Golub Capital BDC Inc (GBDC) 2018 Q3 法說會逐字稿

Welcome to the Golub BDC, Inc. June 30, 2018 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 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 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 company's website, www.golubcapitalbdcinc.com (sic) [www.golubcapitalbdc.com], click on the Events/Presentations link to find the June 30, 2018, investor presentation. Golub Capital BDC's earnings release may also be found on the company's website in the Investor Resources section. As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Mr. David Golub, Chief Executive Officer of Golub Capital BDC. Please go ahead, sir.

Thank you. Hi, everybody. Thanks for joining us today. I'm joined by Ross Teune, our Chief Financial Officer; and Greg Robbins, Managing Director. Yesterday afternoon, we issued our earnings press release for the quarter ended June 30, and we posted an earnings presentation on our website. We're going to refer to that presentation throughout the call today.

The quarter ended June 30 was another strong quarter for GBDC. For those of you who are new to GBDC, our investment strategy is and since inception has been to focus on providing first lien senior secured loans to healthy, resilient middle-market companies that are backed by strong partnership-oriented private equity sponsors.

I'm going to start today with an overview of GBDC's results for the third fiscal quarter. Ross will then take you through the results in more detail and I'm going to come back at the end for some closing remarks.

Let's dive into the details. Net increase in net assets from operations or net income for the quarter was $21.7 million or $0.36 per share. That compares to $23 million or $0.39 per share for the quarter ended March 31.

Net investment income, or as I call it, income before credit losses was $18.7 million for the quarter or $0.31 a share. That compares to $18.5 million or $0.31 a share for the quarter ended March 31. Excluding that $700,000 accrual for the capital gains incentive fee, net investment income was $19.4 million or $0.33 per share as compared to $19.3 million or $0.32 per share for the prior quarter. Consistent with previous quarters, we provided net investment income per share, excluding the capital gains incentive fee accrual, because we think this adjusted NII measure is a more meaningful measure.

Due to earnings in excess of our quarterly distribution, net asset value per share rose from $16.11 to $16.15, that's a new record high for GBDC.

Net realized and unrealized gains on investments in foreign currency was $3 million or $0.05 a share for the quarter ended June 30, and that was the result of $14.8 million of net realized gains and $11.8 million of net unrealized depreciation. This compares to net realized and unrealized gains on investments of $4.5 million or $0.08 per share for the prior quarter.

New middle-market investment commitments totaled $195.8 million for the quarter, that included investments of -- I'm sorry, including investments of $2.6 million in Senior Loan Fund, SLF, total new investment commitments were $198.5 million. Of the new investments, approximately 12% were senior secured loans, 86% were one-stop loans, 1% were investments in SLF and 1% were investments in equity and subordinated debt. Overall, total investments in portfolio companies at fair value increased by about 2.2% for the quarter or $38.7 million.

Turning to Slide 4. You can see in the table that $0.36 per share we earned from net income perspective, the $0.33 per share we earned from a net investment income perspective before accrual for the capital gains incentive fee and you can see our net asset value per share of $16.15.

As shown on the bottom of the slide, the portfolio remains very well diversified with investments in 192 different portfolio companies and an average size of $8.9 million per investment.

With that, I'm going to turn the floor over to Ross, who'll provide some additional portfolio highlights and discuss the financial results in a bit more detail.

Thanks, David. Turn to Slide 5. This slide highlights our total originations of $198.5 million and total exits and sales of investments of $157 million, contributing to net funds growth of $38.7 million during the quarter.

Turn to Slide 6. The slide shows our overall portfolio mix by investment type has remained consistent quarter-over-quarter, with one-stop loans continuing to represent our largest category at 80%.

Turn to Slide 7. This slide illustrates that the portfolio remains well diversified with an average investment size of $8.9 million. Our debt investment portfolio remains predominantly invested in floating-rate loans, and there've been no significant changes in the industry classification percentages over the past year.

Turn to Slide 8. The weighted average rate of 7.8% on new investments this quarter was down from 8.4% in the previous quarter. As we noted on the call last quarter, the increase in the weighted average rate of new investments last quarter was an anomaly.

Due to a few larger payoffs on existing loans with high relative spreads, the weighted average rate on investments that paid off increased to 8.2%. 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 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 light blue 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. Due to increases in LIBOR over the past few quarters, the income yield increased to 8.5% for the quarter ended June 30 as the vast majority of our investments bear interest at a rate that is determined by reference to LIBOR and rates on variable rate investments have increased as LIBOR contracts have reset.

LIBOR contract resets are also the primary cause for the increase in the investment income yield, the dark blue line, which is at 9.1%, which includes amortization of fees and discounts and the weighted average cost of debt, the green line at 4.1%.

Moving to the next 2 slides. Fundamental credit quality at June 30 remained strong with over 90% of the investments in our portfolio have an internal performance rating of 4 or 5 as of June 30, which is highlighted on Slide 10.

During the quarter ended June 30, the number of nonaccrual investments increased from 1 to 3 investments. As of June 30, nonaccrual investments as a percentage of total investments at cost and fair value were 1.2% and 0.8%, respectively. As a reminder, independent valuation firms value approximately 25% of our investments each quarter.

Reviewing the balance sheet and income statement on Slides 11 and 12, we ended the quarter with total investments at fair value of $1.8 billion. Total cash and restricted cash was $72.2 million and total assets of $1.88 billion. Total debt was $876 million, which includes $451 million in floating-rate debt issued through our securitization vehicles, $277.5 million of fixed-rate debentures and $147.5 million of debt outstanding in our revolving credit facility.

Total net asset value per share was $16.15. Our GAAP debt-to-equity ratio was 0.92x, while our regulatory debt-to-equity ratio was 0.63x. These are up from last quarter, but slightly below our longer-term targets.

Flipping to the statement of operations. Total investment income for the quarter ended June 30 was $38.4 million, an increase of $1.5 million from the prior quarter, primarily due to increases in LIBOR and continued growth in the portfolio. On the expense side, total expenses were $19.7 million. This was an increase of $1.3 million, which is primarily attributable to higher interest and other debt financing expenses caused by rising LIBOR as well as higher incentive fee expense.

Turn to the following slide. The tables on the top provide a summary of our quarterly distributions and return on average equity over the past 5 quarters. Our regular quarterly distributions have remained stable at $0.32 per share, which is consistent with our net investment income per share when excluding the GAAP accrual for the capital gains incentive fee. The annualized quarterly return based on net income was 9% this quarter and has averaged 9.1% for the past 5 quarters.

The bottom of the page illustrates our long history of increasing NAV per share over time. For historical comparison purposes, we have presented NAV per share both including and excluding of the $0.25 and $0.08 special distributions that were paid on December 29, 2016 and December 28, 2017, respectively.

Turn to Slide 14. This slide provides some financial highlights for our investment in Senior Loan Fund, which had another disappointing quarter. The annualized total returns for the past 2 quarters have been negatively impacted by unrealized losses on a few portfolio company investments and below target leverage.

Total investments at fair value at June 30 declined by 11.5% to $226 million due to a combination of high level of prepayment activity and continued shortage of appropriate assets to put in the Senior Loan Fund.

Turn to the next slide. We had over $100 million of capital available for investment as of June 30 in the form of restricted and unrestricted cash, availability on our revolving credit facility and additional debentures available through our SBIC subsidiaries.

On July 20, we closed on a new $300 million credit facility with Morgan Stanley. The credit facility bears an interest rate equal to 1 month LIBOR plus 1.9% during the revolving availability period. In connection with the new credit facility, we redeemed all of the outstanding notes issued in our 2000 debt securitization, and following the redemption, the agreements governing the securitization were terminated.

Finally, on Slide 17, our board declared a quarterly distribution of $0.32 per share, payable on September 28 to shareholders of record on September 7.

I'll now turn the call back to David, who will provide some closing remarks.

Thanks, Ross. So to sum up, GBDC had another solid quarter, ending the quarter at a new record high NAV per share. Key drivers this quarter were higher LIBOR, stable credit quality and several strong equity gains.

I'll close before taking some questions with an update on 2 topics, our market outlook and our debt capital structure.

Let's start with our market outlook. In late June and early July, conditions in the broadly syndicated loan market began to tilt in favor of lenders for the first time in more than 2 years. Heightened M&A activity increased the supply of new paper in the market and wider spreads on BSL securitization liabilities meant CLO managers needed higher yields to hit their ROE targets. These factors caused investors in the BSL market to push back on pricing, and I've often said that the middle market is insulated, but not immune to trends in the BSL market. So I wanted to spend a few minutes talking about what we're seeing now in the middle market and what we think we're likely to see going forward.

So far, we're seeing a stabilization. In some areas, a small improvement in spreads, but I think it's too early to draw a conclusion about whether this shift in the BSL market is going to sustain and derivatively, whether we're likely to see any significant change in the middle market following that. I think we'll all be watching trends in the broadly syndicated market in the period from now until late September and see whether the continued trend toward lender-friendly conditions evolves.

From a macro perspective, our data suggests that the U.S. economy has a lot of positive momentum and this may interfere with the drive toward a more lender-friendly market. The Golub Capital Middle Market Report for the quarter ended June 30 showed double-digit year-over-year revenue growth and EBITDA growth in our median sample.

We've now seen 3 consecutive quarters of record revenue growth. Calendar Q4 of 2017 was the best Q4 since the inception of the index, calendar Q1 of 2018 was the best Q1 and now calendar Q2 of 2018 was the best Q2.

I'll end with an update on our debt capital structure. On last quarter's call, we talked about 3 themes that underlie our thinking about the recent bill permitting higher BDC leverage. First, we believe in the Hippocratic Oath, "Do no harm." We think we have a great model today and we see no rush to change it. Second, we said we believe the environment today is challenging and that access to leverage isn't a constraint for us. The constraint is the availability of attractive investment opportunities. And consequently, we think this is the kind of environment in which it pays to be cautious. And third, we said that we believe incremental debt inevitably costs more and involves higher risk. We think that incremental cost and risk shouldn't be taken lightly.

With these themes in mind, we and our board continue to evaluate whether increasing our regulatory leverage limit makes sense for shareholders. These themes also provide context for the steps we've taken to optimize our existing debt capital structure. You'll recall that we amended our Wells Fargo facility in December of 2017 and we repriced our 2014 CLO in March of this year. In both cases, we reduced GBDC's already low cost of capital. On July 20, we refinanced our 2010 CLO into a new credit facility with Morgan Stanley. We would have preferred to refinance it with a new securitization, but we're still waiting no-action relief from the SEC. If and when we receive that relief, so long as market conditions remain attractive, we expect to replace the Morgan Stanley facility with the securitization.

Now before we open the line for Q&A, 2 housekeeping items. First, I'd like to correct a mistake I made in the last quarter's Q&A. In discussing our approach to capital structure design and investment strategy, I said these issues are easy to get wrong and I pointed to several managers who got into trouble in the last downturn. I meant to include American Capital, ACAS, in that list, but I misspoke and accidentally mentioned Ares instead. We have a lot of respect for Ares. They're a very frequent partner of ours and they decidedly did not get into trouble in the last downturn. I apologize for my error.

Which leads me to the second item, the question I was responding to came from Jonathan Bock. And as many of you know, Jon recently decided to pursue a new opportunity outside of equity research. And given his many contributions to the BDC industry, I wanted to just spend a minute today honoring Jon. Jon brought a new level of analytics to BDC research examining, for example, the impact of fee structures, effective leverage and credit losses on shareholder returns over time. He introduced to us what he called "the math" and "the scorecard" and of course, "the conference." He asked managers tough questions and he often took a lot of heat for that, but you always knew his motives were pure. He always had the best interest of shareholders and the industry in mind. So Jon, if you're listening, just wanted to say you'll be missed. And in your honor, I want to give -- I want us to give you the one thing that you could never give us, a moment of silence.

With that, operator, please open the lines for questions.

(Operator Instructions) Our first question comes from the line of Fin O'Shea with Wells Fargo Securities.

David, it's always very difficult to follow those odes to Jon with an earnings question. But I'll start out with the July credit facility. It looks like an especially short revolving period, maybe 6 months and then maturity thereafter. Can you expand on the motives behind that?

Sure. So as I've mentioned in prior calls, we've been in discussions with the SEC on gaining no action -- gaining a no-action letter that would permit GBDC to issue new securitizations for quite some time, actually over 2 years now. And we're making progress. We continue to be optimistic that we're going to receive that no-action relief, but we don't have it now. So we did in that new facility with Morgan Stanley as we put in place a facility that will carry us for about 6 months. It's favorably priced. It's at LIBOR plus 1.90%, which is actually a lower spread than our Wells Fargo facility that's at LIBOR plus 2.15%. It's a well-structured facility from the standpoint of being safe and prudent, not having too many mark-to-market features to it. But it's designed to provide us with some additional time to get the no-action relief and assuming market conditions remain favorable, we plan to replace that facility with a new securitization.

That's very helpful. And then a question on the equity structures. You're able to attain, in light of a pretty strong quarter, so can't help but notice how these tend to move with buyouts of your names very often and a lot of other BDCs that take on equity. Even if they're successful, they can be stuck with it for some time. So as you're often [a ranger] and that presumably grants you the right to coinvest a little bit, do you -- are you able to incorporate change of control type features that help you move this equity so quickly?

Well, so -- let me go back a step and talk about our philosophy in respect of equity coinvestments. So we believe that it's appropriate for GBDC to allocate a portion of its portfolio to equity coinvestments. And I'm calling them equity coinvestments because these arise, in general, in connection with new loans that Golub Capital is originating. So we'll be working with a sponsor to help them finance a new buyout, and in connection with that new buyout, we will negotiate for the ability to invest a small amount of equity alongside the sponsor in that transaction. Our approach to equity coinvestment is very much to be the partner of the equity sponsor. So we would seek to both enter the transaction with the equity sponsor at the time of the buyout and exit the transaction with the equity sponsor at the time that the equity sponsor is exiting. So the timing of our whole positions in equity coinvestments does vary. Sometimes it's as short as a couple of years and sometimes it can be much longer than that. We're not in control of the period over which we hold our equity coinvestments. If you look at equity coinvestments over time, I agree with your sense of -- we had a very successful program in equity coinvestments. Our rate of return on our equity coinvestments has been quite attractive and that those returns have contributed to our ability to offset credit losses with equity gains and produce net realized and unrealized gains on investments for most of the quarters in which we've reported. I think we're now at 14 of the last 16 quarters we've reported net realized and unrealized gains. So we've had gains that exceeded losses in 14 of the last 16 quarters. Much of the credit for that goes to our equity coinvestment programs.

Very well. And then just one more question, if I may. Of course, you're a large platform there, very often incumbent lender. It looks like a pretty even split this quarter between new and follow-ons. Among those, can you give us a split of the -- your general follow-ons versus draws? And kind of what I'm getting at is the unfunded commitments, given it looks like transaction data that was a -- just looking at that one, the largest individual name now as a draw this quarter. So I know it's a long-winded question, but can you kind of break down follow-on versus delayed draws in a normal quarter of your investments?

It's hard to do that actually, because I'd say the proportion of new originations that relate to incumbencies have tended to be in the 40% to 50% range for most quarters, going back quite some time. Of that portion that is related to incumbencies, it's very challenging to look at the percentage that relates to EDTLs or revolver draws because it varies a lot from quarter to quarter. So I don't think there's an easy pattern to identify in respect of delayed draws.

Our next question comes from the line of Robert Dodd with Raymond James.

Just going back to -- first of all, a couple questions. But going back to your comments, David, on the market, obviously we saw broader market spreads widen kind of late '15, early '16 as there were concerns that the world was ending at that point and it became apparent that it wasn't and then it tightened up very, very quickly. Your color here, obviously we've seen the widening different dynamic, right? It's supply rather than fears of economic catastrophe, but what's your -- and you kind of addressed this, but I just wondered if you can get -- get you to narrow it down a little bit more in terms of what do you think the potential is for that covenant widening to sharpen -- to narrow back very rapidly as we saw the last time it happened for very different reasons?

So a couple of reactions, Robert. First, I think, you're right to point to that timing around the early part of '16 as being the last time we saw a sustained widening and choppiness in markets. This time is different. It does feel like it's less fear based than it was at that time. I think one of the key variables to watch in today's version is a metric that most people don't pay a lot of attention to, is spreads on securitization liabilities for broadly syndicated CLOs. So let me explain why I think that's so important. So today, in the broadly syndicated loan market, about 70% of the market is held in the form of broadly syndicated CLOs. And in any given period, there will be some of those that are running off and some of those that are being formed. We've seen a meaningful widening of spreads in broadly syndicated CLOs over the course of the last couple of months. And that increased cost of capital for CLO managers means that in order for CLO managers to be able to form new vehicles, they have to be able to persuade investors to invest in the equity of those vehicles, the ROE of that -- of the equity is down. So there's pressure on managers to push back by getting higher spreads on underlying loans. Their choice is to slow down new CLO formation. Either one of those puts upward pressure on spreads. Either you have less demand for loans because of a slowdown in CLO formation or you have CLO managers who are overtly and explicitly asking for higher spreads as new loans come out. The BSL market tends to be a market that the middle market follows. Sometimes there is a lag, sometimes that lag can be months. But as a generalization, the middle market tends to follow what's going on in the broadly syndicated market. The broadly syndicated market is going to take most of the month of August off. It's a bit like France. Most BSL issuers choose, if they can, not to come to market during the month of August because it tends to be a vacation period and it's challenging to get new deals done as easily as it is other times of year. So I think all eyes ought to be on the BSL market in the period right after Labor Day, where you'll see a spate of new issue and my guess is, you'll also see a spate of new CLO formation. And if during that period we see sustained wider spreads in the BSL market, I think you will also see pressure on arrangers to bring new issue out at higher spreads as well. That, in turn, would be a good sign for us lenders in the middle market. Again, it might not filter down right away. There's typically a lag based on history, but there is typically a -- there has historically been a tie between these 2 markets.

Perfect. I appreciate that color. If I can, on kind of switching topics sort of a little bit. On the SLF, obviously you've said shortage of appropriate assets below target leverage this year, but it was at target leverage last year, roughly. If I look at the returns there, in last year, total ROE gap, including everything 6.5%. So far this year under 6% and obviously, that's before incentive fees on the income or the management fees of the BDC for that being on balance sheet. Your on-balance-sheet returns were somewhat like 9%. So can you give us some thoughts on that -- what's the plan then in -- or your view on whether the SLF deserves -- the SLF strategy deserves your capital given it generates returns that are significantly lagging the on-balance-sheet returns of your one-stop program?

I think we're speaking with our feet on that issue. We're currently in a shrink mode in respect of SLF. We are saying quite explicitly that we think that risk/reward of our one-stop origination on balance sheet is better than the risk/reward would be if we dedicated the same capital to growing our SLF program. So I agree with where you were headed, which is the data suggests that risk/reward in our one-stop program is better, and we're following that logic with our feet. Now where does that take us? Well, markets tend to change over time. And so we think it does make sense -- this time anyway, it does make sense to sustain a presence in the traditional middle market senior secured landscape and to use SLF as a tool to increase exposure there when we think market conditions become more attractive. But right now, we're in cautious mode.

Okay. One final one, if I can. Can you give us your spillover income number currently? And also there if I can, obviously you generated large realized gain. Without being asking for specifics on timing or size, would you say that your policy would continue of not wanting to carry large spillover amounts and pay the excise tax? And so would it be reasonable, assuming nothing odd happens in your fourth fiscal quarter, to expect that you would distribute the realized gains -- the excess income in the form of realized gains or whatever during the course of next year?

So I'm going to answer part of that question; part will have to wait. So the question about spillover income, I don't have an exact dollar number for you now. Let me look into what we've disclosed and what I can disclose to you and come back to you with that. Vis-à-vis, the second part of your question, has something changed about my view on the desirability of paying excise tax that you can avoid if you return the capital to shareholders? The answer is, no. I continue to think that there's no good reason why a BDC should retain capital and pay an annual excise tax if it can avoid that excise tax by returning that capital to shareholders. Now at the end of the day, any dividend decision is not mine alone, it's a board decision. So saying that I want to be clear, I'm speaking as a CEO, but not as representative of my board. The board will decide what dividend is appropriate when it considers that matter.

Our next question comes from the line of Christopher Testa with National Securities Corp.

David, you had talked about the broadly syndicated market and the encouraging signs of becoming more lender-friendly. Just curious, in your opinion, how long would this have to be sustained before you were to view this not as a blip, but as something that's going to actually snowball and be positive for lenders?

That's a really hard question to answer because there are many factors that impact the answer. I guess, what I'd say is, is I think the month of September is going to be very telling. And either we're going to see a sustained widening in the broadly syndicated market in September, in which case, I think we're likely to be seeing a sustained trend, or we're going to see a bounce back in the month of September to spread levels on new issue that were present in the marketplace in April, May, early part of June. I think the right thing to focus on right now is September.

Got it. Okay, that's helpful. And sticking with the theme on what you're seeing in BSL market, just curious with the cov-lite nature, pari-passu debt and unrestricting subsidiaries and all the fun parts that have become the market over the past few years, what are your expectations for just how much lower recovery rates, in general, are going to be when the cycle changes?

Also, a very challenging question to answer. For a long time, it was my view that recovery rates on covenant-lite loans were likely to stay at approximately the same level as recoveries on noncovenant-lite loans, not because they were covenant-lite or not covenant-lite, but because the market was permitting only good credits, only particularly strong credits to get covenant-lite deals done. Today, most of the market is covenant-lite. And consequently, I do think it's reasonable to prognosticate that recovery rates on covenant-lite loans are going to be a bit lower through the next cycle than loans generally were in the last cycle. You asked the $64,000 question, which is how much lower? And my honest answer is, I don't know. It depends on the depth of the recession, among other factors. I am very concerned about some of the documentation weaknesses that are being introduced into the market and by the willingness of companies to take advantage of those documentation weaknesses. So the transfer of intellectual property out of secured subsidiaries into ones that are unrestricted. This is very problematic. So I think it's unlikely that we're not going to look back on some of these weak terms that have crept into documentation in the broadly syndicated market. It's unlikely that we're going to come back and say, "Oh! None of that was a problem." I think it's much more likely that we're going to look back and say, "what were people thinking?"

Yes, I certainly agree with that. That's great detail. And just -- I know you had mentioned, you and your team continue to assess the potential of reduced asset coverage. Do you think given that and given your commentary on the JV and obviously that's been having a lackluster performance, is there a potential that you guys have discussed or maybe you do go the route of reduced asset coverage and then just unwind the JV or put the loans back on balance sheet instead?

It's definitely one of the possibilities that we're going to think about. Absolutely an option.

(Operator Instructions) Our next question comes from the line of Ryan Lynch with KBW.

I did have one more follow-up on the SLF. With the more favorable terms you're talking about, just starting up in the broadly syndicated loan market, I would think that, that would help the investment strategy of the SLF a little bit more than it would help your kind of core balance sheet investments. So does that -- one, is that true? And then two, does that change your kind of thought process about potentially growing the SLF in the future if there is a little more favorable terms in kind of the broadly syndicated market?

The potential for widening of spreads in the broadly syndicated market, if it happens, that, that would be good for both our balance sheet one-stop focus as well as the SLF traditional first lien senior secured focus. I think it would be good for both of them. I don't really think that you would see it be meaningfully better for one than the other. I think both of those will move in tandem because one-stops tend to price as a function of mix of first lien pricing and second lien pricing. As to the kind of other part of your question, will -- if we imagine a future where we have more lender-friendly conditions, would that be good for SLF? The answer is clearly, yes. One of the challenges that we've had with SLF is that we haven't seen as much traditional middle-market senior secured debt as -- that we liked, as we would like. And I hope that changes. If that doesn't change, we have a plan for that too.

Okay, that's helpful. And then Dyal Capital made a minority interest into -- minority investment into Golub Capital. I know you guys said all proceeds from the transaction are going to stay within the firm. So I would think that, that would increase the growth really across your guys' platform and then I would also think that, that could potentially increase the growth opportunities and potentially the deal flow across the platform, which could maybe potentially benefit the deal flow to the BDC. Am I thinking about that logic right? And do you expect any -- or I guess, should investors expect any sort of impact from that investment on the BDC?

So just to get everybody on the same page, last Friday, Golub Capital announced, quite as Ryan said, that we had concluded a transaction with Dyal Capital Partners, a division of Neuberger Berman, wherein Dyal purchased a passive nonvoting minority stake in the Golub Capital management companies and all of the capital that Dyal invested is staying within the company. No one is cashing out. And the goal of the transaction was to increase our management company balance sheet in order to increase our capabilities. Very broadly speaking, I would say, shareholders of GBDC should expect no change. We're not changing our management team, our investing team, our investment committee or any decision-making within the firm. We're also not looking to change our strategy. We're not going to start energy lending or infrastructure lending or Chinese private equity. We think that asset management is really, really hard and that you can only produce consistent premium returns if you have compelling competitive advantages. We think we've got compelling competitive advantages in middle-market lending. We want to focus on the areas in which we have those advantages and grow there. We're humble in our belief that we can be really good in other areas. What the new capital will permit us to do is to more easily expand into doing some larger-size transactions with sponsors and increase our breadth of relevance with sponsors. And we do think that, that will help GBDC as well as the other Golub Capital vehicles by effectively increasing our competitive advantages, by making us a more compelling strategic partner for sponsors.

(Operator Instructions) We have no additional questions at this time.

Thank you, operator. I want to thank everyone for participating in today's discussion. Thank you for your partnership. As always, should you have any questions before our next conference call, please feel free to reach out to me or Gregory or Ross, and look forward to talking about next quarter in a few months. Thank you.

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