Release Date: November 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Goldman Sachs BDC Inc (GSBD, Financial) reported a strong quarter of sales and repayments, marking the largest quarter in over a year.
- The company added a net 12 new names to its portfolio, further diversifying its investments.
- The weighted average interest coverage of portfolio companies increased to 1.7 times in the third quarter from 1.5 times in the second quarter.
- Total investment income increased to $110.4 million in Q3 2024 from $108.6 million in Q2 2024, driven by incremental deployment.
- The company maintained a consistent distribution of $0.45 per share, with spillover taxable income at approximately $158.8 million.
Negative Points
- The weighted average yield of the investment portfolio decreased slightly to 10.9% from 11% in the prior quarter.
- The weighted average yield of total debt and income-producing investments decreased to 11.8% from 12.3% in the previous quarter.
- The net debt to EBITDA ratio increased slightly to 6.3 times from 6.1 times in the previous quarter.
- Risk-rated three and four totals increased due to underperformance in one portfolio company, indicating some negative credit migration.
- The repricing activity in the portfolio has slowed down, potentially impacting future income growth.
Q & A Highlights
Q: Alex, you mentioned recycling efforts. How much more opportunity is there to recycle and improve the portfolio?
A: We had a strong quarter of sales and repayments, the largest in over a year, with full exits in at least four portfolio companies. We feel good about the pace of payments and recycling, and with strong originations and M&A outlook, we are optimistic about portfolio shifts. We also added a net 12 new names, further diversifying the portfolio.
Q: How about the repricing activity in the portfolio? What can we expect going forward?
A: We saw a decent wave of repricing as spreads compressed, but in the quarter, spreads stabilized, reducing repricing activity. There may still be some room for repricing, but we expect the pace to slow down.
Q: Post-election, do you feel there's more energy in the market for potential deal activity?
A: The market has been exciting post-election. Conversations with bankers and industry participants indicate optimism about M&A levels, particularly from the sponsor community, expected in 2025.
Q: On credit, risk-rated three and four totals increased despite a reduction in non-accruals. Can you provide more color on this negative credit migration?
A: The increase in risk-rated three and four buckets was about 1% due to one underperforming name reassigned to risk rating three. This was in the business services sector, not related to ARR or healthcare.
Q: Regarding the pipeline, should we expect 2025 to be unusual in terms of M&A activity?
A: We are optimistic about M&A volumes in 2025. Private credit deployment is correlated with sponsor M&A activity. Opportunities may arise in Q1, but actual deployment is likely in Q2 or later as deals take time to transact and fund.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
