Golub BDC hits highest NAV per share, urges ‘do no harm’ on new leverage rules

The mid-market lender said it could gain access to additional capital through an equity offering or upping its current leverage profile, but has opted not to in the interest of caution.

Golub Capital BDC (GBDC) made $135.3 million in new commitments in the first three months of 2018, the business development company’s second fiscal quarter, while reporting a net asset value per share of $16.11, a firm record.

Along with new commitments, the New York based-firm exited and sold investments of $105.9 million. Its investments increased by 2.1 percent at fair value by $36.4 million, which includes funding on revolvers and net unrealised appreciation, among other factors.

GBDC reported a net investment income of $18.5 million, or $0.31 a share, and – with a net realised and unrealised gains of $0.08 a share – reported an earnings per share of $0.39 for the three months ending 31 March. NII per share and EPS for the firm at the same time last year were $0.31 and $0.38, respectively.

On GBDC’s approach to the recent change in leverage rules, which increase the maximum allowable debt-to-equity ratio from 1:1 to 2:1, chief executive David Golub emphasised caution.

“We think the starting point for this whole discussion is appropriately to think about what’s good for shareholders,” he said. “And as we think about this whole question of leverage, we start with the Hippocratic Oath: first, do no harm.”

Increasing leverage levels is also not a necessity for the firm, Golub said. While GBDC could issue additional shares at a premium and increase its leverage profile to gain access to additional funding, it has opted not to because “this is the kind of environment in which it pays to be cautious”.

In addition, Golub noted that, despite the attractive terms for financings in the broadly syndicated loan market, mid-market loans from a smaller cadre of lenders remains attractive for some borrowers, particularly those looking to execute a buy-and-build strategy. In a non-syndicated financing, there are fewer lenders to coordinate with, making it easier to issue additional debt for add-on acquisitions.

“Because every time you want to issue more debt, you’ve got to get everybody to agree,” he said. “The second lien wants you to issue more second lien. The first lien doesn’t want you to issue more debt. It’s a mess.”