Business Context and Reporting Period
This Form 8-K, dated September 22, 2020, is a current report filed by Goldman Sachs BDC, Inc. (GSBD) regarding a proposed merger with Goldman Sachs Middle Market Lending Corp. (MMLC). The filing serves as a voluntary supplement to the definitive proxy statement following a stockholder class action lawsuit (Laidlaw v. Ardila, et al.) filed on August 17, 2020. The lawsuit alleges breaches of fiduciary duty and inadequate disclosures regarding the merger. GSBD denies the allegations but is providing additional details to reduce litigation risks. A Special Meeting of Stockholders to vote on the merger is scheduled for October 2, 2020.
Key Financial Metrics and Valuation Data
The filing does not contain GAAP financial statements, revenue, profit, or cash flow data for GSBD or MMLC. Instead, it provides valuation metrics and market comparisons as of June 9, 2020, prepared by BofA Securities:
- GSBD Stock Price vs. NAV: GSBD traded at a 1.21x multiple of Net Asset Value (NAV), which was noted as a premium compared to the peer group median of 0.90x.
- Peer NAV Multiples: The range for selected externally managed BDCs was 0.64x to 1.25x (mean 0.91x, median 0.90x).
- Dividend Yields: GSBD's dividend yield was 10.1%. The peer group range was 7.4% to 17.2% (mean 11.3%, median 10.3%).
- Price to Net Interest Income (NII):
- 2020 Estimated: Range 5.8x to 13.2x (mean 9.5x, median 9.4x).
- 2021 Estimated: Range 6.6x to 15.5x (mean 9.7x, median 9.7x).
Material Changes and Strategic Alternatives
The filing details the process of evaluating strategic alternatives, which led to the current merger agreement:
- Advisor Engagement: The GSBD Special Committee engaged BofA Securities and Dechert starting September 13, 2019, to explore alternatives including mergers, asset sales, equity offerings, or capital restructuring.
- Merger Structure Change: On May 21, 2020, the Special Committee directed a change from the "Initial Exchange Ratio" to a "NAV-for-NAV" exchange ratio for the merger consideration.
- Fee Waivers: The Committee requested an extension of the incentive fee waiver from GSAM through the end of 2021 and reimbursement of transaction fees for both GSBD and MMLC.
- Alternative Scenarios Analyzed: BofA Securities analyzed specific scenarios including $100 million and $150 million asset sales, and various rights offering structures (with and without backstops).
Guidance, Outlook, and Risks
Management Commentary: The GSBD Board, including all independent directors, continues to unanimously recommend that stockholders vote "FOR" the merger proposals. The supplemental disclosures do not alter the merger consideration or the timing of the Special Meeting.
Risks and Contingencies:
- Litigation Risk: The pending class action seeks to enjoin the merger until trial or until corrective disclosures are made. GSBD intends to defend against the claims but is supplementing disclosures to mitigate costs and uncertainty.
- Forward-Looking Risks: Risks include the failure to obtain stockholder approval, inability to consummate the merger, disruption to business operations, and general economic trends affecting the BDC sector.
- Valuation Benchmark: BofA Securities concluded that GSBD's closing stock price (with a 15% discount and 15% premium applied) was the best benchmark for analysis, noting GSBD consistently traded at a premium to peers.
Important Facts for Investor Verification
- Verify the final vote outcome of the Special Meeting scheduled for October 2, 2020.
- Confirm whether the class action lawsuit (Laidlaw v. Ardila) is resolved or if it results in an injunction against the merger.
- Review the full Proxy Statement for the complete details of the "NAV-for-NAV" exchange ratio and the specific terms of the incentive fee waiver extension.
- Monitor the status of the merger closing, as the filing notes that actual results may differ from projections due to regulatory or stockholder approval failures.