Goldman Sachs BDC: IQ 2025 Credit Highlights – ANNOTATED

May 23, 2025

AGENDA

We have edited down Goldman Sachs BDC’s (GSBD) IQ 2025 earnings conference call down only to prepared remarks and the Q&A that related to the BDC’s credit issues. Where appropriate, the BDC Reporter has added its own commentary, based on our review of the GSBD’s latest and historic performance in this critical area. We end with an evaluation of GSBD’s performance in the quarter just ended and discuss what might be coming next.

Goldman Sachs BDC, Inc., Q1 2025 Earnings Call, May 09, 2025

CREDIT HIGHLIGHTS

Corporate Participants

Alex Chi Goldman Sachs BDC, Inc. – Co-President & Co-CEO

Austin Neri

David Nathan Miller Goldman Sachs BDC, Inc. – Co-President & Co-CEO

Stanley Matuszewski Goldman Sachs BDC, Inc. – CFO & Treasurer

Tucker Greene Goldman Sachs BDC, Inc. – Chief Operating Officer

Conference Call Participants

Derek Russell Hewett BofA Securities, Research Division – Vice President

Presentation

Alex Chi Goldman Sachs BDC, Inc. – Co-President & Co-CEO

TARIFF IMPACT

Let’s start by addressing macroeconomic conditions, tariffs and their potential impact on the portfolio and deal flow. With respect to the portfolio, as mentioned on our previous call, we conducted an in-depth company-by-company analysis across our entire direct lending portfolio with respect to tariff exposure and a potential recessionary or even stagflationary environment.

While the second and third order effects remain difficult to quantify, the initial diagnosis is that only 4 out of our 163 companies within GSBD or approximately 3% of fair value are considered to have high exposure, primarily due to their supply chain dependencies in China. The results of our analysis are not surprising as the vast majority of our portfolio companies are asset-light with minimal exposure to international supply chains, are domiciled in the U.S. serving predominantly U.S. customers and operate primarily within service-based industries such as software, health care and mission-critical business services. In addition, we find comfort in where the GSBD portfolio sits in the capital stack with over 96% of the investments in first lien risk and an attractive loan to value. 

NAVPS

…Net asset value per share was $13.20 as of quarter end, a decrease of 1.6% relative to the fourth quarter NAV, which was largely due to the $0.16 per share special dividend and net realized and unrealized losses in the quarter. Adjusted for the impact of the supplemental dividend related to the first quarter’s earnings, the company’s first quarter adjusted NAV per share is $13.15, which to note is a non-GAAP financial measure introduced as a result of the dividend policy change.

BDC Reporter Adds: The NAVPS Change Table tells us that GSBD has now reported lower quarter over quarter Net Asset Value Per Share (NAVPS) for 5 quarters in a row. This quarter’s loss in percentage terms was (1.6%) but over 12 months comes to (9.3%). That makes GSBD one of 13 BDCs to have seen their NAVPS drop by (6.0%) or more in the last 12 months. Since 2020, GSBD is down (17%) where its NAVPS is concerned.

LEVERAGE

We ended the quarter with a net debt-to-equity ratio of 1.16x as of March 31, 2025, as compared to 1.17x as of December 31, 2024.

David Nathan Miller Goldman Sachs BDC, Inc. – Co-President & Co-CEO

PORTFOLIO

For our portfolio composition, as of March 31, 2025, total investments in our portfolio were $3.38 billion at fair value, comprised of 96.1% in senior secured loans, including 90.7% in first lien, 5.4% in first lien/last-out unitranche, 2% in a combination of preferred and common stock, 1.4% in second lien debt as well as a negligible amount in unsecured debt.

BDC Reporter Adds: We don’t have hard data to offer here but from our continual reviewing of BDC filings, GSBD can be said to have one of the largest percentage of senior debt in its portfolio (96%, if you include the last out) and one of the lowest percentages of equity. On paper and over time this should mean credit losses should be relatively modest given the senior nature of the debt and equity gains – often used by BDCs to offset credit losses – very low.

Tucker Greene Goldman Sachs BDC, Inc. – Chief Operating Officer

PORTFOLIO COMPANIES

. At the end of the first quarter, the company held investments in 163 portfolio companies operating across 38 different industries. The weighted average yield of our debt and income-producing investments at amortized cost and at the end of the first quarter was 10.8% as compared to 11.2% at the end of the fourth quarter.

AVERAGE PORTFOLIO COMPANY METRICS

Despite a modest tightening in portfolio yield quarter-over-quarter, our portfolio companies have both top line growth and EBITDA growth quarter-over-quarter and year-over-year on a weighted average basis. The EBITDA growth of the portfolio, combined with repayments of investments to companies with higher leverage levels drove a decrease in the weighted average net debt to EBITDA of the companies in our investment portfolio to 5.8x during the first quarter from 6.2x during the fourth quarter.

At the same time, the current weighted average interest coverage of the companies in our investment portfolio at quarter end increased to 1.9x in the first quarter compared to 1.8x during the fourth quarter. 

CREDIT QUALITY

During the quarter, the Pluralsight first lien senior secured debt position was restored back to accrual due to performance since restructure. 

BDC REPORTER ADDS: Actually, GSBD has 5 senior loan positions showing in its filings subsequent to the Pluralsight restructure. Only one was non-performing and that’s since the IIIQ 2024. All other BDCs carried their Pluralsight debt as performing. Even GSBD valued the one non-accrual loan at full value. Now GSBD has returned $15mn of debt at par to accruing status that is priced at SOFR + 750 basis points, or $1.8mn of additional interest income through the P&L. Note, though, the interest is Paid In Kind so no cash income will be generated.  The debt is valued at cost. By the way, all BDCs continue to value their loans in Pluralsight at cost but the equity positions fluctuate from a premium value of 20%+ to a discount in excess of (60%). 

Here is what Perplexity – searching in the public record – says about Pluralsight’s post-restructuring performance: 

“Since the 2024 restructuring, Pluralsight has achieved robust revenue growth, with annual revenue rising by over 17%. EBITDA margins have remained steady at around 26%, indicating that while the company is growing its top line, it continues to face challenges in dramatically improving operational profitability, likely due to ongoing high debt service costs and a competitive market environment”

Additionally, Animal Supply Intermediate, LLC’s second lien senior secured debt position, which was on non-accrual since Q3 2022 was exited.

BDC REPORTER ADDS: Our sister publication – the BDC Credit Reporter wrote a full article on the subject. The bottom line is that the investment was already valued at zero and has not generated income in years. The exit had no impact on GSBD except for the booking of a ($22.9mn) realized loss, which was already provisioned for. For the quarter net realized losses came to ($44mn). Animal Supply was the biggest loss followed by Streamland Media.

On the other hand, MPI Engineered Technologies’ second lien senior secured debt position and ATX Networks’ first lien senior secured debt position were placed on nonaccrual. 

BDC Reporter Adds: Again, the BDC Credit Reporter has written about both these companies so we’re familiar enough with the back stories. In the case of MPI, the company seems to have been caught flat footed by tariffs and went from performing normally to being placed on non-accrual in a quarter. Unfortunately, the BDC Credit Reporter is estimating a further write down of this investment seems likely given it is a second lien position and the macro environment continues to be problematic. GSBD has invested over $20mn here. We don’t know exactly what ails ATX Networks but GSBD did place its first lien debt on non-accrual. However, the BDC’s exposure is modest and all interest being received is already in PIK form so even further defaults won’t change GSBD’s cash receipts. The BDC Credit Reporter is more concerned about MPI than ATX.

NON ACCRUAL TOTALS

At the end of the first quarter, investments on non accrual status decreased to 1.9% of the total investment portfolio at fair value from 2% as of December 31, 2024.

BDC Reporter Adds: Note, though, that non-accrual assets at cost amounted to 4.6% of the portfolio, or $164mn. If you apply the average yield of 10.8% to the non-performing assets, GSBD can be said to forgoing – even before we discuss the substantial number of realized losses also booked – roughly ($18mn) in annual investment income from these loan reverses. In 2024 total investment income was ($434mn).

Stanley Matuszewski Goldman Sachs BDC, Inc. – CFO & Treasurer

We ended the first quarter of 2025 with total portfolio investments at fair value of $3.4 billion, outstanding debt of $1.9 billion and net assets of $1.5 billion. Our ending net debt-to-equity ratio as of the end of the first quarter was 1.16x, which continues to be below our target leverage ratio of 1.25x. At quarter end, approximately 48% of our total principal amount of debt outstanding was in unsecured debt.

Pay-In-Kind Levels

We observed PIK as a percentage of total investment income decreased to 11% for the first quarter ended March 31, 2025, from 15% in the fourth quarter of 2024. As a reminder, excluding one time adjustments for 2 portfolio companies, Q4 2024 PIK income as a percentage of total investment income would have been 12%, representing a 1% decrease from Q4 2024 to Q1 2025.

BDC Reporter Adds: Pay In Kind Income (PIK) is a controversial subject these days, with analysts and pundits worrying that BDCs are accepting “funny money” from “zombie companies” that will never pay them back and BDCs – typically – arguing that the PIK will get paid off eventually. We took this opportunity to have a close look at GSBD’s use of PIK. The good news is that only a small fraction of portfolio company loans use PIK in any way. Those that do are roughly equally split between companies performing as planned – and thus likely to be “money good” and the more troubled borrowers, including those like Pluralsight who have been restructured. We did find – at least – one controversial PIK – the 16% being charged on Wine.com’s second lien loans seems to be being taken into income. The BDC’s equity investment in Wine.com’s equity and subordinated loans are valued at zero as the company is in serious financial trouble. Will that 16% ever be collected?

Questions and Answers

TARIFF EXPOSURE

Derek Russell Hewett BofA Securities, Research Division – Vice President

Okay. And then in regards to the — I believe there were 5 identifiable loans that had direct tariff exposure. Was that reflected in the fair value of those investments as of the first quarter? Or will that be determined in the subsequent quarters?

Alex Chi Goldman Sachs BDC, Inc. – Co-President & Co-CEO

And when we look at the exposure, it doesn’t necessarily mean that those companies were immediately impacted by tariffs. We just… took a prospective look with respect to where there could be impacts and just from high exposure. For example, we have a couple of companies, who have supply chain exposure to China and to Mexico. And therefore, that’s why it was just for conservative purposes, just put in that category. Now to the extent we do see any performance deterioration, that would be reflected in the market, but we have not seen it yet.

David Nathan Miller Goldman Sachs BDC, Inc. – Co-President & Co-CEO

Keep in mind, we have a lot more clarity on what potential tariffs could be post quarter end, right, on April 2 versus on March 31 as well. So there could be more to come when we get some certainty on what the final tariffs are going to be.

VIEWS

Truth Telling

There’s no sugar coating this: GSBD’s credit performance in the IQ 2025 was poor.

Realized losses were high, two significant non-accruals were added and NAVPS dropped.

Furthermore, this followed several quarters of similarly sub-par results.

Are We There Yet?

Analysts and shareholders must be asking themselves if the worst is over, especially as the value of non-accrual assets is down to only 1.9% of the portfolio and non-performing assets – as disclosed in the 10-Q – amount to 3.8% of the total, down from 6.8% at the close of 2024 (see below) and 10.4% a year before that.

To attempt to answer that question we have to look at GSBD’s entire portfolio, and especially the companies that are underperforming to varying degrees.

We’ll tackle that prickly subject in our next article.