Goldman Sachs BDC, Inc. (NYSE:GSBD) Q1 2019 Earnings Conference Call - Final Transcript

May 10, 2019 • 09:00 am ET


Goldman Sachs BDC, Inc. (NYSE:GSBD) Q1 2019 Earnings Conference Call - Final Transcript


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Brendan McGovern

investments within its aggregate investment portfolio has increased by 74%, while second lien debt investments have decreased by 44%. In addition, single-name portfolio diversification has increased by 39%.

Subsequent to quarter end, we and our partner, Cal Regents, commenced the dissolution of our Senior Credit Fund joint venture. We set up this joint venture in 2014 for a variety of reasons, but most importantly, the JV allowed us to utilize our core competency in middle-market lending to originate lower-risk, lower-yielding, first lien investments, but getting exposure to these loans in a structure that utilized leverage above the previous regulatory cap of one to one. This combination produced attractive risk-adjusted returns since inception in the low double digits. In light of the reduction in the minimum asset coverage ratio now applicable to the company, we determined that the utility of the joint venture was diminished. Stated simply, the targeted debt-to-equity ratio that we had for the joint venture can now be achieved directly on balance sheet. As a result, effective May 8, the company received its pro-rata portion of the SCF investments, bringing these investments onto the company's balance sheet.

Following this transaction, the company's first lien debt exposure and single-name asset diversification has further increased. We believe this improves our overall asset mix, which in turn further strengthens the company's financing profile. Pro forma for the closing of this transaction and using the static exposures at the end of the quarter, there are 105 portfolio companies in our investment portfolio, and 67% of the fair market value of the book is in first lien debt investments. Also during the quarter, we increased both the number of lenders in our credit facility as well as the total commitment size to $795 million, with no change to the coupon rate.

The restructuring of our joint venture and subsequent increase in debt capacity are the latest in a series of actions that we have taken over the last year to optimize our balance sheet and deliver the benefits of the Small Business Credit Availability Act to shareholders. We are pleased with the results thus far and we look forward to continuing our efforts to capture additional benefits in the months and quarters to come.

Finally, recall that on last quarter's earnings conference call in March and in the subsequent events portion of our 10-K filing, we made significant disclosures about our investment in Animal Supply. Specifically, we reported that after year-end, we closed on the restructuring of this investment. As we described in that disclosure, there was a mark-down this quarter in Q1 as a result of the transaction. This mark was the largest driver of the NAV decline this quarter. From here, the company maintains a significant equity stake in Animal Supply, and thus far, we are encouraged by the stability of recent financial performance, but we are mindful that significant work remains to optimize the outcome of this investment.

To that end, we have dedicated substantial resources to this investment and