Golub Capital BDC Inc (GBDC) 2013 Q4 法說會逐字稿

Good day. Welcome to the Golub Capital BDC Incorporated September 30, 2013 quarterly earnings conference call.

Before we begin, I would like to take a moment to remind our listeners that remarks made during this conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts made during this call may constitute forward looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements, as a result of a number of factors, including those described from time to time in the Golub Capital BDC Incorporated's filings with the Securities and Exchange Commission.

For a slide presentation that we intend to refer to on the earnings conference call, please visit the events and presentations link on the home page of our website, www.golubcapitalbdc.com, and click on the investor presentations link to find the September 30, 2013 investor presentation. Golub Capital BDC earnings release is also available on the Company's website in the Investor Relations section. As a reminder, this call is being recorded for replay purposes.

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

Thank you, and good morning, everyone, thanks for joining us today.

I'm joined today by Ross Teune, our Chief Financial Officer, and Gregory Robbins, the Managing Director here at Golub Capital. Earlier today, we issued our quarterly earnings Press Release for the quarter ended September 30, and we've posted a supplemental earnings presentation on our website. Ross and I will refer to this presentation throughout the call today.

I would like to start by providing an overview of the September 30 results, and then Ross is going to take you through the quarterly financial results in more detail. I'll come back at the end and provide an update on our outlook for conditions in the middle-market lending environment over the next couple of quarters and our priorities. With that, let's get started.

As highlighted on slide 2 of the investor presentation, I'm pleased to report we had a solid quarter. It wasn't a great quarter. We can do better, and I'll talk about how. But, it wasn't a bad quarter either. For the three months ended September 30, we generated net investment income of $12.4 million, or $0.31 per share as compared to $12 million, or $0.32 per share for the quarter ended June 30. Net increase in net assets resulting from operations, what I referred to as EPS for the quarter, was $12.3 million versus $12.7 million in the prior quarter, $0.31 per share versus $0.34 per share in the prior quarter.

During the quarter, we had a negligible amount of net realized and unrealized gain. It was $100,000 loss. That difference between net investment income and net income for the quarter was the result of selling one nonaccrual investment and getting a payoff on one nonperforming investment. In both cases, very close to our prior-quarter marks. So, the result of the realized loss and the reversal of the unrealized depreciation on these two investments were virtually a wash. Net asset value for the quarter went up to $15.21 as compared to $15.12 for the prior quarter. The $0.09 of accretion was primarily attributable to the stock offering we completed in September at a premium to our net asset value.

In regard to investment activity, new origination commitments were strong for the quarter, totaled $126.1 million. Approximately 20% of the new investments were senior secured loans, 52% one-stops, 23% second lien loans, 3% equities, and 2% were investments in Senior Loan Fund. I want to just point out that although second lien assets represented 23% of originations this quarter, it consisted primarily of a recap of an existing portfolio Company, DSI Renal that is doing well. So, as we'll see when we talk about portfolio mix, we continue to shift strongly toward one-stops, consistent with our goal.

After you take into account portfolio runoff and other activity, overall net portfolio funds growth at fair value was up $56.9 million during the quarter. So, if we look at the quarter as a whole, we had strong credit performance. You can see that reflected in our negligible net realized and unrealized loss number, and later we'll talk about it in terms of risk-rating trends. And, we have solid originations that brought us more toward our goal of shifting the mix of the portfolio more toward one-stops.

I want to talk briefly about what could have gone better, and specifically, I want to talk about three things. First, we operated during the quarter with below our target level of leverage. Second, we saw some continued spread compression, and third, we had somewhat lower fee and dividend income than in prior quarters. I want to talk about each of these three briefly.

First, let's talk about leverage. Based on GBDC's current asset mix, we've said previously, and we believe now that the right target economic leverage is about one-to-one. We plan to get much closer to this in the December quarter and beyond. Please note when I talk about economic leverage, I'm not talking about regulatory leverage. Our regulatory leverage will be much lower than one-to-one because of the regulatory treatment of our SBIC debt.

Second, let's talk about spread compression. The good news is that spreads seem to be stabilizing in the market. But, as we'll discuss later today, we did see a lower weighted average yield in the portfolio this quarter as new loans came on at lower yields than the old loans that rolled off. Unfortunately, this one is a market phenomenon, and we can't control it.

The last item, fee and dividend income. As you know, we conservatively take fee income and OID on new loans over the life of the loans rather than taking them in in the quarter of origination the way that some of our competitive brethren do. So, as a result, the income in any given quarter depends a lot on payoffs, and it's going to move around a little, particularly prepayment fees. The same is true for dividend income, which depends a lot on recap activity -- the level of recap activity in our equity portfolio.

This quarter, the combination was a bit lower than it has been in prior quarters. Altogether, these three factors led to a small decrease in net investment income per share this quarter, and we offset this in part with a $250,000 waiver of incentive fees.

On slide 3 of the investor presentation, you can see in the table the $0.31 per share we earned from net investment income, and the $0.31 per share we earned from a net income perspective. The table also highlights the nice bump in our net asset value to $15.21 from $15.12. As shown on the bottom of the slide, our total investment portfolio now exceeds $1 billion, and the total number of portfolio companies in the portfolio remains a robust 135. This is a level of diversification we're very pleased with.

Finally, a word on asset mix. If you turn to slide 4, you can see -- as I mentioned earlier -- that our increasing emphasis on one-stops is paying off. One-stops in the portfolio grew from 39% a year ago and 50% at the end of the June quarter to 54% at the end of September. Junior debt shrank again to 13%, reflecting our cautious view of market conditions for junior debt in the current environment.

I'm now going to turn it over to Ross who is going to discuss the results in more detail, and then I'm going to come back and talk about the market environment and what we see going forward.

Thanks, David.

I'll start on the balance sheet on page 5. We ended the quarter with total investments of just over $1 billion, total cash and restricted cash of $54.7 million, and total assets of $1.1 billion. Total debt at the end of the quarter was $412.1 million. This includes $203 million in floating-rate debt issued through our securitization, $179.5 million of fixed-rate debentures, and lastly, $29.6 million of debt outstanding in our Revolving Credit Facility.

Total net assets at the end of the quarter was $658 million. This is up about $57 million, primarily due to the common stock offering we completed back in mid-September. From a GAAP perspective, our debt-to-equity ratio was 0.64 times. Calculated for our regulatory limit, our debt-to-equity ratio was 0.37 times. Our debt-to-equity ratios declined for the quarter due to the equity offering we completed in September, and as David mentioned, remained below our longer-term target of 1 to 1 from a GAAP perspective, and about 0.6 to 0.7 times targeted from a regulatory leverage perspective.

Flipping to the statement of operations on page 6, total investment income for the quarter ended September 30 was $22.8 million, up $0.5 million, or 2.5% from the prior quarter. This increase was lower than the growth rate in average total investments for the quarter due to continued spread compression, lower fee income from prepayment penalties, and lower dividend income.

On the expense side, total expenses of $10.4 million increased slightly by about $100,000 during the quarter as increases in Management fee expense and interest expense were partially offset by a decrease in incentive fee expense. As David mentioned earlier, we had a net realized and unrealized loss on investments of about $100,000 during the quarter, and total net income was $12.3 million.

Turn to slide 7. These charts summarize the breakdown of our new originations and end-of-period investments. As shown on the bar chart on the left-hand side, we originated 20% of our new investments in senior secured loans, 52% in one-stop, 23% in second lien, 3% equity securities, and 2% in investments in our Senior Loan Fund. The chart on the right provides a product breakdown based on total investments, which show up 4% increase in one-stop investments with a corresponding decrease in senior secured investments and Junior debt. The percentage of Junior debt in the portfolio, which is a combination of mezzanine and second lien investments, decreased from 14% to 13% with total equity investments remained unchanged at 3%, and our investment in the Senior Loan Fund makes up the remaining 1%.

Turn to slide 8, I'll walk you through the changes in our yields and investments spreads for the quarter. Focusing first on the gray line, this line represents the interest income, or all income earned on the investments, excluding fee amortization from discounts and origination fees. This line represents the best indicator of the portfolio's current interest rates.

Due to compressed pricing on new investments, the interest income yield declined from 9.2% from the quarter ended June 30 to 8.9% for the quarter ended September 30. Although we've seen some stabilization of rates being quoted on new investments, we expect to see continued pressure on this line as we originate new loans at current market spreads.

Including amortization of fees and discounts, the total yield on investments for the quarter ended September 30 was 9.6%. The decrease in the total yield quarter over quarter was consistent with the decrease in the interest income yield as income from fee amortization was relatively stable, down a little bit, but relatively stable quarter over quarter. The weighted average cost of debt increased slightly from 2.92% to 3%.

Turning to slide 9. For new investments, the weighted average rate on new middle-market investments was 8.1%. This is up slightly from the 8% the previous quarter. Overall pricing on new investments remained fairly stable quarter over quarter with a slight uptick this quarter as we originated a higher percentage of second lien investments.

Just as a reminder, the weighted average rate on new investments is based on the contractual interest rate at the time of funding. For variable-rate loans, the contractual rate is the LIBOR spread plus LIBOR, and then the impact of any LIBOR floor. For fixed-rate loans, it's obviously the stated fixed rate.

As shown in the middle of the slide, the investment portfolio remains predominantly investment in floating-rate loans with variable-rate loans comprising over 90% of the portfolio. Overall credit quality continues to remain very strong with non-earning assets as a percentage of total investments on a cost basis at 0.6%, and only 0.1% as a percentage of total investments on a fair value basis. As David mentioned, during the quarter, we disposed of one non-earning investment for a small loss. We currently have two other nonaccrual investments with a fair value of only $665,000.

In looking at slide 11, over 90% of our investments at fair value continue to be risk-rated in the 4 or 5 categories, although we did experience another modest increase in the category 3 investments this quarter. Again, this is not a surprise. As we have indicated in the past, we do expect some downward migration in these statistics. As a reminder, independent valuation firms valued approximately 25% of our investments this quarter. Turn to slide 12. Our forward declared a distribution of $0.32 a share payable on December 27 to shareholders on record as of December 17.

Turn to slide 13, with respect to liquidity and investment capacity, as we previously talked about, we completed a common stock offering back in September and raised approximately $57 million in new capital. The purpose of this offering was to raise additional proceeds for new investments, as well as to capitalize GCS BIC 5, our newest small business investment Company, as well as to capitalize Senior Loan Fund LLC.

As in previous offerings, Golub Capital affiliated entities purchase shares in this offering for the purpose of awarding incentive fee compensation to employees. In the most recent offering, these entities purchased $1.7 million worth of shares, which brings the total value of shares purchased in the last four offerings to $8.8 million. As we've said in the past, we're very proud of the ownership of GBDC by Golub Capital employees and believe it fosters alignment between our investment team and shareholders and is a key part of our success.

As of September 30, we had significant capital to invest. We ended the quarter with $16.3 million of unrestricted cash and $38.4 million of restricted cash. Restricted cash was primarily held in our securitization vehicle, our credit facility, and our SBICs and is available for investment -- for investments that qualify for acquisition by these entities. As of September 30, subject to leverage and borrowing-base restrictions, we had $70.4 million available for borrowings under our $100 million Revolving Credit Facility. And, within our SBICs, we had $45.5 million of additional debentures available.

Subsequent to quarter-end, we increased the available debt capacity under our Revolving Credit Facility by increasing the facility size from $100 million to $250 million. As part of that amendment, we also extended the reinvestment period for another year to October 21, 2014, and extended the maturity date to October 22, 2018. Pricing on the facility remained unchanged.

Also, subsequent to quarter-end, we sold $12 million of Class B notes that we previously hold in our wholly-owned subsidiaries and were eliminated in consolidation. The Class B notes were sold at par and will pay interest on a quarterly basis at LIBOR plus 2.4%.

One of our goals in completing the public offering back in September was to set up the GBDC for what we expected to be heavy originations in the quarter ended December 31, and our expectations proved to be correct. Through November 30, we have originated just over $170 million in new investment commitments and have had funds growth of approximately $134.2 million. This includes about $17 million of new debt and equity contributions to Senior Loan Fund. The pipeline also looks good for December, but with expected originations and net funds growth below the average for the past two months.

I'll now turn it back to David, who will provide an update on market conditions.

Thanks, Ross.

In terms of our outlook for the market, not much has changed. We remain nervous. We see significant risks in the macro environment. We don't see signs of a slowdown in our portfolio companies, but we are particularly nervous about Europe and Japan and the potential impact on the US economy. We also see some signs of increased competitive activity in the US middle market.

Our response has been consistent now for a number of quarters. It's to remain selective and to focus on senior debt and one-stops with strong borrowers with low-risk capital structures and with relationship-oriented private equity sponsors. It's definitely harder to find the kinds of loans that we like in this environment, and so we're in a part of the credit cycle where we think our core strengths in sourcing and in underwriting are particularly important.

I'm going to end there and open the floor for questions. As always, thank you for your time and your continued support.

(Operator Instructions)

Greg Mason, KBW.

Good morning, gentlemen. Thank you.

David, could you talk about your target leverage of 1 to 1? That implies, based on the current quarter ending, you'd want to borrow about another $230 million, $240 million to get to that target 1 to 1 leverage. So, I just wanted to talk about the credit facility expansion. Based on your borrowing base, could you utilize most of that? And, what are you thinking about in terms of new securitization funding for your on-balance sheet liabilities, which you've used in the past?

Well, first part of your question first. Yes, you're correct. If you look at our current utilization of debt, we have $200 million to $300 million of incremental capacity to get to our target leverage level. And, as Ross went through when he described the available liquidity that we've got right now, we have that available liquidity.

At some point, as we grow our Wells Fargo facility, it will be appropriate for us to look at potentially swapping out the assets that are in that facility into some kind of new securitization. The factors that are going to impact our thinking on that relate principally to the advantages of securitization as a means of financing, and those advantages include potentially lower all-in cost and somewhat more flexibility. It is a form of financing that requires a degree of scale, Greg, so we would not probably look at another securitization until we could look at doing one in the range of $300 million to $400 million in size. But, when we have the assets to be able to effect another securitization, it is definitely something we're going to look out.

Great. And then, as you made your first investments in the Senior Loan Fund, and you're starting to ramp that up, I know you've talked about ultimately that's going to use some third-party leverage. Could you talk about -- is there a certain size that the assets have to get to in the SLF before you can start putting on third-party leverage in there? What size is that? And then, what amount of leverage and cost of that leverage as you are thinking about this going forward are you estimating in the SLF?

So, let me see if I can make sure I hit on all aspects of the question you just asked. So, yes, we are looking to increase the size of our equity investment in SLF. And, we'd like to get that equity investment initially to a size of about $40 million. We would anticipate in the first phase of SLF's life using bank financing as opposed to a securitization to effect the leverage within SLF. That requires, to your point, a degree of minimum scale both in dollar terms and in terms of number of obligors -- so diversification.

And, as I mentioned in our last quarterly call, it's going to take us a little while to get there. We anticipate putting on that debt facility either this quarter or next quarter. And, we would anticipate starting to use it at that point. But, it's going to take some time before we have SLF at the leverage level and scale that we'd like it to be.

And, do you think the ultimate target leverage in here is 1.5 times debt to equity, 2 times debt to equity? What should we be thinking about over the long-term?

For SLF?

Yes.

I think, rough numbers, and this is obviously subject to continuing discussion impacted by costs of leverage and portfolio characteristics. But, rough numbers, we're currently contemplating between 2 to 1 and 3 to 1.

Great.

(Operator Instructions)

Jonathan Bock, Wells Fargo.

Thank you for taking my question. David, real quick, in an effort to mitigate spread compression, I know you obviously have set up the Senior Loan Fund, which is an attractive use of capital. Have you given a thought to how or what type of assets could be funded?

Certainly, the time lag for directly originated assets probably limits the ability to ramp earnings in a tighter spread environment right now. However, Golub has significant capabilities in both BSL, and I was curious if you'd considered perhaps a mix to where you would be able to fund that entity with some higher quality BSL loans and ramp the NOI a little bit quicker than if it were all just directly originated collateral?

Thanks, John. So, your question is, could we and should we look at a ramping SLF faster using some broadly syndicated collateral, as well as our originated middle-market collateral?

If you feel it appropriate, yes.

And, the answer is, we're actively looking at that question. Right now, the broadly syndicated markets seeing more spread compression than the middle-market has, and we need to make sure that we're comfortable with the risk reward structure. And, we need to make sure that the leverage that we have in place has a cost associated with it that is low enough to make it so that we can generate good ROEs on the lower spreads that DSL loans generate.

Okay. And then, also, could you just walk us through the reasoning behind the private bank facility -- bringing that on board, I believe, in October? Just a means to diversify amongst a borrower, is that the end game?

Multiple reasons. That's certainly one, and another one is that we seek to have attractive debt in place to cover unfunded debt that -- unfunded loan obligations that we've put out, particularly revolvers. And, we view the private bank facility as a particularly attractive way for us to provide debt financing to backstop our unfundeds.

Appreciate that. And then, as we turn to the competitive environment, obviously you've mentioned that spreads have come down. The idea though is where is that competition effectively coming from? Two, is it increased demand on part of the banks and/or high-yield funds that are dipping into the middle-market? Particularly those that are high-quality issuers of larger size? Or, is it just the fact that there is still the same amount of demand, yet the all-in supply due to the lack of refinancing or lack of new money deals, has really led to the decrease in spread and really demand still remains the same?

I think it's a combination of supply and demand trends so on the supply front, as you alluded to, John, we are continuing to see diminished M&A activity relative to 2012. And, what that means is, there are fewer new leverage buyouts, new middle-market leverage buyouts than we would ideally like to see.

I think that's going to get better in 2014. We're not projecting that it's going to get dramatically better, but I think it's going to get somewhat better in 2014 as we move further away from the fourth quarter of calendar 2012 when changes in tax laws drove an unusual level of middle-market new M&A activity.

The second factor is demand. And, I don't see a particularly meaningful change in demand from banks. It's principally a change in demand from non-banks, but it's from a lot of different kinds of non-banks. We've seen in the broadly syndicated market very unusual increases in funds flows through new CLO activity and new prime rate fund fundings.

And, some of that money is trickling down into the upper part of the middle-market. We're seeing a lot of capital-raising activity in both public and private funds focused on middle-market lending, and again, I think we're seeing some impact from that, as well. So, I think to understand the spread compression environment, it's important to look at what's happening on both the supply and on the demand side. And, I think it's also important to keep it in context.

One of the things I've said repeatedly in these calls is that the middle-market is insulated from, but not immune to what's happening in broader credit markets. And, the same compression story that you're hearing us talk about in middle-market land has been playing out to an even more dramatic degree in investment-grade, high-yield, and broadly syndicated loan markets.

Great. And, one last question. Since you spoke of BDC brethren in some of your prepared remarks, there are a few brethren who have appeared to have overpromised and underdelivered particularly as it relates to the dividend. And, that has a number of -- but, particularly clients that are involved in the shares. Wondering as to what BDCs really are prepared for the effects of spread compression? Can you, in your view, walk us through your dividend policy? How you look at that dividend in this environment? And, more importantly, how you view the stress tests of tighter spreads in terms of maintaining that dividend level now and in the future? Let's say, all else being equal?

Sure. Let's start with dividend policy. Our dividend policy, our dividend philosophy is that we want to be distributing our income over time. We want to make few changes in our dividend policy, and when we make changes, our strong desire is to have the changes be upward and not downward.

We think that the ultimate test of a dividend policy is NAV stability. Sometimes in our industry, we find an over-focus on net investment income per share and an under-focus on what I call earnings-per-share, which comes after realized and unrealized gains or losses. Realized and unrealized gains and losses in our business are otherwise used -- another name is often used for them in Management meetings.

They are called credit losses, and it's part of the Business. And the idea that you can just not talk about those or exclude those or view those as always being special items is a lot of nonsense. It's part of the Business, so we think the right way to look at earnings is on a bottom-line basis, and that's reflected after dividends in NAV stability.

If you look at our particular circumstances, we've been generating enough net income both this calendar year, fiscal year, and in each year since our IPO, to cover our dividend. Our dividend rate right now reflects a return on equity of slightly over 8%. Our target return on equity these days is modestly higher than that, but we're not looking to generate in this environment a 10% or higher return on equity. We think that that's unrealistic.

As you look at our income statement, we have a very significant buffer. If we start to see our net income fall, one of the first things that will happen is that our expenses will fall, and our expenses will fall because of a line on the income statement called incentive fees. Importantly, we have a preferred in our incentive fee structure that's set at 8%.

So, there is a very significant form of shareholder protection on ROE in the very simple fact that if ROE starts to fall, we start not getting paid. So, if you ask me a question slightly different from the one you asked, which is, do I feel that our dividend is resilient under the current circumstances, my answer is yes, I do think it's resilient. I think it's resilient both because of our policy, our earnings, our philosophy, our credit, the credit characteristics of our portfolio, and the structure of our incentive fee.

Appreciate that. And, David, just a clerical point, or Ross. Did you mention there was a $250,000 fee waiver this quarter? Is that correct?

That's correct.

And, what was that related to?

We chose when we saw the results to voluntarily waive $250,000 of incentive fees. We thought it was the right thing to do.

Okay, thank you very much.

J.T. Rogers, Janney Capital Markets.

Good morning. Thanks for taking my questions. First question, on the SBIC. How many deals are you seeing that fit into your two licenses?

It's a great question. Sometimes people who aren't familiar with SBICs think you can put any transaction into SBICs, and the answer is, you can't. There are very specific rules around the size of companies and the characteristics of companies that are SBIC-eligible. For some SBICs -- for some BDCs that have SBIC subsidiaries but have small origination platforms that can be a problem because they can originate a number of transactions and have none of those transactions be SBIC-eligible.

We find that a meaningful percentage, but it's a minority percentage of the transactions that we originate are SBIC-eligible. I can't tell you off the top of my head what that percentage is. It's meaningfully less than 50% and maybe as low as 20% to 30%. But, because of the size of our origination platform and the sheer number of new transactions that we do, we have not had great difficulty ramping up our SBICs reasonably rapidly. We're not all the way there yet, but you can see from Ross' comments, that of the -- and Ross, correct me if I get these numbers slightly wrong. Of the $225 million maximum SBIC debentures that we could obtain, we're already at $180 million?

Correct.

Okay, great. And then, in terms of tapping into that remaining $45 million of availability, is there a push? Or, is there a focus to get that ramped and get those debentures out there and locked in? Or, are you just growing that vehicle as you see good deals come along?

We're certainly not applying a different underwriting standard in order to fill up the SBIC. We are -- we have one set of underwriting standards, and if the transactions that we choose to do are SBIC-eligible, there's a high likelihood we're going to choose to put at least a portion of those transactions into one of the SBICs. But, we don't go out and target our originations in order to achieve SBIC eligibility, nor do we apply some looser underwriting standard if a particular obligor is SBIC-eligible. I think candidly that would be a bad recipe.

Sure. I think maybe the better way to ask that question is, is there a push to get that capital out -- assuming you are obviously using the same underwriting standards. But, are you looking to get the capital out there, and then the debentures locked in with rates as low as they are?

I would be surprised if we're sitting here a year from now, and we haven't fully deployed or come close to fully deploying our SBIC debentures. But, we're not in a wild rush to deploy them. We're going to do it as we see attractive deals that are SBIC-eligible and subject to the other investments that are already in one of our two SBICs paying off. It's a process. We're not going to rush it in order to get the debentures out there and locked in.

We're not taking a position on interest rates. I'm not sure enough, for example, that rates are going up in the next 12 months to want to be locking those rates in. If we really felt strongly on that, we could buy a derivative to effect that bed and effectively hedge the SBIC debentures ahead of their issuance. We've done that from time to time in the past. We're not doing that right now.

Okay, great. Thanks for that detail. And then, just switching gears, real quickly for a bit. Wondering if we could get some kind of idea as to what kind of cost we might see on the third-party debt in the SLF? Obviously, that is just sort of a broad range of what you might expect. And then, was wondering if the weighted average yield on SLF investments discussed in the Ks, is that reflective of the weighted average yield on the investments that you're making in that vehicle?

So, two questions there. On the cost of debt, we're still in the process of determining the most efficacious way of financing SLF. But, if you ask me, my current expectation is that the all-in cost of debt there will be sub-3%. And, one of the questions about how much sub-3% gets to John Bock's question about a proportion of the portfolio being in broadly syndicated loans. And, in respect to the second part of your question, which relates to spreads, the answer is just a word, yes.

Okay, great. Thanks a lot. I appreciate you taking my questions.

Our pleasure.

Bob [Ma], Private Investor.

Thank you for taking my questions. I have some questions on some numbers, but I want to forewarn you that I'm also going to ask a question on page 81 of your 10-Q. My first question is about the weighted average share count for fiscal Q4 only?

If you want to call me separately -- this is Ross. We can go through the 10-K in more detail in terms of those types of questions, if you think --.

If you have very specific number questions like that, I would strongly suggest that we arrange a private call. We can go over it in all the detail you would like.

Okay, thank you very much.

(Operator Instructions)

[Emmit Duta], El [Baja] Investments.

Hi, good morning. That's [Al Borda] Investments. I had questions on the credit risk in your portfolio. Could you give us some color on the cov-lite exposure in the syndicated loan portfolio? And, your thoughts on its impact on future loss rates? And also, if you could sort of give us some color on has it made its way into the middle-market space? Or, do you see it sort of making its way into the middle-market space either now or in the future?

Thank you. So first, just to define terms for those in the call who may not be familiar with what cov-lite means. Cov-lite is a shortening of covenant-lite. It refers to loans that don't have covenants, or that have very few, very loose covenants. I guess from a marketing standpoint, cov-lite sounds a lot better than no cov. Over the course of the last couple of years cov-lite loans have taken over a larger and larger proportion of the broadly syndicated loan market.

The broadly syndicated loan market is a market that finances larger companies than Golub Capital BDC does. We focus on loans to companies that have less than roughly $50 million of EBITDA, and the broadly syndicated market finances companies with $75 million to several hundred million dollars of EBITDA. So, that's definition.

The short answer to your question, we don't have broadly syndicated exposure in the portfolio today. And, we don't have any cov-lite broadly syndicated loans in the portfolio today. Cov-lite is not something that we've seen proliferate in the middle market. There have been less than one hand, I can think of three. But, I don't think there are more than five transactions with sub-$50 million EBITDA companies that have been structured as cov-lite transactions. We have not participated in those.

I don't see great pressure in the middle market today to adopt cov-lite or even low covenant-type structures. Our structures haven't really changed meaningfully over the last couple of years. So, I don't see any meaningful impact of what's going on in the broadly syndicated loan market around cov-lite in GBDC's portfolio. We could have a longer, philosophical discussion about cov-lite, and whether a loan is more likely or less likely to be a problem just by dint of its covenant structure. And, I'd be happy to follow-up with you on that privately. But, because it's not really relevant to GBDC, I don't think it makes sense to go into in depth right now.

No, that's fine. Thank you very much.

We have no further questions on the phone lines.

Well, once again, I want to thank everyone on the call for joining us this morning and for your support. And, I want to renew an offer I make every call, which is, if you have a question that comes up, either later today or sometime when we don't have a call like this scheduled, please feel free to reach out to Ross or to me. We value your partnership.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and please ask that you disconnect your lines.