Goldman Sachs BDC, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. GSBD is a business development company focused on lending to middle-market companies and has elected regulated investment company tax treatment.
Financial and portfolio highlights
| Metric | 2022 | 2021 |
|---|---|---|
| Total investment income | $357.5 million | $347.0 million |
| Net investment income after taxes | $228.6 million; $2.24 per share | $237.4 million; $2.33 per share |
| Net realized and unrealized gains (losses) | $(173.3) million | $(44.6) million |
| Net increase in net assets from operations | $55.0 million; $0.54 per share | $192.4 million; $1.89 per share |
| Net cash from operating activities | $27.4 million | $(29.9) million |
| Distributions declared per share | $1.80 | $1.95 |
- At year-end, investments had $3.691 billion of amortized cost and $3.506 billion of fair value. Net assets were $1.502 billion, or $14.61 per share, down from $1.614 billion and $15.86 per share in 2021.
- Cash was $39.6 million. Debt had a carrying value of $2.013 billion, compared with $1.861 billion in 2021. The company reported $548.7 million available under its $1.695 billion revolving facility; asset coverage was 174%, versus 186% a year earlier.
- The portfolio comprised 365 investments in 134 companies. Approximately 97.6% of portfolio fair value was secured debt. Performing debt was 99.2% floating-rate.
- Weighted-average portfolio yield rose to 11.0% at amortized cost and 12.1% at fair value, from 7.9% and 8.0%, respectively. Management attributed the increase primarily to higher base rates, market volatility and wider credit spreads.
- Weighted-average portfolio-company net debt/EBITDA was 6.1x, down from 6.4x; interest coverage fell to 1.6x from 2.5x. These statistics are based on company information that GSBD says it did not independently verify.
- Non-accrual investments represented 2.1% of investment cost and 0.3% of fair value, versus 2.5% and 1.8% in 2021; the number of affected portfolio companies rose from four to eight.
Material changes and notable items
- Investment income increased modestly, but net investment income after taxes declined. Higher interest income and a larger portfolio were partly offset by higher debt costs and expenses.
- Interest and other debt expenses rose to $79.5 million from $59.0 million, reflecting higher borrowings and rates. Average borrowing cost was 3.55%, compared with 2.90% in 2021.
- Unrealized investment depreciation widened to $155.5 million from $89.5 million. Management cited market volatility, wider credit spreads and underperformance at National Spine and Pain Centers and Zep. Realized investment losses were $19.0 million, including losses on Bolttech Mannings and Convene; 2021 included $39.8 million of realized gains.
- New investment commitments fell to $752.2 million from $1.952 billion, and proceeds from investments sold or repaid fell to $612.2 million from $1.499 billion. The portfolio’s net increase was $140.0 million, versus $452.9 million in 2021.
- Payment-in-kind income increased to $21.2 million from $16.1 million. PIK income is accrued rather than necessarily received in cash.
- The $155 million 4.50% convertible notes matured and were repaid on April 1, 2022, using revolving-facility proceeds. The company issued 813,255 shares through its equity distribution program for net proceeds of $13.5 million.
- Quarterly distributions remained $0.45 per share throughout 2022. After year-end, the board declared another $0.45 distribution, payable April 27, 2023.
Outlook, risks and contingencies
The filing provides no quantified earnings or portfolio guidance. Management describes an uncertain environment, highlighting inflation, rising rates, recession risk, geopolitical disruption, supply-chain pressures and reduced liquidity in credit markets. Most performing debt is floating-rate, which can support income as rates rise but can also increase borrowers’ debt-service burdens and default risk.
- Liquidity commitments included $371.0 million of unfunded investment commitments at year-end. The company stated it believed it had adequate resources to meet them.
- Most investments lack readily available market prices. Fair value depends substantially on estimates and unobservable inputs; the auditor identified valuation of Level 3 debt investments as a critical audit matter. Level 3 assets totaled $3.342 billion, with most Level 3 debt valued using discounted cash flows.
- Risks include borrower defaults, portfolio concentration, leverage, illiquid assets, covenant-lite loans, PIK income, and the possibility that distributions exceed taxable income or cannot be maintained. The company also identifies conflicts arising from its Goldman Sachs affiliation, allocation of investments among affiliated accounts, and regulatory restrictions on BDCs and RICs.
- The company reported compliance with revolving-facility covenants, effective disclosure controls and internal control over financial reporting, and no material legal proceedings.
Important facts for investors to verify
- Review the audited financial statements and portfolio schedule for valuation changes, non-accrual exposures and positions with significant discounts to cost.
- Assess whether portfolio-company interest coverage of 1.6x and 6.1x leverage remain supportable as rates and operating conditions change.
- Confirm available revolver capacity, debt maturities, asset coverage headroom and funding for the $371.0 million of unfunded commitments.
- Evaluate the sustainability and tax character of the $0.45 quarterly distribution, particularly alongside PIK income and the decline in NAV per share.
- Examine the assumptions behind Level 3 valuations and the effects of further spread widening or borrower underperformance.
- Compare 2022’s reported results with adjusted net investment income of $215.1 million, which excludes $13.5 million of merger-related purchase-discount amortization; this is a non-GAAP measure.