Golub Capital(US:GBDC)2023-02-07 16:00Part I. Financial Information Item 1. Financial Statements This section presents Golub Capital BDC, Inc.'s unaudited consolidated financial statements for the quarter ended December 31, 2022, detailing financial condition, operations, changes in net assets, cash flows, and investment schedules Consolidated Statements of Financial Condition As of December 31, 2022, total assets slightly decreased to $5.67 billion, total net assets declined to $2.51 billion, and net asset value per common share decreased to $14.71 Financial Condition Summary | Financial Metric (in thousands, except per share data) | December 31, 2022 (unaudited) | September 30, 2022 | | :--- | :--- | :--- | | Total Investments, at fair value | $5,451,946 | $5,446,356 | | Total Assets | $5,665,751 | $5,681,224 | | Total Liabilities | $3,152,066 | $3,136,724 | | Total Net Assets | $2,513,685 | $2,544,500 | | Common shares outstanding | 170,895,670 | 170,895,670 | | Net asset value per common share | $14.71 | $14.89 | Consolidated Statements of Operations For the three months ended December 31, 2022, total investment income significantly increased to $136.9 million, resulting in $61.7 million net investment income, but a net loss on investment transactions led to a net increase in net assets from operations of $25.6 million Operations Summary | Metric (In thousands, except per share data) | Three months ended Dec 31, 2022 | Three months ended Dec 31, 2021 | | :--- | :--- | :--- | | Total investment income | $136,877 | $86,567 | | Total expenses | $73,014 | $41,777 | | Net investment income - after tax | $61,663 | $44,790 | | Net gain (loss) on investment transactions | ($36,328) | $18,783 | | Net increase in net assets from operations | $25,581 | $63,078 | | Basic and diluted earnings per common share | $0.15 | $0.37 | | Dividends and distributions declared per common share | $0.33 | $0.30 | Consolidated Statements of Changes in Net Assets For the three months ended December 31, 2022, net assets decreased by $30.8 million, as distributions to stockholders of $56.4 million exceeded the $25.6 million net increase from operations Changes in Net Assets Summary | Description (In thousands) | Three months ended Dec 31, 2022 | | :--- | :--- | | Balance at September 30, 2022 | $2,544,500 | | Net increase in net assets from operations | $25,581 | | Distributions from distributable earnings | ($56,396) | | Total decrease for the period | ($30,815) | | Balance at December 31, 2022 | $2,513,685 | Consolidated Statements of Cash Flows For the three months ended December 31, 2022, net cash provided by operating activities was $52.9 million, while net cash used in financing activities was $67.5 million, resulting in a $14.6 million net decrease in cash and cash equivalents Cash Flows Summary | Cash Flow Activity (In thousands) | Three months ended Dec 31, 2022 | Three months ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $52,918 | ($181,734) | | Net cash provided by (used in) financing activities | ($67,494) | $238,893 | | Net change in cash and cash equivalents | ($14,576) | $57,159 | | Cash and cash equivalents, end of period | $166,033 | $301,477 | Consolidated Schedules of Investments As of December 31, 2022, the investment portfolio totaled $5.45 billion, primarily comprising one stop loans (85.4%) and senior secured loans (9.0%), diversified across 332 companies Investment Categories by Fair Value | Investment Category | Fair Value (in thousands) | Percentage of Total | | :--- | :--- | :--- | | Non-controlled/non-affiliate company investments | $5,389,908 | 98.9% | | Non-controlled affiliate company investments | $47,556 | 0.9% | | Controlled affiliate company investments | $14,482 | 0.2% | | Total investments, at fair value | $5,451,946 | 100.0% | Investment Types by Fair Value | Investment Type | Fair Value (in thousands) | Percentage of Total | | :--- | :--- | :--- | | One stop | $4,658,030 | 85.4% | | Senior secured | $491,529 | 9.0% | | Equity | $274,264 | 5.0% | | Second lien | $24,120 | 0.5% | | Subordinated debt | $4,003 | 0.1% | | Total | $5,451,946 | 100.0% | Top 5 Industries by Fair Value | Top 5 Industries by Fair Value | Percentage of Total | | :--- | :--- | | Software | 26.5% | | Health Care Providers & Services | 8.2% | | Specialty Retail | 5.9% | | Automobiles | 4.9% | | IT Services | 4.7% | Notes to Consolidated Financial Statements This section details the company's significant accounting policies, fair value measurements, related party transactions, investment composition, borrowings, commitments, financial highlights, earnings per share, and dividend distributions - The company has elected to be regulated as a Business Development Company (BDC) and treated as a Regulated Investment Company (RIC) for tax purposes, focusing its investment strategy on one stop and senior secured loans to U.S. middle-market companies277278 - The Investment Adviser, GC Advisors LLC, receives a base management fee of 1.375% of average adjusted gross assets and an incentive fee based on performance, including income and capital gains components320321328 - As of December 31, 2022, the company had total debt outstanding of $3.1 billion across various facilities, with an overall asset coverage ratio of 180.4%383384 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and operational results, highlighting increased investment income, portfolio composition, investment activity, liquidity, capital resources, and the impact of the GCIC acquisition and LIBOR to SOFR transition Overview Golub Capital BDC, an externally managed BDC and RIC listed on Nasdaq as GBDC, aims to generate income and capital appreciation by investing primarily in one stop and senior secured loans of U.S. middle-market companies - The company's investment objective is to generate current income and capital appreciation by investing in one stop and other senior secured loans of U.S. middle-market companies439 - As of December 31, 2022, the portfolio was primarily composed of one stop loans (85.4%) and senior secured loans (9.0%)445 Consolidated Results of Operations For Q4 2022, total investment income rose to $136.9 million, leading to $61.7 million net investment income, but a $39.6 million net unrealized depreciation resulted in a $25.6 million net increase in net assets from operations Consolidated Results of Operations Summary | Metric (In thousands) | Dec 31, 2022 | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | :--- | | Total investment income | $136,877 | $119,648 | $86,567 | | Total expenses | $73,014 | $65,615 | $41,777 | | Net investment income after taxes | $61,663 | $53,961 | $44,790 | | Net gain (loss) on investment transactions | ($36,328) | ($45,791) | $18,783 | | Net increase (decrease) in net assets | $25,581 | $8,083 | $63,078 | - The increase in investment income was primarily due to rising LIBOR and SOFR interest base rates476477 - Unrealized depreciation for the quarter was primarily due to decreases in fair value across portfolio investments from incremental spread widening in the market497 Liquidity and Capital Resources As of December 31, 2022, the company had $96.4 million in cash, $3.1 billion total debt, a GAAP debt-to-equity ratio of 1.24x, and $200.2 million in outstanding investment commitments - The company's GAAP debt-to-equity ratio was 1.24x and its asset coverage ratio was 180.4% as of December 31, 2022511 - As of December 31, 2022, the company had $538.9 million of availability on its JPM Credit Facility and $100.0 million on its Adviser Revolver502503 - Outstanding commitments to fund investments totaled $200.2 million as of December 31, 2022513 Portfolio Composition, Investment Activity and Yield As of December 31, 2022, the $5.5 billion investment portfolio had a weighted average income yield of 10.0%, with $247.0 million in new commitments, and 89.3% of investments performing at or above expectations Weighted Average Yields | Metric | Dec 31, 2022 | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | :--- | | Weighted average income yield | 10.0% | 8.4% | 7.1% | | Weighted average investment income yield | 10.5% | 9.2% | 7.7% | Internal Performance Rating Distribution | Internal Performance Rating | % of Total Investments (Fair Value) | | :--- | :--- | | 5 (Least Risk) | 2.8% | | 4 (Acceptable Risk) | 86.5% | | 3 (Below Expectations) | 9.4% | | 2 (Materially Below) | 1.3% | | 1 (Substantially Below) | 0.0% | - New investment commitments for the three months ended December 31, 2022, totaled $247.0 million518 Quantitative and Qualitative Disclosures about Market Risk The company is exposed to interest rate risk, with a hypothetical 100 basis point increase in base rates estimated to increase annual net investment income by $37.2 million, and 98.0% of loans having interest rate floors Sensitivity to Interest Rate Changes | Change in Interest Rates | Net Increase (Decrease) in Investment Income (in thousands) | | :--- | :--- | | Up 200 basis points | $74,402 | | Up 100 basis points | $37,201 | | Down 100 basis points | ($37,201) | | Down 200 basis points | ($74,322) | - Many portfolio loans have floating interest rates, typically based on LIBOR or SOFR, and are subject to minimum base rate floors, with a weighted average floor of 0.83% as of December 31, 2022568 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022, with no material changes in internal controls over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report572 - No changes in internal controls over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls573 Part II. Other Information Legal Proceedings The company, its investment adviser, and its administrator are not currently subject to any material legal proceedings - The company, its investment adviser, and its administrator are not currently subject to any material legal proceedings575 Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended September 30, 2022, were reported - No material changes to the risk factors discussed in the Annual Report on Form 10-K for the year ended September 30, 2022, were reported for the three months ended December 31, 2022576 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None577 Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - None579 Mine Safety Disclosures This item is not applicable as the company has no mine safety disclosures to report - None580 Other Information The company reported no other information for the period - None581 Exhibits This section lists the exhibits filed with the quarterly report, including CEO and CFO certifications and Inline XBRL documents List of Exhibits | Number | Description | | :--- | :--- | | 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14 | | 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14 | | 32.1 | Certification pursuant to 18 U.S.C. Section 1350 (Sarbanes-Oxley Act) | | 101 | Inline XBRL Instance Document and related taxonomy files | | 104 | Cover Page Interactive Data File (Inline XBRL) |