Golub Capital(GBDC) - 2024 Q4 - Annual Report

PART I Item 1. Business An externally managed BDC and RIC, the company invests in U.S. middle-market loans for income and capital appreciation - Golub Capital BDC, Inc. is an externally managed, closed-end, non-diversified management investment company regulated as a business development company (BDC) under the 1940 Act and elected to be treated as a regulated investment company (RIC) under the Code[16] - The company's investment objective is to generate current income and capital appreciation by primarily investing in one-stop loans and other senior secured loans of U.S. middle-market companies, typically sponsored by private equity firms[16] - Target middle-market companies generally have earnings before interest, taxes, depreciation and amortization (EBITDA) of less than $100.0 million annually[16] - Investments are typically between $10.0 million to $80.0 million, with a focus on below-investment-grade securities that often have floating interest rates and may not fully pay down principal prior to maturity[16] - GC Advisors, the investment adviser, manages day-to-day operations, including sourcing, due diligence, structuring, and monitoring investments, and is compensated through a base management fee and an incentive fee[19] - Golub Capital, founded in 1994, manages over $70.0 billion of capital as of October 1, 2024, and has a strong track record in middle-market lending, having closed deals with over 390 sponsors[21] - Key competitive strengths include a deep, experienced management team, access to proprietary deal flow through Golub Capital's leading U.S. debt platform, a disciplined investment and underwriting process, and regimented credit monitoring[28][30][31][32] - Investment criteria target U.S. middle-market companies controlled by private equity investors, seeking capital for growth, acquisitions, recapitalizations, refinancings, and leveraged buyouts, with a focus on recession-resistant industries like software, technology, business, financial, and healthcare services[34] - The investment process involves four phases: Origination (network of contacts, private equity firms), Underwriting (downside scenario valuation, 35-45% equity cushion, fundamental/quantitative analysis, ESG considerations), Execution (investment committee approval, documentation, funding), and Monitoring (internal performance ratings 1-5, regular updates)[37][38][40][41][42][43] Internal Performance Rating Distribution (Fair Value) | Internal Performance Rating | September 30, 2024 (In thousands) | Percentage of Total Investments (2024) | September 30, 2023 (In thousands) | Percentage of Total Investments (2023) | |:----------------------------|:----------------------------------|:---------------------------------------|:----------------------------------|:---------------------------------------| | 5 | $158,656 | 1.9% | $50,279 | 0.9% | | 4 | $7,013,631 | 85.2% | $4,647,644 | 84.2% | | 3 | $955,079 | 11.6% | $803,724 | 14.6% | | 2 | $108,045 | 1.3% | $14,966 | 0.3% | | 1 | — | — | — | — | | Total | $8,235,411 | 100.0% | $5,516,613 | 100.0% | - Investment structures include Senior Secured Loans, One Stop Loans (blending senior and junior debt, often with first-priority liens, including recurring revenue loans), Second Lien Loans (subordinated secured), Subordinated Loans (unsecured, high fixed interest, PIK feature, higher risk), and Equity Investments (minority co-investments, tag-along/drag-along rights)[48][49][50][51][52] Top Ten Portfolio Company Investments (September 30, 2024) | Portfolio Company | Investments at Fair Value (In thousands) | Percentage of Total Investments | |:------------------------------|:-----------------------------------------|:----------------------------------| | GS Acquisitionco, Inc. | $174,591 | 2.1% | | Bayshore Intermediate 2, L.P.| $123,788 | 1.5% | | InhabitIQ Inc (PB VB Holdco IV INC) | $116,330 | 1.4% | | TWAS Holdings, LLC | $113,019 | 1.4% | | Revalize, Inc. (fka AQ Holdco)| $108,880 | 1.3% | | Bonterra LLC (fka Cybergrants Holdings) | $102,990 | 1.3% | | Liminex, Inc. | $96,121 | 1.2% | | Imperial Optical Midco Inc. | $93,864 | 1.1% | | Blue River Pet Care, LLC | $88,673 | 1.1% | | Bullhorn, Inc. | $84,153 | 1.0% | | Total | $1,102,409 | 13.4% | Top Ten Industries by Fair Value (September 30, 2024) | Industry | Fair Value (In thousands) | Percentage of Total Investments | |:------------------------------|:--------------------------|:----------------------------------| | Software | $2,229,502 | 27.1% | | Healthcare Providers & Services | $545,927 | 6.6% | | Specialty Retail | $473,726 | 5.8% | | Insurance | $458,447 | 5.6% | | Automobiles | $389,281 | 4.7% | | Diversified Consumer Services | $385,797 | 4.7% | | Healthcare Technology | $317,594 | 3.9% | | IT Services | $302,581 | 3.7% | | Hotels, Restaurants & Leisure | $271,656 | 3.3% | | Healthcare Equipment & Supplies | $264,737 | 3.2% | | Total | $5,639,248 | 68.6% | - The Administrator (Golub Capital LLC) provides managerial assistance to portfolio companies upon request and is reimbursed for allocated costs, subject to board approval[55] - The company operates in a highly competitive market, facing larger competitors with fewer regulatory restrictions, which could reduce returns[57] - The company has no direct employees; day-to-day operations are managed by GC Advisors, and officers are employees of Golub Capital LLC, with costs allocated under the Administration Agreement[58] SUMMARY RISK FACTORS This section overviews principal risks related to the company's business structure, investments, and securities - The company is subject to risks related to its business and structure, including interest rate environment, competitive market, dependence on GC Advisors, conflicts of interest, and regulatory compliance as a BDC and RIC[61] - Investment-related risks include economic downturns, inflation, inherent risks of debt and leveraged middle-market companies, illiquidity, price declines, prepayment risk, and potential losses from equity investments[62][64] - Risks for investors in the company's securities include above-average risk, potential for shares to trade at a discount to NAV, uncertainty of distributions, and risks associated with unsecured notes and leverage[65] MANAGEMENT AGREEMENTS This section details management and administration agreements, outlining fee structures, expense allocation, and potential conflicts of interest - GC Advisors manages day-to-day operations and provides investment advisory services, including portfolio composition, investment identification, evaluation, structuring, execution, and monitoring[67] - The Investment Advisory Agreement, approved on June 3, 2024, reduced incentive fee rates and the incentive fee cap from 20.0% to 15.0%. The base management fee rate was previously reduced to 1.0% from 1.375% effective July 1, 2023[68][89] - The base management fee is calculated at an annual rate of 1.0% of average adjusted gross assets (excluding cash/cash equivalents, voluntarily excluding secured borrowing proceeds)[68] - The incentive fee has an income component (2.0% quarterly hurdle rate, 100% catch-up, then 15.0% of excess) and a capital gains component (15.0% of Capital Gain Incentive Fee Base, calculated annually)[72][74] - The incentive fee calculation includes a cap: cumulative incentive fees paid since April 13, 2010, must be less than or equal to 15.0% of Cumulative Pre-Incentive Fee Net Income Per Share[70] - The company reimburses the Administrator (Golub Capital LLC) for allocable overhead and administrative expenses, including rent and costs for the CFO and CCO[90] - A license agreement grants the company a non-exclusive, royalty-free license to use the 'Golub Capital' name[93] - The Staffing Agreement ensures GC Advisors has access to experienced investment professionals and deal flow from Golub Capital LLC[94] REGULATION This section outlines the regulatory framework for the company as a BDC and RIC, detailing asset, leverage, compliance, and affiliate transaction requirements - The company is regulated as a BDC under the 1940 Act and has elected RIC status under the Code, requiring a majority of independent directors and stockholder approval for business changes[96] - To maintain BDC status, at least 70% of total assets must be 'qualifying assets,' primarily securities from eligible U.S. middle-market companies (market cap < $250M or BDC-controlled)[97][99] - The company must offer significant managerial assistance to portfolio companies to count their securities as qualifying assets[100] - Temporary investments (cash, U.S. government securities, high-quality debt < 1 year) are permitted, but repurchase agreements with a single counterparty are limited to 25% of total assets for RIC diversification[101] - Stockholders approved a reduced asset coverage requirement of 150% (from 200%) effective February 6, 2019, allowing the company to borrow $2 for every $1 of investor equity[104] - Both the company and GC Advisors have adopted codes of ethics for personal investments[106] - Proxy voting responsibility is delegated to GC Advisors, which votes in the best interest of stockholders, with procedures to manage conflicts of interest[107][109] - The company is committed to stockholder privacy, restricting access to nonpublic personal information and maintaining safeguards[111] - Transactions with affiliates are restricted under the 1940 Act, requiring prior approval from independent directors and sometimes the SEC. Exemptive relief permits co-investments with other GC Advisors-managed accounts under specific conditions[113] Sarbanes-Oxley Act This section highlights compliance with the Sarbanes-Oxley Act, imposing regulatory requirements on financial statements and internal control - The Sarbanes-Oxley Act imposes regulatory requirements on the company, including principal executive and financial officer certification of financial statements, disclosure of effectiveness of disclosure controls and procedures, and an annual report on internal control over financial reporting[114] - Compliance with Section 404 of the Sarbanes-Oxley Act involves significant expenditures and diversion of management's time and attention, with potential adverse effects on financial performance and stock price if non-compliance occurs[276] Material U.S. Federal Income Tax Considerations This section summarizes U.S. federal income tax considerations for the company and stockholders, focusing on RIC status and distribution taxation - The company has elected to be treated as a RIC under Subchapter M of the Code, generally avoiding corporate-level U.S. federal income taxes on timely distributed net ordinary income or capital gains[123] - To qualify as a RIC, the company must meet a 90% Income Test (90% gross income from investments), Diversification Tests (50% of assets in cash/equivalents/RICs/securities of single issuer < 5% of assets, no more than 25% in one issuer/related businesses), and an Annual Distribution Requirement (at least 90% of investment company taxable income)[123] - Failure to meet RIC requirements would result in corporate-level income tax, inability to deduct dividend distributions, and potential taxation of distributions to stockholders as ordinary income[129] - U.S. stockholders' distributions are generally taxable as ordinary income or capital gains, with limited eligibility for qualified dividend income or corporate dividends received deduction[131] - Non-U.S. stockholders' distributions are generally subject to 30% U.S. federal withholding tax (or lower treaty rate), unless effectively connected with a U.S. trade or business, with exemptions for qualified net interest income and short-term capital gains[134][136] - The company may recognize income (e.g., original issue discount, PIK interest) before receiving cash, potentially creating difficulties in meeting distribution requirements and maintaining RIC status[125][172] Item 1A. Risk Factors This section details significant risks to the company's business, financial condition, and operations, categorized by structure, investments, and securities - Risks related to business and structure include sensitivity to interest rate changes, intense competition for investment opportunities, dependence on GC Advisors and its referral relationships, and significant potential conflicts of interest arising from management arrangements and fee structures[139][140][143][145][148][150][154][155][156][160][162][163][164][165][166][168][169][170][171][172] - The company's use of leverage (debt securitizations, revolving credit facilities) amplifies potential gains and losses, and failure to meet asset coverage ratios or covenants could force asset sales or restrict distributions[174][175][179][184][185][188][189][191][192][194][195][197] - Investment-specific risks include the susceptibility of middle-market portfolio companies to economic downturns, inflation, the speculative nature of below-investment-grade debt, risks of leveraged companies, illiquidity of private investments, and potential losses from equity holdings[206][209][210][211][212][214][215][216][218][220][221][222][224][227][230][231][234][237][238] - Risks to investors include the above-average risk of securities, potential for shares to trade at a discount to NAV, uncertainty of distributions (which may include return of capital), and dilution from dividend reinvestment plans or future equity offerings[239][241][242][256][257] - Unsecured notes are effectively subordinated to secured debt and structurally subordinated to subsidiary liabilities, offering limited protection to holders[246][247][248] - General risks encompass capital markets disruption, economic uncertainty, external events (e.g., public health crises, geopolitical conflicts), fluctuations in operating results, political uncertainty, new or modified laws/regulations (e.g., Dodd-Frank, U.S. Risk Retention Rules, CFTC), and cybersecurity threats[265][266][269][270][271][273][275][277][278][280][281][282][283][286][287][288][289][291][292] Item 1B. Unresolved Staff Comments The company has no unresolved staff comments from the SEC - There are no unresolved staff comments[293] Item 1C. Cybersecurity This section details the company's cybersecurity framework, managed by GC Advisors, covering risk identification, assessment, management, and Board oversight - The company has processes to assess, identify, and manage material risks from cybersecurity threats, with its cybersecurity program implemented and managed by GC Advisors[294][295] - GC Advisors' program includes risk assessments, security measures, and ongoing monitoring, actively identifying new and evolving threats, and engages external experts for evaluation[295][296] - The Board provides strategic oversight, receiving periodic updates from the CFO and CCO on the cybersecurity program and threat landscape[300] - Management, including GC Advisors' CIO, the company's CFO (18+ years in financial services), and CCO (20+ years in financial services), is responsible for assessing and managing cyber risks and monitoring incidents[301][302][303] - During the reporting period, no cybersecurity threats or incidents were identified that materially affected, or are reasonably likely to materially affect, the company's business strategy, operational results, or financial condition[304] Item 2. Properties The company does not own any significant real estate or physical properties; its headquarters are provided by the Administrator - The company does not own any real estate or other physical properties materially important to its operation[305] - Its headquarters are located at 200 Park Avenue, 25th Floor, New York, NY 10166, and are provided by the Administrator pursuant to the Administration Agreement[305] Item 3. Legal Proceedings The company, GC Advisors, and the Administrator may be involved in legal and regulatory proceedings but are not subject to any material legal proceedings - The company, GC Advisors, and the Administrator may be involved in legal and regulatory proceedings in the normal course of business[306] - Currently, none of them believe they are subject to any material legal proceedings[306] Item 4. Mine Safety Disclosures The company has no disclosures related to mine safety - There are no mine safety disclosures[308] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section overviews the common stock market, including trading, price ranges, distributions, dividend reinvestment, share repurchases, and stockholder expenses - The company's common stock trades on The Nasdaq Global Select Market under the symbol 'GBDC' since April 15, 2010[311] Common Stock Price Range and Distributions (FY2024 & FY2023) | Period (Fiscal year ended September 30) | NAV ($) | Closing High ($) | Sales Price Low ($) | Premium (Discount) of High Sales Price to NAV (%) | Premium (Discount) of Low Sales Price to NAV (%) | Distributions Declared ($) | |:----------------------------------------|:--------|:-----------------|:--------------------|:--------------------------------------------------|:-------------------------------------------------|:---------------------------| | 2024 | | | | | | | | Fourth quarter | 15.19 | 16.00 | 14.36 | 5.3 | (5.5) | 0.44 | | Third quarter | 15.32 | 17.58 | 15.50 | 14.8 | 1.2 | 0.60 | | Second quarter | 15.12 | 16.63 | 15.06 | 10.0 | (0.4) | 0.46 | | First quarter | 15.03 | 15.31 | 14.06 | 1.9 | (6.5) | 0.44 | | 2023 | | | | | | | | Fourth quarter | 15.02 | 15.02 | 13.37 | — | (11.0) | 0.41 | | Third quarter | 14.83 | 13.55 | 13.02 | (8.6) | (12.2) | 0.33 | | Second quarter | 14.73 | 14.09 | 12.38 | (4.3) | (16.0) | 0.33 | | First quarter | 14.71 | 14.25 | 12.46 | (3.1) | (15.3) | 0.33 | - On June 2, 2024, the board declared special distributions totaling $0.15 per share, paid in three quarterly installments of $0.05 per share[314] Cash Distributions Declared and Paid (FY2024 & FY2023) | Record Dates (Fiscal year ended September 30) | Payment Date | Distributions Declared ($) | |:----------------------------------------------|:----------------|:---------------------------| | 2024 | | | | August 30, 2024 | September 27, 2024 | 0.39 | | August 16, 2024 | September 13, 2024 | 0.05 | | August 16, 2024 | September 13, 2024 | 0.05 | | June 13, 2024 | June 27, 2024 | 0.05 | | May 16, 2024 | June 14, 2024 | 0.06 | | May 2, 2024 | June 21, 2024 | 0.39 | | March 1, 2024 | March 29, 2024 | 0.39 | | February 15, 2024 | March 15, 2024 | 0.07 | | December 8, 2023 | December 29, 2023 | 0.37 | | December 1, 2023 | December 15, 2023 | 0.07 | | Total 2024 | | 1.89 | | 2023 | | | | September 1, 2023 | September 29, 2023 | 0.37 | | August 18, 2023 | September 15, 2023 | 0.04 | | June 2, 2023 | June 29, 2023 | 0.33 | | March 3, 2023 | March 29, 2023 | 0.33 | | December 9, 2022 | December 29, 2022 | 0.33 | | Total 2023 | | 1.40 | - The company has an 'opt out' dividend reinvestment plan (DRIP) where cash distributions are automatically reinvested in common stock unless a stockholder opts out[318] - The Board reapproved a share repurchase program in August 2024, allowing repurchase of up to $150 million of outstanding common stock at prices below NAV[320] Issuer Purchases of Equity Securities (FY2024 & FY2023) | Month Purchased (Fiscal year ended September 30) | Total Number of Shares Repurchased | Average Price Paid Per Share ($) | Approximate Dollar Value of Shares Purchased Under Plan (thousands) | Approximate Dollar Value of Shares That May Yet be Purchased Under Plan (thousands) | |:-------------------------------------------------|:-----------------------------------|:---------------------------------|:--------------------------------------------------------------------|:----------------------------------------------------------------------------------| | 2024 | | | | | | August 1 - 31, 2024 | 322,528 | 14.48 | 4,672 | 145,328 | | September 1 - 30, 2024 | 9,400 | 14.54 | 137 | 145,191 | | Total 2024 | 331,928 | 14.49 | 4,809 | 145,191* | | 2023 | | | | | | March 1 - 31, 2023 | 751,544 | 12.84 | 9,647 | 140,353 | | April 1 - 30, 2023 | 56,130 | 13.03 | 731 | 139,622 | | May 1 - 31, 2023 | 188,210 | 12.95 | 2,438 | 137,184 | | June 1 - 30, 2023 | 299,794 | 13.26 | 3,975 | 133,209 | | July 1 - 31, 2023 | 5,250 | 13.29 | 70 | 133,139 | | Total 2023 | 1,300,928 | 12.96 | 16,861 | 150,000* | Annual Expenses (as a percentage of net assets attributable to common stock) as of September 30, 2024 | Expense Category | Percentage | |:------------------------------------------------------------------------------|:-----------| | Sales load (as a percentage of offering price) | 0% | | Offering expenses (as a percentage of offering price) | 0% | | Dividend reinvestment plan expenses | None | | Total stockholder transaction expenses (as a percentage of offering price) | 0% | | Management fees | 1.56% | | Incentive fees payable under the Investment Advisory Agreement | 1.66% | | Interest payments on borrowed funds | 5.29% | | Other expenses | 0.70% | | Total annual expenses | 9.21% | Item 6. Reserved This item is reserved and contains no content Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and operations, covering business model, revenue/expense drivers, GBDC 3 Merger impact, liquidity, and critical accounting policies - The company's investment objective is to generate current income and capital appreciation by investing primarily in one-stop and other senior secured loans of U.S. middle-market companies, with individual investments typically ranging from $10.0 million to $80.0 million[346][349] Portfolio Composition at Fair Value (September 30, 2024 vs. 2023) | Investment Type | As of September 30, 2024 (In thousands) | Percentage of Total Investments (2024) | As of September 30, 2023 (In thousands) | Percentage of Total Investments (2023) | |:------------------|:----------------------------------------|:---------------------------------------|:----------------------------------------|:---------------------------------------| | Senior secured | $502,386 | 6.1% | $503,985 | 9.1% | | One stop | $7,110,258 | 86.3% | $4,678,099 | 84.8% | | Second lien | $14,054 | 0.2% | $29,154 | 0.5% | | Subordinated debt | $30,175 | 0.4% | $7,945 | 0.2% | | Equity | $578,538 | 7.0% | $297,430 | 5.4% | | Total | $8,235,411 | 100.0% | $5,516,613 | 100.0% | - As of September 30, 2024, the portfolio included 381 portfolio companies, up from 342 in 2023. One-stop loans included $1,021.3 million of recurring revenue loans at fair value in 2024, an increase from $782.6 million in 2023[353][354] Key Investment Yields and Returns (FY2024 vs. FY2023) | Metric | Year ended September 30, 2024 | Year ended September 30, 2023 | |:--------------------------------------------------------------------------|:------------------------------|:------------------------------| | Weighted average income yield | 12.3% | 11.2% | | Weighted average investment income yield | 12.6% | 11.6% | | Weighted average income yield of total investments | 11.4% | 10.8% | | Weighted average investment income yield of total investments | 11.8% | 11.1% | | Total return based on average net asset value (excluding GBDC 3 premium) | 10.7% | 10.2% | | Total return based on average net asset value | 9.0% | 10.2% | | Total return based on market value | 15.8% | 30.5% | - On June 3, 2024, the company completed the acquisition of GBDC 3, issuing 92,115,308 shares of common stock to former GBDC 3 stockholders. This merger also led to a new Investment Advisory Agreement with reduced incentive fee rates and cap[370][371][372] - Recent developments include a declared quarterly distribution of $0.39/share and a supplemental distribution of $0.04/share (Nov 14, 2024), an increase in the JPM Credit Facility to $1.9 billion (Nov 15, 2024), and a $2.2 billion term debt securitization (Nov 18, 2024) which redeemed prior securitizations[373][374][375][376] Consolidated Operating Results (FY2024 vs. FY2023) | Metric | Year ended September 30, 2024 (In thousands) | Year ended September 30, 2023 (In thousands) | Variances (2024 vs. 2023) (In thousands) | |:----------------------------------------------------------------------------|:---------------------------------------------|:---------------------------------------------|:-----------------------------------------| | Interest income | $640,326 | $531,164 | $109,162 | | Payment-in-kind interest income | $49,715 | $40,590 | $9,125 | | Loan Origination Fees Discount Amortization | $22,074 | $19,951 | $2,123 | | Acquisition purchase premium amortization | $(11,671) | $(7,073) | $(4,598) | | Non-cash dividend income | $21,264 | $14,901 | $6,363 | | Dividend income | $691 | $1,340 | $(649) | | Fee income | $2,278 | $2,217 | $61 | | Total investment income | $724,677 | $603,090 | $121,587 | | Total net expenses | $341,046 | $310,320 | $30,726 | | Net investment income before taxes | $383,631 | $292,770 | $90,861 | | Income and excise taxes | $1,195 | $3,682 | $(2,487) | | Net investment income after taxes | $382,436 | $289,088 | $93,348 | | Net realized gain (loss) on investment transactions excluding purchase premium | $(79,157) | $(43,812) | $(35,345) | | Net realized gain (loss) on investment transactions due to purchase premium | $(743) | $(301) | $(442) | | Net change in unrealized appreciation (depreciation) on investment transactions excluding purchase premium | $9,884 | $6,181 | $3,703 | | Net change in unrealized appreciation (depreciation) on investment transactions due to purchase premium | $12,415 | $7,374 | $5,041 | | Unrealized (depreciation) from the write-down of the GBDC 3 purchase premium | $(51,670) | — | $(51,670) | | Net gain (loss) on investment transactions | $(109,271) | $(30,558) | $(78,713) | | (Provision) benefit for taxes on realized gain on investments | — | $(207) | $207 | | (Provision) benefit for taxes on unrealized appreciation on investments | $620 | $308 | $312 | | Net increase (decrease) in net assets resulting from operations | $273,785 | $258,631 | $15,154 | | Average earning debt investments, at fair value | $5,650,480 | $5,117,940 | $532,540 | | Average earning preferred equity investments, at fair value | $166,984 | $119,625 | $47,359 | - Investment income increased by $121.6 million YoY, primarily due to a $532.5 million increase in average earning debt investments (driven by GBDC 3 acquisition) and rising interest base rates, coupled with a $47.7 million increase in average earning preferred equity investments[385] Income Yields by Investment Type (FY2024 vs. FY2023) | Investment Type | Year ended September 30, 2024 | Year ended September 30, 2023 | |:------------------|:------------------------------|:------------------------------| | Senior secured | 11.8% | 10.1% | | One stop | 12.0% | 11.2% | | Second lien | 13.8% | 13.6% | | Subordinated debt | 15.0% | 14.6% | - Interest and other debt financing expenses increased by $61.8 million YoY, mainly due to the issuance of 2028 and 2029 Notes, rising interest base rates on floating-rate debt, and a $423.2 million increase in average debt outstanding (GBDC 3 assumption)[392] - The effective average interest rate on total debt increased from 4.9% in FY2023 to 6.2% in FY2024[393] - The base management fee decreased due to a rate reduction to 1.0% (from 1.375%) effective July 1, 2023, partially offset by increased average adjusted gross assets[394] - The Income Incentive Fee decreased by $24.2 million YoY, primarily due to $27.3 million in waivers during FY2024, offsetting an increase in Pre-Incentive Fee Net Investment Income[396] - Net realized loss increased to $79.9 million in FY2024 (from $44.1 million in FY2023), mainly from restructuring/disposition of debt and equity investments, partially offset by equity sales and currency gains[405] - Net change in unrealized appreciation (depreciation) was a depreciation of $29.4 million in FY2024 (vs. appreciation of $13.6 million in FY2023), including a $51.7 million write-down from the GBDC 3 purchase premium[407][412] - Cash and cash equivalents, foreign currencies, and restricted balances increased by $219.7 million in FY2024, driven by operating activities ($343.9 million) and partially offset by financing activities ($124.2 million used)[413][415] - As of September 30, 2024, the company had $4.6 billion in outstanding borrowings and maintained an asset coverage of 186.0% and a GAAP debt-to-equity ratio of 1.16x (1.12x net of cash)[435] New Investment Commitments by Asset Mix (FY2024 vs. FY2023) | Asset Type | September 30, 2024 (In thousands) | Percentage (2024) | September 30, 2023 (In thousands) | Percentage (2023) | |:--------------------|:----------------------------------|:------------------|:----------------------------------|:------------------| | Senior secured | $103,290 | 6.8% | $20,700 | 3.2% | | One stop | $1,392,212 | 91.9% | $596,306 | 92.5% | | Second lien | $8,141 | 0.5% | $9,774 | 1.5% | | Subordinated debt | $1,979 | 0.1% | $50 | 0.0% | | Equity | $9,926 | 0.7% | $17,784 | 2.8% | | Total | $1,515,548 | 100.0% | $644,614 | 100.0% | - Non-accrual investments as a percentage of total debt investments at cost and fair value were 1.8% and 1.2%, respectively, as of September 30, 2024[448] Weighted Average Rates of New Fundings and Sales/Payoffs (FY2024 vs. FY2023) | Metric | Year ended September 30, 2024 | Year ended September 30, 2023 | |:------------------------------------------------------------|:------------------------------|:------------------------------| | Weighted average rate of new investment fundings | 10.2% | 11.6% | | Weighted average spread over applicable base rate of new floating rate investment fundings | 5.2% | 6.5% | | Weighted average fees of new investment fundings | 0.8% | 1.7% | | Weighted average rate of sales and payoffs of portfolio investments | 11.0% | 9.8% | - The portfolio median EBITDA for portfolio companies increased from $58.8 million in 2023 to $63.7 million in 2024[452] - The company's critical accounting policies include fair value measurements (using Level 1, 2, and 3 inputs, with most investments being Level 3), revenue recognition (accrual of interest, OID, PIK, dividend income), and income taxes (RIC qualification, excise tax accrual)[478][479][480][482][483][485][486][488][489][490][491][494][495][496][497][498] Item 7A. Quantitative and Qualitative Disclosures about Market Risk This section details the company's exposure to valuation and interest rate risks, including fair value measurement of illiquid investments and hypothetical interest rate impacts - The company is subject to valuation risk, as most investments lack readily available market prices and are valued at fair value using significant unobservable inputs (Level 3), requiring judgment and potentially differing materially from realized values[506] - The company is exposed to interest rate risk, as many loans have floating interest rates (based on SOFR, EURIBOR, Prime, SONIA, AUD, CORRA) and interest rate floors. Its debt facilities also have floating rates[507] Annualized Impact of Hypothetical Base Rate Changes on Net Investment Income (September 30, 2024) | Change in interest rates | Increase (decrease) in income (In thousands) | Increase (decrease) in interest expense (In thousands) | Net increase (decrease) in investment income (In thousands) | |:-------------------------|:---------------------------------------------|:-------------------------------------------------------|:------------------------------------------------------------| | Down 200 basis points | $(154,715) | $(72,243) | $(82,472) | | Down 150 basis points | $(116,036) | $(54,182) | $(61,854) | | Down 100 basis points | $(77,357) | $(36,121) | $(41,236) | | Down 50 basis points | $(38,679) | $(18,061) | $(20,618) | | Up 50 basis points | $38,679 | $18,061 | $20,618 | | Up 100 basis points | $77,357 | $36,121 | $41,236 | | Up 150 basis points | $116,036 | $54,182 | $61,854 | | Up 200 basis points | $154,715 | $72,243 | $82,472 | - The company may use hedging instruments like interest rate swaps, futures, options, and forward contracts to manage interest rate fluctuations, though these activities may limit participation in lower interest rates and introduce new risks[512] Item 8. Consolidated Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements, including Statements of Financial Condition, Operations, Changes in Net Assets, Cash Flows, and Schedules of Investments - Management asserts the effectiveness of the company's internal control over financial reporting as of September 30, 2024, based on the COSO framework[518] - Ernst & Young LLP, the independent registered public accounting firm, issued an unqualified opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting as of September 30, 2024[521][522][531][532] - A critical audit matter identified was the valuation of Level 3 investments, which totaled $8,235,293 thousand as of September 30, 2024, due to the highly judgmental nature of unobservable inputs and assumptions[527][528] Consolidated Statements of Financial Condition (September 30, 2024 vs. 2023) | Asset/Liability Category | September 30, 2024 (In thousands) | September 30, 2023 (In thousands) | |:-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|:----------------------------------|:----------------------------------| | Assets | | | | Total investments, at fair value | $8,235,411 | $5,516,613 | | Cash and cash equivalents | $123,120 | $65,617 | | Foreign currencies | $8,044 | $4,208 | | Restricted cash and cash equivalents | $227,152 | $70,381 | | Restricted foreign currencies | $1,236 | — | | Cash collateral held at broker for derivatives | $650 | — | | Interest receivable | $74,036 | $58,054 | | Net unrealized appreciation on derivatives | $31,712 | $14,941 | | Other assets | $4,617 | $3,658 | | Total Assets | $8,705,978 | $5,733,472 | | Liabilities | | | | Debt less unamortized debt issuance costs | $4,599,430 | $3,117,719 | | Unrealized depreciation on derivatives | $2,222 | — | | Interest payable | $45,701 | $24,749 | | Management and incentive fees payable | $33,619 | $35,277 | | Accrued trustee fees | $178 | $331 | | Accounts payable and other liabilities | $10,299 | $7,518 | | Total Liabilities | $4,691,449 | $3,185,594 | | Net Assets | | | | Common stock (shares outstanding) | 264,277,128 | 169,594,742 | | Paid in capital in excess of par | $4,167,258 | $2,646,912 | | Distributable earnings (losses) | $(152,993) | $(99,204) | | Total Net Assets | $4,014,529 | $2,547,878 | | Net asset value per common share | $15.19 | $15.02 | Consolidated Statements of Operations (FY2024, FY2023, FY2022) | Metric | 2024 (In thousands) | 2023 (In thousands) | 2022 (In thousands) | |:----------------------------------------------------------------------------|:--------------------|:--------------------|:--------------------| | Total investment income | $724,677 | $603,090 | $387,802 | | Total expenses | $368,370 | $310,320 | $193,515 | | Incentive fee waived (Note 3) | $(27,324) | — | — | | Base management fee waived (Note 3) | — | — | $(1,904) | | Net expenses | $341,046 | $310,320 | $191,611 | | Net investment income - before tax | $383,631 | $292,770 | $196,191 | | Excise and income tax | $1,195 | $3,682 | $72 | | Net investment income - after tax | $382,436 | $289,088 | $196,119 | | Net realized gain (loss) on investment transactions | $(79,900) | $(44,113) | $20,376 | | Net change in unrealized appreciation (depreciation) on investment transactions | $(29,371) | $13,555 | $(61,898) | | (Provision) benefit for taxes on realized gains on investments | — | $(207) | $(302) | | (Provision) benefit for taxes on unrealized appreciation on investments | $620 | $308 | $(855) | | Net increase (decrease) in net assets resulting from operations | $273,785 | $258,631 | $153,440 | | Basic and diluted earnings per common share | $1.36 | $1.52 | $0.90 | | Dividends and distributions declared per common share | $1.89 | $1.40 | $1.20 | | Basic and diluted weighted average common shares outstanding