An uptick in deal originations and prepayments were the main talking points in what was an overall “strong quarter”, senior executives at Goldman Sachs BDC (GSBD) said on the firm’s recent third-quarter earnings call.
Prepayments and sales totalled $108 million, leading an analyst at Bank of America Merrill Lynch to question what was behind the “elevated” figure. Brendan McGovern, chief executive, said that there was no broader economic trend he could point to that was driving this, but that it simply represented the “life cycle of the portfolio”.
For instance, Extraction, an oil and gas company, repaid its $23 million second lien loan from GSBD after issuing $550 million in unsecured notes and using the net proceeds to pay back the loan. Despite pressures in the commodities market this year, GSBD obtained a 12 percent IRR on the investment.
McGovern declined to confirm whether there would be an increase in fees if the level of prepayments continues.
Across the quarter, originations totalled $138 million with the firm’s Senior Credit Fund (SCF) responsible for a total of $86 million in loans to nine companies. The SCF strategy delivered a 15 percent return and is now up to $392 million.
More than half of the loans were first lien loans, while 29 percent were second lien debt financings across the entire investment portfolio.
As of 30 September, the firm’s investment portfolio fair value stood at $1.14 billion.
On its investment in Bolttech-Mannings, a service provider for petrochemicals, refinery and power producers, the firm wrote down its investment. Explaining this, McGovern pointed to a “softer environment” in Canada and said “there has been a bit of a loss of some of their higher-margin business in a rental portion of their space. So that has contributed to underperformance financially for the company.”
Nevertheless, McGovern was optimistic about the “directional support” provided by private equity sponsor Grey Mountain and will “continue to monitor it closely”.
Additionally, the firm described the issuance of $115 million of 5.5-year convertible notes at 4.5 percent as a “milestone” for the firm. “It demonstrated our ability to access the institutional unsecured financing market. With this offering, we believe our shareholders benefit from greater diversity of funding sources, increased financial flexibility, and enhanced funding stability,” said McGovern.