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 throughMarch 31, 2021 , we originated more than$4.40 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 (includingGoldman Sachs Private Middle Market Credit LLC andGoldman Sachs Private Middle Market Credit II LLC , 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. For a discussion of the competitive landscape we face, please see "Item 1A. Risk Factors-Competition-We operate in a highly competitive market for investment opportunities" and "Item 1. Business-Competitive Advantages," in our annual report on Form 10-K for the year endedDecember 31, 2020 . 46
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Merger with GS MMLC
OnOctober 12, 2020 , we completed our merger (the "Merger") with GS MMLC pursuant to the Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"), dated as ofJune 11, 2020 . In accordance with the terms of the Merger Agreement, at the effective time of the Merger, each outstanding share of GS MMLC common stock was converted into the right to receive, for each share of GS MMLC common stock, that number of shares of our common stock, par value$0.001 per share ("Common Stock"), with a net asset value ("NAV") equal to the NAV per share of GS MMLC common stock, in each case calculated as ofOctober 9, 2020 . As a result of the Merger, we issued an aggregate of 61,037,311 shares of Common Stock to former GS MMLC stockholders. In connection with the Merger,GSAM reimbursed each of us and GS MMLC, in each case in an amount of$4.00 million , for all fees and expenses incurred and payable by us or GS MMLC, in connection with or related to the Merger (including all documented fees and expenses of counsel, accountants, experts and consultants to us or the special committee of our board of directors (the "Board of Directors"), on the one hand, or GS MMLC or the special committee of its board of directors, on the other hand). For more information, see Note 12 "Merger with GS MMLC" to our consolidated financial statements included in this report.
Impact of COVID-19 Pandemic
While the availability of vaccines has raised hopes that an end to the COVID-19 pandemic is within reach, the pandemic's trajectory will depend on the speed and scale of vaccine distribution and the extent to which efforts to curtail infections are hampered by new surges caused by variants of the virus. Entering the second quarter of 2021, the situation has remained in flux globally, as some countries have encountered a significant increase in the number of new cases. The extent to which the COVID-19 pandemic will continue to affect our business, financial condition, liquidity, our portfolio companies' results of operations and by extension our operating results will depend on future developments, which are highly uncertain and cannot be predicted. Our investment portfolio continues to be focused on industries and sectors that are generally expected to be more durable than industries and sectors that are more prone to economic cycles. Given the unprecedented nature of COVID-19 and the difficulty in predicting future government responses and restrictions, the operating environment of our portfolio companies is evolving rapidly. Business disruption experienced by our portfolio companies may reduce, over time, the amount of interest and dividend income that we receive from our investments companies and may require us to contribute additional capital to such portfolio companies. We may need to restructure our investments in some portfolio companies, which could result in reduced interest payments from or permanent impairments of our investments, and could result in the restructuring of certain of our investments from income paying investments into non-income paying equity investments. Any such decrease in our net investment income would increase the percentage of our cash flows dedicated to our debt obligations and distribution payments to our stockholders. As a result, we may be required to reduce the future amount of distributions to our stockholders. We continue to closely monitor our investment portfolio in order to be positioned to respond appropriately. Goldman Sachs has continued to successfully execute on its Business Continuity Planning (the "BCP") strategy since initially activating it in the first quarter of 2020. Goldman Sachs' priority has been to safeguard its employees and to ensure continuity of business operations. Goldman Sachs has a central team that continues to manage its COVID-19 response, which is led by its chief administrative officer and chief medical officer. The vast majority of Goldman Sachs employees continue to work remotely, however, a growing number of employees are returning to its offices in many of its locations and the expectation is that this trend will accelerate as vaccination programs around the world increase. To minimize health risks to employees working in its offices, Goldman Sachs has implemented on-site testing and other protocols, such as controls around the building access, strict physical distancing measures, enhanced cleaning regimes, and it is vigilant in monitoring local safety guidelines. Our systems and infrastructure have continued to support our business operations. We have maintained regular and active communication across senior management, the rest of our private credit group and our Board of Directors. Furthermore, we have ongoing dialogues with our vendors to ensure they continue to meet our criteria for business continuity. For further information about the risks associated with COVID-19, see "Item 1A. Risk Factors," in our annual report on Form 10-K for the year endedDecember 31, 2020 . 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 . 47
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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 our 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
the investment management agreement (the "Investment Management Agreement") and
administration agreement ("Administration Agreement"), including:
• our operational 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 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 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;
• the cost of preparing stock certificates, 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.
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Table of Contents Leverage Our senior secured revolving credit agreement (as amended, the "Revolving Credit Facility") withTruist Bank , as administrative agent, andBank of America, N.A ., as syndication agent, our 4.50% Convertible Notes due 2022 (the "Convertible Notes"), our 3.75% Notes due 2025 (the "2025 Notes"), and our 2.875% Notes due 2026 (the "2026 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. We are 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). 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' assessment of market conditions and other factors at the time of any proposed borrowing.
PORTFOLIO AND INVESTMENT ACTIVITY
Our portfolio (excluding investments in money market funds, if any) consisted of
the following:
As of
March 31, 2021 December 31, 2020
Amortized Fair Amortized Fair
Cost Value Cost Value
(in millions) (in millions)
First Lien/Senior Secured Debt
First Lien/Last-Out Unitranche 132.48 137.29 138.96 143.23
Second Lien/Senior Secured Debt 458.71 461.81 458.92 457.73
Unsecured Debt 1.06 0.30 1.05 0.33
Preferred Stock 26.96 55.00 19.87 48.08
Common Stock 66.49 47.98 73.74 65.40
Warrants 0.76 0.71 0.76 1.03
Total Investments $ 3,151.01 $ 3,202.61 $ 3,182.58 $ 3,242.77
The weighted average yield by asset type of our total portfolio (excluding
investments in money market funds, if any), at amortized cost and fair value,
was as follows:
As of
March 31, 2021 December 31, 2020
Amortized Fair Amortized Fair
Cost Value Cost Value
Weighted Average Yield(1)
First Lien/Senior Secured Debt(2) 8.4 % 8.5 % 8.3 % 8.6 %
First Lien/Last-Out Unitranche(2) (3) 9.5 9.3
9.3 9.4
Second Lien/Senior Secured Debt(2) 10.4 10.4 10.4 10.7
Unsecured Debt(2) 0.0 0.0 0.0 0.0
Preferred Stock(4) - - - -
Common Stock(4) - - - -
Warrants(4) - - - -
Total Portfolio 8.4 % 8.5 % 8.4 % 8.6 %
(1) The weighted average yield at amortized cost of our portfolio excludes the
purchase discount and amortization related to the Merger and 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 debt and 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. This calculation excludes exit
fees that are receivable 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 total investments (including
investments on non-accrual and non-income producing investments) at amortized
cost or fair value.
As of March 31, 2021 , the total portfolio weighted average yield measured at
amortized cost and fair value was 8.4% and 8.5%, as compared to 8.4% and 8.6%,
as of December 31, 2020 .
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The following table presents certain selected information regarding our investment portfolio (excluding investments in money market funds, if any)
As of
March 31, 2021 December 31, 2020
Number of portfolio companies 118 123
Percentage of performing debt bearing a floating
rate(1) 99.0 % 99.1 %
Percentage of performing debt bearing a fixed
rate(1)(2) 1.0 % 0.9 %
Weighted average yield on debt and income producing investments, at amortized cost(3)
8.8 % 8.7 %
Weighted average yield on debt and income producing investments, at fair value(3)
8.8 % 8.9 %
Weighted average leverage (net debt/EBITDA)(4) 6.0x 6.0x
Weighted average interest coverage(4) 2.5x 2.6x
Median EBITDA(4) $ 32.40 million $ 34.20 million (1) Measured on a fair value basis. Excludes investments, if any, placed on
non-accrual.
(2) Includes income producing preferred stock investments.
(3) 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 producing investments (excluding investments
on non-accrual). Excludes the purchase discount and amortization related to
the Merger.
(4) For a particular portfolio company, we calculate the level of contractual
indebtedness net of cash ("net debt") owed by the portfolio 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 method assists 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 a portfolio 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 credit risk, such as
cash collateralized loans and investments that are underwritten and
covenanted based on recurring revenue.
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, 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, 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 March 31, 2021 and
December 31, 2020 , investments where net debt to EBITDA may not be the
appropriate measure of credit risk represented 32.9% and 33.1%, of total debt
investments. 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.
Our Investment Adviser monitors the financial trends of each portfolio company
on an ongoing basis 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 (i) assessment of success in
adhering to the portfolio company's business plan and compliance with covenants;
(ii) periodic or regular contact with portfolio company management and, if
appropriate, the financial or strategic sponsor to discuss financial position,
requirements and accomplishments; (iii) comparisons to our other portfolio
companies in the industry, if any; (iv) attendance at and participation in board
meetings or presentations by portfolio companies; and (v) review of monthly and
quarterly financial statements and financial projections 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 for our investments is as follows:
• Grade 1 investments involve the least amount of risk to our initial 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;
• Grade 2 investments 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;
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• Grade 3 investments 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
• Grade 4 investments 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 an investment
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.
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
March 31, 2021 December 31, 2020
Percentage Percentage
Investment Performance Rating Fair Value of Total Fair Value of Total
(in millions) (in millions)
Grade 1 $ 216.12 6.7 % $ 64.15 2.0 %
Grade 2 2,708.78 84.6 2,822.45 87.0
Grade 3 274.71 8.6 353.16 10.9
Grade 4 3.00 0.1 3.01 0.1
Total Investments $ 3,202.61 100.0 % $ 3,242.77 100.0 %
The increase in investments with a grade 1 investment performance rating as of
March 31, 2021 compared to December 31, 2020 was primarily driven by investments
with an aggregate fair value of $216.12 million being upgraded from a grade 2
investment performance rating due to potential exits, partially offset by the
repayment of investments with an aggregate fair value of $64.15 million . The
decrease in investments with a grade 3 investment performance rating was
primarily driven by investments with an aggregate fair value of $73.96 million
being upgraded to a grade 2 investment performance rating due to financial
improvement.
The following table shows the amortized cost of our performing and non-accrual
investments:
As of
March 31, 2021 December 31, 2020
Amortized Percentage Amortized Percentage
Cost of Total Cost of Total
(in millions) (in millions)
Performing $ 3,128.90 99.3 % $ 3,160.47 99.3 %
Non-accrual 22.11 0.7 22.11 0.7
Total Investments $ 3,151.01 100.0 % $ 3,182.58 100.0 %
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-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 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(1):
For the Three Months Ended
March 31, March 31,
2021 2020
($ in millions)
Amount of investments committed at cost:
First Lien/Senior Secured Debt $ 170.53 $ 80.73
First Lien/Last-Out Unitranche 6.64 -
Second Lien/Senior Secured Debt 1.75 1.05
Preferred Stock 7.09 -
Common Stock 2.54 -
Total $ 188.55 $ 81.78
Proceeds from investments sold or repaid:
First Lien/Senior Secured Debt $ 217.99 $ 46.61
First Lien/Last-Out Unitranche 13.95 0.04
Second Lien/Senior Secured Debt 4.75 -
Common Stock 17.28 -
Total $ 253.97 $ 46.65
Net increase (decrease) in portfolio $ (65.42 )
4 4
Total new investment commitment amount in new portfolio companies
$ 110.37 $ 68.99 Average new investment commitment amount in new portfolio companies$ 27.59 $ 17.25 Number of existing portfolio companies with new investment commitments 9 3
Total new investment commitment amount in existing portfolio companies
$ 78.18
5.2 5.3
Percentage of new debt investment commitments at cost for floating interest rates
100.0 % 100.0 %
Percentage of new debt investment commitments at cost for fixed interest rates(3)
- % - %
Weighted average yield on new debt and income producing investment commitments(4)
7.9 % 8.3 %
Weighted average yield on new investment commitments(5) 7.5 % 8.3 %
Weighted average yield on debt and income producing investments sold or repaid(6)
7.1 % 6.8 %
Weighted average yield on investments sold or repaid(7) 6.7 % 6.8 %
(1) Figures for new investment commitments are shown net of capitalized fees,
expenses and original issue discount ("OID") that occurred at the initial
close. Figures for new investment commitments may also include positions
originated during the period but not held at the reporting date. Figures for
investments sold or repaid, excludes unfunded commitments that may have
expired or otherwise been terminated without receipt of cash proceeds or
other consideration.
(2) Calculated as of the end of the relevant period and the maturity date of the
individual investments.
(3) May include preferred stock investments.
(4) 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 loan investments 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.
(5) 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.
(6) 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.
(7) 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.
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Our operating results were as follows:
For the Three Months Ended
March 31, March 31,
2021 2020
(in millions)
Total investment income $ 82.62 $ 31.97
Net expenses 24.72 13.36
Net investment income before taxes 57.90 18.61
Income tax expense, including excise tax 0.32
0.43
Net investment income after taxes 57.58
18.18
Net realized gain (loss) on investments 7.51 (10.14 ) Net unrealized appreciation (depreciation) on investments (8.58 )
(72.65 ) Net realized and unrealized gain (losses) on forward contracts, translations and transactions
4.07 0.73
Net realized and unrealized gains (losses) 3.00 (82.06 ) Income tax (provision) benefit for realized and unrealized gains (0.11 )
0.10
Net increase in net assets from operations$ 60.47 $ (63.78 ) Net increase in net assets 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. OnOctober 12, 2020 , we completed our Merger with GS MMLC. The Merger was accounted for as an asset acquisition in accordance with ASC 805-50, Business Combinations - Related Issues. The consideration paid to GS MMLC's stockholders was less than the aggregate fair values of the assets acquired and liabilities assumed, which resulted in a purchase discount (the "purchase discount"). The purchase discount was allocated to the cost of GS MMLC investments acquired by us on a pro-rata basis based on their relative fair values as of the closing date. Immediately following the Merger with GS MMLC, we marked the investments to their respective fair values and, as a result, the purchase discount allocated to the cost basis of the investments acquired was immediately recognized as unrealized appreciation on our Consolidated Statement of Operations. The purchase discount allocated to the loan investments acquired will amortize over the life of each respective loan through interest income with a corresponding adjustment recorded as unrealized depreciation on such loans acquired through their ultimate disposition. The purchase discount allocated to equity investments acquired will not amortize over the life of such investments through interest income and, assuming no subsequent change to the fair value of the equity investments acquired and disposition of such equity investments at fair value, we will recognize a realized gain with a corresponding reversal of the unrealized appreciation on disposition of such equity investments acquired. As a supplement to our financial results reported in accordance with GAAP, we have provided, as detailed below, certain non-GAAP financial measures to our operating results that exclude the aforementioned purchase discount and the ongoing amortization thereof, as determined in accordance with GAAP. The non-GAAP financial measures include (i) Adjusted net investment income after taxes; and (ii) Adjusted net realized and unrealized gains (losses). We believe that the adjustment to exclude the full effect of the purchase discount is meaningful because it is a measure that we and investors use to assess our financial condition and results of operations. Although these non-GAAP financial measures are intended to enhance investors' understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. The aforementioned non-GAAP financial measures may not be comparable to similar non-GAAP financial measures used by other companies. For the Three Months Ended March 31, March 31, 2021 2020 (in millions) Net investment income after taxes$ 57.58 $ 18.18 Less: Purchase discount amortization 9.14 - Adjusted net investment income after taxes$ 48.44
Net realized and unrealized gains (losses)$ 3.00
9.54 -
Add: Realized gain due to the purchase discount (0.40 ) -
Adjusted net realized and unrealized gains (losses)
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Investment Income
For the Three Months Ended
March 31, March 31,
2021 2020
(in millions)
Interest $ 78.26 $ 30.48
Dividend income 0.77 0.01
Payment-in-kind 2.59 1.23
Other income 1.00 0.25
Total Investment Income $ 82.62 $ 31.97
In the table above:
• Interest income from investments increased from
months ended
investments acquired from the Merger and the amortization of the purchase
discount from the Merger. The increase was partially offset by the decrease
in LIBOR. Included in interest income for the three months ended
2021 and 2020 is
origination fees and unamortized discounts, and
million for exit fees on investments.
• PIK income from investments increased from
months ended
March 31, 2021 . The increase was due to the increase in the number of investments earning PIK income. Expenses For the Three Months EndedMarch 31 ,March 31, 2021 2020 (in millions)
Interest and other debt expenses $ 14.97 $
8.89
Incentive fees 12.06 -
Management fees 8.20 3.67
Professional fees 0.73 0.71
Directors' fees 0.23 0.14
Other general and administrative expenses 1.09
0.61
Total Expenses $ 37.28 $ 14.02
Fee waivers (12.56 ) (0.66 )
Net Expenses $ 24.72 $ 13.36
In the table above:
• Interest and other debt expenses increased from
months ended
Notes and 2026 Notes.
• Net Management fees increased from
The increase was primarily as a result of an increase in our gross assets
from the Merger.
• Our Investment Adviser contractually and voluntarily waived Incentive fees
by
with the Merger. For additional information see Note 3 "Significant
Agreements and Related Party Transactions" in our consolidated financial
statements included in this report. Incentive fees for the three months
ended
depreciation in our portfolio.
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 Three Months Ended
March 31, March 31,
2021 2020
(in millions)
Wrike, Inc. $ 7.50 $ -
Bolttech Mannings, Inc. - (4.70 )
MPI Products LLC - (5.58 )
Other, net 0.01 0.14
Net Realized Gain (Loss) $ 7.51 $ (10.14 ) For the three months ended
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For the three months endedMarch 31, 2020 , net realized losses were primarily driven by our investments in two portfolio companies. InMarch 2020 , there was a restructure of our second lien debt investment inMPI Products LLC ("MPI"), which resulted in a realized loss of$5.58 million . The private equity sponsor that purchased MPI provided it with new capital and we received newly issued second lien debt and non-interest bearing second lien debt. Also inMarch 2020 , our second lien debt investment inBolttech Mannings, Inc. was exchanged for common equity, which resulted in a realized loss of$4.70 million . Any changes in fair value are recorded as a change in unrealized appreciation (depreciation) on investments. For further details on the valuation process, refer to Note 2 "Significant Accounting Policies-Investments" in our consolidated financial statements. Net change in unrealized appreciation (depreciation) on investments were as follows: For the Three Months Ended March 31, March 31, 2021 2020 ($ in millions) Unrealized appreciation$ 22.22 $ 14.98 Unrealized depreciation (30.80 ) (87.63 ) Net Change in Unrealized Appreciation (Depreciation) on Investments$ (8.58 ) $ (72.65 ) The change in unrealized appreciation (depreciation) on investments consisted of the following: For the Three Months Ended March 31, 2021 Portfolio Company: ($ in millions) Other, net(1) $ 5.96Odyssey Logistics & Technology Corporation
2.01
SMB Shipping Logistics, LLC (dbaWorldwide Express )
1.68
PT Intermediate Holdings III, LLC (dbaParts Town ) 1.42Empirix, Inc. 1.10Yasso, Inc. 0.96E2open, LLC (1.96 )Fenergo Finance 3 Limited
(2.06 )
Animal Supply Holdings, LLC
(3.63 )
Convene 237 Park Avenue, LLC (dba Convene) (5.15 )
Wrike, Inc. (8.91 )
Total $ (8.58 )
(1) For the three months ended
unrealized appreciation of
of $9.09 million .
Net change in unrealized appreciation (depreciation) in our investments for the
three months ended March 31, 2021 was primarily driven by the reversal of
unrealized appreciation in connection with the aforementioned sale of Wrike,
Inc. and the financial underperformance of Convene 237 Park Avenue , LLC (dba
Convene).
For the Three
Months Ended
March 31, 2020
Portfolio Company: ($ in millions)
MPI Products LLC $ 6.39
CB-HDT Holdings, Inc. (dba Hunter Defense Technologies) 5.95
Wrike, Inc. 0.91
Bolttech Mannings, Inc. 0.82
Accuity Delivery Systems, LLC 0.81
Zep Inc.
(2.40 )
Convene 237 Park Avenue , LLC (dba Convene) (3.55 )
SMB Shipping Logistics, LLC (dbaWorldwide Express )
(3.56 )
Animal Supply Holdings, LLC
(4.22 )
Odyssey Logistics & Technology Corporation (5.10 )
Other, net(1) (68.70 )
Total $ (72.65 )
(1) For the three months ended
unrealized appreciation of $0.11 million and gross unrealized depreciation of
$(68.81) million .
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Net change in unrealized appreciation (depreciation) in our investments for the three months endedMarch 31, 2020 was primarily driven by increased market volatility, economic disruption, and wider credit spreads resulting from the recent COVID-19 pandemic. Given the unprecedented nature of COVID-19 and the fiscal and monetary response designed to mitigate strain to businesses and the economy, the operating environment of our portfolio companies is evolving rapidly. For further discussion of the impact of the COVID-19 pandemic on our portfolio, please see "-Impact of COVID-19 Pandemic." In addition, the net change in unrealized appreciation (depreciation) was partially offset by the reversal of unrealized depreciation in connection with the aforementioned sale of MPI and the financial improvement ofCB-HDT Holdings, Inc.
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 ofMarch 31, 2021 andDecember 31, 2020 , our asset coverage ratio based on the aggregate amount outstanding of our senior securities was 201% and 198%. 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 usingGSAM's proprietary risk management framework for the purpose of planning our capital resources and ongoing liquidity, including our financial leverage.
Equity Issuances
There were no sales of our common stock during the three months ended
Common Stock Repurchase Plans
InFebruary 2019 , our Board of Directors approved a 10b5-1 plan (the "former 10b5-1 plan"), which provided for us to repurchase of up to$25.00 million of shares of our common stock if the stock traded below the most recently announced NAV per share, subject to limitations. The former 10b5-1 plan took effect onMarch 18, 2019 , was temporarily suspended onDecember 9, 2019 and expired onMarch 18, 2020 . We did not repurchase any of our common stock pursuant to the former 10b5-1 plan or otherwise. InNovember 2020 , our Board of Directors authorized the adoption of a new common stock repurchase plan (the "10b5-1 Plan"), which provides for us to repurchase up to$75.00 million of shares of our common stock if the stock trades below the most recently announced quarter-end NAV per share, subject to limitations. The 10b5-1 Plan was adopted and took effect onNovember 9, 2020 . The 10b5-1 Plan will expire onNovember 9, 2021 . We did not repurchase any of our common stock pursuant to the plan or otherwise.
For further details, see Note 3 "Significant Agreements and Related Party Transactions" to our consolidated financial statements included in this report.
Dividend Reinvestment Plan
We have a dividend reinvestment plan that provides for reinvestment of all cash distributions declared by our Board of Directors unless a stockholder elects to "opt out" of the plan. As a result, if our 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. For further details, see Note 9 "Net Assets" to our consolidated financial statements included in this report. 56
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Table of Contents Contractual Obligations We have entered into certain contracts under which we have future commitments. Payments under the Investment Management Agreement, pursuant to whichGSAM 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. The following table shows our contractual obligations as ofMarch 31, 2021 : Payments Due by Period (in millions) Less Than More Than Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years Convertible Notes$ 155.00 $ -$ 155.00 $ - $ - 2025 Notes$ 360.00 $ - $ -$ 360.00 $ - Revolving Credit Facility(1)$ 593.00 $ - $ -$ 593.00 $ - 2026 Notes$ 500.00 $ - $ -$ 500.00 $ -
(1) We may borrow amounts in USD or certain other permitted currencies. Debt
outstanding denominated in currencies other than USD has been converted to
USD using the applicable foreign currency exchange rate as of the applicable
reporting date. As of
denominated in USD of
Canadian Dollar (CAD) of 0.15 million.
Revolving Credit Facility
On September 19, 2013 , we entered into a Revolving Credit Facility with various
lenders. Truist Bank serves as administrative agent and Bank of America N.A .
serves as syndication agent under the Revolving Credit Facility. We amended and
restated the Revolving Credit Facility on October 3, 2014 , November 3, 2015 ,
December 16, 2016 , February 21, 2018 , September 17, 2018 , February 25, 2020 and
November 20, 2020 .
The aggregate committed borrowing amount under the Revolving Credit Facility is
$1,695.00 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 $2,250.00 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 2.00% or (x) 1.875% (subject to maintenance of certain long-term
corporate debt ratings) or (y) 1.75% (subject to certain borrowing base
conditions) or (ii) an alternative base rate, which is the highest of 0, the
Prime Rate, the Federal Funds Effective Rate plus 0.50% and overnight LIBOR plus
1.00%, plus either 1.00% or (x) 0.875% (subject to maintenance of certain
long-term corporate debt ratings) or (y) 0.75% (subject to certain borrowing
base conditions). Borrowings denominated in non-USD bear interest of LIBOR plus
a margin of either 2.00%, 1.875% or 1.75% (subject to the conditions applicable
to borrowings denominated in USD that bear interest based on LIBOR). With
respect to borrowings denominated in USD, we may elect either LIBOR, or an
alternative base rate at the time of borrowing, and such 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, on
February 25, 2025 .
For further details, see Note 6 "Debt - Revolving Credit Facility" to our consolidated financial statements included in this report.
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"). 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 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. We will not have the right to redeem the Convertible Notes prior to maturity.
For further details, see Note 6 "Debt - Convertible Notes" to our consolidated financial statements included in this report.
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Table of Contents 2025 Notes OnFebruary 10, 2020 , we closed an offering of$360.00 million aggregate principal amount of unsecured notes. The 2025 Notes were issued pursuant to an indenture between us andWells Fargo Bank , as Trustee.Wells Fargo Bank and/or its affiliates provide bank lending and distribution services to certain Goldman Sachs funds. The 2025 Notes bear interest at a rate of 3.75% per year, payable semi-annually in arrears onFebruary 10 andAugust 10 of each year, commencing onAugust 10, 2020 . The 2025 Notes will mature onFebruary 10, 2025 and may be redeemed in whole or in part at the Company's option at any time or from time to time at the redemption prices set forth in the indenture. For further details, see Note 6 "Debt - 2025 Notes" to our consolidated financial statements included in this report. 2026 Notes OnNovember 24, 2020 , we closed an offering of$500.00 million aggregate principal amount of unsecured notes. The 2026 Notes were issued pursuant to an indenture between us andWells Fargo Bank , as Trustee.Wells Fargo Bank and/or its affiliates provide bank lending and distribution services to certain Goldman Sachs funds. The 2026 Notes bear interest at a rate of 2.875% per year, payable semi-annually in arrears onJanuary 15 andJuly 15 of each year, commencing onJuly 15, 2021 . The 2026 Notes will mature onJanuary 15, 2026 and may be redeemed in whole or in part at the Company's option at any time or from time to time at the redemption prices set forth in the indenture. For further details, see Note 6 "Debt - 2026 Notes" to our consolidated financial statements included in this report.
Off-Balance Sheet Arrangements
We may become a party to investment commitments and to financial instruments with off-balance sheet risk in the normal course of our business to fund investments and to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As ofMarch 31, 2021 , we believed that we had adequate financial resources to satisfy our unfunded commitments. Our unfunded commitments to provide funds to portfolio companies were as follows: As of March 31, December 31, 2021 2020 (in millions) Unfunded Commitments First Lien/Senior Secured Debt$ 223.82 $ 242.91 Total$ 223.82 $ 242.91 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. Our 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. RECENT DEVELOPMENTS
On
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 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.
For a description of our critical accounting policies, see Note 2 "Significant
Accounting Policies" to our consolidated financial statements included in this
report. We consider the most significant accounting policies to be those related
to our Valuation of Portfolio Investments, Revenue Recognition, Non-Accrual
Investments, Distribution Policy, and Income Taxes.
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