Golub Capital BDC Q1 Earnings Call Highlights

Core Viewpoint - Golub Capital BDC reported a challenging fiscal quarter with lower base rates, tighter spreads, and elevated credit stress impacting results, leading to a reset of the quarterly base dividend to $0.33 per share, which is about 9% of NAV per share [3][5]. Financial Performance - Adjusted net investment income (NII) was $0.38 per share, resulting in an adjusted return on equity (ROE) of 10.2%, while adjusted net income was $0.25 per share, translating to an adjusted ROE of 6.7% [2]. - The company paid a distribution of $0.39 per share during the quarter [2]. Portfolio and Credit Quality - The portfolio fair value declined to $8.6 billion, with non-accruals at 0.8% of the portfolio, which is below the BDC peer average [1][5]. - Adjusted net unrealized and realized losses increased to $0.13 per share, primarily due to markdowns on underperforming borrowers [6]. - The number of non-accrual investments rose to 14, with management noting a challenging outlook for 2026 amid lower rates and tighter spreads [5][6]. Dividend Policy - The board decided to reset the quarterly base dividend to $0.33 per share while maintaining a variable supplemental dividend policy aimed at distributing 50% of earnings above the base [1][5]. Portfolio Activity and Yields - GBDC's investment portfolio decreased by 1.5% sequentially, with a weighted average loan-to-value of approximately 43% [8]. - The investment income yield fell to about 10%, primarily due to lower base rates, while the net spread declined to 4.6% [10][11]. Liquidity and Leverage - Liquidity totaled approximately $1.3 billion, with net debt-to-equity standing at 1.23x, within the company's target range [4][13]. - The cost of debt decreased to 5.4%, and 81% of total debt funding is floating rate or swapped to floating rate [11]. Management Outlook - The company anticipates continued pressure on ROEs due to lower base rates, tighter spreads, and muted M&A activity, with public BDC net returns estimated to be about 4 percentage points lower year-over-year [14]. - Management emphasized the need for vigilance regarding software exposure and AI-related disruptions, noting a preference for enterprise-critical platforms [15].