Hello, everyone, and welcome to GBDC's earnings call for the fiscal quarter ended March 31, 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.golubcapitalbdc.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 Ericson, our CFO; and Matt Benton, our Chief Operating Officer. For those of you who are new to GBDC, our investment strategy is focused on providing first lien senior secured loans to healthy resilient middle-market companies that are backed by strong private equity firms with a partnership orientation. This is the same strategy we've had since our IPO, 14 years ago. Yesterday, we issued our earnings press release for the quarter ended March 31, and we posted an earnings presentation on our website. We'll be referring to this presentation during the call today. I'm going to start as usual with headlines and with a summary of performance for the quarter. Then Matt and Chris are going to go through financial results for the quarter in more detail. And finally, I'll wrap up with our outlook for the coming period and with some questions and answers. The headline is that GBDC had an excellent quarter. GBDC's results were right in line with the preliminary results that the company filed on April 22. Adjusted net investment income per share was $0.51, that's the company's highest ever quarterly adjusted NII per share. It corresponds to an adjusted NII ROE of 13.5% on an annualized basis. Adjusted earnings per share came to $0.55, this corresponds to an adjusted ROE of 14.6% on an annualized basis. Overall credit results were strong. We had a small net realized and unrealized gain for the quarter of $0.04 per share, we saw no new defaults. We saw a decrease in an already low percentage of nonaccruals, and we saw stable internal performance ratings. NAV per share increased by $0.09 quarter-over-quarter to $15.12 as of March 31. While we're really proud of GBDC's results for the quarter,…

Thanks, David. I'm going to start on Slide 4. As David just previewed, GBDC's earnings for the 3/31/24 quarter were excellent. Adjusted NII per share was $0.51, corresponding to an adjusted NII ROE of 13.5%. Adjusted NII per share this quarter outpaced the 9/30 and 12/31/23 quarters, as GBDC's highest ever. And compared to fiscal Q2 of 2023, GBDC's adjusted NII per share increased by $0.09 year-over-year or about 21%. Adjusted earnings per share was $0.55, corresponding to an adjusted ROAE of 14.7%. GBDC's strong profitability was driven by 3 key factors. First and foremost, strong credit performance. I'll go into more detail in a moment. Second, high base rates consistent with recent quarters; and third, sustainably lower expenses due to the reduction in GBDC's base management fee, which took effect in July of 2023 and the reduction in incentive fee that David highlighted earlier from 20% to 15%, which took effect for the first time this quarter. Let me briefly summarize portfolio and balance sheet changes. Net funds declined by $48.7 million sequentially, this is intentional. We constrained GBDC's pace of new investments to bring down GBDC's leverage. GBDC ended the quarter with a GAAP debt-to-equity ratio, net unrestricted cash of [indiscernible] 1.5x right in line with our targeted range. The overall credit performance of GBDC's investment portfolio remained strong. First, we saw a reduction in nonaccrual. As a percentage of total debt investments at fair value, nonaccruals decreased to 0.9% at March 31, 2024, from 1.1% at December 31, 2023. Second, internal performance ratings remained strong. Investments in rating categories 1 and 2, represented just 50 basis points of the total portfolio at fair value. NAV per share increased by $0.09 on a sequential basis to $15.12. NAV per share is now 265 basis points higher than the…

Thanks, Matt. Turning to Slide 7. You can see how the key earnings drivers, Matt just described translated into growth in NAV per share. Record adjusted NII per share of $0.51 per share was meaningfully higher than the $0.46 per share of dividends paid out during the quarter, a net realized and unrealized gain of $0.04 per share was driven by unrealized appreciation across the portfolio and the reversal of unrealized depreciation associated with the exit of one portfolio company investment during the quarter. These gains were partially offset by $0.08 per share of net realized loss recognized during the quarter. Together, these results drove a net asset value per share increase to $15.12, up $0.09 per share from the prior quarter. Speaking of NAV increases, we also anticipate a level of NAV accretion related to the merger with GBDC 3. In the joint proxy statement filed on April 15, 2024, we estimated $0.38 per share of NAV accretion for approximately 2.5% from GBDC's 12/31/23 NAV based on GBDC stock price of $16.60 as of April 9, 2024. GBDC's closing stock price on May 6, 2024, was $17.09, a level that would imply $0.50 per share of NAV accretion or approximately 3.3% upon GBDC's March 31, 2024, NAV per share of $15.12. As a reminder, the level of NAV accretion achieved in the proposed merger is a function of the exchange ratio upon merger close. I'd encourage you to review the investor presentation on GBDC's website for additional detail. Let's now go through the details of GBDC's financial results for the quarter ended March 31, 2024. We'll start on Slide 10, which summarizes our origination activity for the quarter. Net funds growth quarter-over-quarter decreased by approximately $48.7 million, as new investment commitments and delayed draw term loan fundings were outpaced…

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 and stable. On Slide 14, you can see the nonaccruals decreased by 20 basis points sequentially to 90 basis points of total debt investments at fair value. This represents a continuation of trend as this level has decreased consistently since the quarter ended 12/31/2022. The number of portfolio company investments on nonaccrual status remained at 9%, as of March 31, 2024. Slide 15 shows the trend in internal performance ratings on GBDC's investments. As of March 31, 2024, approximately 87% 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 1,2, which are the loans we believe are most likely to see significant credit impairment remain very low at 50 basis points of the portfolio at fair value. The proportion of loans rated 3 decreased from 13.7% to 12.3% sequentially. As we usually do, we're going to skip past Slide 16 through 19. These slides have more detail on GBDC's financial statements, dividend history and other key metrics. I'll wrap up this section by reviewing GBDC's liquidity and investment capacity on Slides 20 and 21. First, let's focus on the key takeaways on Slide 21. Our weighted average cost of debt this quarter was 5.5%, which we believe is among the lowest in our peer group. 66% of our debt funding is in the form of unsecured notes, which includes the post-quarter end repayment of the April 2024 unsecured notes with laddered maturities on remaining unsecured notes ranging from 2026 to 2029. The fixed rate notes coming due in 2026 and 2027 were issued with a weighted average coupon…

Thanks, Matt. So to sum up, GBDC had a strong start to calendar 2024. Strong credit results, high base rates and lower fees, all 3 together drove another record quarter for adjusted NII per share. We think these performance drivers as well as the pending merger with GBDC 3 are powerful tailwinds for the company for the coming period. And speaking of the pending merger, the 2024 Special Meeting of Stockholders is scheduled for May 29. For those of you who've already submitted your vote, thank you. For those investors who haven't yet voted, we ask that you please do so. While the quarter was strong, it did present some headwinds, and I want to talk about those headwinds before opening the call for questions. The first headwind, middle market M&A remains relatively slow. You may recall around the turn of the year, a number of bank CEOs were predicting that M&A activity would accelerate. But we said last quarter that while we were optimistic about deal activity accelerating over the medium to long term, we were more cautious about the short term. And in hindsight, our caution was justified. While first quarter M&A activity was much better than a year ago and about on par with the fourth quarter of 2023, it was still weak on a relative basis compared to what we see as normal. The M&A market, which dislocated in the spring of 2022, it's taking a long time to recalibrate, it's taking longer than we'd like. A second industry headwind was the significant tightening of spreads across credit markets generally, from investment grade to high yield to broadly syndicated loans to private credit. Now our focus on core middle market businesses helped insulate our portfolio from the full-on effect of spread tightening. We weren't entirely immune.…

[Operator Instructions] Your first question comes from the line of Finian O'Shea of Wells Fargo.

We're interested in the comments on spread compression. If you could put some more meat on the bone there. Are you seeing meaningful repricing activity? Or is this mostly on new origination? And kind of what is the sort of level of spread versus the back book that you're seeing or expecting to play out?

Sure. Thanks, Fin, for your question. So there -- it's important to make some distinctions between what size borrower we're talking about. In the larger market, we've seen in the last 4 months, a resurgent broadly syndicated market. CLO formation has come back in a giant way. Secondary prices in the broadly syndicated market have risen enormously, and banks who were very reluctant to take underwriting risk are now back, prepared to take underwriting risk and aggressively pitching broadly syndicated refinancings of formerly private credit deals. That situation, combined with a relatively low level of M&A that I alluded to in my comments, is translating into a lot of repricing activity and refinancing activity in this larger market some of that refinancing activity and repricing activity is resulting in spread compression. If you look at the publicly released data for the broadly syndicated market in Q1, it shows approximately 50 basis points of spread compression. But I think in the B3 market and the large unitranche market, the degree of spread compression is actually larger than that. I'd say it's between 50 and 100 basis points. In many cases, we've seen private credit providers accept lower pricing instead of being refinanced out. And in a number of cases, we've seen we've seen sponsors and borrowers choose to replace private credit deals with new broadly syndicated deals. We're seeing both those phenomenon. I don't think this trend is ending soon. I think we're going to continue to see it in calendar Q2 results. I don't think that what we're talking about here is some phenomenon that's unique to private credit. I think we're seeing spread compression in investment grade and high yield and asset backed in CLO liability land. It's a very broad phenomenon. And I think the key to understanding…

That's helpful. And as a follow-up on the merger, thinking back to the first one, GCIC that it felt like it came with a bit of a technical headwind. Of course, it's a different market now versus then, but we're seeing if you anticipate a similar dynamic of shareholder turnover through the discussions you've had so far?

So by way of context, what Finn is alluding to is that in the GBDC, GCIC merger, there were concerns expressed that at the time of the merger that we'd see some sustained amount of selling by GCIC investors. In fact, my recollection is we didn't. We saw the stock perform reasonably well, following the merger and the fears that folks had that we'd see choppiness really did not come to fruition. My expectation is that this time will be similar. We'll have some shareholders in GBDC 3, who will want to lighten the positions. We'll have some investors who, in the context of GBDC becoming larger, will want to take up larger positions. I'm optimistic that it's not going to be exciting.

Your next question comes from the line of Robert Dodd of Raymond James.

Just on the credit quality side. And to your point, I mean no particularly negative seems in the quarter. When we look at the 3 new nonaccruals you did have very small combined, One of them really tiny. None of them in health care, but 2 of them in software. So is the -- has there been kind of a shift in anything in terms of trends you're seeing where margin pressure exists or where stress is coming again? These are small numbers, but we're looking for any indicators here. Or were either of those or both of the software business recurring revenue? Were they a cash flow business? Any color on that?

So Robert, I think it's a great question. And again, let me put some context around it. So sometimes, when you see trends in credit, there are themes that you can look at, and you can say, "Oh, well, this industry or this subsector is showing particular weakness or businesses that are heavily dependent on compensation expense. They are having difficulties. I think there have been times over the last couple of years where we've been able to talk that way. We were able to talk about some challenges in Health Care Service businesses. We were able to talk about some challenges with businesses that weren't able to increase prices at the same pace that they were seeing increases in costs, particularly labor costs. To some degree, we're still seeing those 2 trends across the industry. I think we're pretty much through those 2 trends within our portfolio. But I'd expect that you're going to see both of those trends play out across the broadly syndicated market and across much of the BDC market, where I think there's still a significant number of companies that are having challenges because of health-care related issues with reimbursement levels and cost structures and with an absence of pricing power. If you look at what we're seeing in our portfolio right now, I'd describe it as very idiosyncratic. To your point, the 3 additions to our nonaccrual, are all very small. One of them is a recurring revenue loan. But I don't draw any conclusions about there being some trend in health care. We've had challenges from time to time with software companies. We've had very good success in working them out. I anticipate that we'll continue to see that.

Got it. And then just kind of how all the spread compression -- Usually, when a spread compression is not the only thing lenders are giving up. But so the weighted average upfront fee was down a little bit in the quarter as well, but also typically structures, covenant packages, et cetera, have some losses in rigorousness in an environment like this. Can you give us any color on how dramatically is that shifting, if at all? Is that more of a concern than the spread compression? Or is the spread compression or you said that's the primary way we right now in public credit, but that's a near-term phenomenon, if the structures weaken to the point that future credit becomes a risk. I mean any thoughts there?

So I think you make a very important point, which is you're right that, generally speaking, we're either -- we're always either in an environment where the pendulum is moving toward more borrower-friendly or more lender-friendly. And when it's moving in the direction of more borrower-friendly, it tends not to move just in terms of spread it also tends to move in terms of documentation terms, in terms of leverage, in terms of structure. I emphasize spread in my comments today because I think that's the area we've seen the most significant movement. And I think that all of these changes highlight another really important point, which is origination strength is going to become a larger and larger source of differentiation amongst managers. What I mean by that is managers who have large portfolios with a lot of incumbency opportunities you have particularly strong relationships with sponsors who have scale and depth of expertise, they're going to be able to navigate this coming environment much -- with much more aplomb than folks who don't have those kinds of advantages because this is the kind of environment where it gets harder to find attractive loans.

[Operator Instructions] Your next question comes from the line of Paul Johnson of KBW.

On those situations where you are facing [indiscernible] spread compression or possibility of fee compression. I mean, what is the overall philosophy on refinancing those incumbent borrowers at accepting lower [pre-seed], lower spread versus letting one go?

So we're in the make good investments business. I know that sounds silly in apple pie, but I actually think it's a really important distinction because we do compete in the marketplace where some folks are more focused on quantity than quality. So we make all of our assessments based on risk reward, Paul. And we do sometimes come to conclusions that a borrower who's requesting a lower spread that the right answer is to say yes. We also say no sometimes. And in the last quarter, a number of examples I can think of where we said no. And in some cases, we were refinanced out. So it's Important, I think, to maintain discipline. Part of maintaining discipline is being good at originations so that you don't feel pressured to accept a situation where the risk reward on the credit is unattractive just because you need to keep your book full.

That makes sense. And I appreciate the thoughtful answer there. And my last question was just on the change in the portfolio yield, this quarter it ticked higher by 20 basis points. Just [indiscernible] if there's anything specific [indiscernible] through there to drive that just kind of given the spread compression we're talking about maybe more on a forward basis, but any color there would be great.

I think it's just noise. I wouldn't draw any conclusions from that. I agree with you that, that seems surprising in the context of the theme of spread compression.

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

Great. Well, thanks, everyone, for joining us today, and we look forward to talking to you again next quarter. As always, if you have any questions in the meantime, please feel free to reach out.

Thank you. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.