Hello everyone, and welcome to GBDC's Earnings Call for the Fiscal Quarter ended June 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.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 Chief Financial Officer; and Matt Benton, our Chief Operating Officer. For those of you who are new to GBDC, our investment strategies focused on providing first lien senior secured loans to healthy, resilient middle market companies, companies that are backed by strong, partnership oriented private equity sponsors. 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 June 30, and we posted an earnings presentation on our website. We'll be referring to that 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 our financial results for the quarter in more detail. And finally, I'll wrap up with our outlook for the coming period and then we'll take questions. So let me start with headlines. The headline is that GBDC's quarter ended June 30 was great in part and disappointing in part. And we're going to talk about all of it in detail in today's call. Let me start with a brief summary. I'll start with the great part. First, we closed our second win-win-win affiliate merger in early June. We believe the merger was good for GBDC shareholders, good for GBDC 3 shareholders, and good for GBDC as a business. The completion of the merger was accretive to NAV. We ended the quarter with NAV per share of $15.32. That's up 1.3% from March 31. It also made permanent the reduction in GBDC's incentive fee rate from 20% to 15%, giving GBDC what we believe to be an industry leading fee structure and increasing GBDC's go forward earnings power. GBDC…

Thanks, David. I'm going to start on Slide 4. As David just previewed, adjusted NII per share was $0.48, corresponding to an adjusted NII ROE of 12.7%. Compared to fiscal Q3 of 2023, GBDC's adjusted NII per share increased by $0.04 year-over-year or about 9%. Adjusted earnings per share was $0.31, corresponding to an adjusted net income ROE of 8.1%. Taking a step back, GBDC's earnings were driven by multiple key factors. First, credit performance was solid generally with the exceptions of markdowns on Imperial Optical and Pluralsight that drove the majority of the $0.17 per share net realized and unrealized loss. I'll go into more detail in a moment. Second, we continue to experience high base rates consistent with recent quarters. Third, GBDC's leading investment advisory fee structure drives sustainably lower expenses. This includes the reduction in the incentive fee rate from 20% to 15%, which became permanent with the closing of the GBDC 3 merger on June 3, 2024. And finally, Golub Capital, GBDCs Investment manager elected to voluntarily waive the manager's incentive fee this quarter. This equated to approximately $0.07 per share benefit to net investment income and earnings. This fee waiver continues the long tradition of Golub Capital taking shareholder friendly actions. Let me summarize portfolio activity and credit quality in the quarter. Net funds increased by $2.5 billion sequentially, primarily the result of the closing of the GBDC 3 merger, bringing the size of the total portfolio at fair value to $7.9 billion. The overall credit performance of GBDC's investment portfolio remains strong with internal performance ratings improving from the prior quarter. Investments in rating categories four and five increased to 89.2% from 87.2% in the prior quarter and investments in rating categories one and two represented just 70 basis points of the total portfolio…

Thanks, Matt. Slide 8 shows a bridge to GBDC's new net asset value per share increased to $15.32, up $0.20 per share from the prior quarter. Next, I think it's important to turn to Slide 9 to spend some time walking through the accounting treatment of the GBDC 3 merger. Because the merger was accounted for as an asset acquisition under GAAP, the purchase premium was allocated pro rata to the former GBDC 3 assets. As a result, GBDC's initial cost basis and the former GBDC 3 assets equaled their fair value at the time of the acquisition plus the purchase premium. Because GBDC uses fair value accounting, immediately after the closing of the merger, GBDC recognized a onetime unrealized loss equal to that same purchase premium. Effectively, GBDC wrote up the former GBDC 3 assets to fair value for the purchase premium and then wrote down the former GBDC 3 assets to their fair value. This onetime loss, a paper loss in accordance with GAAP is a noncash item that doesn't reflect any economic loss experienced at GBDC. Turning to Slide 10. This provides an illustration of how we expect the purchase premium will flow through the income statement on a go-forward basis. In short, GBDC will amortize the purchase premium over the life of the purchased loans through interest income as a reduction to net investment income, or NII. Now having said this, the purchase premium amortization won't result in any reduction to net income as any decrease to NII will be offset by a corresponding reversal of the unrealized loss, as shown in the middle graph. And consistent with our approach since the GCIC merger and in order to make GBDC's post-merger financial results easier to compare to pre-merger results, we'll continue to use some supplemental financial…

Thanks, Chris. I'll wrap up this section by reviewing GBDC's liquidity and investment capacity on Slides 23 and 24. Let's focus on the key takeaways on Slide 24. Our weighted average cost of debt this quarter was 6.5%. 46% of our debt funding is in the form of unsecured notes. 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 multiple occasions, we didn't swap them out for floating rate exposure. The issuance of the July 2029 and December 2028 unsecured notes improve upon GBDC's debt maturity ladder while addressing refinancing risk with respect to the $500 million of notes that matured and were subsequently repaid in April 2024. Overall, our liquidity position remains strong and greatly enhanced by the recent unsecured notes issuances. We ended the quarter with approximately $1.6 billion of liquidity from unrestricted cash, undrawn commitments on our meaningfully over collateralized corporate revolver and the unused unsecured revolver provided by our adviser. The diversification, flexibility and low cost of GBDC's funding structure is an important element that underpins our three investment grade ratings from Fitch, Moody's and S&P. GBDC has stronger ratings from Moody's and Fitch, than the majority of the rated BDC sector providing for deeper and more cost-effective access to the debt markets. Now I'll hand it back over to David for closing remarks and Q&A. David?

Thanks, Matt. So to sum up, GBDC's June 30 quarter had some great elements and some disappointing elements. We've talked about the two disappointing credit losses in the quarter. We've also talked about the great elements, including strong income generation, stable credit trends on the whole and completion of the win-win-win merger with GBDC 3. Let me wrap up with our outlook before we open the line for questions. We talked last quarter about a few headwinds we anticipated the market and GBDC would face with respect to origination, spreads and credit. Our view today is largely unchanged. Let me touch briefly on each of these three areas. Let me start with origination. The good news is that we saw a pickup in M&A activity in the quarter. Our sense is that many market participants are expecting a further recovery in M&A activity later this year. That's a possibility, but our outlook's more cautious. We think deal activities is likely to stay modulated in the second half. We think sellers in many cases are going to choose to hold off on sales processes in hopes of falling interest rates and less economic and political uncertainty. We think it probably takes until 2025 to see volumes getting back to normal levels. Let's shift now the second headwind, spreads. The broadly syndicated loan market saw striking spread compression in the first half of 2024, and this translated in the second calendar quarter into a combination of many repricings of existing deals and lower spreads on new transactions. The dynamic was much more pronounced in the large market segment, where direct lenders compete with broadly syndicated market executions. Overall, spread compression in the large market segment since the beginning of the year has been in the range of 50 to 100 basis points.…

[Operator Instructions] Our first question comes from Robert Dodd from Raymond James. Your line is now open.

Hi, guys, and congrats on getting everything done. I mean first question, David, about the market volatility. You said the near-term volatility might enable spreads to stabilize. At what point - how long would such volatility need to go on you think before BSL and private market spreads would actually start to widen again?

So great question, Robert. Market conditions right now are very hard to make generalizations about because we're all in real time trying to assess the underlying causes of the swoonthat started on Friday continued on Monday, reversed some today. My own view is that this market volatility reflects the recent weakness in some economic data that came out, Jobs Report, some increased sense from an emotional standpoint that valuations have gotten too high in the public markets, particularly in the tech sector. But I'd be lying if I told you that I had a good beat on where the market volatility, where market prices are going to head in the near term, I don't have a good beat on that. Here's what we know. We know that over the course of the last few days, the broadly syndicated loan market has seen, decreases in loan prices of about one point. We've seen changes in securitization liabilities markets. I'd say for a typical broadly syndicated CLO, average cost of funds on a marked basis would be about 25 basis points. Will those changes flow through to private credit or even sustain over the course of the next few days or weeks? I think that's difficult to know right now. My own take is that the weakness is causing some rethinking in private credit land of some of the desirability of the spread compression that we've seen in the last few months and may take some of the steam out of some of the parties that have been most receptive to reducing spreads in the private market. But this is all very real time, Robert, and it's difficult to gauge.

Yes. Understood. Thank you for that color, it's very real time. On credit, I mean, Pluralsight is probably one of the most widely flagged problem assets over the last quarter that we've ever seen in the BDC space. We all knew it was coming, so it's no surprise. Broadly, though, what proportion of your portfolio has loan structures, documentation structures, however, you want to think about it that are similar to the kind of structure in Pluralsight that allowed, for example, some of these asset transfers, unrestricted subs, things like that. I mean how widespread is that kind of loan structure in the rest of the portfolio, less concerned about Pluralsight like because we all know about it at this point?

So, I want to just give a perspective on Pluralsight before I answer the rest of your question. I do not view Pluralsight despite some of the press that it's gotten, I do not view it as a good example of a sponsor misbehaving or a sponsor misusing documentation. In fact, in this instance, what Vista - and I think very highly of Vista as a sponsor, we have very few problem credits that we've ever had with Vista; I think they're very good operators - what Vista did was they were in discussions and negotiations with lenders about how to pursue a longer-term solution and they ran out of time before needing to make a decision about paying an interest payment. And in order to make that payment and create more time, they arranged a loan provided by Vista for the purposes of paying interest to other lenders. This is not lender on lender violence. This is not a liability management transaction. This is much more boring than any of that. Many of the large market loans in private credit land provide baskets and documentation terms that permit a certain amount of pari-passu or subsidiary level borrowings, it's not uncommon. What makes the private credit market relatively insulated compared to the broadly syndicated market, relatively insulated from liability management transactions, are two key points: incentives and norms. What do I mean by each of these? Incentives. So, in private credit transactions, one tends to see a relatively small number of lenders. Most of the liability management transactions in the broadly syndicated market that have garnered a lot of press and garnered a lot of attention, they pit one group of lenders against another group of lenders. If you have a large group of lenders in the mix, it's much easier to create a cool kids club and pit that cool kids club against a non-cool kids club. In private credit land, where you have syndicates that are very small, it's much harder to affect that. The second key criteria is norms. There are norms of behavior in any market, including, in particular, I’m going to talk about one in the private credit market, sponsors and private credit lenders have strong relationships with each other. When the market is well functioning, they do. And both parties have a commitment to the success and fair dealing with the other. So again, as a consequence of norms, it would be an enormous violation of norms and it would be relationship destructive to have a sponsor use documentation terms in a manner that would be disadvantageous to one of the key private credit lenders in one of their companies and with whom they do a lot of business. So I don't think it's a documentation terms issue that underlies why we've seen so few examples of lender on lender violence in private credit. I think it has to do with incentives and norms.

Thank you.

Our next question comes from Finian O'Shea from Wells Fargo. Your line is now open.

Hey everyone. Good morning. I guess just sticking with Pluralsight for a moment there, piecing everything together, it sounded like the sponsor had been supporting the company. And then, of course, it seems like they stopped and here we are. But we're not looking for Pluralsight specifics, but for the rest of the book, where a lot of companies may be struggling from higher interest rates, how common is that set up where the sponsor is needing to put more money in to keep interest payments up?

I'd say that's quite uncommon, Fin. Most companies in the portfolio are doing well. Of the portion that's not doing well, they're still cash flow positive after interest expense. So, it's a relatively small group where we would anticipate there being a need for continued sponsor support.

Okay, thanks. That's helpful. And just a follow-up, there was some commentary on leverage. It sounds like that will be coming back up. So, with things sounding like they're getting busier out there, we're seeing if you have visibility on that and are able to provide color on sort of what leverage level and perhaps how soon? And a second part, qualitatively, how are you thinking about the benefit of releveraging into a very tight spread environment?

So I think your question highlights exactly the issues that we're thinking about right now. Right now, we're thinking that a good target for GBDC from a leverage standpoint is about 1.15x debt-to-equity, which is a bit higher than where we're running now. But we're not going to be in a wild rush to get to that 1.15x unless we determine that there are attractive new loan opportunities out there that merit our committing to grow the balance sheet. So right now, as I mentioned in our prepared remarks, we're not seeing a dramatic surge in deal activity. We're seeing a continuity of trend from Q1 and Q2. So, we're going to be picky, and we're going to take our time, and we're going to aim to have leverage increase at GBDC over the course of the coming period not at the expense of quality.

Great. Thanks so much.

[Operator Instructions] Our next question comes from Paul Johnson of KBW. Your line is now open.

Yes, thank you for taking my question. I was just wondering, just trying to get your idea of the fee waivers this quarter, was that entirely a voluntary action on your part? What was kind of the motivation behind that? Whether it was kind of some of the restructuring during the quarter of Imperial Optical or if this was more related to just kind of noise within the fissure?

Sure. Thanks for your question. So, we have a long tradition at Golub Capital. It's very different from many other managers. We have a long tradition of periodically waving fees. So, this is not out of the ordinary. It was entirely voluntary. Our view of the quarter when we looked at it in its totality was there was a significant amount of onetime noise, and we thought it was appropriate in the context of the onetime noise to waive the incentive fee. I think that our view is that taking a long-term view as manager and making sure that our investors have a positive experience is good for everybody.

Got it. That's helpful. That's all for me.

Thank you so much. As of right now, we are still waiting for some questions to come in. [Operator Instructions] We don't have any pending questions as of the moment. I'd now like to hand back over to David Golub for final remarks.

Great. Thank you all for joining us today. As always, if you have further questions, please feel free to reach out to us at any time. And we look forward to reporting back to all of you next quarter.

Thank you so much for attending today's call. You may now disconnect. Have a wonderful day.