Golub Capital(US:GBDC)2021-08-11 00:38Financial Data and Key Metrics Changes - For the quarter ended June 30, 2021, adjusted net investment income (NII) per share was $0.29, adjusted earnings per share (EPS) was $0.49, and ending net asset value (NAV) per share was $15.06 [9][22] - The median EBITDA growth from 2019 to 2021 exceeded 30%, indicating strong earnings growth across the portfolio [11] - The non-accrual rate remained low at 1% of investments at fair value, unchanged quarter-over-quarter and about 50% lower year-over-year [16][29] Business Line Data and Key Metrics Changes - New investment commitments totaled $614.7 million for the quarter, while total exits and sales of investments were $583.5 million, resulting in a 1% increase in total investments at fair value [24] - The portfolio mix by investment type remained consistent, with one-stop loans representing 80% of the portfolio [26] - The income yield decreased by 10 basis points to 7.4%, while the weighted average cost of debt decreased by 20 basis points to 2.8% [28] Market Data and Key Metrics Changes - The quarter ended June 30, 2021, set a new record for Golub Capital origination volume, surpassing the previous record by 30% [12] - The company reported strong middle market M&A activity, indicating a robust environment for new deals [42] Company Strategy and Development Direction - The investment strategy focuses on providing first lien, senior secured loans to healthy middle-market companies backed by strong private equity sponsors [6] - The company aims to increase the proportion of unsecured debt in its funding mix, which now represents about 50% of total funding [43] - GBDC is positioned to capture more attractive deals in the current market environment without compromising on credit quality [42] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the future, citing concerns about COVID variants but also highlighting strong portfolio performance and ample liquidity [37][38] - The company anticipates continued growth in net investment income and portfolio size, which will support future dividend increases [73] Other Important Information - The company completed its third unsecured bond offering of $350 million, maturing in February 2027, achieving the lowest coupon ever for a BDC at 2.05% [19] - The company has a strong liquidity position with over $800 million available through cash and credit facilities [32] Q&A Session Summary Question: Market opportunity and competitiveness in larger transactions - Management noted that while there are more players in larger transactions, GBDC remains a market leader in mega one-stops and continues to focus on financing companies generating between $20 million and $50 million of EBITDA [46][47] Question: Thoughts on equity co-investment - Management indicated that the percentage of the portfolio in equity co-investments has remained consistent, and they expect to grow the portfolio while maintaining a stable debt-to-equity ratio [54] Question: Operating around the hurdle rate - Management acknowledged that the recent quarter was an anomaly due to high repayments but expects growth in the portfolio size to improve net investment income [56][57] Question: Software lending portfolio outlook - Management expressed confidence in their leadership in software lending, noting strong sponsor relationships and a robust pipeline of opportunities despite increased competition [58][59] Question: Transition from LIBOR to SOFR - Management is prepared for the transition and has dedicated resources to ensure readiness, viewing it as a significant but manageable task [66][67] Question: Impact of portfolio performance on repayments - Management confirmed that higher-performing loans (category 5) tend to be refinanced more quickly, contributing to elevated repayment rates, but attributed the recent high repayments primarily to a rapid pace of M&A activity [70][71] Question: Future dividend increases - Management stated that increasing net investment income and NAV per share are key to raising dividends, aiming for a long-term target of about an 8% annual rate of NAV per share [73]