Golub Capital BDC Inc (GBDC) 2016 Q1 法說會逐字稿

Good afternoon and welcome to the Golub Capital BDC Inc.'s December 31, 2015 quarterly earnings conference call.

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

For a slide presentation that the Company intends to refer to on today's earnings conference call, please visit the Investor Resources tab on the homepage of the companies website, www.GolubCapitalBDC.com, and click on the Events Presentation link to find the December 31, 2015 investor presentation. Golub Capital BDC's earnings release is also available on the companies website in the Investor Resources 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. Please go ahead.

Thank you, Operator. Good afternoon, everybody. Thank you for joining us today. I'm joined by Ross Teune, our CFO, and Greg Robbins, Managing Director.

Last Friday, we issued our earnings press release for the quarter ended December 31, and we posted a supplemental earnings presentation on our website. We will be referring to the presentation throughout the call today. I'm going to start by providing an overview of the December 31 quarterly financial results. Ross is then going to take you through the results in more detail, and I will come back and provide some remarks on what we 're seeing as we turn the corner into 2016 and I will also open the floor for questions.

Before we dive into this quarter's results, I thought it would be instructive to revisit our conversation last quarter. If you recall, last quarter we talked about how GBDC had a very strong quarter in an environment where most asset classes experienced significant volatility and weak performance. We talked about how our results were particularly gratifying in the context of a market where most BDCs had experienced net realized and unrealized credit losses and declines in NAV per share.

Well, Groundhog Day. The headlines for this quarter will sound strikingly familiar to that conversation, and I am pleased to report that despite continued and, in many cases, increased market turbulence and softness across most asset classes, GBDC continued to buck that trend with another strong quarter of steady results.

So with that, let me dive into some of the details. For the quarter ended December 31, 2015, net increase in net assets resulting from operations, or net income, was $20.6 million, or $0.40 a share. That compares to $19.5 million, or $0.38 a share, for the quarter ended September 30, 2015.

GAAP net investment income, or as I call it, income before credit losses, was $15 million for the quarter ended December 31, or $0.29 per share. Excluding a $1.4 million GAAP accrual for the capital gains incentive fee, NII was $16.4 million, or $0.32 a share. This compares to $16.3 million, or $0.32 a share, when excluding an $800,000 accrual for the capital gains incentive fee for the quarter ended September 30, so largely flat.

Consistent with prior quarters, we provided net investment income per share excluding the GAAP capital gains incentive fee accrual because the capital gain incentive fee payable, as calculated under the investment advisory agreement, is zero. So we think this adjusted NII is a more meaningful measure of income than NII inclusive of the capital gains incentive fee accrual.

As you have heard me say many times before, we think the most important measure of BDC's performance for shareholders remains change in net asset value per share over time. I'm very pleased to report that GBDC's net asset value per share for the quarter ended December 31, 2015 increased to $15.89, and that compares to $15.80 for the prior quarter. This represents the 14th consecutive quarterly increase in our NAV per share. The $0.09 accretion was attributable to quarterly earnings in excess of our dividend.

Net realized and unrealized gains on investments and secured borrowings were $5.6 million, or roughly $0.11 per share for the quarter. Most of this was the result of net realized gains from the sale of three equity co-investments. This was our 12 consecutive quarter with what we call negative credit losses.

Let's talk a little bit about originations. New middle-market investment commitments totaled $149.9 million for the quarter. Including investments of $15.5 million in Senior Loan Funds, total investment commitments were $165 million. As in previous quarters, our investing activity was heavily weighted toward portfolio companies that are existing obligors and private equity sponsors with whom we have done multiple transactions.

Just to give you some statistics on that, across calendar year 2015, over 80% of our deals were completed with repeat sponsors and over 45% of our middle-market loans were to repeat borrowers. Consistent with prior quarters, we continue to focus on one stops, which we continue to think offer the best risk reward in middle-market lending. Right now, originations for the quarter were 21% traditional senior secured, 69% one stops, 9% in Senior Loan Fund, and 1% in equity securities.

Overall, total investments in portfolio companies at fair value decreased by $1.3 million during the quarter after payoffs and sales to SLF, and total investments in portfolio companies at fair value held by SLF increased by just under 12%, or $37 million.

Turning to slide 3, you can see in the table the $0.40 per share we earned from a net income perspective and the $0.32 per share we earned in NII before accrual for the capital gains incentive fee, and you can see our NAV per share of $15.89. As shown on the bottom of the slide, the portfolio remains very well diversified, with investments in 169 different portfolio companies and an average size of $8.4 million per investment.

I'm going to turn the floor over to Ross, who is going to give you some additional portfolio highlights and discuss the financial results in more detail. As I said at the outset, I'm going to come back after Ross' comments and give you a perspective on what we're seeing as we've turned the corner into 2016.

Great. Thank you, David.

Starting on slide 4, as David mentioned, we had total originations of $165.4 million, total exits and sales of investments of $171.4 million. Included in the $171.4 million is $79.2 million of sales of senior secured loans to Senior Loan Fund.

Turning to slide 5, these four charts provide a breakdown of the portfolio by investment type, industry, size, and fixed versus floating rate. Looking first at the chart on the top left-hand side, overall portfolio mix by investment type remained very consistent quarter over quarter, with one stop loans continuing to represent our largest investment category, at about 74% of the portfolio.

With regards to industry diversification, the portfolio remains well diversified by industry. There have been no significant changes to these classification percentages over the past year. Looking at the charts on the right-hand side, the investment portfolio remains diversified by investment size, and our debt investment portfolio remains predominantly invested in floating rate loans. We continue to invest in companies we believe have sustainable revenues and EBITDA, and in sectors that are typically resilient to changes in macroeconomic conditions. We also continue to avoid industries in which there is a high degree of cyclicality or commodity price risk. This strategy has served us very well in the current environment.

Turning to slide 6, the weighted average rate on new middle market investments was 6.7%. This was slightly below the weighted average rate on investments that were sold or paid off during the quarter of 7.3%. This was due to a few large payoffs on seasoned portfolio companies that had higher interest rates relative to current market pricing. The weighted average rate of 6.7% on new investments was relatively consistent with the previous quarter, as our new originations mix and market pricing on new investments both remain steady.

Although spreads have widened significantly in the more liquid credit markets, as we have said before, there is a lagging effect in the middle market and we are beginning to see this trickle down to the middle market. As a reminder, the weighted average rate on new investment is based on the contractual interest rate at the time of funding. For variable rate loans, the contractual rate would be calculated using current LIBOR, the spread over LIBOR, and the impact of any LIBOR floor.

Shifting to the graph on the right-hand side, this graph summarizes investment portfolio spreads for the quarter. Focusing first on the gray line, this line represents the income yield or the actual amount earned on the investments, including interest and fee income, but excluding the amortization of discounts and upfront origination fees. Primarily due to a decrease in prepayment fees of $1.1 million, the income yield decreased by 40 basis points, from 8% to 7.6% for the quarter ended December 31.

The investment income yield, or the dark blue line, which includes amortization of fees and discounts, decreased by 60 basis points, to 8.2%, due to the decrease in prepayment fees, as well as lower OID amortization as a result of lower runoff. The weighted average cost of debt increased modestly to 3.3% for the quarter ended December 31, as a result of an increase in the average LIBOR rate.

Flipping to the next slide, overall credit quality continues to remain very strong. At accrual investments as a percentage of total investments at amortized cost declined from 1.1% of the portfolio last quarter to 0.9% of the portfolio at December 31, as we disposed of one nonaccrual investment at a value slightly above where it was marked at September 30.

Nonaccrual investments as a percentage of total investment at fair value increased from 0.4% last quarter to 0.5% at December 31, in this case, for a good news reason, as we increased the value on one nonaccrual investment. There were no new nonaccrual investments added during the quarter, and the overall percentage of nonaccrual investments, both on cost and a fair value basis, continues to remain very low.

Turning to slide 8, the percentage of investments risk rated at 5 or 4, our two highest categories, remained stable quarter over quarter and continues to represent over 90% of the portfolio. The percentage of investments risk rated a 1 through 3 increased slightly but continues to remain low. As a reminder, independent valuation firms value approximately 25% of our investments each quarter.

Now reviewing the more detailed balance sheets and income statement on the following two slides, we ended the quarter with total investments of $1.53 billion at fair value, total cash and restricted cash of $101.1 million, and total assets of $1.64 billion. Total debt was $809.1 million, which includes $461 million in floating rate debt issued through our securitization vehicles, $225 million of fixed rate debentures, and $123.1 million of debt outstanding on our revolving credit facility.

As previously mentioned, total net asset value on a per share basis increased to $15.89. Our GAAP debt-to-equity ratio was 1.1 times at December 31, while our regulatory debt-to-equity ratio was 0.72 times. Both of these are consistent with the ranges and targets that we have communicated in the past.

Flipping to the statement of operations, total investment income for the quarter ended December 31 was $30.5 million. This was down $3.1 million from the prior quarter, primarily due to lower OID amortization and lower prepayment fees.

On the expense side, total expenses of $15.2 million decreased by $2.9 million during the quarter, primarily due to a decrease in incentive fee expense as a result of lower investment income. As David highlighted earlier, we had net realized and unrealized gains on investments of $5.6 million during the quarter and net income totaled $20.6 million.

Turning to the following slide, the tables on the top provide a summary of our EPS and ROE, both from a net investment income and net income perspective for the past five quarters. Excluding the GAAP accrual for the capital gains incentive fee, NII on a per-share basis has remained stable at $0.31 or $0.32 a share for the past five quarters, representing an annualized return of about 8%.

Due to continued solid credit performance and strong equity gains we have generated positive net realized and unrealized gains, which has resulted in an ROE of approximately 9.4%, on average, over the past five quarters and 10.1% for the quarter ended December 31. As shown in the table at the bottom of the page, we have steadily increased our net added value per share for 14 consecutive quarters.

Turning to slide 12, this slide provides some financial highlights for our investment in Senior Loan Fund. Net growth in investments at fair value for the quarter ended December 31 was $36.8 million, an 11.6% increase from September 30, as SLF purchased $79.2 million of investment commitments from GBDC at fair value.

The annualized total return for the quarter ended December 31 was negative 0.4%, which was disappointing. The primary driver of SLF under performance was mark-to-market unrealized losses on some broadly syndicated and middle market loans. We continue to believe that over the longer term we will generate a low teens return on our investment in SLF.

Turning to the next slide, as of December 31, we had approximately $126.2 million of capital for new investments. This consisted of restricted and unrestricted cash and availability on our revolving credit facility. Due to the recent legislation that passed Congress that increased the family of funds limit to $350 million, we have submitted a $75 million debenture commitment application for GCS BSE5, which is one of our SBIC licenses which will provide additional capital, if approved by the SBA.

Slide 14 summarizes the terms of our debt facilities. And lastly, on slide 15, our Board declared a distribution of $0.32 a share, payable on March 30 to shareholders of record as of March 7.

I'll now turn it back to David with some closing comments.

Thank you, Ross.

So to summarize, despite a challenging and volatile environment for most asset classes, the fourth quarter of calendar 2015 was another very strong quarter for GBDC. We think the market turbulence and the investor unease that we've seen over the last several months, that these are likely here to stay. Thankfully, we at Golub Capital have been planning for this kind of environment, and we think that we're well positioned to take advantage of it in 2016 and beyond.

I want to spend a minute and talk about three key points, three key reasons why I think we are well positioned. The first is, you heard today from Ross and from me about our strong credit results. Strong credit results put us in a position to play offense at a time when many others are going to be playing defense. So credit quality on our underlying borrowers remains very solid.

Several years ago, we made some strategic decisions. We decided to deemphasize or completely avoid some riskier asset classes, such as junior debt and CLO equity, some decreased emphasis on industries with some cyclical or commodity exposure, and a really high bar on businesses that have sensitivity to a strengthening US dollar, and we decided to focus almost exclusively on first lien senior secureds to -- senior secured loans to solid, resilient companies backed by high quality, partnership-oriented PE firms. That strategy has served us very well and it puts us today in a position where have very few workout credits that require us to play defense with and a portfolio that lends itself to our playing offense. So first point is strong credit results allow us to play offense.

Second key point, when we're in a market such as we are right now, filled with volatility and uncertainty, our ability to provide certain execution in size becomes very valuable to our private equity clients. And that's particularly true today in dealing with larger middle-market deals. In the third and fourth quarters of calendar 2015, the market saw a fairly large number of upper middle market and larger deals that struggled in syndication. There are reports out today that there are between $10 billion and $15 billion of hung broadly syndicated loans. Some large banks are literally closed for business right now, due to these hung deals and inventory overhang.

So in that context, our ability to offer buy and hold solutions in size, to close deals reliably, to have a brand that reflects our capacity to consistently be reliable, these give us a very compelling value proposition. As we've grown, we've been able to do more and more for our sponsor clients and their portfolio companies. What we're finding last quarter, and we think this is going to be a continuing story into 2016, is that we're now winning deals that in the past might've gone to bigger competitors. In a sense, now we are the bigger competitor and we're seeing some very attractive opportunities because of it. So second point, certainty of execution, large buy and hold capabilities, these are really compelling value propositions we can offer to our private equity clients now.

Third point, we're seeing signs that the economics of new transactions are improving. One of the experiences that we've had many times in periods of market stress is that we begin to see wider spreads on new loans. The pattern is that this generally starts in the broadly syndicated market or in the high-yield market and comes to the middle-market after a lag. And that's what we're seeing this time.

It's still in the early days vis-a-vis the middle market and it's tough to predict what the magnitude of this shift will be. But if history is a guide here and I think it will be, because we've seen this dynamic many times through different credit cycles we can reasonably expect that we're going to see some wider spreads develop over the course of 2016 in middle-market land.

That concludes our prepared remarks for today. As always, I want to thank all of you on behalf of all of us here at Golub Capital for your time and your continued support. Operator, if you could please open the line for questions.

(Operator Instructions)

Doug Mewhirter from SunTrust.

Hello. Good afternoon. My first question is around the SLF, and it's more of an accounting question than anything else, but also how it relates to the rest of your balance sheet. Could you remind me how you treat the accounting of your SLF earnings? Does that net-net-net figure, that slight loss, go straight through to investment income? Or do the components of it go, one into the investment income and the other into the realized and unrealized losses on the Golub balance sheet?

The latter, so it's both. SLF is an unconsolidated joint venture. So it shows up in investments in fair value on the balance sheet. There is an associated unrealized, change in unrealized value associated with the valuation of that investment. Separately, SLF pays a quarterly dividend to its owners and that dividend shows up above the line in NII.

Thanks for that. And that's what I had thought, I just wanted to confirm that. And if you would take the mark-to-market out of the equation, is that dividend rate at maybe the cost basis of your equity investment in the SLF, is that approaching your -- the low teens target?

Doug, this is Gregory. Yes, it is.

Okay. Thanks for that. And relating to it falls to the balance sheet, obviously, you said you've had some mark-to-market in some broadly syndicated loans. And I noticed that the Golub balance sheet has held up very well in that regard. And it's an interesting compare and contrast between the SLF fluctuations and your Golub balance sheet fluctuations on how it didn't seem to move as much, and I just didn't know if it was just because there was a different mix of loans in there or what?

Yes, there's a different mix of loans. And candidly, in the early days of SLF, in an effort to speed the ramp-up of it, we made a decision which, in retrospect was not so great, to purchase some broadly syndicated loans into the portfolio. And we had -- looked at with 20/20 hindsight, I'd say we made two mistakes there. One was timing and the other was selection. We bought into some broadly syndicated loans, and the broadly syndicated loan market generally has weakened since then. And several of the specific loans that we bought have not done well from a market price standpoint. So you're right that it is a little different from the balance sheet. And I think Ross used the appropriate word in describing our sense for the SLF results this last quarter. They were disappointing.

Okay. Thank you. That's excellent color there. And my last question deals with your SBIC fund. That's great news about the legislation and how you get a little bit more capacity. Would you, all else being equal, lever that SBIC to the point where your total leverage, SBIC and non SBIC, goes up on absolute basis that your total debt to equity ratio goes up, or would you maintain your current total debt to equity ratio in roughly this range, now that you have some extra capacity in SBIC?

So we've long said that our target levels of leverage in GBDC, based on our asset mix, which has been pretty consistent, are roughly 1.0 on a GAAP basis and about 0.75 on a regulatory basis. And what the increased debentures -- again, assuming that we receive SBIC approval to add some debentures -- what the increased debentures will enable us to do is to take on some additional GAAP leverage to go above 1.0 without imperiling our regulatory leverage. So we think that will be very attractive incremental leverage for us. We have not reset with precision yet where we think the right new targets are. We're going to wait and see when we get the approvals from SBA. But I think it's fair to assume that we are going to look at increasing the GAAP leverage target of 1.0.

Great. That's very helpful. Thank you. That's all my questions for now.

Ryan Lynch with KBW.

Hello. Good afternoon, guys. First question, as you guys mentioned in your prepared comments, leveraged loan markets traded down in the quarter, but much like the September quarter, you guys actually had portfolio appreciation. Can you just discuss the factors of what was driving the portfolio appreciation in a quarter where the liquid markets were going down?

Sure. So if you look at our net realized and unrealized gains during the quarter -- and I'm going to speak to calendar Q4 -- those gains were primarily in equities. So we had $5 million of realized gains. Of that $5 million, more than all of it relates to equity interests that were sold during the quarter in Barcelona and DSI Renal. So most of the gains that we saw in the portfolio were not actually on the loan side, but were on the equity side.

The second piece, Ryan, to the puzzle is that our credit performance continues to be really strong. And when you look at underlying loan mark-to-market, there are obviously two factors that are at play. One is what's a market spread for a particular obligor's level of credit risk? And then the second is what's that obligor's level of credit risk? So we benefited a lot over the course of recent quarters from continued growth in EBITDA of our underlying borrowers.

And you can see that if you look at the credit results in our 1 to 5 rankings, because what you normally see in a portfolio that's beginning to have more credit difficulties is you see more dispersion in credit rankings. And if you look at ours, not just for this quarter, but over time, we've sustained a very high proportion of the portfolio in 4s and 5s, in our two best categories. And I think as you start to see a number of other BDCs report, particularly BDCs that have a higher proportion of their portfolio in junior debt and in businesses that are in less resilient sectors, you're going to see in those credit results, you're going to see a significant degree of migration to lower rated categories.

Okay. Great. Thank you for that color. I know you guys don't really -- energy's not really a concern in your portfolio, because you guys don't really have any exposure to the energy sector. But do you guys see any -- do you guys believe that there are going to be any issues with energy defaults, broader based in the economy, those defaults spilling over to other sectors in the economy and maybe just generally creating a broad based US slowdown?

I think the chances of a broad based US slowdown have increased significantly over the course of the last few months. And I think partly that's a result of the derivative effects of the dramatic drop in the price of oil, which is your point, Ryan. I think that's valid. I think there's also a significant factor in the form of the slowdown in China, and China's role as a purchaser of commodities and manufactured goods from around the world is really important to bear in mind.

But I think what all of this points to is that as we sit in 2016, seven years into a recovery, this is a time -- and I've been saying this for a couple of years now -- this is a time when it makes sense to be cautious about taking credit risk. And I could give you some probability assessment of a US recession in the next 12 months, but the one thing I can be certain of is that we will be wrong. We're really good at predicting recessions that don't happen. And at the end of the day, I don't think we're particularly good prognosticators of recession. What we're really good at is making loans to companies that pay us back. And that pay us back even if the economy weakens.

And our MO -- and this is not something new to this quarter, you've heard me say this many times before, if you've been a participant in this call, in our quarterly calls -- our MO is that we think this is an environment, this is a time when it makes sense to be very focused on lending to resilient companies that are well supported by really strong financial sponsors. And it's been working for us, and we think it's going to continue to work for us.

Great. I really appreciate that color on that, David. And then just one last one, it's on a specific portfolio company, Competitor Group. We just noticed that, that company had a decent sized write-down in the quarter, still on accrual status, but is there any additional color you guys could provide around Competitor Group and what was going on or maybe what caused the write-down in the quarter?

Competitor Group is one of the ones we've been watching very carefully. We are in the credit with Ares and are working very collaboratively with Ares on a program to improve the situation. And I think without getting into gory details on it, I am cautiously optimistic that we're on the right path.

Okay. Thank you for your time.

Robert Dodd with Raymond James.

Hello, guys. Looking at following up on Doug's question about the SLF, on the dividend, obviously $776,000 in the quarter, versus total income was a loss, and obviously GAAP income, so to speak, and that business lost about $2 million; what weighting do you give the -- conceptual question, rather than specific numbers here -- what weighting do you give the mark-to-market versus the credit? Because if we look at last year, total income was $4.3 million versus $110,000 loss. GAAP was 650 and the dividend was $1.4 million. So this quarter, dividend is basically half of the total last year, but the GAAP was a loss but mostly mark-to-market versus credit. I'm trying to get a feel of the dividend, because obviously you focus very much on GAAP, because you don't want to look at NII even in the SLF, because it's earnings before credit losses, as you say. But just conceptually, how do you feel about the mark-to-market versus the earnings of that business versus the dividend, the earnings before credit losses, so to speak, of that business?

We and our partner in SLF share a philosophy, which is that we want to have consistent distributions out of SLF over time. That necessarily means we're not distributing GAAP income, we're distributing some proxy for GAAP that we believe equates to a long-term earnings power. And at the end of the day, I don't think it really matters that much, to be honest, because whatever is over or under distributed comes through in the change in unrealized line. And what you hear me talking about over and over again, is that we think shareholders ought to be focused, need to be focused, on EPS and on NAV per share, not on geography within the income statement.

Fair enough. Second one, if I can. On the competitive environment, on the one-stop side, looks like Antares got a little bit more visible in the fourth calendar quarter, coming back a little bit from being somewhat quieter in the preceding period as their transition occurred. Competitively, is that true? Are they becoming a more relevant factor again? And how do you think that's going to affect your one-stop business, if it is the case?

Antares is under GE, and since the transaction where it became a unit of Canada Pension, they've always been a very good lender. They're a very strong competitor. We have a lot of respect for them. I wouldn't necessarily agree that they were disappearing from the landscape for a period of time. I do think that they were active in calendar Q4. We certainly saw them and competed with them across a number of different situations. We also worked with them on two or three different loans in calendar Q4. I don't think their behavior is -- I don't think Antares's behavior was either strikingly more or less aggressive than I would have expected. We expect them to continue to be a strong competitor going into 2016.

On the one-stop front, I'm not sure. Now that Antares no longer has the GE Ares unitranche fund, both they and Ares are figuring out how they are going to compete in the unitranche business without that joint venture. And on the Ares side, we've seen the development of Ares' joint venture with Varagon and the first couple of deals through that joint venture. On the Antares side, we've seen a couple of circumstances where they've been involved in unitranche deals. But it's early days. So I don't think we have a clear answer yet, how or the degree, to which Antares is going to be competitive in the unitranche product. But our view is that it's likely both Ares and Antares are going to be potent, good competitors.

Okay. Perfect. If I could have one last one, following on to Ryan's question. On the oil side, now that price decks have stepped down substantially, obviously, to new levels. What's your philosophical approach there? Obviously, it's a commodity, there's a lot of volatility that's out of the control of the business. At what point would you be -- do you think it's appropriate to take it a little bit more exposure to that space?

Somewhere between never and never.

(Laughter) Okay. Fair enough.

We're not smart enough to be good energy lenders. Oil prices seem to move in ways that don't reflect any kind of economic logic and defy the smartest forecasters' predictions. I just don't think that's a game that we want to get in.

Okay. Appreciate it. Thank you very much.

Jonathan Bock with Wells Fargo.

Good afternoon, David, and thank you for taking my question. Speaking a moment about portfolio velocity. We see outside of the SBIC, you're approaching what would be normal leverage levels, which would limit your ability to drive new capital, SBIC, ex the SBIC, into wider spread transactions. And so help us understand the earnings impact, or more importantly, the potential spread impact that can occur in terms of making new loans, wider spreads; and how apt the BDC is, understand that GC Advisors is well-equipped, given substantial funds to draw from. But how the BDC is equipped to take advantage of the opportunity, because at current capital levels, it seems you would only be limited to repayments, which to the extent volatility increases, you find that there's not a lot of repayments that come in the door?

First off, I think there 's a presumption in your question that's probably right. The presumption is at our current stock prices, we're not going to be issuing shares. And just to remind those who don't know this who are on the call, we have not sought, we won't seek to get approval to issue shares below NAV, and we are currently trading a little below NAV. So I think that's a valid presumption, at least for now.

So second piece of it is, you're correct that we have limited, although some significant degree of firepower on the balance sheet today. Ross went through the numbers with you, but over $100 million of cash, some debt capacity that's unutilized. So we have some existing capacity before factoring in repayments.

The third piece of it is repayments. And today, the portfolio is about $1.5 billion. Our experience is that our loans typically have a weighted average life of about 2.5 years. So what does that mean in practical terms? That means that somewhere between 30% and 45% of loans will pay off in a typical year.

And yes, you are right, Jon, that that repayment rate tends to slow down a bit in an environment of market turbulence. But in our experience, it doesn't slowdown that much. You still will see a lot of repayments. I think it would be a very unusual year for us where we would expect to see less than 25% of the portfolio turn over.

So factoring in the available capital that we've got and the low end of a range of repayments, I still think that's quite a lot of capital to deploy. And we will benefit from higher spreads, to the degree that the market entertains higher spreads over the course of 2016.

I do just want to highlight one key point though, which I mentioned in the earlier remarks. I think Ross mentioned it, as well. The middle market lags. So we can hope for wider spreads, and spreads have widened a little bit so far in senior and one stops, but not a lot. So beyond what we have right now, we're all speculating.

Okay. I appreciate that. Now another use of available liquidity -- and this is a common theme that gets put to many BDC managers today, relates to share repurchases. And interested in your view, although it's relatively new to see that the shares below NAV, your view on the ability to create value with repayment capital coming in the door through share repurchases that allow you to reinvest in what is apparently, clearly, a very well performing credit portfolio?

Look, I've been really blunt on this point in the past. So we believe that a BDC's own shares need to be looked at right alongside other potential new investments that a BDC can make and evaluated against those new investments that a BDC can make. So we have a $50 million Board approved share repurchase program; and if we think that it makes sense to use it, we are going to use it.

We also have, and this was highlighted in the press release, but I think it merits just mentioning here, we also have, as an advisor, we have purchased about $30 million worth of GBDC shares over the last two years for use in long-term incentive plans provided to our employees. And we plan to continue to purchase shares from time to time in connection with those kinds of programs.

Okay. Appreciate that. And if we talk about the one stops, and you mentioned now just by the sheer size, your ability to write large ticket holds is a clear competitive advantage in this market. I'm curious, what now would you consider the sweet spot in which your hold sizes would be in terms of how has this migrated over the last one year, two year? And when we think of competition, clearly it's from the banks and it's from Antares, Apollo, and GSO, how you would see the overall hold size to continue rising in this environment as more and more funds come in, both public and private? I'm curious on the actual dollar amounts that you commit to and some of the average balances in the one-stop product and how that's grown over time.

Happy to answer that. Just to provide a little bit of context first, again, for those on the phone who may not be so familiar with the Golub Capital platform, GBDC is one of the funds that we manage at Golub Capital across the platform we manage in excess of $15 billion in loan assets. So we look, these days, at putting ourselves in a position to be able to support our private equity firm clients in larger size transactions by undertaking larger buy and holds, particularly in one stops. And we've done quite a lot of one stops that range in size from $100 million to $300 million in buy and hold size. We've done several that are larger than that, where we've brought in partners, and we've shown that it's possible to put together groups that can provide a sponsor with one stops in the $500 million to $600 million range. But we are not buying and holding $500 million to $600 million positions. Our buy and hold appetite ends right now at about the $300 million mark.

To your point, Jon, one of the important phenomena that we've seen develop over the course of the last six months or so is a continued pull back by banks who used to be very active in this $100 million to $400 million facility size range. And they are pulling back for a variety of different reasons. Some of it's regulatory, some of it's risk. There's a lot of hung paper right now. Some of it's a staffing model question. But for whatever reason they are pulling back; it's creating an opportunity for us to increase our market share in this size range. And what we're finding is that as the VS: market has become uncertain and volatile, as syndication-led solutions have become less reliable, and as some of the bank have been pulled back from being active in this market, it's created a very big opportunity for us. Of all of the opportunities that I'm excited about in 2016, this is probably the one I'm most excited about, because I think the value proposition we can offer to our sponsors is so compelling.

I appreciate that. I think you've answered all my questions. Thank you very much.

Derek Hewitt from Bank of America.

Good afternoon and thank you for taking my question. My first question is really a follow-up to Jonathan's question on the buyback. And it really revolves around, are you guys thinking about the potential buyback at any particular point in time or are you evaluating any repurchase decision more on a relative basis versus, say, the equivalent average life of a portfolio investment?

I'm sorry, I'm not really sure I understand your question. Can you try that one more time for me?

I guess, when you're thinking about the buyback, are you looking at the buyback as a -- on a more relative basis? And so you're looking at it in terms of, I'm going to only buy back shares if I know over the next two and a half years or so -- which is average duration, I believe that you said of the portfolio -- that it makes a good investment? Or are you just thinking about it if the buyback were to happen in any particular point in time, if the shares were trading at a more significant discount to book value?

I think we're going to look at it from the perspective of being a steward for shareholder capital. So we're going to look at it a variety of different ways, all with the common focus of trying to figure out what's best for shareholders. And that has both a short-term and a long-term element to it. So I think, in some respects, the answer to your question is both. But the common thread is, what's the right thing to do for shareholders?

Okay. Thank you. And then maybe this is for David. Could you provide a little bit more color on what playing offense means? Does that mean having liquidity as you're getting paybacks to reinvest in more compelling primary investments? Or does that mean maybe allocating some capital towards M&A, since there's some cohorts that are struggling right now, or maybe some combination of both?

Go back a step. So first and foremost, it's the opposite of defense. Defense means that the team is spending most of its time on trying to figure out how to get out of a bunch of problem credits and workouts and how to avoid getting into consequent conflicts with private equities sponsors that undermine long-term relationships and interfere with the capacity to do new business.

If all those things are defense, what offense is, is using the opportunity created by this market tumult to advance further our relationships with sponsors who we want to work with and to gain market share in dealing with the kinds of new deals that we want to win. I wasn't thinking about in terms of M&A. I wasn't thinking about it in terms of application of balance sheet capital to new lines of business. I was thinking about it in terms of taking advantage of our market position to be able to enhance that market position.

I'm not saying we won't consider other options, including the ones that you laid out. But we're going to be very careful not to allow ourselves to get distracted. It's easy to get distracted in M&A land. And we're going to be very careful not to allow ourselves to get distracted going down a bunch of rabbit holes.

Okay. Great. Thank you very much.

Doug Mewhirter with SunTrust.

Just one last question. About the -- you say Golub, the Golub mothership becoming more of a, competing more in so-called bank deals where you can take down a $100 million to $400 million and internally syndicate it, which is obviously a very comforting thing for a private equity sponsor. What about external syndication capabilities at Golub, where you would maybe take something that's twice your maximum hold ties and syndicate it out, and then you send the fees down to your funds, including Golub BDC, and if you were to get into that more, or if you had the desire or capability to get into that more, could we see maybe a higher amount of fee income going into the Golub BDC?

We are not believers in the idea the BDC should be in the investment banking business. If you've looked at recent quarterly reports on the performance of the leveraged finance units of many of the larger investment banks, including Morgan Stanley or Credit Suisse, you'll see the degree of volatility of those kinds of operations doesn't lend itself, it isn't consistent with what we are attempting to build in GBDC, in terms of a very consistent ROE generator. So first answer to your question is, don't think that's an appropriate business for GBDC.

The second piece of it is, are we, as a platform, trying to put ourselves in a position to be able to do syndications, if that's what our sponsor clients want us to do. The answer is yes, to a limited degree. But I don't think we're ever going to have the kind of syndication business that Antares or that Credit Suisse or Jefferies have. Our model is much more credit focused then distribution focused, and always will be.

Thank you. That's very helpful. That's all my questions.

Michael O'Brien from Deerhill.

Hello. I was wondering if you could give a little perspective, for someone who hasn't followed you for a long time, on how you fared through previous cycles and recessions and whether you have any thoughts on the level of debt that's floating around in the world right now and how that might impact things.

I'd be happy to, but why don't we take that conversation off-line? Please feel free to shoot me or Ross an e-mail and we'd be happy to follow up with you on a one-on-one basis.

Okay. Sure. Thank you.

There are no further questions registered at this time.

I want to just reiterate my thank you to all of you for tuning in today and for your continued questions and support. Look forward to talking to you next quarter.

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