Goldman Sachs BDC, Inc. Q1 2016 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 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 through secured debt (first lien, unitranche, second lien) and select equity investments. As of March 31, 2016, the company had 36,306,880 shares of common stock outstanding.
Key Financial Metrics
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Total Investment Income | $31.34 million | $26.37 million |
| Net Investment Income (After Tax) | $21.21 million | $15.75 million |
| Net Increase in Net Assets from Operations | $5.40 million | $14.03 million |
| Earnings Per Share (Basic & Diluted) | $0.15 | $0.46 |
| Net Asset Value (NAV) Per Share | $18.67 | $19.43 |
| Total Debt Outstanding | $428.05 million | $419.00 million |
| Asset Coverage Ratio | 2.58 to 1 | 2.64 to 1 |
| Cash and Cash Equivalents | $11.80 million | $22.71 million |
| Portfolio Yield (at Fair Value) | 11.8% | 11.7% |
Material Changes vs. Prior Period
- Operating Results: Net investment income increased 35% year-over-year to $21.21 million, driven by a larger portfolio size (amortized cost increased from $925 million in Q1 2015 to $1.14 billion in Q1 2016). However, total earnings per share declined significantly from $0.46 to $0.15 due to a substantial increase in net unrealized depreciation.
- Unrealized Losses: The company recorded a net change in unrealized depreciation of $15.81 million in Q1 2016, compared to $1.71 million in Q1 2015. Significant contributors to this depreciation included Hunter Defense Technologies, Inc. ($13.62 million loss) and other portfolio adjustments.
- Expense Profile: Total expenses decreased to $9.92 million from $10.60 million. While management fees and interest expenses increased due to asset growth, incentive fees dropped sharply from $3.51 million to $1.40 million, largely offset by the unrealized depreciation on the portfolio.
- Liquidity: Cash balances decreased by approximately $10.9 million, primarily due to investment purchases of $50.4 million and distributions paid of $16.3 million, partially offset by debt borrowings.
Guidance, Outlook, and Risks
- Portfolio Quality: As of March 31, 2016, 1.2% of the portfolio (fair value) was graded as "Grade 4" (substantial risk of loss), an increase from 0% in the prior quarter. One investment, Hunter Defense Technologies, Inc., was placed on non-accrual status.
- Dividends: The Board declared a quarterly distribution of $0.45 per share for the quarter ended March 31, 2016. A subsequent distribution of $0.45 per share was declared on May 3, 2016, payable in July 2016.
- Share Repurchases: Goldman, Sachs & Co. purchased 432,638 shares under a 10b5-1 plan during the quarter. The Company also authorized a new repurchase plan in February 2016 to buy up to $25 million of stock if trading below NAV, effective March 18, 2016.
- Risks: The filing highlights risks related to the credit quality of portfolio companies, interest rate fluctuations (87.3% of debt is floating rate), and the potential for further unrealized depreciation if market conditions deteriorate. The company notes that forward-looking statements are subject to uncertainties regarding the U.S. economic recovery and capital markets.
Investor Verification Checklist
- Unrealized Depreciation Drivers: Verify the specific reasons for the $13.62 million unrealized loss on Hunter Defense Technologies and the overall $15.81 million portfolio depreciation.
- Non-Accrual Status: Confirm the current status and recovery prospects of the investment placed on non-accrual (Hunter Defense Technologies).
- Debt Covenants: Review the asset coverage ratio (2.58:1) to ensure continued compliance with the 2:1 minimum requirement under the Investment Company Act.
- Senior Credit Fund Performance: Assess the performance of the joint venture with Cal Regents, which contributed significantly to dividend income but also carries leverage risks.
- Share Repurchase Impact: Monitor the execution of the new $25 million repurchase plan and its potential impact on NAV per share.