Goldman Sachs BDC - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 results missed Street: NII/share was $0.42 vs $0.46* consensus; total investment income (revenue) was $96.9M vs $101.1M* consensus. NAV/share fell 1.6% q/q to $13.20 as realized/unrealized losses persisted and a $0.16 special dividend was declared.
  Values retrieved from S&P Global.*
• Credit quality was stable-to-improving: non-accruals declined to 1.9% of FV (from 2.0% in Q4) with two new non-accruals offset by exits/return to accrual; portfolio companies showed weighted-average EBITDA and topline growth.
• Dividend framework in force: base dividend $0.32 and special dividend $0.16 declared for Q2; supplemental variable distribution of $0.05 declared for Q1; leverage remained below target at 1.16x (target 1.25x).
• Deployment muted by M&A slowdown, but new deal spreads widened ~25 bps; PIK income mix improved to 11% from 15% in Q4, reducing quality concerns and supporting core earnings power.

What Went Well and What Went Wrong

What Went Well

• Non‑accruals edged lower and fundamentals improved: “investments on nonaccrual status decreased to 1.9% … [and] weighted average interest coverage … increased to 1.9x,” while leverage fell to 5.8x from 6.2x.
• Better pricing on new originations: “within the spreads for the deals that we did this year, it actually widened out by about 25 basis points… we took advantage of the incumbency” — Alex Chi.
• Liquidity/discipline maintained: net debt/equity 1.16x, ~$720M revolver availability, 48% of debt unsecured — preserving flexibility to rotate into new vintage credits.

What Went Wrong

• Missed consensus and sequential decline: NII/share $0.42 vs $0.46* and total investment income $96.9M vs $101.1M*; TII declined q/q on smaller portfolio and new non‑accrual status placements.
  Values retrieved from S&P Global.*
• Portfolio yield ticked down ~40 bps q/q on cost, driven partly by exit of very high‑coupon non‑accrual loans; Street flagged repricing risk, though management sees repricing largely behind them.
• NAV/share slipped 1.6% q/q to $13.20 on realized/unrealized losses despite special distribution; two positions (MPI Engineered Technologies 2nd lien, ATX Networks 1st lien) moved to non‑accrual.

Transcript

Austin Neri (Head of Investor Relations)

Good morning. This is Austin Neri, a member of the investor relations team for Goldman Sachs BDC, and I would like to welcome everyone to the Goldman Sachs BDC first quarter 2025 earnings conference call. Please note that all participants will be in listen-only mode until the end of the call, when we will open up the line for questions. Before we begin today's call, I would like to remind our listeners that today's remarks may include forward-looking statements. These statements represent the company's belief regarding future events that, by their nature, are uncertain and outside of the company's control. The company's actual results and financial condition may differ, possibly materially, from what is indicated in those forward-looking statements as a result of a number of factors, including those described from time to time in the company's SEC filings.

This audio cast is copyrighted material of Goldman Sachs BDC Inc and may not be duplicated, reproduced, or rebroadcast without our consent. Yesterday, after the market closed, the company issued an earnings press release and posted a supplemental earnings presentation, both of which can be found on the homepage of our website at www.goldmansachsbdc.com under the investor resources section, and which include reconciliations of non-GAAP measures to the most directly comparable GAAP measures. These documents should be reviewed in conjunction with the company's quarterly report on Form 10-Q filed yesterday with the SEC. This conference call is being recorded today, Friday, May 9th, 2025, for replay purposes. I'll now turn the call over to Alex Chi, Co-Chief Executive Officer of Goldman Sachs BDC.

Alex Chi (Co-CEO)

Thank you, Austin. Good morning, everyone, and thank you for joining us for our first quarter 2025 earnings conference call. I'm here today with our Co-CEO, David Miller, our COO, Tucker Greene, and our CFO, Stan Matuszewski. We'll start the call with our thoughts on recent performance in light of a challenging macro environment, then pivot to our investing activity while framing how GSBD is positioned heading into the second quarter. I'll then turn the call over to David and Tucker to describe our portfolio activity and performance in more detail before handing it over to Stan to take us through our financial results. Finally, we'll open the line for Q&A. Let's start by addressing macroeconomic conditions, tariffs, and their potential impact on the portfolio and deal flow.

With respect to the portfolio, as mentioned on our previous call, we've conducted an in-depth company-by-company analysis across our entire direct lending portfolio with respect to Tariff exposure and a potential recessionary or even stagflationary environment. While the second and third order effects remain difficult to quantify, the initial diagnosis is that only four out of our 163 companies within GSBD, or approximately 3% of fair value, are considered to have high exposure, primarily due to their supply chain dependencies in China. The results of our analysis are not surprising, as a vast majority of our portfolio companies are asset-light with minimal exposure to international supply chains, are domiciled in the U.S. serving predominantly U.S. customers, and operate primarily within service-based industries such as software, healthcare, and mission-critical business services.

In addition, we find comfort in where the GSBD portfolio sits in the Capital stack, with over 96% of the investments in first-line risk and an attractive Loan-to-value. With respect to deal flow, as a result of the tariff-induced market volatility, the long-awaited resurgence of new M&A activity has been further pushed back. However, the deals that were already in process generally pivoted their financing back from the public syndicated market to direct lending. In addition, we continue to see deal flow for businesses that are shielded from Tariff exposure, again, primarily in services-related industries where private equity buyers are still prepared to pay healthy multiples. We've continued to use our proximity to our investment banking franchise as a competitive advantage for origination. In addition, market fundamentals continue to suggest the current lack of deal flow will eventually change as sponsors face mounting DPI pressure.

With respect to all-in yields, our focus for new investments is in the low to mid-9% range, with weighted average spreads of our broader platform's new investments widening modestly quarter over quarter from 479 basis points to 510 basis points. Now, turning to our first quarter results. Our net investment income per share for the quarter was $0.42, and net asset value per share was $13.20 as of quarter end, a decrease of 1.6% relative to the fourth quarter NAV, which was largely due to the $0.16 per share special dividend and net realized and unrealized losses in the quarter.

On the topic of dividends, as you'll recall from the last quarter, the board of GSBD enacted a revised dividend structure consisting of a base dividend of $0.32 per share with upside via supplemental variable distributions of at least 50% of net investment income in excess of the amount of base dividend, an Incentive fee reduction from 20% to 17.5% over a 7% hurdle in the interest of aligning the long-term earnings power of the portfolio to increase shareholder value. Over the subsequent three quarters, including the quarter ended March 31st, 2025, the board authorized a special dividend of $0.16 per share. The board declared a first quarter 2025 supplemental dividend of $0.05 per share payable on or about June 13, 2025, to shareholders of record as of May 30, 2025.

Adjusted for the impact of the supplemental dividend related to the first quarter's earnings, the company's first quarter Adjusted NAV per share is $13.15, which, to note, is a non-GAAP financial measure introduced as a result of the dividend policy change. The board also declared a base dividend per share of $0.32 and a special dividend of $0.16 per share to shareholders of record as of June 30th, 2025. As anticipated, we made these distributions while remaining below our targeted debt-to-equity leverage ratio of one and a quarter times. We ended the quarter with a net debt-to-equity ratio of 1.16 times as of March 31st, 2025, as compared to 1.17 times as of December 31st, 2024. We remain focused on delivering on our new dividend structure, the core earnings power of the portfolio, and realizing exits of legacy portfolio companies while rotating into new vintage credits. With that, let me turn it over to my Co-CEO, David Miller.

David Miller (Co-CEO)

Thanks, Alex. During the quarter, we made new investment commitments of approximately $87.8 million across 14 portfolio companies, comprised of six new and eight existing portfolio companies. Of the six new portfolio companies, we served as lead on five, or 72% at fair value. 100% of our originations during the quarter were in first-line loans, which reflects our continued bias in maintaining exposure to the top of the Capital stack. We believe our platform thrives in times of market volatility through the unique opportunities that channel through the Goldman Sachs ecosystem, which is beneficial to GSBD shareholders.

One notable investment during the quarter that illustrated how our strong sponsor relationship secured us the role of admin agent, joint lien arranger, and cemented us as the largest lender of the company amidst a competitive consortium supporting the acquisition of Vermont Information Processing.The company provides mission-critical vertical-specific software and data services to distributors, suppliers, and retailers in the regulated beverage industry. While maintaining long-standing relationships with sponsors shows its worth in choppy markets, so does retaining our position as an incumbent and admin agency in a high-quality company, which was the case with Solaro Commerce.

Solaro is a provider of integrated payment processing and business management solutions to small and mid-sized businesses across the United States. The GS Private Credit Platform has invested in the company since October 2020, and their business has grown both organically and inorganically through acquisitions. Sales and repayment activity totaled $179.3 million during the quarter, down slightly quarter over quarter despite stagnant capital markets, primarily driven by the full repayment and refinancing of six portfolio companies.

It's also worth noting that 88% of the repayment amount was with existing legacy portfolio companies and will be redeployed into new originations post Q1. For our portfolio composition, as of March 31st, 2025, total investments in our portfolio were $3.38 billion at fair value, comprised of 96.1% senior secured loans, including 90.7% in first-line, 5.4% in first-line last-out unit tranche, 2% in a combination of preferred and common stock, 1.4% in second-line debt, as well as a negligible amount in unsecured debt. With that, let me turn it over to Tucker to discuss portfolio fundamentals and credit quality.

Tucker Greene (COO)

Thanks, David. At the end of the first quarter, the company held investments in 163 portfolio companies operating across 38 different industries. The Weighted average yield of our debt and income-producing investments at amortized cost and at the end of the first quarter was 10.8% as compared to 11.2% at the end of the fourth quarter. Despite a modest tightening in portfolio yield quarter over quarter, our portfolio companies have both top-line growth and EBITDA growth quarter over quarter and year over year on a weighted average basis. The EBITDA growth of the portfolio, combined with repayments of investments to companies with higher leverage levels,

Drove a decrease in the weighted average net debt to EBITDA of the companies in our investment portfolio to 5.8 times during the first quarter from 6.2 times during the fourth quarter. At the same time, the current weighted average interest coverage of the companies in our investment portfolio at quarter end increased to 1.9 times in the first quarter compared to 1.8 times during the fourth quarter. Finally, turning to asset quality, during the quarter, the Plural Site first-line senior secured debt position was restored back to accrual due to performance since restructure. Additionally, Animal Supply Intermediate's second-line senior secured debt position, which was on non-accrual since Q3, 2022, was exited.

On the other hand, MPI Engineered Technology's second-line senior secured debt position and ATX Networks' first-line senior secured debt position was placed on non-accrual. At the end of the first quarter, investments on non-accrual status decreased to 1.9% of the total investment portfolio at fair value from 2% as of December 31, 2024. I will now turn the call over to Stan to walk through our financial results.

Stanley Matuszewski (CFO)

Thank you, Tucker. We ended the first quarter of 2025 with total portfolio investments at fair value of $3.4 billion, outstanding debt of $1.9 billion, and net assets of $1.5 billion. Our ending net debt to equity ratio as of the end of the first quarter was 1.16 times, which continues to be below our target leverage ratio of 1.25 times. At quarter end, approximately 48% of our total principal amount of debt outstanding was in unsecured debt. As of March 31, 2025, the company had approximately $720 million of borrowing capacity remaining under the revolving credit facility. Before continuing to the income statement, as a reminder, in addition to GAAP financial measures, we also reference certain non-GAAP or adjusted measures.

This is intended to make our financial results easier to compare to results prior to our October 2020 merger with Goldman Sachs Middle Market Lending Corp, or MMLC.These non-GAAP measures remove the purchase discount amortization impact from our financial results. For the first quarter, GAAP and adjusted after-tax net investment income were $49.6 million and $48.8 million, respectively, as compared to $56.6 million and $55.6 million, respectively, in the prior quarter. On a per-share basis, GAAP net investment income was $0.42. Excluding the impact of asset acquisition accounting in connection with the merger with MMLC, adjusted net investment income for the quarter was $0.41 per share, equating to an annualized net

investment income yield on book value of 12.4%. Total investment income for the three months ended March 31st, 2025, and December 31st, 2024, was $96.9 million and $103.8 million, respectively. We observed PIK as a percentage of total investment income decreased to 11% for the first quarter ended March 31st, 2025, from 15% in the fourth quarter of 2024.As a reminder, excluding one-time adjustments for two portfolio companies, Q4 2024 PIK income as a percentage of total investment income would have been 12%, representing a 1% decrease from Q4 2024 to Q1 2025. With that, I'll turn it back to Alex for closing remarks.

Alex Chi (Co-CEO)

Thanks, Stan, and thanks everyone for joining our earnings call. Although the environment for new M&A activity and deployment has not exhibited the fervor we all expected coming into the year, we're all encouraged by the backlog of transactions, resilience of our portfolio, and our commitment to delivering on a refreshed dividend structure. With that, let's open the line for Q&A.

Operator (participant)

Thank you. If you would like to ask a question, please signal by pressing Star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is Star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. We can take our first question from Derek Hewett with Bank of America.

Derek Hewett (Senior Equity Research Analyst)

Good morning, everyone, and thanks for taking my question. The portfolio yield declined about 40 basis points on a cost basis quarter over quarter. I was expecting that to maybe stabilize a little kind of relative to what we've seen thus far for the first quarter for the BDC earnings season. Could you talk about that, the 40 basis point decline, and has the portfolio largely kind of repriced now based off of the base rate cuts in the back half of last year?

Alex Chi (Co-CEO)

Hey, Derek, good morning. Thanks for the question. With respect to repricings, I think that's largely subsided. Most of the borrowers who wanted to reprice their loans took advantage of a more robust environment in the prior quarters. With respect to more of the new activity that we're seeing, it's again more heavily weighted towards buyouts and refinancings. I don't think you're going to see that. What you did see, though, was within the spreads for the deals that we did this year, it actually widened out by about 25 basis points. We took advantage of the incumbency within our portfolio in order to get a bit more spread. That's why you saw our average spreads go up a bit this quarter.

David Miller (Co-CEO)

Yeah. The other thing I would just add on there is when you see overall portfolio yield coming down, that was driven by the exit of a couple of the non-accrual positions that had very high coupons on them. We were happy to see those go as evidenced by our non-accruals going down.

Derek Hewett (Senior Equity Research Analyst)

Okay. Thank you. In regards to the, I believe it was five identifiable loans that had direct Tariff exposure, was that reflected in the fair value of those investments as of the first quarter, or will that be determined in subsequent quarters?

Alex Chi (Co-CEO)

Let me look at the exposure. It doesn't necessarily mean that those companies were immediately impacted by tariffs. We took a prospective look with respect to where they could be in tax and just from high exposure. For example, we have a couple of companies who have supply chain exposure to China and to Mexico. Therefore, that's why we just, for conservative purposes, just put it in that category. That's the extent. We do see any performance deterioration that would be reflected in the mark, but we have not seen it yet.

David Miller (Co-CEO)

Keep in mind we have a lot more clarity on what potential tariffs could be post quarter end, right, on April 2nd versus on March 31st as well. There could be more to come when we get some certainty on what the final tariffs are going to be.

Derek Hewett (Senior Equity Research Analyst)

Okay. Thank you.

Alex Chi (Co-CEO)

Thank you.

Operator (participant)

Thank you. Another reminder to our audience, if you would like to ask a question, please press Star one on your touchtone telephone. All right. It does appear that there are no further questions at this time. Mr. Chi, I will turn the conference back to you for any closing remarks.

Alex Chi (Co-CEO)

Thank you. Thanks everyone for joining our call. We look forward to executing the second quarter to navigate this environment. Have a great weekend.