Goldman Sachs BDC, Inc. - Q2 2016 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2016. Goldman Sachs BDC, Inc. (GSBD) 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 U.S. middle-market companies, primarily through secured debt (first lien, unitranche, second lien) and select equity investments. As of June 30, 2016, the Company had 36,312,437 shares of common stock outstanding.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 |
|---|---|---|
| Total Investment Income | $60.67 million | $53.69 million |
| Net Investment Income (After Tax) | $39.41 million | $31.56 million |
| Net Increase in Net Assets from Operations | $12.40 million | $31.96 million |
| Net Unrealized Depreciation | $(27.01) million | $0.40 million |
| Total Expenses | $20.82 million | $22.04 million |
| Debt Outstanding | $468.55 million | $419.00 million (Year End 2015) |
| Cash and Cash Equivalents | $15.45 million | $22.71 million (Year End 2015) |
| Net Asset Value (NAV) per Share | $18.41 | $18.97 (Year End 2015) |
| Distributions Declared per Share | $0.90 | $0.90 |
Material Changes vs. Prior Period
- Portfolio Valuation: Total investments at fair value increased to $1.13 billion from $1.09 billion at year-end 2015. However, the portfolio experienced significant unrealized depreciation of $27.01 million for the six-month period, compared to a slight appreciation of $0.40 million in the prior year period. This was driven primarily by declines in specific portfolio companies, including Hunter Defense Technologies, Inc. and NTS Communications, Inc.
- Investment Income: Interest income increased to $55.62 million (from $50.20 million) due to portfolio growth. Dividend income rose to $4.10 million (from $2.51 million), largely due to increased distributions from the Senior Credit Fund joint venture.
- Expenses: Total expenses decreased slightly to $20.82 million. While interest and credit facility expenses increased to $6.28 million due to higher average borrowings, incentive fees dropped significantly to $3.49 million (from $7.91 million) due to unrealized depreciation reducing the fee base.
- Liquidity: Cash decreased by $7.26 million to $15.45 million, primarily due to investment purchases of $93.86 million and distributions paid of $32.57 million, partially offset by debt borrowings of $110.50 million.
Guidance, Outlook, and Risks
- Recent Developments: Subsequent to June 30, 2016, the Company restructured its investment in Hunter Defense Technologies, Inc., converting second lien debt into equity and realizing a loss of $22.11 million. The Company also amended its credit agreement with NTS Communications, Inc., receiving additional equity and cash for past due interest.
- Distributions: On August 2, 2016, the Board declared a quarterly distribution of $0.45 per share, payable October 17, 2016.
- Repurchase Plan: The Company has a $25 million repurchase plan authorized through March 18, 2017, to buy back shares trading below NAV. No repurchases were made in the first half of 2016.
- Risks: The filing highlights risks related to the UK's decision to leave the EU (Brexit), potential conflicts of interest with the investment adviser (Goldman Sachs Asset Management), and the impact of interest rate fluctuations on net investment income. Approximately 87.3% of performing debt bears floating interest rates.
Investor Verification Checklist
- Unrealized Losses: Verify the specific impact of the $27 million unrealized depreciation on the portfolio's fair value and the specific portfolio companies driving this decline.
- Non-Accrual Status: Confirm the status of the two investments on non-accrual as of June 30, 2016 (representing 6.0% of amortized cost) and the subsequent restructuring of Hunter Defense Technologies.
- Debt Covenants: Review the asset coverage ratio (2.43 to 1) to ensure continued compliance with the Investment Company Act and credit facility covenants.
- Senior Credit Fund: Assess the performance and contribution of the Senior Credit Fund joint venture, which contributed significantly to dividend income.
- Repurchase Activity: Monitor future activity under the $25 million share repurchase plan and its impact on NAV per share.