Goldman Sachs BDC, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are to December 31, 2023. Goldman Sachs BDC is a BDC and RIC focused on lending to middle-market companies, primarily through directly originated secured debt. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial results and position
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior year-end |
|---|---|---|
| Investment income | $111.5 | $107.4 in Q1 2023 |
| Net expenses | $49.6 | $58.6 in Q1 2023, after fee waivers |
| Net investment income after taxes | $60.9; $0.55 per share | $48.0; $0.46 per share in Q1 2023 |
| Net realized and unrealized losses | $18.4 | $19.5 in Q1 2023 |
| Net increase in net assets from operations | $42.5; $0.39 per share | $28.1; $0.27 per share in Q1 2023 |
| Net assets / NAV per share | $1,631.6 / $14.55 | $1,601.8 / $14.62 at December 31, 2023 |
| Portfolio investments at fair value | $3,440.1 | $3,414.3 at December 31, 2023 |
| Cash | $52.3 | $52.4 at December 31, 2023 |
| Debt, net carrying value | $1,830.8 | $1,826.8 at December 31, 2023 |
| Operating cash flow | $7.0 provided | $32.3 provided in Q1 2023 |
Net investment income after taxes was approximately 54.6% of investment income, compared with approximately 44.7% in Q1 2023. These are calculated ratios, not a company-reported margin. The company declared distributions of $0.45 per share for the quarter and, after quarter-end, declared another $0.45 distribution payable July 26, 2024.
Material changes and portfolio developments
- Investment income rose about 4% year over year, while net investment income after taxes increased about 27%. Lower incentive fees—$10.9 million versus $22.3 million—were the main contributor to lower expenses. No incentive-fee waiver was recorded in Q1 2024; the adviser waived $2.0 million in Q1 2023.
- Interest income declined to $97.6 million from $98.6 million, while payment-in-kind (PIK) income increased to $12.7 million from $7.8 million. Management cited more investments paying a combination of cash and PIK interest, including following restructurings, and a smaller portfolio. PIK is accrued income rather than cash received.
- Realized investment losses were $17.0 million, primarily reflecting a $17.5 million loss from restructuring first-lien debt in Sweep Purchaser LLC. Unrealized investment depreciation was $3.1 million, versus appreciation of $18.2 million in Q1 2023. Management cited financial underperformance at Wine.com, Thrasio and Pluralsight, partly offset by a reversal of depreciation for Sweep Purchaser and tighter credit spreads.
- Non-accrual investments declined to positions in eight portfolio companies from 10 at year-end. They represented 3.3% of investment cost and 1.6% of investment fair value, versus 3.8% and 2.3%, respectively. However, Grade 3 investments increased to 9.1% of portfolio fair value from 8.0%; the company attributed this primarily to downgrades tied to financial underperformance. Grade 4 investments declined to 1.7% from 2.4%.
- Portfolio fair value increased $25.8 million from year-end. The number of portfolio companies rose to 149 from 144. New investment commitments were $360.2 million, versus $2.1 million in Q1 2023; sales and repayments were $115.7 million, versus $12.6 million.
- Unfunded commitments increased to $514.7 million from $307.5 million. The largest newly listed commitment was $77.7 million to Classic Collision; management said it believed resources were adequate to meet commitments.
Debt, liquidity, outlook and risks
- On March 11, 2024, the company issued $400 million of 6.375% unsecured notes due 2027. Revolver carrying value fell to $583.8 million from $972.2 million at year-end, while reported availability under the $1.695 billion revolver rose to $1.111 billion from $724.1 million. Total debt carrying value was $1.831 billion. The filing reports a 5.41% weighted-average rate on aggregate borrowings for Q1 2024; the revolver’s Q1 weighted-average rate was 7.36%.
- Asset coverage was 188%, above the 150% statutory minimum. The company reported compliance with revolving-credit covenants. Debt includes $360 million of 2025 notes, $500 million of 2026 notes and the new $400 million of 2027 notes. The 2025 notes mature in February 2025.
- The portfolio was predominantly floating-rate: 99.4% of performing debt at fair value. The company estimates that a 100-basis-point rate increase would add $21.1 million to annual net income, while a 100-basis-point decrease would reduce it by the same amount, assuming no changes to portfolio or borrowing structure. These are sensitivities, not forecasts.
- Total portfolio weighted-average yield was 11.9% at amortized cost and 13.6% at fair value, versus 11.8% and 13.2% at year-end. Portfolio-company weighted-average leverage was 6.1x net debt to EBITDA and interest coverage was 1.5x at both reporting dates. The filing says certain portfolio-company statistics are based on most recently available information and may include normalized or adjusted amounts.
- No specific earnings or portfolio guidance was provided. Management identifies elevated interest rates, inflation, recession risk, market and credit conditions, borrower performance, liquidity, leverage and the ability to maintain BDC/RIC status as risks. It cautions that results for the quarter are not necessarily indicative of full-year results.
- Most investments are illiquid and valued using significant unobservable inputs; fair values may differ materially from realizable amounts. About 93.6% of Level 3 bank loans, corporate debt and other debt obligations were valued using the income approach.
- Cash flow from operations was only $7.0 million despite $60.9 million of net investment income after taxes; investment purchases exceeded sales and repayments, and working-capital and other adjustments affected cash conversion. The company also reported that $50.4 million of distributions was payable at quarter-end.
Most important facts for investors to verify
- Whether PIK income growth and the higher volume of restructurings signal increased borrower payment stress, and how much accrued PIK is ultimately collected in cash.
- Developments in non-accrual exposures and Grade 3/4 investments, particularly Wine.com, Thrasio, Pluralsight and the restructured Sweep Purchaser position.
- Whether the $514.7 million of unfunded commitments can be funded without materially increasing leverage or reducing liquidity, and the funding status of the large Classic Collision commitment.
- Refinancing plans for the $360 million of 2025 notes and the cost implications of replacing lower-coupon debt with the 6.375% 2027 notes and floating-rate borrowings.
- Whether investment income and realized cash receipts support the $0.45-per-share quarterly distribution over time; distributions are not guaranteed and may include return of capital.
- How Level 3 valuation assumptions, portfolio-company financial data and the reported asset coverage measure compare with subsequent results and market conditions.