Goldman Sachs BDC, Inc. Q1 2019 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2019. 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 through secured debt (first lien, unitranche, second lien) and select equity investments. As of the reporting date, the Company held 78 portfolio companies.
Key Financial Metrics
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Net Investment Income (After Tax) | $22.29 million | $18.74 million |
| Net Increase in Net Assets from Operations | $2.22 million | $18.45 million |
| Net Realized Gain (Loss) | $(24.72) million | $1.67 million |
| Net Change in Unrealized Appreciation | $3.56 million | $(1.51) million |
| Net Asset Value (NAV) per Share | $17.25 | $18.10 |
| Earnings per Share (Basic & Diluted) | $0.06 | $0.46 |
| Total Debt (Carrying Value) | $704.40 million | $659.10 million |
| Asset Coverage Ratio | 197% | 206% |
| Portfolio Weighted Average Yield (Fair Value) | 9.9% | 10.1% |
Material Changes vs. Prior Period
- Realized Losses: The Company reported a net realized loss of $24.72 million, primarily driven by an exchange of debt investments in ASC Acquisition Holdings, LLC for preferred and common equity. This contrasts with a $1.67 million realized gain in Q1 2018.
- Investment Income: Total investment income increased to $36.54 million from $35.54 million, driven by a larger portfolio size and exit fees, partially offset by investments placed on non-accrual status.
- Expenses: Total expenses decreased to $13.81 million from $16.52 million. This reduction was due to a lower management fee rate (reduced to 1.00% annually in June 2018) and significantly lower incentive fees ($0.49 million vs. $4.68 million) resulting from net capital losses.
- Debt Levels: Total debt increased by approximately $45 million, with the Revolving Credit Facility balance rising to $554.31 million. The weighted average interest rate on borrowings increased to 4.42% from 4.10%.
- Non-Accrual Status: Investments on non-accrual status decreased to 4.5% of the portfolio at amortized cost (down from 8.3% at year-end 2018).
Outlook, Risks, and Unusual Items
- Senior Credit Fund Liquidation: On February 27, 2019, the Senior Credit Fund (a 50/50 joint venture with Cal Regents) authorized liquidation. In May 2019, the Fund repaid its debt and distributed assets to members. GSBD assumed approximately $215.73 million in assets and $7.80 million in unfunded commitments from the Fund.
- Dividend Policy: The Board declared a quarterly distribution of $0.45 per share, payable July 15, 2019. The Company maintains an "opt-out" dividend reinvestment plan.
- Stock Repurchase Plan: A new 10b5-1 repurchase plan was approved in February 2019, authorizing up to $25 million in repurchases if the stock trades below NAV. No repurchases were made in Q1 2019.
- Risks: Key risks include interest rate fluctuations (96.3% of performing debt is floating rate), credit risk in the middle-market sector, and the impact of the Senior Credit Fund dissolution on portfolio composition.
Investor Verification Checklist
- ASC Acquisition Holdings Transaction: Verify the impact of the debt-for-equity exchange on future income streams and the valuation of the new equity positions.
- Senior Credit Fund Integration: Confirm the timeline and accounting treatment for the assets and unfunded commitments assumed from the Senior Credit Fund.
- Non-Accrual Trends: Monitor the specific portfolio companies on non-accrual status (NTS Communications, Country Fresh Holdings, Professional Physical Therapy) for potential further downgrades or write-downs.
- Leverage and Interest Rates: Assess the sensitivity of Net Investment Income to rising interest rates given the high percentage of floating-rate debt and the Company's own floating-rate borrowings.
- Asset Coverage Ratio: Ensure the ratio remains above the 150% regulatory minimum as the Company integrates the Senior Credit Fund assets and manages debt levels.