Golub Capital(US:GBDC)2025-11-18 21:11Capital Management and Growth - As of October 1, 2025, Golub Capital had over $85.0 billion of capital under management, indicating significant growth in assets[22]. - As of September 30, 2025, the total investments at fair value amounted to $8,769,389,000, an increase from $8,235,411,000 in 2024, representing a growth of 6.5%[49]. Market Position and Relationships - Golub Capital has closed deals with over 420 middle-market sponsors and repeat transactions with over 280 sponsors, showcasing strong market relationships[30]. - The target market includes small and middle-market companies in the U.S. with annual revenues between $10 million and $2.5 billion, representing a significant growth segment[24]. - The company has identified increased competition for direct lending to middle-market businesses, which may affect pricing terms for potential investments[28]. Investment Strategy and Risk Management - The company focuses on recession-resistant industries, aiming to generate strong risk-adjusted net returns through a diversified portfolio[33]. - The equity cushion sought by GC Advisors is generally between 35% and 45% of total portfolio capitalization, emphasizing risk management[38]. - Middle-market investments have historically generated premium yields compared to large corporate loans, particularly in uncertain market environments[28]. - GC Advisors utilizes a disciplined investment and underwriting process to minimize credit losses through effective due diligence and monitoring[31]. - The investment strategy focuses on minimizing downside risk by selecting investments with low loss probabilities and negotiating favorable covenants[64]. Investment Performance and Monitoring - The internal performance ratings distribution shows that 87.6% of investments were rated 4, indicating an acceptable level of risk, while 9.6% were rated 3, suggesting below-expectation performance[49]. - The company utilizes a monitoring template to assess investment performance and compliance with standards, emphasizing active portfolio monitoring[46]. Financial Management and Fees - The incentive fee rates were reduced from 20.0% to 15.0%, and the incentive fee cap was also reduced from 20.0% to 15.0% under the new Investment Advisory Agreement approved on June 3, 2024[80]. - The base management fee rate was reduced from 1.375% to 1.0% effective July 1, 2024[80]. - The base management fee is calculated at an annual rate equal to 1.0% of the average adjusted gross assets at the end of the two most recently completed calendar quarters[81]. Regulatory Compliance and Risk Factors - The company is subject to risks associated with the current interest rate environment, which could affect the cost of capital and net investment income[74]. - The company is exposed to credit and default risk, with portfolio companies potentially unable to repay or refinance outstanding principal[76]. - Economic recessions or downturns could impair portfolio companies, leading to defaults that harm operating results[74]. - The company must ensure that at least 70% of its total assets are qualifying assets as defined under the 1940 Act[125]. - The company is required to maintain a bond issued by a reputable fidelity insurance company to protect against larceny and embezzlement[142]. Taxation and Distribution Requirements - To qualify as a RIC, the company must distribute at least 90% of its investment company taxable income as dividends to stockholders[153]. - The company is subject to a 4% nondeductible federal excise tax on any undistributed income or capital gains[157]. - The company must derive at least 90% of its gross income from specific sources, including dividends and interest, to maintain RIC status[155]. - Distributions of net capital gains designated as "capital gain dividends" will be taxable to U.S. stockholders as long-term capital gains at a maximum rate of either 15% or 20%[173]. Interest Rate Exposure - The weighted average floor on loans with floating interest rates was 0.78% as of September 30, 2025[650]. - A hypothetical 200 basis points increase in interest rates could result in a net increase in investment income of $84,104,000[652]. - The company has entered into interest rate swaps with floating rate provisions based on SOFR, indicating exposure to interest rate fluctuations[653]. - The company expects future loans to also have floating interest rates, which are typically based on SOFR[650].