Golub Capital BDC made an unexpectedly substantial investments last quarter, given its purposeful slowdown of originations the quarter before amid mounting competition in mid-market credit, executives said on an earnings call Tuesday.
The firm completed a total of $241.9 million in new originations last quarter, a spike from the $106 million and the $156 million the firm originated first quarter of 2017 and second quarter of 2016, respectively, earnings results showed.
The “surprisingly strong” second calendar quarter, or third quarter in GBDC’s fiscal year, was partly due to a diligent selection of deals, the attractiveness of the platform’s one-stop facilities and “a bit of good luck”, David Golub, the mid-market lender’s chief executive officer, said on the call.
Despite the “solid originations” in the most recent period, the firm does not necessarily expect the upcoming quarters to be as active for the BDC, giving the market is trending more towards “borrower-friendly” terms and relatively low merger and acquisition activity, Golub added.
“This environment is really challenging, in particular the terms we’re seeing accepted in the syndicated loan space, like covenant levels and definition of EBITDA,” he said. “The prudent way to respond is to slow down… and we did exactly that in Q1.”
Golub added that the firm plans to sustain the credit quality of its portfolio until the borrower-friendly market comes to an end.
“We’re looking forward to a point in future where there’s a correction that makes a less challenging environment, and we’ll be well positioned to play offense,” he said.
GBDC portfolio’s total value was $1.8 billion as of 30 June, up from $1.73 billion as of 31 March and $1.63 billion as of 31 December, earnings results showed. The firm’s net asset value also increased to $16.01 per share as of the end of last quarter, compared to $15.88 per share as of 31 March and as of 30 June 2016. The portfolio showed a net yield of 7.9 percent, compared to 7.7 percent the previous quarter and 7.6 percent for the quarter ending June 2016.
The firm’s Senior Loan Fund, which had a total of $331.21 million in assets as of 30 June, showed a “disappointing quarter” due to an unrealised loss on a non-accrual loan in its portfolio, Ross Teune, chief financial officer, also said on the call.
The SLF had an annualised return of 3.4 percent last quarter, compared to 10.8 percent and 12.6 percent for the first calendar quarter of 2017 and second calendar quarter of 2016, respectively. The vehicle is a joint venture between GBDC and RGA Reinsurance Company.
As mentioned on previous earnings calls, executives said the firm will continue to focus on one-stop, senior secured loans with a private equity sponsor. These one-stop loans comprised almost four-fifths, or 79 percent, of the firm’s balance sheet by the end of last quarter, up from 76 percent during the same quarter last year.