Golub Capital(US:GBDC)2024-02-05 21:11Part I Financial Statements Golub Capital BDC, Inc.'s financial statements detail its December 31, 2023 position and operational results, showing slight asset decrease, increased net assets, and improved income Consolidated Statements of Financial Condition As of December 31, 2023, total assets slightly decreased to $5.70 billion, while total net assets increased to $2.56 billion, with NAV per share rising to $15.03 Financial Condition Highlights (as of) | Metric | December 31, 2023 | September 30, 2023 | | :--- | :--- | :--- | | Total Investments, at fair value | $5,443.4 million | $5,516.6 million | | Total Assets | $5,699.9 million | $5,733.5 million | | Total Liabilities | $3,136.0 million | $3,185.6 million | | Total Net Assets | $2,563.9 million | $2,547.9 million | | Net Asset Value per common share | $15.03 | $15.02 | Consolidated Statements of Operations For Q4 2023, total investment income increased to $164.8 million, with net investment income after tax rising to $83.5 million, and net assets increasing by $75.8 million Statement of Operations Highlights (Three months ended December 31) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Investment Income | $164.8 million | $136.9 million | | Total Expenses | $80.7 million | $73.0 million | | Net Investment Income - after tax | $83.5 million | $61.7 million | | Net gain (loss) on investment transactions | $(7.7) million | $(36.3) million | | Net Increase in Net Assets | $75.8 million | $25.6 million | | Basic and diluted EPS | $0.45 | $0.15 | Consolidated Statements of Changes in Net Assets Net assets increased by $16.0 million for the quarter ended December 31, 2023, driven by $75.8 million from operations, partially offset by $74.6 million in distributions Changes in Net Assets (Three months ended December 31, 2023) | Description | Amount (in thousands) | | :--- | :--- | | Balance at September 30, 2023 | $2,547,878 | | Net increase from operations | $75,776 | | Stock issued via dividend reinvestment plan | $14,886 | | Distributions from distributable earnings | $(74,622) | | Balance at December 31, 2023 | $2,563,918 | Consolidated Statements of Cash Flows Net cash provided by operating activities was $163.6 million for Q4 2023, leading to a $32.8 million net increase in cash and cash equivalents despite $130.8 million used in financing Cash Flow Summary (Three months ended December 31) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $163.6 million | $52.9 million | | Net cash used in financing activities | $(130.8) million | $(67.5) million | | Net change in cash and cash equivalents | $32.8 million | $(14.6) million | Consolidated Schedule of Investments As of December 31, 2023, the $5.44 billion investment portfolio, comprising 357 companies, is primarily 85.7% one stop loans and 8.1% senior secured loans Investment Portfolio Composition by Type (as of Dec 31, 2023) | Investment Type | Fair Value (in thousands) | Percentage of Total | | :--- | :--- | :--- | | Senior secured | $438,837 | 8.1% | | One stop | $4,662,636 | 85.7% | | Second lien | $32,449 | 0.6% | | Subordinated debt | $8,444 | 0.2% | | Equity | $301,061 | 5.4% | | Total | $5,443,427 | 100.0% | - The total investment portfolio consisted of investments in 357 portfolio companies as of December 31, 2023427 Investment Portfolio by Control Type (as of Dec 31, 2023) | Category | Fair Value (in thousands) | | :--- | :--- | | Non-controlled/non-affiliate | $5,351,550 | | Non-controlled affiliate | $79,073 | | Controlled affiliate | $12,804 | | Total Investments | $5,443,427 | Notes to Consolidated Financial Statements The notes detail accounting policies, the $5.44 billion investment portfolio, $3.08 billion debt structure, and subsequent events including a proposed merger and new $600 million unsecured note issuance - The company is an externally managed, closed-end, non-diversified management investment company regulated as a Business Development Company (BDC) and a Regulated Investment Company (RIC)242 - Effective July 1, 2023, the base management fee paid to the Investment Adviser was reduced from 1.375% to 1.0% of average adjusted gross assets288 - Subsequent to quarter-end, the company announced a proposed merger with Golub Capital BDC 3, Inc., issued $600 million of 6.000% unsecured notes due 2029, and declared a quarterly distribution of $0.39 per share plus a supplemental distribution of $0.07 per share404411412 Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights a stable quarter with a $5.4 billion investment portfolio, increased investment income, and key developments including a proposed merger and new $600 million bond issuance Overview Golub Capital BDC primarily invests in one stop and senior secured loans of U.S. middle-market companies, with its $5.4 billion portfolio largely composed of these debt types - The company's investment objective is to generate current income and capital appreciation by investing in U.S. middle-market companies, primarily through one stop and senior secured loans419 Portfolio Composition by Investment Type (as of Dec 31, 2023) | Investment Type | Fair Value (in thousands) | Percentage of Total | | :--- | :--- | :--- | | Senior secured | $438,837 | 8.1% | | One stop | $4,662,636 | 85.7% | | Second lien | $32,449 | 0.6% | | Subordinated debt | $8,444 | 0.2% | | Equity | $301,061 | 5.4% | | Total | $5,443,427 | 100.0% | Recent Developments Recent developments include a proposed merger with Golub Capital BDC 3, Inc., an incentive fee waiver, a new $600 million unsecured note issuance, and increased shareholder distributions - On January 16, 2024, the company entered into a merger agreement with Golub Capital BDC 3, Inc. (GBDC 3)437 - The Investment Adviser agreed to waive incentive fees in excess of 15% effective January 1, 2024, pending the merger with GBDC 3438 - On February 1, 2024, the company issued $600 million of 6.000% unsecured notes due 2029439 - The Board declared a quarterly distribution of $0.39 per share and a supplemental distribution of $0.07 per share439440 Consolidated Results of Operations Q4 2023 saw total investment income rise to $164.8 million and net investment income after tax increase to $83.5 million, with a reduced net loss on investments of $7.7 million Quarterly Operating Results Comparison (in thousands) | Metric | Q4 2023 | Q3 2023 | Q4 2022 | | :--- | :--- | :--- | :--- | | Total investment income | $164,770 | $164,540 | $136,877 | | Total expenses | $80,735 | $79,849 | $73,014 | | Net investment income after taxes | $83,535 | $83,441 | $61,663 | | Net gain (loss) on investments | $(7,736) | $18,391 | $(36,328) | | Net increase in net assets | $75,776 | $101,564 | $25,581 | - The base management fee decreased by $5.1 million year-over-year due to a rate reduction from 1.375% to 1.0% effective July 1, 2023460 - Net unrealized depreciation for Q4 2023 was $8.8 million, a significant improvement from $39.6 million in Q4 2022, driven by spread tightening and improved portfolio performance468470471 Liquidity and Capital Resources As of December 31, 2023, the company maintained strong liquidity with $70.7 million cash and $1.17 billion available credit, alongside a 1.21x GAAP debt-to-equity ratio - As of December 31, 2023, the company had $70.7 million in cash and cash equivalents and $1,167.8 million of availability on its JPM Credit Facility474475 - The asset coverage ratio was 182.4%, and the GAAP debt-to-equity ratio was 1.21x as of December 31, 2023486 - Outstanding commitments to fund investments totaled $163.9 million as of December 31, 2023488 Portfolio Composition, Investment Activity and Yield The $5.4 billion investment portfolio, with 357 companies, saw $58.6 million in new commitments, a 12.2% weighted average income yield, and 1.1% non-accrual loans New Investment Commitments (by Quarter) | Investment Type | Q4 2023 (in thousands) | Percentage | | :--- | :--- | :--- | | Senior secured | $7,500 | 12.8% | | One stop | $49,317 | 84.1% | | Equity & Other | $1,827 | 3.1% | | Total | $58,644 | 100.0% | - The weighted average income yield on earning portfolio investments for the quarter was 12.2%, up from 10.0% in the prior year quarter428 Portfolio Quality by Internal Rating (as of Dec 31, 2023) | Rating | Definition | % of Portfolio (Fair Value) | | :--- | :--- | :--- | | 5 | Performing above expectations | 2.6% | | 4 | Performing as expected | 83.3% | | 3 | Performing below expectations | 13.7% | | 2 | Performing materially below | 0.4% | | 1 | Substantially below / Impaired | 0.0% | - As of December 31, 2023, non-accrual investments represented 1.1% of the total debt portfolio at fair value495 Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk, with a 100 basis point increase or decrease in rates impacting annual net investment income by approximately $38.4 million Interest Rate Sensitivity Analysis (Annualized Impact) | Change in Interest Rates | Net Increase (Decrease) in Investment Income | | :--- | :--- | | Up 100 basis points | $38,419 thousand | | Down 100 basis points | $(38,419) thousand | - As of December 31, 2023, 97.9% of the loan portfolio at fair value was subject to an interest rate floor, providing some protection against falling rates452 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2023, with no material changes to internal controls over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report542 - No changes in internal controls over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls543 Part II Legal Proceedings The company is not currently subject to any material legal proceedings that would adversely affect its financial statements - The company is not currently subject to any material legal proceedings545 Risk Factors New risk factors relate to the proposed merger with Golub Capital BDC 3, Inc., including potential stock price declines, ownership dilution, and failure to realize anticipated benefits - New risk factors have been introduced related to the proposed merger with Golub Capital BDC 3, Inc. (GBDC 3)546548 - Merger-related risks include potential stock price declines from post-merger share sales, dilution of ownership for existing stockholders, and the risk of not achieving anticipated synergies and cost savings548549552 Other Items (Items 2, 3, 4, 5 & 6) The company reported no unregistered equity sales, senior security defaults, mine safety disclosures, or Rule 10b5-1 trading plan adoptions/terminations during the quarter - There were no unregistered sales of equity securities, defaults upon senior securities, or mine safety disclosures to report564565566 - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the fiscal quarter ended December 31, 2023567