Golub Capital(US:GBDC)2025-11-19 16:02Financial Data and Key Metrics Changes - For the fiscal quarter ending September 30, 2025, adjusted net investment income (NII) per share was $0.39, with an adjusted NII return on equity (ROE) of 10.4% [4] - Adjusted net income per share was $0.36, resulting in an adjusted ROE of 9.6% [4] - Cumulative distributions for fiscal year 2025 totaled $1.65 per share, representing 10.9% of end-of-year net asset value per share [4] - The net asset value per share at the end of fiscal year 2025 was $14.97, which is $0.34 above the net asset value per share at its IPO in 2010 [5] Business Line Data and Key Metrics Changes - Approximately 90% of GBDC's investment portfolio at fair value remains in the highest-performing internal rating categories [11] - The investment income yield was 10.4%, a sequential decline of 20 basis points, primarily due to a modest decline in weighted average base rates and portfolio spread compression [12] - The weighted average rate on new investments was 8.9%, a decline of 30 basis points from the prior quarter [19] - The investment portfolio decreased to just under $8.8 billion at fair value, with $371 million in repayments and exits, net of $60 million in new investment commitments [13] Market Data and Key Metrics Changes - The direct lending market is facing headwinds, including narrowed spreads and a credit cycle characterized by an unusual level of defaults and credit stress [6][7] - The default rate in the broadly syndicated market is currently running at about two and a half times historical average levels [27] - Non-accrual investments decreased to 0.3% of the total investment portfolio at fair value, remaining well below the BDC peer industry average [11][22] Company Strategy and Development Direction - GBDC's investment strategy focuses on providing first-lien senior-secured loans to middle-market companies backed by strong private equity sponsors [3] - The company aims to maintain a stable net asset value per share, minimize excise taxes, adjust base distribution levels infrequently, and pay a high dividend yield on NAV sustainably [9] - GBDC plans to approach the dividend question with caution, revisiting its policy early next year based on the outlook for rates and asset spreads [8] Management's Comments on Operating Environment and Future Outlook - The U.S. economy shows surprising resilience, with solid year-over-year growth in revenues and EBITDA across the portfolio, although there are signs of weakness in the lower-end consumer [26] - Elevated credit stress is expected to persist, impacting different BDCs in varying ways, leading to a widening gap between successful and struggling managers [27][28] - The company believes that private credit, when executed correctly, is a stable investment strategy that has historically produced low credit losses and strong returns [30][31] Other Important Information - GBDC's liquidity position remains strong, ending the quarter with approximately $1.2 billion of liquidity from unrestricted cash and drawn commitments [25] - The company repurchased 368,000 shares during the quarter, bringing total repurchases for the fiscal year to 2.9 million shares valued at $40.6 million [17] Q&A Session Summary Question: Availability of co-invest - GBDC has not seen any meaningful change in the availability or quality of equity co-invest opportunities over the past years, maintaining a strong track record in this area [33][34] Question: Economic themes and inflation - There is optimism regarding capital spending due to recent provisions, but concerns exist regarding the stress on the subprime consumer, with increased delinquencies and reduced spending observed [40][41] Question: Spread compression risks - The compression of spreads is not solely due to supply and demand imbalances but reflects broader investor sentiment. A reset in investor confidence would be necessary for spreads to change significantly [42][43]