GOLDMAN SACHS BDC, INC. 
The following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties. References to "we," "us," "our," and the "Company," meanGoldman Sachs BDC, Inc. orGoldman Sachs BDC, Inc. together with its consolidated subsidiaries, as the context may require. The terms "GSAM," our "Adviser" or our "Investment Adviser" refer toGoldman Sachs Asset Management, L.P. , aDelaware limited partnership. The term "Group Inc. " refers to The Goldman Sachs Group, Inc. "GS & Co. " refers toGoldman Sachs & Co. LLC and its predecessors. The term "Goldman Sachs" refers toGroup Inc. , together withGS & Co. , GSAM and its other subsidiaries and affiliates. The discussion and analysis contained in this section refers to our financial condition, results of operations and cash flows. The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. Please see "Cautionary Statement Regarding Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with this discussion and analysis. Our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed under "Cautionary Statement Regarding Forward-Looking Statements" appearing elsewhere in this report. OVERVIEW We are a specialty finance company focused on lending to middle-market companies. We are a closed-end management investment company that has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "Investment Company Act"). In addition, we have elected to be treated, and expect to qualify annually, as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with our taxable year endedDecember 31, 2013 . From our formation in 2012 throughDecember 31, 2019 , we originated more than$3.69 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits and repayments. We seek to generate current income and, to a lesser extent, capital appreciation primarily through direct originations of secured debt, including first lien, unitranche, including last-out portions of such loans, and second lien debt, and unsecured debt, including mezzanine debt, as well as through select equity investments. "Unitranche" loans are first lien loans that may extend deeper in a company's capital structure than traditional first lien debt and may provide for a waterfall of cash flow priority between different lenders in the unitranche loan. In a number of instances, we may find another lender to provide the "first-out" portion of such loan and retain the "last-out" portion of such loan, in which case, the "first-out" portion of the loan would generally receive priority with respect to payment of principal, interest and any other amounts due thereunder over the "last-out" portion that we would continue to hold. In exchange for the greater risk of loss, the "last-out" portion generally earns a higher interest rate than the "first-out" portion. We use the term "mezzanine" to refer to debt that ranks senior only to a borrower's equity securities and ranks junior in right of payment to all of such borrower's other indebtedness. We may make multiple investments in the same portfolio company. We invest primarily inU.S. middle-market companies, which we believe are underserved by traditional providers of capital such as banks and the public debt markets. In this report, we generally use the term "middle market companies" to refer to companies with between$5 million and$200 million of annual earnings before interest expense, income tax expense, depreciation and amortization ("EBITDA") excluding certain one-time, and non-recurring items that are outside the operations of these companies. However, we may from time to time invest in larger or smaller companies. We generate revenues primarily through receipt of interest income from the investments we hold. In addition, we may generate income from various loan origination and other fees, dividends on direct equity investments and capital gains on the sales of investments. Fees received from portfolio companies (directors' fees, consulting fees, administrative fees, tax advisory fees and other similar compensation) are paid to us, unless, to the extent required by applicable law or exemptive relief therefrom, we only receive our allocable portion of such fees when invested in the same portfolio company as another client account managed by our Investment Adviser (including GS PMMC, GS MMLC and GS PMMC II, collectively with other client accounts managed by our Investment Adviser, the "Accounts"). The companies in which we invest use our capital for a variety of purposes, including to support organic growth, fund acquisitions, make capital investments or refinance indebtedness. Our origination strategy focuses on leading the negotiation and structuring of the loans or securities in which we invest and holding the investments in our portfolio to maturity. In many cases, we are the sole investor in the loan or security in our portfolio. Where there are multiple investors, we generally seek to control or obtain significant influence over the rights of investors in the loan or security. We generally seek to make investments that have maturities between three and ten years and range in size between$10 million and$75 million , although we may make larger or smaller investments on occasion. Pending Merger with GS MMLC: OnDecember 9, 2019 , we entered into the Merger Agreement with GS MMLC, aDelaware corporation,Evergreen Merger Sub, Inc. , aDelaware corporation and wholly owned subsidiary of the Company ("Merger Sub"), and GSAM, aDelaware limited partnership and investment adviser to each of us and GS MMLC. The Merger Agreement provides that, on the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into GS MMLC, with GS MMLC continuing as the surviving company (the "First Merger") and, immediately thereafter, GS MMLC will merge with and into us, with us continuing as the surviving company (the "Second Merger" and, together with the First Merger, the "Merger"). See Note 14 in the notes to our consolidated financial statements for further information.
For a discussion of the competitive landscape we face, please see "Item 1A. Risk Factors-Risks Relating to Our Business and Structure-We operate in a highly competitive market for investment opportunities" and "Item 1. Business-Competitive Advantages."
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KEY COMPONENTS OF OPERATIONS
Investments
Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment, the amount of capital we have available to us and the competitive environment for the type of investments we make. As a BDC, we may not acquire any assets other than "qualifying assets" specified in the Investment Company Act, unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in "eligible portfolio companies." Pursuant to rules adopted by theSecurities and Exchange Commission (the "SEC"), "eligible portfolio companies" include certain companies that do not have any securities listed on a national securities exchange and public companies whose securities are listed on a national securities exchange but whose market capitalization is less than$250 million .
Revenues
We generate revenues in the form of interest income on debt investments and, to
a lesser extent, capital gains and distributions, if any, on equity securities
that we may acquire in portfolio companies. Some of our investments may provide
for deferred interest payments or payment-in-kind ("PIK") income. The principal
amount of the debt investments and any accrued but unpaid interest generally
becomes due at the maturity date.
We generate revenues primarily through receipt of interest income from the
investments we hold. In addition, we may generate revenue in the form of
commitment, origination, structuring, syndication, exit fees or diligence fees,
fees for providing managerial assistance and consulting fees. Portfolio company
fees (directors' fees, consulting fees, administrative fees, tax advisory fees
and other similar compensation) will be paid to us, unless, to the extent
required by applicable law or exemptive relief, if any, therefrom, we receive
our allocable portion of such fees when invested in the same portfolio company
as other Accounts, which other Accounts could receive their allocable portion of
such fee. We do not expect to receive material fee income as it is not our
principal investment strategy. We record contractual prepayment premiums on
loans and debt securities as interest income.
Dividend income on preferred equity investments is recorded on an accrual basis
to the extent that such amounts are payable by the portfolio company and are
expected to be collected. Dividend income on common equity investments is
recorded on the record date for private portfolio companies and on the
ex-dividend date for publicly traded portfolio companies. Interest and dividend
income are presented net of withholding tax, if any.
Expenses
Our primary operating expenses include the payment of the Management Fee and the Incentive Fee to the Investment Adviser, legal and professional fees, interest and other debt expenses and other operating and overhead related expenses. The Management Fee and Incentive Fee compensate our Investment Adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other expenses of our operations and transactions in accordance with our investment management agreement (as amended and restated as ofJune 15, 2018 , the "Investment Management Agreement") and administration agreement ("Administration Agreement"), including those relating to: • our operational and organizational expenses;
• fees and expenses, including travel expenses, incurred by our Investment
Adviser or payable to third parties related to our investments,
including, among others, professional fees (including the fees and
expenses of consultants and experts) and fees and expenses from
evaluating, monitoring, researching and performing due diligence on
investments and prospective investments;
• interest payable on debt, if any, incurred to finance our investments;
• fees and expenses incurred by us in connection with membership in
investment company organizations;
• brokers' commissions;
• the expenses of and fees for registering or qualifying our shares for
sale and of maintaining our registration and registering us as a broker
or a dealer;
• fees and expenses associated with calculating our net asset value ("NAV")
(including expenses of any independent valuation firm);
• legal, auditing or accounting expenses;
• taxes or governmental fees;
• the fees and expenses of our administrator, transfer agent or
sub-transfer agent;
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• the cost of preparing stock certificates or any other expenses, including
clerical expenses of issue, redemption or repurchase of our shares;
• the fees and expenses of our directors who are not affiliated with our
Investment Adviser;
• the cost of preparing and distributing reports, proxy statements and
notices to our stockholders, the
• costs of holding stockholder meetings; • listing fees;
• the fees or disbursements of custodians of our assets, including expenses
incurred in the performance of any obligations enumerated by our
certificate of incorporation or bylaws insofar as they govern agreements
with any such custodian;
• insurance premiums; and
• costs incurred in connection with any claim, litigation, arbitration,
mediation, government investigation or dispute in connection with our
business and the amount of any judgment or settlement paid in connection
therewith, or the enforcement of our rights against any person and
indemnification or contribution expenses payable by us to any person and
other extraordinary expenses not incurred in the ordinary course of our
business.
We expect our general and administrative expenses to be relatively stable or
decline as a percentage of total assets during periods of asset growth and to
increase during periods of asset declines. Costs relating to future offerings of
securities would be incremental.
Leverage
Our senior secured revolving credit agreement (as amended, the "Revolving Credit Facility") withTruist Bank (formerly known asSunTrust Bank ), as administrative agent, andBank of America, N.A ., as syndication agent, and our 4.50% Convertible Notes due 2022 (the "Convertible Notes") allow us to borrow money and lever our investment portfolio, subject to the limitations of the Investment Company Act, with the objective of increasing our yield. This is known as "leverage" and could increase or decrease returns to our stockholders. The use of leverage involves significant risks. OnJune 15, 2018 , our stockholders approved the application of the reduced asset coverage requirements in Section 61(a)(2) of the Investment Company Act to us. As a result of this approval, we are now permitted to borrow amounts such that our asset coverage ratio, as defined in the Investment Company Act, is at least 150% after such borrowing (if certain requirements are met), rather than 200%, as previously required. As ofDecember 31, 2019 andDecember 31, 2018 , our asset coverage ratio based on the aggregate amount outstanding of our senior securities was 187% and 206%, respectively. Certain trading practices and investments, such as reverse repurchase agreements, may be considered borrowings or involve leverage and thus may be subject to Investment Company Act restrictions. In accordance with applicableSEC staff guidance and interpretations, when we engage in such transactions, instead of maintaining an asset coverage ratio of at least 150% (if certain requirements are met), we may segregate or earmark liquid assets, or enter into an offsetting position, in an amount at least equal to our exposure, on a mark-to-market basis, to such transactions (as calculated pursuant to requirements of theSEC ). Short-term credits necessary for the settlement of securities transactions and arrangements with respect to securities lending will not be considered borrowings for these purposes. Practices and investments that may involve leverage but are not considered borrowings are not subject to theInvestment Company Act's asset coverage requirement, and we will not otherwise segregate or earmark liquid assets or enter into offsetting positions for such transactions. The amount of leverage that we employ will depend on our Investment Adviser's and our board of directors' (the "Board of Directors") assessment of market conditions and other factors at the time of any proposed borrowing.
PORTFOLIO AND INVESTMENT ACTIVITY
Our portfolio (excluding our investment in a money market fund, if any, managed
by an affiliate of
As of
December 31, 2019 December 31, 2018
Percentage Percentage
of Total of Total
Amortized Fair Portfolio at Amortized Fair Portfolio at
Cost Value Fair Value Cost Value Fair Value
(in millions) (in millions)
First Lien/Senior Secured Debt
74.3 %$ 738.63 $ 729.60 53.0 % First Lien/Last-Out Unitranche 35.31 35.28 2.4 % 114.00 106.88 7.8 % Second Lien/Senior Secured Debt 263.44 234.02 16.1 % 411.55 391.93 28.5 % Unsecured Debt 7.41 7.41 0.5 % 6.71 6.70 0.5 % Preferred Stock 41.66 48.76 3.4 % 16.85 21.53 1.6 % Common Stock 67.14 48.11 3.3 % 37.82 22.34 1.6 % Investment Funds & Vehicles - - - 100.00 96.46 7.0 % Total Investments$ 1,509.85 $ 1,454.25 100.0 %$ 1,425.56 $ 1,375.44 100.0 % 62
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The weighted average yield by asset type of our total portfolio (excluding our
investment in a money market fund, if any, managed by an affiliate of
As of
December 31, 2019 December 31, 2018
Amortized Fair Amortized Fair
Cost Value Cost Value
Weighted Average Yield(1)
First Lien/Senior Secured Debt(2) 8.6 % 9.1 % 10.4 % 11.0 %
First Lien/Last-Out Unitranche(2) (3) 10.0 10.0 6.0 6.5
Second Lien/Senior Secured Debt(2) 9.2 11.2 9.7 10.4
Unsecured Debt(2) 11.7 11.7 11.7 11.9
Preferred Stock(4) - - - -
Common Stock(4) - - - -
Investment Funds & Vehicles - - 11.2 (5) 11.4 (5)
Total Portfolio 8.2 % 8.9 % 9.5 % 10.1 %
(1) The weighted average yield of our portfolio does not represent the total
return to our stockholders.
(2) Computed based on (a) the annual actual interest rate or yield earned
plus amortization of fees and discounts on the performing debtand other
income producing investments as of the reporting date, divided by
(b) the total investments (including investments on non-accrual and
non-income producing investments) at amortized cost or fair value,
respectively. This calculation excludes exit fees that arereceivable
upon repayment of certain loan investments.
(3) The calculation includes incremental yield earned on the "last-out"
portion of the unitranche loan investments.
(4) Computed based on (a) the stated coupon rate, if any, for each
income-producing investment, divided by (b) the totalinvestments
(including investments on non-accrual and non-income producing
investments) at amortized cost or fair value, respectively.
(5) Computed based on (a) the net investment income earned from the Senior
Credit Fund, LLC (the "Senior Credit Fund ") for the respective trailing
twelve months ended on the measurement date, which may include dividend
income and loan origination and structuring fees, divided by (b) our
average member's equity at cost and fair value, adjusted for equity
contributions.
As of December 31, 2019 , the total portfolio weighted average yield measured at
amortized cost and fair value was 8.2% and 8.9%, respectively, which decreased
from 9.5% and 10.1%, respectively, at December 31, 2018 . The decrease in
weighted average yield at amortized cost and fair value was primarily driven by
the decrease in LIBOR on our variable rate secured debt investments and the
receipt of our pro rata portion of senior secured loans from the liquidation and
dissolution of the Senior Credit Fund . As of December 31, 2019 , the senior
secured loans received had a weighted average yield at amortized cost and fair
value of 7.6% and 10.6%, respectively. In addition, the increase in the first
lien/last-out unitranche weighted average yield at amortized cost and fair value
was primarily driven by the exit from our investments in NTS Communications,
Inc. The following table presents certain selected information regarding our
investment portfolio (excluding our investment in a money market fund, if any,
managed by an affiliate of
As of
December 31, 2019 December 31, 2018
Number of portfolio companies(1) 106 72
Percentage of performing debt bearing a
floating rate(2) 99.4% 96.6%
Percentage of performing debt bearing a fixed rate(2)(3) 0.6% 3.4% Weighted average yield on debt and income producing investments, at amortized cost(4) 9.0%
10.9%
Weighted average yield on debt and income producing investments, at fair value(4) 9.6%
11.3%
Weighted average leverage (net debt/EBITDA)(5) 5.7x 5.6x Weighted average interest coverage(5) 2.4x 2.2x Median EBITDA(5)$ 37.64 million $ 26.87 million (1) As of December 31, 2018, includes the Senior Credit Fund as a single portfolio company. For details on the portfolio companies
previously
held within the Senior Credit Fund , refer to "Senior Credit Fund,
LLC-Selected Financial Data."
(2) Measured on a fair value basis. Excludes investments, if any, placed on
non-accrual.
(3) Includes income producing preferred stock investments.
(4) Computed based on (a) the annual actual interest rate or yield earned
plus amortization of fees and discounts on the performing debt and other
income producing investments as of the reporting date, divided by
(b) the total performing debt and other income producinginvestments
(excluding investments on non-accrual).
(5) For a particular portfolio company, we calculate the level of
contractual indebtedness net of cash ("net debt") owed by theportfolio
company and compare that amount to measures of cash flow available to
service the net debt. To calculate net debt, we include debt that is
both senior and pari passu to the tranche of debt owned by us but
exclude debt that is legally and contractually subordinated in ranking
to the debt owned by us. We believe this calculation methodassists in
describing the risk of our portfolio investments, as it takes into
consideration contractual rights of repayment of the tranche of debt
owned by us relative to other senior and junior creditors of aportfolio
company. We typically calculate cash flow available for debt service at
a portfolio company by taking EBITDA for the trailing twelve month
period. Weighted average net debt to EBITDA is weighted based on the
fair value of our debt investments and excluding investments where net
debt to EBITDA may not be the appropriate measure of creditrisk, such
as cash collateralized loans and investments that are underwritten and
covenanted based on recurring revenue. The weighted average net debt to
EBITDA calculation for the Company as of December 31, 2018 includes its
exposure to underlying debt investments in the Senior Credit Fund .
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For a particular portfolio company, we also calculate the level of contractual
interest expense owed by the portfolio company, and compare that amount to
EBITDA ("interest coverage ratio"). We believe this calculation method assists
in describing the risk of our portfolio investments, as it takes into
consideration contractual interest obligations of the portfolio company.
Weighted average interest coverage is weighted based on the fair value of our
performing debt investments, including our exposure to underlying debt
investments in the Senior Credit Fund and excluding investments where interest
coverage may not be the appropriate measure of credit risk, such as cash
collateralized loans and investments that are underwritten and covenanted based
on recurring revenue.
Median EBITDA is based on our debt investments, including our exposure to
underlying debt investments in the Senior Credit Fund (as of December 31, 2018 )
and excluding investments where net debt to EBITDA may not be the appropriate
measure of credit risk, such as cash collateralized loans and investments that
are underwritten and covenanted based on recurring revenue.
Portfolio company statistics are derived from the most recently available
financial statements of each portfolio company as of the reported end date.
Statistics of the portfolio companies have not been independently verified by us
and may reflect a normalized or adjusted amount. As of December 31, 2019 and
December 31, 2018 , investments where net debt to EBITDA may not be the
appropriate measure of credit risk represented 25.1% and 18.3%, respectively, of
total debt investments, including as of December 31, 2018 , our investment in the
Senior Credit Fund , at fair value. Portfolio company statistics are derived from
the most recently available financial statements of each portfolio company as of
the respective reported end date. Portfolio company statistics have not been
independently verified by us and may reflect a normalized or adjusted amount.
Floating rates are primarily London InterBank Offered Rate ("LIBOR") plus a spread.
Our Investment Adviser monitors our portfolio companies on an ongoing basis. It monitors the financial trends of each portfolio company to determine if it is meeting its respective business plan and to assess the appropriate course of action for each company. Our Investment Adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:
• assessment of success in adhering to the portfolio company's business
plan and compliance with covenants;
• periodic or regular contact with portfolio company management and, ifappropriate, the financial or strategic sponsor to discuss financial
position, requirements and accomplishments;
• comparisons to our other portfolio companies in the industry, if any;
• attendance at and participation in board meetings or presentations by
portfolio companies; and
• review of monthly and quarterly financial statements and financialprojections of portfolio companies.
As part of the monitoring process, our Investment Adviser also employs an
investment rating system to categorize our investments. In addition to various
risk management and monitoring tools, our Investment Adviser grades the credit
risk of all investments on a scale of 1 to 4 no less frequently than quarterly.
This system is intended primarily to reflect the underlying risk of a portfolio
investment relative to our initial cost basis in respect of such portfolio
investment (e.g., at the time of origination or acquisition), although it may
also take into account under certain circumstances the performance of the
portfolio company's business, the collateral coverage of the investment and
other relevant factors. The grading system is as follows:
• investments with a grade of 1 involve the least amount of risk to ourinitial cost basis. The trends and risk factors for this investment since
origination or acquisition are generally favorable, which may include the
performance of the portfolio company or a potential exit;
• investments with a grade of 2 involve a level of risk to our initial cost
basis that is similar to the risk to our initial cost basis at the time
of origination or acquisition. This portfolio company is generally
performing as expected and the risk factors to our ability to ultimately
recoup the cost of our investment are neutral to favorable. All
investments or acquired investments in new portfolio companies are
initially assessed a grade of 2;
• investments with a grade of 3 indicate that the risk to our ability to
recoup the initial cost basis of such investment has increased materially
since origination or acquisition, including as a result of factors such
as declining performance and non-compliance with debt covenants; however,
payments are generally not more than 120 days past due; and
• investments with a grade of 4 indicate that the risk to our ability to
recoup the initial cost basis of such investment has substantially
increased since origination or acquisition, and the portfolio company
likely has materially declining performance. For debt investments with aninvestment grade of 4, in most cases, most or all of the debt covenants
are out of compliance and payments are substantially delinquent. For
investments graded 4, it is anticipated that we will not recoup our
initial cost basis and may realize a substantial loss of our initial cost
basis upon exit.
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Our Investment Adviser grades the investments in our portfolio at least
quarterly and it is possible that the grade of a portfolio investment may be
reduced or increased over time. For investments graded 3 or 4, our Investment
Adviser enhances its level of scrutiny over the monitoring of such portfolio
company. The following table shows the composition of our portfolio on the 1 to
4 grading scale:
As of
December 31, 2019 December 31, 2018
Percentage Percentage
of Total of Total
Portfolio Portfolio
Investment at Fair at Fair
Performance Rating Fair Value Value Fair Value Value
(in (in
millions) millions)
Grade 1 $ 12.17 0.8 % $ 87.76 6.4 %
Grade 2 1,366.84 94.1 1,138.12 82.8
Grade 3 60.04 4.1 60.93 4.4
Grade 4 15.20 1.0 88.63 6.4
Total Investments $ 1,454.25 100.0 % $ 1,375.44 100.0 %
The decrease in investments with a grade 1 investment performance rating as of
December 31, 2019 compared to December 31, 2018 was primarily due to the
repayment of investments with an aggregate fair value of $87.76 million ,
partially offset by investments with an aggregate fair value of $12.17 million
being upgraded due to potential exits. The decrease in investments with a grade
4 investment performance rating as of December 31, 2019 compared to December 31,
2018 was primarily due to investments with an aggregate fair value of
$39.58 million as of December 31, 2018 being exchanged for common and preferred
equity as well as the exit of a portfolio company with a fair value of
$49.05 million . The decrease was partially offset by two investments with an
aggregate fair value of $15.2 million being downgraded from a grade 3 investment
performance rating as a result of being placed on non-accrual status.
The following table shows the amortized cost of our performing and
non-accrualinvestments:
As of
December 31, 2019 December 31, 2018
Percentage Percentage
of Total of Total
Portfolio Portfolio
Amortized at Amortized Amortized at Amortized
Cost Cost Cost Cost
(in (in
millions) millions)
Performing $ 1,480.08 98.0 % $ 1,306.55 91.7 %
Non-accrual 29.77 2.0 119.01 8.3
Total Investments $ 1,509.85 100.0 % $ 1,425.56 100.0 %
Investments are placed on non-accrual status when it is probable that principal,
interest or dividends will not be collected according to the contractual terms.
Accrued interest or dividends generally are reversed when an investment is
placed on non-accrualstatus. Interest or dividend payments received on
non-accrual investments may be recognized as income or applied to principal
depending upon management's judgment. Non-accrual investments are restored to
accrual status when past due principal and interest or dividends are paid and,
in management's judgment, principal and interest or dividend payments are likely
to remain current. We may make exceptions to this treatment if the loan has
sufficient collateral value and is in the process of collection.
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The following table shows our investment activity by investment type:
For the Years Ended
December 31,
2019 2018
($ in millions)
New investments committed at cost:
Gross originations $ 605.08 $ 519.71
Less: Syndications(1) - -
Net amount of new investments committed at cost: $ 605.08 $ 519.71
Amount of investments committed at cost(2)(12):
First Lien/Senior Secured Debt $ 574.02 $ 392.87
First Lien/Last-Out Unitranche 0.61 25.67
Second Lien/Senior Secured Debt 11.45 82.49 Unsecured Debt - 2.22 Preferred Stock 19.00 5.10 Common Stock - 5.70 Investment Funds & Vehicles - 5.66 Total$ 605.08 $ 519.71 Proceeds from investments sold or repaid(10)(12): First Lien/Senior Secured Debt$ 437.90 $ 24.66 First Lien/Last-Out Unitranche 56.25
152.72
Second Lien/Senior Secured Debt 102.56 143.41 Unsecured Debt - - Preferred Stock - - Common Stock 2.50 2.15 Investment Funds & Vehicles - - Total$ 599.21 $ 322.94 Net increase (decrease) in portfolio$ 5.87
Number of new portfolio companies with new investment commitments(3)
30 24
Total new investment commitment amount in new portfolio companies(3)
$ 444.36
$ 14.81
22 21
Total new investment commitment amount in existing portfolio companies(3)
$ 160.72
5.0 5.1
Percentage of new debt investment commitments at floating interest rates(3)(11)
100.0% 99.7%
Percentage of new debt investment commitments at fixed interest rates(3)(5)(11)
-% 0.3%
Weighted average yield on new debt and income producing investment commitments(2)(3)(6)
8.9% 10.0%
Weighted average yield on new investment commitments(2)(3)(7) 8.7%
9.8%
Weighted average yield on debt and income producing investments sold or paid down(8) (10)
10.3% 10.9%
Weighted average yield on investments sold or paid
down(9)(10) 9.4% 10.8%
(1) Only includes syndications that occurred at the initial close of the
investment.
(2) Net of capitalized fees, expenses and original issue discount ("OID") that
occurred at the initial close of the investment.
(3) May include positions originated during the period but not held at the
reporting date.
(4) Calculated as of the end of the relevant period and the maturity date of
the individual investments.
(5) May include preferred stock investments.
(6) Computed based on (a) the annual actual interest rate on new debt and income
producing investment commitments divided by (b) the total new debt and
income producing investment commitments. The calculation includes
incremental yield earned on the "last-out" portion of the unitranche loaninvestments and excludes investments that are non-accrual. The annual actual
interest rate used is as of the respective quarter end date when the
investment activity occurred.
(7) Computed based on (a) the annual actual interest rate on new investment
commitments divided by (b) the total new investment commitments (including
investments on non-accrual and non-income producing investments). The
calculation includes incremental yield earned on the "last-out" portion of
the unitranche loan investments. The annual actual interest rate used is as
of the respective quarter end date when the investment activity occurred.
(8) Computed based on (a) the annual actual interest rate on debt and income
producing investments sold or paid down, divided by (b) the total debt and
income producing investments sold or paid down. The calculation includes
incremental yield earned on the "last-out" portion of the unitranche loan
investments and excludes prepayment premiums earned on exited investments
and investments that are on non-accrual.
(9) Computed based on (a) the annual actual interest rate on investments sold or
paid down, divided by (b) the total investments sold or paid down (including
investments on non-accrual and non-income producing investments). The
calculation includes incremental yield earned on the "last-out" portion of
the unitranche loan investments and excludes prepayment premiums earned on
exited investments.
(10) Excludes unfunded commitments that may have expired or otherwise been
terminated without receipt of cash proceeds or other consideration.
(11) Computed based on amount of investments committed at cost.
(12) In
this, we received our pro rata portion of senior secured loans of
respectively and assumed our pro rata portion of unfunded loan commitments
totaling $5.66 million . The senior secured loans received consisted of 48
investments in 30 portfolio companies. As of December 31, 2019 the seniorsecured loans received had a weighted average yield at amortized cost and
fair value of 7.6% and 10.6%, respectively. The impact of this transaction
is excluded from the information presented in the table. For additional
information see "
in our consolidated financial statements included in this report.
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RESULTS OF OPERATIONS
The comparison for the years endedDecember 31, 2018 and 2017 can be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for the fiscal year endedDecember 31, 2018 . Our operating results for the years endedDecember 31, 2019 andDecember 31, 2018 were as follows: For the Years Ended December 31, 2019 2018 (in millions) Total investment income $ 147.26 $ 146.73 Net expenses 65.72 62.31 Net investment income (loss) before taxes 81.54 84.42 Income tax expense, including excise tax (1.82 ) (1.58 ) Net investment income (loss) after taxes 79.72 82.84 Net realized gain (loss) on investments (39.13 ) 1.73 Net realized gain (loss) on foreign currency transactions 0.10 (0.18 ) Net unrealized appreciation (depreciation) on investments (5.48 ) (30.76 ) Net unrealized appreciation (depreciation) on foreign currency forward contracts and translations 0.77 0.78 Income tax (provision) benefit for realized and unrealized gains 0.17 (0.73 ) Net increase in net assets resulting from operations $ 36.15 $ 53.68 Net increase in net assets resulting from operations can vary from period to period as a result of various factors, including acquisitions, the level of new investment commitments, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio. Investment Income For the Years Ended December 31, 2019 2018 (in millions) Interest $ 136.58 $ 125.14 Dividend income 3.63 10.70 Payment-in-kind 4.47 8.79 Other income 2.58 2.10 Total investment income $ 147.26 $ 146.73
Interest
Interest from investments, which includes prepayment premiums and accelerated accretion of upfront loan origination fees and unamortized discounts, increased from$125.14 million for the year endedDecember 31, 2018 to$136.58 million for the year endedDecember 31, 2019 . The increase is primarily due to an increase in recurring interest income due to an increase in the size of our portfolio and earning exit fees on certain investments. Included in interest for the years endedDecember 31, 2019 and 2018 is$1.92 million and$2.64 million , respectively, in prepayment premiums and$4.57 million and$3.27 million , respectively, in accelerated accretion of upfront loan origination fees and unamortized discounts, and$5.89 million and$1.30 million , respectively, for exit fees on investments. Dividend income Dividend income decreased from$10.70 million for the year endedDecember 31, 2018 to$3.63 million for the year endedDecember 31, 2019 . The decrease was due to the effective liquidation and dissolution of theSenior Credit Fund inMay 2019 . For additional information see "Senior Credit Fund, LLC " below and Note 4 "Investments" in our consolidated financial statements included in this report.
Payment-in-kind
Payment-in-kind ("PIK") income from investments decreased from $8.79 million for
the year ended December 31, 2018 to $4.47 million for the year ended
December 31, 2019 . The decrease is primarily driven by the full exit from our
investments in NTS Communications, Inc. in August 2019 , which was previously on
non-accrual status.
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Other income
Other income for the year
Expenses
For the Years Ended December 31,
2019 2018
(in millions)
Interest and other debt expenses $ 36.31 $ 26.23
Management fees 14.70 15.97
Incentive fees 9.22 13.99
Professional fees 2.95 3.08
Administration, custodian and transfer agent fees 0.97 0.94
Directors' fees 0.46 0.46
Other expenses 1.50 1.64
Total expenses $ 66.11 $ 62.31
Incentive fees waiver (0.39 ) -
Net expenses $ 65.72 $ 62.31
Interest and other debt expenses
Interest and other debt expenses increased from$26.23 million for the year endedDecember 31, 2018 to$36.31 million for the year endedDecember 31, 2019 . The increase was primarily driven by the increase in weighted average interest rate for the Revolving Credit Facility from 3.97% to 4.18% and the increase in average daily borrowings under the Revolving Credit Facility from$416.12 to$611.50 million . In addition, costs associated with the Convertible Notes increased from$7.32 million for the year endedDecember 31, 2018 to$8.61 million for the year endedDecember 31, 2019 .
Management Fees and Incentive Fees
Management fees decreased from$15.97 million for the year endedDecember 31, 2018 to$14.70 million for the year endedDecember 31, 2019 . The decrease was primarily driven by the reduction in the Management Fee from an annual rate of 1.50% to an annual rate of 1.00% effective onJune 15, 2018 , partially offset by an increase in gross assets, excluding cash or cash equivalents. Incentive fees decreased from$13.99 million for the year endedDecember 31, 2018 to$9.22 million for the year endedDecember 31, 2019 . The decrease was primarily driven by net capital losses on certain portfolio companies.
Professional fees and other general and administrative expenses
Professional fees and other general and administrative expenses for the year endedDecember 31, 2019 remained relatively consistent as compared to the year endedDecember 31, 2018 .
Net Realized Gains (Losses) and Net Change in Unrealized Appreciation (Depreciation) on Investments
The realized gains and losses on fully exited and partially exited portfolio companies consisted of the following:
For the Years Ended December 31,
2019 2018
(in millions)
ASC Acquisition Holdings, LLC $ (24.72 ) $ -
Country Fresh Holdings, LLC (8.41 ) -
Global Tel*Link Corporation - 0.24
myON, LLC - 1.55
NTS Communications, Inc. (7.22 ) -
Other, net 1.22 (0.06 )
Net realized gain (loss)
For the year endedDecember 31, 2019 , net realized losses were primarily driven by our investments in three portfolio companies. InFebruary 2019 , our first lien/last-out unitranche debt and second lien debt investment inASC Acquisition Holdings, LLC was exchanged for preferred and common equity, which resulted in a realized loss of$24.72 million . In addition, inApril 2019 , our second lien debt investment inCountry Fresh Holdings, LLC was exchanged for common equity, which resulted in a realized loss of$8.41 million . Lastly, inAugust 2019 , we fully exited our investments inNTS Communications, Inc. , which resulted in a realized loss of$7.22 million . 68
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In connection with the proceeds received from the exit of our equity investment
in myON, LLC, we recorded an income tax provision on realized gains of
Any changes in fair value are recorded as a change in unrealized appreciation
(depreciation) on investments. For further details on the valuation process,
refer to "Critical Accounting Policies-Valuation of Portfolio Investments." Net
change in unrealized appreciation (depreciation) on investments were as follows:
For the Years Ended December 31,
2019 2018
Unrealized appreciation $ 47.35 $ 9.08
Unrealized depreciation (52.83 ) (39.84 )
Net change in unrealized appreciation
(depreciation) on investments $ (5.48 ) $ (30.76 )
The change in unrealized appreciation (depreciation) on investments consisted of
the following:
For the Year Ended
December 31, 2019
Portfolio Company: ($ in millions)
ASC Acquisition Holdings, LLC $ 14.57
NTS Communications, Inc.
6.91
CB-HDT Holdings, Inc. (dbaHunter Defense Technologies )
4.70
Iracore International Holdings, Inc. 3.55Senior Credit Fund, LLC 3.54Infinity Sales Group 3.26Artesyn Embedded Technologies, Inc.
1.60
US Med Acquisition, Inc.
1.47
Accuity Delivery Systems, LLC
1.43
Country Fresh Holding Company Inc.
1.19
SpectrumPlastics Group, Inc.
(1.14 )
Jill Acquisition LLC (dbaJ. Jill )
(1.24 )
SMS Systems Maintenance Services, Inc.
(1.65 )
Empirix, Inc.
(1.99 )
GK Holdings, Inc. (dbaGlobal Knowledge ) (3.00 ) Other, net(1) (3.59 )Bolttech Mannings, Inc. (4.84 )MPI Products LLC (6.17 )IHS Intermediate Inc. (dbaInteractive Health Solutions )
(6.87 )
Animal Supply Holdings, LLC (7.39 )
Zep Inc. (9.82 )
Total $ (5.48 )
(1) For the year ended December 31, 2019, other, net includes gross
unrealized appreciation of $5.13 million and gross unrealized
depreciation of $(8.72) million .
For the Year Ended
December 31, 2018
Portfolio Company: ($ in millions)
CB-HDT Holdings, Inc. $ 5.36
Vexos, Inc. 0.76
Accuity Delivery Systems, LLC 0.64
Mervin Manufacturing, Inc. 0.37
Datto, Inc. 0.35
Zep Inc. (2.02 )
Bolttech Mannings, Inc. (2.35 )
NTS Communications, Inc. (2.44 )
Conergy Asia Holdings, Ltd. (4.43 )
Other, net(1) (12.01 )
ASC Acquisition Holdings, LLC (14.99 )
Total $ (30.76 )
(1) For the year ended December 31, 2018, other, net includes gross
unrealized appreciation of $1.60 million and gross unrealized
depreciation of $(13.61) million .
Net change in unrealized appreciation (depreciation) in our investments for the
year ended December 31, 2019 was primarily driven by the unrealized depreciation
in Zep, Inc. , Bolttech Mannings, Inc. and Animal Supply Holdings, LLC due to
financial underperformance and the unrealized depreciation in IHS Intermediate
Inc. (dba Interactive Health Solutions ) and MPI Products LLC which were placed
on non-accrual status due to their capital condition. The net change was offset
by the reversal of unrealized depreciation in connection with the aforementioned
exchange with ASC Acquisition Holdings, LLC . and the full exit from our
investments in NTS Communications, Inc. and the unrealized appreciation in
CB-HDT Holdings, Inc. due to improved financial performance.
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Net change in unrealized appreciation (depreciation) in our investments for the
year ended December 31, 2018 was primarily driven by the unrealized depreciation
in ASC Acquisition Holdings, LLC due to financial underperformance, and the
unrealized depreciation in Conergy Asia Holdings, Ltd. due to its capital
condition, which was partially offset by the unrealized appreciation in CB-HDT
Holdings, Inc. due to improved financial performance.
SENIOR CREDIT FUND, LLC
Overview
The Senior Credit Fund , an unconsolidatedDelaware limited liability company, was formed onMay 7, 2014 and commenced operations onOctober 1, 2014 . We invested together with Cal Regents through theSenior Credit Fund .The Senior Credit Fund's principal purpose was to make investments, either directly or indirectly through its wholly owned subsidiary,Senior Credit Fund SPV I, LLC ("SPV I"), primarily in senior secured loans to middle-market companies. Each of us and Cal Regents were responsible for sourcing theSenior Credit Fund's investments. Each of us and Cal Regents had a 50% economic ownership in theSenior Credit Fund and each had subscribed to and has fully contributed$100.00 million . OnDecember 19, 2016 , SPV I entered into an amended and restated credit facility (as amended, the "Asset Based Facility"), which consisted of a revolving credit facility (the "SPV I Revolving Credit Facility"), a term loan facility (the "SPV I Term Loan Facility") and a Class B loan facility (the "SPV I ClassB Facility "), with various lenders. For the Asset Based Facility, Natixis,New York Branch ("Natixis") served as the facility agent, andState Street Bank and Trust Company served as the collateral agent. OnFebruary 27, 2019 , the board of managers of theSenior Credit Fund authorized the liquidation and subsequent dissolution of theSenior Credit Fund and the pro-rata distribution of its assets and liabilities to the members of theSenior Credit Fund . OnMay 8, 2019 , we and Cal Regents each contributed$125.56 million to theSenior Credit Fund , which was used by theSenior Credit Fund to repay in full all outstanding indebtedness, including all accrued and unpaid interest and fees, under the Asset Based Facility and to fund certain other related expenses that theSenior Credit Fund expects to incur in connection with its dissolution. The Asset Based Facility was then terminated and all liens securing the collateral under the Asset Based Facility were released and terminated. Following the repayment and termination of the aforementioned Asset Based Facility, theSenior Credit Fund distributed to its members their pro rata share of the assets of theSenior Credit Fund . The pro rata portion of the assets received by us included senior secured loans of$215.10 million and$210.09 million at amortized cost and at fair value, respectively and cash of$9.82 million . In addition, we assumed the obligation to fund outstanding unfunded commitments of theSenior Credit Fund that totaled$5.66 million , representing its pro rata portion of all unfunded commitments of theSenior Credit Fund at such time. The pro rata portion of the assets received by us have been included in our consolidated financial statements and notes thereto. After the satisfaction of all remaining liabilities and the distribution of remaining assets, theSenior Credit Fund was terminated. Below is certain summarized balance sheet information for theSenior Credit Fund as ofDecember 31, 2018 : December 31, 2018 Selected Balance Sheet Information Total investments, at fair value$ 457.09 Cash and other assets 42.85 Total assets$ 499.94 Debt(1)$ 298.34 Other liabilities 8.69 Total liabilities$ 307.03 Members' equity$ 192.91 Total liabilities and members' equity$ 499.94 (1) Net of deferred financing costs for the SPV I Term Loan Facility (as defined below) as of December 31, 2018, which were in the amount of$2.16 million , respectively. Below is certain summarized Statement of Operations information for theSenior Credit Fund : For the For the For the Year Ended Year Ended Year Ended December 31, December 31, December 31, 2019* 2018 2017 Selected Statements of Operations Information: Total investment income$ 12.82 $ 39.13 $ 37.68 Expenses: Interest and other debt expenses$ 10.57 $ 15.60 $ 13.45 Excess loan origination and structuring fees - - 1.31 Professional fees 0.38 0.69 0.62 Administration and custodian fees 0.16 0.40 0.40 Other expenses - 0.07 0.15 Total expenses$ 11.11 $ 16.76 $ 15.93 Total net income $ 1.71$ 22.37 $ 21.75 *Senior Credit Fund ceased operations effectiveMay 8, 2019 . 70
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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The primary use of existing funds and any funds raised in the future is expected to be for our investments in portfolio companies, cash distributions to our stockholders or for other general corporate purposes, including paying for operating expenses or debt service to the extent we borrow or issue senior securities.
We expect to generate cash primarily from the net proceeds of any future offerings of securities, future borrowings and cash flows from operations. To the extent we determine that additional capital would allow us to take advantage of additional investment opportunities, if the market for debt financing presents attractively priced debt financing opportunities, or if our Board of Directors otherwise determines that leveraging our portfolio would be in our best interest and the best interests of our stockholders, we may enter into credit facilities in addition to our existing credit facilities as discussed below, or issue other senior securities. We would expect any such credit facilities may be secured by certain of our assets and may contain advance rates based upon pledged collateral. The pricing and other terms of any such facilities would depend upon market conditions when we enter into any such facilities as well as the performance of our business, among other factors. As a BDC, with certain limited exceptions, we are only permitted to borrow amounts such that our asset coverage ratio, as defined in the Investment Company Act, is at least 150% after such borrowing (if certain requirements are met). See "-Key Components of Operations-Leverage." As ofDecember 31, 2019 andDecember 31, 2018 , our asset coverage ratio based on the aggregate amount outstanding of our senior securities was 0% and 206%, respectively. We may also refinance or repay any of our indebtedness at any time based on our financial condition and market conditions. We may enter into investment commitments through signed commitment letters which may ultimately become investment transactions in the future. We regularly evaluate and carefully consider our unfunded commitments using GSAM's proprietary risk management framework for the purpose of planning our capital resources and ongoing liquidity, including our financial leverage. As ofDecember 31, 2019 , we had cash of approximately$9.41 million , an increase of$3.30 million fromDecember 31, 2018 . Cash provided by operating activities for the year endedDecember 31, 2019 was approximately$35.27 million , primarily driven by a decrease in net assets resulting from operations of$36.15 million , proceeds from sales and principal repayments of$579.01 million and cash used by other operating activities of$49.95 million , offset by purchases of investments of$700.38 million . Cash used by financing activities for the year endedDecember 31, 2019 was approximately$38.56 million , primarily driven by repayments on debt of$451.6 million , distributions paid of$69.85 million and other financing activities of$0.58 million , offset by borrowings on debt of$560.59 million . As ofDecember 31, 2018 , we had cash of approximately$6.11 million , a decrease of$5.49 million fromDecember 31, 2017 . Cash used by operating activities for year endedDecember 31, 2018 was approximately$49.24 million , primarily driven by an increase in net assets resulting from operations of$53.68 million , proceeds from sales and principal repayments of$321.72 million , proceeds from other operating activities of$13.90 million and proceeds from net sale of investments in affiliated money market fund of$11.54 million , offset by purchases of investments of$450.08 million . Cash provided by financing activities for the year endedDecember 31, 2018 was approximately$43.75 million , primarily driven by repayments on debt of$365.75 million , distributions paid of$70.37 million and other financing activities of$4.05 million , offset by borrowings on debt of$483.92 million . To the extent permissible under the risk retention rules and applicable provisions of the Investment Company Act, we may raise capital by securitizing certain of our investments, including through the formation of one or more CLOs or asset based facilities, while retaining all or most of the exposure to the performance of these investments. This would involve contributing a pool of assets to a special purpose entity, and selling debt interests in such entity on a non-recourse or limited-recourse basis to purchasers. We may also pursue other forms of debt financing, including potentially from theSmall Business Administration through a future small business investment company subsidiary (subject to regulatory approvals).
Equity Issuances
There were no sales of our common stock during the years ended
Common Stock Repurchase Plans
InFebruary 2016 , our Board of Directors authorized us to repurchase up to$25.00 million of our common stock if the stock trades below the most recently announced NAV per share (including any updates, corrections or adjustments publicly announced by us to any previously announced NAV per share), fromMarch 18, 2016 toMarch 18, 2017 , subject to certain limitations. InFebruary 2017 , our Board of Directors renewed its authorization of the stock repurchase plan to extend the expiration toMarch 18, 2018 , inFebruary 2018 , again renewed its authorization of the stock repurchase plan to extend the expiration toMarch 18, 2019 and, inFebruary 2019 , again renewed its authorization of the stock repurchase plan to extend the expiration toMarch 18, 2020 . 71 -------------------------------------------------------------------------------- In connection with this authorization, we entered into a 10b5-1 plan (the "Initial Company 10b5-1 Plan").The Initial Company 10b5-1 Plan initially took effect onMarch 18, 2016 (with any purchases to commence after the opening of NYSE trading onMarch 21, 2016 ), was subsequently renewed and expired onMarch 18, 2018 . We entered into an agreement to renew theInitial Company 10b5-1 Plan onMay 14, 2018 , which was terminated onJune 27, 2018 in connection with our offering of Convertible Notes described below in "-Convertible Notes." OnJune 27, 2018 , we entered into an agreement to renew theInitial Company 10b5-1 Plan with any purchases pursuant to the agreement to commence onSeptember 25, 2018 .The Initial Company 10b5-1 Plan expired onMarch 18, 2019 . InFebruary 2019 , our Board of Directors approved the "Company 10b5-1 Plan, which provides for us to repurchase of up to$25.00 million of shares of our common stock if the stock trades below the most recently announced net asset value per share, subject to limitations. Under the Company 10b5-1 Plan, no purchases will be made if such purchases would (i) cause the aggregate ownership of our outstanding stock byGroup Inc. andGS & Co. to equal or exceed 25.0% (due to the reduction in outstanding shares of stock as a result of purchase) or (ii) cause our Debt/Equity Ratio to exceed the lower of (a) 1.40 or (b) the Maximum Debt/Equity Ratio. In the Company 10b5-1 Plan, "Debt/Equity Ratio" means the sum of debt on the Consolidated Statements of Assets and Liabilities and the total notional value of the Purchaser's unfunded commitments divided by 85% of total equity, as of the most recent reported financial statement end date, and "Maximum Debt/Equity Ratio" means the sum of debt on the balance sheet and committed uncalled debt divided by net assets, as of the most recent reported financial statement end date. The Company 10b5-1 Plan took effect onMarch 18, 2019 , expires onMarch 18, 2020 and purchases thereunder will be conducted on a programmatic basis in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act and other applicable securities laws. The Company 10b5-1 Plan was temporarily suspended onDecember 9, 2019 and remains suspended as ofFebruary 20, 2020 . Repurchases of our common stock under the Company 10b5-1 Plan or otherwise may result in the price of our common stock being higher than the price that otherwise might exist in the open market. For the years endedDecember 31, 2019 , 2018 and 2017, we did not repurchase any of our common stock pursuant to theInitial Company 10b5-1 Plan, the Company 10b5-1 Plan or otherwise.
Dividend Reinvestment Plan
We adopted a dividend reinvestment plan that provides for reinvestment of all cash distributions declared by the Board of Directors unless a stockholder elects to "opt out" of the plan. As a result, if the Board of Directors declares a cash distribution, then the stockholders who have not "opted out" of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of common stock, rather than receiving the cash distribution. Due to regulatory considerations,Group Inc. has opted out of the dividend reinvestment plan, andGS & Co. has opted out of the dividend reinvestment plan in respect of any shares of our common stock acquired through the GS 10b5-1 Plan.
The following table summarizes shares distributed pursuant to the dividend reinvestment plan to stockholders who had not opted out of the dividend reinvestment plan.
Date Declared Record Date Payment Date Shares For the Year EndedDecember 31, 2019 October 30, 2018 December 31, 2018 January 15, 2019 39,591 February 20, 2019 March 29, 2019 April 15, 2019 35,306 May 7, 2019 June 28, 2019 July 15, 2019 35,408 July 30, 2019 September 30, 2019 October 15, 2019 29,141 For the Year EndedDecember 31, 2018 October 31, 2017 December 29, 2017 January 16, 2018 23,824 February 21, 2018 March 30, 2018 April 16, 2018 20,916 May 1, 2018 June 29, 2018 July 16, 2018 20,644 August 1, 2018 September 28, 2018 October 15, 2018 31,576 Contractual Obligations We have entered into certain contracts under which we have future commitments. Payments under the Investment Management Agreement, pursuant to which GSAM has agreed to serve as our Investment Adviser, are equal to (1) a percentage of value of our average gross assets and (2) a two-part Incentive Fee. Under the Administration Agreement, pursuant to whichState Street Bank and Trust Company has agreed to furnish us with the administrative services necessary to conduct our day-to-day operations, we pay our administrator such fees as may be agreed between us and our administrator that we determine are commercially reasonable in our sole discretion. Either party or the stockholders, by a vote of a majority of our outstanding voting securities, may terminate the Investment Management Agreement without penalty on at least 60 days' written notice to the other party. Either party may terminate the Administration Agreement without penalty upon at least 30 days' written notice to the other party. 72
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The following table shows our contractual obligations as ofDecember 31, 2019 : Payments Due by Period (in millions) Less Than More Than Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years Revolving Credit Facility$ 580.55 $ - $ -$ 580.55 $ - Revolving Credit Facility € 33.75 € - €
- € 33.75 € -
Convertible Notes $ 155.00 $ - $ 155.00 $ - $ -
Euro ("€")
Revolving Credit Facility
On
The aggregate committed borrowing amount under the Revolving Credit Facility is$795.00 million . The Revolving Credit Facility includes an uncommitted accordion feature that allows us, under certain circumstances, to increase the borrowing capacity of the Revolving Credit Facility up to$1,000.00 million . Borrowings denominated in USD, including amounts drawn in respect of letters of credit, bear interest (at our election) of either (i) LIBOR plus a margin of either 1.75% or 2.00%, subject to borrowing base conditions or (ii) an alternative base rate, which is the higher of the Prime Rate, Federal Funds Rate plus 0.50% or overnight LIBOR plus 1.00%, plus either 0.75% or 1.00%, subject to borrowing base conditions. Borrowings denominated in EUR bear interest (at our election) orEUR LIBOR plus a margin of either 1.75% or 2.00%, subject to borrowing base conditions. We may elect either the LIBOR,EUR LIBOR , or an alternative base rate at the time of borrowing, and borrowings may be converted from one rate to another at any time, subject to certain conditions. Interest is payable quarterly in arrears. We pay a fee of 0.375% per annum on committed but undrawn amounts under the Revolving Credit Facility, payable quarterly in arrears. Any amounts borrowed under the Revolving Credit Facility will mature, and all accrued and unpaid interest will be due and payable, onFebruary 21, 2023 .
The Revolving Credit Facility may be guaranteed by certain of our domestic subsidiaries, including any that are formed or acquired by us in the future (collectively, the "Guarantors"). Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.
Our obligations to the lenders under the Revolving Credit Facility are secured by a first priority security interest in substantially all of our portfolio of investments and cash, with certain exceptions. The Revolving Credit Facility contains certain covenants, including: (i) maintaining a minimum shareholder's equity of$500.00 million plus 25% of net proceeds of the sale of equity interests afterFebruary 21, 2018 , (ii) maintaining a minimum asset coverage ratio of at least 150%, (iii) maintaining a minimum asset coverage ratio of 200% with respect to consolidated assets (with certain limitations on the contribution of equity in financing subsidiaries as specified therein) of us and our subsidiary guarantors to the secured debt of us and our subsidiary guarantors, (iv) maintaining a minimum Company net worth of at least$350.00 million , (v) maintaining a minimum liquidity test of at least 10% of the covered debt amount during any period when the adjusted covered debt balance is greater than 90% of the adjusted borrowing base, as defined in the Revolving Credit Facility, and (vi) complying with restrictions on industry concentrations in our investment portfolio. We are in compliance with these covenants.
The Revolving Credit Facility also includes customary representations and warranties, conditions precedent to funding of draws and events of default.
Convertible Notes
OnOctober 3, 2016 , we closed an offering of$115.00 million aggregate principal amount of unsecured Convertible Notes, which included$15.00 million aggregate principal amount issued pursuant to the initial purchasers' exercise in full of an over-allotment option (the "Initial Convertible Notes"). The sale of the Initial Convertible Notes generated net proceeds of approximately$110.90 million . We used the net proceeds of the offering to pay down debt under the Revolving Credit Facility. OnJuly 2, 2018 , we closed an offering of$40.00 million aggregate additional principal amount (the "Additional Convertible Notes" and, together with the Initial Convertible Notes, the "Convertible Notes"). The Additional Convertible Notes have identical terms, are fungible and are part of the Initial Convertible Notes. The sale of the Additional Convertible Notes generated net proceeds of approximately$38.57 million . We used the net proceeds of the offering to pay down debt under the Revolving Credit Facility. 73 -------------------------------------------------------------------------------- The Convertible Notes were issued pursuant to an indenture between us andWells Fargo Bank, National Association , as Trustee.Wells Fargo Bank, National Association and/or its affiliates provide bank lending and distribution services to certain Goldman Sachs funds. The Convertible Notes bear interest at a rate of 4.50% per year, payable semi-annually in arrears onApril 1 andOctober 1 of each year, commencing onApril 1, 2017 . The Convertible Notes will mature onApril 1, 2022 , unless repurchased or converted in accordance with their terms prior to such date. In certain circumstances, the Convertible Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, based on an initial conversion rate of 40.8397 shares of our common stock per$1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately$24.49 per share of common stock, subject to customary anti-dilution adjustments and the other terms of the indenture governing the Convertible Notes. The conversion price is approximately 10.0% above the$22.26 per share closing price of our common stock onSeptember 27, 2016 and 16.7% above the$20.99 per share closing price of our common stock onJune 26, 2018 . We will not have the right to redeem the Convertible Notes prior to maturity. Holders may convert their notes at their option at any time prior to the close of business on the business day immediately precedingOctober 1, 2021 only under the following circumstances: (1) during any calendar quarter, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the "measurement period") in which the trading price per$1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or afterOctober 1, 2021 , until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the occurrence or nonoccurrence of any of the foregoing circumstances. The Convertible Notes are accounted for in accordance with Accounting Standards Codification ("ASC") Topic 470-20, Debt with Conversion and Other Options. Upon conversion of any of the Convertible Notes, we intend to pay the outstanding principal amount in cash and, to the extent that the conversion value exceeds the principal amount, we have the option to pay the excess amount in cash or shares of our common stock (or a combination of cash and shares), subject to the requirements of the indenture governing the Convertible Notes. We have determined that the embedded conversion options in the Convertible Notes are not required to be separately accounted for as derivatives under ASC 815, Derivatives and Hedging. At the time of issuance the values of the debt and equity components of the Initial Convertible Notes and Additional Convertible Notes were approximately 99.4% and 0.6%, and 97.9% and 2.1%, respectively. The OID equal to the equity component of the Convertible Notes was recorded in "paid-in capital in excess of par" in the accompanying Consolidated Statements of Assets and Liabilities. We record interest expense comprised of both stated interest and amortization of the OID. At the time of issuance, the equity component of the Initial Convertible Notes and the Additional Convertible Notes were$0.74 million and$0.84 million , respectively. Additionally, the issuance costs associated with the Convertible Notes were allocated to the debt and equity components in proportion to the allocation of the values at the time of issuance and accounted for as debt issuance costs and equity issuance costs, respectively. HEDGING Subject to applicable provisions of the Investment Company Act and applicableCommodity Futures Trading Commission ("CFTC") regulations, we may enter into hedging transactions in a manner consistent withSEC guidance. To the extent that any of our loans are denominated in a currency other thanU.S. dollars, we may enter into currency hedging contracts to reduce our exposure to fluctuations in currency exchange rates. We may also enter into interest rate hedging agreements. Such hedging activities, which will be subject to compliance with applicable legal requirements, may include the use of futures, options, swaps and forward contracts. Costs incurred in entering into such contracts or in settling them, if any, will be borne by us. The Investment Adviser has claimed no-action relief from CFTC registration and regulation as a commodity pool operator pursuant to a CFTC Rule 4.5 with respect to our operations, with the result that we will be limited in our ability to use futures contracts or options on futures contracts or engage in swap transactions. Specifically, CFTC Rule 4.5 imposes strict limitations on using such derivatives other than for hedging purposes, whereby the use of derivatives not used solely for hedging purposes is generally limited to situations where (i) the aggregate initial margin and premiums required to establish such positions does not exceed five percent of the liquidation value of our portfolio, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; or (ii) the aggregate net notional value of such derivatives does not exceed 100% of the liquidation value of our portfolio. Moreover, we anticipate entering into transactions involving such derivatives to a very limited extent solely for hedging purposes or otherwise within the limitations of CFTC Rule 4.5. 74
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OFF-BALANCE SHEET ARRANGEMENTS
We may become a party to investment commitments and to financial instruments with off-balance sheet risk in the normal course of our business to fund investments and to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As ofDecember 31, 2019 , we believed that we had adequate financial resources to satisfy our unfunded commitments. Our unfunded commitments to provide funds to portfolio companies were as follows: As of December 31, December 31, 2019 2018 (in millions) Unfunded Commitments First Lien/Senior Secured Debt$ 84.84 $ 94.40 Second Lien/Senior Secured Debt 2.38 2.35 Total$ 87.22 $ 96.75 RECENT DEVELOPMENTS OnFebruary 10, 2020 , we closed an offering of$360.00 million aggregate principal amount of 3.75% notes due 2025 (the "Notes"). The Notes will mature onFebruary 10, 2025 and may be redeemed in whole or in part at our option at any time at par plus a "make-whole" premium, if applicable. We used the net proceeds of the offering to pay down debt under our Revolving Credit Facility.
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CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America ("GAAP"). The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially. In addition to the discussion below, our critical accounting policies are further described in the notes to the consolidated financial statements.
Valuation of Portfolio Investments
As a BDC, we conduct the valuation of our assets, pursuant to which our NAV is
determined, consistent with GAAP and the Investment Company Act. Our Board of
Directors, with the assistance of our Audit Committee, determines the fair value
of our assets within the meaning of the Investment Company Act, on at least a
quarterly basis, in accordance with the terms of Financial Accounting Standards
Board ASC Topic 820, Fair Value Measurement and Disclosures ("ASC 820").
ASC 820 defines fair value as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. Fair value is a market-based measurement,
not an entity-specific measurement. For some assets and liabilities, observable
market transactions or market information might be available. For other assets
and liabilities, observable market transactions and market information might not
be available. However, the objective of a fair value measurement in both cases
is the same-to estimate the price when an orderly transaction to sell the asset
or transfer the liability would take place between market participants at the
measurement date under current market conditions (that is, an exit price at the
measurement date from the perspective of a market participant that holds the
asset or owes the liability).
ASC 820 establishes a hierarchal disclosure framework which ranks the
observability of inputs used in measuring financial instruments at fair value.
The observability of inputs is impacted by a number of factors, including the
type of financial instruments and their specific characteristics. Financial
instruments with readily available quoted prices, or for which fair value can be
measured from quoted prices in active markets, generally will have a higher
degree of market price observability and a lesser degree of judgment applied in
determining fair value. The levels used for classifying investments are not
necessarily an indication of the risk associated with investing in these
securities.
The three-level hierarchy for fair value measurement is defined as follows:
Level 1-inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The types of financial instruments included in Level 1 include unrestricted securities, including equities and derivatives, listed in active markets.
Level 2-inputs to the valuation methodology are other than quoted prices in
active markets, which are either directly or indirectly observable as of the
reporting date. The type of financial instruments in this category includes less
liquid and restricted securities listed in active markets, securities traded in
other than active markets, government and agency securities, and certain
over-the-counter derivatives where the fair value is based on observable inputs.
Level 3-inputs to the valuation methodology are unobservable and significant to
overall fair value measurement. The inputs into the determination of fair value
require significant management judgment or estimation. Financial instruments
that are included in this category include investments in privately held
entities and certain over-the-counter derivatives where the fair value is based
on unobservable inputs.
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-------------------------------------------------------------------------------- In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given financial instrument is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and considers factors specific to the financial instrument. Currently, the majority of our investments fall within Level 3 of the fair value hierarchy. We do not expect that there will be readily available market values for most of the investments which are in our portfolio, and we value such investments at fair value as determined in good faith by or under the direction of our Board of Directors using a documented valuation policy, described below, and a consistently applied valuation process. The factors that may be taken into account in pricing our investments at fair value include, as relevant, the nature and realizable value of any collateral, the portfolio company's ability to make payments and its earnings and discounted cash flow, and the markets in which the portfolio company does business, comparison to publicly traded securities and other relevant factors. Available current market data are considered such as applicable market yields and multiples of publicly traded securities, comparison of financial ratios of peer companies, and changes in the interest rate environment and the credit markets that may affect the price at which similar investments would trade in their principal market, and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we consider the pricing indicated by the external event to corroborate or revise our valuation. With respect to investments for which market quotations are not readily available, or for which market quotations are deemed not reflective of the fair value, the valuation procedures adopted by our Board of Directors contemplates a multi-step valuation process each quarter, as described below:
(1) Our quarterly valuation process begins with each portfolio company or
investment being initially valued by the investment professionals of
our Investment Adviser responsible for the portfolio investment;
(2) Our Board of Directors also engages independent valuation firms (the
"Independent Valuation Advisors ") to provide independentvaluations of
the investments for which market quotations are not readily available,
or are readily available but deemed not reflective of the fair value
of an investment. The Independent Valuation Advisors independently
value such investments using quantitative and qualitativeinformation
provided by the investment professionals of the Investment Adviser as
well as any market quotations obtained from independent pricing
services, brokers, dealers or market dealers. The Independent
Valuation Advisors also provide analyses to support theirvaluation
methodology and calculations. The Independent ValuationAdvisors
provide an opinion on a final range of values on such investments to
our Board of Directors or the Audit Committee. The Independent
Valuation Advisors define fair value in accordance with ASC 820 and
utilize valuation approaches including the market approach, the income
approach or both. A portion of the portfolio is reviewed on a
quarterly basis, and all investments in the portfolio for which market
quotations are not readily available, or are readily available, but
deemed not reflective of the fair value of an investment, are reviewed
at least annually by an Independent Valuation Advisor;
(3) The Independent Valuation Advisors' preliminary valuations are
reviewed by our Investment Adviser and the Valuation Oversight Group
("VOG"), a team that is part of the Controllers Department within the
Finance Division of Goldman Sachs . The Independent Valuation
Advisors'
ranges are compared to our Investment Adviser's valuations to ensure
our Investment Adviser's valuations are reasonable. VOGpresents the
valuations to the Private Investment Valuation and Side Pocket Working
Group of the Investment Management Division Valuation
Committee, which
is comprised of representatives from GSAM who are independent of the
investment making decision process;
(4) The Investment Management Division Valuation Committee ratifies fair
valuations and makes recommendations to the Audit Committee of the
Board of Directors;
(5) The Audit Committee of our Board of Directors reviews valuation
information provided by the Investment Management Division Valuation
Committee, our Investment Adviser and the Independent Valuation
Advisors . The Audit Committee then assesses such valuation
recommendations; and
(6) Our Board of Directors discusses the valuations and, within the
meaning of the Investment Company Act, determines the fairvalue of
our investments in good faith, based on the input of ourInvestment
Adviser, the Independent Valuation Advisors and the Audit
Committee.
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Investment Transactions and Related Investment Income
We record our investment transactions on a trade date basis, which is the date when we assume the risks for gains and losses related to that instrument. Realized gains and losses are based on the specific identification method. Dividend income on common equity investments is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Interest income and dividend income are presented net of withholding tax, if any. Accretion of discounts and amortization of premiums, which are included in interest income and expense, are recorded over the life of the underlying instrument using the effective interest method. Fair value generally is based on quoted market prices, broker or dealer quotations, or alternative price sources. In the absence of quoted market prices, broker or dealer quotations, or alternative price sources, investments in securities are measured at fair value as determined by our Investment Adviser and/or by one or more independent third parties. Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material. For additional information, see Note 2 "Significant Accounting Policies" to our consolidated financial statements included in this report.
Non-Accrual Status
Investments are placed on non-accrual status when it is probable that principal, interest or dividends will not be collected according to the contractual terms. Accrued interest or dividends generally are reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual investments may be recognized as income or applied to principal depending upon management's judgment. Non-accrual investments are restored to accrual status when past due principal and interest or dividends are paid and, in management's judgment, principal and interest or dividend payments are likely to remain current. We may make exceptions to this treatment if the investment has sufficient collateral value and is in the process of collection. As ofDecember 31, 2019 , we had certain investments held in three portfolio companies on non-accrual status, which represented 2.0% and 1.0% of the total investments (excluding our investment in a money market fund, if any, managed by an affiliate ofGroup Inc. ) at amortized cost and at fair value, respectively. As ofDecember 31, 2018 , we had certain investments held in three portfolio companies on non-accrual status, which represented 8.3% and 7.0% of the total investments (excluding our investment in a money market fund, if any, managed by an affiliate ofGroup Inc. ) at amortized cost and at fair value, respectively.
Distribution Policy
We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. Future quarterly distributions, if any, will be determined by our Board of Directors. All distributions will be subject to lawfully available funds therefor, and no assurance can be given that we will be able to declare distributions in future periods. We have elected to be treated, and expect to qualify annually, as a RIC under Subchapter M of the Code, commencing with our taxable year endedDecember 31, 2013 . To maintain our tax treatment as a RIC, we must, among other things, timely distribute to our stockholders at least 90% of our investment company taxable income for each taxable year. We intend to timely distribute to our stockholders substantially all of our annual taxable income for each year, except that we may retain certain net capital gains for reinvestment and carry forward taxable income for distribution in the following year and pay any applicable tax. The distributions we pay to our stockholders in a year may exceed our net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital forU.S. federal income tax purposes. The specific tax characteristics of our distributions will be reported to stockholders after the end of the calendar year. Stockholders should read carefully any written disclosure regarding a distribution from us and should not assume that the source of any distribution is our net ordinary income or capital gains. We have adopted an "opt out" dividend reinvestment plan for our common stockholders. As a result, if our Board of Directors declares a cash distribution, each stockholder that has not "opted out" of our dividend reinvestment plan will have its distribution automatically reinvested in additional shares of our common stock rather than receiving the cash distribution. Stockholders who receive distributions in the form of shares of common stock will generally be subject to the sameU.S. federal, state and local tax consequences as if they received cash distributions; however, since their cash distributions will be reinvested, those stockholders will not receive cash with which to pay any applicable taxes. Due to regulatory considerations,Group Inc. has opted out of the dividend reinvestment plan, andGS & Co. has opted out of the dividend reinvestment plan in respect of any shares of our common stock acquired through the GS 10b5-1 Plan. 77
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Federal Income Taxes
As a RIC, we generally will not be required to pay corporate-levelU.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends. To maintain our RIC status, we must meet specified source-of-income and asset diversification requirements and timely distribute to our stockholders at least 90% of our investment company taxable income for each year. Depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable tax. We generally will be required to pay aU.S. federal excise tax if our distributions during a calendar year do not exceed the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending onOctober 31 of the calendar year and (3) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years. Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the consolidated financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
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