Golub Capital BDC, Inc. (GBDC) F3Q 2012 Earnings Call August 6, 2012 1:00 pm ET Executives David B. Golub – Chief Executive Officer and Director Ross A. Teune – Chief Financial Officer, Treasurer and Head-Investor Relations Analysts Greg Mason – Stifel, Nicolaus & Company, Inc. Jonathan Bock – Wells Fargo Advisors LLC Greg Mason – Stifel, Nicolaus & Co., Inc. John T. G. Rogers – Janney Montgomery Scott LLC Jim Young – West Family Investments Presentation Operator
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As a reminder, this call is being recorded for replay purposes. I will now turn the call over to David Golub, Chief Executive Officer of Golub Capital BDC.David B. Golub Thank you, Eric. Good afternoon, everybody, and thanks for joining us today. I’m joined today by Ross Teune, our Chief Financial Officer. Earlier today, we issued our third quarter earnings release and posted a supplemental earnings presentation on the website. We will be referring to this presentation throughout the call. I’d like to start today by providing an overview of the June 30, 2012 quarterly financial results, Ross is then going to take you through the quarterly results in more details and I’ll come back and provide some details on our perhaps puzzling simultaneous announcement of both board approved share repurchase program and then At the Market or ATM common stock program, and I’ll also provide some commentary on current market conditions. With that, let’s get started. Please turn to Slide 1 of the investor deck. Let me start by saying how delight I am that this will the last quarter I have to walk you all through the accounting for the total return swap. To remind you, pursuant SEC guidance, we report spread income from the swap below the net investment income line, but incentive fees related to the swap above the line. So, let’s look at net investment income two ways. The first way, as reported net investment income for the quarter ended June 30 was $6.7 million or $0.26 per share and that compares to $7.1 million or $0.29 per share for the quarter ended March 31. Adjusted to include net spread payments of $1 million from the swap, NII was $0.30 per share for the quarter ended June 30 as compared to $0.33 per share for the quarter ended March 31. Given the weak originations for the quarter and I’ll talk more about originations for the quarter in a few minutes that adjusted NII levels right where we expected it to be.
Net income for the quarter was $5.4 million or $0.21 a share and that compared to $11.4 million or $0.48 per share for the quarter ended March 31. So, let’s look at net investment income inclusive of the TRS income of $0.30 versus EPS of $0.21, and let me walk you through bridge of the $0.09 differential between the two. There are three principal pieces.The first is, we had a net realized and unrealized loss of $0.01 on the termination of the total return swap. The last page of the presentation that summarizes the inception to conclusion performance of the total return swap and you can see it was quite a successful investment for BDC generating about $3.9 million of total profit, but we experienced a small net loss not including spread payments during the period from quarter end to termination as loan prices fell modestly from March 31 to the termination date. So that’s one piece, we’ve lost $0.01 on the TRS. The second piece is net realized and unrealized losses on investments, that constituted about $800,000 for the quarter or about $0.03 a share and that was primarily the result of a write-down on new non-earning asset. We’ll talk more about that later as well. And finally, we lost $0.05 of share in net realized and unrealized losses on futures contracts designed to hedge interest rate risk associated with unpriced SBIC debentures. So the three pieces are a penny on the swap, $0.03 on changes in the fair value of investments, and $0.05 on the futures hedge. I want to spend a minute on the futures head just to make sure everybody understands it. Firstly, I’d say, despite the net loss on the hedge, we still think it was the right thing to do to put this on. Let me remind you why we did it. So the way the SBIC program works, we draw down new SBIC debentures and pay a temporary rate until this June or September or March of each year. Read the rest of this transcript for free on seekingalpha.com