Golub Capital BDC, Inc. (GBDC)

F1Q 2012 Earnings Conference Call

December 9, 2011 1:00 pm ET

Executives

David B. Golub – Chief Executive Officer and Director

Ross A. Teune – Chief Financial Officer and Treasurer

Analysts

Greg Mason – Stifel Nicolaus & Company

Joel Houck – Wells Fargo Securities, LLC

Heath Ritchie – Delphi Management

David Miyazaki – Confluence Investment Management

John Rogers – Janney Montgomery Scott

Ross Haberman – Haberman Management

Presentation

Operator

Good afternoon, welcome to the Golub BDC Inc. September 30, 2011 quarterly and Fiscal Year and 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 the homepage of our website, www.golubcapitalbdc.com and click on the Investor Presentation’s link to find the September 30, 2011 investor presentation. Golub Capital BDC’s earnings release is also available on the company’s website in the Investor Relations section. As a reminder, this conference is being recorded Friday, December 09, 2011.

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

David B. Golub

Thank you, Suzy. Good afternoon, everybody and thanks for joining us today. I am joined today by Ross Teune, our Chief Financial Officer. I hope you’ve been able to review our earnings release in the investor presentation we posted on the website. Ross and I will be referring to this presentation throughout the call today.

I‘d like to start today by providing an overview of the September 30 financial results. Ross is then going to take you through the results in more detail. I’ll then come back and give you an update on new origination activity for the first two months of our first fiscal quarter for 2012, as well as to provide you with some information on that hedge that we put in place that affectively fixes the interest rate on our SBIC debentures that we’ve drawn, but where the ultimate rate on those debentures won't be determined until the March 2012 of SBA pooling date.

With that, let me get started. As highlighted on page one of the investor presentation, net investment income for the quarter ended September 30 with $6.5 million or $0.30 a share, as compared to $6 million or $0.28 a share for the quarter ended June 30.

The increase in net investment income was driven by both an increase in our weighted average earning investments of $15.1 million and an increase in our weighted average net investment spread of 20 basis points.

If we look at net increase and net assets or what I think of as net income for the quarter ended September 30, it was $3 million or $0.14 a share as compared to $6.5 million or $0.31 a share for the quarter ended June 30.

The decrease for the quarter ended September 30 was primarily a result of two factors. First was unrealized losses on investments of $1.8 million or $0.08 per share, which were caused by a combination of market yield adjustments and write-downs on two non-earning investments.

And the second factor was an unrealized loss of $1.7 million or $0.08 a share on the mark-to-market adjustments on the broadly syndicated bonds that are referenced in our total return swap. And I just want to highlight that the unrealized loss on the total returns swap has already partially reversed as of November 30. The appreciation on the total return swap is been roughly $1.4 million. So, $1.4 million of this $1.7 million loss in the September 30 quarter is already reversed.

Turning to page three of the investor presentation; new originations for the quarter totaled $60 million, that's down from $136 million in the June 30 quarter. We expected the decline, in fact, we talked about the expectation of a decline here in our last – in our call – earnings call. Originations were unusually high in the June 30 quarter. Prepayments also slowed during the quarter, and overall net fund's growth was $21 million for the quarter, about 5%.

As I've said in previous calls, one of our goals is to increase the percentage of investments in unitranche and junior debt in the portfolio and I’m pleased to report that we continue to make progress for that goal in the quarter ended September 30. Of our originations, 68% were in the unitranche product category and that allowed us to increase the overall percentage of unitranche investments in the portfolio from 35% of total investments at June 30 to 39% as of September 30. As I mentioned, our weighted average investments spread increased by 20 basis points this quarter in large part due to the shifting asset mix.

Given current market conditions, and I'm going to talk about this later, we continue to focus on unitranche investments. Having said that we have recently seen some compelling risk reward opportunities in subordinated debt and we closed several attractive sub-debt opportunities in the December 31 quarter. After Ross discusses the financial results in more detail, I'm going to come back and provide some additional color on new investment activity since the September 30 quarter-end.

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