Goldman Sachs BDC, Inc.

Good morning. This is Dennis, and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs BBC Inc. Second Quarter 2020 Earnings Conference Call. Please know that all participants will be in listen-only mode until the end of the call when we will open up the line for questions. 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 belief 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 four business 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 copyrighted 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.goldmansaxbdc.com under the Investor Resources section. These documents should be reviewed in conjunction with the company's Form 10-Q filed yesterday with the SEC. This conference call is being recorded today, Tuesday, August 11, 2020, for replay purposes. I'll now turn the call over to Brendan McDonough, Chief Executive Officer of Goldman Sachs BDC.

Thank you, Dennis. Good morning, everyone, and thank you for joining us for our second quarter earnings conference call. I'm joined on the call today by John Yoder, our Chief Operating Officer, and Jonathan Lamb, our Chief Financial Officer. I'll begin the call by providing an overview of our second quarter results, including comments regarding the performance of our portfolio. I'll also provide an update on our proposed merger with our affiliated business development company, Goldman Sachs Middle Market Lending Corp., which we refer to as MMLC. John Diller will then discuss our portfolio in more detail with respect to the current environment before turning it over to Jonathan Lamb to walk through our financial results. Finally, I'll conclude with some closing remarks before we open the line for Q&A. So with that, let's get to our second quarter results. Q2 net investment income per share was $0.45. on after-tax net investment income of $18.2 million. The company's NII once again fully covered the dividend during the quarter. Our gap earnings per share was $0.86, which represents the highest quarterly EPS produced by the company since inception and reflects both a solid net investment income generated during the quarter as well as net gains in our investment portfolio, partly resulting from tightening of overall market credit spreads. Net asset value per share increased to $15.14 per share, an improvement of 2.9% from the end of the first quarter. Investments on non-recrual remain unchanged quarter over quarter and represent just 0.1% at fair value and 0.9% at cost of the total portfolio. We believe these are strong results in any environment, but particularly in light of the challenging economic environment that we operated in during the second quarter. As we announced after the market closed yesterday, our board declared a 45% per share dividend payable to shareholders of record as of September 30th, 2020. This equates to an annualized dividend yield of 11.9% based on net asset value per share at the end of Q2. We attribute our strong performance during the quarter to our focus on investing in businesses that we believe are durable and less prone to significant impact from economic cycles. Our largest sector exposures, which include software, healthcare, and IT-enabled business services, have thus far demonstrated resilience in this crisis. For example, our software portfolio companies averaged 18% year-over-year revenue growth rates in the first quarter of 2020, and preliminary numbers suggest that they maintain high single-digit to low double-digit year-over-year revenue growth rates even during April and May when lockdowns were most acute. Customer retention metrics were also strong, which we believe reflects the mission-critical nature of the applications. Our healthcare portfolio is primarily comprised of businesses engaged in providing outpatient healthcare services or outsourced hospital services. These businesses were negatively impacted by the lockdown orders issued in March that prohibited so-called non-essential medical services. In response, our portfolio companies re-forecast their business plans for the remainder of the year, with conservative assumptions about the duration of the lockdowns and the time it would take to return to more normalized demand for medical services. However, as the second quarter progressed, the lockdowns were lifted sooner than expected in many geographies, and customer demand began to rebound quicker than most companies forecast. In most states, businesses providing non-essential medical services were among the first to be released from lockdown orders. In general, this has resulted in patient volumes, revenues, and liquidity that is better than these companies have forecasted, for this stage of recovery. In analyzing corporate performance during this remarkable period compared to typical economic cycles, one dynamic that stands out is the extraordinary response from business owners and management teams to quickly and aggressively adapt business plans in the face of uncertainty. In the early phases of typical recessionary cycles, companies are often slow to respond as the commencement, depth, and duration of recessions are difficult to forecast. In this environment, however, given the obvious devastating impacts from the global health crisis and ensuing lockdowns, companies acted swiftly to adjust business models in recognition of the challenging operating environment. Expenses were cut, large capital outlays were put on hold, and balance sheet focus on liquidity was made a priority. By and large, private equity sponsors and business owners are acting rationally to ensure the ability for companies to bridge through to the other side of this environment. In our view, this decisive and proactive management has been and remains a significant benefit for lenders. While there is certainly a long way to go before the broader economy returns to normal and the possibility of additional lockdowns, we are pleased thus far by the efforts undertaken to preserve value in this crisis. Next, I want to provide an update on our previously announced merger with MMLC. On June 11th, we entered into and announced an amended and restated agreement and plan of merger with that was unanimously approved by the board of directors of each company, following the recommendations of each company's respective special committee consisting exclusively of their independent directors. The consideration has been changed from a fixed exchange ratio to a net asset value for net asset value exchange, whereby the exchange ratio will be determined at closing so that the MNLC shareholders will receive GSDB shares representing a proportional ownership of the combined company equal to MNLC's proportional contribution to the combined company's net asset value. In connection with this amendment, GSAM has agreed to extend the variable incentive fee cap for an additional year through the end of 2021. As a reminder, the variable incentive fee cap provides that incentive fees payable to GSAM will be reduced if net investment income will be less than 48 cents per share without implementation of the incentive fee cap. GSM also agreed to reimburse GSBD and MMLC for all fees and expenses incurred and payable by GSBD or MMLC or on their behalf in connection with this transaction, subject to a cap of $4 million with respect to each of GSBD and MMLC. This transaction creates a number of significant benefits for shareholders that I'd like to reiterate. First, we currently expect the merger to be accretive to GSBD's NII per share in the short and long term. Second, we also expect the transaction to result in significantly leveraging for GSBD, which creates more capacity to deploy capital into today's attractive investment environment, while at the same time adding a greater margin of safety to maintain GSBD's investment-grade credit rating and compliance with regulatory and contractual leverage ratio requirements. Third, the merger is expected to result in overall improvement in GSBD's portfolio metrics, including a higher portfolio yield and a greater single-name diversification. It is also worth noting that MNLC only has one investment on non-accrual status, representing less than 0.1% of the portfolio at fair value and 0.7% at cost. Finally, the combination more than doubles the size of GSBD and is expected to result in beneficial scale, including improved access to diversified funding sources, cost synergies, and greater trading liquidity. For all these reasons, we are very confident this transaction is in the best interest of shareholders of both companies. The record date for shareholders eligible to vote on the transaction is August 3rd, and a special shareholder meeting is scheduled to occur on October 2nd. In the coming days, shareholders will receive proxy materials, proxy statements, so we encourage everyone to take the time to vote in favor of the merger. With that, let me turn it over to John Yoder.

Thanks, Brendan. The second quarter of 2020 will undoubtedly be remembered for years and decades to come as an extraordinary period during which entire sectors of the global economy shut down on a more or less synchronous basis. Against this backdrop, we were pleased with our portfolio as demonstrated by the strong principal and interest payment performance by our portfolio companies in the face of this adversity. In our diversified loan portfolio with 107 underlying portfolio companies, loans to just three companies were modified to defer principal and interest payments, representing approximately 2% of the portfolio at both cost and fair value. In one case, we agreed to defer the second quarter payments until October, but the company has already resumed making monthly payments in July as the business and liquidity have rebounded. In another case, we collected monthly payments in April and May, but agreed to defer the June payment in exchange for an infusion of equity capital that is junior in right of payment to our loan. In addition, we executed amendments this quarter that permitted two borrowers to switch from cash to pick interest. These two investments represent less than 1% of the investment portfolio at both cost and fair value. Both of these amendments were executed in connection with new equity or other capital infusions by other investors in the companies. In the majority of cases, when negotiating amendments like these, we obtain compensation for agreeing to the amendment, which is typically in the form of a fee, an increased interest rate, or a capital injection or other form of credit support by the owner of the business. I would note that none of these amendments relate to non-sponsored businesses. While our focus this quarter was primarily on our existing portfolio, we were active across our platform in reviewing new investment opportunities. Deal volumes were quite low in the early part of the quarter, but we saw a steady increase as the quarter progressed. Terms of new deals are meaningfully better than the pre-COVID period and generally include wider spreads, tighter covenants, and better call protection. We would also add that the underwriting process is significantly enhanced because now we can review a company's financial performance over the last few months to actually see how it performs during a recessionary period. While we will continue to be primarily focused on our existing portfolio in the current quarter, our platform remains highly engaged with middle market sponsors and owners to evaluate opportunities. and we are confident that the company will be a beneficiary of the improved investment environment. So to turn to specifics for the quarter, during this quarter we made two new investment commitments, one of which was to a new portfolio company and one was to an existing portfolio company, but both of these were negligible in size. We received $18.3 million in repayments, driven primarily by the full repayment of our second lean investment in Discover.org, which was renamed Zoom Info and went public in an IPO on June 4th. It quickly raised to a market capitalization of over $18 billion. This would imply that the loan-to-value on our second-rate investment in the company was approximately 7%. Last quarter, we spoke about drawdowns on revolving loan commitments that we had made to certain portfolio companies. This quarter, we experienced net repayments of revolving loan commitments, which we think is evidence that liquidity is generally solid across our portfolio companies. Given the muted originations and repayment activity this quarter, our portfolio composition as of June 30th is relatively unchanged quarter over quarter. Total investments in our portfolio were $1,424,000,000 at fair value, comprised of 92.7% in senior secured loans, including 78.3% in first lien, 2.4% in first lien unidrunch, and 14.4% in second lien debt, as well as 0.5% in unsecured debt and 6.8% in preferred and common stock. We also had $60.8 million of unfunded commitments as of June 30th, bringing total investments and commitments to $1,485,000,000. As the quarter ends, we had 107 portfolio companies operating across 38 different industries. The weighted average yield of our investment portfolio at cost at the end of the second quarter was 7.5% as compared to 7.7% at the end of the first quarter. The weighted average yield of marginal debt and income-producing investments at cost was 8.3% at the end of the quarter as compared to 8.5% at the end of Q1. The decline in yields during the quarter was primarily attributable to the decline in LIBOR. However, the vast majority of our portfolio has a LIBOR floor of 1% or higher. Therefore, we do not expect significant further headwinds given current LIBOR levels. I'll now turn the call to Jonathan to walk through our financial results.