted average coupon of two 7% and did not swap any of that out for floating rate exposure.
Speaker 2: We ended the quarter with almost 900 million of dry powder from unrestricted cash, undrawn commitments on our meaningfully over collateralized corporate revolver, and the unused, unsecured revolver provided by our advice.
We ended the quarter with almost $900 million of dry powder from unrestricted cash and undrawn commitments on our meaningfully over collateralized corporate revolver and the unused unsecured revolver provided by our adviser.
<unk> robust liquidity represents over five times its current unfunded asset commitments and importantly, almost two times the amount of our unsecured notes due in April of 2024.
Speaker 2: GBDC's robust liquidity represents over five times its current unfunded asset commitments, and importantly, almost two times the amount of our unsecured notes due in April of 2016.
Speaker 2: The diversification, flexibility, and low cost of GBDC's funding structure is an important element that underpins our three investment grade ratings from Fitch Foodies and us.
A diversification flexibility and low cost of <unk> funding structure is an important element that underpins our three investment grade ratings from Fitch Moodys and S&P.
Now I will hand, it back over to David for closing remarks and Q&A.
Speaker 2: Now we'll hand it back over to David for closing remarks and Q&A.
Thanks, Matt I'll keep my closing remarks brief since we covered a lot today too.
Speaker 5: Thanks, Matt. I'll keep my closing remarks brief since we covered a lot today. To sum up, GBDC's performance for the quarter-ended June 30th was excellent.
To sum up <unk> performance for the quarter ended June 30th was excellent adjusted NII per share with strong and well in excess of our dividends. The portfolio is generally performing well from a credit perspective, and we are sustaining our focus on detecting problems early and taking corrective action early to minimize realized credit losses.
Speaker 5: Adjusted the NII for fear was strong and well and excess of our dividend. The portfolio is generally performing well from a credit perspective, and we're sustaining our focus on detecting problems early and taking corrective action early to minimize realized credit loss.
Speaker 5: A robust, multifaceted, bottoms-up portfolio resiliency analysis has evolved into an ongoing quarterly review of more than 200 borrowers.
Our robust multifaceted bottoms up portfolio resiliency analysis has evolved into an ongoing quarterly review of more than 200 borrowers.
Speaker 4: We believe GVDC today has an exceptionally compelling value problem.
We believe <unk> BDC today has an exceptionally compelling value proposition in part this reflects the powerful competitive advantages of the golub capital platform, including our strong relationships with sponsors and with borrowers are market, leading scale deep industry expertise and a long track record of low credit losses and in part.
Speaker 4: In part, this reflects the powerful competitive advantages of the Gallup Capital platform, including our strong relationships with sponsors and with borrowers, our market leading scale, deep industry expertise, and a long track record of low credit loss.
Speaker 4: And in part this also reflects the strengths of DBDC's balance sheet and peace structure.
This also reflects the strengths of <unk> balance sheet and fee structure.
Speaker 4: We've continued our history of raising the bar for shareholders by lowering GBDC space management fee from 1.375% to 1% annualized. And our new dividend policy paves the way for more of GBDC's enhanced earnings power to be distributed to shareholders. With that
We've continued our history of raising the bar for shareholders by lowering <unk> base management fee from $1, 375% to 1% annualized.
And our new dividend policy paves the way for more of <unk> enhanced earnings power to be distributed shareholders.
With that we'll open the line for questions.
Speaker 6: At this time, I'd like to remind everyone that in order to ask a question press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
At this time I'd like to remind everyone that in order to ask a question for Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Again, if you'd like to ask a question press Star then the number one on your telephone keypad.
Speaker 6: Again, if you'd like to ask a question, press star, then the number one on your telephone keypad.
Are there.
Speaker 6: Your first question comes from the line of Robert Dodd from Raymond James. Your line is open.
Your first question comes from the line of Robert Dodd from Raymond James Your line is open.
Speaker 7: Hi guys, congratulations on the quarter and the fee adjustment. Obviously, very favorable to shareholders. On the credit migration.
Hi, guys, congratulations on the quarter and the fee adjustment, obviously very favorable to shareholders.
All of.
The credit migration topic, I mean to your appointment.
Speaker 7: to your prime, you know, of course, about down below industry average, things are looking, looking, looking better. What, what sort of surprise you? I mean, I was expecting credit to do if you were eight more, if I were to, and it hasn't happened. So how have your companies, which you were expected to be robust, been more robust than a, a higher value for heart. So what are you doing over your nossa risky will, far out in the industry.
So back down below industry averages things looking looking back what what sort of surprised I.
I was expecting credits deteriorate more sounds like you were too.
And it hasn't happened so how have your companies, which you would expect it to be robust been more robust than expected.
Speaker 4: Great question, Robert. And I think I think one we're going to continue to learn more about over the course of coming quarter.
Great question, Robert and I think.
I think one we're going to continue to learn more about over the course of the coming quarters.
Speaker 4: So I would point to several key factors that underlie the performance better than expectations.
So I would point to several key factors that underlie the performance better than expectation.
Speaker 4: One is that the economy generally has been stronger than I at least expected it to be six or nine months ago.
One is that the economy generally has been stronger than I at least expected it to be six or nine months ago.
Speaker 4: We talked last quarter about how the Gallup Capital Middle Market report for the fourth quarter of 2022 was a pretty significant surprise. It showed high single digit growth and revenue and EBITDA for our companies for the fourth quarter. I did not expect the numbers to be that robust.
We talked last quarter.
About how the Golub capital Middle market report for the fourth quarter of 2022 was a pretty significant through product as it showed high single digit growth in revenue and EBITDA or our companies for the.
The fourth quarter.
I did not expect the numbers to be that robust we saw similarly strong numbers when we reported in April about.
Speaker 4: We saw similarly strong numbers when we reported in April about the first quarter. The numbers...
The first quarter the numbers.
Speaker 4: We can go a little in the most recent quarter, we saw revenue and EBITDA growth that was mid single digit instead of high single digit, but still still robust, still not looking at all like recessionary numbers. So I think one factor is.
We can the little in the most recent quarter, we saw revenue and EBIT growth. It was mid single digit instead of high single digit.
But still still robust still not looking at all like recessionary numbers. So I think one factor is.
Speaker 4: the economy has been better than expected. A second factor has been that companies have adjusted to...
The economy has been better than expected.
<unk> factor has been that companies have adjusted to.
Speaker 3: inflationary environment and to higher interest rates.
Inflationary environment and to higher interest rates.
Speaker 3: better than expected. I think this is particularly true of private equity back companies. I think as the data comes out, you're seeing a greater and greater distinction between the earnings performance of the private equity ecosystem and the earnings performance in public markets. And I think the private equity ecosystems doing better. What that means is
Better than than expected I think this is particularly true of private equity backed companies I think as the data comes out youre seeing a greater and greater distinction between the earnings performance of the private equity ecosystem and the earnings performance in public markets and I think the private equity ecosystems.
Better.
What that means is <unk>.
Speaker 3: Partly selection, I think our companies and PE backed companies generally are proving to be less recession sensitive and have more pricing power.
Partly selection I think our companies in PE backed companies generally are proving to be.
Last recession sensitive and have more pricing power and.
Speaker 3: And I think it's also likely the case that they're better managed. It's very challenging to disentangle those those two But I would say from our look at our portfolio. We're seeing both. We're seeing that
And I think it's also likely the case that they are better managed it's very challenging to disentangle those those two.
But I would say from our look at our portfolio. We're seeing both we're seeing in our portfolio borrowers are nicely resilient.
Speaker 3: Our portfolio borrowers are nicely resilient in a challenging environment and we're seeing that they generally have pricing power. A third.
<unk> environment, and we're seeing that they generally have pricing power.
A third factor.
Speaker 3: is our credit selection. It's unique to all of Catalina. We are very downside focused in our underwriting.
She is our credit selection, it's unique to Golub capital.
We are very downside focused in our underwriting.
Speaker 3: And so consistently over the life of the firm in boom times, we tend to not take enough risk and some of our competitors do better than we do because they're taking more risk.
And so consistently over the life of the firm in boom times, we tend to not take enough risk.
And some of our competitors do better than we do because they are taking more risk and more.
Speaker 3: And in more challenging times, like what we're seeing now, our focus on resilient credits and resilient businesses pays off. And I think we're seeing some of that third factor at play here as well.
Challenging times like I like what we're seeing now.
Our focus on resilient credits and resilient businesses.
Pays off and I think we're seeing we're seeing some of that third factor at play here as well.
I appreciate all that color. Thank you.
Speaker 7: I appreciate, oh, that color, thank you. On kind of the outlook for originations, I mean, there's a kind of emerging theme this quarter that the activity is starting to pick up. The bit asked spread between sellers and buyers is closing and that could result in more activity the later in the year, rather than right now. But on that, are you see, you mentioned spread compression? So, um.
One on kind of the outlook.
Rich nations.
Reemerging theme this quarter that activity is starting to pick up the bid ask spread between sellers and buyers is closing.
That could result in more activity.
Maybe later than a lot of them.
Right now but.
One that you see you mentioned spread compression I mean is there.
Speaker 7: Like for like or you know, high quality, a grade business, a scene spread, compression, is there anything more broadly going on and kind of tied to that as well as would we...
Like Hawaii.
Or.
Our high quality, a great businesses seeing spread compression or is there anything more broadly going on in kind of tied to that as well as what.
What we see more.
Speaker 3: new platform companies rather than refinancing and other terms better on a new platform versus an add-on today or is that getting by emerging companies?
New platform companies, rather than refinancing at all the terms data.
On a new platform versus them I don't today or.
Or is that not.
By emerging competition.
Speaker 4: So a couple of points I make. One is I want to express a degree of caution about optimism on deal activity increasing. Yes, we're seeing some signs of an improved pipeline, but it's still...
So couple of points I'd make one is I want to express a degree of caution about optimism on deal activity, increasing yes, we're seeing some signs of an improved pipeline, but it's still not.
Speaker 4: Dramatic. We're still seeing a relatively slow environment.
Dramatic we're still seeing a relatively slow environment and we're also still seeing a an unusually high proportion of deals not actually get to the finish line.
Speaker 4: And we're also still seeing an unusually high proportion of deals, not actually get to the finish spot.
So a common.
Speaker 4: A common story, Robert, would be a company is for sale. There's a preliminary agreement reached between a private equity sponsor and a seller. There's due diligence that's needed to be done prior to a closing and somewhere between that conceptual agreement and the closing that deal falls apart.
<unk> story Robert would be.
A company is for sale.
There is a preliminary agreement reached between a private equity sponsor and the seller.
Sure.
Due diligence, which needed to be done prior to closing.
And somewhere in between that conceptual agreement and the closing the deal falls apart.
So I.
Speaker 4: I'm not expecting robust deal activity in calendar Q3. We may see a better environment in calendar Q4, but I actually think the more likely scenarios that we don't see a major pickup in deal activity until 2024.
I'm not expecting robust deal activity in calendar Q3.
May see a better environment in calendar Q4, but I actually think the more likely scenarios that we don't see a major pickup in deal activity until 2024.
Speaker 4: That's okay for us. We get a lot of our deals low in the form of add-ons and add-ons continue to take place at a reasonably good pace. We have a lot of delayed draw term loans in the portfolio that are beginning to fund again. We're not, we're not gonna be greatly troubled at GVDC if we see a continuing slow environment.
That's okay for us we get a lot of our deal flow in the form of add ons and add ons continue to.
To take place in a reasonably good pace, we have a lot of delayed draw term loans in the portfolio that are beginning to fund again, we're not we're not going to be greatly troubled at GBC, if we see a continuing slow environment.
Speaker 4: There was a second element to your question, which is, so if heels are slow, how does that link up with the comment that we made that we're seeing some spread compression? I think we're seeing some spread compression precisely because steel activity is so slow. There are.
The second element to your question, which is.
So so appeals are slow how.
How does that link up with the comment that we made that we're seeing some spread compression.
Some spread compression precisely because deal activity is so slow.
There are relatively few attractive new transactions that are coming to market and so when they come to market you are seeing a great deal of lender interest in participating in those transactions. So we're seeing.
Speaker 4: relatively few attractive new transactions that are coming to market. And so when they come to market, you're seeing a great deal of lender interest in participating in those transactions.
Speaker 4: So we're seeing the impact in essence of low supply that is reversing some of the...
The impact in essence of low supply.
That that is.
Reversing some of.
Good.
Speaker 4: the decrease in demand for loans that started in June of 2022 and led to some spread widely starting in May and June of 2022. Now conditions are still quite lender favorable. I don't wanna make this sound like we've shifted to a borrower friendly environment. I don't think we have, but I think we're starting to shift away from the lender friendly side and we're starting to see the pendulum move in the other direction.
The decrease.
And demand for loans that started in June of 2022, and led to some spread.
Starting in May and June of 2022, now conditions are still quite lender favorable I don't want to make this sound like like we've shifted to a borrower friendly environment I don't think we have but I think we're starting to shift away from the.
Lender friendly side.
Starting to see the pendulum move in the other direction.
Speaker 3: Got it. I appreciate that color. Thanks a lot. Congrats on the quarter.
Got it I appreciate that color. Thanks, a lot congrats on the quarter.
Hello.
Speaker 6: Your next question comes from the line of Ryan Lynch from KBW. Your line is open.
Your next question comes from the line of Ryan Lynch from <unk>. Your line is open.
Hey, good morning, good morning.
Speaker 8: Hey, good morning. I just want to reiterate Robert's comments. Congrats on the nice quarter.
I just wanted to reiterate Robert's comments, congrats on a nice quarter and also the big win for shareholders.
Speaker 8: that they went for shareholders in permanent reduction.
Permanent reduction in the base fee I think that's a really nice win for shareholders today.
Speaker 8: or really nice WinFer shareholders today. My first question had to do with the new dividend policy that you set up specifically around the supplemental dividend program. I understand how that's set up where there's going to be a 30% pay out of access earnings above the core dividend. So my question was.
My first question had to do with the new dividend policy that you set out specifically around the supplemental dividend program.
I understand how that setup, where theres going to be.
30% payout of access earnings about the core dividend.
My question was.
Speaker 8: longer term you guys are going to now be, you know, retaining some form of earnings on a quarterly basis, depending that you guys are over earning the dividend above the core dividend. Is it the expectation that you guys will continue to retain those earnings, grow, nav, and pay exercise taxes on those additional earnings or is the expectation that from time to time there will be additional special dividends.
Longer term you guys are going now.
Retaining some form of earnings on a quarterly basis, depending that you guys are over earning the dividend above the core dividend.
Is it the expectation that you guys will continue to retain those earnings grow NAV and pay excise taxes on those additional earnings or is the expectation that from time to time, there will be additional special dividends paid out.
With those excess earnings.
Speaker 4: So it's a great question, Ryan, and just to highlight something that I know is obvious to you, but may not be obvious to others. There are a set of tests as a registry investment company that we need to meet in order to sustain our past and tax treatment.
So it's a great question, Ryan and just to highlight something that I know I know it is obvious to you, but may not be obvious to others. There are a set of tests as a as a registered investment company that we need to meet in order to sustain our pass through tax treatment and one.
Speaker 4: And one of those tests is that we need to pay out above a certain portion of our taxable income. And on any amount that we don't pay out, there's an X-5 tax that's due. It's a, I believe it's a 4% X-5 tax.
Of those tests is that we need to.
Payout above a certain portion of our taxable income.
And on any amount that we don't pay out.
There is there is a.
And excise taxes do believe it is up 4% excise tax I hate exercise everyone at Golub capital hates paying excise tax we think that that's not in the long term and shareholder interests. It in essence is a higher cost of capital on that portion of capital that we're keeping.
Speaker 4: I hate exercise. Everyone at Gallup Capital hates paying X-I-S X. We think that that's not in the long-term and shareholder interests. It, in essence, is a higher cost of capital on that portion of capital that we're keeping and paying X-I-S X on. Having said that,
And paying excise tax on having said that.
Speaker 4: It sometimes makes sense to pay ex-tax if we think that doing so is going to be transitory. There are differences between gap income and taxable income and sometimes it can take one year or a couple of years in order for these to balance out. So there's no perfect answer of
Sometimes it makes sense to pay excise tax if we think that doing so is going to be transitory. There are differences between GAAP income and taxable income and.
Sometimes it can take one year or a couple of years in order for these to balance out. So there is no perfect answer.
Speaker 4: You know, running a distribution policy to avoid paying any exercise tax.
We're running a distribution policy to avoid paying any excise tax.
Speaker 4: That's not a good approach. Having said that, we factor minimizing ex-faxing heavily into our assessment of whether to pay out specials.
That's not a that's not a good approach, having said that we factor minimizing excise taxes heavily into our assessment of whether to payout specials and if we get to a position where we need to.
Speaker 4: And if we get to a position where we need to
Speaker 4: pay a special in order to mitigate what would otherwise be a continuing exercise tax we very likely would pay that special.
Pay a special in order to mitigate what would otherwise be a continuing excise tax we very likely would pay that special.
Speaker 8: Okay, I think that makes sense and yeah I understand it's not a one size fits all answer. It's a complicated process with puts and takes.
Okay.
That makes sense and you I understand it's not a one size fits all answer too complicated process with with puts and takes.
Speaker 8: The other question I had was, you mentioned a very small portion of your portfolio is maybe underperforming, which is to be expected.
The other question I had was you mentioned.
A very small portion of your portfolio is.
Maybe underperforming which is to be expected with with all bdcs.
Speaker 8: I think you said that you guys are basically putting some more investment professionals on those, and still the deal environment has been a little bit slower and having more commerce.
<unk>.
I think you said that you guys are basically putting some more investment professionals all doses.
While the deal environment has been a little bit slower.
And having more conversations with the private equity sponsor I'm, just curious I'd love to hear.
Speaker 8: private equity sponsor. I'm just curious, I'd love to hear any insight you could provide as how those conversations are going. Obviously, I know each individual investment is going to have individual circumstances, but just from a high level, how are these conversations going with private equity sponsors as far as their willingness and ability to support these certain companies and work together on sort of joint and solutions that can make this business more viable.
Any insight you could provide us how those conversations are going obviously I know each individual investment.
I was going to have individual circumstances, but just from a high level how are those conversations going with private equity sponsors.
As far as their willingness and ability to support these certain companies and work together on sort of joint solutions that can that can make this business more viable or perform better in the future.
I'd say in general good.
Speaker 4: I see in general good. I think private equity sponsors are very realistic about the reality that higher interest rates have eaten into the margin for error for many companies and that for many companies that want to continue a buying build strategy. For example, that there's a continuing need for incremental capital. So a lot of the discussions that we're having Ryan or about.
Private equity sponsors are very realistic about the reality that.
Higher interest rates have eaten into the margin for error.
For many companies and that for many companies that want.
Want to continue our buy and build strategy. For example, there is a continuing need.
Need for incremental capital so a lot of the discussions that we're having Ryan are about.
Speaker 4: what I think we would generally call liquidity solutions. These are efforts to give the borrower more capital in order to grow a margin per error, in order to continue an acquisition strategy, in order to continue a capital program, things of this sort.
Well I think we would generally call liquidity solutions. These are efforts to give the borrower more capital in order to.
Gross margin for error in order to continue an acquisition strategy in order to continue our capital program things of this sort.
Speaker 4: Um, where those activities are value creating, um, sponsors are very interested in, in, in solutions. And I think the market is
Where those activities are value creating.
Sponsors are very interested in it.
Solutions and I think the market is.
Speaker 4: very receptive to solutions.
They're very receptive to solutions.
Speaker 4: The most challenging discussions are the ones not surprisingly where the issues are not a consequence of higher interest rates. The issues are a consequence of underperformance.
Most challenging discussions are the ones not surprisingly, where the but the issues are not a consequence of higher interest rates. The issues are a consequence of.
Of underperformance and.
Speaker 4: And, you know, in those conversations, which are by their nature a bit trickier, we're...
In those conversations which are by their nature a bit trickier.
We are seeing.
We're seeing.
Speaker 4: a lot of productive conversations with sponsors about augmenting management, changing strategy, adding additional junior capital, adding additional equity. I characterize those conversations in general as very constructive. Having said all that, there'll be some problem children, there always are.
A lot of productive conversations with sponsors about augmenting management changing strategy, adding additional junior capital, adding additional equity.
<unk>.
I would characterize those conversations in general is very constructive.
Construction.
Having said all of that there'll be some problem children. There always are.
Okay.
Speaker 8: And then my last question I had was, I know you guys typically aren't competing directly with banks, but obviously banks play a big role in the credit markets probably both own.
And then my last question I had was.
I know you guys typically arent competing directly with banks, but.
Obviously banks play a big role.
And the credit markets broadly both owning individual broadly syndicated loans only pieces of clo's providing.
Speaker 8: individual probably syndicated loans, only pieces of CLOs providing
Speaker 8: credit facilities and capital to private credit funds that you're ultimately competing with. So I'm just curious now that we're several months away of the many banking crisis that we had and banks are maybe adjusting their business models a little bit to the new world we're in.
Our credit facilities and capital to private credit funds that youre ultimately compete with so I'm just curious now that we're.
Several months away of Dominion Bank, many banking crisis that we had.
Banks are maybe adjusting their business models are a little bit to the new world. We're in.
Speaker 8: I just love to hear, have there been any sort of impacts that you've seen in the markets that you plan from kind of the...
I'll have to hear have there been any sort of.
Impacts.
You have seen in the markets that you plan from kind of the.
Speaker 8: all the volatility pattern in the banking sector and do you think anything comes to that longer term? The
All the all the volatility we've had in the banking sector and do you think anything comes to that longer term.
Look I think I think this is.
This is a critical area and a lot is going to come of it in the longer term I think.
Speaker 4: This is a critical area and a lot is going to come of it in the longer term. I think that the central
The central point.
Speaker 4: for this discussion's not in our world. It's in commercial real estate. The largest investors in lending to commercial real estate in America that are small and reasonable banks, and I think to a very substantial degree, they pulled back from that activity.
For this discussion not in our world. It's in commercial real estate, the largest investors in lending to commercial real estate and.
America are small and regional banks.
And I think to a very substantial degree they've pulled back from that activity. So real estate is going to need to go through an adjustment of recalibration period with respect to value and a reengineering period with respect to where it finds its debt capital.
Speaker 4: So real estate is going to need to go through and adjustment, a retaliation period with respect to value and a reengineering period with respect to where it finds its debt cap.
Speaker 4: I don't think we're directly impacted by that, but we're going to be indirectly impacted because
I don't think were directly impacted by that but we're gonna be indirectly impacted.
The capital that they used to flow in other ways is now going to replace bank capital in real estate lending.
Speaker 4: capital that that used to flow in other ways is now going to replace bank capital in real estate lending. I think we're just beginning to see the second order, third order impacts of that Ryan. From our perspective in terms of direct impact, the one area that I highlight is that, you know, bank lending against pools of middle market loans has gotten tighter.
I think we are just beginning to see the second order a third order impacts of that Brian .
From our perspective and in terms of direct impact the one area that I'd highlight is that <unk>.
Bank lending against pools of of middle market loans.
<unk> gotten tighter.
Speaker 4: This is, again, not surprising in the context of higher interest rates and in the context of the amounts that banks have lost on their fixed income portfolios, which have eaten into their capital ratios. So I think this actually works to the advantage of market leading platforms like Olive Capital because
This is again not surprising.
The context.
Higher interest rates and in the context of the.
Amounts that banks have lost on their fixed income portfolios, which have eaten into their their capital ratios.
So I think this actually works to the advantage of market leading platforms like Golub capital.
Speaker 4: when banks have to make priority, priority decision decisions amongst their, their BDC clients and their private credit clients, they, they,
When banks have to make priority prioritization decisions amongst there.
They're BDC clients in their private credit clients.
Okay.
Speaker 4: they will prioritize their strongest, largest, and best relationships.
They will prioritize their their strongest largest investor relationships.
Speaker 4: So I think that's currently a help for us from a competitive standpoint. It's also to some degree a challenge.
So I think that's that's currently a help for us from a competitive standpoint, it's also to some degree of challenge.
Speaker 8: Okay, understood. That's all for me today. I appreciate the time and again, very much appreciate the, and shareholders very much appreciate the change in the base-of-the-structure.
Okay understood.
That's all for me today I appreciate the time and again.
Very much appreciate.
And shareholders very much appreciate the change in the base fee structure.
Thank you Ryan.
Speaker 6: Again, if you would like to ask a question, please press star then the number one on your telephone keypad. There are no further questions at this time.
Again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
There are no further questions at this time.
David Darla I turn the call back over to you.
Thank you operator, thank you everyone for sharing your time with US today very much appreciate the opportunity to go over with you. The results of this quarter look forward to talking again next quarter and as always if you have any questions. Before then please feel free to reach out. Thank you.
Speaker 4: Thank you, operator. Thank you everyone for sharing your time with us today. Very much appreciate the opportunity to go over with you the results of this quarter. Look forward to talking again next quarter. And as always, if you have any questions before then, please feel free to reach out. Thank you.
This concludes today's conference call you may now disconnect.
Speaker 9: ?Music? ?Music? ?Music? ?Music?
[music].
Okay.
[music].
Okay.
[music].
Okay.
[music].
Okay.
[music].
Okay.
[music].