Q1 2024 Golub Capital BDC Inc Earnings Call
Operator: Hello everyone, and welcome to GBDC's earnings call for the fiscal quarter ending on December 31, 2023. 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. 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.
Hello, everyone and welcome to JBT fees earnings call for the fiscal quarter ended December 31st 2023, before I 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.
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> SEC.
David B. Golub: 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 SEC filings. For materials we intend to refer to on today's earnings call, please visit the Investor Resources tab of the homepage of our website, which is www.golubcapitalbdc.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 Golub, Chief Executive Officer of GBDC. Hello, everybody, and thanks for joining us today.
Filings for materials, we intend to refer to on today's earnings call. Please visit the Investor resources tab of the homepage of our website, which is www dot Golub capital BDC Dot com and click on the events <unk> presentations link our earnings release is also available on our website in the Investor Resources section as a reminder, this.
Call is being recorded.
I'm pleased to turn the call over to David Golub, Chief Executive Officer of G. BDC.
Hello, everybody and thanks for joining us today I'm joined by Chris Erickson, Our CFO and Matt <unk>, our Chief operating officer.
David B. Golub: I'm joined by Chris Erickson, our CFO, and Matt Fenton, our Chief Operating Officer. For those of you who are new to GBDC, let me quickly review our investment strategy. It's today and since inception has been to focus on providing first lien senior secured loans to healthy, resilient middle market companies that are backed by strong partnership-oriented private equity sponsors. Yesterday, we issued our earnings press release for the quarter ended December 31, and we posted an earnings presentation on our website. We'll be referring to that presentation during the call today. I'm going to start, as usual, with the headlines and with a summary of performance for the quarter. Then Matt and Chris are going to go through our financial results for the quarter in more detail. And finally, I'll wrap up with an outlook for the coming period and some Q&A.
Those of you who are new to <unk>, Let me review quickly our investment strategy.
It's today and since inception has been to focus on providing first lien senior secured loans to healthy resilient middle market companies that are backed by strong partnership oriented private equity sponsors.
Yesterday, we issued our earnings press release for the quarter ended December 31, and we posted an earnings presentation on our website, we will be referring to that presentation during the call today.
I'm going to start as usual with headlines and with a summary of performance for the quarter, then Matt and Chris are going to go through our financial results for the quarter in more detail and finally, I'll wrap up with an outlook for the coming period and with some Q&A.
The headline is the GBC had an excellent fiscal first quarter <unk> results for the quarter were right in line with the Prelim results. The company filed on January 17.
David B. Golub: The headline is that GBDC had an excellent fiscal first quarter. GBDT's results for the quarter were right in line with the preliminary results the company filed on January 17th. Adjusted net investment income per share was $0.50.
Adjusted net investment income per share was <unk> 50.
David B. Golub: That was tied with fiscal Q4 2023 for the company's highest ever adjusted NII per share and corresponds to an adjusted NII return on equity of 13.3% on an annualized basis. Adjusted earnings per share came to $0.45, and this corresponds to an adjusted return on equity of 11.8% on an annualized basis. We had a small net realized and unrealized loss for the quarter of five cents per share, but overall credit results were very strong. We saw no new defaults.
That was tied with fiscal Q4 2023, with the Companys highest ever adjusted NII per share.
It corresponds to an adjusted NII return on equity of 13, 3% on an annualized basis.
Adjusted earnings per share came to <unk> 45, and this.
Responds to an adjusted return on equity of 11, 8% on an annualized basis.
In a small net realized and unrealized loss for the quarter or <unk> <unk> per share, but overall credit results were very strong we saw no new defaults. We saw a decrease in what was an already low percentage of non accruals and we saw stable internal performance ratings, we will talk about all three of these in more detail later in this call.
David B. Golub: We saw a decrease in what was an already low percentage of non-accruals, and we saw stable internal performance ratings. We'll talk about all three of these in more detail later in this call. Finally, NAB per share increased by a penny quarter over quarter to $15.03 as of December 31.
Finally, NAV per share increased by a penny a quarter over quarter to $15.03 as of December 31.
David B. Golub: While we're proud of GBDC's results for the first fiscal quarter, we're even more excited about the two strategic announcements that we made in connection with the earnings pre-release. To refresh your memory, first, GBDC announced it had entered into a definitive merger agreement with Golub Capital BDC3 Inc., or what we call GBDC3, with GBDC as the surviving company, subject to certain stockholder approvals and customary Second, GBDC's investment advisor agreed to reduce GBDC's income incentive fee and capital gain incentive fee from 20% to 15% in connection with and in support of the proposed merger. The reduction in incentive fees was made effective as of January 1, 2024, and it will be in effect during the pendency of the proposed merger. It will become permanent upon the closing of the merger.
While we're proud of <unk> results for the first fiscal quarter, we're even more excited about the two strategic announcements that we made in connection with the earnings prerelease to refresh your recollection first JDBC announced it has entered into a definitive merger agreement with Golub capital BDC, Three Inc, or what we call G. B D C III.
With <unk> as the surviving company subject to certain stockholder approvals and customary closing conditions.
Second <unk> investment advisor agreed to reduce <unk> income incentive fee and capital gain incentive fee from 20% to 15% in connection with and in support of the proposed merger the reduction in incentive fees was made effective as of January one 2024, and it will be in effect during the <unk>.
Tendency of the proposed merger it will become permanent upon closing of the merger.
David B. Golub: You'll recall that GBDC's investment advisor previously announced the permanent reduction of the company's base management fee from 1.375% to 1% effective July 1, 2023. With a 1% management fee, a 15% incentive fee, an 8% hurdle rate, and a cumulative since-inception incentive fee cap, we believe GBDC has set a new gold standard for shareholder alignment among publicly traded BDCs. I'd encourage you to look at the investor presentation on GBDC's website and the announcements to learn more about why we think these are so exciting and important. With that, I will hand the floor to Matt to walk through our results for this quarter in more detail. Thanks, David.
Youll recall that GBT sees investment advisor previously announced the permanent reduction of the company's base management fee from $1, 375% to 1%.
That give July one 2023.
With a 1% management fee of 15% incentive fee, an 8% hurdle rate and accumulative since inception incentive fee cap. We believe <unk> has set a new gold standard for shareholder alignment among publicly traded bdcs.
I'd encourage you to look at the Investor presentation on <unk> website in the announcements to learn more about why we think these are so exciting and important.
With that let me hand, the Florida, Matt to walk through our results for this quarter in more detail.
Thanks, David I'm going to start on slide four.
Matt: I'm going to start on slide four. As David just previewed, GBDC's earnings for the quarter ended December 31st, 2023, were at Adjusted NII per share was 50 cents, corresponding to an adjusted NII ROAE of 13.3%. Adjusted NII first share this quarter was tied with the September 30th quarter as GBDC's highest ever. Compared to fiscal Q1 of 2023, GBDC's adjusted NII per share increased by 17 cents year-over-year for about 35%. Adjusted earnings per share was $0.45, corresponding to an adjusted ROAE of 11.8%. GBDC's strong profitability was driven by three key factors. First and foremost, strong credit performance. I'll go into more detail on this in a moment.
As David just previewed GBT sees earnings for the quarter ended December 31, 2023 were excellent adjusted NII per share was <unk> 50, <unk> corresponding to an adjusted NII ROE of 13, 3%.
Adjusted NII per share this quarter was tied with the September 30th quarter, its <unk> highest ever.
Fair to fiscal Q1 of 2023, <unk> adjusted NII per share increased by 17 cents year over year or about 35%.
Adjusted earnings per share was <unk> 45, corresponding to an adjusted ROA of 11, 8%.
<unk> strong profitability was driven by three key factors first and foremost strong credit performance I will go into more detail on this in a moment.
Matt: Second, high base rates consistent with prior quarters, and third, sustainably lower expenses due to the reduction in GBDC's base management fee rate, which took effect in July of 2020. The portfolio balance sheet updates generally reflect the continuation of trends from the 930 portfolio, although net funds declined by $73.2 million.
Hi base rates consistent with prior quarters, and third sustainably lower expenses due to the reduction in <unk> base management fee rate, which took effect in July of 2023.
The portfolio of the balance sheet updates generally reflect the continuation of trends from the 930 a quarter net.
Net funds declined by $73 $2 million sequentially, while we saw an uptick in market wide deal activity in calendar Q4 relative to the rest of 2023 GBT six new pace of investments remained measure. This was by design G. Bdcs model doesn't depend on fee income from new originations or repayments to drive.
Matt: While we saw an uptick in market-wide deal activity in calendar Q4 relative to the rest of 2023, GBDC's new pace of investments remains, This was by design. GBDC's model doesn't depend on fee income from new originations or repayments to drive strong returns. The overall credit performance of GBDC's investment portfolio also remained strong. First, we saw a reduction in non-accrual. As a percentage of total debt investments at fair value, non-accruals decreased to 1.1% at 12-31-2023 from 1.2% at 9-30-2023. Second, internal performance ratings remain strong.
Returns.
The overall credit performance of G. Bdc's investment portfolio also remained strong.
First we saw a reduction in non accruals.
As a percentage of total debt investments at fair value non accruals decreased to one 1% at 12 31 2020 rates from one 2% at 932023.
Second internal performance ratings remain strong investments in rating categories wanting to represented 40 basis points of the total portfolio at fair value.
Matt: Investments in rating categories one and two represented 40 basis points of the total portfolio at fair value. Now, per share, it increased by one cent on a sequential basis to $15.03. NAV per share is now more than 200 basis points higher than the prior year, even as GBDC delivered higher distributions to shareholders during this period. Turning to financial leverage, net leverage declined modestly to 1.18 times. This is consistent with our plan to reduce leverage gradually to 1.15 times debt-to-equity or lower. Let's turn to distributions.
Now per share increased by <unk> <unk> on a sequential basis to $15 at <unk>.
NAV per share is now more than 200 basis points higher than the prior year, even as G. BDC delivered higher distributions to shareholders. During this period.
And turning to financial leverage net leverage declined modestly to 1.18 times. This is consistent with our plan to reduce leverage Gratulate, a 1.15 times debt to equity or lower.
Let's turn to distributions now.
Matt: The board approved 46 cents per share of distribution, a regular quarterly distribution of $0.39 per share, and a fiscal Q1 supplemental distribution of $0.07 per share. Taken together, these distributions correspond to an annualized dividend yield of 12.2% based on GBDC's NAB per share as of December 31, 2020. As a reminder, we've previously announced that the board increased the company's regular quarterly distribution from $0.37 per share to $0.39 per share in conjunction with the proposed merger announcement and corresponding reduction in incentives. Adjusted NII per share significantly exceeded the company's regular quarterly distribution, resulting in a distribution coverage ratio of 128 percent on the increased regular quarterly distribution of 39 cents. The board also authorized a supplemental distribution of seven cents per share based on the company's verifiable supplemental distribution framework.
The board approved 46 per share of distributions a regular quarterly distribution of <unk> 39 per share in our fiscal Q1 supplemental distribution of <unk> <unk> per share.
Taken together these distributions correspond to an annualized dividend yield of 12, 2% based on <unk> NAV per share as of December 31, 2023.
As a reminder, with previously announced that the board increased the company's regular quarterly distribution from <unk> 37 cents per share to <unk> 39 per share in conjunction with the proposed merger announcement and corresponding reduction in incentive fee.
Adjusted NII per share significantly exceeded the company's regular quarterly distributions, resulting in a distribution coverage ratio of 128% on the increased regular quarterly distribution of <unk> 39 per share.
The board also authorized a supplemental distribution of <unk> seven per share based on the company's variable supplemental distribution framework.
Matt: You'll recall that the framework was introduced in 2023 to help shareholders understand 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 growth and resilience on the other. You can find more information about the record dates and payment dates for fiscal Q1 distributions on page 23 of the earnings presentation and about the Variable Supplemental Distribution Framework on page 23. Before I hand off to Chris to go through the quarter in detail, I do want to emphasize that GBDC's strong results for fiscal Q1 don't yet reflect the impact of the lower incentive rates GBDC is expected to have going forward. The analysis on slide 5 quantifies how much GBDC's earnings power has already increased as a result of its lower base management fee rate and how much incremental earnings power we expect to see from lower incentives. As you can see by comparing the June 30th, 2023 column with the September 30th, 2023 and December 31st, 2023 columns. Lower base management fee rates drove an increase in adjusted NII ROAE of about 80 basis points, or three to four cents per share quarter.
Youll recall that the framework was introduced in 2023 to help shareholders understand how we plan to balance the likelihood that <unk> will continue to generate excess income all else equal on the one hand with our focus on NAV growth and resilience on the other hand.
You can find more information about the record dates and payment dates for fiscal Q1 distributions on page 23 of the earnings presentation.
And about the variable supplemental distribution of framework on page 24.
Before I hand off to Chris to go through the quarter in detail I do want to emphasize that <unk> strong results for fiscal Q1 don't yet reflect the impact of the lower incentive fee rates <unk> is expected to have going forward.
The analysis on slide five to quantify is how much <unk> earnings power has already increased as a result of this lower base management fee rate and how much incremental earnings power, we expect to see from lower incentive fee rates.
As you can see by comparing the June 32023 column with the September 32023, and December 31, 2023 columns.
Lower base management fee rates drove an increase in adjusted NII ROA of about 80 basis points or 3% to four <unk> per share quarterly.
Matt: The right column shows GBDC's pro forma results for the quarter ended December 31st, 2023, as if its incentive rates were 15% instead of 20%. We estimate GBDC's pro forma adjusted NII per share would have increased from $0.50 to $0.53, representing earnings accretion of approximately six. So all SQL, we expect lower incentive rates to increase GBDC's adjusted NII per share going forward by about 3 to 4 cents per quarter or about 13 cents annually. This translates to approximately 90 basis points of incremental adjusted NII ROA. You'll start to see the incremental potential earnings power in GBDC's results for fiscal Q2. GC Advisors is voluntarily waiving incentive fees in excess of 15% effective January 1st, 2024, while the merger remains pending.
The right column shows <unk> pro forma results for the quarter ended December 31, 2023 is if its incentive fee rates were 15% instead of 20% we.
We estimate <unk> pro forma adjusted NII per share would have increased from 50 to 53.
Representing an earnings accretion of approximately 6%.
So all else equal, we expect lower incentive fee rates to increase G. Bdcs adjusted NII per share going forward by about three to four cents per quarter or about 13 sets annually.
This translates to approximately 90 basis points of incremental adjusted NII ROA.
Youll start to see this incremental potential earnings power of <unk> results for fiscal Q2 <unk>.
<unk> advisors is voluntarily waiving incentive fees in excess of 15% effective January one 2024, while the merger remains pending.
Assuming the merger closes the incentive fee rate reductions will become permanent and GBC will be set up to permanently benefit from higher earnings power going forward.
Im going to turn it over now to Chris to provide more detail on our results.
Chris: Assuming the merger closes, the incentive fee rate reductions will become permanent, and GBDC will be set up to permanently benefit from higher earnings power going forward. I'm going to turn it over now to Chris to provide more detail on our results. Thanks, Matt.
Thanks, Matt turning to slide eight you can see how the key earnings drivers, Matt just described translated into growth in NAV per share.
The combination of high short term interest rates attractive credit spreads and GBC as a low cost leverage profile resulted in adjusted NII per share of <unk> 50 per share matching our record level from last quarter, our level meaningfully higher than dividends paid out during the quarter.
Chris: Turning to slide eight, you can see how the key earnings drivers Matt just described translated into growth and NAB4Share. The combination of high short-term interest rates, attractive credit spreads, and GBC's low-cost leverage profile resulted in adjusted NII per share of 50 cents per share, matching our record level from last year, a level meaningfully higher than dividends paid out during the quarter. In addition, the exit of an equity position during the quarter drove a net realized gain of a penny per share, whereas modest net unrealized losses resulted in adjusted net realized and unrealized losses of five cents per share during the quarter. Together, these results drove a net asset value per share increase to $15.03, up a penny per share from the prior quarter.
In addition, the exit of an equity position during the quarter drove a net realized gain of a penny per share, whereas modest net unrealized losses resulted in adjusted net realized and unrealized losses of <unk> <unk> per share during the quarter.
Together these results drove a net asset value per share increased to $15 three.
Up a penny per share from the prior quarter.
Let's now go through the details of <unk> financial results for the quarter ended December 31 2023.
We'll start on slide 11, which summarizes our origination activity for the quarter.
Net funds growth quarter over quarter decrease by approximately $73 2 million as new investment commitments and delayed draw term loan fundings were outpaced by the net impact of exits and sales of investments.
Chris: Let's now go through the details of GBDC's financial results for the quarter ended December 31, 2023. We'll start with slide 11, which summarizes our origination activity for the quarter. Net funds growth, quarter over quarter, decreased by approximately $73.2 million as new investment commitments and delay-draw term loan fundings were outpaced by the net impact of exits and sales of investments. Market-wide deal activity and Golub Capital's level of origination activity both improved in the December 31. While GBDC's origination activity remains measured, as part of our plan to reduce GBDC's leverage ratio to 1.15 times debt-to-e Golub Capital has remained highly selective, closing approximately 2% of deals reviewed during calendar year 2023. That's on the lower end of our typical 2-4% selectivity rate and reflects our focus on quality over quantity. The asset mix of new investments, shown in the middle of the slide, remains predominantly one-stop loans.
Market wide deal activity in Golub capitals level of origination activity, both improved and at December 31 quarter, while <unk> origination activity remained measure as part of our plan to reduce <unk> leverage ratio to one five times debt to equity or lower.
We expect deal activity to continue to improve in calendar 2024. So this may be more the case in the second half as opposed to the FERC.
<unk> capitalized remained highly selective closing approximately 2% of deals reviewed during calendar year 2023, that's on the lower end of our typical 2% to 4% so activity rate and reflects our focus on quality over quantity.
The asset mix of new investments shown in the middle of the slide remain predominantly one stop loans.
Looking at the bottom of the side the weighted average rate on new investments decreased by 80 basis points. This quarter. The decrease was primarily due to tighter spreads on new investments, which tightened by 40 basis points sequentially.
This is generally consistent with what we are seeing in the market spreads on new transactions have tightened since earlier in 2023, but they are still relatively attractive.
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 86% of the portfolio at fair value.
Chris: Looking at the bottom of the slide, the weighted average rate on new investments decreased by 80 basis points this quarter. The decrease was primarily due to tighter spreads on new investments, which tightened by 40 basis points sequentially. This is generally consistent with what we are seeing in the market. Spreads on new transactions have tightened since earlier in 2023, but they're still relatively attractive. 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 86% of the portfolio at fair value.
Slide 13 shows that <unk> portfolio remains highly diversified by Appledore with an average investment size of approximately 30 basis points.
We are big believers in modulating credit risks or position size, which we believe has served <unk> well in previous credit cycles and will continue to be important in the context of future credit cycles.
As of December 31, 2023, 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.
The economic analysis on slide 14 showed little quarter over quarter change, let's walk through the highlights.
Let's start with the dark Blue line, which is our investment income yield as a reminder, the investment income yield includes the amortization of fees and discounts.
Chris: Slide 13 shows that GBC's portfolio remains highly diversified by Appledore, with an average investment size of approximately 30 basis points. We are big believers in modulating credit risk through position size, which we believe has served GDC well in previous credit cycles and will continue to be important in the context of future credit. As of December 31, 2023, 94% of our investment portfolio consisted of firstly senior secured floating rate loans to borrowers across a diversified range of what we believe to be resilient industries. The economic analysis on slide 14 showed little quarter over quarter change. Let's walk through the highlights.
Consistent with interest face rates <unk> investment income yield has leveled out in recent quarters.
<unk> modestly on a sequential basis up 10 basis points to 12, 6%.
Our cost of debt and <unk> line increased modestly by 20 basis points and as a result, our weighted average net investment spread the gold line declined slightly by 10 basis points over the prior quarter to seven 2%.
And with that I will now turn the floor back over to Matt. Thanks, Chris Let's move on to slides 15, and 16 and take a closer look at credit quality metrics. The punch line is that credit remains solid and stable.
On slide 15, you can see the non accruals decreased by 10 basis points sequentially to one 1% of total debt investments at fair value.
Chris: Let's start with the dark blue line, which is our investment income yield. As a reminder, this yield includes the amortization of fees and discounts. Consistent with interest base rates, GBDC's investment income yield has leveled out in recent quarters, increasing modestly on a sequential basis by 10 basis points to 12.6%. Meanwhile, our costs of debt, the TO line, increased modestly by 20 basis points. And as a result, the rated average net investment spread, the gold line, declined slightly by 10 basis points over the prior quarter to 7.2%. And with that, I will now turn the floor back over to Matt.
This represents a continuation of trend at this level has decreased consistently since the quarter ended 12 31 2022.
The number of portfolio company investments on non accrual status remained at 9% as of December 31 2023.
Slide 16 shows the trend in internal performance ratings on <unk> investments.
As of December 31, 2023 around 86% of GBT season investments were rated four or five which means they are performing as expected or better than expected and underwrite that.
The proportion of loans rated one two which are the loans. We believe are most likely to see significant credit impairments remained very low at 40 basis points of the portfolio at fair value.
Matt: Thanks, Chris. Let's move on to slides 15 and 16 and take a closer look at credit quality. The punchline is that credit remains solid and stable. On slide 15, you can see that non-accruals decreased by 10 basis points sequentially to 1.1% of total debt investments at fair value. This represents a continuation of the trend as this level has decreased consistently since the quarter ended 12-31-2022. The number of portfolio company investments in non-accrual status remained at nine as of December 31, 2021. Slide 16 shows the trend in internal performance ratings on GBDC's investments. As of December 31st, 2023, around 86% of GBDC's investments were rated 4 or 5, which means they're performing as expected or better than expected at an. The proportion of loans rated 1 and 2, which are the loans we believe are most likely to see significant credit impairment, remains very low at 40 basis points of the portfolio as their value. Their proportion of loans rated three decreased modestly to 13.7.
The proportion of loans rated three decreased modestly to 13, 7%.
As we usually do we're going to skip past slides 17 through 20. These slides have more detail on <unk> financial statements dividend history and other key metrics.
I'm going to wrap up this section by reviewing <unk> liquidity and investment capacity on slide 21 and 22.
First let's focus on the key takeaways on slide 22.
Our weighted average cost of debt for the quarter was five 4%, which we believe is among the lowest in our peer group.
62% of our debt funding is in the form of unsecured notes with a ladder maturities ranging from 2024 through 2028.
The fixed rate notes coming due in 2020 for 2026, and 2027 were issued with a weighted average coupon of two 7% and as you've heard us say on prior occasions, we did not see any of them out for floating rate exposure.
During the quarter <unk> returned to the investment grade debt markets for the first time since 2021 with a $450 million five year term issuance with a stated maturity of December 2028, and a fixed coupon of 7.0% to 5%.
Matt: As we usually do, we're going to skip past slides 17 through 20. These slides have more detail on GBDC's financial statements, dividend history, and other key. I'm going to wrap up this section by reviewing GBDC's liquidity and investment capacity on slides 21 and 22. First, let's focus on the key takeaway from slide 21, Our weighted average constant debt for the quarter was 5.4%, which we believe is among the lowest in
Subsequent to quarter end <unk> again access the investment grade debt market with an additional $600 million five and a half year term issuance with a stated maturity of July 2029, and a fixed coupon of 6%.
These 2020 items were not included in the 62% figure I mentioned earlier, given we issued them post quarter end.
Both issuances improve upon <unk> debt maturity ladder will continuing to support new portfolio company investments and addressing refinancing risk with respect to the $500 million of notes maturing in April 2024.
Matt: 62% of our debt funding is in the form of unsecured notes, with laddered maturities ranging from 2024 through 2021. The fixed-rate notes coming due in 2024, 2026, and 2027 were issued with a weighted average coupon of 2.7%, and as you've heard us say on prior occasions, we did not swap any of them out for floating rate exposure. During the quarter, GBDC returned to the investment-grade debt markets for the first time since 2021 with a $450 million five-year term issuance with a stated maturity of December 2028 and a fixed coupon of 7.05%. Subsequent to quarter end, GBDC again access the investment-grade debt market with an additional 600 million five and a half year term issuance, with a stated maturity of July 2029 and a These 2029s were not included in the 62% figure I mentioned earlier, given we issued them post-quarter.
In addition, with a view towards the forward curve and match funding of predominantly floating rate investment portfolio. We entered an interest rate swap on half of our new 2020, eights and all of our 2029.
The weighted average floating rate equivalent of sofa, plus 268 basis points, which we believe is a highly attractive cost of funds in the context of unsecured notes versus our secured borrowing costs.
Overall, our liquidity position remains strong and greatly enhanced by the December 2023 issuance. We ended the quarter with more than one $3 billion of liquidity 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 eight two times its current unfunded asset commitments.
The diversification flexibility and low cost at <unk> funding structure is an important element that underpins our three investment grade ratings from Fitch Moodys and S&P.
<unk> has a ratings profile for Moody's and Fitch that is differentiated relative to the majority of the rate of BDC sector provided for deeper and more cost effective access to the debt markets.
Matt: Both issuances improve upon GBDC's debt maturity ladder while continuing to support new portfolio company investments and addressing refinancing risk with respect to the 500 million of notes maturing in April 2020. In addition, with a view toward the forward curve and to match funding a predominantly floating rate investment portfolio, we entered an interest rate swap on half of our new 2028s and all of our 2029s. The weighted average floating rate equivalent is SOFR plus 268 basis points, which we believe is a highly attractive cost of funds in the context of unsecured notes versus our secured borrowing.
Now I'll hand, it back over to David for closing remarks and Q&A.
Thanks, Matt to somewhat <unk> started fiscal year 2024, with an excellent first quarter.
Credit results for the key driver higher rates and lower fees helped but <unk> long term performance always comes down to credit first and foremost.
Let me wrap up with our outlook and then I'll open the line for questions.
To set the stage it's helpful to look back at calendar year 2023 from a macro perspective 2023 wasn't the year that most investors expected.
Matt: Overall, our liquidity position ran strong and was greatly enhanced by the December 2023 issue. We ended the quarter with more than $1.3 billion of liquidity from unrestricted cash, undrawn commitments on our meaningfully over-collateralized corporate revolver, and the unused, unsecured revolver provided by us. GBDC's robust liquidity represents 8.2 times its current unfunded assets. The diversification, flexibility, and low cost of GBDC's funding structure is an important element that underpins our three investment grade ratings from Fitch, Moody's, and S&P 500. GBDC has a ratings profile with Moody's and Fitch that is differentiated relative to the majority of the rated BDC sector, providing for deeper and more cost-effective access to the debt. Now I'll hand it back over to David for closing remarks and Q&A. Thanks, Matt.
The consensus view of economists at the start of the year was that we were headed towards a recession.
But we didn't get a recession in fact, we got pretty robust growth.
This divergence between consensus expectations and actual outcomes, it's become a recurring theme. The consensus view is turned out to be wrong over and over again. The last four years Covid was supposed to create a depression, but we got a boon inflation was supposed to be transitory and then it was supposed to be stubborn.
But it was neither.
Given this pattern, we think it's important to stay humble about predicting the course of the economy in the coming period, particularly given the backdrop of two wars polarized politics and upcoming elections.
So in this context I would like to think in terms of tailwind and headwinds instead of making specific predictions and I'm going to frame our outlook in terms of the tailwind and headwinds that we're seeing in two key areas credit and deal activity.
Let me start with credit.
Economic growth and credit performance for Golub capital companies was stronger in 2023 than expected.
David B. Golub: To sum up, GBDC started fiscal year 2024 with an excellent first quarter. Strong credit results were the key driver. Higher rates and lower fees help, but GBDC's long-term performance always comes down to credit first and foremost. Let me wrap up with our outlook and then I'll open the line for questions. To set the stage, it's helpful to look back at calendar year 2023.
It was stronger for the economy as a whole.
Will it continue.
Let's talk about it one tailwind is momentum the golub capital Middle market report for calendar Q4, which we published a few weeks ago generally showed robust growth and solid margins recent.
Recent economic data has also encourage it.
Those low unemployment normal inventory levels solid job growth and moderating inflation.
Another tailwind is that businesses in general appear to be adapting well to the challenging environment. We think this is particularly true of businesses owned by private equity firms in our view. This is the type of environment, where private equity's business model is particularly valuable.
David B. Golub: From a macro perspective, 2023 wasn't the year that most investors expected. The consensus view of economists at the start of the year was that we were headed toward a recession, but we didn't get a recession.
What about headwinds.
The big ones uncertainty.
Two wars.
David B. Golub: In fact, we got pretty robust growth. This divergence between consensus expectations and actual outcomes has become a recurring theme. The consensus views have turned out to be wrong over and over again in the last four years.
Polarized presidential election make it harder for businesses, including private equity backed businesses tap confidence to make the sort of meaningful investments that paved the way for future growth.
So as I think about balancing these key tailwind and headwinds my base case scenario is that economic growth will probably level law I expect the companies that have adapted well so far in general are likely to continue to do well I expect the companies that have struggled to adapt they are unlikely to find and easier sledding in 'twenty.
David B. Golub: COVID was supposed to create a depression, but we got a boom. Inflation was supposed to be transitory, and then it was supposed to be stubborn, but it wasn't either. Given this pattern, we think it's important to stay humble about predicting the course of the economy in the coming period, particularly given the backdrop of two wars, polarized politics, and upcoming elections. So in this context, I like to think in terms of tailwinds and headwinds instead of making specific predictions. I'm going to frame our outlook in terms of the tailwinds and headwinds that we're seeing in two key areas, credit and deal activity. Let me start with credit. Economic growth and credit performance for Golub Capital companies were stronger in 2023 than expected, meaning it was better for the economy as a whole. Will this continue? Let's talk about it.
24.
In terms of the outlook for private equity Dealmaking, we saw in Q4, a big improvement in deal volume relative to the first three quarters of calendar 2023, and we've heard a lot of bank Ceos predicted this trend is going to accelerate.
I agree in the medium term, but I'm more cautious about the short term.
I think it's quite likely that we're going to see M&A activity pick up in 2024, but maybe not in Q1 or in Q2.
The reason for my optimism is this.
There are a lot of private equity sponsors that have meaningful amounts of unspent commitments, where the clock is ticking they need to spend the money or theyre going to run out of investment period.
There's a second group of private equity firms that want to get out and raise a new fund and Theyre hearing loud and clear from their investors that they need to get distributions going if they want to raise more money.
David B. Golub: One tailwind is momentum. The Golub Capital Middle Market Report for Calendar Q4, which we published a few weeks ago, generally showed robust growth and solid margins. Recent economic data is also encouraging. It shows low unemployment, normal inventory levels, solid job growth, and moderating inflation.
So we've got a group of motivated buyers and we've got a group of motivated sellers and this in my mind makes it more a question of when and not if M&A.
M&A activity improves.
There's a second likely catalyst for an improvement in deal activity and Thats taxes.
David B. Golub: Another tailwind is that businesses in general appear to be adapting well to the challenging environment. We think this is particularly true of businesses owned by private equity firms. In our view, this is the type of environment where the private equities business model is particularly valuable. We've got Hedwig.
I'm not going to make any sort of political predictions, but I am willing to bet that we're going to hear more and more rhetoric about taxes over the course of the year since the tax cuts and jobs Act is set to expire in 2025.
In our experience the prospect of higher tax rates has a way of getting sponsors and business owners to focus on transactions.
David B. Golub: The big one is uncertainty. Two wars and a polarized presidential election make it harder for businesses, including private equity-backed businesses, to have confidence to make the sort of meaningful investments that pave the way for future growth. So as I think about balancing these key tailwinds and headwinds, my base case scenario is that economic growth will probably muddle along. I expect that companies that have adapted well so far, in general, are likely to continue to do well. I expect that companies that have struggled to adapt are unlikely to find it easier sledding in 2024.
Finally, let me sneak in one last point about our outlook.
In the coming periods is going to be very exciting for <unk>, assuming the proposed merger with GBC. Three closes we believe post merger <unk> will have higher earnings power that ever underpinned by very strong credit quality shareholder like fees and the benefit of increased scale.
With that operator can you. Please open up the line for questions.
Yes. Thank you.
Have a question. Please press star one on your telephone keypad, if you wish to withdraw your question simply press Star one again.
Your first question comes from the line of Robert Dodd with Raymond James Your line is open.
Hi, guys.
David B. Golub: In terms of the outlook for private equity dealmaking, we saw in Q4 a big improvement in deal volume relative to the first three quarters of calendar 2023, and we've heard a lot of bank CEOs predict that this trend is going to accelerate. I agree in the medium term, but I'm more cautious about the short term. I think it's quite likely that we're going to see M&A activity pick up in 2024, but maybe not in Q1 or in Q2. The reason for my optimism is this: there are a lot of private equity sponsors that have meaningful amounts of unspent commitments where the clock is ticking. They need to spend the money, or they're going to run out of investment time.
To your point, David I think.
Credit is always what is ultimately so.
Can you give us any color on the deployments in the quarter.
It looks like you had quite a lot maybe of Av.
Drawdowns on revolvers, certainly the gap between your fundings and Youll repayments, there's there's a spread which could be follow ons on existing portfolio companies all of them.
So can you give us any color on the mix and was there anything unusual relative to prior patents and those drawdowns during the quarter.
Hello, Robert Thanks for your question I don't I don't think there's anything unusual in terms of revolver activity revolver activity is remarkably steady it's.
David B. Golub: There's a second group of private equity firms that want to get out and raise a new fund, and they're hearing loud and clear from their investors that they need to get distributions going if they want to raise more money. So we've got a group of motivated buyers, and we've got a group of motivated sellers. And this, in my mind, makes it more of a question of when, rather than if, M&A activity improves. There's a second likely catalyst for an improvement in deal activity, and that's taxes. I'm not going to make any sort of political predictions, but I am willing to bet that we're going to hear more and more rhetoric about taxes over the course of the year, since the Tax Cuts and Jobs Act is set to expire in 2025. In our experience, the prospect of higher tax rates has a way of getting sponsors and business owners to focus
It's tends to be volatile for individual credits, but when you look at the kind of number of borrowers that we have in GB D. C. It really moves very significantly.
<unk> is a bit of a revolver drawdown activity at the end of the year.
As as companies choose fiscal years, ending on December 31, our drawing cash to be able to show some cash on their balance sheet.
But.
I don't think there's anything unusual or anything to worry about related to revolver draws.
You look at the last calendar year I do think there has been an unusually high percentage of new investments that are add ons.
In a world where buyers and sellers have had difficulty reaching agreement on on price on value.
Add ons had been an area, where that's been a bit easier because.
Buyers have.
Special economics, they have the ability through synergies.
To get more out of what they're buying than the seller Ken.
David B. Golub: Finally, let me sneak in one last point about our. We think the coming period is going to be very exciting for GBDC. Assuming the proposed merger with GBDC3 closes, we believe post-merger GBDC will have higher earnings power than ever, underpinned by very strong credit quality, shareholder aligned fees, and the benefit of increased scale. With that operator, can you please open up the line for questions? Yes, thank you. If you have a question, please press star one on your telephone keypad. If you wish to withdraw your question, simply press star one again.
Those are those are the only think I would say in response to your questions.
Got it got it. Thank you and then on the two specifics sorry about the background noise.
I mean, most of your unrealized markdowns in the quarter seem to come from elite Deadpool and Rubio spoke already on non accrual right. So no impact on earnings even if something.
You put incremental capital into boats as well. So can you give us your thoughts on the work through process, maybe specific to those if you're willing to talk about it on general about when when you're marking down but when you're also putting additional capital into those businesses at the same time.
Operator: Your first question comes from the line of Robert Dodd with Raymond James. Your line is open. Hi, guys. To your point, David, I think credit is always what matters ultimately. So can you give us any color on the deployments in the quarter? It looks like you had quite a lot, maybe, of drawdowns on revolvers.
Sure. So what do I think that served us really well over time, it's an ability to.
To step in and be a sponsor in contrast to banks that make loans that want to avoid taking the keys.
David B. Golub: Certainly, the gap between your fundings and your repayments shows a spread, which could be follow-ons on existing portfolio companies or revolver drawdowns. So can you give us any color on the mix, and was there anything unusual relative to prior patterns in those drawdowns, Stuart? Hello, Robert.
We're willing to in fact in some in some cases eager to take the keys into until work turnarounds and you look at a variety of the companies that we have.
Taken over as the factors sponsored we often do quite well in these companies. Some are challenging the two you mentioned have been challenging.
David B. Golub: Thanks for your question. I don't think there's anything unusual in terms of revolver activity. Revolver activity is remarkably steady.
<unk> been challenging because of operational issues and in both cases that we're working on.
David B. Golub: It tends to be volatile for individual credits, but when you look at the kind of number of borrowers that we have in GBDC, it rarely moves very significantly. There is often a bit of revolver drawdown activity at the end of the year as companies whose fiscal year is ending on December 31 are drawing down cash to be able to show some cash on their balance sheets. But I don't think there's anything unusual or anything to worry about related to revolver draws. If you look at the last calendar year, I do think there's been an unusually high percentage of new investments that are add-ons. In a world where buyers and sellers have had difficulty reaching agreement on price and value, add-ons have been an area where that's been a bit easier because buyers have.
I think one of the things I said in my prepared remarks is that.
This last year or two years has been one in which most companies have done well in adapting to changing market conditions.
But some are struggling.
We're not immune to that and achieve mentioned have been have been ones that we've been working hard on.
I think we ultimately will prove successful on both of them, but they've been challenging.
Okay. Thank you for that and also just a comment.
Thank you on the fee reduction.
Very significant positive for shareholders. So congratulations on that side. Thanks.
David B. Golub: Special Economics. They have the ability, through synergies, to get more out of what they're buying than the seller can. Those are the only things I would say in response to your question. Got it, got it. Thank you.
Thanks Robert.
Your next question comes from the line of Ryan Lynch with <unk>. Your line is open.
Hey, good afternoon.
David B. Golub: And then on the two specifics, sorry about the background, Mark. I mean, most of your unrealized markdowns in the quarter seem to come from Elite Dental and Rubio's, both already on non-accrual, right? So no impact on earnings, even if something you tried, but you put incremental capital into both as well.
First question I had overall credit quality in your portfolio has been.
Really good thus far and we started to see a little bifurcation.
Across the BDC. This quarter I was just curious when you look at your rated three credits, which again R&R arent really that high credit told properly get your portfolio. Im wondering have you guys seen any sort of trends in those investments whether it's industry concentration or I was also curious about.
David B. Golub: So can you give us your thoughts on the work through process, maybe specific to those, if you're willing to talk about it, or in general, about when you're marking down, but when you're also putting additional capital into those businesses at the same time? Sure. So what I think has served us really well over time is an ability to step in and be a sponsor. You know, in contrast to banks that make loans that want to avoid taking the keys, we're willing, and, in some cases, eager, to take the keys and work turnarounds. And if you look at a variety of the companies that we've taken over as de facto sponsors, we often do quite well in these companies, although some are challenging.
If there is anything.
To deal with sort of vintage exposure there was obviously.
We are starting to see some loans I think in that 2021 vintage.
Starting out maybe struggle a little bit more just given the more frothy conditions I was just curious if you guys have observed.
Any sort of trends in those rate of three categories of your portfolio.
So first Ryan I'd agree with the insight you just mentioned I think we're in an environment right now and have been for the last several quarters, where we're starting to see.
David B. Golub: The two you mentioned have been challenging. They've been challenging because of operational issues in both cases that we're working on. I think one of the things I said in my prepared remarks is that this last year and two years have been one in which most companies have done well in adapting to changing market conditions, but some are struggling. We're not immune to that.
More and more meaningful dispersion in results of different credit managers in the BDC space and we're very very proud to be on the good side of the divide.
David B. Golub: And the two you mentioned have been ones that we've been working hard on. I think we will ultimately prove successful on both of them, but they've been challenging. Okay, thank you for that. And also, just a comment.
I think youre going to continue to see that dispersion I think we're in a period as I mentioned in my prepared remarks, where some companies are having difficulty adapting to higher interest rates and in some cases slower economic growth.
Robert Dodd: I mean, thank you for the fee reduction, just a very significant positive for shareholders. So congratulations. Thanks, Trevor. Your next question comes from the line of Ryan Lynch with KBW. Your line is open. Hey, good afternoon.
And so you're starting to see a bump ups in defaults bump ups in.
<unk>.
The proportion of some bdcs.
We're challenged credits non accruals low performance ratings and marks.
David B. Golub: First question I had, overall credit quality in your portfolio has been really good thus far, and we started to see a little bifurcation, you know, across the BDCs this quarter. I was just curious, when you look at your rated three credits, which again, aren't really that high in terms of credits overall, really good in your portfolio. I'm wondering, have you guys seen any sort of trends in those investments, whether it's industry concentration, or I was also curious about if there was anything to do with sort of vintage exposure. There was obviously, we started to see some loans, I think, in that 2021 vintage start to maybe struggle a little bit more, just given the more frothy conditions. I was just curious if you guys have observed any sort of trends in those rated three categories in your portfolio. So first, Ryan, I'd agree with the insight you just mentioned. I think we're in an environment right now and have been for the last several quarters where we're starting to see more and more meaningful dispersion in results between different credit managers in the BDC space. And we're very, very proud to be on the good side of the divide.
We're very likely going to see more of that over the remainder of this reporting cycle and going into the next several reporting cycles.
In terms of our three rated credits and just.
Remind everyone. One of three rated credit is it is it is.
A credit thats, either performing now or is expected to perform at a level that's lower than what our expectations were in underwriting.
It's not a seriously impaired credit if it were more seriously impaired it would be rated one or two or.
Our experience with our <unk>, they're rather idiosyncratic I'm not seeing patterns by vintage or by industry.
I would say.
We are where we where we have seen up pattern.
The pattern I would describe is a little different from where you were headed the pattern is that the companies that have been Chang.
Challenging or companies that have underperformed.
They are the ones who were having the hardest time getting.
The improvement.
So.
This is Ed.
An environment in which companies that are winning are continuing to win in companies that are losing market share.
We've been doing just fine.
And my guess is that's a pattern we're going to continue to see.
David B. Golub: I think you're going to continue to see that dispersion. I think we're in a period, as I mentioned in my prepared remarks, where some companies are having difficulty adapting to higher interest rates and, in some cases, slower economic growth. And so you're starting to see bump-ups in defaults, bump-ups in the proportion of some BDCs, more challenged credits, non-accruals, low performance ratings, and marks. I think we're very likely going to see more of that over the remainder of this reporting cycle and going into the next several reporting cycles. In terms of our three-rated credits, and just to remind everyone what a three-rated credit is, it's a credit that's either performing now or is expected to perform at a level that's lower than what our expectations were at underwriting. It's not a seriously impaired credit. If it were more seriously impaired, it would be rated one or two.
Okay.
That makes sense.
And then I think one of the comments you name it is pretty interesting in your prepared comments kind of talking about.
Motivated increased deal activity throughout the year, maybe in the back half of the year because increased motivations with both buyers and sellers.
Sellers, because they need to return capital back to their Lps and buyers.
Not wanting to return capital and so trying to deploy that I would think.
Providing leverage or debt to a motivated and into a deal with a motivated seller would probably be pretty good because the seller may be willing to sell it at a lower purchase price, which gives you a lot of lot more equity cushion I would think the opposite would occur without really motivated buyer, who may just redeploying capital to deploy capital and maybe a little aggressive in terms in <unk>.
<unk> at least from a purchase price multiple because they need to get that capital. So it seems like those are maybe two opposite.
David B. Golub: Our experience with our threes is that they're rather idiosyncratic. I'm not seeing patterns by vintage or by industry. I'd say where we have seen a pattern, the pattern I would describe is a little different from where you were headed. The pattern is that companies that have been... challenging or companies that have underperformed are the ones who are having the hardest time getting it to improve. So this is an environment in which companies that are winning are continuing to win, and companies that are losing are continuing to lose. And my guess is that that's a pattern we're going to continue to see. No question.
Sort of deals I would just be curious.
Deal activity does pick up in the second half of the year due to both motivated buyers and sellers. What do you think that's going to mean from.
From a lending perspective in terms of quad.
Quality of deals given the vast majority the turns of leverage and structures and all that.
So it's a good question Ryan.
I think we tend to focus much more on who the buyer is.
And then then the dynamics you just described.
David B. Golub: That makes sense. And then I think one of the comments you made was pretty interesting, your prepared comments kind of talking about increased deal activity throughout the year, maybe in the back half of the year, because of increased motivations from both buyers and sellers, sellers because they need to return capital back to their LPs, and buyers, not wanting to return capital and so trying to deploy that. I would think providing leverage or debt into a deal with a motivated seller would probably be pretty good because the I think the opposite would occur with a really motivated buyer who may just be deploying capital or investing capital and may be a little aggressive in terms and structures, at least from a purchase price multiple because they need to get that capital. It seems like those are maybe two opposite deals.
Remind you of some statistics that that many on this call I'll, probably are familiar with and we have well over 200.
Private equity firms that over golf capitals history, we've done multiple transactions with in calendar 2023, 97% of our direct lending was with repeat sponsors 97% in most years over the last 10, it's been around 90.
<unk>.
So we're very careful about who we work with.
Are very thoughtful about working with sponsors that we have a lot of conviction are good at what they do they're good at picking good companies are good at adding value after they buy the companies in there and theyre good at fixing things if they make a mistake so.
I think I think our model is very much sponsor focused in that respect.
David B. Golub: I would just be curious if deal activity does pick up in the second half of the year due to both motivated buyers and sellers, what do you think that's going to mean from a lending perspective in terms of quality of deals given the vast majority of the terms of leverage and structures and all that? So, it's a good question, Ryan, and I think we tend to focus much more on who the buyer is than on the dynamics you just described. Again, I'll remind you of some statistics that many on this call probably are familiar with. We have a little over 200 private equity firms that, over Golub Capital's history, we have done multiple transactions with. In calendar 2023, 97% of our direct lending was with repeat sponsors. 97% In most years over the last 10, it's been around 90%.
Okay.
Makes sense and then one more if I can just on the business.
It's more for Chris but.
Just on the interest rate swaps you guys did on the liabilities you guys did a portion of your previous bonds you swapped out all of the current.
Unsecured notes.
From fixed to floating is that something that is more of a change in philosophy that you guys are just going to swap out all the.
The fixed rate to floating rate because there are certain bdcs out there who could do that no matter what the market conditions are they just swap fixed to floating every time or is it more sort of.
Kind of taking advantage of the current marketplace as well as ware.
Short term base rates are today and the forward curve kind of taking advantage of that that marketplace in that outlook, what is sort of about the thoughts about behind that long term philosophy or more.
David B. Golub: So we're very careful about who we work with. We are very thoughtful about working with sponsors that we have a lot of conviction are good at what they do. They're good at picking good companies, they're good at adding value after they buy the companies, and they're good at fixing things if they make a mistake.
Sort of one off given market conditions.
So hi, Ryan terminal.
Alright, let me start and then you can chime in so long term philosophy is that we.
David B. Golub: So, you know, I think our model is very much sponsor-focused in that respect. Okay, makes sense. And then one more, if I can, just on the interest rate swaps you guys did on the liabilities, you guys did a portion of your previous bonds, you swapped out all of the current unsecured notes to, you know, from fixed to floating. Is that something that is more of a change in philosophy, that you guys are just going to swap out all the fixed rates to floating rates? Because there are certain BDCs out there who do that; no matter what the market conditions are, they just swap fixed for floating every time.
Wanted to stay.
Predominantly match funding, we're big believers in match funding so because.
The vast preponderance of our assets are floating rate assets that inclines us toward using floating rate liabilities. We do have some non floating rate assets and so we don't have to have everything be bee swapped and when we did those.
Unsecured bonds when when rates were really really low.
Did make a affirmative decision at that time, not swap, which was unusual for us and we made that decision because we saw him in a submit an asymmetric risk profile to doing so we thought it was quite unlikely that we were going to see rates go down from those low levels and we saw the possibility of <unk>.
David B. Golub: Or is it more sort of a kind of taking advantage of the current marketplace, as well as where, you know, short-term base rates are today kind of and the forward curve kind of taking advantage of that, that marketplace, and that outlook? What are the thoughts behind that? Long-term philosophy or more sort of one-off given market conditions?
Rates going up we were right, but please don't confuse that with our thinking that that we're good at forecasting interest rates as a generalization, we don't want to be in the interest rate forecasting business.
David B. Golub: So, Ryan. Let me start, and then you can chime in. So our long-term philosophy is that we want to stay, predominantly match funding. We're big believers in match funding. So because the vast preponderance of our assets are floating rate assets, that inclines us toward using floating rate liabilities. We do have some non-floating rate assets, and so we don't have to have everything be swapped. And when we did those unsecured bonds when rates were really, really low, we did make an affirmative decision at that time to not swap, which was unusual for us. And we made that decision because we saw an asymmetric risk profile for doing so.
Okay.
That makes sense.
That's all for me.
Really nice quarter, guys and I, just want to reiterate Robert's comments on very well done with the <unk>.
Fee structure.
Reductions both both the current one as well as the ones you guys have done with that to basically sell that so definitely a big Big news for shareholders. That's all for me.
When correctly.
I apologies once again, ladies and gentlemen, if you have a question. It is star one on your telephone keypad.
There are no further questions at this time I will turn the call to David Gallop for closing remarks.
David B. Golub: We thought it was quite unlikely that we were going to see rates go down from those low levels, and we saw the possibility of rates going up. We were right, but please don't confuse that with our thinking that we're good at forecasting interest rates. As a generalization, we don't want to be in the interest rate forecasting business.
Great. Thank you everyone for joining us today I have one last requests for you, which is alright, Chris Ericsson's birthday. So you can wish Chris a happy birthday, that'd be great and.
And we look forward to talking to you next quarter. If you have any questions. Before then please feel free to reach out.
Ryan Lynch: Lookout, that makes sense. That's all for me. Really nice quarter, guys. And I just want to reiterate Robert's comments on how well done we were with the fee structure reductions, both the current one as well as the one you guys have done with the base fee. So that's definitely a big boost for shareholders.
This concludes today's conference call. We thank you for joining you may now disconnect your lines.
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Yes.
Okay.
Ryan Lynch: That's all for me. Thanks again. My apologies.
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Operator: Once again, ladies and gentlemen, if you have a question, it is star one on your telephone keypad. There are no further questions at this time. I will turn the call over to David Golub for closing remarks.
Okay.
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David B. Golub: Thank you, everyone, for joining us today. I have one last request for you, which is that it's Chris Erickson's birthday. So, if you can wish Chris a happy birthday, that would be great. And we look forward to talking to you next quarter. If you have any questions before then, please feel free to reach out. This concludes today's conference call. We thank you for joining. You may now disconnect your lines.
Yes.
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Okay.
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