Golub BDC to vote on potential leverage change in February – updated

Golub Capital BDC (GBDC) will vote on a potential leverage change in 2019, according to its latest earnings report.

The business development company will vote on a proposed shift from a 1:1 debt-to-equity ratio to 2:1 at its shareholders meeting in February, it said on an earnings call on Wednesday. The vote was recommended by the BDC’s board.

The vehicle’s net asset value per share stood at $16.10 at the end of the firm’s fourth quarter, slightly down on the $16.15 posted at the end of its third fiscal quarter and the $16.11 posted at the end of the second. However, it’s up on the $16.08 posted at the end of the 2017 fiscal year.

The overall portfolio value decreased by 0.9 percent, or $15.7 million, between this quarter and the one prior. The vehicle says the decrease is partially due to an unrealised loss on one portfolio company investment and below-target leverage.

The portfolio is valued at more than $1.83 billion, compared with more than $1.87 billion at the end of the previous quarter and $1.74 billion at the end of the 2017 fiscal year.

During the quarter, the vehicle originated $182.3 million in investments. The vast majority – 85 percent – of new investments were unitranche loans, and 14 percent senior secured loans. The make-up of the overall portfolio is 13 percent senior secured loans, 80 percent unitranche loans and the remaining 7 percent a combination of second lien, equity, and self-investments. The portfolio is comprised of 99 percent floating-rate loans.

The majority of the portfolio is invested in conglomerate services, with healthcare the next biggest area of focus.

Golub Capital BDC also announced a definitive agreement for a merger with Golub Capital Investment Corporation (GCIC). Both BDCs’ boards approved the transaction, which remains dependent on a successful shareholder vote. Under the merger, GCIC shareholders will receive 0.865 GBDC shares for each GCIC share they own. The board plans to increase the quarterly dividend to $0.33 a share.

If the measure passes, GBDC would be the surviving entity, still publicly traded on the NASDAQ under the GBDC ticker. It would be the fourth largest externally-managed, publicly-traded BDC. The deal is expected to close in early 2019. The combined vehicle would have $3.5 billion in assets under management.

“Post the merger, GBDC will operate a lot like pre-merger GBDC; its investment strategy, its financing strategy, its base management fees, its income incentive fee, its income incentive fee hurdle rate, all that stays the same,” said David Golub, the chief executive of both vehicles, on the fourth-quarter earnings call.

Golub Capital BDC is a New York-based business development company affiliated with Golub Capital, a global investment management firm with more than $25 billion in assets under management.