Half Year 2025 Golub Capital BDC Inc Earnings Call
Speaker Change: Hello, everyone, and welcome to GBDC's Earnings Call for the Fiscal Quarter ended March 31st, 2025. 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 Security's Litigation Reform Act of 1995.
Speaker Change: Statements other than statements of historical facts made during this call may constitute or looking statements and are not guarantees of future performance or results in involving a number of risks and uncertainties.
Speaker Change: 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.
Speaker Change: 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.golubcapitalbDC.com and click the events presentations link.
Speaker Change: 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.
Speaker Change: Hello everybody, thanks for joining us today. I'm joined by Matt Benton, our chief operating officer and Chris Ericsson, our chief financial officer.
Speaker Change: For those of you who are new to GBDC, our investment strategy is the same as it's been since our IPO 15 years ago. It's to focus on providing first lean senior secured loans to healthy, resilient middle-market companies that are backed by strong partnership-oriented private equity sponsors.
Speaker Change: The yesterday we issued our earnings press release for the quarter and we posted an earnings presentation on our website. We'll be referring to that presentation during the course of today's call.
Speaker Change: Before I begin with quarterly headlines, I want to take a moment to celebrate our 15th anniversary as a listed BDC. GBDC is one of only a few BDCs to have successfully navigated multiple credit cycles over a long period of time.
Speaker Change: Since our IPO 15 years ago, GBDC has delivered a 9.6% annualized total return, outperforming pure BDC's, leverage loan indices, and even the Russell 2000, which returns 8.5% annually over the same period.
Speaker Change: I want to take this opportunity to thank all of our shareholders for their partnership over the course of the last 15 years.
Speaker Change: With that, let me start with the usual headlines, and then that and Chris are going to go through operating results and financial performance for the quarter in more detail, and finally I'll come back with our outlook for the coming period and take some questions.
Speaker Change: The headline is that GBDC had a solid quarter despite a challenging macro environment. It was a macro environment marked by shifting sentiments and an unusual level of policy
Here are the highlights.
Speaker Change: Adjusted NII per share was 39 cents, that corresponds to an adjusted NII return on equity of 10.4 percent
Speaker Change: Adjusted net income per share was 30 cents, that corresponds to an adjusted return on equity of 8%. Adjusted net income per share included 9 cents per share of adjusted net realized, unrealized losses.
Speaker Change: While the vast majority of GBDC's portfolio continued to perform well in the quarter, we did see some weakness in the small tale of underperforming borrowers we've spoken about previously.
Speaker Change: Finally, our new investment activity for the quarter was very selective. We closed on just 2.3% of reviewed deals.
Speaker Change: Now the risk of stating the obvious, this quarter wasn't, it wasn't the one market participants were expecting. At the beginning of the year there was broad optimism about continuing strong economic growth and about the potential for increased deal activity.
Speaker Change: That's not what played out. We ended the quarter and we've begun calendar Q2 with an uncomfortable level of uncertainty around tariff policy, an unusual degree of market volatility, decreased consumer confidence, and broad reports of slowing growth.
Speaker Change: One of our goals today is to give you an assessment of how we're seeing these forces play out for GBDC and to explain both what we've done and what we're going to do to prepare further. If you're a longtime shareholder of GBDC, a lot of this is going to sound familiar. Our playbook for navigating uncertainty has been the same for decades.
It's to play offense by selectively looking for new loans.
Speaker Change: And it's to focus on early detection and early intervention. Early detection means looking for borrower under performance early. And early intervention is about working with sponsors and borrowers to address future potential problems proactively.
Speaker Change: Now I'll pass the call over to Matt Benton to discuss the quarter in more detail and I'll come back at the end with some closing thoughts.
Thanks, David. I'm going to start on slide 4.
Matt Benton: GDC's 39 cents per share of adjusted NII and 30 cents per share of adjusted earnings were retrieved by 4 key factors.
Matt Benton: First, overall credit performance remains solid. Nearly 90% of GVDC's investment portfolio of their value remains in our highest performing and eternal rating categories.
Matt Benton: That said, credit wasn't perfect. We had unrealized losses from fair value markdowns on a small number of underperforming investments, and we recognized realized losses on two restructurings of investments that had been on non-accrual status as of 1231-2024.
Matt Benton: Second, earnings continue to be supported by high base rates and attractive spreads, consistent with recent quarters.
Matt Benton: GBDC's investment income yield-remained robust at 10.8%, despite a sequential decline of about 40 basis points primarily driven by certain loans resetting the lower base
Matt Benton: Third, at the client in GVDC's borrowing costs, largely offset the sequential decline in investment income yield.
Matt Benton: Lower-based rates reduce the interest expense on the 80% of our borrowings that are floating rate. On top of that, the death-stack initiatives we closed at the end of 2024 in which we've spoken about before further reduced borrowing costs during the March 31st quarter.
Matt Benton: And fourth, the earnings continued to structurally benefit from lower expenses due to GBDC's leading fee structure.
Matt Benton: I'm going to turn to portfolio activity and credit quality in the quarter now.
Speaker Change: One of the ways we responded to the high uncertainty that David mentioned earlier was by dialing up our conservatism about adding to GVDC's portfolio.
Speaker Change: We prioritize quality over quantity in new investment activity which actually led to a small decrease in the size of the portfolio as exits outpaced new investment commitments.
Speaker Change: Gross originations were $298.9 million during the quarter, with $159.5 million funded at close.
Speaker Change: This focus on quality over quantity showed up in several ways. We were highly selected, closing just 2.3% of deals for good.
Speaker Change: We leaned on relationships and competencies with over 50% of our resignation coming from repeat borrowers. We leveraged our scale to lead deals, acting as the lead or sole lender in 93% of our transactions.
Speaker Change: We focused on conservative LTVs at the time of origination, generally in the mid 30-40% range. And we focused on the poor middle market, which we believe continues to offer better risk of just a return potential than the large borrower market.
Speaker Change: The median EBITDA for a calendar Q1 2025 originations with $54 million, and our weighted average spread on new originations increased 30 basis points this quarter versus the last couple of quarters.
Speaker Change: We really believe our ability to play across the side spectrum is a valuable differentiator versus many of our peers that are limited to the large borrower market.
Speaker Change: Credit statistics remain strong quarter of a quarter and we continue to believe that we have a highly defensive portfolio that is well positioned for the emerging economic uncertainty.
Speaker Change: Investments in rating categories 4 and 5 remain at nearly 90% of the portfolio at fair value as of March 31st, 2025.
Speaker Change: Investments in rating category 3 remain just under 9% at 8.9% at their value.
Speaker Change: Investments in rating categories one and two remain very low, representing just 1.4% of the total portfolio of their value.
Speaker Change: As percentage of total investments at their value, not a cruel investments increase modestly to just 70 basis points.
as of 3-31-2025.
Speaker Change: In the quarter, the number of non-accrual investments remained at just nine, following the restructuring of two former non-accrual investments, and the return of one former non-accrual investment to accrual status on improved operating performance.
Speaker Change: These dynamics were offset by the placing of three loan investments on not a
Speaker Change: Let me take a minute to discuss the portfolio management processes we've undertaken in response to the tariff uncertainty.
Speaker Change: As we've said repeatedly, early detection of potential vulnerabilities in our portfolio is a key focus. Our underwriting teams have reviewed GVDC's portfolio.
Speaker Change: on a sectoral basis and on a name-by-name basis to identify potentially impacted borrowers. Our initial analysis suggests that the vast majority of our portfolio companies are relatively insulated from the direct impact of tariffs.
Speaker Change: Our risk analytic framework includes A, analyzing credits by sector, with a focus on sectors that we believe may be more vulnerable and B, assessing borrowers on a name-by-name basis, evaluating potential exposure in areas such as revenue, supply chains, and liquidity.
Speaker Change: Based on the work today, we have identified a short list of portfolio companies in a higher potential tariff risk bucket
Speaker Change: We're prioritizing this subset of the portfolio for further discussions with sponsors and management teams to assess their mitigation plans and to help them take steps to shore up potential vulnerabilities.
Speaker Change: We intend to remain in close contact with our sponsors and portfolio companies as they continue to monitor and assess the impact of tariffs
Speaker Change: Being a sole or lead lender, approximately 90% of our deals gives us a greater degree of access and influence than some of our direct lending peers.
Speaker Change: Continuing on slide 4, let me briefly summarize distributions paid in certain balance sheet changes in the quarter. Total distributions paid in the quarter were 39 cents per share. Now per share decreased by 9 cents on a sequential basis to $15.00 in 4 cents, primarily because of net unrealized and realized losses.
Speaker Change: Debt to equity remains stable quarter of a quarter, ending at one spot one-six turns, with debt reduced by available cash, and cash retained at desk curvizations for the purpose of paying down
Speaker Change: GVDC's average net leverage during the order was 1.1.7 turns, well within our targeted range of 0.585 to 1.2.5 turns.
Speaker Change: In the quarter, we took advantage of the track of trading levels in the stock price to selectively issue equity on an accretive basis through our at the market offering program.
Speaker Change: And given the unprecedented levels of market volatility, experience at the end of the calendar quarter and following quarter end, repurchase shares on an accretive basis.
Speaker Change: The board declared a regular quarterly distribution of $0.39 per share, representing an annualized dividend yield of 10.3 percent, based on GBDC's NAV per share as of March 31, 2025.
Dividend coverage remains strong at 100% today.
Speaker Change: Let's shift gears in terms of 5. Quarter of a reporter, there was no change in the level of adjusted net investment income. JVT generated 39 cents per share.
Speaker Change: We see further opportunity to optimize GVDC's balance sheet to drive higher earnings including further borrowing costs optimization.
Speaker Change: For example, a subsequent quarter end, we extended duration on and reprised our syndicated corporal over to the tightest level among our traded BDC peers. This highly attractive lower cost debt should begin to be reflected in our results for the quarter ended June 30th, 2025.
Speaker Change: In addition, our well-lattered, unsecured debt-stack and best-in-class ratings profile provides us with the flexibility to be an opportunistic issuer when credit spreads are attractive and to not have the issue when credit spreads have widened, as was the case at the end of the quarter.
And finally, investment portfolio rotation.
Speaker Change: We believe the successful monetization of certain non-earning equity investments in low yielding loans associated with prior restructured names with subsequent redeployment into new core middle market originations can potentially generate incremental NII.
Speaker Change: could be obvious caveat that we have worked to do to successfully resolve these things, and it's not going to happen all overnight, but we have the skills and resources to do this.
Speaker Change: I'm going to turn it over to Chris now to take us through our financial results in more detail. Chris?
Chris Ericson: Thanks, Matt. Turning to Slide 7, you can see how the earnings drivers Matt just described and distributions paid in the quarter, translated into GBTC's March 31, 2025 NAF for share of $15.04 [inaudible]
Speaker Change: Just as NII of $0.39 per share was in line with the $0.39 per share base distribution paid out during the quarter.
Speaker Change: Net realized and unrealized losses, or seven cents per share, and nine cents per share after reversing the two cents per share in unrealized appreciation on investments, resulting from the purchase premium paid and the GCIC and GBDC-3 acquisitions.
Speaker Change: Together, these results drove a net asset value for shared decrease to $15.4.
Speaker Change: Turning to slide 10, which details our origination activity for the quarter.
Speaker Change: Net funds, quarter over quarter, decreased modestly by 64 million as exits and payoffs outpaced funded investments during the quarter.
Speaker Change: And looking at the bottom of the slide, the weighted average rate on new investments was 9.7%
Speaker Change: Investments at repaid during the quarter were at a weighted average rate of 10.4%.
Speaker Change: And as David and Matt described that the outset, these contributed to a lower investment yield on the portfolio compared to prior quarters.
Speaker Change: I'll reiterate that we did see a 30 basis point increase in the weighted average spread on new originations versus the 1231-24 quarter. It reflects our continued focus on the core, middle market, and our deal selectivity.
Speaker Change: Slide 11 shows GBDC's overall portfolio mix. As you can see, the portfolio breakdown by investment type remain consistent, quarter over quarter, with one stop loans continuing to represent around 87% of the portfolio at fair value.
Speaker Change: So, I 12 shows that GVC's portfolio remains highly diversified by portfolio company with an average investment size of approximately 30 basis points, consistent with prior quarters.
Speaker Change: Additionally, our largest borrower represents just one-and-a-half percent of the debt investment portfolio, and their top ten largest borrower represent below 12 percent of the portfolio.
Speaker Change: We are big believers in modulating credit risk through position size, which we believe has served GMT well in previous credit cycles.
Speaker Change: As of March 31, 2025, 92% of our investment portfolio consisted of firstly senior secured floating rate loans to borrowers across a diversified range of what we believe to be Brazilian industries.
Speaker Change: The economic analysis on slide 13 highlights the drivers of the change in GBDC's net investment spread to 4.9%.
Let's walk through this side in detail.
Speaker Change: We'll start with a dark blue line, which is our investment income yield.
Speaker Change: As a reminder, the investment income yield includes the amortization of fees and discounts.
Speaker Change: GVDC's investment income yield fell 40 basis points sequentially to 10.8%.
Speaker Change: And as highlighted earlier, this was predominantly the result of a portion of GVDC's 99% floating-rate investment portfolio
Speaker Change: Re-indexing throughout the quarter to lower three months and one month's sofa reference rates and to a much lesser extent lower rated average spread on debt investments in the portfolio, which was driven via net originations at lower spreads and some repricing activity in the existing portfolio.
Speaker Change: Our cost of debt, the fuel line, decreased 30 basis points to 5.9%, reflecting our approximately 80% floating rate debt funding structure.
Speaker Change: And as Matt described earlier, we expect further improvement in GVC's weighted average cost of debt next quarter, as we see the impact from the amendment of our syndicated corporate revolver.
Speaker Change: Netnet, our weighted average net, investment spread, the gold line decreased by a modest 10 basis point, sequentially to 4.9%.
I'll now turn it back over to Matt
Thanks, Chris.
Speaker Change: Let's move on to slides 14 and 15 and take a closer look at our credit quality metrics.
Speaker Change: On slide 14, you can see the non-accruals increased slightly to 70 basis points of total investments at fair value. We completed restructurings of ERC Topco and Reaction Biology and returned J.H.C. investment to a cruel status in the quarter.
Speaker Change: In addition, we placed three companies on non-accrual status, resulting in no change in the number of total portfolio companies on non-accrual status from the prior quarter.
Speaker Change: Slide 15 shows the trend in eternal performance ratings I highlighted earlier. Of note, investments rated 3, signaling a borrower could be out of compliance with debt governance, remain low at just 8.9% of the total investment portfolio.
Speaker Change: And the proportion of loans rated one and two, which are loans we believe are most likely to see significant credit impairment, remain very low at just 1.4% of the portfolio
Speaker Change: Because we usually do, we're going to skip past slides 16 for 19. These slides have more detail on GVDC's financial statements, dividend history and other key metrics.
Speaker Change: I'll wrap up this section by reviewing GVDC's liquidity and investment capacity on size 20-21.
First, let's focus on the key takeaways on slide 21 [inaudible]
Speaker Change: Our weighted average constant debt this quarter was 5.9% down from the prior quarter reflecting the debt funding structures transactions we executed in the fourth calendar quarter of 2024 and before the impact of repricing our corporate law bill which I discussed earlier.
Speaker Change: Our debt material profile remains well-positioned with 44% of our debt funding in the form of almost cured notes.
with maturities ranging from 2026 through 2029.
Speaker Change: The April 2025 Corporate Revolver Amendment further enhanced our debt maturity profile, extending and in final maturity on the nearly 2 billion of total commitments under the facility through 2030.
Speaker Change: Consistent with our asset liability matching principle, 80% of GBDC's total defunding is floating rate or swapped to a floating rate.
Speaker Change: The portion of the death funding that remains 6th rate are the 2026 and 2027 notes that were issued with a weighted average coupon of 2.3% and as you've heard of Sam prior occasions, we did not swap them out for floating rate exposure.
Speaker Change: Overall, our liquidity position remains strong and we ended the quarter with approximately $1.2 billion of liquidity from unrestricted cash, undrawn commitments on our meaningfully over-collateralized corporate revolver, and the unused, unsecured revolver provided by our advisor.
Speaker Change: We're a well-positioned with the level of capital and significant amount of liquidity for the period ahead.
Speaker Change: Now we'll hit it back over to David for closing remarks.
David Golub: Thanks, Matt. So to solve a GBDC at a solid second quarter against a challenging backdrop of weakening market fundamentals and high policy uncertainty.
David Golub: Let me touch briefly on our outlook before we open the line for questions.
David Golub: We've talked for a number of quarters now about how consensus expectations have proven consistently wrong about big macro themes in the years since COVID.
David Golub: In 2020, we were told to expect a recession. In 21, it was transitory inflation. In 22, it was stubborn inflation. In 23, it was recession again.
David Golub: And in 24, we were told to expect dramatic reductions in interest rates
All of these predictions proved wrong, often very wrong.
David Golub: After only a quarter, the big consensus prediction for 25 that we were going to see a big pickup in M&A, that's also fruit draw.
David Golub: So what's the lesson you're right? I think there are three lessons.
Choose resilient strategies, stay humble and prepare for multiple scenarios.
David Golub: Let me recap what we've done and what we're doing in keeping with these lessons.
Start with Choosing Resilience Strategies
David Golub: As you know, our investment strategy is designed to be resilient. We focus on lending at the top of the capital structure to healthy businesses in recession-resistant industries that are backed by relationship-oriented, very talented private equity firms.
David Golub: This strategy has been tested through multiple periods of dislocation and has come at each time proving to be strong.
David Golub: We believe our long-standing focus on the resiliency of our investment strategy means our portfolios relatively insulated from the direct impact of tariffs and other trade-related issues like FX exposure.
David Golub: Now, I'm not saying there isn't still uncertainty, but our borrowers are primarily US businesses with US centric supply chains that are selling to US customers. Most of our borrowers are in service industries.
David Golub: Few of them have meaningful exposure to imported raw materials or to export markets.
David Golub: And we believe sponsors and management teams have since the election been anticipating potential tariffs and developing mitigation strategies.
David Golub: We think this puts us in a relatively strong position. Now, there's still all the unknowns we talked about over the course of this call, and there's still the possibility of second order unknowns. We think it's important to stay humble about what we don't know.
But it's also important not to be paralyzed by uncertainty.
David Golub: So what we're doing, again consistent with my three lessons, is preparing for multiple scenarios.
David Golub: What that means first off is, carefully reviewing and monitoring our portfolio for terra-related risks. You heard Matt describe how we're doing that, how we're following a rigorous sector-by-sector, and named by name review process.
David Golub: The approach we're taking is similar to how we leverage the scale and expertise of our investment team during COVID and during the turbulent market conditions of 2022.
David Golub: We pivot resources. We seek to identify vulnerabilities early. We seek to engage with private equity sponsors and borrowers to take action early.
David Golub: What this reflects, I think, more than anything, is that this is our first rodeo. We've been through a number of unprecedented times over the last 30 years. In each case, we're trying to deliver for shareholders by using the same proven playbook.
David Golub: And we've come out stronger on the other side. I'm confident that our playbook is once again going to serve us well in this instance as we manage through this set of issues.
David Golub: And there's a silver lining to this challenging, uncertain environment. We think this is the type of environment that historically a separated munders with strong businesses and real competitive advantages from those that don't have those characteristics.
David Golub: We've already seen increased dispersion in performance among BDC managers over the course of the last few quarters, and we expect to see more of this in the coming periods.
David Golub: We believe Golub Capital and GBDC will once again be on the good side of the performance dispersion spectrum.
David Golub: With that operator, could you please open the line for questions?
Speaker Change: We will now begin the question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. If there's question comes from the line of Thinian Oce with Wells Fargo.
Please go ahead.
Speaker Change: I hear everyone good afternoon. David picking up at the end there has certainly been a full [inaudible]
Speaker Change: The rate curve is pointed down at least somewhat, and NOIs basically right at the dividend right now. So how should we think about the base payout going forward?
Great question. Matt, you want to you want to set up?
Yeah, happy to offend. Good to speak.
Speaker Change: Really, just like everybody, we're battling spread and base rate compression, but...
Ben: The short answer is that we feel about as good as we can.
Speaker Change: given where we sit today despite, you know, what we're seeing from a forward curve compression perspective because we do have some potential near term letters that we can pull. [inaudible]
Speaker Change: The first, what I would characterize as in place lever, is the pricing reduction on our JP Morton Predip Facility that we executed on April 4th. We'll get the full benefit of that in the 630 quarter.
I think as you, as you think about your model.
Speaker Change: The benefit is pretty easy to calculate, you know, if you want to think about it from a backwards looking view, you know It's a billion want to draw a balance of 331 and assume a spread of 165 basis points versus the 175 where we were at today
Speaker Change: also don't forget the unused seed drops by five basis points on the undrawn amount of almost $200 million. So there'll be some pick up there. That'll be nicely accreted.
Speaker Change: The second what I would call in place lever today is that 80% of the liability stock is variable rate. This largely mitigates base rate reductions, not entirely. You saw the benefit of that this quarter.
Speaker Change: I would say the third lever that we have to pull would be modestly considering increasing financial leverage to the extent that we see effective efforts in these, if you noted it during the comments.
Speaker Change: Yeah, our spread this quarter increased on new originations just given where we're focusing.
Speaker Change: We ended the quarter at leverage of one spot, one six turns so we have room to run there at the extent that we want to do that It's pretty easy to calculate the accretive impact of moving it higher within our target leverage range
Speaker Change: And then finally, you know, our date count next quarter is going to be higher, which is worth surprisingly a decent amount of incremental adjusted NII. I either be more earning days for GVDC next quarter.
Speaker Change: I mean, listen, management of the board, we're always evaluating dividend levels versus our expected steady state profitability with your big scenario planners over here.
Speaker Change: If there is a scenario that we see where the combo of base rate and or sprites compression is substantial up toward revisiting the quarterly dividend levels, we'll certainly do it, but for now we feel okay wherever setting.
Speaker Change: Fair enough, appreciate that. Do one more, appreciating that, that you all held back on.
Speaker Change: on deployment this quarter feels like a good move, a pretty frothy quarter in hindsight. The repayments have also trended.
Speaker Change: Trended law, like those have picked up for a lot of peers as a percent of the portfolio. Just sort of question, are we seeing anything there? Is that also part of the formula? Are you focused on?
Speaker Change: You know, defending the names, doing the reprisings, which would hopefully be abating by now. But yeah, anything there on the just low overall activity.
Sure, I'll take that suit.
Speaker Change: Yeah, we went into the quarter and I think everybody, including us, expected to pick up an activity. I was not a believer in this M&A super cycle talk, but I anticipated that we would see a continuation of trend from the last two quarters of 24 didn't happen.
Speaker Change: Um, instead we've seen a significant deceleration of deal activity even before the tariff discussions, it's it's decelerated even more as we look into Q2.
Speaker Change: So in that environment, we saw decreased deal activity and still very significant competition for the deals that were happening. So we saw in the first two months actually continued compression of spreads.
Speaker Change: And that's what led us to be very cautious because we thought that the new activity was not as attractive as we would.
Speaker Change: As we would like for it to have been we wanted to to husband some powder for better times and to your point I'm I'm glad we did
Speaker Change: and it's looking to do something new. We consistently, very aggressively defend incumbencies where we like the credit. That's just a standard Golub Capital policy. We think it served us well over a very long period of time.
I think looking at...
Speaker Change: At one quarter and trying to draw inferences about overall repayment trends, I caution against that. I think that's hard to do because one quarter's worth of repayments can be very heavily influenced by a small number of transactions. [inaudible]
Speaker Change: But I would tell you, as a generalization, we're seeing private equity hold-bonger in hopes that we're going to see a better environment for selling companies, and that's like the dominant trend of the first...
for four months of this calendar year.
That's very helpful. If I can speak one more in.
You guys did mention on the Portfolio Terra for View
Speaker Change: There were some names identified. You didn't name those, so I won't ask you to. But like how bad is it? Should we expect a bit of a hit next quarter? Or is this still early stages hopefully manageable? Thank you.
Speaker Change: I think it's going to prove manageable. There are a lot of unknowns. Right now we're in this period of pause and the administration is talking about hopeful signs of reaching a lot of trade deals.
I'm hopeful that that comes to fruition.
Speaker Change: Right now, we identified some 10% of the portfolio that has some degree of exposure to imports and exports that warranted further study.
Speaker Change: That doesn't mean they're going to be impacted. That means they're...
Speaker Change: warranting the further study. We've been working with borrowers and sponsors to do the further study and to identify the much smaller proportion of the portfolio that I anticipate will be meaningfully impacted. [inaudible]
Speaker Change: So, I think we're in good shape. I'm a first-order basis fan. The thing I worry about more is second-order impacts. I think we may...
Speaker Change: We may be headed toward a downturn if the pause isn't a well-utilized pause to establish more trade deals.
Thanks so much, everybody.
Speaker Change: The next question comes from the line of Robert Dodd with Raymond James. Please go ahead.
Robert Dodd: Hi, hopefully you can hear me, okay? On one of these is...
Speaker Change: The issue brought up is you moved, moved a little bit down the market, turned to the court, like at median, even down 50 million. 50 million is not a small company, but it is smaller.
Speaker Change: What you expect to do is things continue as they are, kind of for the rest of the year, maybe in terms of doing those smaller companies, spreads tend to be a little higher, the M&A cycle
Speaker Change: market companies isn't quite as boom-and-busters as the large-market M&A businesses, but they are a little bit smaller and maybe not as resilient if there is a downturn. Can you give us thoughts on that?
How that plays out [inaudible]
Sure, so we've long prided ourselves on being able to...
Speaker Change: be a lender and being able to be a partner to private equity firms across a broad range of different EBITDA levels.
Speaker Change: from approximately 20 to approximately 100 constitutes most of what we do and the average is Robert, if you can mute, there's a lot of background noise. Thank you.
We pride ourselves on being in this broad range.
Speaker Change: Playing in the larger market, but playing in the larger market more opportunistically when market conditions are attractive.
Speaker Change: We found in the early part of this quarter particularly that the larger market was not terribly attractive. The broadly syndicated market at the time was...
was quite robust.
Speaker Change: and we were seeing relatively low spreads on new transactions in the broadly syndicated market. So in that kind of set of market conditions.
Speaker Change: We're going to be even more inclined to focus on our core.
Speaker Change: So I wouldn't characterize the 54 as being unusual if you look at it.
Speaker Change: Our median EBITDA by quarter over time it's frequently in that range most of the portfolio approximately two thirds of the portfolio is typically in the range of up 30 to 70 million dollars in EBITDA. That's really our core specialty.
Speaker Change: Less resilient, or in the upper middle market, or a larger market, where market conditions can cost spreads to compress to the point where they're pretty tight. So that's why we focus on the core middle market. We think it's where our competitive advantages are strongest.
Speaker Change: Thank you for that, and so about the background list. On just one more, on the three, new and on a closest photo, any themes there? I mean, was any of that?
Speaker Change: A proactive step with a view to tariff, so was it just a normal ocean planet thing, or was there any kind of them underpinning there? I mean it's only three but still.
Speaker Change: No, I would say there's no thematic underpinning and it was not influenced by tariffs. You know what we've said before is
Speaker Change: And I think it's true of credit markets generally, not just for Golub Capital, most
Speaker Change: Barrowers have been performing well and have adapted well to the higher interest rates and changing market conditions, but there is a tail. If you look at the broadly syndicated market, we've been operating now for some time with a default rate about 4.5% about double.
Speaker Change: the historical average. We have not seen that in our portfolio, but we have seen a little bit of an uptick in credit stress, and the situation with our non-accruals this quarter
Thank you.
Paul Johnson: The next question comes from the line of Paul Johnson with KBW
Please go ahead.
Paul Johnson: Thanks again. Thanks for taking my questions. Just on the small subset of companies sort of at risk for tariffs.
Paul Johnson: How was that reflected, I guess, or captured in your internal watchlist? Were there any, I guess, names that were demoted in terms of risk-ranking this quarter, or would we expect that to be more factored into next quarter's watchlist?
Paul Johnson: I think he's going to take more time for that to play out Paul. Bear in mind, you know, Liberation Day announcements were April 2nd. It was after the quarter ended. There certainly wasn't an economic impact of. I'm I'm I'm I'm I'm I'm
Paul Johnson: Territ issues in the March 31th order that we could see in financial results. So this is this is all right now analytic. Thank you very much.
Paul Johnson: and anecdotal. And we're going to need to see how results play out over the course of the coming quarters.
Got it. Thanks for that. And then...
Just on the, you know, refinancing activity.
Paul Johnson: has been said, repayments have been on the lower end the last
Paul Johnson: You quarters here. Can you give an idea of just how much, I guess, of the portfolio you might think is, you know, roughly, you know, you know, just I guess exposed to potential refinancing continued refinancing activity and getting reprised lower.
share.
Paul Johnson: Well, I'll give you a different answer than I would have given you in February . I think we were still seeing a significant amount of refinancing activity in January and February . And we're seeing, you know,
Paul Johnson: scarcely any now. And I think the main reason for the change is that we've seen the pendulum shift directions. We've gone from a market that was becoming more and more borrower friendly to one that's now becoming more lender friendly.
Paul Johnson: is visible in the probably syndicated market through lower prices and higher spreads on new issue. And we've seen some degree of a shift in spreads in new issue in our market.
Paul Johnson: So, unless we see another fairly significant shift, you know, wind direction shift, I'm not concerned about a lot of
Paul Johnson: Spread tightening, refinancing activity in our portfolio in the coming period.
Speaker Change: Thanks for that. That's good to hear. And then, you know, just on this sort of very brief April , you know, period of volatility, I realized we're talking about a very short
Speaker Change: a window of time here, but I'm just curious to hear if you at all noticed any sort of dispersion in terms of
Speaker Change: the scale of lenders in the market in terms of any sort of smaller scale players that were constrained in any way, or even from the borrower side, you know what?
Speaker Change: in infinity to work with more larger scale type of lenders if there was any sort of noticeable trend there as the market became volatile.
Speaker Change: had reasons to choose either one or a small group of lenders that they wanted to work with and so I feel like this has been a good period for us from a share standpoint in attractive transactions.
Speaker Change: But I don't want to draw too many conclusions from it because it's only a month I think I think we've got to give this more time
Thank you. It's all for me.
Speaker Change: I'll now turn the call over to David Golub for closing remarks. Please go ahead.
David Golub: Great. Well, I just want to thank everyone for listening today and appreciate all your time and your questions. As always, if there's something that we didn't cover today that you're interested in, please feel free to reach out. And I look forward to engaging with you next quarter. Thank you.
David Golub: Ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect.
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