Golub Capital BDC, Inc. ( GBDC)

F3Q11 (Qtr End 06/30/2011) Earnings Call

August 8, 2011 1:00 pm ET

Executives

David Golub - CEO

Ross Teune - CFO

Analysts

Joel Houck - Wells Fargo

Troy Lahr - Stifel Nicolaus

Dean Choksi - UBS

Ross Haberman - Haberman Management Corporation

Greg Mason - Stifel Nicolaus

John Rogers - Janney Montgomery Scott

Presentation

Operator

Good afternoon. And welcome to the Golub Capital BDC Inc. June 30, 2011 Quarterly Earnings Conference Call.

Before we begin, I would 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 the 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 the Golub Capital BDC, Inc.’s filings with the Securities and Exchange Commission.

For a slide presentation that we intend to refer to on the earnings conference call, please visit the Events and Presentations link on our homepage of our website, www.golubcapitalbdc.com and click on the Investor Presentation’s link to find the June 30, 2011 investor presentation. Golub Capital BDC’s earnings release is also available on the company’s website in the Investor Relations section.

I will now turn the call over to David Golub, Chief Executive Officer of Golub Capital BDC. Please go ahead, sir.

David Golub

Thank you Tom. Good morning, everybody and thanks for joining us today. I am joined today by Ross Teune, our Chief Financial Officer. I hope you’ve had a chance to review our earnings release in our investor presentation that we posted on our website. I mean to refer to the presentation and Ross will as well as go through the call today.

I am going to start giving you an overview of the June 30th quarterly financial results, Ross is going to then take you through the results in more detail and then I’m going to come back and give you an update on our new credit facility with Wells Fargo and the additional SBIC debenture commitments, which we recently received approval for.

So let me get started. We had in solid quarter in the period ending June 30 with EPS of $0.31 a share. In addition, we made particular progress on four of the key goals that I outlined in our last quarterly conference and I want to review each of those.

The first was strong originations. As expected, we had strong originations in net asset growth for this quarter. I’ve highlighted on page 4, you can see our new investment commitments for the quarter were $135.8 million that is up from $54.6 million in the prior quarter.

If you look at the $135.8 million, a $113.8 were new investments in middle market loan and equities while the remaining $22 million represented, what I view as a temporary investments in broadly syndicated bonds that we bought shortly after the follow-on offering.

After you take into account sales and pre-payments, net earnings growth was $49.5 million, plus about $11.5 million for our new total returns. I’ll talk more about the total returns later.

We account for that per GAAP on a separate line item but I think it’s best to look at those two numbers together. So $49.5 plus $11.5 or $61.00 in what I view as our new investment growth. Through our net funds growth that we were able to efficiently deploy most of the capital we raised in the follow-on offering that we completed on March 31.

Our deal flow continues to be robust and we expect solid funds growth in the fourth quarter as well but I put a caveat on that, given recent activities in the securities market and I will come back to that at the end.

Second key goal was to sustain our strong market position and our market position improved very strong in the quarter. The way that is evidenced is that Golub capital was ranked the number one Traditional Middle Market Bookrunner by Reuters for the first half of calendar 2010 for senior secured loans of $100 million and less. Our strong market position is a key piece to what allows us to continue to source really good risk-adjusted transactions for Golub Capital BDC.

Third goal that I talked about last time was shifting our assets mix and we continue to make progress increasing the proportion of unitranche or one-stop loans and junior debt securities in the portfolio. If you look on page 4, you’ll see that the percentage of unitranche investments went up from 29% of total investments at March 31 to 35% of total investment at June 30 and our percentage of junior debt investment increased from 13% of total investment last quarter to 16% of total investment at the end of this quarter.

Now, we recognize we’ve still more work to do on our mix but we’re pleased with our progress this quarter. Our current goal is to keeping increasing unitranche, junior debt and equity investments so that together they constitute between 60% and 79% of total investment that’s up from about 53% today.

The shift that we accomplished in our assets mix did have a positive impact on total interest income yields in the portfolio last quarter. If you look on slide 8, you’ll see that total interest income increased from 8.3% for the quarter ended March 31 to 8.6% for the quarter ended June 30. We see continued upward potential to move that in the coming quarters.

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