Welcome to the Golub Capital BDC, Inc.’s December 31, 2018 Quarterly Earnings Conference Call. Before we begin, I would like to take a moment to remind our listeners that remarks made during this call may contain forward-looking statements within the meaning of 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 these in the forward-looking statements as a result of a number of factors, including those described from time to time in Golub Capital BDC, Inc.’s filings in Securities and Exchange Commission. For materials the company intends to refer to on today’s earnings conference call, please visit the Investor Resource tab on the homepage of the company’s website, www.golubcapitalbdc.com and click on the Events Presentations link. Golub Capital BDC’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 conference over to David Golub, Chief Executive Officer of Golub Capital. Please go ahead.

Thanks, Sarah. Hello, everyone, and thanks for joining us today. I am joined by Ross Teune, our Chief Financial Officer; Gregory Robbins, Managing Director; and Jon Simmons, Director here at Golub Capital. Yesterday, we issued our earnings press release for the quarter ended December 31, and we posted an earnings presentation on our website. We are going to be referring to that presentation throughout the call today. Gregory Robbins is going to start with an overview of GBDC’s results for the first fiscal quarter of 2019. Ross will then take you through the results in more detail and I am going to come back at the end for some closing remarks on three topics. First, I am going to talk about our perspective on the fourth quarter market downdraft -- fourth quarter 2018 market downdraft. Second, I am going to give you a status update on the proposed merger with Golub Capital Investment Corporation or what we call GCIC. And third, I am going to update you on our debt capital structure and our leverage strategy. The quarter ended December 31 was another solid one for GBDC and that’s despite the worst downdraft in liquid credit markets that we have seen since the financial crisis. For those of you who are new to GBDC, our investment strategy is, and since inception has been, to focus on providing first lien senior secured loans to healthy, resilient middle market companies that are backed by strong partnership-oriented private equity sponsors. With that, I will turn the call over to Gregory.

Thank you, David. Let’s look at the details for the quarter. Net increase and net assets resulting from operations or net income for the quarter ended December 31, 2018, was $18.4 million or $0.31 per share, as compared to $15.9 million or $0.26 per share for the quarter ended September 30, 2018. Net investment income or as we call it income before credit losses was $19.8 million for the quarter ended December 31st or $0.33 per share, as compared to $20.3 million or $0.34 per share for the quarter ended September 30th. Excluding $0.5 million reversal in the accrual for the capital gains incentive fee, net investment income was $19.3 million or $0.32 per share, as compared to $19.5 million or $0.32 per share for the quarter ended September 30th. Consistent with previous quarters, we have provided net investment income per share excluding the capital gains incentive fee accrual, as we think this adjusted NII is a more meaningful measure. Net realized and unrealized loss on investments in foreign currency of $1.4 million or $0.02 per share for the quarter ended December 30th -- December 31st was the result of $2 million of net realized losses and $600,000 of net unrealized appreciation. This compares to a net realized and unrealized loss on investments in foreign currency of $4.4 million or $0.08 per share for the prior quarter. Despite the slight net realized and unrealized loss on investments this quarter, we continue to see solid investment income and credit quality from the portfolios, as Ross will discuss further in a bit. New middle market investment commitments totaled $203.1 million for the quarter ended December 31st, approximately 20% of the new investment commitments were senior secured loans, 77% were one stop loans and 3% were investments in equity securities. Overall, total investments in the portfolio of companies at fair value increased by approximately 7.6% or $135.6 million during the quarter ended December 31st. On December 28th, we paid a quarterly distribution of $0.32 per share and a special distribution of $0.12 per share, the third consecutive calendar year in which we have paid a special distribution. Primarily as a result of this special distribution, our net asset value per share declined to $15.97 as of December 31st from $16.10 as of the prior quarter. Turning to slide four, you can see in the table the $0.31 per share we earned from a net income perspective and the $0.32 per share we earned from a net investment income perspective before accrual for the capital gains incentive fee and our net asset value per share of $15.97 at December 31st. As shown on the bottom of the slide, the portfolio remains well-diversified with investments in 212 different portfolio companies and an average size of $8.7 million per investment. With that, I will now turn over to Ross who will provide some additional portfolio highlights and discuss the financial results in more detail.

Thanks, Gregory. Turning to slide five, this slide highlights our total originations of $203.1 million, and total exits and sales of investments of $63.6 million. You will recall that payoffs were a big offset to strong originations for most of calendar 2018. We expected the payoffs to normalize in the December 31st quarter and we were right, leading to strong growth in total investments at fair value of 7.6% or $135.6 million with total investments just over $1.9 billion. Turning to slide six, this slide shows that the overall portfolio mix by investment type has remained consistent quarter-over-quarter and one stop loans continue to represent our largest investment category at 80%. Turning to slide seven, this slide illustrates that the portfolio remains well-diversified with an average investment size of $8.7 million. Our debt investment portfolio remains predominantly invested in floating rate loans and there have been no significant changes in the industry classification percentages over the past year. Turning to slide eight, the weighted average rate of 7.7% on new investments this quarter was down from 8.2% in the previous quarter. As we noted on the call last quarter, the increase in the weighted average rate on new investments last quarter was largely the result of a few larger deals originated with high relative spreads. It was not a general market move as the market remains very borrower friendly. The weighted average rate of investments that paid off this quarter decreased to 8.5% as the prior quarter included a few larger payoffs on existing loans with high relative rates. Continued downward pressure on spreads contributed to a decline in the weighted average spread over LIBOR on new investment to 5.3% from 5.9% in the previous quarter. As a reminder, the weighted average interest rate on new investments is based on…

Thanks, Ross. So to sum up, GBDC’s first fiscal quarter of 2019 was solid, especially when you view it in the context of what happened in the market during the same period. In calendar Q4, the broadly syndicated loan or BSL asset class experienced its worst quarter since the financial crisis, posting a total return of negative 3.5% as the average price of loans in the S&P/LSTA Leveraged Loan Index fell by about 5 points. High-yield bonds also traded down. They fell on average by about 6 points and of course the S&P 500 was down by more than 13%. We haven’t seen this kind of sudden steep sell-off in liquid markets since 2008. Interestingly, since the turn of the year, we have seen a sharp rebound. So I want to first talk about what’s going on. What does this mean? Was this volatility that we saw in calendar Q4 and into the early part of this year, was this another short-lived tantrum like what we saw in late June and early July of 2018, with a bigger intensity, or was this particular sudden event a warning that we are near the turning point in the credit cycle? We think there’s a stronger case for interpreting the recent volatility as another tantrum. In broad strokes, here’s our take. We think the Fed has kept interest rates low for the last 10 years in a way that’s been designed to push investors away from cash and treasuries and toward riskier asset classes. As a result, our sense is that many investors have more risk exposure than they would really like to have and they are very concerned about getting out of those risk assets before the cycle turns. Essentially, a way to think about it is that the Fed has created…

Thank you. [Operator Instructions] And our first question comes from the line of Christopher Testa with National Securities Corporation. Please proceed.

Hi. Good afternoon. Thank you for taking my questions today. Just going back to your commentary David on the investors getting spooked by the Fed. Would you also entertain the notion that there’s been a tremendous amount of bashing of leverage loans and CLOs from both Powell and Warren and Yellen and The Times and The Journal and that led to this kind of massive outflow of $16 billion out of loan funds? Do you think that that might induce the tantrum more even more so than the Fed?

Sure. I didn’t mean to imply that the Fed was to blame for the tantrum. I think the Fed laid out a foundation in its quantitative easing very low interest rate environment in which it’s easy for tantrums like this and for cascades like this to develop. I think, Chris, you are right that there are a number of factors that you can identify that contributed to this tantrum. I am sure that the comments that -- the commentary that you were referencing didn’t help, but we need to recognize that the decline in leverage loans happened contemporaneously with a larger decline in high yield and an even larger decline in equities.

Right.

So I don’t think it was just those comments. I think that we saw a general flight away from risk assets. And I think we are going to see a repeating pattern, and I think we saw it last July as well. I think we are going to see a repeating pattern of episodic, unpredictable market tantrums where we see first a group of investors and then followed quickly by index funds and momentum traders causing volatility where there really is not a set of fundamental changes in market conditions.

Got it. Okay. Yeah. No. That make sense and that definitely clears that up. And just kind of sticking with that topic, David. The Fed seems kind of to be walking back some of the more hawkish language now. That would obviously imply that maybe there’s even a rate cut. Who knows how things go in the future. Do you think investors in your opinion would actually flood back into risk-on mentality or actually panic because that could mean that the economy slowing materially?

So, I am confused by some of the Fed’s recent pronouncements because they seem out of line with the numbers that we see coming out. So I mentioned earlier we released the Golub Capital Middle Market Index numbers in early January which indicated very strong revenue and EBITDA growth for our obligors. That has been followed by a spate of surprises on the upside in earnings that have come out. It’s been followed by a very positive jobs report, a reasonably positive GDP report. So the idea that the economy is slowing down and therefore the Fed should be walking things back, I am not really sure I get it. I think what may be happening is perhaps more political than based on macroeconomic factors. I think the Fed is trying to play nice with the White House. But fundamentally, I think, if we continue to see the kind of economic strength that we are seeing that we are likely to see more Fed increases in 2019.

Got it. Okay. That’s helpful. And given the volatility in the loan markets, your NAV especially backing out the special dividend was pretty much flat. So just wondering how you look at marks on the portfolio just relative to the leverage loan market. I know you mentioned that a lot of your book had obviously revenue and EBITDA growth. So is that enough to offset any technical marks from the spreads widening?

So we definitely had some spread widening in the middle market over the course of the fourth calendar quarter of 2018. But I’d highlight one other element to this picture that, perhaps, I should have mentioned earlier. A line I have often used is that the middle market is insulated from but not immune from trends in the broadly syndicated market. It’s a valid observation with respect to calendar Q4 with an asterisk. And the asterisk is the degree of insulation of the middle market during this period is unusual. We have seen middle market pricing, turns, leverage move very little in response to a more significant move in the broadly syndicated market. One can attribute that in part to the natural tendency of the middle market to lag. But I think one can also attribute that in part to the stage we are at in middle market lending right now. By that, I mean, the amount of capital that’s been raised, the number of new players who come in, the amount of money that’s looking for a home in new middle market loan assets. So we are seeing less volatility in the middle market for better or for worse. I must tell you in some ways I wish we were seeing more, because that would mean that conditions for new lending were more favorable than what we are seeing. There is an area of opportunity though in this for us, which is we specialize in buy and hold solutions and the area where the volatility is most pronounced has been and remains most pronounced is in syndicated solutions. So to the degree sponsors are looking at a choice between a financing that is buy and hold focused or syndicated in market conditions like we are seeing right now, they are going to be more inclined toward buy and hold solutions and that’s favorable for us.

Got it. Okay. That’s great detail. And just can you go over why dividend income was down at the SLF and also on that topic. Given that this is a vehicle that hasn’t grown and now you are looking at reduced asset coverage and combining the GCIC when some time hopefully in the first half of calendar year, is this something that you are increasingly maybe considering just buying the loans out and bringing on balance sheet and getting rid of any frictional costs there?

So let me -- a couple of questions embedded in your question. Let me parse it. So first what happened to dividend income? What’s happening in the Senior Loan Fund? Those two questions are related. If you flip up page 14 of the earnings presentation, you will see that the analyzed quarterly return for senior loan fund this quarter was low, it was 0.6% and driving that relatively low quarterly return were a couple of markdowns, in particular, on loans in that portfolio that have been in workout for some time. So we decided in the context of the mark-to-market adjustments in that portfolio, which we viewed not as market related, like some of the other Q4 changes, but more credit-related. We decided that it was appropriate to reduce the SLF dividend to GBDC during the quarter. So if you look at our income statement under the dividend line, you will see that it’s meaningfully down. The predominant reason for that reduction is a reduced dividend from SLF. The impact of that reduction was to meaningfully reduce incentive fees paid by GBDC. So this is another example, Chris, of something you have written about, which is the way in which GBDC’s fee structure is set up smartly for protecting investors. So, in essence, the manager bore the costs of these credit issues in SLF. Second part of your question was, what’s our -- are we ready yet to give you a new guidance on our view on SLF. The answer is no. Guidance remains the same, as I have said in prior quarters, which is we are not actively looking to grow SLF right now, but we think it is a smart tool to keep in our arsenal if and when market conditions change and we find traditional middle market senior loans more attractive.

Okay. Great. That’s all for me and thank you for taking my questions today.

Thank you. And our next question comes from the line of Robert Dodd with Raymond James. Please proceed.

Hi, guys. Following up on, Chris’s, question on the SLF there. I mean, within that, there was a $1.3 million realized loss within the SLFs and a $900,000 unrealized markdown. To clarify your comments David, is that to say that both the realized and the unrealized are related to company specific credit problems or was that just the realized and is the unrealized related to mark-to-market and maybe rebound next quarter.

I don’t have the data right in front of me on the breakout on the realized side. The two markdowns that I was alluding to were on the unrealized side.

Okay. Got it. Got it. And then just on GCIC and GBDC, I mean, obviously, it kind of ties into your initial comments about twitchiness of the markets. I mean, isn’t there an incentive for GCIC investors to avoid the twitchiness of the equity market. You are taking advantage of some movements that might occur in the middle market. But one of the advantages of being in a non-traded vehicle is precisely avoidance of one of these extra layers of volatility that comes with being a publicly traded BDC versus a non-traded BDC. So is there -- do you think that’s unlikely to have influence on, A, how they vote or, B, whether Golub has -- Golub the platform - has another vehicle available without the public equity BDC wrapper around it for them to move into and get access to the attractive risk return of the middle market private lending business without the twitchiness of the equity market that goes along with a publicly-traded BDC.

So, thanks for your questions. So let me address the first part of it first. So when we created GCIC, we created it by attracting investments from large institutional investors who wanted to -- who bought into exactly what we are doing, who bought into our business plan. Our business plan was to ramp this up as a private entity and to look over time to either merge into GBDC or to take it public in some form to create a publicly traded platform. So I am quite confident that that schema is what our investors want, because that’s what we told them we were going to do and they -- this is the strategy they were enthusiastic about participating in. So from their perspective what the merger accomplishes is it takes them from having an illiquid investment in a private vehicle to having a more valuable investment in a liquid vehicle. I don’t know many investors who would pay a premium for illiquidity. So here, our illiquid investors are getting the opportunity to get a premium and liquidity at the same time. So, my expectation is that GCIC investors will be very supportive of the merger based on discussions that we have had to-date. I see no data that support a different hypothesis. Is there a market for a product for a BDC that’s permanently nonpublic for investors who are afraid of their own impulses if they have the opportunity to sell? I guess, maybe. I think that’s a little bit of a silly product, because you could replicate it as an investor by simply handcuffing yourself and saying you don’t have the opportunity to sell. Why you need to restrict your ability to sell by investing in an illiquid vehicle, I guess, I am puzzled by that one.

Okay. Fair enough. Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Finn O’Shea with Wells Fargo Securities. Please proceed. Finn O’Shea: Hi. Thanks for taking my question. Just to go back to the market commentary a little bit and appreciate your thoughts there. But if you could maybe expand on sort of your views on how bad or volatile it has to get for the middle market to -- the private credit market to experience the better terms that most every other market saw. On the core middle market it seems like the capital supply was vastly dwarfed what deal flow produced. So if you can kind of give maybe your view on how much longer that would have had to or just how that will eventually come about for one. And then for two, you mentioned on the larger side that would maybe eventually link toward buy-and-hold if the episode wasn’t so acute. Were there -- to the extent those larger deals showed to folks like yourselves who can take on large deals. Did they show better terms and if not, to what -- how close were they to offering you a real premium for your buy-and-hold capabilities? Apologies for the longwinded question.

No problem. I think I understand both pieces to it. So let me respond in inverse order. So, first, I think you are pointing out an important observation about calendar Q4. In calendar Q4 in the middle market to the degree we saw spread widening, we saw meaningfully more spread widening in larger-sized transactions than we saw in smaller-sized transactions. In the larger-sized transactions, in many respects, our competition was the syndicated market and the syndicated market moved. So that enabled buy-and-hold solution providers to move as well. The fundamental underlying problem in smaller middle market credits is there’s just too much money in the space and that is not going to get solved by a level of volatility. That’s going to get solved by capitalist evolution. Capitalist evolution means that managers who are able to produce consistently good returns get continued access to capital and managers who are not able to produce consistently good returns don’t and sadly that process takes a while. Finn O’Shea: Understood. Thank you. And then to the extent you singled that the larger deals did push to buy-and-hold. Is that true for your origination this quarter given as seen on spread was a bit tighter. This does -- you also kind of -- well, I will ask that question as part one. And then, part two, your view is this pattern is likely to recur. So why not get more aggressive at times like this to the extent you can?

So we do get more aggressive in periods like this. We like to lean in on our competitive advantages. One of our competitive advantages is the capacity to get deals of a wide variety of different sizes done on a buy-and-hold basis with reliability and certainty. So I agree with your second question. It is an appropriate time for us to be aggressive. On the first part of your question, can you repeat it for me please because I forgot answering the second part? Finn O’Shea: It was related to -- you were outlining that the buy-and-hold became more compelling, and I think you said that there was more volume there. So does that describe…

A widening spread… Finn O’Shea: … why you had more spreads?

Yeah. I don’t think that was the primary reason why we had a little bit of spread widening. I mean, Ross, talked about this some. The fiscal Q3 quarter spread was a little bit artificially high, because of some high spread transactions that occurred during the quarter and this quarter arguably was a little artificially low, because we skewed a little more towards senior relative to one stops. So I wouldn’t read too much into those numbers. Finn O’Shea: Okay. And one more if I may. You put out the prospectus for the combination and there’s a delay there. One of your peers to the extent you are familiar is a little farther in the process and the SEC’s commentary or dialogue thus far is showing a pretty strict interpretation of merging these vehicles. So do you have any -- to the extent you are familiar with those, do you have any concerns on structures in place in your situation that may invoke pushback?

I am not sure I know this -- the details of the situation you are referencing. But the merger that we are endeavoring to do is a pretty straightforward merger between two externally managed BDCs. I don’t think we are plowing any new territory. So, no, I am not expecting any challenging regulatory issues. Finn O’Shea: Okay, David. Thank you so much.

Thank you. And gentlemen there are no further questions at this time.

Great. I want to just reiterate thank you all for listening. And should you have any questions that we didn’t get to today or that you come up with before we next get together, please feel free to reach out to Gregory, Jon, Ross or myself. Thank you.

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.