Moody's assigns first-time Baa3 issuer and senior unsecured ratings to Goldman Sachs BDC | Business Development Companies Message Board Posts
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Msg  3274 of 3300  at  1/23/2020 7:08:13 AM  by


The following message was updated on 1/23/2020 7:11:28 AM.

Moody's assigns first-time Baa3 issuer and senior unsecured ratings to Goldman Sachs BDC


New York, January 22, 2020 -- Moody's Investors Service, ("Moody's") has assigned a Baa3 issuer rating to Goldman Sachs BDC, Inc. (GSBD), a publicly traded business development company (BDC) managed by Goldman Sachs Asset Management, L.P. (GSAM), an asset manager indirectly owned by The Goldman Sachs Group, Inc. (GS; A3 stable). Moody's has also assigned a Baa3 rating to GSBD's $155 million senior unsecured convertible notes due 2022. The outlook is stable.


..Issuer: Goldman Sachs BDC, Inc.

.... Issuer Rating, Assigned Baa3

.... Senior Unsecured Conv./Exch. Bond/Debenture, Assigned Baa3

Outlook Actions:

..Issuer: Goldman Sachs BDC, Inc.

.... Outlook, Stable

See the source image


The Baa3 issuer and senior unsecured ratings reflect GSBD's standalone assessment of Ba1 and one notch of affiliate support rating uplift based on Moody's expectation that GS would provide support to GSBD, if necessary.

GSBD's stand-alone assessment of Ba1 is based on the competitive benefits to the company from its affiliation with GSAM, including investment and funding opportunities, as well as GS' strong oversight of GSBD with respect to underwriting and risk management. Credit strengths also include GSBD's increasing focus on first-lien senior secured loans in its investment portfolio and historically high net investment income relative to assets. Credit challenges include the potential that GSBD could increase debt to equity leverage to a higher level compared to peer BDCs, which would reduce the company's default cushion in relation to its asset coverage covenant. In addition GSBD has a high debt maturity concentration in 2023, higher single name portfolio company concentrations relative to rated peers, and a limited operating history, resulting in an untested company performance during a downturn.

GSBD's ratings also reflects its forthcoming merger with Goldman Sachs Middle Market Lending Corp (MMLC), a private BDC affiliated with GSBD through GSAM. Management expects the merger, which was announced in December 2019, to close during the second quarter of 2020, subject to stockholder approval and other closing conditions. The merger will more than double the size of GSBD's investment portfolio to approximately $3.1 billion (pro forma at 30 September 2019), which in Moody's view will provide operating benefits associated with larger scale while also moderately increasing investment portfolio diversification.

GSBD has increased the proportion of first-lien lending in its portfolio, which should benefit the company's asset quality and result in earnings stability when credit conditions deteriorate. At 30 September 2019, first-lien loans represented 72.4% of GSBD's $1.4 billion investment portfolio, up from less than 50% 18 months earlier. GSBD's portfolio is less granular than some BDCs of similar scale, which increases risks to earnings stability. Moody's expects that GSBD's growing scale and continued concentration management efforts will improve the risk profile of the company's investment portfolio.

Since its March 2015 IPO, GSBD has reported strong net investment income as a percentage of assets of more than 6% annually, which compares well with more established peers. Aiding the company's profits are lower management fees compared to many peers. However, the company's ratio of net income to assets has been weakened by realized and unrealized losses in each of the last four years and has been on the lower end of the peer range.

GSBD's debt-to-equity leverage measured 1.07x at 30 September 2019 and its asset coverage ratio measured 193%, providing a strong 29% cushion relative to the company's 150% statutory minimum asset coverage requirement. But GSBD has not communicated a formal leverage target, which results in less clarity with respect to the strength of its default cushion compared to many peers. Moody's views GSBD's potential to operate with a narrower default cushion compared to peers as a key credit challenge.

GSBD's main source of debt funding is its $795 million secured line of credit. Though GSBD's refinancing risk is limited over the outlook period, the company has a high debt maturity concentration in 2023 and a high reliance on secured debt. Greater diversification of funding sources that improves the laddering of debt maturities would be positive for GSBD's credit profile.

GSBD's issuer rating incorporates one notch of uplift by applying Moody's Joint Default Analysis, reflecting Moody's assumption of low probability of support from GS (A3, stable) and a very high dependence. Moody's does not view GS support extending above a Baa3 GSBD stand-alone assessment. If GSBD were to improve its stand-alone assessment to Baa3, Moody's would cease incorporating GS support uplift in GSBD's rating. Moody's does not have any particular governance concerns for GSBD.

My GSBD data

     Q3-19     Q2-19     Q1-19     Q4-18     Q3-18     Q2-18     Q1-18     Q4-17     Q3-17     Q2-17     Q1-17     Q4-16     Q3-16     Q2-16     Q1-16     Q4-15     Q3-15     Q2-15     Q1-15
Total investment income 36.85638.40136.53735.96937.98337.23835.54134.16034.41236.01732.19230.49333.95029.32131.34431.85232.89627.31626.372
Net investment income 18.97219.08722.28522.37221.56620.16318.73519.00018.94524.09317.95518.14018.67718.19821.21222.42320.60215.80915.746
Investments @ fair value 1,441.31,533.71,405.11,375.41,318.3 1,237.3 1,256.7 1,281.5 1,178.7 1,111.8 1,164.0 1,167.3 1,143.0 1,1151,1001,0811,1501,005 910
Wt Av Share Count 40.333 40.297 40.261 40.223 40.192 40.17240.15140.12740.10737.90236.34136.33036.32036.11236.30736.30536.29336.28830.314
Calculated TII/share  $0.9138 $0.9529 $0.9239 $0.8942 $0.9450 $0.9270 $0.8852 $0.8513 $0.8580 $0.9503 $0.8858 $0.8393 $0.9347 $0.8075 $0.8633 $0.8773 $0.9064 $0.7527 $0.8700
Calculated NII/share $0.4704$0.4736$0.5535$0.5562$0.5366 $0.5019$0.4666$0.4735$0.4724$0.6357$0.4941$0.4993$0.5142$0.5012$0.5842$0.6176$0.5677$0.4357$0.5194
GSBD reported NII/share $0.47 $0.47 $0.55$0.56 $0.54 $0.50 $0.47 $0.47 $0.47 $0.64 $0.49 $0.50 $0.51 $0.50$0.58$0.62$0.57$0.44$0.52
Weighted Average Yield 8.9% 9.4%11.1%11.3%11.7%11.5%11.5%11.4%11.5%12.5%11.8%11.8%11.8%11.6%11.8%11.7%11.1%11.3%11.3%
Annualized TII/Investments10.23%10.02%10.40%10.46%11.52%12.04%11.31%10.66%11.68%12.96%11.06%10.45%11.88%10.52%11.40%11.79%11.44%10.99%11.59%
Wt Av Debt/EBITDA 5.4x 5.5x 5.3x 5.6x 5.3x5.2x5.1x5.3x5.3x5.0x4.6x4.8x4.6x4.4x4.5x4.3x4.4x4.2x4.2x
Interest Coverage 2.4x 2.3x 2.2x 2.2x 2.2x2.2x2.3x2.3x2.5x2.6x2.7x2.7x2.9x3.0x3.0x3.1x2.9x3.0x3.0x

     Q3-19     Q2-19     Q1-19     Q4-18     Q3-18     Q2-18     Q1-18     Q4-17     Q3-17     Q2-17     Q1-17     Q4-16     Q3-16     Q2-16     Q1-16     Q4-15     Q3-15     Q2-15     Q1-15
Debt 727,742842,820704,395 659,101 573.292 504.712 526.493 542.526 443.805 408.085 501.617 498.152 471.536 468.550 428.050 419.000 447.000 301.000 224.000
Debt/share 18.043320.915217.495716.3862 14.2612.563813.112813.520211.065510.766813.803113.711912.982812.974911.789711.541112.3164 8.2947 7.3893
Debt/share to NAV  106.64% 121.53% 101.42% 98.84% 78.68% 69.49% 72.44% 74.74% 60.70% 59.06% 75.59% 74.89% 69.88% 70.48% 63.15% 60.84% 63.55% 42.62% 38.07%
Interest expense 9.869 9.501 8.453 7.904 6.432 6.173 5.723 5.372 4.884 4.839 4.512 4.390 3.628 3.246 3.035 3.049 3.053 2.117 2.486
Interest expense/share 0.2447 0.2358 0.2100 0.1965 0.1600 0.1537 0.1425 0.1339 0.1218 0.12770.12420.1208 0.0999 0.0899 0.0836 0.0840 0.0841 0.0583 0.0820
Interest expense/TII 26.78% 24.74% 23.14% 21.97% 16.93% 16.58% 16.10% 15.73% 14.19% 13.44%14.02%14.40% 10.67% 11.07% 9.68% 9.57% 9.28% 7.75% 9.43%
Annualized Int exp/Debt 5.42% 4.51% 4.80% 4.80% 4.49% 4.89% 4.35% 3.96% 4.40% 4.74% 3.60% 3.52% 3.08% 2.77% 2.84% 2.91% 2.73% 2.81% 4.44%

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