Golub Capital BDC's CEO Discusses F2Q12 Results - Earnings Call Transcript

Golub Capital BDC LLC (GBDC)

F2Q12 Earnings Call

May 3, 2012 02:00 pm ET

Executives

David Golub - CEO

Ross Teune - CFO

Analysts

Greg Mason - Stifel Nicolaus

Jonathan Bock - Wells Fargo

Abu Ramin - UBS

Presentation

Operator

Good afternoon, welcome to the Golub Capital BDC Inc. March 31, 2012 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 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 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 at www.golubcapitalbdc.com and click on the Investor Presentation’s link to find the March 31, 2012 Investor Presentation. Golub Capital BDCs earning 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.

David Golub

Thank you, operator and good afternoon everyone, thanks for joining us today. I am joined by Ross Teune, our Chief Financial Officer. Yesterday in the afternoon we issued our second quarter earnings press release and we posted supplement earnings presentation on our website. We’ll be referring to that presentation through the call today.

I am going to start by providing an overview of the March 31, 2012 quarterly financial results. And then Ross is going to take you through the quarterly results in more detail. I’ll come back after Ross comments and provide some commentary on the termination of our total return swaps in April and also provide an update on current market conditions.

With that let me get started. As highlighted on page one of the investor presentation, we’re pleased to report we had a very strong quarter for the three months ended March 31. Golub Capital BDC generated net income of $11.4 million or $0.48 per share as compared to $6.2 million or $0.28 a share for the quarter ended 12/31/11. Net investment income for the quarter was $7.1 million or $0.29 of share as compared to $6.3 million or again $0.29 a share for the quarter ended 12/31.

Net investment income including the net spread payments of $1 million generated from the underlying assets in the total return swap was $0.33 per share for the quarter ended 3/31/2012 and that compares to $0.32 per share for the quarter ended 12/31/11. Let me give you some detail underlying the $0.19 per share, the $4.4 million of net realized and unrealized gains on investments and derivatives during the quarter.

First, let’s look at the total return swap. GAAP net realized and unrealized gains on the total return swap were $2.8 million and that was comprised of $1.8 million of unrealized gains driven primarily by a market rally in the prices of broadly syndicated loans during the quarter as well as an increase in the net interest accrued on the TRS. In addition to that we had a million dollars of realized gains from the quarterly cash settlements of the TRS. I will come back later in our commentary to describe the P&L impact of the termination of the swap that took place in the April as I will discuss. There was a further gain that will take into the income statement in the June 30 th quarter.

Now let’s talk about investments in loans and equity securities. Net realized and unrealized gains on investments were $1.2 million. This was comprised of $2.8 million realized loss on the sale of a non-earning asset [AFPG], $3 million of unrealized depreciation because the carrying value of that asset was actually lower than the sale value and a $1 million of unrealized appreciation on the investment portfolio and this was broadly distributed across a variety of middle market debt and equity securities.

The final piece of $0.19 a share or $4.4 million of net realized and unrealized gain was our future’s hedge. You will recall that we put in place a $25 million hedge on treasuries to immunize us from movements in treasuries as those movements would affect the cost of our SBIC borrowings that had not yet been fixed. As of the end of the quarter we had a $400,000 net released non-realized gain on the futures contracts.

Turning to slide two of the investor presentation I want to highlight the increase in our NAV this quarter. It ended the quarter at 14.69 and this is right about our NAV at the time of the initial IPO of Golub Capital BDC in April 2010. Just want to highlight this is by design if we are doing our jobs well you will see limited quarter-to-quarter volatility in NAV and we will be earning our distribution maintaining a stable NAV overtime.

Turning to slide 3 of the investor presentation as we communicated in our press release back in early April, originations for the quarter were strong totaling $98.4 million. After factoring in repayments the net increase in investments was $57.1 million. That's a 10.2% increase from December 31 2011 and a 33.5% increase from September 30 2011. I am also pleased that with the asset mix on these new origins was consistent with our goals. 36% of the new investments we were one-stops, 21% subordinated debt and second lien investments, 39 % senior secured and 4% equity securities. After Ross discusses that financial results in more detail, I will come back and provide the additional commentary on the termination of the total returns swap and on current market and then we will take questions.

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