Welcome to GBDC's September 30, 2021 Quarterly Earnings Conference Call. 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 filings with the SEC. For materials the Company intends to refer to on today's call, please visit the Investor Resources tab on the homepage of the Company's website, www.golubcapitalbdc.com, and click on the Events Presentations link. GBDC 's earnings release is also available on our website in the Investor Resources section. As a reminder, this call is being recorded for replay purposes. I'll now turn the call over to David Golub, Chief Executive Officer of Golub Capital BDC.

Thank you. Hello, everybody and thanks for joining us today. I'm joined by Chris Ericson, our Chief Financial Officer, Greg Robbins, Senior Managing Director, and Jon Simmons, Managing Director here at Golub Capital. Before we begin, I want to welcome Chris Ericson. Chris has been a key member of the Golub Capital team for over a decade. He's deeply familiar with GBDC. He was instrumental in driving a number of key strategic initiatives, including the Company's merger with Golub Capital Investment Corporation in 2019. We're delighted to promote Chris to the Company's leadership team. And I also would be remiss if I didn't at the same time thank outgoing CFO, Ross Teune, for his many contributions to our shared success over the last 13 years. With that, let's get started. Yesterday afternoon, we issued our earnings press release for the quarter and fiscal year ended September 30th, and we posted an earnings presentation on our website. We're going to be referring to that presentation throughout today's call. For those of you who are new to GBDC, our investment strategy is, and since inception it has been, to focus on providing first-lien senior secured loans to healthy resilient middle-market companies backed by strong partnership-oriented private equity sponsors. The headline for this quarter is that GBDC had another strong quarter, capping off a strong fiscal year. For the quarter, adjusted NII per share was $0.30, adjusted EPS was $0.42, and ending NAV per share rose to $15.19. The Board also approved an increase in GBDC 's quarterly distribution to $0.30 per share, up from $0.29, previously. Slide 5 describes 3 key themes that contributed to GBDC's success, both in the quarter ended September 30th, and for the full fiscal year. These 3 key themes, they probably sound familiar, because we discussed them on our last several earnings calls. I'm going to summarize the themes now, and we'll go into greater detail on them later in the presentation. The first theme is strong portfolio performance. Credit metrics improved consistently over the last 12 months, and we're now back to pre-COVID levels. The second theme is continued balance sheet optimization. In my view, the Company's liquidity position and balance sheet flexibility has never been better. The third theme is robust origination. The Golub Capital platform is having its best year ever from an origination perspective even as we remain highly selective on credit, and that's led to robust portfolio growth at GBDC. Now, I'll hand the floor to Gregory, Jon, and Chris to elaborate on GBDC's performance for the quarter and for the fiscal year. Following that, I'm going to come back and provide some closing commentary, and then we'll open the line for questions. Gregory, over to you.

Thank you, David. Let me elaborate on the key drivers of GBDC’s strong results. I'm going to start on Slide 7. Two key themes I want to highlight. First, our portfolio continues to perform well. I'd call your attention to the Golub Capital Middle Market Report, or GCMMR, for September 30th which we published several weeks ago. The GCMMR compare the revenue and earnings of Golub Capital middle-market borrowers in July and August 2021 to those same companies' results in July and August 2019. The results were once against striking. The median revenue and EBITDA growth rates from 2019 to 2021 exceeded 20%, which we believe are remarkable levels given the strength of the economy back in Q3 2019. Strong earnings growth across GBDC's portfolio was reflected in the 4 positive credit quality trends listed on the right-hand side of the slide. We'll go into them in more detail shortly. Second, middle-market new deal activity remains strong across the Golub Capital platform. As you will see later in the presentation, record middle-market loan origination at Golub Capital, and by extension at GBDC, drove robust net funds growth at the Company. Importantly, Golub Capital remained highly selective throughout the year, closing less than 4% of new deal opportunities reviewed on a calendar year-to-date basis. Let's now drill down on the 4 positive credit quality trends listed on the right-hand side of the slide, starting with our internal performance ratings on Slide 8. We've seen continued upward migration in credit quality, a steady increase in Categories 4 and 5, which are loans performing at or better than our expectations at underwriting, and a corresponding decrease in Category 3, which are loans that are performing or expected to perform below expectations. Categories 4 and 5 increased to 90.9% of the portfolio as of…

Thanks, Gregory. Slide 11 summarizes our results for the quarter. Adjusted NII increased to $0.30 a share, and credit results remained strong as GBDC generated $0.12 per share of adjusted net realized and unrealized gains. As a result, our net asset value per share at September 30th increased to $15.19. On November 19th, 2021, our board declared a $0.01 increase to our quarterly distribution, raising it from $0.29 to $0.30 per share. This $0.30 per share distribution is payable on December 30th, 2021 to stockholders of record as of December 10th, 2021. Turning to Slide 12, as Gregory noted, the quarter ended September 30th was another record originations quarter for GBDC as new investment commitments totaled $971.4 million. After factoring in total exits and sales of investments of $383.8 million, as well as unrealized appreciation and other portfolio activity, total investments at fair value increased by 10.3% or $455.3 million during the quarter. Also, as of September 30th, 2021, we had $42.2 million of undrawn revolver commitments and $298.5 million of undrawn commitments on delayed draw term loans. These unfunded commitments are relatively small in the context of GBDC's balance sheet and liquidity position. As shown in the bottom of the table, the weighted average rate on new investments decreased slightly, and the spread over LIBOR on new floating-rate investments remained flat, quarter-over-quarter. Slide 13 shows that GBDC's portfolio mix by investment type remained consistent quarter-over-quarter, with one-stop loans continuing to represent almost 80% of the portfolio at fair value. Slide 14 shows that GBDC's portfolio remained highly diversified by obligor, with an average investment size of less than 40 basis points. As of September 30th, 95% of our investment portfolio was comprised of first lien senior secured floating rate loans, and defensively positioned in what we believe to be resilient industries. Turning to Slide 15, this graph summarizes our portfolio yields and net investment spreads for the quarter. Focusing first on the light blue line, this line represents the income yield or the actual amount earned on our investments including interest and fee income, but excluding the amortization of upfront origination fees and purchase price premium. The income yield decreased by 20 basis points to 7.2% for the quarter ended September 30. The investment income yield, or the dark blue line, which includes the amortization of fees and discounts, also decreased by 20 basis points to 7.7% during the quarter. Our weighted average cost of debt, or the aqua blue line, remained flat at 2.8% when excluding certain one-time accelerated issuance costs on debt we retired early. Please note that these one-time costs were offset by a $4 million management fee waiver by our advisor. Our net investment spread, or the green line, which is the difference between the investment income yield and the weighted average cost of debt, decreased by 20 basis points to 4.9%. With that, I will now hand the call over to Chris to continue the discussion of our quarterly results. Chris?

Thanks, Jon. Flipping to the next 2 slides, non-accrual investments as a percentage of total debt investments at cost and fair value were 1.3% and 1% respectively as of September 30. During the quarter, the number of non-accrual investments remained unchanged at 6 portfolio company investments. As Gregory discussed in his opening commentary, as a result of continued strong portfolio company performance, the percentage of investments rated 3 on our internal performance rating scale decreased to 8.1% of the portfolio at fair value as of September 30th. As a reminder, independent valuation firms value at least 25% of our investments each quarter. Slides 18 and 19 provide further details on our balance sheet and income statement, as of and for the 3 months ended September 30th. Turning to Slide 20, the graph on the top summarizes our quarterly returns on equity over the past five years. And the graph on the bottom summarizes our regular quarterly distributions, as well as our special distributions over the same timeframe. Turning to Slide 21, this graph illustrates our long history of strong shareholder returns since our IPO. As illustrated, investors in GBDC's 2010 IPO have achieved a 10% IRR on NAV since inception. Slide 22 summarizes our liquidity and investment capacity as of September 30, which remains strong with over $420 million of capital available through cash, restricted cash, and availability in our various credit facilities. We also highlight our continued progress in optimizing the right-hand side of our balance sheet. 3 key highlights include: First, on August 3, we issued $350 million of 2027 unsecured notes, which bear a fixed interest rate of 2.05% and mature on February 15, 2027. We subsequently redeemed all of the $189 million of notes issued under the 2020 debt securitization, which were priced at 3-month LIBOR…

Thanks, Chris. To sum up, GBDC had a strong quarter. Adjusted net investment income supported an increase in our dividend, realized and unrealized gains were substantial and robust new origination enabled the portfolio to grow nicely. Let's talk about our outlook for fiscal 2022, and then we'll take some questions. I want to highlight 4 tailwinds that lead us to have optimism about the prospects for Golub Capital and GBDC in the coming period. I've spoken about several of these before, but I think they bear repeating. The first tailwind is GBDC's strong portfolio performance. We've highlighted throughout today's presentation the positive credit trends that we've seen since March 31, 2020. Our pre-COVID underwriting has proven to be strong. Net realized and unrealized gains and losses for the period from January 1, 2020 through September 30th, 2021 have netted to an annualized gain of about 80 basis points of the portfolio at cost. And as Gregory described, the portfolio today has very low non-accruals and minimal Category 1 and Category 2 loans. We won't be distracted by needing to play defense on a troubled portfolio. A second tailwind is the strength and flexibility of GBDC's balance sheet. Low-cost, highly flexible unsecured debt now constitutes about 50% of GBDC's debt funding, pro forma for the October unsecured issuances. With this in place and with the first lien-oriented focus and health of our portfolio, we're comfortable slightly raising GBDC's target leverage range, raising it to 0.85x to 1.25x debt-to-equity, and we think that's very much in line with that of our peers. As of September 30th, GBDC was operating at a 1x debt-to-equity ratio, so we have some room to grow from here. A third tailwind is the continued growth of the private equity ecosystem. We believe the private equity ecosystem continues…

[Operator Instructions] Please stand by while we compile the Q&A roster. And your first question is from Paul Johnson with KBW.

Good afternoon, guys. Thanks for taking my questions. Congratulations on another good quarter. My first question was, as far as the yields on new investments, this quarter was fairly below the current portfolio yield. You guys, obviously, operate close to the low end of the -- of your hurdle rate. I'm curious, does this compel you to run with the higher leverage to maintain the same ROE? And I’d just like to get your thoughts on how Golub, I guess, thinks about spreads in the market versus its effect on pre-incentive fee income.

Honestly, we don't really think about those 2 as related. And I think it is premature to be looking at the spreads from calendar Q3 and thinking that that represents a meaningful change from prior periods. My sense is that spreads are reasonably stable and that this is more a mix issue than a spread issue. I do think it makes sense, and we talked about it in our prepared remarks, I do think it makes sense for GBDC to take on some more assets. We're now running at a one-to-one debt-to-equity ratio. I think that's lighter than optimal. And I think when we do that, we'll be very much in the catch-up, which I like to be in because it provides a lot of safety around dividend coverage of the -- of NII per share. So I think we're in very good shape on where we're headed from a leverage standpoint, a bit higher than the one-to-one that we're at right now, but not too much higher, and I think that puts us in a very good position from an ROE and return on net investment income standpoint.

Thanks. I appreciate that. It's a great answer. And as far as your portfolio companies go, there's been a pretty massive growth and recovery in EBITDA over the last year or so. As you look out into 2022 and 2023, where do you set the bar for your portfolio companies, are you expecting again this continued robust growth, do you expect more challenges? How do you look at that?

It's a good question. There -- you're correct that if we look at the Golub Capital Altman index data for the last several quarters, we've seen very significant growth in both revenues and EBITDA for the median company in our portfolio, north of 20% in both, in the recent periods. That is not, in all likelihood, a sustainable level. We're likely to see that come down some. That's okay. At the end of the day, we're lenders. So we do well in a slow growth environment and a fast-growth environment. The only environment we really don't do so well in, is a deep downturn scenario. So I don't see signs right now of meaningful likelihood of a deep downturn. In fact, I think some of the supply chain shortages that we're all reading about mitigate risk of a deep downturn because we've got inventory shortages through the system, so we've got a macroeconomic need to rebuild inventory. That's counter-cyclical. So I am cautiously optimistic about the coming period. I'm not going to tell you that I anticipate that we're going to see sustained 20-plus percent growth. I think that's unlikely. But I think we're going to see sustained growth.

Great. Thanks. That's good to hear. And the last question is, you're one of the, obviously, the largest middle market lenders out there. I was wondering if you could talk about briefly the shift from LIBOR to SOFR. Whether you think that's a potential challenge over the next year or 2, are you leaving an option to switch reference rates on new loans? What about existing loans? Just any thoughts you have on that would be great.

Sure. I don't think it's going to be a big deal. I think everybody is going to switch to SOFR. I think enough work has been done by the industry. The industry association, the LSTA, has been very involved in this, in preparing the industry for the transition. I don't mean to minimize the amount of work that's gone into and going into preparation for the transition, but I think it's going well and I don't anticipate any meaningful issues.

Great. Thanks. Appreciate you taking my questions this afternoon.

My pleasure.

Your next question comes from Robert Dodd with Raymond James.

Hi guys and congratulations on the quarter and the continued NAV growth. Another question, not on spreads per se, but yields. Spreads stable with last quarter to your point of view. But it does look like there may be some incremental pressure on LIBOR floors given the delta between the yield and your spread compressed on new originations compressed this quarter versus again that being very stable in prior quarters. So can you give us any color on what you're seeing maybe beyond the raw spread potential stability and other components of pricing out there in the market? And is that being influenced or driven by mix or by you guys moving up-market to doing multi-billion-dollar unitranches instead of million-billion dollar unitranches?

I think you make a good point, Robert. I think in the upper middle market, in the large-end of the scale of transactions that we work on, and that's maybe, I don't know, 15%, 20% of our mix. We're not -- there are other lenders in our business who are much more focused on that upper middle market component. Our mainstay is companies that are in the $20 million to $50 million EBITDA range. I'm talking about transactions meaningfully -- for companies that are meaningfully larger than that. For those upper middle market, small-BSL-type transactions, there is pressure on LIBOR floors. It used to be very standard for deals to have a 1% LIBOR floor. It's increasingly common in that larger size loan category to see 75 basis points and some cases even lower than that. So there is a bit of pressure there. Again, I hesitate to call this really meaningful for GBDC because it's a portion of deals in a portion of our mix, but I think it's a fair observation that there is some competitive pressure to reduce LIBOR floors. That fundamentally is coming from competition from the broadly syndicated market.

I appreciate that. And on that question as well, when we look at -- you just said 20% is upper middle market, there's a lot of cov-lite business down in the broadly syndicated market, are you seeing indications of those cov-lite structures moving down into the more private credit world or becoming more common in the upper middle market, of that -- obviously, of the 20% of your portfolio? And do you have any concerns, if that is the case, about those kinds of structures moving down deeper into the market and maybe into the other 80-85% new portfolio that has not started going down that kind of stuff?

So I am going to answer that as 2 questions. The first is what are we seeing in terms of covenant packages in the small BSL large or upper middle-market, and then we'll talk some more about documentation trends in the traditional middle-market. On the first question, there's always been pressure on documentation terms in those larger deals because the underlying borrowers and the sponsors are weighing a private solution against a broadly syndicated solution, where in the broadly syndicated solution, they can get cov-lite or they can get traditional broadly syndicated market terms. So I would say, in many cases, the terms that we're seeing in those larger deals are more reflective of traditional broadly syndicated terms than they are reflective of traditional middle-market terms. I mean, I think that's to be expected because the borrowers have their choice as to which market they want to go to. In the traditional middle market, we've always seen a bit of a pendulum swing, in the sense that conditions are, at any given point in time, always getting either more borrower-friendly or more lender-friendly. And in the period since, I'd say, August of 2020, they've been shifting to become more borrower-friendly. They became sharply more lender-friendly at the onset of the pandemic. I think that the overall documentation trends that we're seeing in the traditional middle market, they're not moving much. There's a little bit of change around the edges, but I'd say, overall, we're not seeing really meaningful movement. And I would tell you that I think that the benefits of the strong economy, the strong economic performance, the strong M&A market that we've seen, the proof of sponsor value that we experienced through the early COVID period, all those lead me to the conclusion that market conditions right now are actually quite favorable for lenders.

I appreciate all that color, David. If I get one more, not about pricing environment. On the balance sheet side, congratulations with the course of call it a little bit more than a year, you've gone from essentially zero unsecured to slightly over 50, I think, today. Should we expect that to continue rising? I would certainly -- correct me if I'm wrong, I expect the pace of that to slow. Or would we -- should we expect given the most -- one of the add-ons in October was at a yield to maturity of under 2, which is obviously extremely compelling. Would you -- should we expect that you take that 50 up perhaps meaningfully higher to take advantage of the borrowing rates that you can get right now or expect that to slow, given you've now crossed the 50% line?

I think we see where we are right now, Robert, as being a very good place. We've got a nice mix of unsecured notes, a very low-cost revolver, very low-cost securitization liabilities. And we like having all 3 of those different kinds of debt. So at this point, I would characterize what we're going to do from here as being tweaking and optimizing, as opposed to large-scale shifts. And that tweaking and optimizing is going to be premised on what are market conditions in the different places that we can borrow. Just to your point, the cost of borrowing and the mix of different maturities, those are key elements in making the decisions.

I appreciate it. Thank you and congrats again on the quarter.

Your next question is from Finian O'Shea with Wells Fargo. Finian O’Shea : Hi, David. Good afternoon. Thanks for taking my question. I wanted to ask about the new -- or at least proliferation of non-traded BDCs in the marketplace. You've talked a bit about the asset side or the origination competition on the call and the Q&A. So I'll move to the BDC products or capital based part of the discussion. What sort of impact do you think this has on new BDC formation? As one of the managers who have grown the private to public way, is this new form of BDC capital raising, is it disruptive? Does it cannibalize that channel or are they able to live in harmony?

Look, I think there always have been lots of different ways in which capital is formed to invest in the direct lending space, and I think for so long as we and other managers do a good job, we're going to see more capital entering the space just as we're seeing in the private equity universe, that the private equity ecosystem keeps growing in the recent period, it's been growing very rapidly. So I think the important element, Fin, is not that this is private BDC or even the structure that some of the new private BDC s have taken. The key issue is that this is a sign of the success of the asset class and the success of individual managers in the asset class. I think at the end of the day, we and other managers are going to have to understand that our success or failure is going to be premised on our performance. That's what we're focused on. Finian O’Shea : Sure. That's helpful, thanks. And then just a follow-on on the new leverage target with -- we mentioned earlier you're on the low end of the hurdle. I assume that next quarter you'll be closer to the middle as usual given the strong origination this quarter, correct me if I'm wrong. But in terms of levering to the higher end or to a higher midpoint, do you think -- is that a near-term goal? Do you think the best time is now given how much new money there is, how good credit there is, how good the credit backdrop is or do you think waiting for a more volatile time of some sort would be better to push up the leverage?

So I guess I don't view this as being as major a change as your question implies. We're looking at what I would view as a small tweak. We were running below our target at the end of fiscal Q3, calendar Q2. So we were seeking to increase the size of the balance sheet, we did that in this most recent quarter. I anticipate that we're going to continue to grow the balance sheet a bit, but I don't think any -- I would not expect us to go to the high end of our range. I would anticipate that we go a little higher than where we are now, but not to the high end of our range. And I think to your point, Fin, that the combination of the asset growth in the portfolio over the course of calendar Q3 and the asset growth in this quarter will meaningfully increase our net interest income. So we'll be well into the catch-up, I anticipate. Finian O’Shea : Very well. Thank you. And that's all for me.

Your next question is from David Miyazaki with Confluence Investment.

Hi. Thanks for taking my questions, and kudos that are well-deserved for progress in your outlook for both sides of the balance sheet. I wanted to just follow up a little bit on the conversation you were having with Robert with regard to LIBOR floors, which, to me, have always seemed to be a little bit of a mystery as to why they're still common in the industry. In a lot of ways, BDC managers seem to use this as a way to protect against lower interest rates on the asset side of their portfolio even if they have floating rate liabilities on the right side. So it becomes a bit of an interest rate play. And it works great when the rates are coming down, but when we're looking at a period where rates could be going up. a lot of people are going to face them as headwind. So I'm curious, is this something that the sponsors prefer or it's something that the managers put in? And if it's something that the managers are putting in, wouldn't it make more sense just to not put the floors in at all and then just take a wider spread and float your liabilities and assets together?

So it's an interesting question, David. And if we go back in time, the origin of LIBOR floors goes back to when interest rates fell very low, following the financial crisis. And the place where it started was the broadly syndicated market. So in many ways, the traditional middle market followed the broadly syndicated market into adopting a convention of LIBOR floors. Today, I describe it more as an expectation or a norm than I would as something that's being pushed by either sponsors or by lenders respectively. And you're right that if one could transfer all of the current difference between the LIBOR floor of 1% and current LIBOR, if one could transfer that into spread, that from a lender's perspective, that'd be better, the obvious retort to that is yes. And from a borrower's perspective, it'd be worse and so there'd be a negotiation over what level is the right level reflective of the expectations about future interest rates. For us, I would make one other point which is, we have a meaningful degree now with our unsecured notes of fixed rate debt exposure and that gives us, in some ways, a bit of a buffer against the impact of rising LIBOR. I don't anticipate that rising LIBOR is going to be a very big headwind for Golub Capital. I agree with you, David, that it may be a bigger issue for some other lenders.

Okay. Thank you. It's one of the ways that I -- it just seemingly is an industry phenomenon for certain managers that they're -- that is effectively taking some interest rate, but -- and of course, what I think most investors are interested in, is your ability to underwrite. So it always seems to be kind of a misplaced phenomenon in the LIBOR floor. But moving on from that, I wanted to also follow up on Number 3 and Number 4 of your tailwind with regard to private equity and its growth, how your peers in the industry, especially some of the larger ones, have really sizable and meaningful private equity verticals themselves. And in discussing the potential conflicts and having different advocates on boards for different parties on the debt side versus the equity side, there's always been some explanations that seem to be reasonable. But it appears to me that some of those conflicts, I don't know that you can ever really get away from. And so could you talk a little bit about how you perceive your interaction with the private equity world as a lender versus others who have a little bit more of a conflict. And is this -- does this actually put your company, your -- Golub Capital in a position to benefit more from tailwinds number 3 and number 4?

I hope so, David. Look, I think that there's a purity about our business model that's a positive. It's a positive from the standpoint internally of giving us a singular focus. It's also a positive from an external perspective. I mean, put yourself in the shoes of major private equity firm that's looking at gaining financing for some Company X. Do you really want to share all your thoughts about industry dynamics, all the ways in which you do your due diligence, all of your industry research with a firm that may be competing with you on the next deal? It's awkward. I think you're correct that we have not just one, but a number of competitors who are successfully using this business model of being in the private equity business and being in the private debt business, serving other sponsors at the same time but I think there are some challenges with that model, and it's one of the things I like about our singular focus.

Okay. Thank you very much and all the best in the holiday season.

You too, David.

Thank you.

There are no further questions at this time. I will now turn the call back over to David Golub for -- with closing remarks.

Great. Thank you very much, operator. I want to just reiterate something I said during the opening remarks, which is I want to thank all of you. This has been a challenging period through COVID with a lot of surprises and need for attention to things that historically didn't require so much attention. So we very much appreciate your support through this period, and your confidence in us, and look forward to continuing to report on our progress and success over the coming quarters. Have a great holiday season.

This concludes today's conference call. Thank you for participating. You may now disconnect.