GSBD looks to utilise exemptive relief

Goldman’s flagship mid-market lender will partner with at least one Goldman-advised private BDC for co-investments. 

Goldman Sachs Asset Management will lean on the newfound co-investment ability it gained last quarter for its business development companies, allowing it to diversify each of the mid-market lending vehicle’s portfolios.

Executives of Goldman Sachs BDC (GSBD) said on Friday’s first-quarter earnings call that they anticipate that Goldman’s flagship, publicly traded mid-market lender will partner with Goldman Sachs Private Middle Market Credit, a private BDC the New York-based investment bank advises, according to a transcript of the call. Goldman Sachs Middle Market Lending Corporation is another private BDC GSAM advises. The firm launched MMLC in January with $609.57 million in initial capital commitments.

In January, Goldman received exemptive relief from the US Securities and Exchange Commission, which allows the three entities to participate in the same deals, an ability which Goldman has already exercised. From 16 March to 3 April, MMLC and PMMC invested $66.4 million between the two of them across three separate deals, as Private Debt Investor previously reported. NetVoyage, one of those deals, is also in GSBD’s portfolio.

Jonathan Lamm, GSBD’s chief financial officer, told analysts on Friday’s earnings call that PMMC “is a significant driver of value to our GSBD, our Goldman Sachs BDC shareholders, because we believe it will allow us to add increasing amounts of diversity to the portfolio”.

A representative for Goldman declined to comment.

GSBD reported $112.6 million in new commitments across six new and four existing portfolio companies, the majority of which, or $66.3 million, was in second lien secured debt. For the second and third highest categories, first lien senior secured debt investments stood at $20.4 million and commitments to investment funds and vehicles were $13.4 million.

The company experienced sales and repayments of $110.4 million, much of which were caused by GSBD’s investments in upper mid-market companies.

Chief executive officer Brendan McGovern said anticipated interest rate hikes have driven more investors into floating-rate assets, which includes bank loans. As a result, spreads narrowed in the broadly syndicated loan market.

“While the middle market is somewhat insulated from fund flows given the illiquidity of the asset class, we did see broadly syndicated loan investors who are hungry for paper dip down into the upper middle-market,” McGovern said, explaining this caused yield compression along with lower borrowing costs when deals were refinanced.

“Reflecting this activity – reflecting this reality, our repayments during the quarter were skewed towards upper middle-market portfolio companies,” he concluded.

More than half of the $110.4 million in repayment came from the acquisition of Highwinds Capital, a digital content delivery network. GSBD exited its $59 million second lien investment at a premium after being Highwinds was purchased by StackPath, a portfolio company of private equity firm Abry Partners.

GSBD listed net investment income after taxes for the quarter of $18 million, or 49 cents a share, a small dip from 2016 fourth quarter’s $18.1 million net investment income after taxes, or 50 cents a share. The first quarter’s figures are a year-on-year decline from $21.2 million, or 58 cents a share.

The firm reported a net asset value per share of $18.26, a decline from the 2016 fourth quarter’s $18.31 and 2016 first quarter’s $18.67.