Ethan Kaye

Ethan Kaye from Lucid Capital Markets asked for clarification on GBDC's outlook for a "challenging 2026," specifically whether this relates to the broader leverage lending sector or GBDC's specific challenges in earnings and credit. He also inquired about the deployment outlook, considering muted M&A activity, GBDC's leverage nearing its target range, and the balance between share repurchases and new loan originations.

Answer

CEO David Golub confirmed that the challenging outlook for 2026 is broad, citing lower base rates, tighter spreads, muted M&A, and a protracted credit cycle affecting the leverage lending sector. He acknowledged elevated credit stress across the market, including for GBDC, making it harder to achieve desired ROEs. Golub emphasized GBDC's strong relative positioning but stressed the need for candor about the headwinds. Regarding capital allocation, he stated GBDC will continue opportunistic share repurchases due to shares trading at a discount to NAV, while also seeking the best opportunities to redeploy capital into attractive new loans, balancing these multiple goals.

Ethan Kaye of Lucid Capital Markets inquired about GBDC's outlook for a 'challenging 2026,' seeking clarification on whether this relates broadly to the leverage lending sector or specific GBDC challenges, and its implications for earnings and credit.

Answer

David Golub, CEO of GBDC, confirmed the challenging outlook for 2026 is broad, citing five-year low spreads, muted M&A activity, and elevated credit stress across both broadly syndicated and private credit markets. He noted that while GBDC is well-positioned, the environment makes it harder to achieve desired ROEs, contrasting with 'happy talk' in the industry. Golub remains optimistic about GBDC's long-term prospects but candid about current headwinds. He also addressed capital allocation, stating GBDC balances opportunistic share repurchases with redeploying capital into attractive new loans through portfolio turnover.

Ethan Kaye inquired about the drivers behind the sequential increase in median portfolio EBITDA from $150 million to $190 million and requested a breakdown of the $32 million unrealized depreciation beyond Pluralsight.

Answer

Raghav Khanna (Managing Director and Co-Portfolio Manager, Oaktree) attributed the median EBITDA increase primarily to new, larger cap originations in the fourth quarter. Chris McKown (CFO and Treasurer, Oaktree) confirmed Pluralsight accounted for 38% of the unrealized depreciation, with smaller marks in other private positions and quoted names also contributing.

Ethan Kaye asked about the significant sequential increase in the median portfolio EBITDA from $150 million to $190 million, seeking clarification on whether it was a strategic outcome or a result of the deal environment and company growth.

Answer

Raghav Khanna, Managing Director and Co-Portfolio Manager, Oaktree, explained that the increase was primarily driven by new originations in the fourth quarter, which involved larger cap companies, leading to a mix shift. He also noted that the overall portfolio EBITDA has been growing, contributing a smaller portion to the median increase.

Ethan Kaye inquired about the reasons for softer dividend income quarter-over-quarter and the sensitivity of Ivy Hill's dividend to interest rate changes.

Answer

Jim Miller (President) confirmed that non-recurring dividends from the prior quarter and exits of preferred yield/equity investments were the main factors for softer dividend income, noting that many preferred investments that paid off were PIK-ing, aiding PIK collections. Kort Schnabel (CEO) stated Ivy Hill's dividend is very sustainable, similar to ARCC's, due to its current out-earning of the dividend (107% coverage in Q3) and $130 million in retained earnings.