Golub Capital BDC, Inc.

Hello, everyone, and welcome to GBDC's earnings call for the fiscal year and fiscal quarter ended September 30, 2024. Before we begin, I'd like to take a moment to remind our listeners that remarks made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in GBDC's SEC filings. For materials we intend to refer to on today's earnings call, please visit the Investor Resources tab on the homepage of our website, which is www.gollupcapitalbdc.com, and click on the Events Presentations link. Our earnings release is also available on our website in the Investor Resources section. As a reminder, this call is being recorded. With that, I'm pleased to turn the call over to David Golub, Chief Executive Officer of GBDC.

Hello, everybody, and thanks for joining us today. I'm joined by Chris Erickson, our Chief Financial Officer, and Matt Benton, our Chief Operating Officer. For those of you who are new to GBDC, our investment strategy is to focus on providing first lien senior secured loans for to healthy resilient middle market companies that are backed by strong partnership oriented private equity sponsors. Yesterday, we issued our earnings press release for the fiscal quarter and for the year ended September 30th. And we posted an earnings presentation on our website. We'll be referring to that presentation during the course of today's call. I'm going to start as usual with headlines and with a summary of performance for the quarter. And then Matt and Chris are going to go through our operating and financial performance for the quarter in more detail. And finally, I'll wrap up with our outlook for the coming period, and I'll take some questions. The headline is that GBDC had a good fourth quarter and a solid fiscal 2024. You'll recall that fiscal 2024 had a number of landmark events that made GBDC's shareholder value proposition more compelling. First, a permanent reduction in the company's incentive fee rate. Second, a new supplemental variable distribution framework. And that distribution framework has led to 29 cents per share of supplemental distributions so far. And third and most importantly, the closing of a second win-win-win affiliate merger with GBDC3. So while we're going to focus today on GBDC's performance for the final quarter of the fiscal year, I think it's important to keep in mind the transformational nature of fiscal 2024 as a whole. With that context, let me touch on a few highlights before I hand it over to Matt and Chris. Adjusted NII per share was 47 cents for the quarter. This corresponds to an adjusted NII return on equity of 12.4 percent. Adjusted NII return on equity for the full fiscal year was 12.9 percent. Adjusted net income per share for the quarter was 36 cents, and that corresponds to an adjusted return on equity of 9.4 percent for the quarter. Adjusted return on equity for the full fiscal year was 10.7 percent. GBDC's results benefited from the continuation of several trends that we've highlighted over the course of recent quarters. First, borrower performance remained generally strong, as you'll see when we talk through key credit metrics. Second, high base rates continued to boost the earnings power of GBDC's portfolio. Third, GBDC's industry-leading fee structure. The fee structure, combined with a voluntary $0.03 per share incentive fee waiver from GBDC's investment manager during the quarter, It meant that shareholders captured more of the value that GBDC created. That said, GBDC also faced some headwinds during the quarter, primarily headwinds from a tale of underperforming borrowers that I think everybody in credit is facing these days. We talked last quarter about how GBDC had negative outcomes on loans to Pluralsight and Imperial Optical. During the September 30th quarter, we worked through restructuring of Pluralsight as well as one other longtime non-accrual credit. And you can see this reflected in realized losses that are in this quarter's P&L. Our focus, as always with underperforming borrowers, is to use our deep bench of experienced investment professionals and the playbook that we've developed over several decades to minimize ultimate losses. In both these cases, GBDC now holds post-restructuring equity positions that we believe have upside potential. During the September 30th quarter, we also took some fair value markdowns on several other companies that are underperforming. The quantum of net realized and unrealized losses, it improved quarter over quarter, but it was again higher than our version of normal. So in short, fiscal Q4 performance was good. It wasn't great, but it was good. And it gave GBDC a solid ending to a transformational fiscal year that we believe sets up GBDC very well for the long term. I'll come back to this theme when I go through our outlook at the end of our prepared remarks. With that, I'll pass the mic over to Matt Benton to discuss the quarter in more detail.

Thanks, David. I'm going to start on slide four. Adjusted NII per share was 47 cents, corresponding to an adjusted NII ROE of 12.4%. Adjusted earnings per share was 36 cents, corresponding to an adjusted net income ROE of 9.4%. GBDC's earnings were driven by three key factors. First, credit performance was generally solid. But as David said, we took some fair value write downs on several underperformers. Second, earnings were supported by continued high base rates consistent with recent quarters. Third, GBDC benefited from sustainably lower expenses due to its leading investment advisory fee structure. And fourth, Golub Capital, GBDC's investment manager, elected to voluntarily waive on a one-time basis a portion of its fee this quarter. This equated to an approximately $0.03 per share benefit to net investment income and earnings. We did this to enhance the shareholder experience by giving investors an early benefit from the cost of funds reductions GBDC will recognize from the debt funding initiatives we undertook post-quarter end. I'll hit on these exciting initiatives in more detail in a bit. Let me summarize portfolio activity and credit quality in the quarter. Gross originations were nearly $1 billion, up from last quarter as we sought to take leverage up modestly post-merger. After factoring in repayments and unfunded commitments associated with originations, net funds increased by $368 million sequentially. This represented net portfolio growth of approximately 5%. GBDC did not get the full benefit of the earnings power of this portfolio growth because much of that growth was back-end weighted. I want to offer some comments around the environment in general. The underwriting pendulum in the current environment has swung to more borrower-friendly across all credit markets, from investment grade, which is trading at 20-year types, to the broadly syndicated market to private credit. In larger size transactions especially, we are seeing spread compression, looser deal documentation, especially around EBITDA definitions, and higher leverage. As these underwriting trends have shifted over this past year, we have purposely chosen to be more selective and to focus more on core middle market transactions. Our wide funnel allows us to be picky. We typically see over 2,000 opportunities annually. Year-to-date at Golub Capital, our origination stats depict our conservatism. First, a selectivity rate of 3%. Second, a repeat borrower percentage of about 70%. Third, Golub Capital acted as the lead or sole book runner in over 87% of our transactions. And year-to-date, we've been the sole lender in almost a quarter of the deals that we've done. So we're controlling structures and documentation, which as everyone knows, is our typical MO. Fourth, our average LTVs at the time of origination have generally been in the mid-30 percent to mid-40 percent range, with an average LTV of approximately 37 percent. Finally, given the risk-adjusted pricing dynamics, we are choosing to play in the core middle market. The median EBITDA for our origination has been below $60 million. While the overall credit performance of GBDC's investment portfolio remains strong, consistent with David's overview, we did see a small increase in category three credits this quarter. Investments in rating categories four and five decreased slightly from 89.2 percent of the portfolio at their value to 87.1 percent during the quarter. Investments in rating category three increased from 10.1 percent of the portfolio at their value to 11.6 percent quarter-over-quarter. And investments in rating categories one and two remain very low, representing just 1.3 percent of the total portfolio at fair value. As a percentage of total debt investments at fair value, non-accruals increased slightly to 1.2 percent at quarter-end from 1 percent in the June quarter. As a reminder, these metrics are well below the BDC sector average. In the quarter, the number of non-accrual investments increased to 11, as the restructuring of three former non-accrual investments was offset by the addition of four non-accrual investments in the quarter. Several of these were very small positions. Continuing on slide four, let me briefly summarize distributions paid and certain balance sheet changes in the quarter. Distributions paid in the quarter of 49 cents per share included not only the quarterly base distribution of 39 cents per share, but also the 5 cent per share quarterly variable supplemental distribution declared in August, as well as the 5 cent per share special distribution declared in June 2024 in conjunction with the GBDC III merger closing. We expect these supplementals to eliminate GBDC's need to pay excise tax on undistributed earnings. As we've said in the past, we would prefer in general to return capital to shareholders versus paying any form of an excise tax. NAV per share decreased by 13 cents on a sequential basis to $15.19 because distributions were unusually high. Despite the decrease, GBDC's NAV per share is now 17 cents higher than it was at September 30th, 2023, which we believe is a clear outlier in the BDC sector. From a leverage perspective, debt to equity increased quarter over quarter to one spot zero nine turns on a net of cash basis. This includes cash trapped in debt securitizations for the purposes of paying down principal standing notes. As I mentioned earlier with respect to assets, the increase in net leverage largely happened in the last few weeks of the quarter. GBDC's average net leverage during the quarter was just one spot zero two turns. Increasing net leverage further, our target is one spot one zero terms to one spot one five terms, will be an additional tailwind for profitability. Let's turn to distributions declared in the quarter. The Board declared 43 cents of total distributions, a regular quarterly distribution of 39 cents per share, and a fiscal Q4 supplemental distribution of 4 cents per share. Taken together, these distributions correspond to an annualized dividend yield of 11.3% based on GBDC's NAV per share as of September 30, 2024. Adjusted NII per share continues to significantly exceed the company's regular quarterly distribution, resulting in regular distribution coverage of 121%. In addition, our board declared in June 2024 additional special distributions to be paid in three equal installments of 5 cents per share following the merger close on June 3rd, 2024. The final special distribution of 5 cents per share will be paid on December 13th, 2024 for stockholders of record as of November 29th, 2024. You can find more information about the record dates and payment dates for fiscal Q4 distributions on slide 23 of the earnings presentation and about the variable supplemental distribution framework on slide 24. I'm going to turn it over to Chris now to provide more detail on our results. Chris?

Thanks, Matt. Turning to slide 7, you can see how the key earnings drivers Matt just described translated into GBDC's September 30, 2024 NAV for share of $15.19. Adjusted NII per share of 47 cents per share was below the 49 cents per share of aggregate dividends paid out during the quarter. Net realized and unrealized losses were 11 cents per share. Together, these results drove a net asset value per share decrease to $15.19, down 13 cents per share from the prior quarter. Let's now go through the details of GBDC's financial results for the quarter ended September 30, 2024. We'll start on slide 10, which summarizes our origination activity for the quarter. Net funds growth quarter over quarter increased by $368 million, representing a 5% increase in total portfolio size versus June 30, 2024. The asset mix of new investments shown in the middle of the slide remain predominantly one-stop loans. And looking at the bottom of the slide, the weighted average rate on new investments decreased modestly quarter over quarter to 10.7%. We continue to be highly selective as the average loan-to-value on Gallup Capital's middle market originations during the quarter was below 40%, with a disproportionate amount of these originations for 3P borrowers. Slide 11 shows GVC's overall portfolio mix. As you can see, the portfolio breakdown by investment type remained consistent quarter over quarter, with one-stop loans continuing to represent around 86% of the portfolio at fair value. Slide 12 shows that GBDC portfolio remains highly diversified by portfolio company with an average investment size of approximately 30 basis points. Additionally, our largest single borrower represents just 1.5% of the portfolio, and our top 10 largest borrowers represent just 13% of the portfolio. We are big believers in modulating credit risk through position size, which we believe has served GBDC well in previous credit cycles and will continue to be important in the context of the current cycle. As of September 30, 2024, 92% of our investment portfolio consisted of first-lane senior secured floating rate loans to borrowers across a diversified range of what we believe to be resilient industries. The economic analysis on slide 13 highlights the drivers of the change in GBDC's net investment spread to 5.2%. Let's walk through this slide in detail. If we start with the dark blue line, which is our investment income yield, And as a reminder, the investment income yield includes the amortization of fees and discounts. GBDC's investment income yield fell 30 basis points sequentially to 12%, primarily due to reduced discount amortization as compared to the prior quarter, as well as the impact of moderating investment spreads over recent quarters and, to a lesser extent, the impact of lower interest-based rates in September. Our cost of debt, the teal line, increased 30 basis points to 6.8%, as we saw the full quarter impact of the assumption of GBDC-3 debt funding facilities. Matt will detail later in the call how we already executed a multifaceted plan to reduce GBDC's post-merger debt funding costs. As a result, our weighted average net investment spread, the gold line, decreased 60 basis points sequentially to 5.2%. Additionally, we recognize the decrease in interest expense during the quarter associated with marking to fair value our existing interest rate swaps on the 2028 and 2029 notes. Edge accounting requires us to fair value the interest rate swaps on a quarterly basis and recognize any changes in fair value through interest expense. But it's important to recognize this is a non-cash expense and will net the zero over the lives of the swaps. Consistent with prior periods, we have excluded the net change in fair value related to our interest rate swap hedges from the calculation of our weighted average cost of debt, since these are non-cash amounts that will net to zero over the life of the swaps. We believe with nearly 80% of GBDC's total debt funding represented by floating rate exposure, that GBDC is well positioned for declining interest rates. I'll turn the floor back over to Matt now.

Thanks, Chris. Let's move on to slides 14 and 15 and take a closer look at credit quality metrics. The headline is that credit remains solid. On slide 14, you can see the non-accruals increased modestly by 20 basis points sequentially to 1.2% of total debt investments of pure value. Slide 15 shows the trend in internal performance ratings on GBDC's investments. As of September 30, 2024, approximately 87.1% of GBDC's investments were rated 4 or 5, which means they're performing as expected or better than expected at underwriting. The proportion of loans rated 1 and 2, which are the loans we believe are most likely to see significant credit impairment, remain very low at just 1.3 percent of the portfolio at fair value. As we usually do, we're going to skip past slide 16 to 19. These slides have more detail on GBDC's financial statements, dividend history, and other key metrics. Slide 21 describes some actions that we took subsequent to September 30, 2024, regarding GBDC's post-merger funding structure. Recall the time of the merger, we discussed the opportunity to drive improvements in GBDC's funding. In early November, we announced the pricing of a new $2.2 billion GBDC term debt securitization with AAA notes priced at SOPR plus 156 basis points, a very attractive level relative to the levels at which we borrow under our secured corporate revolver. This includes a four-year reinvestment period with attractive underlying structural terms that provide meaningful flexibility. In conjunction with the CLO pricing, we elected to announce a full repay of certain of GBDC's legacy higher-cost debt securitizations. Additionally, we issued a notice of redemption to redeem the GBDC3 2022-2 debt securitization in full on December 16, 2024. As a note, this securitization has pricing of three months SOFR plus 260 basis points. Further, we announced an increase in the size of the J.P. Morgan credit facility to $1.9 billion, and all amounts outstanding on the GBDC 3DB credit facility were repaid and the facility was terminated. We believe the combination of these debt funding initiatives will meaningfully lower GBDC's cost of funds and leave GBDC again with one of the lowest cost debt funding structures in the BDC sector, while also meaningfully extending its debt maturity ladder. We expect GBDC to recognize the full run rate benefit of these actions in the March 31st, 2025 quarter. Slide 22 details GBDC's funding structure and other key takeaways. Our weighted average cost of debt this quarter was 6.8%. As you heard me just describe, we expect the funding actions that we took subsequent to quarter end are expected to reduce GBDC's cost of funds over time. 43% of our debt funding is in the form of unsecured notes with no upcoming maturities in 2024 or 2025. The fixed rate notes coming due in 2026 and 2027 were issued with a weighted average coupon of 2.3%. And as you've heard us say on prior occasions, we did not swap them out for floating exposures. The remainder of GBDC's total debt funding is floating rate or swapped to floating. Overall, GBDC's liquidity position remains strong, and we end the quarter with approximately $1.4 billion of liquidity from unrestricted cash, undrawn commitments on our meaningfully over collateralized corporate revolver, and the unused unsecured revolver provided by our advisor. I'm going to hand it back over to David now for closing remarks and Q&A. David?

Thanks, Matt. So to sum up, GBDC had a good fourth quarter and wrapped up a strong fiscal 2024. I want to end with our outlook, and then I'm going to open the line for questions. We talked last quarter about a few headwinds that we anticipated the market generally and GBDC would face with respect to credit spreads and origination. Our view today is largely unchanged, but I want to touch briefly on each of these three areas. First, let's talk about our outlook for credit. For the past couple of years, we've been talking about how we have been expecting to see more credit stress. And I said last quarter that it's here. The signs are all around us. You can see it today in the BSL market. LSTA estimates for the default rate adjusted for viability management transactions is now running at north of 4% annualized. That's more than double the long-term average. We can also see it in reports from major creditors. credit rating agencies like S&P and Fitch, and from the major law firms that are covering restructurings and bankruptcies. Now, I'm going to say something that may surprise many of you. We think this increased credit stress is a good thing. Gold capital is consistently outperformed in challenging markets, and we're quite confident this will be the case this cycle, too. More defaults, more underperforming credits, these should cause market conditions to shift from where they are now, which is pretty borrower-friendly, to more lender-friendly. And it should chase out some of the tourists who've entered direct lending but lack the characteristics to be successful long-term. Let's shift now to the second headwind, to spreads. The broadly syndicated loan market saw striking spread compression in 2024. I talked about this last quarter. And private credit lenders have also seen spread compression. The dynamic has been most pronounced among borrowers with over $100 million in EBITDA, what we call the large market segment. The large market segment is where a number of our competitors focus. I point out, it's not our focus. We prefer to focus on the core middle market. And the core middle market, it wasn't immune from the spread compression trends, but we see wider pricing, lower leverage, better documentation terms, and frankly, less competition there. Finally, origination. Consensus expectations had called for a robust recovery in the level of M&A activity in 2024. We were more cautious, and our call has proven to be correct. We've experienced a pickup in M&A activity this year, but not a large pickup. We do think we're going to see a pickup in 2025, falling interest rates, less political uncertainty. continuing pressure on PE sponsors to return money to LPs, all of these are tailwinds for M&A activity in 2025. I think it's early to predict an M&A super cycle, but we are seeing signs of improving activity. So in sum, across all three of these headwinds, we see signs of better conditions, and we anticipate that market conditions are going to improve over the course of 2025. Having said that, I want to spend a minute on what happens if we're wrong on this. After all, consensus predictions have been wrong a lot in the last several years. And here's the good news. Whatever the coming period may bring, we think GBDC is well positioned to outperform. This is because we think Olive Capital does a complementary set of things very well. We're good at identifying resilient borrowers that are in resilient industries. Our relationships and incumbencies make us a preferred partner for attractive sponsor-backed companies. Our investment process and protocols enable us to identify and address issues that arise early on. And the depth of our expertise in managing problem credits, that helps us preserve value. We've built these competitive advantages over time with great intent, with great effort. This is our 30th anniversary year, and we're proud to be celebrating what we call 30 years of good boring. With that, let me open the line for questions.

We will now begin the question and answer session. If you would like to ask a question, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. We will pause for a short moment to compile the Q&A roster. Again, if you would like to ask a question, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. And our first question comes from the line of Robert Dodd with Raymond James. Robert, please go ahead.

Hi, guys, and thanks for all the color on the call, as always. I mean, one of the questions, I mean, you went through credit spreads, imagination, et cetera. What about, I think Matt mentioned, I mean, terms. You're starting to see weaker terms. EBITDA definitions, et cetera, and things like that. I mean, where is that on the scale of best to worst across cycles? Because obviously, you know, spreads sometimes reach a low and then spreads don't go down anymore, but everything else around them in terms of document instructions and definitions weakens. And then that swings the other way at some point. So where would you say we are in the cycle of not just spreads, but like all the other bits that go with it?

Sure. Good question, Robert. So I think it's important in thinking about in particular documentation terms to also be talking about in the context of a market segment. So in particular, if we think about core middle market versus large market, there's always a pretty meaningful difference in documentation terms. In the core middle market, we typically have this thing called covenants. We typically have strong protections against leakage of various sorts. We typically have strong definitions of EBITDA. In the larger market, where we and other private credit lenders compete against the broadly syndicated market, there's more variability in the strength of documentation terms. And as we move from a lender-friendly market to a more borrower-friendly market, we see more movement in documentation terms. Today, the broadly syndicated market is very strong. It has come back in an enormous way in 2024. I think the death of the broadly syndicated market was prematurely called. Last year, I was very vocal that it was going to come back and that people were overhyping the growth of private credit relative to the broadly syndicated market. And, you know, we've improved, right? And the broadly syndicated market has refinanced a lot of loans that were financed in the private credit market. It's also... been a threat to the private credit market, which has caused private credit lenders to agree to repricings and to agree to documentation terms of new loans that are more borrower friendly. So today I would characterize documentation terms as being on the borrower friendly side of the spectrum on the large market side. They're not quite at 2021 levels, but they're relatively borrower-friendly. And that's one of the reasons, Robert, that we've been more focused than ever on sticking to our core focus on the core middle market.

I appreciate that, Carlo. Thank you. But on... to the point of 2021, I mean, you're clearly not calling 2025 is going to be another 2021. What are the, currently, what are the pushes and takes on, I mean, where do you, do you expect it to be just behind 21, but meaningfully stronger than 22, 23, 24, or where would you rank it and what would it take in terms of things you're seeing in the market? Because clearly not seeing that kind of luck yet. What would it take for you to put a super cycle label on it?

So 2025 M&A volumes are a question mark right now. Let's talk about both the tailwinds as well as the headwinds. On the tailwind side, we have somewhat lower rates. We have lower spreads. We have somewhat less political slash policy uncertainty now that the elections have gone through. We've got the continuing pressure on private equity firms to deliver more disposition proceeds to their investors. And we've got a second set of continuing pressures on private equity firms who have not yet spent enough of their current funds to spend money. So there are some very significant tailwinds that I think recognize are really powerful. On the headwind side, we still have a lot of uncertainty. I think we don't know where things are going to go on taxes, on tariffs, on spending levels. there's a lot of geopolitical uncertainty highlighted in the last few days in the developments in the Ukraine war. There's a significant question as to what's going to be the catalyst for more M&A activity, because what tends to happen, Robert, is a bit of a snowball effect. As you have more M&A activity, they're comes with that more certainty about what market-clearing price levels are going to be. And that, in turn, leads to more M&A activity. So I'm not saying we're not going to have a big M&A year in 2025. I'm saying I'm not sure. And I think it's too early right now to be pounding the table saying we're going to see an M&A super cycle in 2025. We may. I hope we do. But I think it's too early to make that call.

Got it. Thank you. One more if I can. I mean, you've done a lot of work on the balance sheet post-quarter end. Pretty much all on the secured side with the CLOs, the credit facilities, et cetera. So would you say you're done with this for now? I mean, obviously it has to be revisited in a couple of years, right, with the structure of the secured side of the liability side. Any thoughts on, obviously, unsecured spreads aren't just down for BSL borrowers. They're down for BDC borrowers as well. So how would you characterize the positioning? Are you done on the secured, but there's still work to be done on the unsecured? Or how would you take a view on that?

Look, we're never done in terms of the balancing and optimizing that we're doing on the unsecured. right-hand side of GBDC's balance sheet. This is something that I think is a core competitive advantage of Gallup Capital. We're good at it. We're good at sustaining over time a low-cost, flexible balance sheet. Right now, to your point, we have done a lot of work on it. We have gotten a lot of the benefits that we talked about at the time of the merger and in respect of reducing the borrowing costs of the post-merger combined company. But I take your point. I think across the spectrum, we're seeing attractive opportunities to put new debt on, both secured and unsecured. And it's our job to keep looking for opportunities for GBDC to take advantage of that.

Thank you.

Again, if you would like to ask a question, simply press star followed by the number one on your telephone keypad. And your next question comes from the line of Paul Johnson with KBW. Paul, please go ahead. Paul, if you're on mute, please unmute.

Apologize, Eric. I was on mute. But thanks for taking my questions. Of the, you know, strong quarter for deployment here, a billion dollars of originations this quarter, can you give us a sense of kind of what that was for the overall dollar platform, whether that was, you know, up across the platform as well, or if this was, you know, mainly, you know, allocated towards GBDC? And, you know, I'd also just ask, you know, kind of given some of the comments on, you know, cautious on, you know, credit, you know, the pricing, you know, environment is a little bit less favorable today. You know, why deploy so much now, you know, into this quarter, you know, instead of, you know, trying to pull a little bit back potentially for a better year of activity next year.

Thanks, Paul. Good question. So a couple of comments on this. We always deploy across the whole Gala platform. So this quarter is no different. We didn't change our allocation policy in a way that was aimed at increasing allocations to GBDC. Having said that, we were hoping for an opportunity to increase assets within GBDC. Coming out of the merger, you'll recall that we were well under our target leverage level. In fact, I would argue in the quarter we just finished, we were still significantly under our target leverage level. We had an average leverage over the quarter of just slightly over one times, and our target is 1.1 to 1.15. Second point I'd make is that the Total new investment commitments is, you know, a little bit overstated in the sense that there is some refinancing, repricing, simultaneous exit and entry activity. So I tend to focus more on the net funds growth number, the net. The $368 million, which is not an eye-popping number at all. It's a pretty normal-looking number. The third point I'd make is that while it's a challenging environment from a new origination standpoint, we have some giant advantages. And two of those giant advantages are our relationships with private equity sponsors and our existing portfolio. And both of those really shone through in this last quarter. Almost all of our new origination was with repeat sponsors. And a very disproportionate from normal portion of our origination was repeat borrowers. So we're really leaning in during this period on our competitive advantages and and focusing on sponsors and borrowers and industries that we have expertise in.

I appreciate that. That's a very helpful answer. And then one for possibly Chris, just on the non-cash interest expense related to the swap this quarter, is there any way to quantify kind of what that was on a per share basis of, you know, non-cash interest expense that the result of that swap.

Yeah. Hey, Paul, it was about, it was about a 2 cents a share.

Got it. Thank you. Those are all my questions. Thank you very much.

And your next question comes from the line of Ray Chisman with Anfield Capital. Ray, please go ahead.

Thank you for taking the question. The first one is, at the decline in the yield, was it due mostly to anything you did that was due, where the competition forced the spread down? Or was it, as I'm seeing in other bank credits I'm in, repricings rather aggressively here?

So I would say it's a combination of factors. We have seen in the larger side of our portfolio, the large market borrowers, we have seen some movements, as you described, where there are repricings that take place. We also, and you can see it on page 10 of the presentation, the weighted average spread on new loans is significant. lower than it has been in prior quarters, reflecting the spread compression that we've been talking about. So it's a variety of factors. A third one I mentioned, you know, which we're all going to see more of over the – we all have managed floating rate assets – are going to see more of over the course of the coming period is declining base rates. So it's all three of those.

The second one would be considering the way Plural Sites started and proceeded with the sponsor simply packing up his toys and going home. I mean, sponsors usually you, I think your experience would say, usually work with their creditors and try to get a better outcome. I mean, you're not seeing a repeat of that kind of behavior anywhere else in the portfolio, I hope.

So we always have good dialogue with our sponsor clients, and there's a range of sponsor reactions to workout situations. Our first choice is to work with sponsors toward win-win solutions that involve continuing contributions and continuing benefits to the sponsor. But if a sponsor concludes that they're not in a position to do so for any of a number of reasons, we're we're quite content to take the keys and to run with the situation. That's always been something that we've done, Ray, and this current period and coming period, I don't think it's going to be any different.

Last one for you is, are there, in your opinion, any additional vehicles inside of GBDC that will eventually make their way into our larger pile for continued use either positive leverage on the operations side, or cost of funds side, or, you know, just in general. Are we going to get bigger because we'll be better, or do you think this is a good size for the current environment we're in?

You know, at Gallup Capital, generally, we're always looking for opportunities in areas where we have expertise, in areas where we have competitive advantage to grow the portfolio. I'm very pleased right now. I'm very satisfied right now with the strategy of GBDC. It's been very consistent for 14 years. I see more opportunities for us to grow in that strategy. So I'm not anticipating any major changes. I'm not anticipating, for example, that we're going to announce in coming days investments in specialty finance subsidiaries in in unrelated areas, as some of our competitors have done. That's not our MO.

The question was really, is there a GBDC-4, which you think will eventually end up in GBDC public?

Oh, sorry. I misunderstood your question. We do have a private BDC called GBDC4. It's a public filer. You can look at it, and it's possible that there will come a time after it's matured where it will make sense to look at liquidity options for GBDC4, including a potential merger with GBDC.

If you were to be $10 billion in size instead of $8 billion, is that something which would be an advantage in today's marketplace, or do you think that the size you are now is optimal for the environment now.

So I really think about that across all of Gallup Capital and not specifically about GBDC. We're very focused on making sure as a platform that we have a size that's appropriate for the opportunities that are before us and that we're not We're not in the business of raising money and then deploying it as best we can. We're not believers in the raise money and then deploy it as best we can model of asset management. So one of the questions that we think about a lot, Ray, and it's a question not just for GBDC but across the Gallup platform, is what's the right level of dry powder to develop in order to take advantage of market conditions without either having... Too much dry powder or too little dry powder?

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