Golub Capital BDC, Inc. (NASDAQ:GBDC) Q4 2024 Earnings Call Transcript

Golub Capital BDC, Inc. (NASDAQ:GBDC) Q4 2024 Earnings Call Transcript November 20, 2024

Operator: Hello, everyone, and welcome to GBDC’s Earnings Call for the Fiscal Year and Fiscal Quarter Ended September 30, 2024. Before we begin, I’d like to take a moment to remind our listeners that remarks made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in GBDC’s SEC filings.

For materials we intend to refer to on today’s earnings call, please visit the Investor Resources tab on the homepage of our website, which is www.golubcapitalbdc.com and click on the Events Presentations link. Our earnings release is also available on our website in the Investor Resources section. As a reminder, this call is being recorded. With that, I’m pleased to turn the call over to David Golub, Chief Executive Officer of GBDC.

David Golub: Hello, everybody, and thanks for joining us today. I’m joined by Chris Ericson, our Chief Financial Officer; and Matt Benton, our Chief Operating Officer. For you who are new to GBDC, our investment strategy is to focus on providing first lien senior secured loans to healthy, resilient middle-market companies that are backed by strong partnership-oriented private equity sponsors. Yesterday, we issued our earnings press release for the fiscal quarter and for the year ended September 30, and we posted an earnings presentation on our website. We’ll be referring to that presentation during the course of today’s call. I’m going to start as usual with headlines and with a summary of performance for the quarter, and then Matt and Chris are going to go through our operating and financial performance for the quarter in more detail.

And finally, I’ll wrap up with our outlook for the coming period, and I’ll take some questions. The headline is that GBDC had a good fourth quarter and a solid fiscal 2024. You’ll recall that fiscal 2024 had a number of landmark events that made GBDC’s shareholder value proposition more compelling. First, a permanent reduction in the Company’s incentive fee rate; second, a new supplemental variable distribution framework and that distribution framework has led to $0.29 per share of supplemental distributions so far; and third and most importantly, the closing of a second win-win-win affiliate merger with GBDC 3. So, while we’re going to focus today on GBDC’s performance for the final quarter of the fiscal year, I think it’s important to keep in mind the transformational nature of fiscal 2024 as a whole.

With that context, let me touch on a few highlights before I hand it over to Matt and Chris. Adjusted NII per share was $0.47 for the quarter. This corresponds to an adjusted NII return on equity of 12.4%. Adjusted NII return on equity for the full fiscal year was 12.9%. Adjusted net income per share for the quarter was $0.36, and that corresponds to an adjusted return on equity of 9.4% for the quarter. Adjusted return on equity for the full fiscal year was 10.7%. GBDC’s results benefited from the continuation of several trends that we’ve highlighted over the course of recent quarters. First, borrower performance remained generally strong, as you’ll see when we talk through key credit metrics. Second, high base rates continue to boost the earnings power of GBDC’s portfolio.

Third, GBDC’s industry-leading fee structure. The fee structure, combined with a voluntary $0.03 per share incentive fee waiver from GBDC’s investment manager during the quarter, it meant that shareholders captured more of the value that GBDC created. That said, GBDC also faced some headwinds during the quarter, primarily headwinds from a tail of underperforming borrowers that I think everybody in credit is facing these days. We talked last quarter about how GBDC had negative outcomes on loans to Pluralsight and Imperial Optical. During the September 30 quarter, we worked through a restructuring of Pluralsight as well as one other longtime nonaccrual credit and you can see this reflected in realized losses that are in this quarter’s P&L. Our focus, as always, with underperforming borrowers is to use our deep bench of experienced investment professionals and the playbook that we’ve developed over several decades to minimize ultimate losses.

In both these cases, GBDC now holds post-restructuring equity positions that we believe have upside potential. During the September 30 quarter, we also took some fair value markdowns on several other companies that are underperforming. The quantum of net realized and unrealized losses, it improved quarter-over-quarter but it was again higher than our version of normal. So, in short, fiscal Q4 performance was good, it wasn’t great, but it was good, and it gave GBDC a solid ending to a transformational fiscal year that we believe sets up GBDC very well for the long term. I’ll come back to this theme when I go through our outlook at the end of our prepared remarks. With that, I’ll pass the mic over to Matt Benton to discuss the quarter in more detail.

Matt Benton: Thanks, David. I’m going to start on Slide 4. Adjusted NII per share was $0.47, corresponding to an adjusted NII ROE of 12.4%. Adjusted earnings per share was $0.36, corresponding to an adjusted net income ROE of 9.4%. GBDC’s earnings were driven by three key factors. First, credit performance was generally solid. But as David said, we took some fair value write-downs on several underperformers. Second, earnings were supported by continued high base rates consistent with recent quarters; third, GBDC benefited from sustainably lower expenses due to its leading investment advisory fee structure; and fourth, Golub Capital GBDC’s investment manager elected to voluntarily waive on a onetime basis, a portion of its fee this quarter.

This equated to an approximately $0.03 per share benefit to net investment income and earnings. We did this to enhance the shareholder experience by giving investors an early benefit from the cost of funds reductions GBDC will recognize from the debt funding initiatives we undertook post quarter end. I’ll hit on these exciting initiatives in more detail in a bit. Let me summarize portfolio activity and credit quality in the quarter. Gross originations were nearly $1 billion, up from last quarter as we sought to take leverage up modestly, post-merger. After factoring in repayments and unfunded commitments associated with originations, net funds increased by $368 million sequentially. This represented net portfolio growth of approximately 5%.

GBDC did not get the full benefit of the earnings power of this portfolio growth because much of that growth was back-end weighted. I want to offer some comments around the environment in general. The underwriting pendulum in the current environment has swung to more borrower-friendly across all credit markets from investment grade which is trading at 20-year tights to the broadly syndicated market to private credit. In larger size transactions, especially, we are seeing spread compression, looser, deal documentation, especially around EBITDA definitions and higher leverage. As these underwriting trends have shifted over this past year, we have purposely chosen to be more selective and to focus more on core middle market transactions. Our wide funnel allows us to be — we typically see over 2,000 opportunities annually.

Year-to-date Golub capital, our origination stats depict our conservatism. First, the selectivity rate of 3%; second, a repeat borrower percentage of about 70%; third, Golub Capital acted as the lead or sole bookrunner in over 87% of our transactions and year-to-date, we’ve been the sole lender in almost 1/4 of the deals that we’ve done. So, we’re controlling structures and documentation, which, as everyone knows, is our typical MO. Fourth, our average LTVs at the time of origination have generally been in the mid-30% to mid-40% range with an average LTV of approximately 37%. Finally, given the risk-adjusted pricing dynamics, we are choosing to play in the core middle market. The median EBITDA for our origination has been below $60 million.

While the overall credit performance of GBDC’s investment portfolio remained strong, consistent with David’s overview, we did see a small increase in Category 3 credits this quarter. Investments in rating categories 4 and 5 decreased slightly from 89.2% of the portfolio at fair value to 87.1% during the quarter. Investments in rating Category 3 increased from 10.1% of the portfolio at fair value to 11.6% quarter-over-quarter. And investments in rating categories 1 and 2 remained very low, representing just 1.3% of the total portfolio at fair value. As a percentage of total debt investments at fair value, nonaccruals increased slightly to 1.2% at quarter end from 1% in the June quarter. As a reminder, these metrics are well below the BDC sector average.

In the quarter, the number of nonaccrual investments increased to 11% as the restructuring of three former nonaccrual investments was offset by the addition of four nonaccrual investments in the quarter. Several of these were very small positions. Continuing on Slide 4, let me briefly summarize distributions paid and certain balance sheet changes in the quarter. Distributions paid in the quarter of $0.49 per share included not only the quarterly base distribution of $0.39 per share, but also the $0.05 per share quarterly variable supplemental distribution declared in August as well as the $0.05 per share special distribution declared in June 2024 in conjunction with the GBDC 3 merger closing. We expect these supplementals to eliminate GBDC’s need to pay excise tax on undistributed earnings.

As we’ve said in the past, we would prefer in general, to return capital to shareholders versus paying any form of an excise tax. NAV per share decreased by $0.13 on a sequential basis to $15.19 because distributions were unusually high. Despite the decrease, GBDC’s NAV per share is now $0.17 higher than it was at September 30, 2023, which we believe is a clear outlier in the BDC sector. From a leverage perspective, debt to equity increased quarter-over-quarter to 1.09 turns on a net of cash basis. This includes cash trapped in debt securitizations for the purposes of paying down principal outstanding notes. As I mentioned earlier, with respect to assets, the increase in net leverage largely happened in the last few weeks of the quarter. GBDC’s average net leverage during the quarter was just 1.02 turns.

Increasing net leverage further, our target is 1.10 turns to 1.15 turns will be an additional tailwind for profitability. Let’s turn to distributions declared in the quarter. The Board declared $0.43 of total distributions, a regular quarterly distribution of $0.39 per share and a fiscal Q4 supplemental distribution of $0.04 per share. Taken together, these distributions correspond to an annualized dividend yield of 11.3% based on GBDC’s NAV per share as of September 30, 2024. Adjusted NII per share continues to significantly exceed the Company’s regular quarterly distribution resulting in regular distribution coverage of 121%. In addition, our board declared in June 2024, additional special distributions to be paid in three equal installments of $0.05 per share following the merger close on June 3, 2024.

The final special distribution of $0.05 per share will be paid on December 13, 2024, for stockholders of record as of November 29, 2024. You can find more information about the record dates and payment dates for fiscal Q4 distributions on Slide 23 of the earnings presentation and about the variable supplemental distribution framework on Slide 24. I’m going to turn it over to Chris now to provide more detail on our results. Chris?

Chris Ericson: Thanks, Matt. Turning to Slide 7. You can see how the key earnings Matt just described translated into GBDC’s September 30, 2024 NAV per share of $15.19. Adjusted NII per share of $0.47 per share was below the $0.49 per share of aggregate dividends paid out during the quarter. Net realized and unrealized losses were $0.11 per share. Together, these results drove a net asset value per share decrease to $15.19, down $0.13 per share from the prior quarter. Let’s now go through the details of GBDC’s financial results for the quarter ended September 30, 2024. We’ll start on Slide 10, which summarizes our origination activity for the quarter. Net funds growth quarter-over-quarter increased by $368 million, representing a 5% increase in total portfolio size versus June 30, 2024.

The asset mix of new investments shown in the middle of the slide remained predominantly one-stop loans. And looking at the bottom of the slide, the weighted average rate on new investments decreased modestly quarter-over-quarter to 10.7%. We continue to be highly selective as the average loan-to-value on Golub Capital’s middle market originations during the quarter was below 40% with a disproportionate amount of these originations for repeat borrowers. Slide 11 shows GBDC’s overall portfolio mix. As you can see, the portfolio breakdown by investment type remained consistent quarter-over-quarter with one-stop loans continuing to represent around 86% of the portfolio at fair value. Slide 12 shows that GBDC’s portfolio remains highly diversified by portfolio company with an average investment size of approximately 30 basis points.

Additionally, our largest single borrower represents just 1.5% of the portfolio and our top 10 largest borrowers represent just 13% of the portfolio. We are big believers in modulating credit risk through position size which we believe has served GBDC well in previous credit cycles and will continue to be important in the context of the current cycle. As of September 30, 2024, 92% of investment portfolio consisted of first lien senior secured floating rate loans to borrowers across a diversified range of what we believe to be resilient industries. The economic analysis on Slide 13 highlights the drivers of the change in GBDC’s net investment spread to 5.2%. Let’s walk through this slide in detail. If we start with the dark blue line, which is our investment income yield, and as a reminder, the investment income yield includes the amortization of fees and discounts.

GBDC’s investment income yield fell 30 basis points sequentially to 12%, primarily due to reduced discount amortization as compared to the prior quarter, as well as the impact of moderating investment spreads over recent quarters and, to a lesser extent, the impact of lower interest base rates in September. Our cost of debt, the teal line, increased 30 basis points to 6.8% as we saw the full quarter impact of the assumption of GBDC 3 debt funding facilities. Matt will detail later in the call how we already executed a multifaceted plan to reduce GBDC’s post-merger debt funding costs. As a result, our weighted average net investment spread, the gold line decreased 60 basis points sequentially to 5.2%. Additionally, we recognized a decrease in interest expense during the quarter associated with marking to fair value our existing interest rate swaps on the 2028 and 2029 notes.

Hedge accounting requires us to fair value of the interest rate swaps on a quarterly basis and recognize any changes in fair value through interest expense. But it’s important to recognize this is a noncash expense and will net to zero over the lives of the swaps. Consistent with prior periods, we have excluded the net change in fair value related to our interest rate swap hedges from the calculation of our weighted average cost of debt. Since these are noncash amounts that will net to zero over the life of the swaps. We believe with nearly 80% of GBDC’s total debt funding represented by floating rate exposure that GBDC is well positioned for declining interest rates. I’ll turn the floor back over to Matt now.

Matt Benton: Thanks, Chris. Let’s move on to Slides 14 and 15 and take a closer look at credit quality metrics. The headline is that credit remains solid. On Slide 14, you can see the nonaccruals increased modestly by 20 basis points sequentially to 1.2% of total debt investments at fair value. Slide 15 shows the trend in internal performance ratings on GBDC’s investments. As of September 30, 2024, approximately 87.1% of GBDC’s investments were rated four or five, which means they’re performing as expected or better than expected at underwriting. The proportion of loans rated one and two, which are the loans we believe are most likely to see significant credit impairment remained very low, which is 1.3% of the portfolio at fair value.

As we usually do, we’re going to skip past Slide 16 through 19. These slides have more detail on GBDC’s financial statements, dividend history and other key metrics. Slide 21 describes some actions that we took subsequent to September 30, 2024, regarding GBDC’s post-merger funding structure. Recall the time of the merger, we discussed the opportunity to drive improvements in GBDC’s funding. In early November, we announced the pricing of a new $2.2 billion GBDC term debt securitization with AAA notes priced at SOFR plus 156 basis points, a very attractive level relative to the levels at which we borrow under our secured corporate revolver. This includes a four-year reinvestment period with attractive underlying structural terms that provide meaningful flexibility.

In conjunction with the CLO pricing, we elected to announce a full repay of certain of GBDC’s legacy higher-cost debt securitizations. Additionally, we issued a notice of redemption to redeem the GBDC 3 2022-2 debt securitization in full on December 16, 2024. As a note, this securitization has pricing of three-month SOFR plus 260 basis points. Further, we announced an increase in the size of the JPMorgan credit facility to $1.9 billion and all amounts outstanding on the GBDC 3 DB credit facility were repaid and the facility was terminated. We believe the combination of these debt funding initiatives will meaningfully lower GBDC’s cost of funds and leave GBDC again with one of the lowest cost debt funding structures in the BDC sector, while also meaningfully extending its debt maturity ladder.

We expect GBDC to recognize the full run rate benefit of these actions in the March 31, 2025 quarter. Slide 22 details GBDC’s funding structure and other key takeaways. Our weighted average cost of debt this quarter was 6.8%, as you heard me just describe, we expect the funding actions that we took subsequent to quarter end are expected to reduce GBDC’s cost of funds over time, 43% of our debt funding is in the form of unsecured notes with no upcoming maturities in 2024 or 2025. The fixed rate notes coming due in 2026 and 2027 were issued with a weighted average coupon of 2.3%. And as you’ve heard us say on prior occasions, we did not swap them out for floating exposure. The remainder of GBDC’s total debt funding is floating rate or swapped to floating.

Overall, GBDC’s liquidity position remains strong, and we ended the quarter with approximately $1.4 billion of liquidity from unrestricted cash, undrawn commitments on our meaningfully overcollateralized corporate revolver, and the unused unsecured revolver provided by our adviser. I’m going to hand it back over to David now for closing remarks and Q&A. David?

David Golub: Thanks, Matt. So, to sum up, GBDC had a good fourth quarter and wrapped up a strong fiscal 2024. I want to end with our outlook, and then I’m going to open the line for questions. We talked last quarter about a few headwinds that we anticipated the market generally and GBDC would face with respect to credit spreads and origination. Our view today is largely unchanged, but I want to touch briefly on each of these three areas. First, let’s talk about our outlook for credit. For the past couple of years, we’ve been talking about how we have been expecting to see more credit stress. And I said last quarter that it’s here, the signs are all around us. You can see it today in the BSL market, LSTA estimates for the default rate adjusted for liability management transactions is now running at north of 4% annualized.

That’s more than double the long-term average. We can also see it in reports from major credit rating agencies like S&P and Fitch and from the major law firms that are covering restructurings and bankruptcies. Now, I’m going to say something that may surprise many of you. We think this increased credit stress is a good thing. Golub Capital has consistently outperformed in challenging markets, and we’re quite confident this will be the case of the cycle too, more defaults, more underperforming credits, these should cause market conditions to shift from where they are now, which is pretty borrower friendly to more lender-friendly. And it should chase out some of the “tourists” who’ve entered direct lending, but lack the characteristics to be successful long term.

Let’s shift now to the second headwind to spreads. The broadly syndicated loan market saw striking spread compression in 2024. I talked about this last quarter and private credit lenders have also seen spread compression. The dynamic has been most pronounced among borrowers with over $100 million in EBITDA, what we call the large market segment. The large market segment is where a number of our competitors focus. I point out, it’s not our focus. We prefer to focus on the core middle market. And the core middle market, it wasn’t immune from the spread compression trends but we see wider pricing, lower leverage, better documentation terms, and frankly less competition there. Finally, origination. Consensus expectations had called for a robust recovery in the level of M&A activity in 2024.

We were more cautious and our call has proven to be correct. We’ve experienced a pickup in M&A activity this year, but not a large pickup. We do think we’re going to see a pickup in 2025, falling interest rates, less political uncertainty, continuing pressure on PE sponsors to return money to LPs, all of these are tailwinds for M&A activity in 2025. I think it’s early to predict an M&A super cycle, but we are seeing signs of improving activity. So, in sum, across all three of these headwinds, we see signs of better conditions and we anticipate that market conditions are going to improve over the course of 2025. Having said that, I want to spend a minute on what happens if we’re wrong on this. After all, consensus predictions have been wrong a lot in the last several years.

And here’s the good news. Whatever the coming period may bring, we think GBDC is well positioned to outperform. This is because we think Golub Capital does a complementary set of things very well. We’re good at identifying resilient borrowers that are in resilient industries. Our relationships and incumbencies make us a preferred partner for attractive sponsor-backed companies. Our investment process and protocols enable us to identify and address issues that arise early on and the depth of our expertise in managing problem credits that helps us preserve value. We’ve built these competitive advantages over time with great intent with great effort. This is our 30th anniversary year, and we’re proud to be celebrating what we call 30 years of good boring.

With that, let me open the line for questions.

Operator: We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from the line of Robert Dodd with Raymond James. Robert, please go ahead.

Q&A Session

Robert Dodd: Hi, guys, and thanks for all the color on the call as always. I mean one of the questions — I mean, David, you went through credit spreads, originations, et cetera. What about, I think Matt mentioned, I mean, terms you’re seeing — starting to see weaker EBITDA definitions, et cetera, and things like that. I mean where is that on the scale of best to worst across cycles? Because obviously, spreads sometimes reach a low and then spreads don’t go down anymore, but everything else around in terms of document structures and definitions weakens and then that swings the other way at some point. So where would you say we are in the cycle of not just spreads, but like all the other bits that go with it.

David Golub: Sure. Good question, Robert. So, I think it’s important in thinking about in particular documentation terms to also be talking about in the context of the market segment. So, in particular, if we think about core middle market versus large market there’s always a pretty meaningful difference in documentation terms. In the core middle market, we typically have this thing called covenants. We typically have strong protections against leakage of various sorts. We typically have strong definitions of EBITDA. In the larger market where we and other private credit lenders compete against the broadly syndicated market, there’s more variability in the strength of documentation terms. And as we move from a lender-friendly market to a more borrower-friendly market, we see more movement in documentation terms.

Today, the broadly syndicated market is very strong. It has come back in an enormous way in 2024. I think the death of the broadly syndicated market was prematurely called. Last year, I was very vocal that it was going to come back and that people were overhyping the growth of private credit relative to the broadly syndicated market. And we’ve been proved right, and the broadly syndicated market has refinanced a lot of loans that were financed in the private credit market. It’s also been a threat to the private credit market, which has caused private credit lenders to agree to re-pricings and to agree to documentation in terms of new loans that are more borrower-friendly. So today, I would characterize documentation terms as being on the borrower friendly side of the spectrum on the large market side.

They’re not quite at 2021 levels, but they’re relatively borrower-friendly and that’s one of the reasons, Robert, that we’ve been more focused than ever on sticking to our core focus on the core middle market.

Robert Dodd: I appreciate that color. I’m — to the point of 2021, I mean, you’re clearly not calling 2025 as going to be another 2021. What are the colors like — what are the push and takes on — I mean where do you — do you expect it to be just behind ’21, but meaningfully stronger than ’22, ’23, 24? Or where would you rank it? And what would it take in terms of things you’re seeing in the market because clearly not seeing that kind of yet? Or what would it take for you to put a super cycle label on it?

David Golub: So, 2025 M&A volumes are a question mark right now. Let’s talk about both the channel wins as well as the headwinds. On the tailwind side, we have somewhat lower rates. We have lower spreads. We have somewhat less political/policy uncertainty now that the elections have gone through. We’ve got the continuing pressure on private equity firms to deliver more disposition proceeds to their investors. And we’ve got a second set of continuing pressures on private equity firms who have not yet spent enough of their current funds to spend money. So, there are some very significant tailwinds that I think recognized are really powerful. On the headwind side, we still have a lot of uncertainty. I think we don’t know where things are going to go on taxes, on tariffs, on spending levels.

There is a lot of geopolitical uncertainty highlighted in the last few days in the developments in the Ukraine war. There’s significant question as to what’s going to be the catalyst for more M&A activity? Because what tends to happen, Robert, is a bit of a snowball effect as you have more M&A activity there comes with that more certainty about what market clearing price levels are going to be, and that, in turn, leads to more M&A activity. So, I’m not saying we’re not going to have a big M&A year in 2025. I’m saying, I’m not sure. And I think it’s too early right now to be pounding the table saying we’re going to see an M&A super cycle in 2025. We may — I hope we do. But I think it’s too early to make that call.

Robert Dodd: Got it. One more, if I can. I mean you’ve done a lot of work on the balance sheet post quarter end, pretty much all on the secure side with the CLOs, the credit facilities, et cetera. So, would you say you’re done with this for now — I mean, obviously, it can be revisited in a couple of years — with the structure of the secured side of the liability side, any thoughts on obviously unsecured spreads or spreads aren’t just down for the BSL borrowers — they’re down for BDC borrowers as well in terms of — so — how would you characterize the positioning? Are you done on the secured, but there’s still work to be done on the unsecured? Or how would you take a view on that?

David Golub: Look, we’re never done in terms of the balancing and optimizing that we’re doing on the right-hand side of GBDC’s balance sheet. This is something that I think is a core competitive advantage of Golub Capital. We’re good at it. We’re good at sustaining over time a low-cost flexible balance sheet. Right now, to your point, we have done a lot of work on it. We have gotten a lot of the benefits that we talked about at the time of the merger in respect of reducing the borrowing costs of the post-merger combined company. But I take your point, I think across the spectrum, we’re seeing attractive opportunities to put new debt on, both secured and unsecured. And it’s our job to keep looking for opportunities for GBDC to take advantage of that.

Operator: [Operator Instructions] And your next question comes from the line of Paul Johnson with KBW. Paul, please go ahead. Paul, if you’re on mute, please unmute.

Paul Johnson: Apologize there. I was on mute. But thanks for taking my questions. Of the strong quarter deployment here, $1 billion of originations this quarter, can you give us a sense of kind of what that was for the overall Golub platform, whether that was up across the platform as well or if this was mainly allocated towards GBDC? And I’d also just ask, kind of given some of the comments on cautious on credit. The pricing environment is a little bit less favorable today. Why deploy so much now into this quarter instead of trying to pull a little bit back potentially for a better year of activity next year?

David Golub: Thanks, Paul. Good question. So, a couple of comments on this. We always deploy across the whole Golub platform. So, this quarter is no different. We didn’t change our allocation policy in a way that was aimed at increasing allocations to GBDC. Having said that, we were hoping for an opportunity to increase assets within GBDC. Coming out of the merger, you’ll recall that we were well under our target leverage level. In fact, I would argue, in the quarter we just finished, we were still significantly under our target leverage level. We had an average leverage over the quarter of just slightly over 1x and our target is 1.1 to 1.15. Second point I’d make is that the total new investment commitments is a little bit overstated in the sense that there is some refinancing, repricing, simultaneous exit and entry activity.

So, I tend to focus more on the net funds growth number, the $368 million, which is not an eye-popping number at all. It’s a pretty normal-looking number. The third point I’d make is that while it’s a challenging environment from a new origination standpoint, we have some giant advantages and two of those giant advantages are our relationships with private equity sponsors and our existing portfolio. And both of those really shown through in this last quarter. Almost all of our new origination was with repeat sponsors and a very disproportionate from normal portion of our origination was repeat borrowers. So, we’re really leaning in during this period on our competitive advantages and focusing on sponsors and borrowers and industries that we have expertise in.

Paul Johnson: Appreciate that. That’s a very helpful answer. And then one for possibly Chris, just on the noncash interest expense related to the swap this quarter. Is there any way to quantify kind of what that was on a per share basis of noncash interest expense that’s the result of the swap markdown?

Chris Ericson: Paul, it was about. It was about $0.02 a share.

Operator: And your next question comes from the line of Ray Cheesman with Anfield Capital. Ray, please go ahead.

Raymond Cheesman: The first one is the decline in yield,as due mostly to anything you did that was new where the competition forced the spread down or was it as I’m seeing in other bank credits I’m in, repricing is rather aggressive here?

David Golub: So, I would say it’s a combination of factors. We have seen in the larger side of our portfolio, the large market borrowers. We have seen some movements, as you described, where they’re re-pricings that take place. We also — and you can see it on Page 10 of the presentation, the weighted average spread on new loans is lower than it has been in prior quarters, reflecting the spread compression that we’ve been talking about. So, it’s a variety of factors. A third one I mentioned, which we’re all going to see more of over the — we all who manage floating rate assets are going to see more of over the course of the coming period is declining base rates. So, it’s all three of those.

Raymond Cheesman: Second one would be, considering the way Pluralsight started and proceeded with the sponsor simply packing up his toys and going home. I mean sponsors usually, you — I think your experience would say, usually work with their creditors and try to get a better outcome. I mean you’re not seeing a repeat of that kind of behavior anywhere else in the portfolio, I hope.

David Golub: So, we always have good dialogue with our sponsor clients. And there’s a range of sponsor reactions to workout situations. Our first choice is to work with sponsors toward win-win solutions that involve continuing contributions and continuing benefits to the sponsor. But if a sponsor concludes that they’re not in a position to do so for any of a number of reasons, we’re quite content to take the keys and to run with the situation. That’s always been something that we’ve done, Ray, and this coming — this current period and coming period, I don’t think it’s going to be any different.

Raymond Cheesman: Last one for you is, are there, in your opinion, any additional vehicles inside of GBDC that will eventually make their way into our larger pile for continued either positive leverage on the operations side or cost of fund side or just in general, are we going to get bigger because we’ll be better? Or do you think this is a good size for the current environment we’re in?

David Golub: At Golub Capital, generally, we’re always looking for opportunities in areas where we have expertise in areas where we have competitive advantage to grow the portfolio. I’m very pleased right now. I’m very satisfied right now with the strategy of GBDC. It’s been very consistent for 14 years. I see more opportunities for us to grow in that strategy. So, I’m not anticipating any major changes. I’m not anticipating, for example, that we’re going to announce in coming days, investments in specialty finance subsidiaries in unrelated areas as some of our competitors have done that. That’s not our MO.

Raymond Cheesman: No, the question was really, is there a GBDC 4, which you think will eventually end up in GBDC public?

David Golub: Sorry, I misunderstood your question. We do have a private BDC called GBDC 4. It’s a public filer, you can look at it. And it’s possible that there will come a time after it’s matured, where it will make sense to look at liquidity options for GBDC 4, including a potential merger with GBDC.

Raymond Cheesman: If you were to be $10 billion in size instead of $8 billion, is that something which would be an advantage in today’s marketplace? Or do you think that the size you are now is optimal for the environment now?

David Golub: So, I really think about that across all of Golub Capital and not specifically about GBDC. We’re very focused on making sure as a platform that we have a size that’s appropriate for the opportunities that are before us and that we’re not — we’re not in the business of raising money and then deploying it as best we can. We’re not believers in the raise money and then deploy it as best we can model of asset management. So, one of the questions that we think about a lot, Ray, and it’s a question not just for GBDC, but across the Golub platform is what’s the right level of dry powder to develop in order to take advantage of market conditions without either having too much dry powder or too little dry powder.

Operator: [Operator Instructions] Since there is no further question…

David Golub: I want to thank everyone for their attendance today and their questions. And as usual, if anybody has anything else they would like to talk about, please feel free to reach out. Thanks for coming today.

Operator: This concludes today’s call. Thank you all for joining. You may now disconnect.