Goldman Sachs BDC Inc (GSBD) 2017 Q4 法說會逐字稿

Good morning. This is Ian, and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs BDC, Inc. Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions)

I will now turn the call over to Ms. Katherine Schneider, Head of Investor Relations at Goldman Sachs BDC. Katherine, you may begin your conference.

Thanks, Ian. Good morning, everyone.

Before we begin today's call, I would like to remind our listeners that today's remarks may include forward-looking statements. These statements represent the company's beliefs regarding future events that, by their nature, are uncertain and outside of the company's control. The company's actual results and financial condition may differ, possibly materially, from what is indicated in those forward-looking statements as a result of a number of factors, including those described from time to time in the company's SEC filings.

This audio cast is copyright material of Goldman Sachs BDC, Inc. and may not be duplicated, reproduced or rebroadcast without our consent.

Yesterday, after the market closed, the company issued an earnings press release and posted a supplemental earnings presentation, both of which can be found on the homepage of our website at www.goldmansachsbdc.com under the Investor Resources section. These documents should be reviewed in conjunction with the company's Form 10-K filed yesterday with the SEC.

This conference call is being recorded today, February 23, 2018, for replay purposes.

So with that, I'll turn the call over to Brendan McGovern.

Thank you, Katherine.

Good morning, everyone, and thank you for joining us for our fourth quarter earnings conference call. As usual, for the format of the call, I'll start by providing an overview of our fourth quarter results as well as key highlights for 2017. Jon Yoder will discuss our investment activity and portfolio metrics. And Jonathan Lamm, our CFO, will discuss our financial results in greater detail. And finally, I'll conclude with some closing remarks before opening the line for Q&A.

So with that, we are pleased to report another solid quarter for our shareholders. Net investment income per share was $0.47 in Q4, which brought net investment income per share for the full year to $2.07 or an 11.4% return on common equity for 2017. Our net investment income covered our dividend by 104% during the quarter and 115% for the full year 2017. We believe that this performance is a result of attractive yields on our assets, combined with a low operating expense structure.

As we announced after the close yesterday, our board declared a $0.45 per share dividend payable to shareholders of record as of March 30. For the full year 2017, total distributions to shareholders were $1.80 per share, which equates to a dividend yield of 10% based on net asset value at the end of Q4.

We are very pleased to have successfully executed on our strategy for 2017, and I would like to highlight a few key accomplishments. First, the exemptive order that we received from the SEC during the first quarter of 2017 was a significant development for our shareholders. The order enables the company to participate in transactions alongside other BDCs managed by GSAM, which, in turn, enables us to increase the single liens diversification of the portfolio while not altering our investment strategy. As a result, the number of underlying companies in our portfolio increased year-over-year from 40 to 56, representing a 40% increase in single liens diversification. Furthermore, the average notional size of our debt investments decreased from $30 million to $22 million, while, at the same time, our total investments grew 8%.

Next, during the second quarter of 2017, we executed an accretive equity offering for our shareholders. While our shares have consistently traded at a premium to NAV, this offering represented our first since the March 15 -- March 2015 IPO, reflecting a patient and prudent approach to new capital formation.

In addition to being accretive to book value net of expenses, the offering did not inhibit our ability to maintain an optimal capitalization. In fact, the average debt-to-equity ratio in the quarter of our equity offering was flat from the preceding quarter. This contributed to a quarter-over-quarter increase in net investment income per share for the quarter in which we closed the equity offering rather than the net investment income dilution that BDC investors have experienced after an equity offering.

Finally, we continue to leverage the Goldman Sachs platform to enhance the right side of our balance sheet. During the fourth quarter of 2017, we increased the total commitments under our revolving credit facility to $620 million, and, subsequent to quarter end, we increased the facility to $695 million and extended the maturity date to 2023. We believe that our ability to attract new capital through our credit facility at attractive terms is -- reflects from the strength of the GSAM platform. In addition, the extended maturity is an important benefit as we look to capitalize on market opportunities in the years ahead.

Moving on to investment performance and credit quality.

Overall, credit quality remained stable. On a weighted average basis, our portfolio of companies have grown revenue and earnings at a healthy rate over the past 12 months. As we closed the year, we had one investment on nonaccrual status, representing 0.1 of 1% -- 1/10 of 1% of the investment portfolio at cost and nothing at fair value. The decrease quarter-over-quarter was driven by Bolttech coming off nonaccrual as a result of the successful restructuring of that investment.

Subsequent to quarter-end, our Board of Directors approved a renewal of the company's stock repurchase plan. The plan authorizes the company to repurchase up to $25 million of its common stock if the market price is below the company's most recently announced NAV per share, subject to certain regulatory and other limitations. We believe that buying back shares if they're trading at a discount to NAV is an attractive use of the company's capital. During fiscal 2017, there were no purchases made under the stock repurchase plan.

With that, let me turn it over to Jon Yoder.

All right. Thanks, Brendan.

We witnessed strong levels of transaction activity in the middle market throughout 2017, primarily driven by M&A activity but also by refinancing activity.

As has been widely noted, significant capital formation continued to occur for investment strategies focused on private middle-market corporate assets in the United States, including both private equity and private debt. This capital formation generally put pressure on spreads, structures and terms for private loans.

As we begin 2018, there are early signs that some of the factors that drove investor demand for these assets are beginning to reverse.

For example, we've begun to see a modest rise in risk-free rates in the U.S. and in places around the world. If this trend continues, we believe more capital will flow into risk-free assets and dampen enthusiasm for private assets.

In addition, we are starting to see economic growth rates pick up in other developed countries and emerging markets. This has the potential to stem the flow of capital to U.S. domestic companies, most pointedly U.S. middle-market companies, since they generally have limited or no overseas exposure.

Finally, with recent weakness in the U.S. dollar and projections of expanding budget deficits in light of recent legislative activity, offshore investors may have less appetite for U.S. dollar-denominated assets such as middle-market companies.

Now to be clear, we are not seeing evidence yet that capital formation for U.S. middle-market assets is materially abating, but we are seeing more clients examine their allocation to these assets and begin to consider modulating their pace of investment.

Given this backdrop and looking forward, we feel very good about the BDC structure and the balance sheet stability that it provides. We believe that managers with a stable balance sheet will be well positioned to take advantage of opportunities if capital flows into middle-market assets reverse.

So now turning to the results for the fourth quarter.

New investment commitments and fundings were at $141.6 million and $126.4 million, respectively. New investment commitments were across 7 new portfolio companies and 2 existing portfolio companies. One investment to highlight this quarter was our first lien loan to Datto, which is a provider of business continuity and disaster recovery software, hardware and services which are sold through managed service providers to small and midsized businesses. The proceeds of this first lien loan were used to support Datto's acquisition of another SaaS-based company. Our credit thesis was centered on the company's attractive financial profile, including a highly recurring revenue model, with the majority of revenue tied to subscription contracts with strong customer retention, a flexible OpEx and CapEx structure, which led to high margins and a low loan-to-value with a top-tier sponsor. We were excited to lead this transaction and believe it speaks to the strength of our sourcing as well as disciplined underwriting standards.

Sales and repayment activity totaled $42.8 million, driven primarily by the full repayment from one portfolio company as well as portfolio sales, including the syndication of investments in 3 portfolio of companies.

The full repayment this quarter was our second lien investment in Securus Technologies that was fully repaid at par. This was an investment that we've spoken to our shareholders about in the past as we previously took an unrealized markdown on this investment to 54% of par in response to a heightened level of risk surrounding potential regulatory orders that could have resulted in lower revenues.

Notwithstanding our view that Securus would likely be successful in offsetting the impact of a reduction in revenues with a corresponding decrease in its cost structure, our valuation policy requires us to mark-to-market each of our investments every quarter and consider all potential risks at hand. We are pleased with the outcome for this investment as we were able to earn back the unrealized markdown and get repaid at par.

During the course of 2017, we were able to maintain stable yields on our investment portfolio notwithstanding broader market trends. The weighted average yield on our investment portfolio at cost was largely unchanged during the year. We began the year at 10.6% and ended the year at 10.8%. The modest increase was driven primarily by an increase in LIBOR throughout the year, though was partially offset by a decrease in spreads.

Turning to the overall investment portfolio.

As of December 31, 2017, total investments in our portfolio were $1,258.30 billion at fair value. This was comprised of 89.5% senior secured loans, including 32.4% in first lien, 21.8% in first lien, last-out unitranche and 35.3% in second lien debt; as well as 0.3% in unsecured debt; 2.9% in preferred and common stock; and 7.3% in the Senior Credit Fund.

We also had $30.2 million of unfunded commitments as of December 31, bringing total investments and commitments to $1,288.50 billion.

As Brendan mentioned earlier, we've been pleased in our ability to significantly increase the single lien diversification of our portfolio year-over-year. At December 31, 2017, we had 56 portfolio companies operating across 29 different industries as compared to 40 portfolio companies a year ago.

Turning to credit quality.

The weighted average net debt-to-EBITDA of the companies in our investment portfolio at quarter-end was 5.3x, unchanged from the prior quarter. The weighted average interest coverage of the companies in our investment portfolio at quarter-end was 2.3x, down modestly from 2.5x for the prior quarter. We continue to believe that the growth of the U.S. economy combined with low levels of unemployment and a strong backdrop for our portfolio of investments in U.S. middle-market companies. In general, we continued to see solid operating performance across our portfolio.

The Senior Credit Fund remains in the company's largest investment at 7.3% of the company's total investment portfolio. We continue to be very pleased with the stable performance of our investment in the SCF since its inception and for the full year 2017. The Senior Credit Fund produced a 12% return on our invested capital over the trailing 12 months.

As a reminder, the Senior Credit Fund is focused on upper middle-market loans that are typically narrowly syndicated. Over the course of 2017, we witnessed tighter spreads and looser terms in this part of the market, and borrowers took advantage by engaging in significant refinancing activity. In response, we took a cautious approach to new originations throughout the year and brought portfolio growth down to near 0. In fact, the total size of the portfolio is modestly lower year-over-year. During the fourth quarter, we and our partner originated $57.8 million of investments for the Senior Credit Fund in 3 new companies and 2 existing portfolio companies.

The Senior Credit Fund had sales and repayments of $52.5 million. As a result of this investment activity, the total size of the investment portfolio and commitments were $484.2 million at quarter-end.

While the size of the Senior Credit Fund's portfolio did not grow during the course of 2017, we were pleased to have been able to produce attractive yields on the portfolio throughout the year. The weighted average yield on investments in the Senior Credit Fund began the year at 6.9%, and we ended the year at 7.7%. This increase in yield is primarily attributable to the increase in LIBOR that occurred through the year.

First lien loans comprised 96.8% of the total investment portfolio within the Senior Credit Fund, and all of our investments are floating rate with LIBOR floors. No investments are on nonaccrual status.

The Senior Credit Fund also remains well diversified with investments in 34 companies operating across 18 different industries.

I'll now turn the call to Jonathan to walk through our financial results.

Thanks, Jon.

We ended the fourth quarter of 2017 with total portfolio investments at fair value of $1,258,000,000, outstanding debt of $546 million and net assets of $726 million. Our net investment income per share was $0.47 as compared to $0.47 in the prior quarter. Earnings per share were $0.31 as compared to $0.45 in the prior quarter.

During the quarter, our average debt-to-equity ratio was 0.7x as we deployed capital into new income-producing assets. We ended the fourth quarter with a debt-to-equity ratio of 0.75x, up from 0.61x at the end of Q3.

Turning to the income statement.

Our total investment income for the fourth quarter was $34.2 million, relatively unchanged from $34.4 million last quarter. The decrease quarter-over-quarter was primarily driven by lower prepayment-related income.

Total expenses before taxes were $14.7 million for the fourth quarter as compared to $15.1 million in the prior quarter. Expenses were down quarter-over-quarter, primarily driven by a decrease in incentive fees. Incentive fees may vary quarter-to-quarter as we net our capital losses, whether realized or unrealized, against pre-incentive net investment income in the calculation. We believe this feature provides the proper alignment of incentives as the fee is based on total return.

We ended the quarter with net asset value per share at $18.09 versus $18.23 from the prior quarter. Our supplemental earnings presentation provides a NAV bridge to walk you through these changes.

The company had $32.1 million in accumulated undistributed net investment income at quarter-end resulting from net investment income that exceeded -- that has exceeded our dividend in past quarters. This equates to $0.80 per share on current shares outstanding.

As Brendan mentioned earlier, we were active on the right side of our balance sheet. During the quarter, we increased the total commitments under our revolving credit facility to $620 million, and subsequent to quarter-end, we increased the facility size to $695 million and extended the maturity date to February 2023.

With that, I will turn it back to Brendan.

Thanks, Jonathan.

Overall, we are pleased to have produced solid results for the quarter and for the full year 2017. As always, we thank you for the privilege of managing your capital, and we look forward to continuing to work hard on behalf of shareholders over the course of 2018.

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

(Operator Instructions)

Your first question is from the line of Jonathan Bock from Wells Fargo Securities.

So Jon, well, I noticed as we looked through the [customer] -- the originations that you've done this quarter, whether it's Lithium or Datto, you yourself kind of led those transactions. And leading transactions in this day and age is actually quite an accomplishment. Transactions are hard to locate, to underwrite and, more importantly, to win. Just give us a sense on what allowed you to easily win a transaction when it's very, very difficult in this environment to compete. And so maybe talk through a few of those competitive advantages for the folks on the call.

Sure. So Jon, thanks so much for your call and your time this morning. So look, Datto and Lithium are transactions we're certainly proud of where we think they're really high-quality companies, and we're supporting a really first-class sponsor in both these transactions. It's a sponsor that we've spent a lot of time cultivating a relationship with. It's one that is also -- has Goldman alums in important and significant positions. So we think we're benefiting there from our alumni network. I think the other thing is both of these companies are software providers. And so that's an area where we think we've got a real specialized expertise. We've spent a number of years really building up our relationships in that industry and really developing a strong underwriting expertise where I think that also positions us very well. But I agree, I think the last thing that's really been key in terms of our ability to win these transactions is something we've talked about on earlier calls, which is our exemptive order. And to remind everybody who isn't familiar with what that is, an exemptive order is something that you need from the SEC in order to allocate a deal across several different investment funds that's managed by -- that are managed by the same manager. In our case, we do have 2 other private BDCs in addition to GSBD, and that gives us a balance sheet that allows us to be relevant to some of these larger transactions. And since we can allocate these transactions across our 3 different clients, it means we can speak for a larger hold size and, as I say, makes us much more relevant. So as I say, a combination of a lot of hard work in developing relationships with a really important sponsor, the benefit of having Goldman alums in key locations within that sponsor and having real specialized expertise in the relevant industry as well as the ability to speak for size because of our co-investment order, those are really the factors that allowed us to win these transactions.

Got it. Then hey, look, we understand how technical marks work, particularly in the SCF or the balance sheet credit fund, so no need to belabor the point, particularly given that in some of -- more liquid names you had in the past in some of the telecommunications space that had gone up and down and actually done quite well over time. The question is, if you did have one liquid name that traded down in the SCF this quarter and that kind of accounted for a decent amount of the unrealized loss, could you -- do you possibly see that as a good opportunity for additional capital particularly if you expect that credit to revert? And so if a credit's pushed downed by a few small ticket orders of small lot sizes, that might create an additional opportunity for you to own more of the credit in size and benefit on the upside given someone else is for sale.

It's Brendan. Yes, I'll take a crack and Jon can chime in as well. So yes, if you look at the SCF overall, we talked about a lot we're very pleased with the performance for the full year 2017. We heard about a 12% return on that investment, which is sort of higher than what we're earning on balance sheet. So it's been a nice asset for us overall. We did, as you alluded to, in this quarter have a markdown in one name within that, though, diversified portfolio. There's 34 different names in that portfolio. And that's a company called Global Knowledge. It's also a little bit of an unusual investment. Jon gave the stats earlier in the prepared remarks about 97% of that book is in true first lien. That happened to be one position where we own first and second lien. And so a few things to note. One, the company's performance actually continues to be reasonably good. There's -- from our perspective, the performance relative to the marks' a little bit unusual. And we think there is very light trading that contributed to the marks, but we do look to those fair values when we do mark those assets. We have this quarter seen a replacement within that specific name, so we recouped about half of that unrealized gain so far through Q1 within that name. So overall, not a lot to see within that overall investment. In terms of your question around adding to the opportunity, as I alluded to and Jon described in his remarks, we tend to focus on pretty narrowly syndicated and not incredibly liquid names within that strategy. Global Knowledge would fit that bill. So the mark that we saw was, from our perspective, were a result of that relative lack of liquidity. In addition, we are -- within that SCF, one of the things we benefit from is the financing, which is really predicated on having a very diverse portfolio. So our total exposure to that name is, I believe, about $24 million of notional value, so not a really good opportunity for the SCF to add there. But certainly, I think you've seen us do that in other opportunities over the course of many years in those relatively infrequent instances where there is a somewhat liquid underlier.

And your next question comes from the line of Leslie Vandegrift from Raymond James.

Just on the originations and repayments for the quarter, just top level on the amount. A little bit lighter, not too low. But what's the outlook? Was that just a bit of fourth quarter's slower activity? Or do you see that going into 2018?

So Leslie, I'll make a few comments there. So we think it was a pretty solid origination number for the quarter. One of the things that you -- that was, I guess, down a bit was really more on the repayment side with relatively light repayments. That caused us to be closer to the upper end of our target leverage ratio. So I think -- as we think about managing the amount of originations, obviously what we're thinking through is trying to stay within that target leverage ratio. So I think that, if anything, was the -- provided some cap on how much origination that we could do in the fourth quarter. But I think your broader question just around overall activity levels, frankly, the fourth quarter was, across the middle market, a relatively robust quarter for transaction levels. We're seeing in -- the first quarter in -- historically has been a bit of a seasonally slower quarter. I would say obviously, we're still -- the first quarter is not over yet, but the first quarter is not shaping up to be terribly slow like it has in some quarters past. Feels like the -- there's still a fairly healthy transaction environment out there, so we're not anticipating a lack of attractive investment opportunities. But as I say, keep all that in the context of we're managing our balance sheet to stay within our target leverage ratio, and so we're not going to overlever ourselves just because there are -- just because we possibly could.

Okay, okay. All right. And then on the tax changes that came through in December, we've seen some other BDCs in the space talk about benefit to net asset value or the underlying fair value of your portfolio companies just from a bit of relief of stress on the tax in there. Have you guys seen that? Do you see it possibly coming in -- later in 2018 as we're a bit more aware of exactly what's going to hit each company tax-wise?

Yes. I mean, look, I think, certainly, the -- we've done our analysis of -- on our companies of what we think the impact of tax reform might be. And overall, it doesn't seem like it should have a very material impact across the portfolio. That being said, I do think it's early to be drawing a lot of conclusions. Bear in mind that the tax changes are only in effect here starting in 2018. And so the first quarter isn't even over, so, obviously, we haven't gotten first quarter results from our portfolio companies that reflect the new tax regime. So we'll -- it's a little early to draw hard and fast conclusions. But broadly speaking, as we've done our analysis, we don't expect the tax reform to have a major impact on the portfolio. And the dynamic, as you know, Leslie, I'm sure, is you get -- you have competing forces that are driving cash flow of -- in the tax reform, one being obviously the lower tax rate, which is generally helpful, so producing more free cash flow. The -- obviously competing with that is the cap on the interest deductibility at 30% of EBITDA. And so at a very high level, for companies that are levered to the tune of the way most of the companies that we invest in are levered, it's a relatively neutral impact. But as I say, we're not drawing any hard and fast conclusions yet until we get the benefit of all of the first quarter numbers coming in when companies are applying the new tax regime.

Okay. And then last question. As LIBOR finally starts to move a bit here faster than even the base rate movement, what do you see your interest expense going to? Because it was higher in fourth quarter '17. Is that a good run rate from here? Or are we backing out because of the change in that deal?

The change to the revolver wouldn't have any impact in terms of how interest or interest expenses would move. So as LIBOR continues to increase, if it does, you should see a corresponding increase in interest expense. We do have some fixed debt in our balance sheet, but the majority of our balance sheet on the right side of our financing is using our revolver, which will slow down.

So there is no...

The offset to that would be...

So meaning there's no fees in there?

The fees in the amend and extend of the revolver can amortize. We do it every year. So the fees shouldn't really change -- shouldn't change the cost to invest overall.

And your next question comes from the line of Derek Hewett from Bank of America Merrill Lynch.

What are the growth prospects -- am I echoing?

We can hear you fine, Derek.

Okay. What are the growth prospects for the Senior Credit Fund over the next year or so given the current marketing conditions? And then also, will we see an increase in the fund commitment at some point since it's close to capacity?

Yes. I'll take a quick crack at that. So we -- as we always talk about, Derek, we generally don't set those kinds of targets. We're not looking to allocate capital from a top-down basis. As we have described, this quarter, basically the asset growth was relatively flat. And I think we talked about it with you sometime last quarter as well. We continue to have within the existing SCF, before we take on any incremental equity commitments, some additional asset capacity. So relative to our capacity, we are a bit underleveraged. And we also have the ability to, both we and our partner, put down incremental equity capital. So I think both of us have invested about 94 of the 100 that we've committed, and there's incremental leverage available to us. That being said, we still remain focused and bullish on the prospects to grow that part of our investment strategy over time. It's about 7.2% of the assets today. It's been close to 10% at various other points in time. It has been a very attractive experience. It's our biggest investment. It's been, frankly, our most successful, so quite focused on that. One opportunity that we do have in the context of, as we've acknowledged, a tighter market, where spreads are a bit more challenging, is to look at the right side of our balance sheet within the SCF. So we're spending a lot of time there as well. So overall, as we look over the course of 2018, if I were to -- we try not to make projections, but we would anticipate that we end up increasing both our partner's equity commitment to the vehicle as well as focusing on restructuring the liability side. I think with the benefit of that, of getting that done, we should be able to continue to produce very attractive returns on the equity capital that we and our partner are putting down into the SCF.

And your next question comes from the line of Christopher Testa from National Securities Corp.

Just following up on Derek's question. To the extent that you're looking to potentially increase the commitment capacity, I know right now, obviously, the market is very, very frothy in a lightly and broadly syndicated market, but would you be looking to potentially increase the capacity sooner rather than later so that you're prepared in case there's a substantial dislocation? Or is this something you're happy to kind of wait on for quite some time?

Yes, no. Look, Chris, it's something that we're actively focused on. As I described, when you look at the SCF and there's obviously a ton of disclosure, sitting here today, we do feel well positioned to take advantage of opportunities, in addition to the equity capital that is committed but undrawn, which is about $12 million between we and our partner. There's also some additional leverage capacity that we've availed ourselves of to produce a pretty significant asset growth relative to the existing portfolio. That being said, we are focused on getting the upsize of the equity commitments in order to be long-term positioned. So it's something that we're actively working on and we're hopeful. But I'll come back to you with some news on that as we look forward in 2018.

Okay, great. And just segueing from that, to the extent you're able to get more capital commitments and you do this, the -- what type of reduction in the SCF credit facility costs would you be looking at? Just kind of ballpark estimate.

We think we can reduce the costs there by potentially up to 70 basis points.

Got it. And I'm just curious to -- obviously, these are more lightly syndicated loans. The broadly syndicated loans have reached a whopping 85%, call it, wider, as I call it, call it, free. How does that contrast with the lightly syndicated market?

Yes. So within the sort of the lightly syndicated market, in terms of the overall portfolio, both -- well, let me start with the originations in the fourth quarter. About 2/3 of the new originations we did in the fourth quarter were covenanted. And overall in the portfolio, it's about 90% of the portfolio that is covenanted. So again, I think it goes to what I said in the -- in our prepared remarks. We're not looking to chase the market and just grow for growth's sake. And as Brendan said, we're not looking to make a top-down decision to say, hey, we've got to get this thing to X number of assets by X period in time. So we think we're continuing to be selective and continuing to do our work on each individual's single name. We continue to value covenants. We think they are an important piece of being successful, in most cases, in middle-market lending. And so, as you can see from our statistics, still pretty focused on it.

Got it. Okay. And one of the themes that we've heard from a lot of your peers is that spreads seem to be sort of bottoming out somewhat, and sponsors have generally pushed the envelope on structures as much as they possibly can, hopefully. So just curious how -- what your guys' take is on that and, obviously, how that plays into your outlook for sponsor deal flow relative to the private wealth channel going through 2018.

Yes. So look, a few thoughts there. So you're absolutely right, there's a lot of capital that's been formed within the private equity community. A lot of dry powder still sitting on the sideline there. The inventory of companies that's owned by private equity firms continues to grow, grow fairly rapidly. And so that has a couple of effects. One is, as it relates to the non-sponsored side, what we're seeing is that non-sponsored companies are choosing -- or people who form companies, family-owned companies, entrepreneur-formed companies, are choosing to sell their companies at earlier stages in their life cycle than perhaps they would in the past. The valuations that they're able to obtain through selling to private equity firms are not, in many cases, dramatically different than what they would get if they waited until later and sought a public IPO exit where there might be a public market valuation. So there's frankly -- the capital formation on the private equity side definitely has implications for the non-sponsored channel. That being said, we certainly are very active on -- in looking for and evaluating opportunities on the non-sponsored side as well. In fact, we've sort of redoubled our efforts there, I would say, over the last 2, 3 quarters, and we're turning over every stone that we can there. On the sponsored side, the dynamic -- the other implication of having all this dry powder and all this activity on the sponsored side is, as I think has been widely reported, is that valuation multiples have been pushed up. And so, well, leverage levels, looking at the longer-term trends, have also risen. I'm not saying this, say, quarter-over-quarter, but certainly, if you go back and look over the course of a number of years, you would see higher general leverage levels in the market today than there were in years past. But we would also say that the expansion in leverage multiples is less than the expansion in overall enterprise values that are being ascribed to these companies by sponsors. So what the -- what that means is that loans-to-value are actually coming down if you measure a loan-to-value based on the purchase price that sponsors are paying for these companies relative to the amount of debt they're utilizing to capitalize the companies. So it's a complex formula, and -- but I think I'll say the -- those are some of the key implications that investors should be aware of.

Okay, that's great color. And last one for me. With the undistributed taxable income per share of around $0.80 and you guys consistently outearning the dividend, I could certainly appreciate the conservative dividend policy versus having to potentially cut it at a later date. But what, in your opinion, would be the catalyst for you to potentially bump up the regular distribution even by $0.01 or so?

Yes, look, we don't think that's something that the shareholders in general will value as we look at retaining that income, that undistributed income, and looking how the market is valuing our company overall. We think that's a better way to produce shareholder value. We certainly do, with our board, spend a lot of time on dividend policy. Over the long term, could things change? I think you'll have to see a very long-term trend where we feel like we have a very material and significant capability about earning our stated dividend. But overall, we -- as you alluded to, Chris, we'll be much more mindful of exposing the company and the shareholders to, at some point in the future, having -- after raising dividend having had to cut it. So it's a put and take. And overall, the lens that we look to evaluate that question is, is what's going to be the best outcome for shareholders. And at present, we think maintaining the dividend policy and retaining net income is the best outcome for shareholders.

Yes, and if I can just elaborate on that. I mean, as Brendan mentioned, we've been really pleased about the valuation that the market has ascribed to our shares. And clearly, if $1 in our company is valued at $1.15 by the market, it's better to keep that dollar in the company versus distributing it where it's going to be only worth $1. So I think that's kind of the idea that Brendan was alluding to.

Yes, I would just add to that, that, that cost of keeping it in is relatively low excise tax cost. So...

Of course.

And your next question is from the line of Jim Young from West Family Investments.

A couple of questions. First, how much capital are you managing in your 2 private BDCs? I'm just trying to get a sense. You've got $1.25 billion in the public BDC. But in total, how much money are you putting to work in this space?

Yes, it's Brendan. So both of those other vehicles are public filers. So you can look and feel and touch those entities. Each of them have drawdown structures where we have multiyear drawdown periods. And each of them have roughly $1.1 billion of equity capital. And to date, we've drawn approximately about 40% of the capital base of those entities.

Okay. And then my second question is, with respect to your proprietary deal flow from the private wealth management channel, can you give us a sense as to how many deals you're seeing from that channel and what the outlook looks like into 2018?

Yes, sure. So look, we continue to see a lot of deals from that channel. On a virtually daily basis, we're getting the opportunity to see more new deals. So very active. As I mentioned in response to an earlier question, we've actually redoubled our efforts there in the last couple of quarters in response to, frankly, a lot of flow. There -- those deals tend to be longer tailed, meaning that unlike in a sponsored process where typically there's a firm deadline of when a sponsor needs capital in order to complete the acquisition, in many of these transactions with non-sponsored deals, there -- they don't come with those sort of built-in timing requirements. And so rather, it's a more drawn-out process. So it's hard, for that reason, to make predictions on how much capital we're going to deploy in that channel in 2018, but I can assure you that it's a channel we're continuing to be very, very focused on and, as I say, have actually been growing our resources dedicated to that channel in recent quarters.

At this time, there are no further questions. Please continue with any closing remarks.

Well, look, we thank you all for your time on this Friday morning. And as always, if you do have additional questions, feel free to reach out to Katherine and the team, and we look forward to speaking to you next quarter.

Ladies and gentlemen, this does conclude the Goldman Sachs BDC, Inc. Fourth Quarter 2017 Earnings Conference Call. Thank you for your participation. You may now disconnect.