Q4 volatility ‘another tantrum’ rather than start of a downturn: Golub

The firm’s new investments were still tilted toward unitranche loans, but senior secured loans made up a larger share than in the third-calendar quarter.

Policies of the Federal Reserve in recent years contributed to the mercurial markets that dominated the fourth quarter, Golub Capital BDC (GBDC) chief executive David Golub said on Thursday’s fourth-calendar-quarter earnings call.

“We think there is a stronger case for interpreting the recent volatility [as] another tantrum”, similar to the topsy-turvy markets in June and July, rather than a turn in the credit cycle, Golub said. “I think that the Fed laid out a foundation in its quantitative easing, very low-interest-rate environment in which it was just easy for tantrums like this and for cascades like this to develop.”

“We think the Fed has kept interest rates low for the last 10 years in a way that’s been designed to push investors away from cash, from treasuries and toward riskier asset classes,” he added, noting that investors are looking to offload those assets before the next downturn.

Despite the unpredictable fourth quarter, GBDC continues to trade at a premium. It also saw an increase in the number of senior loans it originated versus its unitranche product.

Of GBDC’s new investments, 77 percent were unitranche loans versus the 85 percent that were one-stop loans for the three months ending 30 September. New senior secured loans were 20 percent rather than the 14 percent that occurred in the third-calendar-year quarter.

The firm paid a special dividend of $0.12 a share, which caused its net asset value per share to dip from $16.10 to $15.97.

In addition, GBDC’s pending merger with one of Golub Capital’s private BDCs, Golub Capital Investment Corporation, has been held up by the government shutdown last month.

The Securities and Exchange Commission has delayed its formal review process and has not given the firm a time estimate as to when that review may be completed. David Golub said on the call that he is still aiming for it to be in the first half of the year.

Addressing the rationale for the merger, Golub highlighted points from the November earnings call, where he said it would, among other things, improve trading liquidity, would be accretive to GBDC’s NAV per share as well as give GBDC better access to the securitisation markets.