Goldman Sachs BDC (NYSE:GSBD) Q1 2023 Earnings Convention Name Might 5, 2023 9:00 AM ET
Austin Neri – IR
Alex Chi – Co-CEO
David Miller – Co-CEO
Gabriella Skirnick – COO
David Pessah – CFO
Convention Name Individuals
Mark Hughes – Truist
Arren Cyganovich – Citi
Good morning. That is Austin Neri, a member of the Investor Relations workforce for Goldman Sachs BDC, Inc., and I want to welcome everybody to the Goldman Sachs BDC, Inc. First Quarter 2023 Earnings Convention Name. Please be aware that every one individuals can be in listen-only mode till the top of the decision after we open up the road for questions.
Earlier than we start in the present day’s name I want to remind our listeners that in the present day’s remarks might embrace forward-looking statements. These statements signify the corporate’s perception concerning future occasions that, by their nature, are unsure and outdoors of the corporate’s management.
The corporate’s precise outcomes and monetary situation might differ, presumably materially from that what’s indicated in these forward-looking statements on account of plenty of components, together with these described occasionally within the firm’s SEC filings. This audio forged is copyrighted materials of Goldman Sachs BDC, Inc. and will not be duplicated, reproduced or rebroadcast with out our consent.
Yesterday, after the market closed, the corporate issued an earnings press launch and posted a supplemental earnings presentation each of which could be discovered on the house web page of our web site at www.goldmansachsbdc.com, below the Investor Relations part, and which embrace reconciliations of non-GAAP measures to essentially the most immediately comparable GAAP measures. These paperwork ought to be reviewed along side the corporate’s quarterly report on Type 10-Q filed yesterday with the SEC. This convention name is being recorded in the present day, Friday, Might 5, 2023, for replay functions.
I will now flip the decision over to Alex Chi, Co-Chief Government Officer of Goldman Sachs BDC.
Thanks, Austin. Good morning, everybody, and thanks for becoming a member of us for our first quarter 2023 earnings convention name.
I am right here in the present day with my Co-Chief Government Officer, David Miller; Gabriella Skirnick, our Chief Working Officer; and David Pessah, our Chief Monetary Officer.
I will start the decision by offering a quick overview of our first quarter outcomes earlier than discussing the present market surroundings in additional element. I will then flip the decision over to David Miller to explain our portfolio exercise earlier than we hand it off to David Pessah to take us by way of our monetary outcomes. And at last, we’ll open the road for Q&A.
So with that, let’s get to our first quarter outcomes. Our internet funding revenue per share for the quarter was $0.46. Excluding the impression of asset acquisition accounting in reference to the merger with MMLC, adjusted internet funding revenue for the quarter was $0.45 per share equating to an annualized internet funding revenue yield on ebook worth of 12.5%. The rise in returns is essentially a mirrored image of the rise in base charges through the quarter.
As we introduced after the market closed yesterday, our Board declared a $0.45 per share dividend payable to the shareholders of document as of June 30, 2023. This marks the corporate’s thirty third consecutive quarter of a $0.45 per share dividend totaling $14.85 per share since our IPO, excluding the particular dividends we paid in 2021 submit the merger with MMLC.
Internet asset worth per share decreased to $14.44 per share as of March 31, a lower of roughly 1.2% from the top of the fourth quarter. This lower was primarily attributable to unrealized losses in additional junior and non-first lean positions. On a good worth foundation, first lien loans are 92.6% of belongings as of March 31, which leaves us well-positioned to resist potential headwinds within the present advertising surroundings.
As we acknowledged the final quarter, we’ve got an emphasis inside our pipeline on sourcing first lien senior secured investments. We additionally proceed to stay devoted to immediately originated non-public credit score alternatives and haven’t participated within the secondary marketplace for broadly syndicated loans.
Through the quarter, we accomplished a follow-on public providing of widespread inventory at an accretive providing worth above NAV per share, which resulted in internet money proceeds of $97.6 million. David will broaden on this in additional element beneath.
Regardless of the continued media deal surroundings on account of macroeconomic uncertainty coupled with the latest headwinds from the regional banking disaster through the quarter, we imagine that the approaching quarters might probably witness elevated deal volumes by way of extra strategic company actions, resembling take non-public transactions or divestitures, in addition to secondary LBOs. This view is additional knowledgeable by growing pipeline exercise in addition to the shut dialogue we’ve got with our Goldman Sachs funding banking colleagues.
With that, let me flip over to my Co-CEO, David Miller.
Through the quarter, we originated $2.1 million in new funding commitments, half of the quantity in new investments to 1 new portfolio firm and half as a part of a follow-on funding to 1 current portfolio firm, primarily to finance M&A exercise. Our new funding commitments have been a 100% in first lien senior secured loans.
Gross sales and reimbursement exercise totaled $12.6 million, primarily pushed by the complete reimbursement of investments by one Portfolio Firm. We’re happy to notice that this full reimbursement was by Tronair which was beforehand a watchlist identify for us and a place that was a 3 on our threat matrix. Of be aware, Tronair was marked at 94 as of quarter finish December 31 and was repaid at par.
Turning to portfolio composition, as of March 31, 2023, complete investments in our portfolio have been $3.5 billion at honest worth comprising 97.4% in senior secured loans, together with 89.3% in first lien, 3.3% in first lien/last-out unitranche, and 4.8% in second lien debt, in addition to a negligible quantity in unsecured debt, and a couple of.4% in a mix of most well-liked and customary inventory and warrants. We additionally had $325.2 million of unfunded commitments as of March 31, bringing complete investments at honest worth and commitments to $3.8 billion.
As of quarter finish, the corporate held investments in 133 portfolio corporations working throughout 37 totally different industries. Weighted common yield of our funding portfolio at value on the finish of Q1 was 11.6% as in comparison with 11.0% from the prior quarter. The weighted common yield of our complete debt in revenue producing investments at amortized value elevated to 12.2% on the finish of Q1 from 11.7% on the finish of This fall.
Turning to credit score high quality. The weighted common internet debt to EBITDA of the businesses in our funding portfolio had a slight lower to six.0x at quarter finish from 6.1x on the finish of the fourth quarter. Given the extent of current base charges, we might anticipate that future originations and transactions ought to replicate decrease leverage metrics.
Simply as importantly, and in response to your questions a few of you’ve gotten had with regard to macro headwinds over the previous few quarters, our portfolio corporations had each top-line and EBITDA progress on a year-over-year and quarter-over-quarter foundation. As Alex mentioned earlier, deal exercise was muted all through the quarter. Nonetheless, we count on sponsored dry powder coupled with administration and energetic shareholder exercise to grab present alternatives within the market to drive future pipeline exercise.
We stay chosen from a credit score and threat adjusted return perspective and preserve a long-term strategic view on capital deployment that’s insulated by our orientation to first lien credit score threat. The weighted common curiosity protection of the businesses in our funding portfolio at quarter finish was 1.6x, which was flat relative to our prior quarter.
It is vital to notice that we calculate our protection ratios based mostly on present quarter metrics slightly than a trailing or LTM foundation. Have been we to make use of an LTM calculation, then our protection ratio of the businesses in our funding portfolio can be 2.3x.
And at last, turning to asset high quality. As of March 31, 2023, investments on non-accrual standing amounted to 0.6% and 1.6% of the full funding portfolio at honest worth and amortized value respectively versus 0.3% and a couple of.1% at honest worth and amortized value respectively as of the quarter ended December 31, 2022. We had one junior non-first lien place positioned on non-accrual and one Portfolio Firm faraway from non-accrual standing as we exited the place.
I’ll now flip the decision over to David Pessah to stroll by way of our monetary outcomes.
We ended the primary quarter of 2023 with complete portfolio investments at honest worth of $3.5 billion, excellent debt of $1.9 billion, and internet belongings of $1.6 billion. Our ending internet debt to fairness ratio lower to 1.2x from 1.32x final quarter.
As Alex talked about on March 6, we opportunistically accomplished a follow-on public providing of widespread inventory at an accretive providing worth above NAV per share. The providing resulted in internet money proceeds of $97.6 million, which we used to scale back our leverage. The lowered leverage ranges enable us to deploy capital into engaging threat adjusted alternatives within the present market.
At quarter finish 44.3% of the corporate’s complete principal quantity of debt excellent was in unsecured debt and $612 million of capability was obtainable below our secured revolving credit score facility. Earlier than persevering with to the revenue assertion, as a reminder, along with GAAP monetary measures, we may also reference sure non-GAAP or adjusted measures. That is supposed to make the corporate’s monetary outcomes simpler to check to outcomes previous to our October 2020 merger with MMLC. These non-GAAP measures take away the acquisition low cost amortization impression from our monetary outcomes.
For Q1, GAAP and adjusted after-tax internet funding revenue have been $48 million and $47.1 million, respectively, as in comparison with $67.6 million and $66.6 million, respectively within the prior quarter. The rise in quarter-over-quarter top-line funding revenue was primarily because of the enhance in benchmark charges. The lower in internet funding revenue was because of the enhance in our incentive payment. As a reminder, our incentive payment calculation relies on a 12 quarter look again inclusive of a complete return limiter the place any unrealized losses ensuing from markdowns offset pre-incentive payment internet funding revenue.
For the present quarter outcomes from Q1 2020 have been faraway from the calculation, which included outcomes from the preliminary impression of COVID-19 and meaningfully restricted the quantity of incentive charges that could possibly be earned through the trailing 12 quarter interval. Additional, we voluntarily waived a portion of our charges throughout that very same interval together with the quarter ended March 31, 2023, exemplifying our dedication and orientation to being shareholder pleasant.
On a per share foundation, GAAP internet funding revenue was $0.46, and adjusted internet funding revenue was $0.45 as in comparison with $0.66 and $0.65 respectively final quarter. Our spillover taxable revenue is roughly $85 million or $0.78 on a per share foundation, which we imagine offers steady stability on our constant dividend since inception.
Distributions through the quarter totaled $0.45. Internet asset worth per share on March 31, 2023 was $14.44 as in comparison with $14.61 final quarter.
With that, I will flip it again to Alex for closing remarks.
In conclusion, thanks all for becoming a member of us on our name. Whereas the deal surroundings was muted once more this quarter, we’re inspired by some inexperienced shoots growing as our pipeline begins to enhance. Furthermore, our improved leverage profile permits us to capitalize on new alternatives as transaction volumes evolve. We recognize your time and a focus in the present day.
With that, let’s open the road for Q&A.
And we’ll take our first query from Mark Hughes with Truist. Please go forward.
Sure. Thanks very a lot. I’m wondering should you may you refresh me on form of your maturity schedule in your debt, your credit score facility on any motivation to make any modifications there in your steadiness sheet?
Sure. Good morning, Mark. That is Dave Pessah. our debt stack, we’ve got a senior secured revolving credit score facility that has a maturity date of 2027. On the unsecured facet, we’ve got two notes, one, 2025 notes and a 2026 notes. They arrive due in February of 2025 and January of 2026. Proper now, I believe our liquidity profiles proper within the mixture of the place we need to be between secured and unsecured. The place the market is, we’ll proceed to evaluate our liquidity ranges and desires. At the moment, I do not suppose we will actually do something, however once more opportunistically, we’ll assess the place the market is and within the occasion, we need to reenter the unsecured market at a given level we’ll.
Is smart. After which, any sense of spreads, now clearly deal exercise was low in Q1. I believe you described the pipeline constructing. How would you characterize each spreads? I believe you talked about leverage, you’d look to be decrease, however just a bit extra on what we’d anticipate when issues begin to occur right here.
Hey, Mark, it’s Alex. Thanks for the query and thanks for becoming a member of the decision. Look, as you described, the surroundings continues to be very engaging and likewise leverage ranges have come down on common whereas enterprise worth a number of on offers have continued to carry up at very engaging elevated ranges. And the leverage ranges have come down, as everyone knows, simply given the truth that base charges have gone up. And so these corporations can by way of the debt load that they must service actually these quantities have come down.
Look, by way of spreads are nonetheless very engaging. They’re nonetheless nicely into the 600s. I’d say that to your level, simply giving me the pipeline to the extent that there are some very engaging low levered, low LTB deal offers on the market, you’ll be able to see some strain on spreads. However for essentially the most half spreads proceed to carry up fairly nicely. I’d not be shocked over time; once more, I do know we’re all in a really, very engaging second. In some unspecified time in the future, spreads will begin to return to extra normalized ranges, however for the second we’re nonetheless seeing fairly wholesome spreads.
Sure. It is David. I would simply add from that perspective, search for actually engaging belongings on the market, you might be seeing slight unfold compression plus an OID going from what was very engaging 97 right down to even the 98 to 97.5. So we do anticipate when M&A picks up and also you speak to our funding bankers, they have an honest pipeline of M&A alternatives as we go into the 12 months that hopefully spreads keep the place they’re an OID, and we are able to reap the benefits of very engaging marketplace for non-public credit score.
And one last one, inside your portfolio, any finish market that — which have — you have perhaps seen a bit extra deceleration in progress or curiosity protection that will not be so apparent the place are you seeing maybe some indicators of a bit a distinct efficiency if wherever, simply form of curious if something non-obvious is exhibiting up throughout the portfolio?
Sure. I would not say there’s any broad themes there. Look, it should be very firm particular and finish market particular. However after we check out our very first facet portfolio, we do not discover any noticeable developments from a slowdown exercise. Our portfolios continued — corporations proceed to carry out nicely with each top-line and EBITDA rising year-over-year, quarter-over-quarter. So we be ok with that.
And one different potential pattern we’re seeing is the truth that though revenues and EBITDA are nonetheless rising quarter-over-quarter, year-over-year. I believe EBITDA will not be rising as rapidly as top-line simply as corporations proceed to face some margin strain. And so we’re seeing only a slight little bit of margin compression throughout the portfolio, however aside from that, no notable developments.
We are going to go subsequent to Arren Cyganovich with Citi. Please go forward.
Thanks. Your curiosity revenue elevated barely quarter-over-quarter, however I’d’ve anticipated a bit bit extra with given the shifting the bottom charges. Is there — was there something form of one-time in nature there, reversal of non-accrual curiosity or one thing within the prior quarter that was considerably elevated?
Nothing from this quarter by way of reversal of non-accrual that was sizable. Final quarter did have some non-recurring revenue from prepayment exercise from a few names that, that is actually the change quarter-over-quarter. That was about $3 million final quarter in reimbursement exercise. Compensation exercise this present quarter was fairly muted. Should you have a look at our present ranges that did enhance quarter-over-quarter by about $4.5 million. So it is actually the change within the non-recurring facet that is making it look flat interval over interval.
Received it. All proper. Thanks. After which by way of the inexperienced shoots you are seeing in your funding pipeline, what — how are these arising? Are these simply extra regular, pure form of M&A or they follow-ons or are you seeing any form of pull-back from conventional banking that the place purchasers could be in search of alternate options relative to how they usually would finance?
That is a superb query. I believe that is a pair issues. First, with respect to our exercise, as you realize, it is pushed largely by sponsor M&A. Though, general ranges are nonetheless muted actually versus prior 12 months say that the inexperienced shoots we’re seeing are the truth that we’re seeing extra deal move from the sponsor group. As you realize, the quantity of dry powder that sponsors have and proceed to take a seat at document ranges. I believe now that there is a bit extra stability out there. I believe that is going to unleash extra M&A exercise as there’s extra confidence that is on the market. And so — and for these components and we’re beginning to see some extra exercise. I believe as we skew extra in the direction of the bigger facet, I believe you are going to see some extra take non-public exercise. You are going to see some extra divestitures which can be popping out of public corporations that are also in search of liquidity extra worth creation. So for all these causes, I believe we will see some further deal move.
As well as, the prevailing portfolio corporations proceed to see very engaging add-on alternatives. So we’re beginning to see extra deal move from that perspective. So for all these causes, I believe we’re beginning to see some inexperienced shoots and as you realize, simply given our platform on condition that we’re a part of the broader establishment, given our dialogue that we’ve got with our funding bankers, they proceed to inform us that seeing much more exercise, their backlog continues to extend. And so I believe that and that units up nicely for a greater deal move surroundings within the second half.
Sure. So far as the regional banks and a number of the points happening there, we have seen just a few alternatives from that. I believe we’re early days, we’re optimistic concerning the alternative set in round credit score — taking credit score requirements at a number of the regional banks, which ought to bode nicely for some alternatives within the center market.
And it seems we’ve got no additional questions presently. I’ll now flip the convention again over to in the present day’s audio system for any further or closing remarks.
Thanks very a lot for attending our name and have a terrific weekend.
And this concludes in the present day’s name. Thanks in your participation and chances are you’ll now disconnect.