Business Context and Reporting Period
Company: Goldman Sachs BDC, Inc. (GSBD)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 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. The portfolio is managed by Goldman Sachs Asset Management, L.P.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net Investment Income (After Tax) | $57.58 million | $18.18 million |
| Net Increase in Net Assets from Operations | $60.47 million | ($63.78 million) |
| Net Realized and Unrealized Gains (Losses) | $3.00 million | ($82.06 million) |
| Net Asset Value (NAV) per Share | $16.00 | $14.72 |
| Earnings per Share (Basic & Diluted) | $0.60 | ($1.58) |
| Total Investments (Fair Value) | $3.20 billion | $3.24 billion |
| Total Debt (Carrying Value) | $1.59 billion | $1.63 billion |
| Cash and Cash Equivalents | $45.49 million | $32.14 million |
| Asset Coverage Ratio | 201% | 198% |
Portfolio Yield: The weighted average yield on the total portfolio was 8.4% at amortized cost and 8.5% at fair value as of March 31, 2021.
Material Changes vs. Prior Period
- Revenue Growth: Total investment income increased significantly to $82.62 million from $31.97 million in Q1 2020. This was 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 $24.72 million from $13.36 million. Interest and debt expenses increased due to the issuance of 2025 and 2026 Notes. Management fees increased due to higher gross assets post-merger.
- Fee Waivers: The Investment Adviser waived $12.56 million in fees (including $12.06 million in incentive fees) in connection with the merger to support net investment income per share targets.
- Realized Gains: The Company reported a net realized gain of $7.51 million, primarily from the sale of common stock in Wrike, Inc. This contrasts with a net realized loss of $10.14 million in Q1 2020.
- Unrealized Performance: Net unrealized depreciation was $8.58 million, a significant improvement from the $72.65 million depreciation in Q1 2020, which was heavily impacted by the onset of the COVID-19 pandemic.
Guidance, Outlook, and Risks
Management Commentary:
- Merger Impact: The Company continues to integrate the GS MMLC portfolio. The purchase discount from the merger is being amortized into interest income, boosting reported earnings.
- Portfolio Quality: 99.3% of the portfolio is performing. Non-accrual investments represent only 0.7% of the portfolio. Investment performance ratings improved, with Grade 1 investments increasing to 6.7% of the portfolio.
- COVID-19: While the pandemic's trajectory remains uncertain, the portfolio is focused on durable sectors. Management continues to monitor portfolio companies closely.
Risks and Contingencies:
- LIBOR Transition: The Company faces risks related to the phase-out of LIBOR. Most floating-rate investments are linked to LIBOR, and the transition to alternative reference rates (e.g., SOFR) may require renegotiation of credit agreements, potentially affecting interest rates and financial condition.
- Interest Rate Risk: The Company is exposed to interest rate fluctuations. A rise in rates could increase borrowing costs faster than investment yields if the portfolio contains fixed-rate assets or floating-rate assets with floors.
- Liquidity: The Company maintains a Revolving Credit Facility with $1.10 billion available. Unfunded commitments totaled $223.82 million as of March 31, 2021.
Subsequent Events: On May 4, 2021, the Board declared a quarterly distribution of $0.45 per share, payable July 27, 2021.
Investor Verification Checklist
- Fee Waiver Sustainability: Verify the duration and terms of the incentive fee waivers ($12.06 million in Q1) and their impact on future net investment income per share.
- Merger Amortization: Confirm the remaining schedule for the amortization of the purchase discount from the GS MMLC merger, which currently boosts interest income.
- LIBOR Exposure: Assess the specific exposure of the portfolio to LIBOR and the Company's strategy for transitioning to alternative reference rates before the 2021/2023 deadlines.
- Non-Accrual Trends: Monitor the 0.7% non-accrual portfolio for any deterioration, particularly in sectors sensitive to economic cycles.
- Debt Maturity Profile: Review the maturity schedule of the $1.59 billion debt portfolio, noting the Convertible Notes maturing in April 2022.