Goldman Sachs BDC, Inc. 2017 10-K Summary
Business Context and Reporting Period
Company: Goldman Sachs BDC, Inc. (GSBD)
Reporting Period: Fiscal year ended December 31, 2017
Business Model: A closed-end management investment company regulated as a Business Development Company (BDC) and a Regulated Investment Company (RIC). The Company focuses on lending to U.S. middle-market companies (EBITDA $5M–$75M) through direct originations of secured debt (first lien, unitranche, second lien), unsecured debt, and select equity investments.
Investment Adviser: Goldman Sachs Asset Management, L.P. (GSAM).
Key Financial Metrics (Year Ended Dec 31, 2017)
| Metric | 2017 Value | 2016 Value |
|---|---|---|
| Total Investment Income | $136.78 million | $125.11 million |
| Net Investment Income (After Tax) | $79.99 million | $76.23 million |
| Net Realized Gain (Loss) | ($66.31 million) | ($21.99 million) |
| Net Unrealized Appreciation (Depreciation) | $35.87 million | ($13.58 million) |
| Net Increase in Net Assets from Operations | $49.55 million | $40.65 million |
| Total Assets | $1,298.59 million | $1,190.53 million |
| Total Investments (Fair Value) | $1,258.31 million | $1,167.29 million |
| Total Debt (Net) | $542.53 million | $498.15 million |
| Net Assets | $725.83 million | $665.14 million |
| Net Asset Value (NAV) per Share | $18.09 | $18.31 |
| Weighted Average Portfolio Yield (Fair Value) | 11.4% | 11.8% |
| Distributions Declared per Share | $1.80 | $1.80 |
Material Changes vs. Prior Period
- Portfolio Growth: Total investments increased by approximately $91 million (7.8%) to $1.26 billion, driven by gross originations of $632.5 million. The portfolio expanded to 56 portfolio companies (up from 40 in 2016).
- Realized Losses: Net realized losses increased significantly to $66.31 million (from $21.99 million in 2016). This was primarily driven by restructurings and exits involving Bolttech Mannings, Inc. ($25.09M loss), Iracore International Holdings, Inc. ($14.40M loss), and Washington Inventory Service ($23.71M loss).
- Unrealized Gains: Net unrealized appreciation improved to $35.87 million (from a depreciation of $13.58 million in 2016), largely due to the reversal of previously recorded unrealized depreciation on the aforementioned restructured/exited positions.
- Expense Increases: Total expenses rose to $55.24 million (from $47.85 million). Interest and debt expenses increased to $19.61 million due to the issuance of $115 million in Convertible Notes in late 2016. Incentive fees increased to $12.78 million due to higher net investment income.
- Credit Quality: Non-accrual investments decreased significantly to 0.1% of the portfolio (from 3.8% in 2016). Investments graded as "Grade 4" (substantial risk of loss) dropped to zero from 1.4% of the portfolio.
Guidance, Outlook, and Risks
- Outlook: Management continues to focus on originating secured debt to middle-market companies. The Company maintains a dividend reinvestment plan (opt-out basis) and intends to distribute substantially all taxable income to maintain RIC status.
- Liquidity and Capital: The Company raised approximately $80.3 million in net proceeds from a follow-on equity offering in May 2017. As of December 31, 2017, cash and cash equivalents were approximately $11.6 million. The Company has a Revolving Credit Facility with a committed capacity of $620 million (increased to $695 million in February 2018) and $115 million in Convertible Notes due 2022.
- Key Risks:
- Interest Rate Risk: Approximately 96.4% of performing debt bears floating rates. Rising rates increase income but also increase borrowing costs.
- Leverage: The Company utilizes leverage (asset coverage ratio of 2.33:1 as of year-end) which magnifies returns but increases risk.
- Conflicts of Interest: Potential conflicts exist regarding the allocation of investment opportunities between GSBD and other funds managed by GSAM (e.g., GS PMMC, GS MMLC).
- Portfolio Concentration: The portfolio is non-diversified; Software and Internet Software & Services represented 14.1% of the portfolio at fair value.
Investor Verification Checklist
- Realized Loss Drivers: Verify the specific terms and future outlook of the restructured positions (Bolttech, Iracore) that drove the $66M realized loss to assess if further impairments are likely.
- Dividend Sustainability: Confirm that Net Investment Income ($79.99M) continues to cover the annual distribution obligation ($1.80/share) and that the Company maintains its RIC status to avoid corporate-level taxes.
- Debt Covenants: Review the asset coverage ratio (2.33:1) against the 2.0:1 minimum requirement and monitor the impact of the Convertible Notes on future interest expense.
- Portfolio Yield Trends: Monitor the weighted average yield (11.4%) to ensure new originations maintain spreads sufficient to cover rising borrowing costs and operating expenses.
- Senior Credit Fund Performance: Assess the performance of the joint venture with Cal Regents, which represents 7.3% of the portfolio, as its returns impact overall income.