Golub Capital BDC, Inc. (NASDAQ:GBDC) Q4 2022 Earnings Call Transcript

David Golub: So, no really have not yet seen an increase in amendment requests, but I think we will. I think that the coming period is going to be one that involves significantly more challenges for borrowers and for lenders than the period that we’ve been in. So, will there be companies that get into credit stress more so in 2023 than in 2022? Yes. Will there be a need for more amendments? Yes. Will some of those amendments be related to rising rates? Yes. I don’t think we’re seeing the full impact yet because we’re still early in this credit cycle and because the increases in rates have been reasonably rapid, but all of that’s coming.

Jordan Wathen: Okay. And then one last one if I could just sneak it in there. You had about $2 million of deferred interest income that snuck into the top line this quarter, but was that related to Paradigm, the exit of the nonaccrual or maybe the dermatology associates company coming back upon accrual. I’m just curious if you could, kind of break that out?

David Golub: So, Chris Ericson help me on this one. I think it’s the second of the two Jordan mentioned, but please confirm.

Chris Ericson: Yeah. He’s correct. It’s both, both of them. We saw some topside benefits.

Jordan Wathen: All right. Thank you. That’s all from me.

Operator: Your next question will come from the line of Robert Dodd with Raymond James. Please go ahead.

Robert Dodd: Hi. And congratulations on the quarter. Just to dig on the credit quality for the forward outlook as much of anything else, have you seen multiple comments about margin pressure, etcetera, etcetera, have you seen any impact on end demand? When I look at the new non-accrual, to me, looks like it is arguably, let’s call it a semi-discretionary health care business, maybe. And that was something obviously that you know, at the margin a consumer might reduce usage of. Is it, you know, are you seeing anything on that side or is it €“ to your point, right, is it all margin currently on labor costs or input costs, etcetera?

David Golub: So, I hesitate to use the word all, Robert, because, you know, sit situations vary across the portfolio as large as ours, but the overwhelming pattern is companies that are sustaining revenues, in many cases continuing to grow revenues. To the degree they’re producing disappointing results, it’s not because of a revenue shortfall. It’s because of a margin shortfall. And when you then pull back piece of the onion to understand why there is a margin shortfall. It’s €“ again, the most common patterns relate to wage increases and raw material price increases that they have not yet may not be able to. So, I don’t mean by saying have not yet, it’s a sure thing they will be able to, but have not yet passed through in the form of price increases. I think that’s reflective not just of our experience at Golub Capital. I think that’s broadly what we’re seeing outside of our portfolio, as well as within our portfolio.

Q €“ Robert Dodd: Got it. I appreciate that. One more if I can. I mean, you’ve talked obviously a more lender friendly environment out there. I mean, where were you seeing the most material shift, I mean, obviously, spreads are widening, but is it the EBITDA definition that’s improving materially or the OID? Can you give us any color on, you know, where the shifts are most cut out?