Goldman Sachs BDC ends JV with UC Board of Regents

The New York-based mid-market lender won additional investment capacity last year when shareholders voted to increase its leverage capacity from a 1:1 debt-to-equity ratio to 2:1.

Goldman Sachs BDC (GSBD) voted on Wednesday to end its joint venture with the University of California Board of Regents (UC), which targeted first-lien loans, due to the additional leverage capacity now allowed to business development companies, the mid-market lender said on its fourth-quarter earnings call.

Both GSBD and UC will take half of the assets of the partnership, dubbed the Senior Credit Fund (SCF) onto their respective balance sheets. Adjusted for this transaction, which BDC management said is expected to close by the end of the first quarter, first-lien investments would consist of 63 percent of its loan book.

“In light of the relaxed limitation on leverage, we believe, the utility of this joint venture is diminished,” chief executive Brendan McGovern said on the call, referring to the US Congress’s passage of the Small Business Credit Availability Act. “And therefore, we and our partner have agreed in principle to dissolve the vehicle.”

New York-based GSBD formed the partnership, dubbed the Senior Credit Fund (SCF), with the Oakland-based endowment in October 2014, and each committed $100 million to the JV. At the end of the year, the SCF had invested $484.41 million in senior secured debt across 32 portfolio companies with a median EBITDA of $52.7 million.

Last year, GSBD won approval from its shareholders to increase its allowable leverage from a maximum of a 1:1 debt-to-equity ration to 2:1, lowering its management fee of 1.5 percent to 1 percent on all assets. The company reiterated it plans to use leverage in concert with its loan book’s allocation between investment security type.

In the last three months of 2018, GSBD originated $154.2 million in new investment commitments, which were spread across eight new and eight existing portfolio companies. Two investments were on non-accrual, those in NTS Communications and Animal Supply Corporation.

Both are in the process of being worked out. NTS received an offer from a private equity-backed company in December under which GSBD would receive a $56 million payment, exceeding its $50 million in total investments, while the BDC swapped its debt for equity in Animal Supply.

The firm posted a net investment income of $0.56 a share, easily covering its $0.45-a-share dividend. With net realised and unrealised losses of $23.5 million, or $0.59 a share, GSBD posted a $0.03 a share loss.

Some $13 million of those losses came from its investment in Animal Supply, firm chief financial officer Jonathan Lamm said on the call. The remainder was mark-to-market changes due to the fourth-quarter volatility.