Golub Capital BDC Inc (GBDC) 2020 Q3 法說會逐字稿

Welcome to GBDC's June 30, 2020, 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 and Reform Act of 1995. The 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 GBDC's filings with the SEC.

For materials, the company intends to refer to on today's earnings conference call. Please visit the Investor Resources tab on the home page of the company's website, www.golubcapitalbdc.com and click On Events/Presentations link. GBDC's earnings release is also available on the company's 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.

Thank you, Ingrid. Hello, everybody, and thanks for joining us. I'm joined virtually today by Ross Teune, our Chief Financial Officer; and Greg Robbins and Jon Simmons, both Managing Directors at Golub Capital. We and the rest of the Golub Capital team hope that you and your loved ones are all safe in these challenging times.

This morning, we issued our earnings press release for the quarter ended June 30, and we posted an earnings presentation on our website. We'll be referring to that presentation throughout today's call.

Let me start with 2 headlines. The first headline is that GBDC's results for fiscal Q3 were consistent with the estimates we filed on July 15. Adjusted net investment income per share was $0.28, adjusted EPS was $0.94 and NAV per share was $14.05.

The second headline is that our fiscal Q3 results were strong. The portfolio generated solid adjusted net investment income and demonstrated strong resilient credit results, including the reversal of a meaningful portion of the unrealized losses that depressed performance in fiscal Q2.

I'm going to start by reviewing key performance drivers for fiscal Q3, and then I'm going to go through GBDC's results for the quarter in detail with a lot of help from my colleagues on the phone. After that, we'll take your questions.

On Slide 6, we've outlined 3 themes beyond good underwriting that we believe drove GBDC's strong fiscal third quarter. First, the U.S. economy began reopening sooner than expected; second, GBDC's portfolio companies generally performed better than expected, especially the ones in COVID-impacted subsectors. And third, our private equity sponsors have generally stepped up to support their portfolio companies.

Let me elaborate on each of these 3. First, the economy reopened faster than we expected. When we did our risk assessments in late March and April, our base case was a meaningful reopening by mid-summer. Our downside case was a bit after Labor Day and our upside case was the end of June. In fact, we saw substantial reopening in May. Now maybe Dr. Fauci is right and this was too soon from the standpoint of controlling COVID, but we believe the early reopening gave a substantial boost to many borrowers in GBDC's portfolio.

Second theme, within GBDC's portfolio, in general, borrowers performed better than expected. Especially those in COVID-impacted subsectors. You'll recall from our fiscal second quarter earnings presentation that we focused on 5 industry subsectors where we saw more risk of COVID impact; restaurants, dental care, high care, fitness franchises and retail. In fiscal Q3, we're encouraged to see that many of GBDC's obligors in these industry subsectors performed better than expected. In general, most of GBDC's restaurant and retail obligors found ways to stay open to cut costs, to pivot to emphasize takeout, delivery, curbside or internet-based models. Some of the obligors in these industry subsectors actually posted same-store sales gains during the quarter. And our dental and eye care obligors, who were closed for a period of time, have also, in general, been stronger and better than we expected.

Third theme, our private equity sponsors are generally stepping up to support their portfolio companies. We worried in March and April, at the beginning of COVID, that sponsors would have so many problem children that they wouldn't have bandwidth or sufficient capital to be able to address them. So far, those worries are not playing out. We're seeing sponsors contributing time, expertise, operating executives and, in many cases, capital. We think this reflects the strength of our borrowers, the strength of our sponsors and the strength of Golub Capital's relationships with those sponsors.

GBDC's credit results for fiscal Q3 reflect these 3 themes. On the right-hand side of Slide 6, we've highlighted 4 impacts on GBDC that we'll discuss further over the course of today's presentation. Let's start with the first of those impacts, improved internal performance ratings for the GBDC portfolio as a whole.

Please turn to Slide 7. You'll recall we highlighted in last quarter's earnings presentation the downward migration in our internal performance ratings, from categories 4 and 5, those are loans that are performing at or better than expectations at underwriting to category 3, which are loans that are performing or expected to perform below expectations. Category 3 increased from 7.2% of the portfolio at fair value at December 31 and to 26.5% of the portfolio at March 31. The percentage of the portfolio performing materially below expectations in categories 1 and 2 was essentially unchanged in the March 31 quarter. In the quarter ended June 30, consistent with borrowers performing better than our expectations, we saw improved performance ratings. Specifically, we saw loans in categories 4 and 5 increased from 71.5% of the portfolio at fair value at March 31 to 76% of the portfolio at June 30. Category 3 loans went down from 26.5% of the portfolio at March 31 to 22.3% of the portfolio at June 30.

Even better, the percentage of the portfolio in categories 1 and 2, those are loans performing materially below expectations, decreased. While the improvement in risk ratings is encouraging, I don't want to gloss over the fact that the proportion of the portfolio rated 3 is still higher than the range we typically saw pre-COVID. But I want to put that difference in context. Given today's unusually uncertain environment, we're quick to downgrade loans to category 3. And when a loan migrates to category 3, it automatically triggers an increased level of scrutiny and oversight. Our approach is designed to take full advantage of the breadth and depth of resources of the Golub Capital platform. Category 3 doesn't mean defaults or losses are necessarily going to occur, case in point being the material subset of GBDC's loans rated 3 in the March 31 quarter that migrated this quarter up to categories 4 and 5.

We've always believed that early identification of problems or potential problems leads to better outcomes down the road. Let's continue our discussion of how the key themes we highlighted earlier impacted GBDC's fiscal Q3 results.

We mentioned that new nonaccruals remain low. We'll come back to that point in our usual discussion of GBDC's financial results, but in brief, nonaccruals as a percentage of total investments at fair value increased modestly to 2%. Net realized losses also remained low, and we saw a reversal in net unrealized losses. You can see both the low net realized losses and the high unrealized gains in the NAV bridge on Slide 8. We start with March 31 NAV per share of $13.49. That's pro forma for the dilution from the rights offering. From there, we add adjusted NII of $0.28 per share. We deduct our dividend of $0.29 per share. And you can see in the next column that realized credit losses during the quarter were very low at $0.03 per share. The big driver of the improvement in NAV per share was net unrealized gains. Net unrealized gains of $0.74 per share in fiscal Q3 reversed to a meaningful amount of the net unrealized loss in fiscal Q2.

Now we continue to see our job as being all about minimizing realized losses and generating more of these unrealized losses. I want to spend a little time on this call describing our approach for this task. And to do that, let me hand the microphone to Greg Robbins, who's going to offer us an update.

Thank you, David.

Let's start by reviewing GBDC's strategic response to COVID-19 on Slide 10. Last time, we talked about 3 key goals GBDC has pursued while navigating the COVID-19 crisis. First, proactively managing its highly diversified, first lien, senior secured investment portfolio; second, supporting existing portfolio companies through credit-enhancing incremental investments and amendments; and third, fortifying its balance sheet and preparing to capitalize on attractive new investment opportunities. We believe GBDC's strong fiscal Q3 results suggest that our strategy is working.

As a starting point, Slide 11 shows the overall composition of GBDC's portfolio as of June 30. The data on the left shows that GBDC's portfolio remains large, diversified, granular and focused at the top of the capital structure. The portfolio has over 250 investments with an average investment size of less than 40 basis points of the portfolio at fair value. On the right, you can see that GBDC's portfolio was designed to be resilient. We focused since inception on lending to companies we believe will retain value even in a downside recession scenario. In most cases, these borrowers are also COVID-19 resistant. Over 80% of the portfolio, June 30, consisted of investments in industries we believe are relatively insulated from COVID-19, areas like enterprise software, business services, financial services and more. By the same token, less than 1% of the portfolio consisted of investments in sectors we know have been particularly hard hit by COVID-19, like airlines, entertainment, hotels, energy and others. Most of our proactive portfolio management has focused on the roughly 20% of the portfolio in industry subsectors we identified as less insulated from COVID-19.

Turning to Slide 12. You'll recall that we described a 3-part strategy for proactive portfolio management. First, gather information; second, develop strategic plans; and third, execute those strategic plans.

Over the period since March, we first gathered information and dealt with our most impacted borrowers. We're now in Phase 3 of our strategy, and we are implementing game plans for each borrower, working with sponsors, management teams and junior capital lenders. This strategy has also and already produced meaningful results. Our team has executed more than 50 credit-enhancing amendments. We define "credit-enhancing" as any amendments involving a pricing increase, improved documentation terms or an incremental equity infusion by the sponsor. Our proactive engagement with sponsors and their encouraging degree of support for their portfolio companies meant that we had only 1 default on principal and interest payments in the quarter.

Slide 13 provides 2 illustrative examples of the types of credit-enhancing activities we've completed and expect to complete in the coming months.

Slide 14 shows how GBDC has fortified its balance sheet. On June 30, GAAP leverage was 0.86x, which is at the low end of our target range. Regulatory leverage was less than 0.75x. GBDC had $435 million of liquidity in the form of cash and borrowing capacity at quarter end.

GBDC also took steps to optimize its debt capital structure. We amended the Morgan Stanley credit facility in late June to increase long-term borrowing capacity from $200 million to $400 million. We also fully repaid and terminated the 2 SLF credit facilities with Wells Fargo that were in wind-down. And finally, we priced a new low-cost $300 million CLO last week. As a result of these initiatives, GBDC has substantial flexibility and firepower. This flexibility and firepower puts GBDC in a great position to capitalize on attractive opportunities.

As illustrated on Slide 15, leverage levels decreased dramatically after the global financial crisis. And Golub Capital was able to capitalize significantly on those opportunities. We believe recent market events will likely lead to a sustained lender-friendly environment, much like we saw from the last recession.

Lower leverage, higher spreads, improved covenants and enhanced downside protection are components of what we expect to see come out of the current market environment. And as we've discussed in prior quarters, and illustrated on Slide 16, we believe GBDC has powerful competitive advantages, which will help us deliver premium shareholder returns going forward.

So with that, let me hand it over to Jon Simmons to go through our financial results for the quarter ended June 30 in more detail. Jon?

Thanks, Gregory. As a reminder, please note that in addition to the GAAP financial measures in the investor presentation, we've also provided certain non-GAAP financial measures. These non-GAAP measures, which we refer to as adjusted measures seek to strip out the impact of the GCIC merger-related purchase premium write-off and amortization. They're further described in the appendix of the earnings presentation. We'll refer to them throughout the conference call where appropriate as we think they are better indicators of our performance and are consistent with how we evaluate our results.

With that, let's turn to Slide 18 to look at the results for the quarter in more detail, and I'm going to talk about the column on the right-hand side of the page. Adjusted net investment income per share or as we call it income before credit losses for the June 30 quarter was $0.28, consistent with our expectations and in line with our quarterly dividend. Adjusted net realized and unrealized gain per share was $0.66. This compares to adjusted net realized and unrealized loss per share of $2.04 for the March quarter. The adjusted net realized and unrealized gain this quarter was primarily driven by the reversal of unrealized losses recorded in the prior quarter for the reasons that David mentioned in his opening remarks.

Adjusted earnings per share for the June quarter was $0.94 per share. This compares to an adjusted loss per share for the March quarter of $1.71. Our adjusted net asset value per share at June 30 was $14.05, which factors in the earnings in excess of our dividend this quarter, offset by the dilution from the rights offering. On June 29, we paid a quarterly distribution of $0.29 per share. And finally, on August 4, 2020, our Board declared a quarterly distribution of $0.29 per share, payable on September 29, 2020, to shareholders of record as of September 8, 2020. The distribution is consistent with our historical dividend approach of seeking to pay distributions at an annualized rate of approximately 8% of NAV.

With that, I'll hand the call over to Ross to go through the quarterly results in more detail. Ross?

Great. Thanks, Jon. Turning to Slide 19. This slide highlights our total originations of $15.7 million, and total exits and sales of investments of $88.4 million for the quarter ended June 30, factoring in unrealized appreciation and other portfolio activity, total investments at fair value increased by 1% or $40.2 million.

As of June 30, we had $28.3 million of undrawn revolver commitments and $80.9 million of undrawn commitments on delayed draw term loans. These unfunded commitments are relatively small in the overall context of GBDC's balance sheet and liquidity position.

As shown on the bottom of the table, the weighted average rate of 7.5% on new investments and the weighted average spread over LIBOR on new floating rate investments of 6.3%, both increased from the prior quarter. As a reminder, the weighted average interest 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.

The top of Slide 20 shows that GBDC's portfolio remained highly diversified by obligor with an average investment size of less than 40 basis points. The bottom of the slide shows that our overall portfolio mix by investment type has remained consistent quarter-over-quarter with one stop loans continuing to represent our largest investment category at 83%.

Turn to Slide 21. 97% of our investment portfolio remains at first lien, senior secured floating rate loans and defensively positioned in what we believe to be resilient industries.

Turning to Slide 22. The graph summarizes portfolio yields and net investment spreads for the quarter, focusing first on the light blue line. This line represents the income yields or the actual amount earned on the investments, including interest and fee income, but excluding the amortization of upfront origination fees and purchase price premium. The income yield decreased modestly by 10 basis points to 7.7% for the quarter primarily due to the continued decline in LIBOR. The investment income yield or the dark blue line, which includes amortization of fees and discounts, also decreased by 10 basis points to 8.1% during the quarter ended June 30 due to the decline in LIBOR.

However, with most loans subject to a 1% LIBOR floor of the decline in the income yield and the investment income yield were not nearly as steep as the decline in LIBOR, as shown on the bottom of the slide. On the other hand, because our variable rate debt facilities are not subject to a LIBOR floor, our weighted average cost of debt or the aqua blue line decreased by 50 basis points to 3.2%. As a result, our net investment spread, the green line, which is the difference between the investment income yield and the weighted average cost of debt, increased by a net 40 basis points to 4.9%.

Flipping to the next 2 slides. Nonaccrual investments as a percentage of total debt investments at cost and fair value remained low, but increased modestly to 2.8% and 2%, respectively, as of June 30. During the quarter, the number of nonaccrual investments remained at 10 as the disposition of 2 nonaccrual investments were offset by the addition of 2 investments to nonaccrual.

As David discussed in his open commentary, as a result of stronger portfolio company performance, of the percentage of investments rated 3 on our internal performance rating scale decreased to 22.3% of the portfolio at fair value as of June 30. As a reminder, independent valuation firms value at least 25% of our investments each quarter for the quarter ended June 30, the total percentage of portfolio company investments valued by the independent valuation firms was over 30%.

Slides 25 and 26 provide further details on our balance sheet and income statement as of and for the 3 months ended June 30.

Turning to Slide 27. The graph on the top summarizes our quarterly returns on equity over the past 5 years, and the graph on the bottom summarizes our regular quarterly distributions as well as our special distributions over the same time frame.

Turning to Slide 8 (sic) [Slide 28]. This graph illustrates our long history of strong shareholder returns since our IPO.

The next slide summarizes our liquidity and investment capacity as of June 30 in the form of restricted and unrestricted cash, availability on our revolving credit facilities and debentures available through our SBIC subsidiaries.

As Gregory just previously highlighted, we made some enhancements to our liability structure during the quarter, which included an amendment to the Morgan Stanley revolving credit facility, which increased the borrowing capacity through the full term of the credit facility from $200 million to $400 million. In addition, we repaid and terminated the 2 SLF credit facilities, which were past the reinvestment periods and significantly underlevered.

Slide 30 summarizes the terms of our debt facilities as of June 30 as well as our focus on diversified, long-term and stable sources of debt capital.

With that, I'll turn it back to David for some closing remarks.

Thanks, Ross. So to sum up, GBDC had a strong fiscal Q3, net investment income was solid, and we made good progress executing on our post-COVID strategy.

Before we turn to Q&A, I do want to be clear in saying that while we saw encouraging signs in the fiscal third quarter, we think this COVID bus trip still has a ways to go. We're worried about elevated case counts in large number of parts of the country. We're mindful of the possibility of more restrictions, perhaps even more lockdowns. We're paying careful attention to the potential indirect effects of COVID, particularly in the form of changes in consumer spending and business investment. The message we want to leave you with today is that we've taken prudent steps to prepare GBDC for a wide range of potential scenarios. We've got a solid strategy. We've got a fortress balance sheet. And we've got access to the competitive advantages of the Golub Capital platform. As a result, we think GBDC is very well positioned.

With that, let's open the line for questions.

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

David, first, to start with the dividend payout. Looking at the model here. There's, of course, a few moving parts, but it looks like the way things will settle that on next quarter's equity base that the hurdle will no longer support the payout threshold, so you'd have to go through the dividend. And that could change if you recoup some unrealized losses. Correct me if I'm wrong through all -- thinking about all this, but how do you anticipate your road to dividend coverage on the $0.29 level as the incentive fee kicks in more thoroughly going forward?

So I think you're right, there are a number of moving parts. And when we set the dividend policy at $0.29, we knew there were a bunch of moving parts. I think we've made progress in fiscal Q3 in moving NAV per share up to a level that makes the $0.29 sustainable, we thought that would be the case. And we're cautiously optimistic that we're going to see continued trends going forward that are supportive of that. So I think we're on the right track here. And ultimately in this period of unprecedented uncertainty, nobody can be sure of much. But I think we're on the right track toward focusing on restoring unrealized losses through unrealized gains and in the process, increasing our NAV per share and getting to a point where the $0.29 is a level that's not only sustainable, but that we can build upon over time. And as you know, Fin, that's our history. Our history is to change dividends slowly, cautiously over time. And until we got hit with COVID, it was consistently in an upward direction.

Okay. That's helpful. And can you give your -- in terms of going on offense, I appreciated all the color you provided on your COVID-exposed book and your handling of that. Obviously, you're in a pretty favorable position. Originations were understandably light this quarter, but assuming that right now and going forward, you're out there looking at the market, so just any high-level color on what you're seeing. Is the pipeline building back up? And how we should think about the opportunity and origination for you guys.

So short answer is, yes, we're seeing green shoots in the M&A market, and that is leading us to be somewhat more optimistic about the prospects for increased originations in coming months. As we discussed last quarter, the early reaction to COVID-based uncertainty was a near shutdown of the M&A market. And it's not surprising. Buyers and sellers couldn't agree on value in the context of uncertainties that were in the market. Sellers chose not to bring companies for sale unless they had really strong reasons to do so. With the improved results of recent months and with a large proportion of our -- industries we cover proving to be quite COVID resistant, we're seeing an increase in M&A activity and financing opportunities.

Is it back to normal yet? No, but we're seeing a striking improvement from a couple of months ago. And I think as we look at the quality of these opportunities, we're seeing that the pattern Gregory alluded to in the call is holding, which is to say, post a dislocation, we tend to see opportunities that offer some combination of lower leverage, better documentation terms and higher spreads. And I think that's what we're seeing now.

Our next question comes from the line of Ryan Lynch with KBW.

First one, kind of following up on that market environment question. You have Slide 15 that shows a good indication of how leverage levels went coming out of the last recession. Just wondering if you think that this one could be potentially different just given that there's so little deal activity going on today potentially because of this sudden stop economic shutdown. And then at some point, the recovery which is happening today could come on and accelerate at a pretty quick pace once we do fully open up, we obviously don't know when that could occur, versus the other downturn was a little bit -- it feels like a little bit of a slower recovery over multiple years, had really good terms and structures and companies for multiple years. I'm just wondering if you think that this downturn -- or this recovery from this downturn could play out or will play out differently than the last one.

So a great question, Ryan. And it's a $64,000 question, I don't think anybody really knows the answer with confidence to that. But let me give you a couple of observations. One is it's a very rare downturn or dislocation that doesn't lead to a period of improved lending opportunities. So I think it's highly likely that we'll see an environment that's attractive for lenders going forward. The question is, how attractive and how long will it last? So now let's hone in on what are the key factors that are going to impact how attractive and how long it will last. Well, one of those factors is the unprecedented amount of private equity dry powder that's available out in the marketplace right now. It is not only at record levels, but it is right now not being utilized at a pace that would be consistent with all of it being deployed. Again, if history is a good guide, and I think in this sense, it probably will be, that argues for an acceleration of private equity capital deployment once the COVID-related uncertainties ease a bit further. A third factor supporting the idea that we're going to see sustained, lender-friendly terms is that we have seen a significant number of players in middle market lending, who've been significantly hurt by COVID and whose fundraising has been hurt by COVID. And that, again, is a fairly consistent pattern that tends to happen in downturns and can lead to a reduced level of competition that can be helpful.

I'm not telling you, Ryan, that I think, for sure, this downturn's going to look like 2008, '09. I don't know. What I can tell you is I think this recovery is likely to take some time due to very high unemployment rates and at some point in the reasonably near future, reductions in government spending. But this is an unprecedented period. No one's lived through a global pandemic like this before and seen this kind of government response, so we all need to plan for a variety of different scenarios. One of the themes you've heard me talk about a lot since COVID began is our emphasis on exactly that, I'm planning for a number of different scenarios.

Okay. Yes, that makes sense. GBDC has primarily been known as a first lien, top of the capital structure type of lender. But when you were running private credit funds coming out of the previous downturn, you guys out of the recovery phase of the prior downturn, we're willing to do more junior capital as that market became more attractive. I would assume we're probably too early in the recovery phase for GBDC to be considering that strategy. But is that something -- or can you give me some commentary on your willingness to pursue that strategy at all further coming out of this downturn in GBDC if the opportunity arises?

Well, you said 2 things there, so let me see if I can parse it a little bit. Do I think that in the near term that Golub Capital BDC is going to change its core strategy away from senior debt, first lien debt toward junior debt? The answer to that is no. I think it's highly likely that we're going to sustain our focus on first lien and one stops. Second part of the question was, would we ever consider deploying a portion of our capital base, a meaningful portion of our capital base in junior debt. And I would not say never to that because, as you point out, we have a quite successful history as an organization in investing in junior debt in the right market situations. I just -- I don't think we're there right now.

Okay. Fair enough. Post the equity raise, your balance sheet seems to be in really good shape. You guys have a lot of dry powder. That said, are you guys considering, are you guys evaluating changing your liability structure at all, principally pursuing a portion of it in unsecured debt going forward?

Sure. So I give an answer similar to the answer I think I gave last quarter on this. We've said on a number of prior earnings calls that we're big believers in the benefits of unsecured debt, and we think that it makes sense to add a layer of unsecured debt into GBDC's liability structure over time. As you pointed out, we have the luxury right now of a lot of liquidity, so we're in no rush. We've -- we're operating at the low end of our leverage targets. Our plan is to time the introduction of unsecured debt appropriately so that we're doing it on attractive pricing and other terms.

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

Yes, well, Ryan just partly asked out of mind, so I'll expand it a little bit. I mean to that point, I mean portfolio looks to be in a lot of good shape given the environment we're in. So looking at the liability side, and I appreciate the answer you just gave, David, but when I look to -- you've got 2 of your bank facilities leaving their reinvestment period, not maturity, but reinvestment period in the first quarter of next year. So would it be reasonable to expect that maybe the unsecured would come in ahead of that? Or is that just not a factor and you're just going to currently expect to just expend -- extend those facilities and then reinvestment time frames?

The answer, Robert, is we have great relationships with our bank partners. I have enormous confidence that if we thought the right answer was to extend those facilities, we would have no problem being able to do so as we recently extended one of those facilities, the Morgan Stanley facility. The question is not, can we? The question is, what's the optimal capital structure for GBDC? And the tricky piece here is that the timing of unsecured issuance is surprisingly important. This is long-term fixed rate debt and pricing on it has changed very dramatically just in the last couple of months. So we want to be very smart about how we do it. As you know, last week, we priced a new securitization for GBDC. The pricing on that was a new post-COVID low for securitization financing. Our AAAs were LIBOR plus 235. So one of the ways we've made money for shareholders over time is by keeping our liability costs very low. And we're intent on accomplishing 2 goals simultaneously. One is adding unsecured to the stack and the second is maintaining very low liability costs.

That's completely fair. And yes, the CLO price does look quite attractive. I mean the other part, obviously, it ties into it, is having underutilized. If you do add unsecured and then you have 4 credit facility revolvers that end up underutilized, those become a little expensive, to your point that you just terminated the 2 SLFs because they weren't efficient anymore. So from that perspective, I mean, would you expect to continue running 4 credit facilities if and when unsecured gets added to the stack? Anything -- any color on that about what the optimum number or size of revolver capacity is for the business?

Yes. I mean -- I think if you flash forward to a period when we have a capital stack that includes unsecured, it probably has fewer bank revolving credit facilities and a smaller total amount of bank revolving credit facilities.

Got it. I appreciate that. If I can set a different topic, on -- you're talking about green shoots starting to emerge for deployments, and you've got plenty of liquidity right now. Can you give us any -- are you mostly looking at add-on acquisitions, potentially platform acquisitions? I mean because, obviously, an add-on, maybe the due diligence is easier in an environment where I certainly haven't gone on plan since March or where -- versus an add-on where the due diligence may need to be more expansive in nature and may require travel. I mean can you give us any color on the type, how the due diligence is being done, et cetera?

Yes, it's a very good question. So let's just broaden your question and talk about what's the deal environment of the future going to look like? And first, let's contextualize. If we look at the past for Golub Capital BDC, and I don't think we're terribly different from Ares or some of the other very large platforms, about half of our deal activity has historically been with existing borrowers. And you're 100% right that if you think about doing deals in the COVID era, it's a lot easier to do deals with existing borrowers than it is with companies you don't know. You already know the management team, you already know the company, you've already got a relationship, you've done detailed, in-person due diligence in the past, it's just much easier. So absolutely, existing portfolio is going to be a significantly higher than usual proportion of new deal activity going forward. Having said that, I think there will be some new platform activity, and it will be with sponsors who we know well and industry sectors that we know well because you can't do perfect diligence in today's environment for all the reasons you were just alluding to. I think that creates a new source of competitive advantage for dominant players like us. We have the really close relationships that you would want to have with the top sponsors in this environment. We have deep industry knowledge and domain expertise in a number of areas, including software, including franchising businesses, including some parts of health care that are particularly attractive in this post-COVID world. So I think your question is a really good question, Robert. I think at least in the near term, post-COVID investing activity is going to look a bit different from pre-COVID investing activity, and it's going to give particular advantages to some players over others.

Our next question is a follow-up from the line of Ryan Lynch with KBW.

I just had one more question. I know historically, you guys have never really used unsecured debt on your balance sheet. But David, you mentioned you were never against, you're always willing to utilize that at the right time. I'm just curious, why was there never either the desire or the ability to get an investment-grade rating from one of the major rating agencies just to have that on file in case you guys did look to -- if the markets became attractive enough that you guys could pursue that a little bit easier, given your guys -- you guys have a great historical track record, a defensively positioned portfolio? Why was that rating never pursued or achieved in the past?

I don't want to spend a lot of time going into the past other than to tell you that we did look into unsecured offerings in great depth, including being in discussions with rating agencies. So I don't think your premise is correct that it's something that we didn't or couldn't do. But I think the key point is we are where we are. So we are in a position where I look at our balance sheet, and I think we're in a very strong position. We've got a lot of liquidity, and we've got the opportunity if it makes sense to pursue an unsecured offering prospectively.

Mr. Golub, there are no further questions at this time. I will now turn the call back to you.

Thank you, Ingrid. So once again, thank you to all of you for joining us today. Really appreciate your attention and interest and your partnership. And as always, if you have any questions that we're not addressed today or that you've come up with post today's call, please feel free to reach out. In the meantime, I look forward to speaking with you all next quarter.

That does conclude the conference call for today. We thank you for your participation. Ask you, please, disconnect your lines.