Business Context and Reporting Period
Company: Goldman Sachs BDC, Inc. (GSBD)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2021
Business Overview: 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 through secured debt (first lien, unitranche, second lien), unsecured debt, and select equity investments.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 | As of Sep 30, 2021 |
|---|---|---|---|
| Total Investment Income | $96.68 million | $263.22 million | - |
| Net Investment Income (After Tax) | $64.33 million | $180.09 million | - |
| Net Realized & Unrealized Gains (Losses) | ($26.22 million) | ($26.32 million) | - |
| Net Increase in Net Assets from Operations | $38.03 million | $153.47 million | - |
| Earnings Per Share (Basic & Diluted) | $0.37 | $1.51 | - |
| Net Asset Value (NAV) Per Share | - | - | $15.92 |
| Total Investments (Fair Value) | - | - | $3.11 billion |
| Total Debt (Carrying Value) | - | - | $1.63 billion |
| Cash and Cash Equivalents | - | - | $171.60 million |
| Asset Coverage Ratio | - | - | 199% |
Material Changes vs. Prior Period
- Revenue Growth: Total investment income for the three months ended September 30, 2021, increased significantly to $96.68 million from $31.45 million in the same period in 2020. This increase is primarily driven by interest-bearing investments acquired through the October 2020 merger with Goldman Sachs Middle Market Lending Corp. (GS MMLC) and the amortization of the purchase discount from that merger.
- Expense Increases: Net expenses rose to $32.05 million for the quarter (from $12.88 million in 2020) due to higher interest and debt expenses (driven by the issuance of 2026 Notes) and increased management fees resulting from higher gross assets post-merger.
- Realized Gains: The Company reported a net realized gain of $34.31 million for the quarter, compared to a loss of $35.98 million in the prior year. This was driven by a $35.92 million realized gain from the full exit of investments in CB-HDT Holdings, Inc. (dba Hunter Defense Technologies).
- Unrealized Depreciation: Net unrealized depreciation of $62.06 million for the quarter was primarily driven by the reversal of unrealized appreciation upon the sale of CB-HDT and financial underperformance of Chase Industries, Inc. (dba Senneca Holdings).
- Portfolio Composition: The portfolio consists of 111 portfolio companies. 92.2% of the portfolio is graded as "Grade 2" (performing as expected), while 5.3% is "Grade 3" (increased risk) and 0.2% is "Grade 4" (substantial risk).
Guidance, Outlook, and Risks
- Management Commentary: Management notes that the global recovery continued to progress in Q3 2021, though the Delta variant tempered the pace of growth. The portfolio remains focused on durable industries. The Company maintains a strong liquidity position with $171.6 million in cash and $1.07 billion available under its Revolving Credit Facility.
- Distributions: The Board declared a quarterly distribution of $0.45 per share on November 4, 2021, payable January 27, 2022. The Company has a dividend reinvestment plan (DRIP) for stockholders who have not opted out.
- Key Risks:
- COVID-19: Ongoing uncertainty regarding the pandemic, supply chain constraints, and inflationary pressures could adversely affect portfolio companies and the broader economy.
- Interest Rates: Approximately 99.3% of performing debt bears floating rates. While rising rates generally increase income, they also increase borrowing costs. The Company is monitoring the transition from LIBOR to alternative reference rates (e.g., SOFR).
- Portfolio Performance: Risks related to the ability of portfolio companies to meet debt covenants and repay loans, particularly in the context of economic volatility.
- Unfunded Commitments: As of September 30, 2021, the Company had $401.78 million in unfunded commitments to portfolio companies.
Investor Verification Checklist
- Merger Impact: Verify the ongoing impact of the GS MMLC merger on reported earnings, specifically the amortization of the purchase discount which boosted interest income.
- Fee Waivers: Note that the Investment Adviser waived $1.44 million in incentive fees for the quarter and $24.19 million for the nine-month period, impacting net expense ratios.
- Debt Maturities: Review the maturity schedule of the Convertible Notes (April 2022), 2025 Notes, and 2026 Notes to assess refinancing needs.
- Non-Accrual Status: Confirm the status of the 0.7% of investments on non-accrual status and any potential write-downs.
- LIBOR Transition: Assess the Company's progress in transitioning floating-rate loans from LIBOR to alternative reference rates to avoid contractual disruptions.