Goldman Sachs BDC restructures two non-accruals

A fiber-optics telecom company and a military services business, both of which were on non-accrual status in GSBD’s portfolio in Q2, have since been refinanced.

Goldman Sachs BDC (GSBD) executives said in its second-quarter report that two investments have been refinanced past the 30 June quarter-end to put the companies and Goldman's investments, in a better position.

The $1.2 billion BDC placed its first-lien investment in NTS Communications on non-accrual status in the second quarter, while its loan to Hunter Defense had been on non-performing status since Q1. The company revoked that label for both companies since the end of Q2.

Texas-based NTS, a regional provider of fiber-optic broadband services, was acquired and taken private by Tower Three Partners in June 2014. GSBD provided a first-lien loan backing the buyout at the time.

“While the company [NTS] has solid penetration rates in many of its most important markets, relative to our initial underwrite, the company has not grown its subscriber base in line with expectations,” said GSBD chief executive Brendan McGovern, speaking on the earnings call Friday (5 August).

In the second quarter, the company and its sponsor decided not to pay GS the interest owed under its loan facility while the three parties re-negotiated the terms of the investment.

“Subsequent to quarter end, we reached an agreement on the amendment and received a cash payment from NTS in the amount of the past due interest which was applied to principle,” McGovern said.

McGovern turned to GSBD's investment in Hunter Defense and said its non-accrual status was the result of the company's “deteriorating financial performance.” McGovern said on a previous earnings call that the company's revenues were declining quickly.

GSBD spent Q2 negotiating a workout plan with Hunter's sponsor and other lenders. Behrman Capital-backed Hunter provides shelters, heaters, generators and air filtration devices to the US military.

Since then, GSBD converted its $28 million second-lien loan in Hunter into a non-interest bearing preferred and common equity stake. The BDC also purchased 8.7 million of first-lien loans from an existing holder at a discount to par in exchange for additional preferred stock.

“As a result of these transactions, the total cost basis of our investment at Hunter is now $12.6 million, representing approximately 1.1 percent of our total investment portfolio cost and we have removed the investment from non-accrual status effective 1 July,” McGovern said

The NTS and Hunter investments represented 3.8 percent of the GSBD portfolio at fair value in the second quarter. The weighted average yield at fair value of the BDC's portfolio was down slightly to 11.6 percent from 11.8 percent in Q2 because of these non-accruals.

Overall, the BDC reported healthy financials at a time when more than a few of its competitors are struggling. Its net investment income after taxes was $18.2 million for the quarter, up from $15.8 million in the same quarter last year. Total assets stood at $1.16 billion.

On a per share basis, NII was up to $0.50 from $0.44 the same quarter last year. “Year-over-year increase in NII is primarily due to an increase in earning assets, as we grew our investment portfolio by over 10 percent from Q2 2015,” McGovern said.

The BDC announced a 45-cent dividend. “We are pleased that our net investment income has continued to exceed our dividend meaningfully, reflecting attractive underlying yield to our assets and a carefully considered expense structure,” McGovern said. For the quarter, NII exceeded the dividend by 11 percent. Year-to-date, the dividend was 20 percent in excess of NII.