Goldman Sachs BDC, Inc. (GSBD) - Q2 2019 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2019. Goldman Sachs BDC, Inc. is 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 middle-market companies, primarily through secured debt (first lien, unitranche, second lien) and select equity investments. A significant event during the period was the liquidation and dissolution of the Senior Credit Fund, LLC, effective May 8, 2019, resulting in the Company receiving its pro-rata share of senior secured loans and cash.
Key Financial Metrics
| Metric | Q2 2019 (Three Months) | YTD 2019 (Six Months) | YTD 2018 (Six Months) |
|---|---|---|---|
| Total Investment Income | $38.40 million | $74.94 million | $72.78 million |
| Net Investment Income (After Tax) | $19.09 million | $41.37 million | $38.90 million |
| Net Realized Gain/(Loss) | $(9.24) million | $(33.97) million | $1.78 million |
| Net Increase in Net Assets from Operations | $16.13 million | $18.34 million | $35.92 million |
| Earnings Per Share (Basic & Diluted) | $0.40 | $0.46 | $0.89 |
| Net Asset Value (NAV) per Share | $17.21 (End of Period) | $17.21 (End of Period) | $18.08 (End of Period) |
| Total Debt (Carrying Value) | $842.82 million | $842.82 million | $659.10 million |
| Cash and Cash Equivalents | $10.12 million | $10.12 million | $9.21 million |
| Asset Coverage Ratio | 182% | 182% | 206% |
Material Changes vs. Prior Period
- Realized Losses: The Company reported a net realized loss of $33.97 million for the six months ended June 30, 2019, compared to a gain of $1.78 million in the prior year. This was primarily driven by a $24.72 million realized loss from exchanging debt for equity in ASC Acquisition Holdings, LLC, and an $8.41 million loss from a similar exchange in Country Fresh Holding Company Inc.
- Debt Levels: Total debt increased significantly from $659.10 million at December 31, 2018, to $842.82 million at June 30, 2019. This increase was driven by higher borrowings under the Revolving Credit Facility to fund new investments and the Senior Credit Fund liquidation.
- Portfolio Yield: The weighted average yield on the total portfolio decreased to 8.7% (amortized cost) and 9.4% (fair value) from 9.5% and 10.1% respectively at year-end 2018. This decline was primarily due to the lower-yielding senior secured loans received from the Senior Credit Fund liquidation.
- Non-Accrual Assets: Investments on non-accrual status decreased to 3.9% of total investments at amortized cost (from 8.3% at year-end 2018), indicating an improvement in portfolio credit quality.
Guidance, Outlook, and Risks
- Outlook: Management continues to focus on generating current income through direct originations of secured debt. The Company maintains a repurchase plan authorized to buy up to $25 million of common stock if trading below NAV, though no repurchases were made in the period.
- Distributions: The Board declared a quarterly distribution of $0.45 per share on July 30, 2019, payable October 15, 2019. The Company intends to distribute substantially all taxable income to maintain RIC status.
- Risks:
- Interest Rate Risk: Approximately 96.8% of performing debt bears floating rates. Rising rates increase interest income but also increase borrowing costs on the Revolving Credit Facility.
- LIBOR Transition: The potential cessation of LIBOR after 2021 poses uncertainty regarding the valuation and renegotiation of credit agreements linked to this benchmark.
- Concentration Risk: The portfolio is concentrated in middle-market companies, which may be more susceptible to economic downturns than larger public companies.
Key Facts for Investor Verification
- Realized Loss Drivers: Verify the specific terms and valuation methodologies used for the debt-to-equity exchanges in ASC Acquisition Holdings and Country Fresh Holding Company that resulted in significant realized losses.
- Senior Credit Fund Integration: Confirm the impact of the $210 million in senior secured loans received from the Senior Credit Fund liquidation on the overall portfolio yield and credit metrics.
- Debt Covenants: Review the Company's compliance with the Revolving Credit Facility covenants, specifically the asset coverage ratio (currently 182%) and liquidity tests, given the increased leverage.
- Non-Accrual Status: Monitor the three portfolio companies currently on non-accrual status (representing 3.5% of fair value) for potential further credit deterioration or resolution.