Golub Capital(US:GBDC)2020-08-10 23:59Financial Data and Key Metrics Changes - GBDC's adjusted net investment income per share for Q3 was $0.28, adjusted EPS was $0.94, and NAV per share was $14.05, indicating strong fiscal Q3 results [6][32] - The NAV per share increased from $13.49 to $14.05, driven by net unrealized gains of $0.74 per share [17][32] - Adjusted net realized and unrealized gain per share was $0.66, a significant recovery from an adjusted loss of $2.04 in the previous quarter [31] Business Line Data and Key Metrics Changes - The portfolio's internal performance ratings improved, with loans in categories four and five increasing from 71.5% to 76% of the portfolio at fair value [14] - Non-accruals as a percentage of total investments at fair value increased modestly to 2% [16][41] Market Data and Key Metrics Changes - Over 80% of the portfolio consisted of investments in industries believed to be relatively insulated from COVID-19, such as enterprise software and business services [21] - The weighted average rate on new investments increased to 7.5%, and the weighted average spread over LIBOR on new floating rate investments rose to 6.3% [34] Company Strategy and Development Direction - GBDC's strategy during COVID-19 focused on managing a diversified first lien senior secured investment portfolio, supporting existing portfolio companies, and preparing to capitalize on new investment opportunities [20] - The company aims to maintain its focus on first lien and one-stop loans, with a cautious approach to potentially exploring junior debt in the future [64] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the recovery of the M&A market, noting an increase in activity and financing opportunities [55] - Concerns remain regarding elevated COVID-19 case counts and potential future restrictions, emphasizing the need for prudent preparation for various scenarios [48] Other Important Information - GBDC had $435 million of liquidity at quarter-end, with GAAP leverage at 0.86x and regulatory leverage below 0.75x [26] - The company executed over 50 credit-enhancing amendments during the quarter, indicating proactive management of its portfolio [24] Q&A Session Summary Question: Dividend payout sustainability - Management acknowledged the complexity of the dividend model but expressed cautious optimism about sustaining the $0.29 dividend level based on improved NAV [52] Question: Market opportunities and origination pipeline - Management noted an increase in M&A activity and financing opportunities, indicating a more optimistic outlook for future originations [55] Question: Differences in recovery from past downturns - Management highlighted the unprecedented amount of private equity dry powder available, suggesting a potential acceleration in capital deployment once uncertainties ease [60] Question: Willingness to pursue junior capital - Management confirmed a continued focus on first lien debt but did not rule out the possibility of investing in junior debt in favorable market conditions [64] Question: Changes to liability structure - Management indicated a belief in the benefits of unsecured debt and plans to introduce it at an appropriate time, while maintaining low liability costs [66] Question: Deal environment and due diligence - Management emphasized that existing borrowers would likely represent a higher proportion of new deal activity due to established relationships and prior due diligence [75]