Goldman Sachs BDC, Inc.
Q4 2015 Earnings Call Transcript

Published: 3 Mar 2016

[Operator:]

Good morning. My name is Dennis, and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs BDC, Inc. fourth quarter 2015 earnings conference call. [Operator Instructions] I will now turn the call over to Ms. Katherine Schneider, Head of Investor Relations at Goldman Sachs BDC, Inc. Katherine, you may begin your comments.

[Katherine Schneider:]

Thanks, Dennis. Good morning. Before we begin today's call, I would like to remind our listeners that today's remarks may include forward-looking statements. These statements represent the Company's beliefs regarding future events that, by their nature, are uncertain and outside of the Company's control. The Company's actual results and financial condition may differ, possibly materially, from what is included in the forward-looking statements as a result of a number of factors, including those described from time to time in the Company's SEC filings. Yesterday after the market closed the Company issued an earnings press release and posted a supplemental earnings presentation, both of which can be found on the homepage of our website at www.goldmansachsbdc.com under the Investor Resources section. These documents should be reviewed in conjunction with the Company's Form 10-K filed yesterday with the SEC. This conference call is being recorded today, March 3, 2016 for replay purposes. With that, I will turn the call over to Brendan McGovern, our Chief Executive Officer.

[Brendan McGovern:]

Great. Thanks Katherine, and thank you all for joining us this morning. Let me start by laying out the agenda for the call. After some opening remarks on key highlights for the quarter, I will turn it over to Jonathan Yoder to take you through our investment activity. Jonathan Lamm will walk you through a detailed discussion of our financial results, and I will wrap it up with some perspective on our first year as a public BDC before we take questions. So with that, we are pleased to report net investment income was $0.62 per share in the quarter as compared to $0.57 per share for Q3. Furthermore, our board declared a $0.45 per share dividend payable to shareholders of record as of March 31. Clearly this quarter, we demonstrated the company’s ability to deliver very strong net interest income, and we will discuss this in more detail later on the call. Note that our net interest income exceeded the dividend by almost 40% in Q4. Our net asset value declined 2% quarter-over-quarter from $19.38 per share to $18.97 per share, reflecting net unrealized mark-to-market write downs of our loan portfolio. Much of the write-down was concentrated on our investments in GTL and Securus, two investments we discussed on our last earnings call. During the quarter, we marked GTL from 94% at par to 60% at par, and Securus from 94% at par to 54% at par. These two companies are regulated telecom service providers, and the markdowns were in response to an [SEC] order, which if enacted would cap rates and likely result in result in lower revenues for both companies. While the risk of these investments has clearly gone up, at this time we remain constructive on the overall situation and we currently do not anticipate that these investments will go on non-accrual status. Rather we believe that both companies will be successful in offsetting the impact of the rate cap with a corresponding decrease in their cost structure. Should this come to pass, we believe operating results would be materially better than the market anticipates and fair market values for these investments may increase. Apart from GTL and Securus, and excluding certain company specific gains during the quarter, the bulk of the remainder of our unrealized losses resulted from the overall volatile credit market conditions. I like to pause here and provide some context for our results. While we are not satisfied with a 2% decrease [in NAV] we reported, it is important to highlight one of the very important differentiating factors of our BDC, which is the alignment of interest that we have created with our shareholders through our incentive fee structure. You will note this quarter that our net interest income benefited from a substantial reduction in incentive fees paid to GSAM. So let us talk about that for a moment. As a reminder, we net our capital losses whether realized or unrealized against investment income for the purposes of calculating incentive fees. And as a result of this netting in periods such as Q4 when investments are being marked down, there was a reduction in GSAM’s incentive fees. We think this differentiating fee structure is a major and highly tangible advantage of our company relative to others. Furthermore, despite the volatility in credit market conditions, we feel good about the overall credit quality of the portfolio. Here are few data points to support our view. Here are few data points to support our view. On a weighted average basis, our portfolio companies grew revenue and EBITDA year-over-year by 4% and 7% respectively. Furthermore, aggregate credit metrics showed modest improving trends. Weighted average net debt to EBITDA and interest coverage of our portfolio companies at year-end was 4.3x and 3.1x respectively. This compares to weighted average net debt to EBITDA and interest coverage for the Q3 portfolio companies of 4.4x and 2.9x respectively. In addition, the mix of our assets became more senior during the quarter as we decreased our [second lien] exposure and monetized our DDDS equity investment. Notwithstanding the fact that we moved up in seniority during the quarter, yield at cost increased to 10.9% in part as we continued to grow our high yielding investment in the senior credit fund joint venture, and most importantly no investments on our portfolio are on non-accrual status. A few other things to highlight. Jonathan Yoder is going to talk in detail about our investment activity and overall market conditions, but you will see that our investment activity was modest during the quarter. While our pipeline of new investments was robust, we actually saw over 240 new deals during the quarter. Our general observation was that pricing and structure in private deals did not reflect the volatility we witnessed in the broader credit markets. And as a result, we felt it is prudent to be patient and hold our capital to invest in better deals that we anticipate materializing in coming periods. Suffice to say, in light of the fact that our assets continued to perform and our net investment income has been materially in excess of our dividend we feel like we have the ability to be on offense relative to peers who are capital constrained. We ended the quarter at just 0.61x debt to equity, which is towards the lower end of our 0.5x to 0.75x target, and as a result we have dry powder to pursue new investments. A few other company updates to note. Recall that at our IPO, we put in place a 10b 5-1 plan, under which Goldman Sachs was required to purchase shares of GSBDC subject to limitations, if it traded below NAV. during the fourth quarter and through February 26, Goldman Sachs and Co. purchased approximately 576,000 shares of GSBDC common stock providing a powerful reminder of Goldman’s strong sponsorship of the company. [Indiscernible] for the purchases, Goldman owns 17.8% of the shares outstanding, making it far and away the biggest owner of Goldman Sachs BDC. We are pleased to announce that our Board of Directors has approved a 10b 5-1 plan for GSBDC to purchase up to $25 million of its common stock if the stock price is below NAV, commencing in March when the current plan expires. We believe the new plan provides shareholders with the benefit of [accretion] in the event the company buys those shares below NAV. With that let me turn it over Jonathan Yoder.

[Jonathan Yoder:]

Thanks Brendan. The fourth quarter was marked by escalating volatility in the public credit markets, a scene that continued into early 2016. As has been observed many times in the past, private credit markets tend to lag public credit markets. We expect that this time it is no different. In light of this, we significantly reduced the pace of new funding activity to only $7.4 million during the quarter, in expectation of more attractive capital deployment opportunities in the months and quarters to come. As Brendan described, we have the luxury of waiting because our current portfolio produced significantly more income than our dividend in both Q4 and the full year 2015. And since we amortize origination fees over the life of our loans rather than take all of the income upfront, we are not dependent on new origination fees every quarter to maintain consistent levels of income. The fact that we have put ourselves in the enviable position of being able to sit out certain periods of time, while waiting for better origination opportunities is the product of concerted efforts and deliberate planning, and is a major differentiator that we expect will benefit us, particularly in periods when credit markets are changing as we are experiencing now. All of the $7.4 million of new fundings during the quarter were in existing portfolio companies, including an additional $2.5 million investment in the senior credit fund. We also had sales and repayments of $52.1 million, predominantly in second lien debt investments. Most notably we monetized our $10 million common equity investments in data driven delivery systems in connection with the sale of the company to an investment grade strategic acquirer. As part of this sale, we have fully exited our equity position after just a five-month hold period, while maintaining our first lien loan position. The sale of this company was a very successful transaction for us and resulted in a $1 million economic gain. Recall that this investment was originated through our private wealth channel in the third quarter. The data driven delivery systems is a great example of our ability to source proprietary transactions from family and founder owned businesses utilizing our firm’s large network of relationships in this community. In this case, our equity investment provided the owner of the business with the benefit of a valuation marker from our firm shortly before a sale transaction to a strategic acquirer, while our investors receive the benefit of an attractive rate of return on the investment. While we waited for better origination opportunities in private credit markets, we were able to take advantage of the change in public credit markets during the quarter by adding some names that we like in our senior credit fund that either sold off or experienced spread widening at new issue. In sum, the senior credit fund added $54.2 million of exposure across four new portfolio companies and one existing portfolio company. These new investments consisted exclusively of first lien senior secured floating rate loans containing interest rate floors. The senior credit fund also had sales and repayments of $25.5 million during the quarter, resulting in net portfolio growth of $28.7 million, and this brought the senior credit fund’s total assets to $285.6 million, which represents an increase of 10.5% quarter-over-quarter. The senior credit fund is a very balance sheet efficient way to grow the company’s earnings. As of December 31, our trailing 12 month yield from our investment in the senior credit fund is 13%. We ended 2015 with an investment portfolio at fair value of [$1.081 billion]. As of December 31, our investment portfolio at fair value was comprised of 94% senior secured loans, including 39% first lien, 28% first lien last out unit tranche, 26% second lien, 2%in preferred stock, and 4% in the senior credit fund. We also had $6 million of unfunded commitments bringing total investments in commitments to $1.087 billion. The portfolio continues to be focused on floating rate instruments with 87% of debt investments bearing a floating-rate of interest subject in most cases to interest rate floors. The gross yield at cost and fair value of our total investment portfolio as of the end of the year was 10.9% and 11.7% respectively as compared to 10.7% and 11.1% as of September 30, 2015. The increase in yield at cost during the quarter was driven primarily from the monetization of our common equity investments in data driven delivery systems, which was not a yield bearing instrument, and also by an increased contribution in yield from the company’s investment in the senior credit fund. The increase in the yield at fair value resulted primarily from a decrease in the fair value of certain investments. Looking back on 2015, we are very pleased with the way the portfolio developed and performed over the course of the year. The results show that we focused our origination efforts on first lien and first lien last out unit tranche investments, which increased its exposure from 55% to 67% of total assets at fair value. And simultaneously reduced our second lean exposure from 38% to 26%. Once again, and as Brendan mentioned, we had no realized capital losses, and no investments going non-accrual during 2015. And we were able to utilize our unique and powerful sourcing engine to deploy capital at times we think are right, and in transactions that we think are attractive. As we look forward to 2016, we are very pleased with our capital position, and our available dry powder. And we intent to be open-minded about where the change in credit markets could create opportunities. Our experience has taught us that when markets change, opportunities arise. I will now turn the call over to Jonathan to walk through our financial results.

[Jonathan Lamm:]

Thanks, Jon. We ended the fourth quarter of 2015 with total portfolio investments at fair value of 1 billion 81 million outstanding debt of 419 million, and net assets of 689 million. As Brendan mentioned earlier in the call, the company had very strong net investment income in Q4. Our average debt to equity ratio is 0.63 times during the fourth quarter, which result from 0.58 times during the previous quarter. We ended the fourth quarter with a debt to equity ratio of 0.61 times, as compared to 0.64 times at September 30th. The decrease in ending leverage was primarily attributed to modest repayment activity during the quarter. Turning to earnings. Our net investment income for the fourth quarter and full-year of 2015, was $0.62 and $2.14 versus $0.59 and $1.77 for the comparable 2014 periods. Or in the full year, this represents growth of 21%, primarily driven by greater income producing assets as we moved into our target leverage range. And reflecting the continued performance of our income earning assets. The quality of our investment income continued to be very strong in Q4, as our net investment income was not reliant on fee income in order to cover the dividend. For 2015, interest income and dividend income from investments was a 116.2 million or 98% of total investment income. Other income was just 2.3 million or 2% of total investment income. We over earned the dividend on a full-year basis net of excise tax by 9.7 million or $0.34 per share. Turning to expenses. Total expenses before taxes were 9.2 million for the fourth quarter as compared to 12.1 million for the third quarter. Quarter-over-quarter expenses were down driven by a reduction in total investment advisory fee expenses. The impact of netting the net unrealized losses we experienced this quarter, against investment income resulted in a 90% reduction in incentive fees. This provision of our fee structure reduced expenses by $0.12 per share this quarter. As Brendan mentioned, this is a significant differentiator that delivers tangible quantifiable benefits to shareholders. Our net unrealized losses during the quarter were primarily attributed to our investments in GTL and Securus and otherwise to the volatility in the credit markets that we experienced in the fourth quarter. Our supplemental earnings presentation provides a NAV bridge to walk you through the changes to our net asset value quarter-over-quarter. As we announced back in November, the company favorably amended the terms of its senior secured revolving credit facility, which reduced the state of interest rate from LIBOR plus 2.25% to LIBOR plus 2% or 1.75% subject to certain borrowing based conditions. We also extended the maturity date to November 2020. The lower rate should positively impact our net interest margin. And the maturity extension further enhances our overall long-term capitalization. We feel very good about our capital position right now, given the extension of our credit facility and our relationship with our lenders, coupled with our available borrowing capacity. We also meet favorable changes to the senior credit funds at that facilities. During the quarter, we entered into a term loan facility to provide the SCF with an incremental $65 million facility. More recently, in February we were successful in increasing the total size of our SCF debt facility to 350 million, up from 315 million at the end of the fourth quarter. This provides the company with incremental dry powder to continue to grow our SCF portfolio. With that, I will turn it back to Brendan.

[Brendan McGovern:]

Thanks, Jonathan. As we approach our one year anniversary of the [public comply,] [ph] I'd like to take a moment to look back on our performance. When we met with prospective investors on our IPO roadshow early last year, we discussed what we believe to be our key differentiators including a line of interest for shareholders, our unique and proprietary sourcing channels to our Private Wealth network and our strong credit underwriting culture and capabilities. As we look back, I believe we've demonstrated solid performance in all of these areas. As this quarter demonstrated, we have an industry leading fee structure. By taking into account unrealized capital losses and capping our incentive fees, there is more income left over for shareholders to support distributions. Also, we put our money where our mouth is. Goldman started the year as by far the largest shareholder of the company to be added to its ownership stake over the course of the year. We've demonstrated the power of our origination platform as we leverage our unique network of relationships with both middle market sponsors and family founder and entrepreneur on businesses [indiscernible] assets risk/reward characteristics that we believe are excellent. And finally, we've been a good steward of capital, as evidenced by the fact that we had no realized credit losses and no non-accruals during the entire year. As a result, the company delivered a very strong financial performance. Our ROE based on net investment income was over an 11% for the year, and net investment outstripped our dividend by nearly 20% over the course of 2015. Furthermore, we achieved these results despite operating at an average of just 0.5 times debt to equity over the course of 2015. As a result, we find ourselves poised and well positioned to tackle the opportunities that will undoubtedly arrive this year. We thank you for your support and to our shareholders we thank you for the privilege of managing your capital over the past year. With that, we'll take some questions.

[Operator:]

[Operator Instructions] Your first question is from the line of Derek Hewett with Bank of America Merrill Lynch. Please go ahead.

[Derek Hewett:]

Good morning, and thank you for taking my question. So, I guess, given the lag in private markets in terms of pricing and the structure that you guys have been seeing over the last quarter too. Should we expect accelerating growth in the senior credit funds relative to say the last couple of quarters?

[Brendan McGovern:]

Hey, Derek. Thanks for the question. I'll take a stab and so Jon, you'll have some thoughts as well. I think this quarter as we describe, what we observed in the marketplace is that by virtue of it, of that lag, the opportunities that we saw through traditional direct revision channels were not reflective of what we thought the broader credit markets were implying in terms of volatility, and therefore the price in the structures that we should be able to command. So, we took the opportunity to turn our focus on the SCF, which is by and large a more syndicated strategy, where there is a much quicker realization of market activities. It's a very efficient way for us to deploy capital. As we look forward, we continue to very open minded. We would say that the opportunities are getting better. And I think as borrower's survey the landscape of place they can go for capital, they're finding fewer places to go. And as a consequence, we do believe that structure is in pricing, will be better as we do roll across forward. So, whether or not we continue to grow the SCF versus the on balance sheet investment, that's going to be a function of the bottom up micro analysis of the deals that we see coming through our organization on a day-to-day basis. So, we're certainly not making any sort of asset class based determination about where to spend time and resources. We have confidence that we're going to find deals this quarter as well as into the subsequent quarters, that are through our traditional direct realization channels, both Private Wealth as well as through middle market sponsors, that are going to fit the bill that we think is consistent with our underwriting standards and consistent with the economic return that we're trying to deliver for our shareholders. So, Jon, and if you have more thoughts.

[Jonathan Yoder:]

Yes, Derek. I mean, the only thing I would add to that is and Jonathan Lamm references in his prepared remarks, but we've obviously put quite a bit time and effort during the quarter to also expanding the credit facility for the senior credit fund which just gives us more capacity there. So, we definitely think that there is room there to continue to grow that and given the opportunities that we've seen in the sort of public credit markets. We absolutely have been spending a lot of time there. But as Brendan said, that doesn't mean it’s next what's exclusion of opportunities in the private credit markets, where we're also seeing as we'd expected better opportunities in what we did in the fourth quarter.

[Derek Hewett:]

Okay. And then I know the markets or the credit markets are somewhat volatile right now, but any thoughts in terms of diversifying more your funding mix by issuing some sort of some unsecured debt?

[Brendan McGovern:]

I mean, we continue to think about certainly issuing unsecured debt and certainly creating greater financial flexibility with the volatility currently in the credit markets. We think it's not the right time from an opportunistic perspective to tap those markets, but to the extent as things improve and the opportunities are there, we certainly would plan to avail ourselves of that opportunity. That being said, we feel very good with our existing lender base and our revolving credit facility and the term on it. So, we feel comfortable now, but obviously we'll look to diversify when the opportunity set is there at more attractive levels.

[Jonathan Yoder:]

Yes. And I would just also add to that. Obviously the cost of duration is not cheap, then obviously it depends on where the market is in any given point of time. But prices here is generally not going to be cheap. I think one of the things that we would point to in it because it's a lot of comfort and confidence that where we are is we were one of the only BDC that was able to actually extend out there bank credit facility last year. And so we did do that near the end of last year and we're able to extend it out to five-year term. So, we think we got pretty good duration on our bank credit facility and whether we need to add additional duration on our liabilities. We'll make that decision later, but with the understanding that there is a cost for doing that.

[Derek Hewett:]

Okay, great. That's all from me. Thank you.

[Operator:]

Your next question is from the line of Leslie Vandegrift with Raymond James. Please go ahead.

[Leslie Vandegrift:]

Hello, everybody. I changed my name for the event because I thought I'll get the question quicker. Excuse me. So, first, a little one Brendan, just to ask you a question, if I can. On the dividend strategy, because as you say excellent management fee structure that early benefit shareholders. So, the question now is of course it generate a next to $0.12 of NII effectively in the quarter that flows to NAV and offset the NAV hit from the unrealized losses. But at the same time it also generates its natural cents to spill-over. So, what's the kind of the strategy on distributing that extra $0.12 because obviously it's distributed, then the NAV is there as well. So, it's the strong benefit but it moves things around a little bit and the rules obviously require you in principle to distribute that. So, what's the policy going to be there?

[Brendan McGovern:]

So, [indiscernible] question. So, first off, we like being in a position where we do have optionality and I think by virtue of how we manage the balance sheet in the income, we do have a lot of choices that we can take through. We obviously work closely with our board, choose that dividend policy. We think through what will be in our estimation the most value enhancing outcome for shareholders. I think right now in an environment where our BDC and many other BDCs are not fitting well. I think folks have questions about the credit markets and the volatility that we're seeing. We think right now better to retain that into NAV as opposed to distributing back to shareholders. We're not sure that shareholders will value that one-time special dividend in this environment, and we will constantly reevaluate that over the course of the year, and over the course of time. But right now we do think the better strategy is to retain that spill-over into NAV.

[Leslie Vandegrift:]

Okay.

[Jonathan Yoder:]

If I could just add to that. The amount of spill-over that we have which is $0.34 of spill-over generated from the current year. That does not have to be distributed or it does have to be distributed in the current year. But the way the tax rules work, we are able to essentially retain that $0.34 on a perpetual basis or until we decide to distribute it out.

[Leslie Vandegrift:]

Yes, I realize. Thank you. On the SCF as you said, I mean, you originate some in the quarter, the volatility in the fourth quarter was up, it’s obviously continued to get worse in the beginning of the year. Was your expectation, it’s like a way, the decision to deploy in SCF obviously on a cut it, like cut it basis, was that qualifying expectations you may be thought things were going to stabilize or obviously in hindsight perhaps waiting a bit longer would have gone even better structures, which is what you’re doing on the normal SCF side. So, can you give us a little bit of color on the way you think the volatility is in the different end markets in timing, hasn’t made it really to the private market yet, how long do you think that’s going to take and is the SCF even more attractive today than it was in the fourth quarter?

[Brendan McGovern:]

Yes, so let’s kind of bring you into fold just on the capital allocation decision, the conversations that we have here over the course of time. As we described it with I think Derek’s question, what we don’t do is sort of think through buckets, bucket being after the SCF, were you in the first lean versus the second lean and say, we’re only going to focus our efforts on this category of originations. We respond to what we see as opportunities that we think are going to generate the best risk adjusted return for the capital which of course is quite here. So, from a process perspective, we continue to look in, evaluate transactions both in the public markets that be it primary in the markets as well as secondary, we do the secondary market transaction on a new name within the SCF this quarter as well as a few add-ons of existing positions so being active to those opportunities. But each of those decisions is made on our team’s assessment of whether or not that price is compensating us appropriately for the risk that we’re taking in the issuers’ investment. For sure, within the public market you’re taking a different risk which is liquidity and what’s going to happen on a mark-to-market basis when you look through our SCF you’ll see that we did market down over the course of the quarter which of course is reflective of what’s going on in the broader market, we did – those instances, take a look at those opportunities and think they’re really attractive from a yield perspective especially in the context of our senior credit fund, where we value termed out per facility to finance longer term equity investments that BDC and [indiscernible] duration of capital in both places that really gives us the luxury and the ability to be talked about when and how to add risk in those areas. And I would say again, on a go forward basis, we think both of those opportunities will continue to be there neither on mutually exclusive and we really feel good about the fact that we put ourselves in a position from down ship perspective to be able to go on offense on those opportunities as they come forward and as we survey our peer set we see lots of folks who are through their own internal leverage targets or towards the higher end of even the statutory leverage limits and we put ourselves in a very different position and I think that really nurse to the benefit of our shareholders.

[Leslie Vandegrift:]

Thank you very helpful and congratulations from the quarter, the management fee and I think shareholders should be pretty happy with it. Thanks.

[Brendan McGovern:]

Thanks Robert.

[Operator:]

Your next question is from the line of Doug Mewhirter with SunTrust. Please go ahead.

[Doug Mewhirter:]

Hi, good morning. First question on a portfolio, if you are able, is there any kind of update on Evercore, I know there are no exactly in the best invest market right now, but they are still listed as a performing loans, so it sounds like they seem to be hanging on, is there any developments there either macro or micro?

[Brendan McGovern:]

Yes, still I think macro, the EMP state I think everybody is certainly well aware continues to be under pressure not a whole lot of change across our portfolio investment space, I think everybody is benefited EMP is just about 4% of our assets so not a very big allocation of our capital. Evercore is a first lien position that we have in place more on the services side we have brought it down substantially I think we marked $0.65 at the end of the first quarter for the first lien investment. The company does have liquidity, they were relatively recently able to raise incremental capital, they have liquidity they have runway, they have relatively flexible cost structure within the company and so we don't foresee in the short term Dough any change to that company status as being a performer credit.

[Doug Mewhirter:]

Okay thanks for that. My second question, have you with a new more favorable regulations have you considered starting the process of applying for an SBIC license?

[Brendan McGovern:]

So on the SA question we have not pursued that we have conversations with something that we evaluate if you look at our senior credit fund and strategy that we have in place with our senior credit fund we feel like we are getting really the very similar economic benefit, which is effectively the off balance sheet leverage treatment we are doing it in a strategy where there are fewer constraints with respect to the nature and the types of the assets that we can consider. As we discussed we grew that portfolio over the course of this quarter we have put in place more financing to be able to continue to grow that strategy and so as between our SCF and [SPEC] I think we get a very similar overall economic benefit to the shareholders in our BDC as we discuss that equity investment this quarter delivered 13% yield on a cash-on-cash basis so very effective one that we do anticipate growing and ultimately same benefits as we expect with fewer of the constraints.

[Doug Mewhirter:]

Okay great. My last question is just a clarification something I should have picked up, but on the opening remarks but I didn't quite sort of get it sorted out in my head so just to clarify on the buyback on the 10b5. So the Goldman Sachs plan is done and the only plan that is sort of left now as of March 18 or whatever is going to be a buyback plan on some sort of formulated basis is that correct?

[Brendan McGovern:]

Yes, that's correct Dough so at an IPO we had in place the Goldman 25 one program and we had a discretionary plan for the company over the course of 2015 basically we determined along with our council that it was better not to try to coordinate between the BDC in that plan and so the 10b5-1 plan for Goldman did purchase a substantial amount of shares over the course of 2015 that plan is set to expire on March 18 which is one year post follow for IPO. At that point in time our new 10b5-1 plan will kick in, but that is the company's plan, so to the extent that pool of capital which is $25 million does buyback shares in the open market at a discount NAV, the accretion to NAV will result because it will be the company's capital that's making those purchases.

[Doug Mewhirter:]

Hey great. Thanks that's all my questions.

[Brendan McGovern:]

Thank you.

[Operator:]

Your next question is from the line of Jonathan Bock with Wells Fargo Securities please go ahead.

[Jonathan Bock:]

Congratulations and also thank you for taking my questions. Just as a follow-up to Leslie’s question at Raymond James related to the SCF would you be able to shed just a little bit more light on the leverage ability of the collateral, so you obviously increased leverage my guess is you could do so again and the quality of that collateral continues to improve as well as perhaps even the prices of that collateral continues to improve as evidenced three year increasing return on the SCF equity. I am curious if you would feel it's more prudent to continue upping leverage beyond what you have already increased in the SCF today?

[Brendan McGovern:]

Jon, just to clarify, we put in place incremental capacity to pursue investments via an upsizing of our credit facility. We are not changing the capitalization strategy of that vehicle, so we are not going to take the same assets and apply more leverage we just have more capacity by virtue of having more debt available to us to drive down along side of the equity that we and our partner have committed to grow the strategy. That’s leverage two to one we think that's an appropriate amount of leverage as we look at CL equity and other much more leverage structures where that leverage might be 10% of that we contribute to those vehicles. We don't think that's appropriate for this strategy we think the volatility that revolves frankly is inconsistent with what we are trying to achieve for our investors and so we are not changing the capitalization strategy of that vehicle at all.

[Jonathan Bock:]

Okay fair question and great response. The next extraction oil and gas just when we look at the second lean, there are some BDCs also have this market par and so I am curious just to in light of the bids of oil and gas cost kind of crush the market on where you see kind of this company right now today and it's forward prospects?

[Brendan McGovern:]

Yes. So again John, as I describe this is the oil and gas [indiscernible] investment that we have in the portfolio marks that around partly with where we are relatively unchanged from the prior quarter. In this particular instance we have a number of things working to our benefit as lenders to this company relative to other situations in the broader EMP markets. First and foremost we have an equity sponsor here which is your town who has been very supportive with their capital since the oil market has become much, much more volatile, the sponsors here has infused hundreds of millions of dollars of junior capital beneath us to support the business, to support the prospects and support its growth. They are doing so I would say because we know they have a very, very strong asset that in many different price deck environments for oil can be quite profitable. So even here at the current price deck they continue to drill, albeit lessen they’re doing it at much more robust prices that in of itself is unique. They are doing so because they are so able to earn very attractive returns on those drilling investments. So when we look at our position that capital structure we feel like we are about two times covered by PDP of the assets and again that does even take into consideration the junior capital that continues to come into a company.

[Jonathan Bock:]

Okay great. Thank you and then also in terms of the equity sale as it relates to data driven and as well as the corresponding mark up can you give us a view of anticipation of prepayment in terms of timing and how you would look at that investment going forward because it is, there are some favorable news items that you have outlined?

[Brendan McGovern:]

So, I would just say you know we are not sort in the business of predicting repayments and you will see that we burned overtime that can either be a full -- you might think taking out of something and the change in the credit market so there is a change in transaction that result in not being taken out. So certainly, as we mentioned in the prepared remarks the acquirer of the business was investment grade rated, is investment grade rated so it’s very possible that they will find a more lower cost of capital to take us out, but we don't really want to predict the exact time of that.

[Jonathan Bock:]

Okay alright guys thank you, congratulations.

[Brendan McGovern:]

Thanks Jon.

[Operator:]

Your next question comes from the line of Christopher Testa with National Securities, please go ahead.

[Christopher Testa:]

Hi good morning, thanks for taking my questions. Just with your opening remarks with holding back originations being that they were not reflective of broader markets in what you were seeing. Could you provide more color on whether that was primarily in sponsor and or not non-sponsor transactions and also where is it not indicative of the market in terms of yields or in terms of structures and competence and what not being reflective of reality?

[Jonathan Lamm:]

Yes, so I will make a few comments on that and Brendan may have others as well. So I think the private markets very much as I said in the outset kind of lag in the public markets and I think that's a function of pricing to start with. We have not seen or at least through the end of the fourth quarter did not see dramatic moves in spreads in the private markets the way we saw in the public markets. That being said, the private markets have been fairly consistent in terms of the covenants and other sort of terms of the deals that provide protection to lenders. And so, we haven't seen during the fourth quarter I wouldn't say that we saw any significant change to that but that's not surprising given that frankly the vast, vast majority of the middle market has always been a covenanted market, we haven't really seen any change over the last few years. And so, the fourth quarter continued what was already a very favorable sort of set of market terms for middle market loans. So I think there is really, our comments really are observations really where we more on a pricing that the spread that we are on offer both in sponsored and non-sponsored deals in the fourth quarter were just not as attractive relative to what we thought they should be given the spreads that the spread wide in the credit and the public markets.

[Brendan McGovern:]

Yes, the only thing I would add to that is I think any time you see a rapid and dramatic change in an overall environment that tends to decrease activity. So I allude to the fact we actually did see quite a number of different opportunities, we had more than 240 different opportunities come through the door over the course of 2014, excuse Q4 of 2015 both sponsored and non-sponsored. And I think expectations on the part of borrowers were frankly yesterday's pricing. And so, when confronted with as the newer cost of capital, I think that tends to cause a chill on overall market activity whether or not these deals get done at the terms that folks were looking for some of them dead with more aggressive competitors, some of them those transactions didn't get done. But in any event I think when you see the capital shifting, negotiation leverage shifting to vendors versus borrowers, I think that does bode well for subsequent usage of our capital.

[Christopher Testa:]

Great that's great color. And also with the senior credit fund what’s the incremental yield tick up on an unlevered basis that you are seeing so far in the current quarter given that the volatility is persistent?

[Brendan McGovern:]

Yes, look I think if you look at that portfolio I think historically we have probably been in the 6% asset yield range I think opportunities are at least stick to this or in some cases 100 wider of what we have historically been able to achieve just from an asset level on those investments. And so, I would say Jon commented about the private markets historically benefiting from covenant protections within the SCF where it is a bit more of a syndicated opportunity set, it’s the yield but it’s also structure. So we are seeing changes in structure in those more syndicated yields that do make us a bit more favorable so those are number of different categories of covenants, I would say that have been inserted to some of those transactions that do make them more attractive. And so, within part of the market in addition to the price change I think the structural benefits are improving.

[Christopher Testa:]

Okay, great. And would you be able to give us an idea on what the originations outside of the SCF just in your portfolio been quarter to-date, how much they have picked up?

[Brendan McGovern:]

Yes, I think we don't want to talk, we don't want to get into the habit of giving intra-quarter numbers around the originations, I think we have given a lot of color about our conference that opportunities as we will pick up and we feel very good about being positioned for those opportunities sets. So, I do think Chris, with that we will see an increase in activity in subsequent quarters there are some transactions that may close in Q1 of this quarter other might tripe into the part of Q2, we are definitely seeing a tick up in activity and opportunities that we do think are within our spec zone and that's the good news.

[Christopher Testa:]

Okay, that's fair. And just last one from me, the two telecomm investments you mentioned were marked down given the potential of having the caps on the rate to take the charge just one part question how long do you think it would take them to cut the cost necessary and two, are the current marks as of 12/31 reflecting them not being able to cut the cost or those assuming that they are going to be able to do the cost reductions?

[Brendan McGovern:]

So, let me try and answer that a couple of different ways. I will tell you that our underwriting approach here is assuming that the rate cuts go through as proposed both companies are trying to stay the orders whether or not successful we don't know, but we are assuming that the orders go through as proposed. GTL we would say by virtue of its more concentrated customers they tend to be in bigger within system then to chaos which has a more distributed base of customers. We would anticipate that they might be a bit quicker in terms of being able to renegotiate contract rates for commissions lower just by virtue of having fewer of those contracts to renegotiate. But either way we think both companies will openly be successful in getting some relief if the rate caps do go through and revenues are impacted. With respect to the marks, the marks are in this case public, I think one of our competitors alluded to the fact that some of the marks have gone up post 12/31, we are obviously sitting here and back two-thirds of the way through the quarter so things can change. I think what’s most important is as we do see the order go through, I think investors ultimately will be looking for whether or not the companies can be successful and again mitigating the rate cap issue with their ability to cut commissions. So I do think there will be a bit of a show me aspect to that but we have a fair bit of confidence that that will take place. And if and when that does we think we will see it in the financials, we think we will see stability and given the prices that we have talked about 1654 to GTL respectively, we do think there is a very good chance for to see market values improve if they can prove that their ability to mitigate cost.

[Christopher Testa:]

Great. Thank you for taking my questions.

[Operator:]

Your next question comes from the line of Bruce Roberts with FinTrust Brokerage Services, please go ahead.

[Bruce Roberts:]

Yes, good morning. Congratulations on your first year's public company. Yes, I just had a follow-up question on the two telecomm companies you made a comment that you don't expect them to go on a full status, does that assume, a change in their cost structure or does that would that be the case if they weren't able to garner to a significant change in the cost structure right away?

[Brendan McGovern:]

Yes, so look we, the way we go about doing this is we take a look at the fixed charges within the company, we look at the cash flow generating capability, we will stress the revenues and try to understand the nature of the cost within the company what are variable, what are fixed. And so, I think we talked about this last quarter I would say frankly before we had more confidence in their ability to mitigate some of these costs. So when we talk about our expectation that something won’t go on accrual, I think we don't need to see all the commissions that they keep go down to zero to find themselves in a good position, both of these companies were relatively lowly levered coming into this issue. Both of these companies continue to generate today significant free cash flow. So there is a fair bit of cushion in financial model such that even if they are not able to recoup all of the revenue that might be at risk given the rate caps, we do think there is enough flexibility in the models such as they can stay current on their cash obligations.

[Bruce Roberts:]

Okay, great, thank you. Yes, I just wanted some of the granularity on the portfolio overall you mentioned that the weighted average revenue and EBITDA growth was 4% and 7% respectively and I was wondering can give us any color, any granularity on possibilities for your typical portfolio company, did EBITDA margins improve in 2015, did they stay stable or kind of maybe what they are little bit and what maybe kind of range they do come in at any help there as well?

[Brendan McGovern:]

Yes, I don't think we have that at our fingertips, but I think when you think about revenue up and EBITDA up more that should imply margins we are including, but look I think the most important piece is clearly in this environment I think investors are focused on credit quality. When you look at our portfolio and look at how we manage this capital I think we have done a very good job there, the underlying health of our portfolio companies feels good there is certainly going to be different pockets of volatility in different areas if you look at our risk ratings that we provide for investors, the weighted average risk rating of our portfolio this quarter was essentially flat. So, we feel very good in the environment where our folks are really concerned about what’s going on in both the credit markets, but also the underlying economy that we have been giving some data that shows our portfolio companies are doing okay.

[Bruce Roberts:]

Great, that's very helpful I appreciate the color. Again congratulations.

[Brendan McGovern:]

Thank you.

[Operator:]

Your next question from the line of Jim Young with West Family Investments, please go ahead.

[Jim Young:]

I have a couple of question, doing well thank you. A couple of questions, with respect to your write-down, the unrealized washes in the write-down you had in your two telecomm services you mentioned FCC order, was this a final order, is there an appeal process going forward or can you just help us understand going forward what we could potentially expect out of the FCC? Thank you.

[Brendan McGovern:]

Yes Jim. Both companies are appealing the order, there is a stay process in place we think within the next couple of weeks we will get some information with respect to the stay. I think most importantly though Jim is, we are not underwriting this with an expectation that the current order has contemplated, won’t go through we are looking to the worst case scenario, looking to see what will happen to these companies and their ability to generate cash flow to service their obligations in the event that worse case happens. And so, if they’re are successful obviously notwithstanding we’re going an appeal to kind of deepest fact that of course will be a tremendous positive, but we are trying not to bank on that as an underwriting case.

[Jim Young:]

Okay, thank you.

[Brendan McGovern:]

Okay. So I think that's all the questions that we have got, so we do thank you for your time so let me turn back over to Dennis.

[Operator:]

Ladies and gentlemen, this does conclude the Goldman Sachs BDC Inc. fourth quarter 2015 earnings conference call. Thank you for your participation. You may now disconnect.