Q3 2023 Goldman Sachs BDC Inc Earnings Call

Good morning, It's Austin here I remember the Investor Relations team for Goldman Sachs, BDC, Inc, and I would like to welcome everyone to the Goldman Sachs BDC, Inc. Third quarter 2023 earnings Conference call. Please.

Please note that all participants will be in listen only mode until the end of the call. When we will open up the line for questions.

Before we begin today's call.

I would like to remind our listeners that today's remarks may include forward looking statements. These statements represent the 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 what is indicated in those forward looking statements. As a result of a number of factors, including those described from time to time in the company's SEC filings.

This audiocast is copyrighted material of Goldman Sachs, BDC, Inc, and may not be duplicated reproduced or rebroadcast without our consent.

Yesterday after the market close the company issued an earnings press release, we posted a supplemental earnings presentation, both of which can be found on the homepage of our website at www Dot Goldman Sachs BDC Dot com under the Investor Resources section.

Include reconciliations of non-GAAP measures to the most directly comparable GAAP measures.

These 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 Wednesday November eight 2023 for replay purposes.

Oh now I will turn the call over to Alex Chi Co Chief Executive Officer of Goldman Sachs BDC, Inc.

Thank you Austin.

Morning, everyone and thank you for joining us for our third quarter 2023 earnings Conference call I'm here today with David Miller, Our co Chief Executive Officer took a green, our chief operating officer, and David <unk>, Our Chief Financial Officer.

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

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

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

Net investment income per share for the quarter was 67, an increase of 13, 6% over the prior quarters 59 cents.

Excluding the impact of asset acquisition accounting in connection with the merger with Aetna North Sea.

Adjusted net investment income for the quarter was 64 cents per share equating to an annualized net investment income yield on book value of 17, 5%.

The increase in investment income during the quarter was primarily driven by an increase in repayments and related accretion of discount it positions.

As we announced after the market closed yesterday, our board declared a <unk> 45 per share dividend payable to shareholders of record as of December 29, 2023.

This marks the company's 35th consecutive quarter of <unk> 45 per share dividend totaling $15 75 per share since our IPO, excluding the special dividends, we paid in 2021 post the merger with MLC.

Net asset value per share increased to $14.61 as of September 30th 2023, an increase of two cents from the end of the prior quarter.

This is primarily attributable to the increase in net investment income, which is partially offset by an increase in unrealized losses for the quarter.

On a fair value basis first lien loans are 94, 9%.

The investment portfolio as of September 30th 2023, which speaks to our continued focus on maintaining a higher quality portfolio.

Again this quarter, we continued to invest only in directly originated first lien senior secured debt with no participation in the secondary market for broadly syndicated loans.

Our portfolio continues to evolve we believe its particularly important to proceed with an abundance of caution with new underwritings as the economic cycle evolves over the next few quarters, while base interest rates are expected to remain higher for longer.

We've previously expressed confidence that deal volumes will increase as the year progresses. During the third quarter, we reviewed more than 150 investment opportunities across our direct lending Americas platform, which is sizable more than the opportunities seem to start the year.

Although recent macroeconomic and geopolitical headlines may delay the timing of current deal closings by a quarter or so we believe our existing pipeline of new opportunities remains extremely robust and we expect that 2024 will be an active year for private credit across the spectrum.

Of note this quarter G. S. P. D was the lead lender and the refinancing of Blue break one of the first investments we made post integration of the BDC platform with the broader Goldman Sachs private credit complex.

We break as their provider of data backup and recovery software for enterprise customers and is an existing G SPD borrower.

The latest transaction also involved the partial financing of an acquisition, which keeps the company's pro forma capital structure at a very attractive loan to value.

Our IV media is another example of a new origination in the third quarter with a Goldman Sachs private credit platform was the lead lender and G. S. P. D was able to participate in financing the buyout of the business plan you financial sponsor.

G. S. P D stands to benefit from deploying into more favorable vintage and high quality credits and where we are an incumbent not only resetting economics to current market pricing with setting covenants and documentation to align with their orientation towards downside risk management.

That let me turn it over to my co CEO, David Miller. Thanks.

Thanks, Alex during the quarter, we originate at $168 2 million in new investment commitments to eight new and five existing portfolio companies.

Sales and repayment activity totaled 257, 4 million, primarily driven by the full repayment and exit of investments in seven portfolio companies.

In particular, we are pleased with the full repayment of three junior lien positions, which will allow us to continue redeploying capital into new first lien oriented opportunities, while remaining well within our leverage targets.

Turning to portfolio composition as well.

September 30th 2023.

Total investments in our portfolio were $3 4 billion at fair value.

Comprised of 97, 5% senior secured loans, including 91, 3% in first lien three 6% in first lien last out Unitranche and two 6% in second lien debt as.

As of quarter end the company held investments in 137 portfolio companies operating across 38 different industries.

The weighted average yield of our investment portfolio at cost at the end of Q3 was 11, 6%.

Amortized cost remained at 12, 6% at the end of Q3.

I will now turn the call over to Tucker Green to discuss our overall credit quality.

Thank you David the weighted average net debt to EBITDA of the companies in our investment portfolio remained flat at five nine times in the second quarter importantly, our portfolio companies have both topline and EBITDA growth year over year on a weighted average basis. The weighted average interest coverage other companies in our investment portfolio at quarter end declined slightly.

From 1.56 to 151 times and so far rates continue to increase for the quarter. It is important to note that we calculate our coverage ratios.

Based on current quarter metrics, rather than on a trailing our last 12 month basis, where were to use the LTM calculation than our interest coverage ratio of the companies in our investment portfolio would be one seven times.

We continue to monitor interest coverage sensitivity there.

Quarterly increase in so far is slowing and the fed held rates flat, which creates more stability. We also see our interest coverage levels is a reflection of legacy vintage exposure within the book that will continue to be supported with repayment activity.

And new deployment in the current environment, and finally, turning to asset quality.

As of September 32023, two new positions were placed on nonaccrual in one portfolio company was removed from nonaccrual during Q3 <unk>.

Investments on non accrual status amount to two 3% and four 2% of the total investment portfolio at fair value and amortized cost respectively.

Subsequent to quarter end, one additional name was placed on non accrual status. The size of this position does not constitute a meaningful change to the percentage stayed at above I will now turn the call over to David pass that to walk through our financial results.

Thank you Tucker we ended the third quarter of 2023 with total portfolio investments at fair value of $3 4 billion outstanding debt of $1 9 billion and net assets of $1 6 billion.

Our ending net debt to equity ratio as of the end of Q3 was $1. One three times, which continues to be below our target leverage range of one to five times.

2027% to October 2028.

As a reminder, we have two separate unsecured notes due in February of 2025 in January of 2026, respectively. We plan to address these maturities at the appropriate time.

Before continuing to the income statement as a reminder, in addition to GAAP financial measures. We also reference certain non-GAAP or adjusted measures. This is it tended to make the companys financial results easier to compare to results prior to October 2020 merger with MLC.

These non-GAAP measures remove the purchase discount amortization impact from our financial results for.

For Q3, GAAP and adjusted after tax net investment income or <unk>, $72, 9 million and $69 7 million, respectively, as compared to $64 5 million and $63 1 million respectively in the prior quarter.

The increase in net investment income was primarily driven by repayment related activity that was discussed earlier.

On a per share basis, GAAP net investment income was 67 and.

And adjusted net investment income was 64 cents as compared to 59, and 58% respectively last quarter.

Distributions during the quarter remained consistent at 45 per share.

Our spillover taxable income is approximately $124 3 million or $1.13 on a per share basis, which we believe provides continued stability on our consistent dividend since inception.

Net asset value per share on September 30th 2023 was $14 61.

As compared to $14 59 last quarter with that I'll turn it back to Alex for closing remarks.

Thanks, David as you all are probably aware on September 7th we announced that David tendered his resignation from his position at the company effective November 10th to pursue a new professional opportunity.

And so at that time, 25th the board appointed Stanley managed Cheskey as our CFO and treasurer effective immediately upon David's resignation on November 10th.

Stan has been at Goldman Sachs. Since 2013, and has been managing that product controllers team for our entire PDC platform.

I want to congratulate and welcome Stan to I imagine team and wish David all the best for the future.

In conclusion, thank you all for joining us on our call.

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

Thank you.

If you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Again press Star one to ask a question.

Pause for just a moment to allow everyone an opportunity to signal.

And our first question will come from Maxwell Fritcher with <unk> with <unk> Securities.

Hi, good morning, calling in for Mark Hughes, and I joined a little late so I'm sorry, if you mentioned this but can you touch on spreads Youre seeing currently a couple of other Bdcs had mentioned the contraction.

In the quarter.

Hey, good morning, Thanks, I'll answer the question. So we certainly saw a bit of British spread compression in the quarter.

In the prior quarter as the average spread that we were seeing was well into the 600, probably a mid six hundreds on average.

We've seen some spread compression now where.

The kind of standard rate or the middle of the fairway credit is more like 600 basis points plus or minus.

Some of the larger credits you might see a bit more spread compression and for some of the more middle market credits you might see a little bit wider but it's around it's around 600 is worsening.

Okay. Thank you and could you provide a figure for the percentage of your portfolio companies that are below.

One times interest coverage ratio.

It's a we haven't disclosed that in the past, but it's a very small percentage single digit percentage.

Okay. Thank you.

Thank you and our next question taking the question.

John Paul Adams with Raymond James.

Hey, guys good morning.

Question I know you guys talked a little bit about the second lien book I know you said you had some junior lien possession positions that exited.

What's the status of the remainder of your second lien book and what are you guys seeing on the pipeline.

Yes, I mean from a pipeline perspective, it's not something we're actively pursuing we look at them from time to time, but it's not the focus where we are.

I think as we said in our prepared comments, our first lien book is right around 95% of the legacy book continues to run down and yes.

Very small percentage of the overall portfolio to that.

Excellent. Thank you and I didn't notice if you said the two new non accruals, which companies rules.

For <unk> and Zodiac.

Gotcha. Thank you as far as as far as <unk> has there any been any.

Occasion between the sponsor.

As far as the status.

Yeah. So we're in active discussions amongst the lender group with the sponsors behind the company.

We sized lenders that are in the in the club so we're in active discussions.

And this is a relatively sizable position for us.

The ratio is as you might know it is a market leader in the online ecosystem, where many of the players in that ecosystem are experiencing some issues and we don't we.

We wouldn't be surprised or consolidations or likely outcome, but more to come on that.

Got it thank you.

And once again.

I would like to ask a question. Please press star one.

We'll take our next question from Derek Hewett with Bank of America.

Good morning, everyone. Most of my questions were already asked and answered but could you.

From a modeling perspective could you talk a little bit about what was the impact of the look back on Q3 results how much on a per share basis, what's that thank you.

Thanks for the question. This is the last of the 2020 look back from Covid impact it was roughly.

It was about four cents of.

Cap.

The per share calculation itself.

That was okay because of all of that.

Okay, great. Thank you.

Thank you.

And that concludes today's question and answer session. Mr. Qi at this time I will turn the conference back to you for any additional or closing remarks.

Thanks to everyone for joining our call. We appreciate the interest and support and then we look forward to closing the year.

Thank you very much thank you.

Goodbye.

This concludes today's call. Thank you for your participation you may now disconnect.

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