Goldman Sachs BDC takes a deployment breather

The $1bn fund invested just $7.4mn in the fourth quarter, citing the tumultuous market environment as the reason why it opted to stay on the sidelines.

The Goldman Sachs BDC reported an unusually low deployment volume in the fourth quarter, with management citing the need for more caution during market headwinds. 

Many private debt managers have said publicly that it’s time to be more cautious around credit, though most are still investing at their usual rate, arguing that they are picking sound borrowers.

The GS BDC reported $7.4 million in new investments, compared to $203.5 million in gross origination in the third quarter. 

“The fourth quarter was marked by escalating volatility in the public credit markets, a scene that continued into early 2016… In light of this, we significantly reduced the pace of new funding activity to only $7.4 million during the quarter, in expectation of more attractive capital deployment opportunities in the months and quarters to come,” said chief operating officer Jonathan Yoder, speaking on the BDC’s earnings call.

“We have the luxury of waiting because our current portfolio produced significantly more income than our dividend in both Q4 and the full year 2015,” he added. The firm reported $0.62 per share in net investment income for the fourth quarter, up from $0.57 per share in the prior quarter. The BDC declared a dividend of $0.45 per share for the final quarter of 2015.

Though the BDC’s net asset value declined 2 percent quarter-over-quarter from $19.38 per share from $18.97 per share, reflecting unrealised mark-to-market write-downs in the portfolio. Most were attributed to GTL and Securus, two regulated telecom service providers. 

The investments were marked down because of a government order, “which, if enacted, would cap rates and likely result in lower revenues for both companies”, said the BDC’s chief executive Brendan McGovern.

The Goldman Sachs BDC ended 2015 with about $1.1 billion in total assets, up from $967 million one year ago. At the end of the year, the portfolio had 67.2 percent invested in first lien debt (including 28.3 percent in first lien/last out unitranche loans), 26.4 percent in second lien debt, 2.3 percent in preferred stock and 4.1 percent in its senior credit fund portfolio.