Golub Capital BDC, Inc.
Q4 2013 Earnings Call Transcript

Published: 4 Dec 2013

[Operator:]

Good day. Welcome to the Golub Capital BDC Incorporated September 30, 2013 Quarterly Earnings Conference Call. Before we begin, I would like to take this moment to remind our listeners that the remarks made during this conference 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 the Golub Capital BDC Incorporated’s filings with the Securities and Exchange Commission. For a slide presentation that we intend to refer to on the earnings conference call, please visit the Events and Presentations link on the homepage of our website, www.golubcapitalbdc.com and click on the Investor Presentation’s link to find the September 30, 2013 investor presentation. Golub Capital BDC earnings release is also available on the company’s website in the Investor Relations section. As a reminder, this call is being recorded for replay purposes. I will now turn the call over to David Golub, Chief Executive Officer of Golub Capital BDC.

[David Golub:]

Thank you and good morning everyone. Thanks for joining us today. I am joined today by Ross Teune, our Chief Financial Officer and Gregory Robbins, the Managing Director here at Golub Capital. Earlier today, we issued our quarterly earnings press release for the quarter ended September 30 and we posted a supplemental earnings presentation on our website. Ross and I will refer to this presentation throughout the call today. I’d like to start by providing an overview of the September 30 results and then Ross is going to take you through the quarterly financial results in more detail. I will come back at the end and provide an update on our outlook for conditions in the middle market lending environment over the next couple of quarters in our priorities. With that, let’s get started. As highlighted on Slide 2 of the investor presentation, I am pleased to report we had a solid quarter. It wasn’t a great quarter, we can do better and I will talk about how, but it wasn’t a bad quarter either. For the three months ended September 30, we generated net investment income of $12.4 million or $0.31 per share as compared to $12 million or $0.32 per share for the quarter ended June 30. Net increase and net assets resulting from operations, what I refer to as EPS for the quarter, was $12.3 million versus $12.7 million in the prior quarter, $0.31 per share versus $0.34 per share in the prior quarter. During the quarter, we had a negligible amount of net realized and unrealized gain, it was $100,000 loss. That difference between net investment income and net income for the quarter was the result of selling one non-accrual investment and getting a payoff on one non-performing investment in both cases very close to our prior quarter marks. So the result of the realized loss and the reversal of the unrealized appreciation on these two investments were virtually a wash. Net asset value for the quarter went up to $15.21 as compared to $15.12 for the prior quarter. The $0.09 of accretion was primarily attributable to the stock offering we completed in September at a premium to our net asset value. In regard to investment activity, new origination commitments were strong for the quarter totaled $126.1 million. Approximately, 20% of the new investments were senior secured loans, 52% one-stops, 23% second lien loans, 3% equities and 2% were investments in senior loan fund. I want to just point out that although second lien assets represented 23% of originations this quarter, it consisted primarily of a recap of an existing portfolio company, DSI Renal that’s doing well. So as we will see when we talk about portfolio mix, we continue to shift strongly toward one-stops consistent with our goal. After you take into account, portfolio run-off and other activity, overall net portfolio funds growth at fair value was up $56.9 million during the quarter. So if we look at the quarters of what we had strong credit performance you can see that reflected in our negligible net realized and unrealized loss number and later we will talk about it in terms of risk rating trends. And we had solid originations that brought us more towards our goal of shifting the mix of the portfolio more towards one stops. I want to talk briefly about what could have gone better and specifically I want to talk about three things. First, we operated during the quarter with below our target level of leverage. Second, we saw some continued spread compression. And third we had somewhat lower fee and dividend income than in prior quarters. I want to talk about each of these briefly. First let’s talk about leverage. Each time GBDC’s current asset mix we have said previously and we believe now that the right target economic leverage is about one to one. And we plan to get much closer to this in the December quarter and beyond. Please note when I talk about economic leverage I am not talking about regulatory leverage. Our regulatory leverage will be much lower than one to one because of the leverage – because of the regulatory treatment of our SBIC debt. Second, let’s talk about spread compression. The good news is that spread seems to stabilizing in the market but as we will discuss later today we did see a lower weighted average yield in the portfolio this quarter as new loans came on at lower yields and the old loans that rolled off. Unfortunately this one is a market phenomenon and we can’t control it. The last item fee and dividend income, as you know we conservatively take fee income and OID on new loans over the life of the loans rather than taking them in, in the quarter of origination the way that some of our competitive brethren do. So as a result fee income in any given quarter depends a lot on payoffs and it’s going to move around a little particularly prepayment fees. The same is true for dividend income which depends a lot on recap activity, the level of recap activity in our equity portfolio. This quarter the combination was a bit lower than it’s been in the prior quarters. Altogether these three factors led to a small decrease in net investment income per share this quarter and we offset this in part with a $250,000 weaver of incentive fees. On Slide 3 of the investor presentation you can see in the table the $0.31 per share we earned from net investment income and $0.31 per share we earned from a net income perspective. The table also highlights the nice bump in our net asset value to $15.21 from $15.12. As shown on the bottom of the slide our total investment portfolio now exceeds $1 billion and then total number of portfolio companies in that portfolio remains a robust 135. This is a level of diversification we are very pleased with. Finally a word on asset mix if you turn to Slide 4 you can see as I mentioned earlier that our increasing emphasis on one stops is paying off. One stops in the portfolio grew from 39% a year ago and 50% at the end of the June quarter to 54% at the end of September. Junior debt shrank again to 13% reflecting our cautious view of the market conditions for junior debt in the current environment. I am now going to turn it over to Ross who is going to discuss the results in more detail and then I am going to come back and talk about the market environment and what we see going forward.

[Ross Teune:]

Thanks David. I will start on the balance sheet on Page 5. We ended the quarter with total investments of just over $1 billion, total cash and restricted cash of $54.7 million and total assets of $1.1 billion. Total debt at the end of the quarter was $412.1 million. This includes $203 million and floating rate debt issued through our securitization $179.5 million of fixed rate debentures and lastly $29.6 million of debt outstanding in our revolving credit facility. Total net assets at the end of the quarter were $658 million. This is up about $57 million primarily due to the common stock offering we completed back in mid-September. From a GAAP perspective our debt to equity ratio was 0.64 times calculated for our regulatory limit our debt to equity ratio was 0.37 times. Our debt to equity ratios declined for the quarter due to the equity offering we completed in September and as David mentioned remained below our longer term target of one to one from a GAAP perspective and about 0.6 to 0.7 times targeted from a regulatory leverage perspective. Flipping to the statement of operations on Page 6, total investment income for the quarter ended September 30 was $22.8 million, up $0.5 million or 2.5% from the prior quarter. This increase was lower than the growth rate in average total investments for the quarter due to continued spread compression, lower fee income from prepayment penalties and lower dividend income. On the expense side, total expenses of $10.4 million increased slightly by about $100,000 during the quarter as increases in management fee expense and interest expense were partially offset by a decrease in incentive fee expense. As David mentioned earlier, we had a net realized and unrealized loss on investments of about $100,000 during the quarter and total net income was $12.3 million. Turning to Slide 7, these charts summarize the breakdown of our new originations and end-of-period investments. As shown on the bar chart on the left hand side, we originated 20% of our new investments in senior secured loans, 52% in one-stop and 23% in second lien, 3% equity securities and 2% in investments in our senior loan fund. The chart on the right provides a product breakdown based on total investments, which show a 4% increase in one-stop investments with a corresponding decrease in senior secured investments and junior debt. The percentage of junior debt in the portfolio, which is a combination of mezzanine and second lien investments decreased from 14% to 13% with total equity investments remained unchanged at 3% and our investment in the senior loan fund, makes up the remaining 1%. Turn to Slide 8, I’ll walk you through the changes in our yields and investment spreads for the quarter. Focusing first on the grey line, this line represents the interest income or all income earned on the investments, excluding fee amortization from discounts and origination fees. This line represents kind of the best indicator of the portfolio’s current interest rates. Due to compressed pricing on new investments, the interest income yield declined from 9.2% from the quarter ended June 30 to 8.9% for the quarter ended September 30. Although we have seen some stabilization of rates being quoted on new investments, we expect to see continued pressure on this line as we originate new loans at current market spreads. Including amortization of fees and discounts to total yield on investments for the quarter end September 30 was 9.6%. The decrease in the total yield quarter-over-quarter was consistent with the decrease in the interest income yield as income for fee amortization was relatively stable, down a little bit, but relatively stable quarter-over-quarter. The weighted averaged cost of debt increased slightly from 2.9% to 3%. Turning to Slide 9, for new investments, the weighted average rates on new middle market investments was 8.1%. This is up slightly from the 8% the previous quarter. Overall, pricing on new investments remained fairly stable quarter-over-quarter with a slight uptick this quarter as we originated a higher percentage of second lien investments. Just as a reminder, the weighted average rate on new investments is based on the contractual interest rate at the time of funding. For variable rate loans, the contractual rate is LIBOR spread plus LIBOR and then the impact of any LIBOR floor. For fixed rate loans, it’s obviously the stated fixed rate. As shown on the middle of the slide, the investment portfolio remains predominantly invested in floating rate loans with variable rate loans comprising over 90% of the portfolio. Overall, credit quality continues to remain very strong with non-earning assets as a percentage of total investments on a cost basis at 0.6% and only 0.1% as a percentage of total investments on a fair value basis. As David mentioned during the quarter, we disposed one non-earning investment for a small loss. We currently have two other non-accrual investments with a fair value of only $665,000. And looking at Slide 11, over 90% of our investments at fair value continue to be risk rated in the four or five categories. Although we did experience another modest increase in the category three investments this quarter. Again, this is not a surprise as we have indicated in the past we do expect some downward migration in these statistics. As a reminder, independent valuation firms valued approximately 25% of our investments this quarter. Turn to Slide 12 our Board declared a distribution of $0.32 a share payable on December 27 to shareholders on record as of December 17. Turn to Slide 13 with respect to liquidity and investment capacity as we previously talked about, we completed a common stock offering back in September and raised approximately $57 million in new capital. The purpose of this offering was to raise additional proceeds for new investments as well as to capitalize GC SBIC V, our newest small business investment company as well as to capitalize Senior Loan Fund LLC. As in previous offerings, Golub Capital affiliated entities purchased shares in this offering for the purpose of awarding incentive fee compensation to employees. In the most recent offering, these entities purchased $1.7 million worth of shares, which brings the total value of shares purchased in the last four offerings to $8.8 million. As we have said in the past, we are very proud of the ownership of GBDC by Golub Capital employees and believe it flusters alignment between our investment team and shareholders and is a key part of our success. As of September 30, we had significant capital to invest. We ended the quarter with $16.3 million of unrestricted cash and $38.4 million of restricted cash. Restricted cash was primarily held in our securitization vehicle. Our credit facility in our SBICs has been available for investments that qualified for acquisition by these entities. As of September 30, subject to leverage and borrowing based restrictions, we had $70.4 million available for borrowings under our $100 million revolving credit facility. And then within our SBICs, we have $45.5 million of additional debentures available. Subsequent to quarter end, we increased the available debt capacity under our revolving credit facility by increasing the facility sides from $100 million to $250 million. As part of that amendment, we also extended the reinvestment period for another year to October 21, 2014 and extended the maturity date to October 22, 2018. Pricing on the facility remains unchanged. Also subsequent to quarter end, we sold $12 million of Class B notes that we previously held in one of our wholly owned subsidiaries and we are eliminated in consolidation. The Class B notes were sold at par and we will pay interest on a quarterly basis at LIBOR plus 2.4%. One of our goals in completing the public offering back in September was to setup the GBDC for what we expected to be heavy originations in the quarter ended December 21 and our expectations proved to be correct. Through November 30, we have originated just over $170 million in new investment commitments and have had funds growth of approximately $134.2 million. This includes about $17 million of new debt and equity contributions to senior loan fund. The pipeline also looks good for December, but with expected originations in net funds growth kind of below the average for the past two months. I’ll now turn it back to David who will provide an update on market conditions.

[David Golub:]

Thanks, Ross. In terms of our outlook for the market, not much has changed. We remained nervous. We see significant risk in the macro environment. We don’t see signs of a slowdown in our portfolio companies, but we are particularly nervous about Europe and Japan and potential impact on the U.S. economy. We also see some signs of increased competitive activity in the U.S. middle market. Our response has been consistent now for a number of quarters. It’s to remain selective and to focus on senior debt in one-stops with strong borrowers, with low risk capital structures and with relationship-oriented private equity sponsors. It’s definitely harder to find the kinds of loans that we like in this environment and so we are in a part of the credit cycle, where we think our core strengths and sourcing in an underwriting are particularly important. I am going to end there and open the floor for questions. As always, thank you for your time and your continued support.

[Operator:]

(Operator Instructions) Our first question comes from the line of Greg Mason with KBW. Please go ahead sir.

[Greg Mason:]

Good morning, gentlemen. Thank you. David, could you talk about your target leverage of 1-to-1, that implies based on the current quarter ending you want to borrow about another $230 million, $240 million to get to that target 1-to-1 leverage. So I just wanted to talk about the credit facility expansion based on your borrowing base, could you utilize most of that and what are you thinking about in terms of new securitization funding for your on balance sheet liabilities which you have used in the past?

[David Golub:]

Well, first part of your question first, yes, you are correct. If you look at our current utilization of debt, we have $200 million to $300 million of incremental capacity to get to our target leverage level. And as Ross went through when he described the available liquidity that we have got right now, we have that available liquidity. At some point, as we grow our Wells Fargo facility, it will be appropriate for us to look at potentially swapping out the assets that are in that facility into some kind of new securitization. The factors that are going to impact are thinking on that relate principally to the advantages of securitization as a means of financing. And those advantages include potentially lower all-in cost and somewhat more flexibility. It is a form of financing that requires a degree of scale, Greg. So we would not probably look at another securitization until we could look at doing one in the range of $300 million to $400 million in size. But when we have the assets to be able to affect another securitization, it’s definitely something we are going to look at.

[Greg Mason:]

Great. And then as you made your first investments in the senior loan fund and you are starting to ramp that up, I know you have talked about ultimately that’s going to use some third-party leverage. Could you talk about is there a certain size that the assets have to get to in the SLS before you can start putting on third-party leverage in there, what size is that? And then kind of what amount of leverage and cost of that leverage as you guys are thinking about this going forward are you estimating in the SLS?

[David Golub:]

So let me see if I can make sure I hit on all aspects of the question you just asked. So yes, we are looking to increase the size of our equity investment in SLS and we would like to get that equity investment initially to a size of about $40 million. We would anticipate in the first phase of SLS using bank financing as opposed to a securitization to affect the leverage within SLS. That requires to your point, a degree of minimum scale both in dollar terms and in terms of number of obligors, so diversification. And as I mentioned in our last quarterly call, it’s going to take us a little while to get there. We anticipate putting on that debt facility either this quarter or next quarter and we would anticipate starting to use it at that point, but it’s going to take some time before we have SLS has the leverage level and scale that we would like it to be.

[Greg Mason:]

And do you think the ultimate target leverage in here is 1.5 times debt to equity, 2 times debt to equity, what should we be thinking about over the long-term?

[David Golub:]

For SLS?

[Greg Mason:]

Yes.

[David Golub:]

I think rough numbers and this is obviously subject to continuing discussion impacted by cost of leverage and portfolio characteristics, but rough numbers we are currently contemplating between 2-to-1 and 3-to-1.

[Greg Mason:]

Great.

[Operator:]

(Operator Instructions) Our next question comes from the line of Mr. Jonathan Bock with Wells Fargo. Please go ahead sir.

[Jonathan Bock:]

Thank you for taking my question. David, real quick in an effort to mitigate spread compression I know you obviously have set up the senior loan fund, which is an attractive use of capital, have you given a thought to how or what type of assets could be funded? Certainly, the time lag for directly originated assets probably limits the ability to ramp earnings in a tighter spread environment right now. However, Golub has significant capabilities in both BSL and I was curious if you would consider perhaps a mix to where you would be able to fund that entity with some higher quality BSL loans and ramp the NOI a little bit quicker than if it were all just directly originated collateral?

[David Golub:]

Thanks Jon. So your question is could we and should we look at ramping SLS faster using some broadly syndicated collateral as well as our originated middle market collateral. And the answer is we are actively looking at that question. Right now, the broadly syndicated market seeing more spread compression than the middle market has. And so we need to make sure that we are comfortable with the risk reward structure and we need to make sure that the leverage that we have in place has a cost associated with it that is low enough to make it, so that we can generate good ROEs on the lower spread that BSL loans generate.

[Jonathan Bock:]

Okay. And then also could you just walk us through the reasoning behind the private bank facility bringing that on board I believe in October, just a means to diversify amongst the borrower, is that the end game?

[David Golub:]

Multiple reasons, that’s certainly one. And another one is that we seek to have attractive debt in place to cover unfunded loan obligations that we have put out, particularly revolvers. And we view the private bank facility as a particularly attractive way for us to provide debt financing to back stock our unfunded.

[Jonathan Bock:]

Okay, appreciate that. And then as we turn to the competitive environment, obviously you have mentioned that spreads have come down the idea though is where is that competition effectively coming from? Two, is it increased demand on part of banks and/or obviously high yield funds that are dipping in to the middle market, particularly those that are high-quality issuers of larger size or is it just the fact that there is still the same amount of demand yet the all-in supply due to the lack of refinancing or lack of new money deals has really led to the decrease in spread and really demand still remains the same?

[David Golub:]

I think it’s a combination of supply and demand trends. So the supply front as you alluded to Jon, we are continuing to see a diminished M&A activity relative to 2012. And what that means is there are fewer new leverage buy-outs, new middle market leverage buy-outs than we would ideally like to see. I think that’s going to get better in 2014. We are not projecting that it’s going to get dramatically better. But I think it’s going to get somewhat better in 2014 as we move further away from the fourth quarter of calendar 2012 by changes in tax laws drove an unusual level of middle market new M&A activity. The second factor is demand. And I don’t see a particularly meaningful change in demand from banks. It’s principally a change in demand from non-banks, but it’s from a lot of different kinds of non-banks. So we have seen broadly syndicated market very unusual increases in funds flows through new CLO activity and new primary fund fundings. And as some of that money is trickling down into the upper part of the middle market, we are seeing a lot of capital raising activity in both public and private funds focused on middle market lending. And again, I think we are seeing some impact from that as well. So I think understand that the spread compression environment it’s important to look at what’s happening on both the supply and on the demand side. And I think it’s also important to keep it in context. We – one of the things I have said repeatedly in these calls is that the middle market is insulated from but not immune to what’s happening in broader credit markets. And the same compression story that you are hearing us talk about in middle market land has been playing out to an even more dramatic degree and investment grade high yield and broadly syndicated loan markets.

[Jonathan Bock:]

Great. And one last question essentially you spoke of BDC brethren in some of your prepared remarks. There are a few brethren you have appeared to have overpromised and under delivered particularly as it relates to the dividend. And that has a number of particularly clients that are involved in the shares wondering as to what BDCs really are prepared for the effects of spread compression. Can you in your view walk us through your dividend policy, how you look at that dividend in this environment and more importantly how you view the stress tests of tighter spreads in terms of maintaining that dividend level now and in the future let’s say all else being equal?

[David Golub:]

Sure. So our – let’s start with dividend policy, our dividend policy, our dividend philosophy is we want to be distributing our income over time. We want to make few changes in our dividend policy and when we make changes our strong desire is to have the changes be upward and not downward. We think that the ultimate test of a dividend policy is NAV stability. If – sometimes in our industry we find an over focus on net investment income per share and an under focus on what I call earnings per share which comes after realized and unrealized gains and losses. Realized and unrealized gains and losses in our business are otherwise used – another name is often used for them in management meetings are called credit losses and its part of the business. And the idea that you can just not talk about those or exclude those or view those as always being special items is a lot of nonsense. It’s part of the business. And so we think the right way to look at earnings is on a bottom line basis and that’s reflected after dividends and NAV stability. If you look at our particular circumstances we have been generating enough net income both this calendar year, fiscal year and in each year since our IPO to cover our dividend. Our dividend rate right now reflects return on equity. It’s slightly over 8%. Our target return on equity these days is mostly higher than that but we are not looking to generate in this environment a 10% or higher return on equity we think that’s unrealistic. As you look at our income statement we have a very significant buffer. If we start to see our net income fall, one of the first things that will happen is that our expenses would fall and our expenses will fall because of a line on the income statement called incentive fees. Importantly we have a preferred in our incentive fee structure that’s set at 8%. So there is a very significant form of shareholder protection on ROE and very simple fact that if ROE starts to fall we start not getting paid. So if you ask me question slightly different from the one you asked which is do I feel that our dividend is resilient under the current circumstances, my answer is yes I do think it’s resilient. I think it’s resilient both because of our policy, our earnings, our philosophy, our credit, the credit characteristics of our portfolio and the structure of our incentive fee.

[Jonathan Bock:]

I appreciate that. And David, just a clerical point or Ross did you mention there was a $250,000 fee waiver this quarter, is that correct?

[Ross Teune:]

That’s correct.

[Jonathan Bock:]

And what was that related to?

[Ross Teune:]

We chose when we saw the results to voluntarily waive $250,000 of incentive fees. We thought it was correct thing to do.

[Jonathan Bock:]

Okay, thank you very much.

[Operator:]

Our next question comes from the line of J.T. Rogers with Janney Capital Markets. Please go ahead.

[J.T. Rogers:]

Good morning, thanks for taking my question. First question on the SBIC how many deals are you seeing that fit into your two licenses?

[David Golub:]

It’s a great question. Sometimes people who aren’t familiar with SBICs think you can put any transaction into SBIC. And the answer is you can’t. There are very specific rules around the size of companies and characteristics of companies that are SBIC eligible. For some SBICs or for some BDCs that have SBIC subsidiaries that have small origination platforms that can be a problem because they can originate a number of transactions and have none of those transactions be SBIC eligible. We find that a meaningful percentage, but it’s a minority percentage of the transactions that we originate are SBIC eligible. I can’t tell you off the top of my head what that percentage is. It’s meaningfully less than 50% and maybe as low as 20% to 30%. But because of the size of our origination platform and the sheer number of new transactions that we do, we have not had great difficulty ramping up our SBICs reasonably rapidly. We are not all the way there yet, but you can see from Ross’ comments that of the Ross correct me if I get these numbers slightly wrong. Of the $225 million maximum of SBIC debentures that we could obtain we are already $180 million.

[Ross Teune:]

Correct.

[J.T. Rogers:]

Okay, great. And then just in terms of tapping into that remaining $45 million of availability, is there a push or is there a focus to get that ramped and get those debentures out there and locked in or are you just growing that vehicle as you see good deals come along?

[David Golub:]

We are certainly not applying the different underwriting standard in order to fill up the SBIC. We are – we have one set of underwriting standards. And we have the transactions that we choose to do are SBIC eligible. There is a high likelihood we are going to choose to put a bit – at least a portion of those transactions into one of the SBICs. But we don’t go out and target our originations in order to achieve SBIC eligibility nor do we apply some looser underwriting standard if a particular obligor is SBIC eligible. I think candidly that would be a bad recipe.

[J.T. Rogers:]

Sure, I think maybe the better way to ask that question is, is there a push to get that capital out, assuming you are obviously using the same underwriting standards, but are you looking to get the capital out there and then debentures locked in with rates as low as they are?

[David Golub:]

I mean, I would be surprised if we are sitting here a year from now and we haven’t fully deployed or come close to fully deploying our SBIC debentures. But we are not in a rush to deploy them we are going to do it as we see attractive deals that are SBIC eligible and subject to the other investments that are already in one of our two SBICs paying off. It’s a process and we are not going to rush it in order to get the debentures out there and locked in. We are not taking a position on interest rates. I am not sure enough for example that rates are going up in the next 12 months we wanted to be – we want to be locking those rates in. If we really held strongly on that we could buy a derivative to affect that and effectively hedge the SBIC debentures ahead of their issuance. We have done that from time to time in the past. We are not doing that right now.

[J.T. Rogers:]

Okay, great. Thanks for that detail. And then just switching gears real quickly for a bit, I am wondering if you can give some kind of idea as to what kind of costs we might see on third-party debt in the SLS, obviously that is just sort of a broad range of what you might expect. And then I was wondering if the weighted average yield on SLS investments discussed in the Ks is that reflective of the weighted average yield on the investments that you are making in that vehicle?

[David Golub:]

So two questions there. On the cost of the debt, we are still in the process of determining the most efficacious way of financing SLS, but if you ask me my current expectation, my current expectation is that the all-in cost of debt there will be sub 3%. And one of the questions about how much sub 3% gets to Jon Bock’s question about a proportion of the portfolio potentially being in broadly syndicated loans. In respect to the second part of your question, which relates to spreads, the answer is just a word, yes.

[J.T. Rogers:]

Okay, great. Thanks a lot. I appreciate you taking my questions.

[David Golub:]

Our pleasure.

[Operator:]

Our next question comes from the line of (indiscernible), a Private Investor. Please go ahead.

[Unidentified Analyst:]

Thank you for taking my questions. I have some questions on the numbers, but I want to forewarn you that I am going to also ask a question on Page 81 of your 10-Q. My first question is about the weighted average share count for fiscal Q4 only?

[Ross Teune:]

Yes, I can. I mean, if you want to call me separately, this is Ross, I mean, we can kind of go through the 10-K in more detail in terms of those types of questions if you think. You have very specific number questions like that I would strongly suggest that we arrange a private call we can go over it in all the detail you would like.

[Unidentified Analyst:]

Okay, thank you very much.

[Operator:]

Thank you. (Operator Instructions) Our next question comes from the line of (indiscernible). Please go ahead sir.

[Unidentified Analyst:]

Good morning. It’s (indiscernible). I have questions on the credit risk in your portfolio. Could you give us some color on the cov-lite exposure in the syndicated loan portfolio and you have thoughts on it’s the impact on future loss rates? And also if you could sort of give us some color on has it made its way into the middle market space or do you see it sort of making its way into the middle market space either now or in the future?

[David Golub:]

Thank you. So first, just to define terms for those in the call who may not be familiar with what cov-lite means? Cov-lite is a shortening of covenant light. It refers to loans that still have covenants or they have very few, very loose covenants. I guess, from a marketing standpoint, cov-lites have lot better than no cov. And over the course that the last couple of years, cov-lite loans have taken over a larger and larger proportion of the broadly syndicated loan market, the broadly syndicated loan market is a market that finances larger companies than Golub Capital BDC does. We focus on loans to companies that have less than roughly $50 million of EBITDA. And the broadly syndicated market finances companies with $75 million to the several $100 million of EBITDA. So that’s the definition. Short answer to your question, we don’t have broadly syndicated exposure in the portfolio today. And so we don’t have any cov-lite broadly syndicated loans in the portfolio today. Cov-lite is not something that we have seen proliferate in the middle market. There have been less than one hand, I can think of three, well I don’t think of more than five transactions with sub $50 million EBITDA companies that have been structured as cov-lite transactions. We have not participated in those. I don’t see great pressure in the middle market today to adopt cov-lite or even low covenant type structures. Our structures haven’t really changed meaningfully over the last couple of years. So I don’t see any meaningful impact of what’s going on in the broadly syndicated loan market around cov-lite in GBDC’s portfolio. We could have a longer philosophical discussion about cov-lite and what their loan is more likely or less likely to be a problem just by its covenant structure. And I would be happy to follow-up with you on that privately but because it’s not really relevant to GBDC I don’t think it makes sense to go into in depth right now.

[Unidentified Analyst:]

No that’s fine. Thank you very much.

[Operator:]

We have no further questions on the phone lines.

[David Golub:]

Well, once again, I want to thank everyone on the call for joining us this morning and for your support. I want to renew an offer I make every call, which is if you have a question that comes up either later today or sometime when we don’t have a call like this scheduled, please feel free to reach out to Ross or to me. We value your partnership.

[Operator:]

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