UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

  

 

 

FORM 10-Q

 

þ                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended December 31, 2014

 

OR

 

¨        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _____ to _____

 

Commission File Number 814-00794

 

Golub Capital BDC, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   27-2326940
(State or other jurisdiction of incorporation or organization)    (I.R.S. Employer Identification No.)

 

150 South Wacker Drive, Suite 800

Chicago, IL 60606

(Address of principal executive offices)

 

(312) 205-5050

(Registrant's telephone number, including area code)

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ   No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ¨ No   ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

  Large accelerated filer   þ Accelerated filer ¨
  Non-accelerated filer  ¨  (Do not check if a smaller reporting company) Smaller reporting company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨  No þ

 

As of February 6, 2015, the Registrant had 47,171,518 shares of common stock, $0.001 par value, outstanding.

 

 

 

 
 

  

Part I. Financial Information  
     
Item 1. Financial Statements 3
     
  Consolidated Statements of Financial Condition as of December 31, 2014 (unaudited) and September 30, 2014 3
     
  Consolidated Statements of Operations for the three months ended December 31, 2014 (unaudited) and 2013 (unaudited) 4
     
  Consolidated Statements of Changes in Net Assets for the three months ended December 31, 2014 (unaudited) and 2013 (unaudited) 5
     
  Consolidated Statements of Cash Flows for the three months ended December 31, 2014 (unaudited) and 2013 (unaudited) 6
     
  Consolidated Schedules of Investments as of December 31, 2014 (unaudited) and September 30, 2014 7
     
  Notes to Consolidated Financial Statements (unaudited) 25
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 55
     
Item 3. Quantitative And Qualitative Disclosures About Market Risk 82
     
Item 4. Controls and Procedures 83
     
Part II.  Other Information  
     
Item 1. Legal Proceedings 84
     
Item 1A. Risk Factors 84
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 84
     
Item 3. Defaults Upon Senior Securities 84
     
Item 4. Mine Safety Disclosures 84
     
Item 5. Other Information 84
     
Item 6. Exhibits 85

 

2
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
(In thousands, except share and per share data)

 

   December 31, 2014   September 30, 2014 
Assets   (unaudited)      
Investments, at fair value          
Non-controlled/non-affiliate company investments  $1,357,614   $1,309,701 
Non-controlled affiliate company investments   3,407    3,080 
Controlled affiliate company investments   39,705    34,831 
Total investments, at fair value (cost of $1,391,805 and $1,337,580, respectively)   1,400,726    1,347,612 
Cash and cash equivalents   5,740    5,135 
Restricted cash and cash equivalents   35,686    74,808 
Interest receivable   6,185    5,791 
Deferred financing costs   9,436    9,515 
Receivable from investments sold   2,232    - 
Other assets   578    527 
Total Assets  $1,460,583   $1,443,388 
           
Liabilities          
Debt  $714,650   $697,150 
Secured borrowings, at fair value (proceeds of $376 and $384, respectively)   380    389 
Interest payable   4,455    3,196 
Management and incentive fees payable   5,853    8,451 
Accounts payable and accrued expenses   1,468    1,397 
Accrued trustee fees   59    66 
Total Liabilities   726,865    710,649 
Commitments and contingencies (Note 8)          
           
Net Assets          
Preferred stock, par value $0.001 per share, 1,000,000 shares authorized, zero shares issued and outstanding as of December 31, 2014 and September 30, 2014   -    - 
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 47,171,518 and 47,119,498 shares issued and outstanding as of December 31, 2014 and September 30, 2014, respectively   47    47 
Paid in capital in excess of par   721,364    720,479 
Undistributed net investment income   3,106    3,627 
Net unrealized appreciation (depreciation) on investments and secured borrowings   11,583    12,694 
Net realized gain (loss) on investments   (2,382)   (4,108)
Total Net Assets   733,718    732,739 
Total Liabilities and Total Net Assets  $1,460,583   $1,443,388 
           
Number of common shares outstanding   47,171,518    47,119,498 
Net asset value per common share  $15.55   $15.55 

 

See Notes to Consolidated Financial Statements.

 

3
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Statements of Operations (unaudited)
(In thousands, except share and per share data)

 

   Three months ended December 31, 
   2014   2013 
Investment income          
From non-controlled/non-affiliate company investments:          
Interest income  $26,769   $24,157 
Dividend income   18    16 
Fee income   208    829 
Total investment income from non-controlled/non-affiliate company investments   26,995    25,002 
           
From non-controlled affiliate company investments:          
Interest income   -    225 
Fee income   -    171 
Total investment income from non-controlled affiliate company investments   -    396 
           
From controlled affiliate company investments:          
Interest income   550    181 
Total investment income from controlled affiliate company investments   550    181 
           
Total investment income   27,545    25,579 
           
Expenses          
Interest and other debt financing expenses   5,694    4,092 
Base management fee   4,821    3,824 
Incentive fee   1,071    3,032 
Professional fees   629    658 
Administrative service fee   607    582 
General and administrative expenses   166    131 
           
Total expenses   12,988    12,319 
           
Net investment income   14,557    13,260 
           
Net gain (loss) on investments and secured borrowings          
Net realized gains (losses):          
Non-controlled/non-affiliate company investments   1,726    (4,994)
Net realized gains (losses):   1,726    (4,994)
           
Net unrealized appreciation (depreciation):          
Non-controlled/non-affiliate company investments   (1,412)   6,133 
Non-controlled affiliate company investments   327    274 
Controlled affiliate company investments   (26)   240 
Net unrealized appreciation (depreciation)   (1,111)   6,647 
           
Net change in unrealized depreciation (appreciation) on secured borrowings   -    (76)
           
Net gain (loss) on investments and secured borrowings   615    1,577 
           
Net increase in net assets resulting from operations  $15,172   $14,837 
           
Per Common Share Data          
Basic and diluted earnings per common share  $0.32   $0.34 
Dividends and distributions declared per common share  $0.32   $0.32 
Basic and diluted weighted average common shares outstanding   47,121,194    43,285,250 

 

See Notes to Consolidated Financial Statements.

 

4
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Statements of Changes in Net Assets (unaudited)
(In thousands, except share data)

 

                   Net Unrealized         
                   Appreciation         
   Common Stock   Paid in Capital       (Depreciation) on         
       Par   in Excess   Undistributed Net   Investments and   Net Realized Gain   Total 
   Shares   Amount   of Par   Investment Income   Secured Borrowings   (Loss) on Investments   Net Assets 
Balance at September 30, 2013   43,282,932   $43   $652,669   $2,725   $9,225   $(6,426)  $658,236 
Issuance of common stock, net of offering and underwriting costs   -    -    -    -    -    -    - 
Net increase in net assets resulting from operations   -    -    -    13,260    6,571    (4,994)   14,837 
Distributions to stockholders:                                   
Stock issued in connection with dividend reinvestment plan   42,643    -    758    -    -    -    758 
Dividends and distributions   -    -    -    (13,850)   -    -    (13,850)
Balance at December 31, 2013   43,325,575   $43   $653,427   $2,135   $15,796   $(11,420)  $659,981 
Balance at September 30, 2014   47,119,498   $47   $720,479   $3,627   $12,694   $(4,108)  $732,739 
Issuance of common stock, net of offering and underwriting costs   -    -    -    -    -    -    - 
Net increase in net assets resulting from operations   -    -    -    14,557    (1,111)   1,726    15,172 
Distributions to stockholders:                                   
Stock issued in connection with dividend reinvestment plan   52,020    -    885    -    -    -    885 
Dividends and distributions   -    -    -    (15,078)   -    -    (15,078)
Balance at December 31, 2014   47,171,518   $47   $721,364   $3,106   $11,583   $(2,382)  $733,718 

 

See Notes to Consolidated Financial Statements.

 

5
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (unaudited)
(In thousands)

 

   Three Months Ended December 31, 
   2014   2013 
Cash flows from operating activities          
Net increase in net assets resulting from operations  $15,172   $14,837 
Adjustments to reconcile net increase in net assets resulting from operations  to net cash (used in) provided by operating activities          
Amortization of deferred financing costs   1,047    439 
Accretion of discounts and amortization of premiums   (1,670)   (1,865)
Net realized (gain) loss on investments   (1,726)   4,994 
Net change in unrealized (appreciation) depreciation on investments   1,111    (6,647)
Net change in unrealized appreciation (depreciation) on secured borrowings   -    76 
Proceeds from (fundings of) revolving loans, net   90    277 
Fundings of investments   (131,470)   (256,213)
Proceeds from principal payments and sales of portfolio investments   80,941    103,570 
PIK interest   (390)   653 
Changes in operating assets and liabilities:          
Interest receivable   (394)   138 
Receivable for investments sold   (2,232)   - 
Other assets   (51)   73 
Interest payable   1,259    1,882 
Management and incentive fees payable   (2,598)   1,172 
Payable for investments purchased   -    (2,020)
Accounts payable and accrued expenses   71    (265)
Accrued trustee fees   (7)   - 
Net cash (used in) provided by operating activities   (40,847)   (138,899)
           
Cash flows from investing activities          
Net change in restricted cash and cash equivalents   39,122    (1,384)
Net cash (used in) provided by investing activities   39,122    (1,384)
           
Cash flows from financing activities          
Borrowings on debt   33,550    215,350 
Repayments of debt   (16,050)   (50,250)
Capitalized debt financing costs   (968)   (1,581)
Proceeds from secured borrowings   -    16,448 
Repayments on secured borrowings   (9)   (11,010)
Dividends and distributions paid   (14,193)   (13,092)
Net cash (used in) provided by financing activities   2,330    155,865 
           
Net change in cash and cash equivalents   605    15,582 
           
Cash and cash equivalents, beginning of period   5,135    16,309 
           
Cash and cash equivalents, end of period  $5,740   $31,891 
           
Supplemental information:          
Cash paid during the period for interest  $3,383   $1,592 
Dividends and distributions declared during the period   15,078    13,850 

 

See Notes to Consolidated Financial Statements.

 

6
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (unaudited)
December 31, 2014
(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest   Maturity  Principal / Par       of   Fair 
   Type  Index (1)  Rate(2)   Date  Amount   Cost   Net Assets   Value 
                              
Investments                                  
United States                                  
Debt investments                                  
Aerospace and Defense                                  
ILC Dover, LP  One stop  P + 4.50%   7.75%  03/2019  $600   $593    0.1%  $564 
ILC Dover, LP^  One stop  L + 5.50%   6.50%  03/2020   18,477    18,357    2.4    17,923 
ILC Industries, Inc.(3)  One stop  L + 4.75%   N/A(4)  07/2020   -    (31)   -    - 
ILC Industries, Inc.*^  One stop  L + 4.75%   5.75%  07/2020   28,331    28,069    3.8    28,331 
NTS Technical Systems(3)  One stop  L + 5.50%   N/A(4)  11/2018   -    (30)   -    - 
NTS Technical Systems*^  One stop  L + 5.50%   6.75%  11/2018   18,823    18,540    2.6    18,823 
NTS Technical Systems(3)  One stop  L + 5.50%   N/A(4)  11/2018   -    (63)   -    - 
Tresys Technology Holdings, Inc.  One stop  L + 6.75%   8.00%  12/2017   188    182    -    188 
Tresys Technology Holdings, Inc.  One stop  L + 6.75%   8.00%  12/2017   3,899    3,841    0.3    1,950 
Whitcraft LLC  Subordinated debt  N/A   12.00%  12/2018   1,877    1,858    0.3    1,877 
                  72,195    71,316    9.5    69,656 
Automobile                                  
American Driveline Systems, Inc.  Senior loan  L + 5.50%   7.17%  01/2016   306    303    -    267 
American Driveline Systems, Inc.*  Senior loan  L + 5.50%   7.00%  01/2016   2,790    2,771    0.3    2,511 
K&N Engineering, Inc.(3)  Senior loan  L + 4.25%   N/A(4)  07/2019   -    (4)   -    - 
K&N Engineering, Inc.^  Senior loan  L + 4.25%   5.25%  07/2019   2,905    2,855    0.4    2,905 
K&N Engineering, Inc.(3)  Senior loan  L + 4.25%   N/A(4)  07/2019   -    (18)   -    - 
Take 5 Oil Change, L.L.C.(3)  Senior loan  L + 5.25%   N/A(4)  07/2018   -    (7)   -    - 
Take 5 Oil Change, L.L.C.^  Senior loan  L + 5.25%   6.25%  07/2018   4,860    4,831    0.7    4,860 
                  10,861    10,731    1.4    10,543 
                                   
Banking                                  
HedgeServ Holding L.P.^  One stop  L + 8.25%   5.25% cash/4.00% PIK   02/2019   17,416    17,277    2.4    17,416 
HedgeServ Holding L.P.(3)  One stop  L + 4.25%   N/A(4)  02/2019   -    (8)   -    - 
Prommis Fin Co.(6)  Senior loan  P + 10.00%   13.25%  06/2015   82    81    -    2 
Prommis Fin Co.*(6)  Senior loan  N/A   2.25% cash/11.5% PIK   06/2015   119    119    -    3 
                  17,617    17,469    2.4    17,421 
Beverage, Food and Tobacco                                  
ABP Corporation  Senior loan  P + 3.50%   7.25%  09/2018   209    203    -    209 
ABP Corporation*  Senior loan  L + 4.75%   6.00%  09/2018   4,783    4,719    0.7    4,783 
ARG IH Corporation (Arby's)^  Senior loan  L + 3.75%   4.75%  11/2020   2,331    2,306    0.3    2,328 
Atkins Nutritionals, Inc*^  One stop  L + 5.00%   6.25%  01/2019   23,873    23,695    3.2    23,574 
Atkins Nutritionals, Inc*  One stop  L + 8.50%   9.75%  04/2019   21,636    21,343    2.9    21,527 
C. J. Foods, Inc.(3)  One stop  L + 5.50%   N/A(4)  05/2019   -    (9)   -    - 
C. J. Foods, Inc.(3)  One stop  L + 5.50%   N/A(4)  05/2019   -    (12)   -    - 
C. J. Foods, Inc.  One stop  L + 5.50%   6.50%  05/2019   3,216    3,174    0.4    3,216 
Candy Intermediate Holdings, Inc. (Ferrara Candy)^  Senior loan  L + 6.25%   7.50%  06/2018   4,875    4,775    0.6    4,717 
Diversified Foodservice Supply, Inc.(3)  Senior loan  L + 4.50%   N/A(4)  12/2018   -    (3)   -    - 
Diversified Foodservice Supply, Inc.*  Senior loan  L + 4.50%   5.75%  12/2018   4,556    4,520    0.6    4,556 
Firebirds International, LLC(3)  One stop  L + 6.25%   N/A(4)  05/2018   -    (2)   -    - 
Firebirds International, LLC*  One stop  L + 6.25%   7.50%  05/2018   1,090    1,077    0.2    1,090 
Firebirds International, LLC  One stop  L + 6.25%   7.50%  05/2018   304    299    -    304 
Firebirds International, LLC(3)  One stop  L + 6.25%   N/A(4)  05/2018   -    (4)   -    - 
First Watch Restaurants, Inc.(3)  One stop  L + 7.50%   N/A(4)  12/2018   -    (22)   -    - 
First Watch Restaurants, Inc.*^  One stop  L + 7.50%   8.75%  12/2018   14,327    14,174    2.0    14,327 
First Watch Restaurants, Inc.^  One stop  L + 7.50%   8.75%  12/2018   1,748    1,743    0.2    1,748 
IT'SUGAR LLC  Senior loan  L + 7.50%   9.00%  04/2018   7,547    7,445    1.0    7,547 
IT'SUGAR LLC  Subordinated debt  N/A   5.00%  10/2017   1,707    1,707    0.3    1,847 
Julio & Sons Company  One stop  L + 5.50%   6.50%  09/2017   426    417    0.1    426 
Julio & Sons Company*  One stop  L + 5.50%   6.50%  09/2017   6,960    6,903    0.9    6,960 
Julio & Sons Company(3)  One stop  L + 5.50%   N/A(4)  09/2017   -    (31)   -    - 
Northern Brewer, LLC  One stop  P + 9.25%   8.50% cash/4.00% PIK   02/2018   683    672    0.1    475 
Northern Brewer, LLC  One stop  P + 9.25%   8.50% cash/4.00% PIK   02/2018   6,386    6,272    0.6    4,470 
Tate's Bake Shop, Inc.(3)  Senior loan  L + 4.75%   N/A(4)  08/2019   -    (4)   -    - 
Tate's Bake Shop, Inc.^  Senior loan  L + 4.75%   5.75%  08/2019   3,000    2,972    0.4    3,000 
Tate's Bake Shop, Inc.(3)  Senior loan  L + 4.75%   N/A(4)  08/2019   -    (5)   -    - 
Uinta Brewing Company(3)  One stop  L + 6.00%   N/A(4)  08/2019   -    (7)   -    - 
Uinta Brewing Company^  One stop  L + 6.00%   7.00%  08/2019   3,228    3,198    0.5    3,228 
                  112,885    111,515    15.0    110,332 
Building and Real Estate                                  
Accruent, LLC*  One stop  L + 6.25%   7.28%  11/2019   4,757    4,710    0.6    4,709 
Brooks Equipment Company, LLC (3)  One stop  L + 5.75%   N/A(4)  08/2020   -    (19)   -    - 
Brooks Equipment Company, LLC*^  One stop  L + 5.75%   6.75%  08/2020   26,776    26,401    3.7    26,776 
ITEL Laboratories, Inc.(3)  Senior loan  L + 4.75%   N/A(4)  06/2018   -    (1)   -    - 

 

See Notes to Consolidated Financial Statements.

 

7
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (unaudited) – (continued)
December 31, 2014
(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest   Maturity  Principal / Par       of   Fair 
   Type  Index (1)  Rate(2)   Date  Amount   Cost   Net Assets   Value 
ITEL Laboratories, Inc.*  Senior loan  L + 4.75%   6.00%  06/2018   754    747    0.1    754 
                  32,287    31,838    4.4    32,239 
Cargo Transport                                  
RP Crown Parent (RedPrairie Corp)*  Senior loan  L + 5.00%   6.00%  12/2018   1,965    1,939    0.3    1,836 
                                   
Containers, Packaging and Glass                                  
Fort Dearborn Company*  Senior loan  P + 3.25%   5.90%  10/2017   7    6    -    7 
Fort Dearborn Company*^  Senior loan  L + 4.25%   5.25%  10/2017   498    496    0.1    498 
Fort Dearborn Company*  Senior loan  P + 3.75%   6.45%  10/2018   24    24    -    24 
Fort Dearborn Company*^  Senior loan  L + 4.75%   5.75%  10/2018   2,174    2,163    0.3    2,174 
Packaging Coordinators, Inc.*^  Senior loan  L + 4.25%   5.25%  08/2021   14,962    14,820    2.0    14,514 
Packaging Coordinators, Inc.  Second Lien  L + 8.00%   9.00%  08/2022   10,000    9,904    1.3    9,750 
                  27,665    27,413    3.7    26,967 
Diversified Conglomerate Manufacturing                                  
Chase Industries, Inc.*^  One stop  L + 5.75%   6.75%  09/2020   21,038    20,838    2.9    21,038 
Chase Industries, Inc.(3)  One stop  L + 5.75%   N/A(4)  09/2020   -    (21)   -    - 
Chase Industries, Inc.(3)  One stop  L + 5.75%   N/A(4)  09/2020   -    (46)   -    - 
ICCN Acquisition Corp.(3)  One stop  L + 5.25%   N/A(4)  03/2019   -    (4)   -    - 
ICCN Acquisition Corp.^  One stop  L + 5.25%   6.25%  03/2019   3,988    3,929    0.5    3,988 
ICCN Acquisition Corp.(3)  One stop  L + 5.25%   N/A(4)  03/2019   -    (13)   -    - 
Metal Spinners, Inc.*  Senior loan  L + 7.50%   9.00%  04/2015   1,280    1,277    0.2    1,280 
Metal Spinners, Inc.*  Senior loan  L + 7.50%   9.00%  04/2015   2,499    2,493    0.3    2,499 
Onicon Incorporated(3)  One stop  L + 4.50%   N/A(4)  12/2017   -    (10)   -    (12)
Onicon Incorporated*  One stop  L + 4.50%   5.84%  12/2017   3,328    3,286    0.4    3,279 
Onicon Incorporated  One stop  P + 3.50%   5.84%  12/2017   1,237    1,221    0.2    1,218 
Pasternack Enterprises, Inc.*  Senior loan  L + 5.00%   6.25%  12/2017   1,079    1,073    0.1    1,079 
Plex Systems, Inc.(3)  One stop  L + 7.50%   N/A(4)  06/2018   -    (26)   -    - 
Plex Systems, Inc.*^  One stop  L + 7.50%   8.75%  06/2018   18,797    18,415    2.6    18,797 
Sunless Merger Sub, Inc.(3)  Senior loan  L + 5.25%   N/A(4)  07/2016   -    (1)   -    (22)
Sunless Merger Sub, Inc.*  Senior loan  L + 5.25%   6.50%  07/2016   1,786    1,779    0.2    1,340 
TIDI Products, LLC(3)  One stop  L + 6.50%   N/A(4)  07/2017   -    (10)   -    - 
TIDI Products, LLC*^  One stop  L + 6.50%   7.75%  07/2018   16,677    16,463    2.3    16,677 
Vintage Parts, Inc.*  One stop  L + 4.50%   5.75%  12/2015   3,924    3,902    0.5    3,924 
Vintage Parts, Inc.*  One stop  L + 4.50%   5.75%  12/2015   54    54    -    54 
Vintage Parts, Inc.*  One stop  L + 4.50%   5.75%  12/2015   820    823    0.1    820 
                  76,507    75,422    10.3    75,959 
Diversified Conglomerate Service                                  
Accellos, Inc.(3)  One stop  L + 5.75%   N/A(4)  07/2020   -    (19)   -    - 
Accellos, Inc.^  One stop  L + 5.75%   6.76%  07/2020   31,035    30,679    4.2    31,035 
Aderant North America, Inc.*  Senior loan  L + 4.25%   5.25%  12/2018   4,220    4,192    0.6    4,220 
Agility Recovery Solutions Inc.(3)  One stop  L + 6.75%   N/A(4)  09/2018   -    (5)   -    - 
Agility Recovery Solutions Inc.*  One stop  L + 6.75%   8.00%  09/2018   8,076    7,952    1.1    8,076 
Bomgar Corporation(3)  One stop  L + 6.00%   N/A(4)  05/2019   -    (17)   -    - 
Bomgar Corporation*  One stop  L + 6.00%   7.00%  05/2020   29,350    28,886    4.0    29,350 
Daxko, LLC(3)  One stop  L + 7.75%   N/A(4)  03/2019   -    (22)   -    - 
Daxko, LLC  One stop  L + 7.75%   8.75%  03/2019   16,840    16,579    2.3    16,840 
DISA Holdings Acquisition Subsidiary Corp.  Senior loan  P + 3.50%   6.75%  12/2020   138    127    -    127 
DISA Holdings Acquisition Subsidiary Corp.^  Senior loan  P + 3.50%   6.75%  12/2020   4,637    4,592    0.6    4,591 
Integration Appliance, Inc.  One stop  L + 8.25%   9.50%  09/2018   719    711    0.1    719 
Integration Appliance, Inc.  One stop  L + 8.25%   9.50%  09/2018   5,396    5,295    0.7    5,396 
Integration Appliance, Inc.  One stop  L + 8.25%   9.50%  06/2019   7,914    7,737    1.1    7,914 
Marathon Data Operating Co., LLC (3)  One stop  L + 6.25%   N/A(4)  08/2017   -    (6)   -    - 
Marathon Data Operating Co., LLC  One stop  L + 6.25%   7.50%  08/2017   4,584    4,523    0.6    4,584 
NetSmart Technologies, Inc.*  One stop  L + 7.52%   8.77%  12/2017   8,014    7,964    1.1    8,014 
NetSmart Technologies, Inc.  One stop  L + 7.48%   8.73%  12/2017   633    629    0.1    633 
PC Helps Support, LLC(3)  Senior loan  L + 5.25%   N/A(4)  09/2017   -    (2)   -    - 
PC Helps Support, LLC  Senior loan  L + 5.00%   6.28%  09/2017   1,674    1,661    0.2    1,674 
Secure-24, LLC(3)  One stop  L + 6.00%   N/A(4)  08/2017   -    (4)   -    - 
Secure-24, LLC*  One stop  L + 6.00%   7.25%  08/2017   10,406    10,239    1.4    10,406 
Secure-24, LLC^  One stop  L + 6.00%   7.25%  08/2017   1,522    1,505    0.2    1,522 
SoftWriters, Inc.(3)  One stop  L + 4.75%   N/A(4)  05/2019   -    (2)   -    (5)
SoftWriters, Inc.(3)  One stop  L + 4.75%   N/A(4)  05/2019   -    (3)   -    (9)
SoftWriters, Inc.  One stop  L + 4.75%   5.75%  05/2019   6,395    6,372    0.9    6,331 
Source Medical Solutions, Inc.  Second Lien  L + 8.00%   9.00%  03/2018   9,294    9,157    1.2    9,015 
Vendavo, Inc.(3)  One stop  L + 8.50%   N/A(4)  10/2019   -    (15)   -    (16)
Vendavo, Inc.  One stop  L + 8.50%   9.50%  10/2019   15,501    15,167    2.1    15,308 
                  166,348    163,872    22.5    165,725 

 

See Notes to Consolidated Financial Statements.

 

8
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (unaudited) – (continued)
December 31, 2014
(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest   Maturity  Principal / Par       of   Fair 
   Type  Index (1)  Rate(2)   Date  Amount   Cost   Net Assets   Value 
                              
Electronics                                  
Appriss Holdings, Inc. (3)  Senior loan  L + 4.75%   5.75%  11/2020   36    (7)   -    7 
Appriss Holdings, Inc.*  Senior loan  L + 4.75%   5.75%  11/2020   18,190    17,922    2.5    18,008 
ECI Acquisition Holdings, Inc.(3)  One stop  L + 6.25%   N/A(4)  03/2019   -    (16)   -    - 
ECI Acquisition Holdings, Inc.^  One stop  L + 6.25%   8.00%  03/2019   22,159    21,810    3.0    22,159 
ECI Acquisition Holdings, Inc.(3)  One stop  L + 6.25%   N/A(4)  03/2019   -    (75)   -    - 
Rogue Wave Holdings, Inc.*^  One stop  L + 9.04%   10.04%  12/2018   10,481    10,374    1.4    10,481 
Sloan Company, Inc., The(3)  One stop  L + 7.50%   N/A(4)  10/2018   -    (13)   -    - 
Sloan Company, Inc., The*^  One stop  L + 7.50%   8.75%  10/2018   12,943    12,820    1.8    12,943 
Sparta Holding Corporation(3)  One stop  L + 5.25%   N/A(4)  07/2020   -    (35)   -    - 
Sparta Holding Corporation*^  One stop  L + 6.75%   6.25% cash/1.50% PIK   07/2020   23,299    23,031    3.2    23,299 
Syncsort Incorporated(3)  Senior loan  L + 4.75%   N/A(4)  03/2019   -    (3)   -    - 
Syncsort Incorporated(3)  Senior loan  L + 4.75%   N/A(4)  03/2019   -    (12)   -    - 
Syncsort Incorporated*  Senior loan  L + 4.75%   5.75%  03/2019   6,127    6,076    0.8    6,127 
Systems Maintenance Services Holding, Inc.^  Senior loan  L + 4.00%   5.00%  10/2019   2,643    2,633    0.4    2,643 
Taxware, LLC*^  Second Lien  L + 8.38%   9.38%  10/2019   19,979    19,694    2.7    19,979 
Watchfire Enterprises, Inc.  Second Lien  L + 8.00%   9.00%  10/2021   9,435    9,276    1.3    9,435 
                  125,292    123,475    17.1    125,081 
                                   
Finance                                  
Ascensus, Inc.(3)  One stop  L + 4.00%   N/A(4)  11/2018   -    (15)   -    - 
Ascensus, Inc.^  One stop  L + 4.00%   5.00%  12/2019   4,182    4,113    0.6    4,182 
Ascensus, Inc.^  One stop  L + 8.00%   9.00%  12/2020   6,337    6,149    0.9    6,337 
Pillar Processing LLC*(6)  Senior loan  L + 5.50%   5.73%  11/2018   447    445    -    - 
Pillar Processing LLC*(6)  Senior loan  N/A   14.50%  05/2019   2,377    2,368    -    - 
                  13,343    13,060    1.5    10,519 
Grocery                                  
MyWebGrocer, Inc.(3)  One stop  L + 8.75%   N/A(4)  05/2018   -    (15)   -    - 
MyWebGrocer, Inc.^  One stop  L + 8.75%   6.00% cash/4.00% PIK   05/2018   14,271    14,072    1.9    14,271 
Teasdale Quality Foods, Inc.*  Senior loan  L + 4.25%   5.25%  10/2020   4,686    4,595    0.6    4,593 
                  18,957    18,652    2.5    18,864 
Healthcare, Education and Childcare                                  
Advanced Pain Management Holdings, Inc.(3)  Senior loan  L + 5.00%   N/A(4)  02/2018   -    (7)   -    - 
Advanced Pain Management Holdings, Inc.*  Senior loan  L + 5.00%   6.25%  02/2018   7,084    7,039    1.0    7,084 
Advanced Pain Management Holdings, Inc.  Senior loan  L + 5.00%   6.25%  02/2018   485    480    0.1    485 
Agilitas USA, Inc.^  Senior loan  L + 4.00%   5.00%  10/2020   2,464    2,441    0.3    2,440 
Avatar International, LLC(3)  One stop  L + 4.94%   N/A(4)  09/2016   -    (3)   -    - 
Avatar International, LLC*  One stop  L + 7.89%   6.19% cash/2.95% PIK   09/2016   7,633    7,589    0.7    4,961 
Avatar International, LLC  One stop  L + 7.89%   6.19% cash/2.95% PIK   09/2016   1,647    1,640    0.1    1,070 
California Cryobank, LLC  One stop  P + 4.25%   7.50%  08/2019   86    84    -    86 
California Cryobank, LLC^  One stop  L + 5.50%   6.50%  08/2019   1,550    1,536    0.2    1,550 
California Cryobank, LLC  One stop  L + 5.50%   6.50%  08/2019   43    41    -    43 
Certara L.P.  One stop  P + 5.00%   8.25%  12/2018   1,027    1,010    0.1    1,027 
Certara L.P.*^  One stop  L + 6.25%   7.25%  12/2018   26,760    26,446    3.6    26,760 
CLP Healthcare Services, Inc.^  Senior loan  L + 4.75%   5.75%  12/2020   4,451    4,406    0.6    4,429 
CPI Buyer, LLC (Cole-Parmer)*^  Senior loan  L + 4.50%   5.50%  08/2021   14,000    13,475    1.9    13,790 
Data Innovations LLC  One stop  L + 7.74%   8.74%  05/2019   8,778    8,607    1.2    8,778 
Delta Educational Systems*  Senior loan  P + 4.75%   8.00%  12/2016   1,646    1,629    0.2    1,580 
Delta Educational Systems(3)  Senior loan  L + 6.00%   N/A(4)  12/2016   -    -    -    (3)
Encore Rehabilitation Services, LLC(3)  One stop  L + 6.00%   N/A(4)  06/2017   -    (8)   -    - 
Encore Rehabilitation Services, LLC  One stop  L + 6.00%   7.25%  06/2017   4,936    4,870    0.7    4,936 
G & H Wire Company, Inc.(3)  Senior loan  L + 5.75%   N/A(4)  12/2017   -    (6)   -    - 
G & H Wire Company, Inc.*^  Senior loan  L + 5.75%   6.75%  12/2017   12,870    12,746    1.8    12,870 
Global Healthcare Exchange, LLC(3)  One stop  L + 7.50%   N/A(4)  03/2020   -    (22)   -    (38)
Global Healthcare Exchange, LLC*^  One stop  L + 7.50%   8.50%  03/2020   37,161    36,314    5.0    36,604 
GSDM Holdings Corp.  Senior loan  L + 4.25%   5.32%  06/2019   767    764    0.1    767 
IntegraMed America, Inc.  One stop  L + 7.25%   8.50%  09/2017   406    396    0.1    406 
IntegraMed America, Inc.*^  One stop  L + 7.25%   8.50%  09/2017   15,095    14,906    2.1    15,095 
Joerns Healthcare, LLC  One stop  L + 5.00%   6.00%  05/2020   9,770    9,682    1.3    9,660 
Maverick Healthcare Group, LLC*  Senior loan  L + 5.50%   7.25%  12/2016   1,979    1,957    0.3    1,939 
Northwestern Management Services, LLC  Senior loan  P + 4.00%   7.25%  10/2017   114    105    -    114 
Northwestern Management Services, LLC*  Senior loan  L + 5.25%   6.50%  10/2017   3,952    3,906    0.5    3,952 
Northwestern Management Services, LLC  Senior loan  L + 5.25%   6.50%  10/2017   47    44    -    47 
Onsite Holding Corp.(3)  One stop  L + 5.25%   N/A(4)  06/2020   -    (41)   -    - 
Onsite Holding Corp.*^  One stop  L + 5.25%   6.25%  06/2020   26,921    26,705    3.7    26,921 
Paradigm Management Services, LLC^  Senior loan  L + 4.50%   5.51%  01/2019   2,740    2,720    0.4    2,740 
Pentec Acquisition Sub, Inc.(3)  Senior loan  L + 5.25%   N/A(4)  05/2017   -    (2)   -    - 
Pentec Acquisition Sub, Inc.*  Senior loan  L + 5.25%   6.50%  05/2018   1,705    1,685    0.2    1,705 

 

See Notes to Consolidated Financial Statements.

 

9
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (unaudited) – (continued)
December 31, 2014
(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest   Maturity  Principal / Par       of   Fair 
   Type  Index (1)  Rate(2)   Date  Amount   Cost   Net Assets   Value 
Pyramid Healthcare, Inc.^  One stop  P + 4.50%   7.75%  08/2019   254    249    -    254 
Pyramid Healthcare, Inc.^  One stop  L + 5.75%   6.75%  08/2019   7,588    7,527    1.0    7,588 
Radiology Partners, Inc.(3)  One stop  L + 5.00%   N/A(4)  09/2020   -    (7)   -    - 
Radiology Partners, Inc.*^  One stop  L + 5.00%   6.00%  09/2020   17,166    16,906    2.3    17,166 
Radiology Partners, Inc.(3)  One stop  L + 5.00%   N/A(4)  09/2020   -    (44)   -    - 
Reliant Pro ReHab, LLC  Senior loan  P + 4.00%   7.25%  06/2017   119    112    -    119 
Reliant Pro ReHab, LLC*  Senior loan  L + 5.00%   6.00%  06/2017   3,280    3,251    0.4    3,280 
Renaissance Pharma (U.S.) Holdings Inc.  Senior loan  P + 3.00%   6.25%  05/2018   118    115    -    118 
Renaissance Pharma (U.S.) Holdings Inc.*^  Senior loan  L + 4.00%   5.00%  05/2018   4,006    3,959    0.5    4,006 
Southern Anesthesia and Surgical(3)  One stop  L + 5.50%   N/A(4)  11/2017   -    (9)   -    - 
Southern Anesthesia and Surgical  One stop  L + 5.50%   6.50%  11/2017   5,997    5,899    0.8    5,997 
Southern Anesthesia and Surgical(3)  One stop  L + 5.50%   N/A(4)  11/2017   -    (37)   -    - 
Spear Education, LLC(3)  One stop  L + 5.50%   N/A(4)  08/2019   -    (6)   -    - 
Spear Education, LLC*^  One stop  L + 5.50%   6.50%  08/2019   6,005    5,964    0.8    6,005 
Spear Education, LLC  One stop  L + 5.50%   N/A(4)  08/2019   -    -    -    - 
Surgical Information Systems, LLC^  Senior loan  L + 3.50%   4.50%  09/2018   2,018    2,014    0.3    2,018 
U.S. Anesthesia Partners, Inc.  One stop  L + 5.00%   6.00%  12/2019   5,985    5,957    0.8    5,985 
WIL Research Company, Inc.*  Senior loan  L + 4.50%   5.75%  02/2018   774    768    0.1    751 
Young Innovations, Inc.(3)  Senior loan  L + 4.25%   N/A(4)  01/2018   -    (3)   -    - 
Young Innovations, Inc.*^  Senior loan  L + 4.25%   5.25%  01/2019   5,430    5,400    0.7    5,430 
                  254,857    251,149    33.9    250,515 
                                   
Home and Office Furnishings, Housewares, and Durable Consumer                                  
Plano Molding Company, LLC^  Senior loan  L + 4.25%   5.25%  10/2018   1,971    1,960    0.3    1,971 
WII Components, Inc.  Senior loan  L + 4.50%   N/A(4)  07/2018   -    -    -    - 
WII Components, Inc.*  Senior loan  L + 4.50%   5.50%  07/2018   1,123    1,118    0.2    1,123 
Zenith Products Corporation(6)  One stop  P + 3.75%   7.00%  09/2013   81    48    -    40 
Zenith Products Corporation*(6)  One stop  P + 5.50%   8.75%  09/2013   4,376    3,926    0.3    2,188 
                  7,551    7,052    0.8    5,322 
Insurance                                  
Captive Resources Midco, LLC (3)  One stop  L + 5.00%   N/A(4)  01/2019   -    (15)   -    - 
Captive Resources Midco, LLC*^  One stop  L + 5.00%   6.50%  01/2019   19,603    19,437    2.7    19,603 
                  19,603    19,422    2.7    19,603 
Investment Funds and Vehicles                                  
Senior loan Fund LLC (7)(8)  Subordinated debt  L + 8.00%   8.16%  05/2020   28,871    28,871    3.9    28,871 
                                   
Leisure, Amusement, Motion Pictures and Entertainment                                  
Competitor Group, Inc.  One stop  P + 6.75%   9.76%  11/2018   884    874    0.1    760 
Competitor Group, Inc.*  One stop  L + 9.25%   9.00% cash/1.50% PIK   11/2018   12,840    12,697    1.6    11,556 
Octane Fitness, LLC(3)  One stop  L + 5.25%   N/A(4)  10/2018   -    (3)   -    - 
Octane Fitness, LLC*  One stop  L + 5.25%   6.50%  10/2018   7,972    7,941    1.1    7,972 
Pride Manufacturing Company, LLC*  Senior loan  L + 6.00%   7.75%  11/2015   452    450    0.1    452 
Self Esteem Brands, LLC(3)  Senior loan  L + 4.00%   N/A(4)  02/2020   -    (4)   -    - 
Self Esteem Brands, LLC^  Senior loan  L + 4.00%   5.00%  02/2020   7,299    7,260    1.0    7,299 
Starplex Operating, L.L.C.  One stop  L + 7.00%   8.00%  12/2017   192    179    -    192 
Starplex Operating, L.L.C.*^  One stop  L + 7.00%   8.00%  12/2017   10,054    9,900    1.4    10,054 
Titan Fitness, LLC (3)  One stop  L + 6.50%   N/A(4)  09/2019   -    (21)   -    - 
Titan Fitness, LLC*  One stop  L + 6.50%   7.75%  09/2019   13,568    13,319    1.8    13,568 
Titan Fitness, LLC (3)  One stop  L + 6.50%   N/A(4)  09/2019   -    (21)   -    - 
                  53,261    52,571    7.1    51,853 
Mining, Steel, Iron and Non-Precious Metals                                  
Benetech, Inc.  One stop  P + 7.75%   11.00%  10/2017   273    265    -    273 
Benetech, Inc.*  One stop  L + 9.00%   10.25%  10/2017   4,950    4,915    0.7    4,950 
                  5,223    5,180    0.7    5,223 
Oil and Gas                                  
Drilling Info, Inc.(3)(5)  One stop  L + 5.00%   N/A(4)  06/2018   -    (1)   -    - 
Drilling Info, Inc.(5)^  One stop  L + 5.00%   6.00%  06/2018   1,307    1,299    0.2    1,307 
Drilling Info, Inc.(3)(5)  One stop  L + 5.00%   N/A(4)  06/2018   -    (6)   -    - 
                  1,307    1,292    0.2    1,307 
Personal and Non-Durable Consumer Products                                  
C.B. Fleet Company, Incorporated(3)  Senior loan  L + 4.50%   N/A(4)  10/2020   -    (10)   -    (8)
C.B. Fleet Company, Incorporated(3)  Senior loan  L + 4.50%   N/A(4)  10/2020   -    (22)   -    (18)
C.B. Fleet Company, Incorporated^  Senior loan  L + 4.50%   5.50%  10/2020   5,659    5,590    0.8    5,602 
Massage Envy, LLC(3)  One stop  L + 7.25%   N/A(4)  09/2018   -    (12)   -    - 
Massage Envy, LLC*  One stop  L + 7.25%   8.50%  09/2018   15,999    15,752    2.2    15,999 
Rug Doctor LLC(3)  Senior loan  L + 5.25%   N/A(4)  12/2016   -    (8)   -    - 
Rug Doctor LLC*  Senior loan  L + 5.25%   6.25%  12/2016   5,296    5,261    0.7    5,296 

 

See Notes to Consolidated Financial Statements.

 

10
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (unaudited) – (continued)
December 31, 2014
(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest   Maturity  Principal / Par       of   Fair 
   Type  Index (1)  Rate(2)   Date  Amount   Cost   Net Assets   Value 
Team Technologies Acquisition Company^  Senior loan  L + 5.00%   6.25%  12/2017   4,819    4,781    0.7    4,819 
Team Technologies Acquisition Company  Senior loan  P + 3.75%   7.00%  12/2017   152    150    -    152 
                  31,925    31,482    4.4    31,842 
Personal, Food and Miscellaneous Services                                  
Affordable Care Inc.(3)  Senior loan  L + 4.50%   N/A(4)  12/2017   -    (2)   -    - 
Affordable Care Inc.^  Senior loan  L + 4.50%   5.50%  12/2018   4,006    3,973    0.5    4,006 
Focus Brands Inc.^  Second Lien  L + 9.00%   10.25%  08/2018   11,195    11,099    1.5    11,278 
Ignite Restaurant Group, Inc (Joe's Crab Shack)^  One stop  L + 7.00%   8.00%  02/2019   6,155    6,070    0.8    6,155 
PetVet Care Centers LLC(3)  Senior loan  L + 4.50%   N/A(4)  12/2019   -    (25)   -    (14)
PetVet Care Centers LLC(3)  Senior loan  L + 4.50%   N/A(4)  12/2020   -    (46)   -    (25)
PetVet Care Centers LLC*^  Senior loan  L + 4.50%   5.50%  12/2020   11,941    11,719    1.6    11,821 
R.G. Barry Corporation*  Senior loan  L + 5.00%   6.00%  09/2019   6,787    6,703    0.9    6,787 
Vetcor Merger Sub LLC  One stop  L + 6.50%   7.75%  12/2017   472    467    0.1    472 
Vetcor Merger Sub LLC*^  One stop  L + 6.50%   7.75%  12/2017   5,825    5,786    0.8    5,825 
Vetcor Merger Sub LLC(3)  One stop  L + 6.50%   N/A(4)  12/2017   -    (1)   -    - 
Vetcor Merger Sub LLC^  One stop  L + 6.50%   7.75%  12/2017   370    370    0.1    370 
Vetcor Merger Sub LLC^  One stop  L + 6.50%   7.75%  12/2017   571    571    0.1    571 
Vetcor Merger Sub LLC^  One stop  L + 6.50%   7.75%  12/2017   382    382    0.1    382 
Vetcor Merger Sub LLC  One stop  L + 6.50%   7.75%  12/2017   646    646    0.1    646 
Vetcor Merger Sub LLC  One stop  L + 6.50%   7.75%  12/2017   62    62    -    62 
                  48,412    47,774    6.6    48,336 
Printing and Publishing                                  
Market Track, LLC(3)  One stop  L + 6.00%   N/A(4)  10/2019   -    (17)   -    - 
Market Track, LLC*^  One stop  L + 6.00%   7.25%  10/2019   29,197    28,963    4.0    29,197 
Market Track, LLC  One stop  L + 6.00%   7.25%  10/2019   1,213    1,197    0.2    1,213 
                  30,410    30,143    4.2    30,410 
Retail Stores                                  
Benihana, Inc.(3)  One stop  L + 5.50%   N/A(4)  07/2018   -    (57)   -    - 
Benihana, Inc.*^  One stop  L + 5.50%   6.75%  01/2019   15,554    15,168    2.1    15,554 
Boot Barn, Inc.*^  One stop  L + 5.75%   6.75%  05/2019   8,939    8,727    1.2    8,939 
Boot Barn, Inc.*  One stop  L + 5.75%   6.75%  05/2019   2,827    2,803    0.4    2,827 
Capital Vision Services, LLC(3)  One stop  L + 6.00%   N/A(4)  12/2019   -    (21)   -    (9)
Capital Vision Services, LLC*^  One stop  L + 6.00%   7.00%  12/2019   26,785    26,540    3.6    26,619 
Capital Vision Services, LLC^  One stop  L + 6.00%   7.00%  12/2019   1,510    1,497    0.2    1,500 
Capital Vision Services, LLC  One stop  L + 6.00%   7.00%  12/2019   1,521    1,515    0.2    1,512 
Capital Vision Services, LLC  One stop  L + 6.00%   7.00%  12/2019   773    763    0.1    763 
DentMall MSO, LLC  One stop  L + 5.00%   6.00%  07/2019   678    655    0.1    678 
DentMall MSO, LLC  One stop  L + 5.00%   6.00%  07/2019   10,328    10,235    1.4    10,328 
DTLR, Inc.*^  One stop  L + 8.00%   11.00%  12/2015   15,675    15,623    2.1    15,675 
Express Oil Change, LLC  Senior loan  L + 4.75%   6.12%  12/2017   149    147    -    149 
Express Oil Change, LLC*  Senior loan  P + 3.50%   6.75%  12/2017   1,918    1,906    0.3    1,918 
Express Oil Change, LLC  Senior loan  P + 3.50%   6.75%  12/2017   109    108    -    109 
Floor & Decor Outlets of America, Inc.*^  One stop  L + 6.50%   7.75%  05/2019   11,216    11,114    1.5    11,216 
Marshall Retail Group, LLC, The(3)  One stop  L + 6.00%   N/A(4)  08/2019   -    (26)   -    - 
Marshall Retail Group, LLC, The(3)  One stop  L + 6.00%   N/A(4)  08/2020   -    (11)   -    - 
Marshall Retail Group, LLC, The^  One stop  L + 6.00%   7.00%  08/2020   12,424    12,278    1.7    12,424 
Paper Source, Inc.  One stop  L + 6.25%   N/A(4)  09/2018   -    (10)   -    - 
Paper Source, Inc.*^  One stop  L + 6.25%   7.25%  09/2018   12,545    12,450    1.7    12,545 
Restaurant Holding Company, LLC  Senior loan  L + 7.75%   8.75%  02/2019   4,964    4,922    0.6    4,368 
Rubio's Restaurants, Inc*^  Senior loan  L + 4.75%   6.00%  11/2018   9,353    9,346    1.3    9,353 
Sneaker Villa, Inc.  One stop  P + 7.00%   11.50%  12/2017   1,253    1,236    0.2    1,253 
Sneaker Villa, Inc.  One stop  L + 8.50%   10.00%  12/2017   4,404    4,318    0.6    4,404 
Sneaker Villa, Inc.^  One stop  L + 8.50%   10.00%  12/2017   627    618    0.1    627 
Sneaker Villa, Inc.^  One stop  L + 8.50%   10.00%  12/2017   1,230    1,214    0.2    1,230 
Sneaker Villa, Inc.(3)  One stop  L + 8.50%   N/A(4)  12/2017   -    (15)   -    - 
Sneaker Villa, Inc.^  One stop  L + 8.50%   10.00%  12/2017   4,234    4,196    0.6    4,191 
Sneaker Villa, Inc.  One stop  L + 8.50%   10.00%  12/2017   1,253    1,230    0.2    1,228 
Specialty Catalog Corp.(3)  One stop  L + 6.00%   N/A(4)  07/2017   -    (4)   -    - 
Specialty Catalog Corp.  One stop  L + 6.00%   7.50%  07/2017   4,502    4,471    0.6    4,502 
Vision Source L.P.  One stop  L + 6.00%   7.00%  08/2019   205    202    -    198 
Vision Source L.P.*^  One stop  L + 6.00%   7.00%  08/2019   17,715    17,607    2.4    17,537 
                  172,691    170,745    23.4    171,638 
Telecommunications                                  
Arise Virtual Solutions, Inc.(3)  One stop  L + 5.50%   N/A(4)  12/2018   -    (10)   -    - 
Arise Virtual Solutions, Inc.*^  One stop  L + 5.50%   6.75%  12/2018   13,781    13,672    1.9    13,781 
Hosting.com Inc.  Senior loan  P + 3.25%   6.50%  12/2017   27    26    -    27 
Hosting.com Inc.*  Senior loan  L + 4.50%   5.75%  12/2017   843    834    0.1    843 
ITC Global, Inc.  One stop  P + 5.50%   8.42%  07/2018   867    856    0.1    867 

 

See Notes to Consolidated Financial Statements.

 

11
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (unaudited) – (continued)
December 31, 2014
(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest   Maturity  Principal / Par       of   Fair 
   Type  Index (1)  Rate(2)   Date  Amount   Cost   Net Assets   Value 
ITC Global, Inc.*  One stop  L + 6.75%   7.75%  07/2018   8,280    8,214    1.1    8,280 
ITC Global, Inc.^  One stop  L + 6.75%   7.75%  07/2018   1,413    1,401    0.2    1,413 
                  25,211    24,993    3.4    25,211 
Textile and Leather                                  
5.11, Inc.*^  Senior loan  L + 5.00%   6.00%  02/2020   1,029    1,024    0.1    1,027 
Southern Tide, LLC (3)  One stop  L + 6.75%   N/A(4)  06/2019   -    (8)   -    - 
Southern Tide, LLC^  One stop  L + 6.75%   7.75%  06/2019   4,085    4,049    0.6    4,085 
                  5,114    5,065    0.7    5,112 
Utilities                                  
PowerPlan Consultants, Inc.(3)  Senior loan  L + 4.25%   N/A(4)  10/2018   -    (1)   -    - 
PowerPlan Consultants, Inc.*^  Senior loan  L + 4.25%   5.28%  10/2019   3,310    3,269    0.5    3,310 
                  3,310    3,268    0.5    3,310 
                                   
Total debt investments United States                $1,363,668   $1,345,709    183.1%  $1,343,695 
                                   
Fair Value as a percentage of Principal Amount                                98.5%

 

See Notes to Consolidated Financial Statements.

 

12
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (unaudited) - (continued)
December 31, 2014
(In thousands)

 

      Spread                   Percentage     
   Investment  Above   Interest   Maturity   Shares /       of   Fair 
   Type  Index (1)   Rate(2)   Date   Contracts   Cost   Net Assets   Value 
                                
Equity Investments (9)                                      
Aerospace and Defense                                      
NTS Technical Systems  Common stock   N/A    N/A    N/A    2   $1,506    0.2%  $1,829 
Tresys Technology Holdings, Inc.  Common stock   N/A    N/A    N/A    295    295    -    - 
Whitcraft LLC  Common stock   N/A    N/A    N/A    1    670    0.1    513 
Whitcraft LLC  Warrant   N/A    N/A    N/A    -    -    -    100 
                           2,471    0.3   2,442 
Automobile                                      
K&N Engineering, Inc.  Preferred stock A   N/A    N/A    N/A    -    -    -    10 
K&N Engineering, Inc.  Preferred stock B   N/A    N/A    N/A    -    -    -    10 
K&N Engineering, Inc.  Common stock   N/A    N/A    N/A    -    -    -    77 
                           -    -   97 
Beverage, Food and Tobacco                                      
Atkins Nutritionals, Inc.  LLC interest   N/A    N/A    N/A    57    746    0.2    1,250 
C. J. Foods, Inc.  Preferred stock A   N/A    N/A    N/A    -    157    -    161 
First Watch Restaurants, Inc.  Common stock   N/A    N/A    N/A    8    816    0.1    898 
Goode Seed Co-Invest, LLC  LLC units   N/A    N/A    N/A    356    356    0.1    415 
Julio & Sons Company  LLC interest   N/A    N/A    N/A    521    521    0.1    469 
Northern Brewer, LLC  LLC interest   N/A    N/A    N/A    438    362    -    - 
Richelieu Foods, Inc.  LP interest   N/A    N/A    N/A    220    220    -    173 
Tate's Bake Shop, Inc.  LP interest   N/A    N/A    N/A    -    462    0.1    462 
Uinta Brewing Company  LP interest   N/A    N/A    N/A    -    462    0.1    462 
                           4,102    0.7   4,290 
                                       
Buildings and Real Estate                                      
Brooks Equipment Company, LLC  Common stock   N/A    N/A    N/A    102    1,020    0.2    1,020 
                                       
Containers, Packaging and Glass                                      
Packaging Coordinators, Inc.  Common stock   N/A    N/A    N/A    25    2,065    0.4    2,631 
Packaging Coordinators, Inc.  Common stock   N/A    N/A    N/A    48    1,563    0.3    2,394 
                           3,628    0.7    5,025 
                                       
Diversified Conglomerate Manufacturing                                      
Chase Industries, Inc.  Common stock   N/A    N/A    N/A    1    1,186    0.2    1,186 
ICCN Acquisition Corp.  Preferred stock   N/A    N/A    N/A    -    162    -    177 
ICCN Acquisition Corp.  Common stock   N/A    N/A    N/A    -    -    -    - 
Sunless Merger Sub, Inc.  LP interest   N/A    N/A    N/A    -    160    -    - 
TIDI Products, LLC  LLC units   N/A    N/A    N/A    353    207    -    325 
                           1,715    0.2   1,688 
                                       
Diversified Conglomerate Service                                      
Daxko, LLC  LLC units   N/A    N/A    N/A    219    219    -    239 
DISA Holdings Acquisition Subsidiary Corp.  Common stock   N/A    N/A    N/A    -    154    -    154 
Marathon Data Operating Co., LLC  Preferred stock   N/A    N/A    N/A    1    264    0.1    616 
Marathon Data Operating Co., LLC  Common stock   N/A    N/A    N/A    1    264    -    43 
PC Helps Support, LLC  Common stock   N/A    N/A    N/A    1    7    -    12 
PC Helps Support, LLC  Preferred stock   N/A    N/A    N/A    -    61    -    74 
Secure-24, LLC  LLC units   N/A    N/A    N/A    263    263    0.1    339 
Vendavo, Inc.  Preferred stock   N/A    N/A    N/A    827    827    0.1    827 
                           2,059    0.3   2,304 
Electronics                                      
ECI Acquisition Holdings, Inc.  Common stock   N/A    N/A    N/A    9    873    0.1    994 
Sparta Holding Corporation  Common stock   N/A    N/A    N/A    1    566    0.1    566 
Sparta Holding Corporation  Common stock   N/A    N/A    N/A    235    6    -    6 
                           1,445    0.2   1,566 
                                       
Grocery                                      
MyWebGrocer, Inc.  LLC units   N/A    N/A    N/A    1,418    1,446    0.2    1,446 

 

See Notes to Consolidated Financial Statements.

 

13
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (unaudited) - (continued)
December 31, 2014
(In thousands)

 

      Spread                Percentage     
   Investment  Above  Interest  Maturity  Shares /       of   Fair 
   Type  Index (1)  Rate(2)  Date  Contracts   Cost   Net Assets   Value 
                             
Healthcare, Education and Childcare                                
Advanced Pain Management Holdings, Inc.  Common stock  N/A  N/A  N/A   67    67    0.1    603 
Advanced Pain Management Holdings, Inc.  Preferred stock  N/A  N/A  N/A   8    829    0.1    956 
Avatar International, LLC  LP interest  N/A  N/A  N/A   1    741    -    - 
California Cryobank, LLC  Common stock A  N/A  N/A  N/A   -    28    -    30 
California Cryobank, LLC  Common stock B  N/A  N/A  N/A   -    -    -    - 
Certara L.P.  LP interest  N/A  N/A  N/A   -    635    0.1    717 
Dialysis Newco, Inc.  LLC units  N/A  N/A  N/A   871    -    0.2    1,687 
Encore Rehabilitation Services, LLC  LLC interest  N/A  N/A  N/A   270    270    0.2    922 
G & H Wire Company, Inc.  LP interest  N/A  N/A  N/A   -    102    -    123 
Global Healthcare Exchange, LLC  Common stock  N/A  N/A  N/A   -    5    -    19 
Global Healthcare Exchange, LLC  Preferred stock  N/A  N/A  N/A   -    481    0.1    511 
IntegraMed America, Inc.  Common stock  N/A  N/A  N/A   1    804    0.1    731 
Northwestern Management Services, LLC  Common stock  N/A  N/A  N/A   3    3    -    51 
Northwestern Management Services, LLC  LLC units  N/A  N/A  N/A   -    249    -    291 
Pentec Acquisition Sub, Inc.  Preferred stock  N/A  N/A  N/A   1    116    -    140 
Radiology Partners, Inc.  LLC units  N/A  N/A  N/A   43    85    -    85 
Reliant Pro ReHab, LLC  Preferred stock  N/A  N/A  N/A   2    183    0.2    971 
Southern Anesthesia and Surgical  Common stock  N/A  N/A  N/A   487    487    0.1    689 
Spear Education, LLC  Preferred stock  N/A  N/A  N/A   -    86    -    86 
Spear Education, LLC  Common stock  N/A  N/A  N/A   1    1    -    1 
Surgical Information Systems, LLC  Common stock  N/A  N/A  N/A   4    414    0.1    503 
Young Innovations, Inc.  Preferred stock  N/A  N/A  N/A   -    236    -    261 
      N/A  N/A  N/A        5,822    1.3   9,377 
  Home and Office Furnishings, Housewares, and Durable Consumer                                
Top Knobs USA, Inc.  Common stock  N/A  N/A  N/A   3    27    -    198 
                                 
Insurance                                
Captive Resources Midco, LLC  LLC units  N/A  N/A  N/A   1    86    -    203 
                                 
Investment Funds and Vehicles                                
Senior Loan Fund LLC (7)(8)  LLC interest  N/A  N/A  N/A   10,937    10,937    1.5    10,834 
                                 
Leisure, Amusement, Motion Pictures and Entertainment                                
Competitor Group, Inc.  LLC interest  N/A  N/A  N/A   708    713    -    14 
LMP TR Holdings, LLC  LLC units  N/A  N/A  N/A   712    712    0.1    672 
Starplex Operating, L.L.C.  Common stock  N/A  N/A  N/A   1    183    -    263 
Titan Fitness, LLC  Common stock  N/A  N/A  N/A   6    583    0.1    655 
                     2,191    0.2   1,604 
Personal and Non-Durable Consumer Products                                
C.B. Fleet Company, Incorporated  LLC units  N/A  N/A  N/A   2    174    -    174 
Hygenic Corporation, The  LP interest  N/A  N/A  N/A   1    61    -    127 
Massage Envy, LLC  LLC interest  N/A  N/A  N/A   749    749    0.1    773 
Team Technologies Acquisition Company  Common stock  N/A  N/A  N/A   -    148    0.1    255 
                     1,132    0.2   1,329 
Personal Transportation                                
PODS Funding Corp.  II  Warrant  N/A  N/A  N/A   271    -    0.3    2,308 
                                 
Personal, Food and Miscellaneous Services                                
R.G. Barry Corporation  Preferred stock  N/A  N/A  N/A   -    161    -    161 
                                 
Printing and Publishing                                
Market Track, LLC  Preferred stock  N/A  N/A  N/A   -    145    -    183 
Market Track, LLC  Common stock  N/A  N/A  N/A   1    145    0.1    239 
                     290    0.1   422 

 

See Notes to Consolidated Financial Statements.

 

14
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (unaudited) - (continued)
December 31, 2014
(In thousands)

  

      Spread                Percentage     
   Investment  Above  Interest  Maturity  Shares /       of   Fair 
   Type  Index (1)  Rate(2)  Date  Contracts   Cost   Net Assets   Value 
                             
Retail Stores                                
Barcelona Restaurants, LLC(8)(10)  LP interest  N/A  N/A  N/A   1,996    1,996    0.5    3,407 
Benihana, Inc.  LLC units  N/A  N/A  N/A   43    699    0.1    718 
Capital Vision Services, LLC  LLC interest  N/A  N/A  N/A   402    17    0.1    559 
DentMall MSO, LLC  Common stock  N/A  N/A  N/A   2    -    -    - 
DentMall MSO, LLC  Preferred stock  N/A  N/A  N/A   2    97    -    101 
Express Oil Change, LLC  LLC interest  N/A  N/A  N/A   81    81    -    82 
Marshall Retail Group LLC, The  Common stock  N/A  N/A  N/A   15    154    -    154 
Paper Source, Inc.  LLC interest  N/A  N/A  N/A   8    1,387    0.2    1,309 
PetPeople Enterprise, LLC  LP interest  N/A  N/A  N/A   889    889    0.1    1,065 
Rubio's Restaurants, Inc.  Preferred stock  N/A  N/A  N/A   199    945    0.2    1,615 
Sneaker Villa, Inc.  LLC interest  N/A  N/A  N/A   4    411    0.1    479 
Vision Source L.P.  Common stock  N/A  N/A  N/A   9    386    0.1    727 
                     7,062    1.4    10,216 
Telecommunications                                
ITC Global, Inc.  Preferred stock  N/A  N/A  N/A   17    311    -    318 
                                 
Textiles and Leather                                
Southern Tide, LLC  LLC interest  N/A  N/A  N/A   2    191    -    183 
                                 
Total equity investments United States                   $46,096    7.8%  $57,031 
                                 
Total United States                   $1,391,805    190.9%  $1,400,726 
                                 
Total Investments                   $1,391,805    190.9%  $1,400,726 
                                 
Cash, Restricted Cash and Cash Equivalents                                
Cash and Restricted Cash                   $10,350    1.4%  $10,350 
BlackRock Liquidity Funds T-Fund Institutional Shares (CUSIP 09248U718)                    15,035    2.1    15,035 
JPM Offshore Money Market Account (ISIN LU0103813712)                    4,087    0.6    4,087 
US Bank Money Market Account (CUSIP 9AMMF05B2)                    11,954    1.6    11,954 
Total Cash, Restricted Cash and Cash Equivalents                   $41,426    5.7%  $41,426 
                                 
Total Investments and Cash, Restricted Cash and Cash Equivalents                   $ 1,433,231    196.6%  $ 1,442,152 

 

 

* Denotes that all or a portion of the loan secures the notes offered in the 2010 Debt Securitization (as defined in Note 7).
^ Denotes that all or a portion of the loan secures the notes offered in the 2014 Debt Securitization (as defined in Note 7).
(1) The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate ("LIBOR" or "L") or Prime ("P") and which reset daily, quarterly or semiannually.  For each, the Company has provided the spread over LIBOR or Prime and the weighted average current interest rate in effect as of December 31, 2014. Certain investments are subject to a LIBOR or Prime interest rate floor.  For fixed rate loans, a spread above a reference rate is not applicable.
(2) For portfolio companies with multiple interest rate contracts, the interest rate shown is a weighted average current interest rate in effect as of December 31, 2014.
(3) The negative fair value is the result of the capitalized discount on the loan or the unfunded commitment being valued below par.  The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan.
(4) The entire commitment was unfunded as of December 31, 2014.  As such, no interest is being earned on this investment.
(5) The sale of a portion of this loan does not qualify for sale accounting under ASC Topic 860 - Transfers and Servicing, and therefore, the entire one stop loan asset remains in the Consolidated Schedule of Investments.  (See Note 7 in the accompanying notes to the consolidated financial statements.)
(6) Loan was on non-accrual status as of December 31, 2014, meaning that the Company has ceased recognizing interest income on the loan.
(7) As defined in the Investment Company Act of 1940, as amended (the "1940 Act"), the Company is deemed to be both an "Affiliated Person" of and "Control" this portfolio company as the Company owns more than 25% of the portfolio company's outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement).  See Note 5 in the accompanying notes to the consolidated financial statements for transactions during the three months ended December 31, 2014 in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control.
(8) The investment is treated as a non-qualifying asset under Section 55(a) of the 1940 Act.  Under the 1940 Act, the Company may not acquire any any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company's total assets.
(9) Non-income producing securities.
(10) As defined in the 1940 Act, the Company is deemed to be an "Affiliated Person" of the portfolio company as the Company along with affiliated entities owns five percent or more of the portfolio company's voting securities.  See Note 5 in the accompanying notes to the financial statements for transactions during the three months ended December 31, 2014 in which the issuer was an Affiliated Person (but not a portfolio company that the Company is deemed to control).

 

See Notes to Consolidated Financial Statements.

 

15
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments
September 30, 2014
(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest   Maturity  Principal / Par       of   Fair 
   Type  Index (1)  Rate(2)   Date  Amount   Cost   Net Assets   Value 
                              
Investments                                  
United States                                  
Debt investments                                  
Aerospace and Defense                                  
ILC Dover, LP  One stop  P + 4.50%   7.75%  03/2019  $360   $352    0.1%  $360 
ILC Dover, LP^  One stop  L + 5.50%   6.50%  03/2020   18,594    18,467    2.5    18,594 
ILC Industries, Inc.(3)  One stop  L + 4.75%   N/A(4)  07/2020   -    (32)   -    (25)
ILC Industries, Inc.*^  One stop  L + 4.75%   5.75%  07/2020   28,510    28,234    3.9    28,296 
Novetta Solutions LLC  Senior loan  P + 3.00%   6.25%  03/2017   184    178    -    184 
Novetta Solutions LLC*  Senior loan  L + 5.00%   6.25%  03/2017   1,697    1,673    0.2    1,697 
NTS Technical Systems(3)  One stop  L + 6.00%   N/A(4)  11/2018   -    (30)   -    - 
NTS Technical Systems*^  One stop  L + 6.00%   7.25%  11/2018   18,871    18,572    2.6    18,871 
NTS Technical Systems(3)  One stop  L + 6.00%   N/A(4)  11/2018   -    (63)   -    - 
Tresys Technology Holdings, Inc.  One stop  L + 6.75%   8.00%  12/2017   188    181    -    188 
Tresys Technology Holdings, Inc.  One stop  L + 6.75%   8.00%  12/2017   3,899    3,836    0.3    2,339 
Whitcraft LLC  Subordinated debt  N/A   12.00%  12/2018   1,877    1,857    0.3    1,877 
                  74,180    73,225    9.9    72,381 
Automobile                                  
American Driveline Systems, Inc.  Senior loan  L + 5.50%   7.22%  01/2016   331    328    -    292 
American Driveline Systems, Inc.*  Senior loan  L + 5.50%   7.00%  01/2016   2,797    2,774    0.3    2,517 
K&N Engineering, Inc.(3)  Senior loan  L + 4.25%   N/A(4)  07/2019   -    (7)   -    (2)
K&N Engineering, Inc.*^  Senior loan  L + 4.25%   5.25%  07/2019   6,816    6,721    0.9    6,782 
K&N Engineering, Inc.(3)  Senior loan  L + 4.25%   N/A(4)  07/2019   -    (19)   -    (2)
Take 5 Oil Change, L.L.C.(3)  Senior loan  L + 5.25%   N/A(4)  07/2018   -    (7)   -    - 
Take 5 Oil Change, L.L.C.^  Senior loan  L + 5.25%   6.25%  07/2018   4,872    4,840    0.7    4,872 
                  14,816    14,630    1.9    14,459 
Banking                                  
HedgeServ Holding L.P.^  One stop  L + 8.25%   5.25% cash/4.00% PIK   02/2019   17,240    17,092    2.4    17,240 
HedgeServ Holding L.P.(3)  One stop  L + 4.25%   N/A(4)  02/2019   -    (8)   -    - 
Prommis Fin Co.(6)  Senior loan  P + 10.00%   13.25%  06/2015   85    84    -    2 
Prommis Fin Co.*(6)  Senior loan  N/A   2.25% cash/11.5% PIK   06/2015   124    124    -    3 
                  17,449    17,292    2.4    17,245 
Beverage, Food and Tobacco                                  
ABP Corporation  Senior loan  P + 3.50%   7.25%  09/2018   84    77    -    84 
ABP Corporation*  Senior loan  L + 4.75%   6.00%  09/2018   4,796    4,727    0.7    4,796 
Ameriqual Group, LLC*  Senior loan  L + 6.00%   6.50% cash/1.00% PIK   03/2016   1,693    1,676    0.2    1,625 
Ameriqual Group, LLC*  Senior loan  L + 9.00%   9.00% cash/1.50% PIK   03/2016   831    826    0.1    686 
ARG IH Corporation (Arby's)^  Senior loan  L + 3.75%   4.75%  11/2020   2,337    2,311    0.3    2,339 
Atkins Nutritionals, Inc*^  One stop  L + 5.00%   6.25%  01/2019   23,873    23,683    3.2    23,754 
Atkins Nutritionals, Inc*  One stop  L + 8.50%   9.75%  04/2019   21,636    21,326    3.0    21,744 
C. J. Foods, Inc.  One stop  L + 5.50%   6.50%  05/2019   86    77    -    86 
C. J. Foods, Inc.(3)  One stop  L + 5.50%   N/A(4)  05/2019   -    (12)   -    - 
C. J. Foods, Inc.  One stop  L + 5.50%   6.50%  05/2019   3,224    3,179    0.4    3,224 
Candy Intermediate Holdings, Inc. (Ferrara Candy)^  Senior loan  L + 6.25%   7.50%  06/2018   4,887    4,780    0.6    4,747 
Diversified Foodservice Supply, Inc.(3)  Senior loan  L + 4.50%   N/A(4)  12/2018   -    (3)   -    - 
Diversified Foodservice Supply, Inc.*  Senior loan  L + 4.50%   5.75%  12/2018   4,556    4,518    0.6    4,556 
Firebirds International, LLC(3)  One stop  L + 6.25%   N/A(4)  05/2018   -    (2)   -    - 
Firebirds International, LLC*  One stop  L + 6.25%   7.50%  05/2018   1,096    1,081    0.1    1,096 
Firebirds International, LLC  One stop  L + 6.25%   7.50%  05/2018   304    299    0.1    304 
Firebirds International, LLC(3)  One stop  L + 6.25%   N/A(4)  05/2018   -    (5)   -    - 
First Watch Restaurants, Inc.(3)  One stop  L + 7.50%   N/A(4)  12/2018   -    (24)   -    - 
First Watch Restaurants, Inc.*^  One stop  L + 7.50%   8.75%  12/2018   11,293    11,165    1.5    11,293 
First Watch Restaurants, Inc.*^  One stop  P + 6.50%   9.75%  12/2018   3,070    3,035    0.4    3,070 
First Watch Restaurants, Inc.  One stop  L + 7.50%   8.75%  12/2018   1,749    1,744    0.2    1,749 
IT'SUGAR LLC  Senior loan  L + 7.50%   9.00%  04/2018   7,566    7,456    1.0    7,566 
IT'SUGAR LLC  Subordinated debt  N/A   5.00%  10/2017   1,707    1,707    0.3    1,833 
Julio & Sons Company  One stop  L + 5.50%   6.50%  09/2016   277    271    -    277 
Julio & Sons Company*  One stop  L + 5.50%   6.50%  09/2016   6,978    6,935    1.0    6,978 
Julio & Sons Company(3)  One stop  L + 5.50%   N/A(4)  09/2016   -    (26)   -    - 
Northern Brewer, LLC  One stop  P + 9.25%   8.50% cash/4.00% PIK   02/2018   676    665    0.1    541 
Northern Brewer, LLC  One stop  P + 9.25%   8.50% cash/4.00% PIK   02/2018   6,363    6,244    0.7    5,090 
Richelieu Foods, Inc.  Senior loan  P + 4.00%   7.25%  11/2015   101    96    -    101 
Richelieu Foods, Inc.*  Senior loan  L + 5.00%   6.75%  11/2015   1,854    1,839    0.3    1,854 
Tate's Bake Shop, Inc.(3)  Senior loan  L + 4.75%   N/A(4)  08/2019   -    (4)   -    (4)
Tate's Bake Shop, Inc.^  Senior loan  L + 4.75%   5.75%  08/2019   3,008    2,978    0.4    2,978 
Tate's Bake Shop, Inc.(3)  Senior loan  L + 4.75%   N/A(4)  08/2019   -    (5)   -    (6)

 

See Notes to Consolidated Financial Statements.

 

16
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (continued)
September 30, 2014
(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest   Maturity  Principal / Par       of   Fair 
   Type  Index (1)  Rate(2)   Date  Amount   Cost   Net Assets   Value 
Uinta Brewing Company(3)  One stop  L + 6.00%   N/A(4)  08/2019   -    (8)   -    (8)
Uinta Brewing Company^  One stop  L + 6.00%   7.00%  08/2019   3,236    3,204    0.4    3,203 
                  117,281    115,810    15.6    115,556 
Building and Real Estate                                  
Brooks Equipment Company, LLC (3)  One stop  L + 5.75%   N/A(4)  08/2020   -    (20)   -    (20)
Brooks Equipment Company, LLC*^  One stop  L + 5.75%   6.75%  08/2020   27,150    26,753    3.7    26,946 
ITEL Laboratories, Inc.(3)  Senior loan  L + 4.75%   N/A(4)  06/2018   -    (1)   -    - 
ITEL Laboratories, Inc.*  Senior loan  L + 4.75%   6.00%  06/2018   756    749    0.1    756 
                  27,906    27,481    3.8    27,682 
Cargo Transport                                  
RP Crown Parent (RedPrairie Corp)*  Senior loan  L + 5.00%   6.00%  12/2018   1,970    1,942    0.3    1,923 
                                   
Containers, Packaging and Glass                                  
Fort Dearborn Company*  Senior loan  L + 4.25%   5.25%  10/2017   16    16    -    16 
Fort Dearborn Company*^  Senior loan  L + 4.25%   5.25%  10/2017   511    508    0.1    511 
Fort Dearborn Company*  Senior loan  L + 4.75%   5.75%  10/2018   63    63    -    63 
Fort Dearborn Company*^  Senior loan  L + 4.75%   5.75%  10/2018   2,180    2,168    0.3    2,180 
Packaging Coordinators, Inc.*^  Senior loan  L + 4.25%   5.25%  08/2021   15,000    14,852    2.1    15,032 
Packaging Coordinators, Inc.  Second lien  L + 8.00%   9.00%  08/2022   10,000    9,901    1.4    9,950 
                  27,770    27,508    3.9    27,752 
Diversified Conglomerate Manufacturing                                  
Chase Industries, Inc.*^  One stop  P + 4.50%   7.75%  09/2020   21,037    20,828    2.8    20,827 
Chase Industries, Inc.  One stop  P + 4.50%   7.75%  09/2020   277    255    -    255 
Chase Industries, Inc.(3)  One stop  L + 5.75%   N/A(4)  09/2020   -    (48)   -    (49)
ICCN Acquisition Corp.(3)  One stop  L + 5.25%   N/A(4)  03/2019   -    (4)   -    - 
ICCN Acquisition Corp.^  One stop  L + 5.25%   6.25%  03/2019   3,998    3,936    0.5    3,998 
ICCN Acquisition Corp.(3)  One stop  L + 5.25%   N/A(4)  03/2019   -    (14)   -    - 
Metal Spinners, Inc.*  Senior loan  L + 7.50%   9.00%  04/2015   1,294    1,288    0.2    1,294 
Metal Spinners, Inc.*  Senior loan  L + 7.50%   9.00%  04/2015   2,536    2,524    0.3    2,536 
Onicon Incorporated(3)  One stop  L + 4.50%   N/A(4)  12/2017   -    (10)   -    - 
Onicon Incorporated  One stop  L + 4.50%   5.50%  12/2017   3,141    3,100    0.4    3,141 
Pasternack Enterprises, Inc.*  Senior loan  L + 5.00%   6.25%  12/2017   1,126    1,119    0.2    1,126 
Plex Systems, Inc.(3)  Senior loan  L + 7.50%   N/A(4)  06/2018   -    (26)   -    - 
Plex Systems, Inc.*^  Senior loan  L + 7.50%   8.75%  06/2018   18,797    18,409    2.6    18,797 
Sunless Merger Sub, Inc.(3)  Senior loan  L + 5.25%   N/A(4)  07/2016   -    -    -    (26)
Sunless Merger Sub, Inc.*  Senior loan  L + 5.25%   6.50%  07/2016   1,816    1,813    0.2    1,271 
TIDI Products, LLC(3)  One stop  L + 6.50%   N/A(4)  07/2017   -    (11)   -    - 
TIDI Products, LLC*  One stop  L + 6.50%   7.75%  07/2018   12,631    12,441    1.7    12,631 
Vintage Parts, Inc.*  One stop  L + 4.50%   5.75%  12/2015   4,049    4,022    0.6    4,049 
Vintage Parts, Inc.*  One stop  L + 4.50%   5.75%  12/2015   56    56    -    56 
Vintage Parts, Inc.*  One stop  L + 4.50%   5.75%  12/2015   846    850    0.1    846 
                  71,604    70,528    9.6    70,752 
Diversified Conglomerate Service                                  
Accellos, Inc.(3)  One stop  L + 5.75%   N/A(4)  07/2020   -    (20)   -    - 
Accellos, Inc.^  One stop  L + 5.75%   6.75%  07/2020   31,113    30,740    4.2    31,113 
Aderant North America, Inc.*  Senior loan  L + 4.25%   5.25%  12/2018   4,220    4,190    0.6    4,220 
Agility Recovery Solutions Inc.(3)  One stop  L + 6.75%   N/A(4)  09/2018   -    (6)   -    - 
Agility Recovery Solutions Inc.*  One stop  L + 6.75%   8.00%  09/2018   8,128    7,995    1.1    8,128 
Bomgar Corporation(3)  One stop  L + 6.00%   N/A(4)  05/2019   -    (18)   -    (20)
Bomgar Corporation*  One stop  L + 6.00%   7.00%  05/2020   29,423    28,935    4.0    29,129 
Daxko, LLC(3)  One stop  L + 7.75%   N/A(4)  03/2019   -    (24)   -    - 
Daxko, LLC  One stop  L + 7.75%   8.75%  03/2019   16,840    16,564    2.3    16,840 
EAG, INC. (Evans Analytical Group)*  Senior loan  L + 4.00%   5.00%  07/2017   2,401    2,377    0.3    2,401 
Integration Appliance, Inc.  Senior loan  L + 8.25%   9.50%  09/2018   719    711    0.1    719 
Integration Appliance, Inc.  Senior loan  L + 8.25%   9.50%  09/2018   5,396    5,288    0.7    5,396 
Integration Appliance, Inc.  Senior loan  L + 8.25%   9.50%  06/2019   7,914    7,727    1.1    7,914 
Marathon Data Operating Co., LLC (3)  One stop  L + 6.25%   N/A(4)  08/2017   -    (6)   -    - 
Marathon Data Operating Co., LLC  One stop  L + 6.25%   7.50%  08/2017   4,595    4,528    0.6    4,595 
Navex Global, Inc.(3)  One stop  L + 5.50%   N/A(4)  12/2016   -    (19)   -    - 
Navex Global, Inc.*  One stop  L + 5.50%   6.50%  12/2016   19,045    18,718    2.6    19,045 
NetSmart Technologies, Inc.*  One stop  L + 7.53%   8.78%  12/2017   8,068    8,012    1.1    8,068 
NetSmart Technologies, Inc.  One stop  L + 7.52%   8.77%  12/2017   637    629    0.1    637 
PC Helps Support, LLC(3)  Senior loan  L + 5.25%   N/A(4)  09/2017   -    (2)   -    - 
PC Helps Support, LLC  Senior loan  L + 5.25%   6.51%  09/2017   1,707    1,692    0.2    1,707 
Secure-24, LLC(3)  One stop  L + 6.25%   N/A(4)  08/2017   -    (5)   -    - 
Secure-24, LLC*  One stop  L + 6.25%   7.50%  08/2017   10,433    10,249    1.4    10,433 

 

See Notes to Consolidated Financial Statements.

 

17
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (continued)
September 30, 2014
(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest   Maturity  Principal / Par       of   Fair 
   Type  Index (1)  Rate(2)   Date  Amount   Cost   Net Assets   Value 
Secure-24, LLC^  One stop  L + 6.25%   7.50%  08/2017   1,526    1,507    0.2    1,526 
SoftWriters, Inc.(3)  One stop  L + 5.00%   N/A(4)  05/2019   -    (2)   -    - 
SoftWriters, Inc.(3)  One stop  L + 5.00%   N/A(4)  05/2019   -    (3)   -    - 
SoftWriters, Inc.  One stop  L + 5.00%   6.00%  05/2019   6,411    6,387    0.9    6,411 
Source Medical Solutions, Inc.  Second lien  L + 8.00%   9.00%  03/2018   9,294    9,146    1.3    9,294 
                  167,870    165,290    22.8    167,556 
Electronics                                  
ECI Acquisition Holdings, Inc.(3)  One stop  L + 6.25%   N/A(4)  03/2019   -    (17)   -    - 
ECI Acquisition Holdings, Inc.^  One stop  L + 6.25%   7.25%  03/2019   22,215    21,844    3.0    22,215 
ECI Acquisition Holdings, Inc.(3)  One stop  L + 6.25%   N/A(4)  03/2019   -    (79)   -    - 
Rogue Wave Holdings, Inc.*^  One stop  L + 8.08%   9.10%  12/2018   10,613    10,500    1.4    10,613 
Sloan Company, Inc., The(3)  One stop  L + 7.50%   N/A(4)  10/2018   -    (13)   -    - 
Sloan Company, Inc., The*^  One stop  L + 7.50%   8.75%  10/2018   13,027    12,895    1.8    13,027 
Sparta Holding Corporation(3)  One stop  L + 5.25%   N/A(4)  07/2020   -    (37)   -    (30)
Sparta Holding Corporation*^  One stop  L + 6.75%   6.25% cash/1.50% PIK   07/2020   23,358    23,075    3.2    23,124 
Syncsort Incorporated(3)  Senior loan  L + 4.75%   N/A(4)  03/2019   -    (3)   -    - 
Syncsort Incorporated(3)  Senior loan  L + 4.75%   N/A(4)  03/2019   -    (13)   -    - 
Syncsort Incorporated*  Senior loan  L + 4.75%   5.75%  03/2019   6,143    6,089    0.8    6,143 
Systems Maintenance Services Holding, Inc.^  Senior loan  L + 4.00%   5.00%  10/2019   2,650    2,639    0.4    2,650 
Taxware, LLC*^  Second lien  L + 8.38%   9.38%  10/2019   19,979    19,678    2.7    19,979 
Watchfire Enterprises, Inc.  Second lien  L + 8.00%   9.00%  10/2021   9,435    9,270    1.3    9,435 
                  107,420    105,828    14.6    107,156 
Finance                                  
Ascensus, Inc.(3)  One stop  L + 4.00%   N/A(4)  11/2018   -    (16)   -    - 
Ascensus, Inc.^  One stop  L + 4.00%   5.00%  12/2019   4,193    4,120    0.6    4,193 
Ascensus, Inc.^  One stop  L + 8.00%   9.00%  12/2020   6,337    6,142    0.9    6,337 
Pillar Processing LLC*(6)  Senior loan  L + 5.50%   5.72%  11/2018   447    445    -    - 
Pillar Processing LLC*(6)  Senior loan  N/A   14.50%  05/2019   2,377    2,368    -    - 
                  13,354    13,059    1.5    10,530 
Grocery                                  
MyWebGrocer, Inc.(3)  Senior loan  L + 4.75%   N/A(4)  05/2018   -    (12)   -    - 
MyWebGrocer, Inc.^  Senior loan  L + 8.75%   6.00% cash/4.00% PIK   05/2018   14,271    14,093    1.9    14,271 
Teasdale Quality Foods, Inc.*  Senior loan  L + 4.50%   5.75%  05/2018   2,674    2,653    0.4    2,674 
                  16,945    16,734    2.3    16,945 
Healthcare, Education and Childcare                                  
Advanced Pain Management Holdings, Inc.(3)  Senior loan  L + 5.00%   N/A(4)  02/2018   -    (8)   -    - 
Advanced Pain Management Holdings, Inc.*  Senior loan  L + 5.00%   6.25%  02/2018   7,102    7,054    1.0    7,102 
Advanced Pain Management Holdings, Inc.  Senior loan  L + 5.00%   6.25%  02/2018   486    481    0.1    486 
Avatar International, LLC(3)  One stop  L + 4.94%   N/A(4)  09/2016   -    (4)   -    - 
Avatar International, LLC*  One stop  L + 7.89%   6.19% cash/2.95% PIK   09/2016   7,611    7,560    0.7    4,947 
Avatar International, LLC  One stop  L + 7.89%   6.19% cash/2.95% PIK   09/2016   1,642    1,634    0.1    1,067 
California Cryobank, LLC  One stop  P + 4.25%   7.50%  08/2019   86    84    -    84 
California Cryobank, LLC^  One stop  L + 5.50%   6.50%  08/2019   1,550    1,535    0.2    1,535 
California Cryobank, LLC(3)  One stop  L + 5.50%   N/A(4)  08/2019   -    (2)   -    (2)
Certara L.P.(3)  One stop  L + 6.25%   N/A(4)  12/2018   -    (18)   -    - 
Certara L.P.*^  One stop  L + 6.25%   7.25%  12/2018   22,948    22,722    3.1    22,948 
Data Innovations LLC  One stop  L + 7.69%   8.69%  05/2019   8,800    8,619    1.2    8,800 
Delta Educational Systems*  Senior loan  P + 4.75%   8.00%  12/2016   1,646    1,627    0.2    1,646 
Delta Educational Systems  Senior loan  L + 6.00%   N/A(4)  12/2016   -    -    -    - 
Encore Rehabilitation Services, LLC(3)  One stop  L + 6.00%   N/A(4)  06/2017   -    (9)   -    - 
Encore Rehabilitation Services, LLC  One stop  L + 6.00%   7.25%  06/2017   4,969    4,895    0.7    4,969 
G & H Wire Company, Inc.(3)  Senior loan  L + 5.75%   N/A(4)  12/2017   -    (6)   -    - 
G & H Wire Company, Inc.*^  Senior loan  L + 5.75%   6.75%  12/2017   12,902    12,766    1.8    12,902 
Global Healthcare Exchange, LLC(3)  One stop  L + 9.00%   N/A(4)  03/2020   -    (23)   -    - 
Global Healthcare Exchange, LLC  One stop  L + 9.00%   10.00%  03/2020   20,087    19,723    2.7    20,087 
GSDM Holdings Corp.  Senior loan  L + 4.25%   5.25%  06/2019   627    624    0.1    627 
Hospitalists Management Group, LLC  Senior loan  L + 5.00%   6.77%  05/2018   910    896    0.1    864 
Hospitalists Management Group, LLC  Senior loan  L + 5.00%   6.51%  05/2017   3,672    3,608    0.5    3,489 
Hospitalists Management Group, LLC  Senior loan  L + 5.00%   6.50%  05/2017   427    421    0.1    406 
IntegraMed America, Inc.(3)  One stop  L + 7.25%   8.50%  09/2017   811    800    0.1    811 
IntegraMed America, Inc.*^  One stop  L + 7.25%   8.50%  09/2017   15,587    15,376    2.1    15,587 
Joerns Healthcare, LLC  One stop  L + 5.00%   6.00%  05/2020   9,794    9,702    1.3    9,782 
Maverick Healthcare Group, LLC*  Senior loan  L + 5.50%   7.25%  12/2016   1,989    1,964    0.3    1,949 
Northwestern Management Services, LLC  Senior loan  P + 4.00%   7.25%  10/2017   114    104    -    114 
Northwestern Management Services, LLC*  Senior loan  L + 5.25%   6.50%  10/2017   3,964    3,913    0.5    3,964 

 

See Notes to Consolidated Financial Statements.

 

18
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (continued)
September 30, 2014
(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest   Maturity  Principal / Par       of   Fair 
   Type  Index (1)  Rate(2)   Date  Amount   Cost   Net Assets   Value 
Northwestern Management Services, LLC  Senior loan  L + 5.25%   6.50%  10/2017   47    44    -    47 
Onsite Holding Corp.(3)  One stop  L + 5.25%   N/A(4)  06/2020   -    (42)   -    - 
Onsite Holding Corp.*^  One stop  L + 5.25%   6.25%  06/2020   26,921    26,696    3.7    26,921 
Paradigm Management Services, LLC^  Senior loan  L + 4.50%   5.50%  01/2019   2,740    2,719    0.4    2,740 
Pentec Acquisition Sub, Inc.(3)  Senior loan  L + 5.25%   N/A(4)  05/2017   -    (2)   -    - 
Pentec Acquisition Sub, Inc.*  Senior loan  L + 5.25%   6.50%  05/2018   1,776    1,754    0.2    1,776 
Pyramid Healthcare, Inc.(3)  One stop  L + 5.75%   N/A(4)  08/2019   -    (5)   -    (4)
Pyramid Healthcare, Inc.^  One stop  L + 5.75%   6.75%  08/2019   7,607    7,542    1.0    7,550 
Radiology Partners, Inc.(3)  One stop  L + 5.00%   N/A(4)  09/2020   -    (8)   -    (8)
Radiology Partners, Inc.*^  One stop  L + 5.00%   6.00%  09/2020   17,209    16,937    2.3    17,037 
Radiology Partners, Inc.(3)  One stop  L + 5.00%   N/A(4)  09/2020   -    (46)   -    (46)
Reliant Pro ReHab, LLC  Senior loan  P + 4.00%   7.25%  06/2017   10    3    -    10 
Reliant Pro ReHab, LLC*^  Senior loan  L + 5.00%   6.00%  06/2017   7,615    7,547    1.0    7,615 
Renaissance Pharma (U.S.) Holdings Inc.  Senior loan  P + 3.00%   6.25%  05/2018   63    59    -    63 
Renaissance Pharma (U.S.) Holdings Inc.*^  Senior loan  L + 4.00%   5.00%  05/2018   4,090    4,039    0.6    4,090 
Southern Anesthesia and Surgical(3)  One stop  L + 5.50%   N/A(4)  11/2017   -    (10)   -    - 
Southern Anesthesia and Surgical  One stop  L + 5.50%   6.50%  11/2017   6,012    5,905    0.8    6,012 
Southern Anesthesia and Surgical(3)  One stop  L + 5.50%   N/A(4)  11/2017   -    (40)   -    - 
Spear Education, LLC(3)  One stop  L + 5.50%   N/A(4)  08/2019   -    (6)   -    (6)
Spear Education, LLC*^  One stop  L + 5.50%   6.50%  08/2019   6,005    5,961    0.8    5,960 
Spear Education, LLC  One stop  L + 5.50%   N/A(4)  08/2019   -    -    -    - 
Surgical Information Systems, LLC^  Senior loan  L + 3.50%   4.51%  09/2018   2,060    2,055    0.3    2,060 
U.S. Anesthesia Partners, Inc.  One stop  L + 5.00%   6.00%  12/2019   6,000    5,970    0.8    5,970 
WIL Research Company, Inc.*  Senior loan  L + 4.50%   5.75%  02/2018   776    769    0.1    753 
Young Innovations, Inc.(3)  Senior loan  L + 4.25%   N/A(4)  01/2018   -    (3)   -    - 
Young Innovations, Inc.*^  Senior loan  L + 4.25%   5.25%  01/2019   5,443    5,412    0.7    5,443 
                  222,098    219,288    29.6    218,147 
Home and Office Furnishings, Housewares, and Durable Consumer                                  
Plano Molding Company, LLC^  Senior loan  L + 4.25%   5.25%  10/2018   1,984    1,972    0.3    1,984 
WII Components, Inc.  Senior loan  L + 4.50%   N/A(4)  07/2018   -    -    -    - 
WII Components, Inc.*  Senior loan  L + 4.50%   5.50%  07/2018   1,183    1,177    0.2    1,177 
Zenith Products Corporation  One stop  P + 1.75%   5.00%  09/2013   29    29    -    25 
Zenith Products Corporation*  One stop  P + 3.50%   6.75%  09/2013   3,684    3,684    0.3    1,842 
                  6,880    6,862    0.8    5,028 
Insurance                                  
Captive Resources Midco, LLC (3)  One stop  L + 5.00%   N/A(4)  01/2019   -    (16)   -    - 
Captive Resources Midco, LLC*^  One stop  L + 5.00%   6.50%  01/2019   19,653    19,477    2.7    19,653 
                  19,653    19,461    2.7    19,653 
Investment Funds and Vehicles                                  
Senior Loan Fund LLC (7)(8)  Subordinated debt  L + 8.00%   8.16%  05/2020   25,589    25,589    3.5    25,589 
Leisure, Amusement, Motion Pictures and Entertainment                                  
Competitor Group, Inc.  One stop  P + 6.75%   9.76%  11/2018   884    873    0.1    769 
Competitor Group, Inc.*  One stop  L + 8.75%   9.00% cash/1.00% PIK   11/2018   12,807    12,654    1.6    11,526 
Octane Fitness, LLC(3)  One stop  L + 5.25%   N/A(4)  10/2018   -    (3)   -    - 
Octane Fitness, LLC*  One stop  L + 5.25%   6.50%  10/2018   8,034    8,001    1.1    8,034 
Pride Manufacturing Company, LLC*  Senior loan  L + 6.00%   7.75%  11/2015   493    490    0.1    493 
Self Esteem Brands, LLC(3)  Senior loan  L + 4.00%   N/A(4)  02/2020   -    (5)   -    - 
Self Esteem Brands, LLC^  Senior loan  L + 4.00%   5.00%  02/2020   7,462    7,420    1.0    7,462 
Starplex Operating, L.L.C.  One stop  P + 6.25%   9.50%  12/2017   311    298    -    311 
Starplex Operating, L.L.C.*^  One stop  L + 7.50%   9.00%  12/2017   10,079    9,912    1.4    10,079 
Titan Fitness, LLC (3)  One stop  L + 6.50%   N/A(4)  09/2019   -    (22)   -    - 
Titan Fitness, LLC*  One stop  L + 6.50%   7.75%  09/2019   13,603    13,340    1.9    13,603 
Titan Fitness, LLC (3)  One stop  L + 6.50%   N/A(4)  09/2019   -    (22)   -    - 
                  53,673    52,936    7.2    52,277 
Mining, Steel, Iron and Non-Precious Metals                                  
Benetech, Inc.  One stop  P + 7.75%   11.00%  10/2017   162    154    -    162 
Benetech, Inc.*  One stop  L + 9.00%   10.25%  10/2017   5,020    4,982    0.7    5,020 
                  5,182    5,136    0.7    5,182 
Oil and Gas                                  
Drilling Info, Inc.(3) (5)  One stop  L + 5.00%   N/A(4)  06/2018   -    (1)   -    - 
Drilling Info, Inc.(5)^  One stop  L + 5.00%   6.00%  06/2018   1,325    1,315    0.2    1,325 
Drilling Info, Inc.(3)(5)  One stop  L + 5.00%   N/A(4)  06/2018   -    (4)   -    - 
                  1,325    1,310    0.2    1,325 

 

See Notes to Consolidated Financial Statements.

 

19
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (continued)
September 30, 2014
(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest   Maturity  Principal / Par       of   Fair 
   Type  Index (1)  Rate(2)   Date  Amount   Cost   Net Assets   Value 
Personal and Non-Durable Consumer Products                                  
Hygenic Corporation, The  Senior loan  P + 3.75%   6.79%  10/2017   142    140    -    142 
Hygenic Corporation, The*^  Senior loan  L + 4.75%   6.00%  10/2018   4,538    4,494    0.6    4,538 
Massage Envy, LLC(3)  One stop  L + 7.25%   N/A(4)  09/2018   -    (12)   -    - 
Massage Envy, LLC*  One stop  L + 7.25%   8.50%  09/2018   15,999    15,735    2.2    15,999 
Rug Doctor LLC  Senior loan  L + 5.25%   6.25%  12/2016   465    455    0.1    465 
Rug Doctor LLC*  Senior loan  L + 5.25%   6.25%  12/2016   5,365    5,326    0.7    5,365 
Team Technologies Acquisition Company^  Senior loan  L + 5.00%   6.25%  12/2017   4,831    4,790    0.7    4,831 
Team Technologies Acquisition Company  Senior loan  P + 3.75%   7.00%  12/2017   182    179    -    182 
                  31,522    31,107    4.3    31,522 
Personal, Food and Miscellaneous Services                                  
Affordable Care Inc.(3)  Senior loan  L + 4.75%   N/A(4)  12/2017   -    (2)   -    - 
Affordable Care Inc.^  Senior loan  L + 4.75%   6.00%  12/2018   3,347    3,324    0.5    3,347 
El Pollo Loco Inc^  Senior loan  L + 4.25%   5.25%  10/2018   5,149    5,100    0.7    5,168 
Focus Brands Inc.^  Second lien  L + 9.00%   10.25%  08/2018   11,194    11,091    1.5    11,306 
Ignite Restaurant Group, Inc (Joe's Crab Shack)^  One stop  L + 7.00%   8.00%  02/2019   6,170    6,080    0.8    6,077 
R.G. Barry Corporation*  Senior loan  L + 5.00%   6.00%  09/2019   6,830    6,741    0.9    6,761 
Vetcor Merger Sub LLC  One stop  L + 6.50%   7.75%  12/2017   199    194    -    199 
Vetcor Merger Sub LLC*^  One stop  L + 6.50%   7.75%  12/2017   5,847    5,805    0.8    5,847 
Vetcor Merger Sub LLC(3)  One stop  L + 6.50%   N/A(4)  12/2017   -    (7)   -    - 
Vetcor Merger Sub LLC^  One stop  L + 6.50%   7.75%  12/2017   371    371    0.1    371 
Vetcor Merger Sub LLC^  One stop  L + 6.50%   7.75%  12/2017   573    573    0.1    573 
Vetcor Merger Sub LLC^  One stop  L + 6.50%   7.75%  12/2017   384    384    0.1    384 
                  40,064    39,654    5.5    40,033 
Printing and Publishing                                  
Market Track, LLC(3)  One stop  L + 6.00%   N/A(4)  10/2019   -    (18)   -    - 
Market Track, LLC*^  One stop  L + 6.00%   7.25%  10/2019   29,270    29,024    4.0    29,270 
Market Track, LLC  One stop  L + 6.00%   7.25%  10/2019   1,217    1,199    0.2    1,217 
                  30,487    30,205    4.2    30,487 
Retail Stores                                  
Benihana, Inc.(3)  One stop  L + 5.50%   N/A(4)  07/2018   -    (61)   -    - 
Benihana, Inc.*^  One stop  P + 4.25%   7.50%  01/2019   15,554    15,145    2.1    15,554 
Boot Barn, Inc.*^  One stop  L + 5.75%   7.00%  05/2019   24,430    24,143    3.3    24,430 
Boot Barn, Inc.*  One stop  L + 5.75%   7.00%  05/2019   7,726    7,657    1.1    7,726 
Capital Vision Services, LLC  One stop  P + 6.25%   9.50%  12/2017   475    466    0.1    475 
Capital Vision Services, LLC*^  One stop  L + 7.25%   8.50%  12/2017   15,354    15,219    2.1    15,354 
Capital Vision Services, LLC^  One stop  L + 7.25%   8.50%  12/2017   1,231    1,219    0.2    1,231 
Capital Vision Services, LLC  One stop  L + 7.25%   8.50%  12/2017   1,459    1,453    0.2    1,459 
DentMall MSO, LLC  One stop  L + 5.00%   6.00%  07/2019   179    153    -    179 
DentMall MSO, LLC  One stop  L + 5.00%   6.00%  07/2019   10,354    10,257    1.4    10,354 
DTLR, Inc.*^  One stop  L + 8.00%   11.00%  12/2015   15,892    15,824    2.2    15,892 
Express Oil Change, LLC  Senior loan  L + 4.75%   6.33%  12/2017   221    219    -    221 
Express Oil Change, LLC*  Senior loan  P + 3.50%   6.75%  12/2017   1,945    1,932    0.3    1,945 
Express Oil Change, LLC  Senior loan  P + 3.50%   6.75%  12/2017   110    109    -    110 
Floor & Decor Outlets of America, Inc.*^  One stop  L + 6.50%   7.75%  05/2019   11,244    11,137    1.5    11,244 
Marshall Retail Group, LLC, The(3)  One stop  L + 6.00%   N/A(4)  08/2019   -    (27)   -    (22)
Marshall Retail Group, LLC, The(3)  One stop  L + 6.00%   N/A(4)  08/2020   -    (11)   -    (9)
Marshall Retail Group, LLC, The^  One stop  L + 6.00%   7.00%  08/2020   12,424    12,271    1.7    12,299 
Paper Source, Inc.  One stop  P + 5.00%   7.92%  09/2018   508    498    0.1    508 
Paper Source, Inc.*^  One stop  L + 6.25%   7.25%  09/2018   12,576    12,476    1.7    12,576 
Restaurant Holding Company, LLC  Senior loan  L + 7.75%   8.75%  02/2019   4,976    4,932    0.6    4,429 
Rubio's Restaurants, Inc*^  Senior loan  L + 4.75%   6.00%  11/2018   9,376    9,369    1.3    9,376 
Sneaker Villa, Inc.  One stop  P + 7.00%   11.50%  12/2017   1,002    984    0.1    1,002 
Sneaker Villa, Inc.  One stop  L + 8.50%   10.00%  12/2017   4,433    4,340    0.6    4,433 
Sneaker Villa, Inc.^  One stop  L + 8.50%   10.00%  12/2017   627    617    0.1    627 
Sneaker Villa, Inc.^  One stop  L + 8.50%   10.00%  12/2017   1,237    1,221    0.2    1,237 
Sneaker Villa, Inc.(3)  One stop  L + 8.50%   N/A(4)  12/2017   -    (16)   -    - 
Sneaker Villa, Inc.^  One stop  L + 8.50%   10.00%  12/2017   4,260    4,219    0.6    4,217 
Sneaker Villa, Inc.  One stop  L + 8.50%   10.00%  12/2017   752    727    0.1    727 
Specialty Catalog Corp.(3)  One stop  L + 6.00%   N/A(4)  07/2017   -    (5)   -    - 
Specialty Catalog Corp.  One stop  L + 6.00%   7.50%  07/2017   4,658    4,623    0.6    4,658 
Vision Source L.P.  One stop  L + 6.00%   7.25%  08/2019   273    270    -    270 
Vision Source L.P.*^  One stop  L + 6.00%   7.00%  08/2019   17,759    17,645    2.4    17,671 
                  181,035    179,005    24.6    180,173 
Telecommunications                                  
Arise Virtual Solutions, Inc.(3)  One stop  L + 6.00%   N/A(4)  12/2018   -    (11)   -    - 

 

See Notes to Consolidated Financial Statements.

 

20
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (continued)
September 30, 2014
(In thousands)

 

      Spread                 Percentage     
   Investment  Above  Interest   Maturity  Principal / Par       of   Fair 
   Type  Index (1)  Rate(2)   Date  Amount   Cost   Net Assets   Value 
Arise Virtual Solutions, Inc.*^  One stop  L + 6.00%   7.25%  12/2018   13,869    13,753    1.9    13,869 
Hosting.com Inc.(3)  Senior loan  L + 4.50%   N/A(4)  12/2017   -    (1)   -    - 
Hosting.com Inc.*  Senior loan  L + 4.50%   5.75%  12/2017   861    851    0.1    861 
ITC Global, Inc. (3)  One stop  L + 6.75%   7.75%  07/2018   289    277    -    289 
ITC Global, Inc.*  One stop  L + 6.75%   7.75%  07/2018   8,345    8,274    1.1    8,345 
ITC Global, Inc.^  One stop  L + 6.75%   7.75%  07/2018   1,423    1,411    0.2    1,423 
                  24,787    24,554    3.3    24,787 
Textile and Leather                                  
5.11, Inc.*^  Senior loan  L + 5.00%   6.00%  02/2020   1,031    1,026    0.1    1,032 
Southern Tide, LLC (3)  One stop  L + 6.75%   N/A(4)  06/2019   -    (8)   -    - 
Southern Tide, LLC^  One stop  L + 6.75%   7.75%  06/2019   4,096    4,057    0.6    4,096 
                  5,127    5,075    0.7    5,128 
Utilities                                  
PowerPlan Consultants, Inc.(3)  Senior loan  L + 4.25%   N/A(4)  10/2018   -    (1)   -    - 
PowerPlan Consultants, Inc.*^  Senior loan  L + 4.25%   5.26%  10/2019   3,583    3,538    0.5    3,583 
                  3,583    3,537    0.5    3,583 
                                   
Total debt investments United States                $1,309,570   $1,293,046    176.4%  $1,292,851 
                                   
Fair Value as a percentage of Principal Amount                                98.7%

 

See Notes to Consolidated Financial Statements.

 

21
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (continued)
September 30, 2014
(In thousands)

 

      Spread                Percentage     
   Investment  Above  Interest  Maturity  Shares /       of   Fair 
   Type  Index (1)  Rate(2)  Date  Contracts   Cost   Net Assets   Value 
                             
Equity Investments (9)                                
Aerospace and Defense                                
NTS Technical Systems  Common stock  N/A  N/A  N/A   2   $1,506    0.2%  $1,597 
Tresys Technology Holdings, Inc.  Common stock  N/A  N/A  N/A   295    295    -    3 
Whitcraft LLC  Common stock  N/A  N/A  N/A   1    670    0.1    409 
Whitcraft LLC  Warrant  N/A  N/A  N/A   -    -    -    80 
                     2,471    0.3    2,089 
Automobile                                
K&N Engineering, Inc.  Preferred stock A  N/A  N/A  N/A   -    -    -    9 
K&N Engineering, Inc.  Preferred stock B  N/A  N/A  N/A   -    -    -    9 
K&N Engineering, Inc.  Common stock  N/A  N/A  N/A   -    -    -    69 
                     -    -    87 
Beverage, Food and Tobacco                                
Atkins Nutritionals, Inc.  LLC interest  N/A  N/A  N/A   57    746    0.2    1,038 
C. J. Foods, Inc.  Common stock  N/A  N/A  N/A   157    157    -    157 
First Watch Restaurants, Inc.  Common stock  N/A  N/A  N/A   8    816    0.1    908 
Goode Seed Co-Invest, LLC  LLC units  N/A  N/A  N/A   356    356    0.1    408 
Julio & Sons Company  LLC interest  N/A  N/A  N/A   521    521    0.1    445 
Northern Brewer, LLC  LLC interest  N/A  N/A  N/A   438    362    -    8 
Richelieu Foods, Inc.  LP interest  N/A  N/A  N/A   220    220    -    166 
Tate's Bake Shop, Inc.  LP interest  N/A  N/A  N/A   -    462    0.1    462 
Uinta Brewing Company  LP interest  N/A  N/A  N/A   -    462    0.1    462 
                     4,102    0.7    4,054 
Buildings and Real Estate                                
Brooks Equipment Company, LLC  Common stock  N/A  N/A  N/A   102    1,021    0.1    1,021 
                                 
Containers, Packaging and Glass                                
Packaging Coordinators, Inc.  Common stock  N/A  N/A  N/A   25    2,065    0.3    2,536 
Packaging Coordinators, Inc.  Common stock  N/A  N/A  N/A   48    1,563    0.3    2,212 
                     3,628    0.6    4,748 
Diversified Conglomerate Manufacturing                                
Chase Industries, Inc.  Common stock  N/A  N/A  N/A   1    1,186    0.2    1,186 
ICCN Acquisition Corp.  Preferred stock  N/A  N/A  N/A   -    162    -    172 
ICCN Acquisition Corp.  Common stock  N/A  N/A  N/A   -    -    -    2 
Oasis Outsourcing Holdings, Inc.  LLC interest  N/A  N/A  N/A   1,088    860    0.2    1,679 
Sunless Merger Sub, Inc.  LP interest  N/A  N/A  N/A   -    160    -    4 
TIDI Products, LLC  LLC units  N/A  N/A  N/A   315    157    0.1    263 
                     2,525    0.5    3,306 
Diversified Conglomerate Service                                
Daxko, LLC  LLC units  N/A  N/A  N/A   219    219    -    230 
Marathon Data Operating Co., LLC  Preferred stock  N/A  N/A  N/A   1    264    0.1    604 
Marathon Data Operating Co., LLC  Common stock  N/A  N/A  N/A   1    264    -    57 
Navex Global, Inc.  LP interest  N/A  N/A  N/A   -    666    0.2    1,604 
PC Helps Support, LLC  Common stock  N/A  N/A  N/A   1    7    -    - 
PC Helps Support, LLC  Preferred stock  N/A  N/A  N/A   -    61    -    70 
Secure-24, LLC  LLC units  N/A  N/A  N/A   263    263    0.1    275 
                     1,744    0.4    2,840 
Electronics                                
ECI Acquisition Holdings, Inc.  Common stock  N/A  N/A  N/A   9    873    0.1    966 
Sparta Holding Corporation  Common stock  N/A  N/A  N/A   1    567    0.1    567 
Sparta Holding Corporation  Common stock  N/A  N/A  N/A   235    6    -    6 
                     1,446    0.2    1,539 
Grocery                                
MyWebGrocer, Inc.  LLC units  N/A  N/A  N/A   1,315    1,322    0.2    1,322 
                                 
Healthcare, Education and Childcare                                
Advanced Pain Management Holdings, Inc.  Common stock  N/A  N/A  N/A   67    67    0.1    768 
Advanced Pain Management Holdings, Inc.  Preferred stock  N/A  N/A  N/A   8    829    0.1    901 
Avatar International, LLC  LP interest  N/A  N/A  N/A   1    741    -    3 
California Cryobank, LLC  Common stock  N/A  N/A  N/A   -    28    -    28 
California Cryobank, LLC  Common stock  N/A  N/A  N/A   -    -    -    - 
Certara L.P.  LP interest  N/A  N/A  N/A   -    635    0.1    679 

 

See Notes to Consolidated Financial Statements.

 

22
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (continued)
September 30, 2014
(In thousands)

 

      Spread                Percentage     
   Investment  Above  Interest  Maturity  Shares /       of   Fair 
   Type  Index (1)  Rate(2)  Date  Contracts   Cost   Net Assets   Value 
                             
Dialysis Newco, Inc.  LLC units  N/A  N/A  N/A   871    -    0.2    1,557 
Encore Rehabilitation Services, LLC  LLC interest  N/A  N/A  N/A   270    270    0.1    783 
G & H Wire Company, Inc.  LP interest  N/A  N/A  N/A   -    102    -    124 
Global Healthcare Exchange, LLC  Common stock  N/A  N/A  N/A   -    4    -    31 
Global Healthcare Exchange, LLC  Preferred stock  N/A  N/A  N/A   -    398    0.1    418 
Hospitalists Management Group, LLC  Common stock  N/A  N/A  N/A   -    38    -    4 
IntegraMed America, Inc.  Common stock  N/A  N/A  N/A   1    701    0.1    701 
Northwestern Management Services, LLC  Common stock  N/A  N/A  N/A   3    3    -    49 
Northwestern Management Services, LLC  LLC units  N/A  N/A  N/A   0    249    0.1    285 
Pentec Acquisition Sub, Inc.  Preferred stock  N/A  N/A  N/A   1    116    -    83 
Radiology Partners, Inc.  LLC units  N/A  N/A  N/A   43    85    -    85 
Reliant Pro ReHab, LLC  Preferred stock  N/A  N/A  N/A   2    183    0.1    883 
Southern Anesthesia and Surgical  Common stock  N/A  N/A  N/A   487    487    0.1    697 
Spear Education, LLC  Preferred stock  N/A  N/A  N/A   -    86    -    86 
Spear Education, LLC  Common stock  N/A  N/A  N/A   1    1    -    1 
Surgical Information Systems, LLC  Common stock  N/A  N/A  N/A   4    414    0.1    554 
Young Innovations, Inc.  Preferred stock  N/A  N/A  N/A   -    236    -    277 
                     5,673    1.2    8,997 
Home and Office Furnishings, Housewares, and Durable Consumer                                
Top Knobs USA, Inc.  Common stock  N/A  N/A  N/A   3    35    -    213 
                                 
Insurance                                
Captive Resources Midco, LLC  LLC units  N/A  N/A  N/A   1    86    -    191 
                                 
Investment Funds and Vehicles                                
Senior Loan Fund LLC (7)(8)  LLC interest  N/A  N/A  N/A   9,318    9,318    1.3    9,242 
                                 
Leisure, Amusement, Motion Pictures and Entertainment                                
Competitor Group, Inc.  LLC interest  N/A  N/A  N/A   708    713    -    43 
LMP TR Holdings, LLC  LLC units  N/A  N/A  N/A   712    712    0.1    712 
Starplex Operating, L.L.C.  Common stock  N/A  N/A  N/A   1    183    -    241 
Titan Fitness, LLC  Common stock  N/A  N/A  N/A   6    582    0.1    649 
                     2,190    0.2    1,645 
Personal and Non-Durable Consumer Products                                
Hygenic Corporation, The  LP interest  N/A  N/A  N/A   1    61    -    116 
Massage Envy, LLC  LLC interest  N/A  N/A  N/A   749    749    0.1    757 
Team Technologies Acquisition Company  Common stock  N/A  N/A  N/A   -    148    -    225 
                     958    0.1    1,098 
Personal Transportation                                
PODS Funding Corp.  II  Warrant  N/A  N/A  N/A   271    -    0.2    1,599 
                                 
Personal, Food and Miscellaneous Services                                
R.G. Barry Corporation  Preferred stock  N/A  N/A  N/A   -    161    -    161 
                                 
Printing and Publishing                                
Market Track, LLC  Preferred stock  N/A  N/A  N/A   -    145    -    178 
Market Track, LLC  Common stock  N/A  N/A  N/A   1    145    0.1    245 
                     290    0.1    423 
Retail Stores                                
Barcelona Restaurants, LLC(8)(10)  LP interest  N/A  N/A  N/A   1,996    1,996    0.4    3,080 
Benihana, Inc.  LLC units  N/A  N/A  N/A   43    699    0.1    747 
Capital Vision Services, LLC  LLC interest  N/A  N/A  N/A   402    17    0.1    520 
DentMall MSO, LLC  Common stock  N/A  N/A  N/A   2    -    -    - 
DentMall MSO, LLC  Preferred stock  N/A  N/A  N/A   2    97    -    97 
Express Oil Change, LLC  LLC interest  N/A  N/A  N/A   81    81    -    79 
Marshall Retail Group LLC, The  Common stock  N/A  N/A  N/A   15    154    -    154 
Paper Source, Inc.  LLC interest  N/A  N/A  N/A   8    1,387    0.2    1,417 
PetPeople Enterprise, LLC  LP interest  N/A  N/A  N/A   889    889    0.1    889 
Rubio's Restaurants, Inc.  Preferred stock  N/A  N/A  N/A   199    945    0.2    1,430 

 

See Notes to Consolidated Financial Statements.

 

23
 

  

Golub Capital BDC, Inc. and Subsidiaries
Consolidated Schedule of Investments (continued)
September 30, 2014
(In thousands)

 

      Spread                Percentage     
   Investment  Above  Interest  Maturity  Shares /       of   Fair 
   Type  Index (1)  Rate(2)  Date  Contracts   Cost   Net Assets   Value 
                             
Sneaker Villa, Inc.  LLC interest  N/A  N/A  N/A   4    411    0.1    511 
Vision Source L.P.  Common stock  N/A  N/A  N/A   9    386    0.1    760 
Vision Source L.P.  Common stock  N/A  N/A  N/A   -    -    -    - 
                     7,062    1.3   9,684 
Telecommunications                                
ITC Global, Inc.  Preferred stock  N/A  N/A  N/A   17    311    0.1    311 
                                 
Textiles and Leather                                
Southern Tide, LLC  LLC interest  N/A  N/A  N/A   2    191    -    191 
                                 
Total equity investments United States                   $44,534    7.5%  $54,761 
                                 
Total United States                   $1,337,580    183.9%  $1,347,612 
                                 
Total Investments                   $1,337,580    183.9%  $1,347,612 
                                 
Cash, Restricted Cash and Cash Equivalents                                
Cash and Restricted Cash                   $42,744    5.8%  $42,744 
US Bank Money Market Account (cusip 9AMMF05B2)                    37,199    5.1    37,199 
Total Cash, Restricted Cash and Cash Equivalents                   $79,943    10.9%  $79,943 
                                 
Total Investments and Cash, Restricted Cash and Cash Equivalents                   $ 1,417,523    194.80%  $ 1,427,555 

 

 

 

* Denotes that all or a portion of the loan secures the notes offered in the 2010 Debt Securitization (as defined in Note 7).
^ Denotes that all or a portion of the loan secures the notes offered in the 2014 Debt Securitization (as defined in Note 7).
(1) The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate ("LIBOR" or "L") or Prime ("P") and which reset daily, quarterly or semiannually.  For each, the Company has provided the spread over LIBOR or Prime and the weighted average current interest rate in effect as of September 30, 2014. Certain investments are subject to a LIBOR or Prime interest rate floor.  For fixed rate loans, a spread above a reference rate is not applicable.
(2) For portfolio companies with multiple interest rate contracts, the interest rate shown is a weighted average current interest rate in effect as of September 30, 2014.
(3) The negative fair value is the result of the capitalized discount on the loan or the unfunded commitment being valued below par.  The negative cost is the result of the capitalized discount being greater than the principal amount outstanding on the loan.
(4) The entire commitment was unfunded as of September 30, 2014.  As such, no interest is being earned on this investment.
(5) The sale of a portion of this loan does not qualify for sale accounting under ASC Topic 860 - Transfers and Servicing, and therefore, the entire one stop loan asset remains in the Consolidated Schedule of Investments.  (See Note 7 in the accompanying notes to the consolidated financial statements.)
(6) Loan was on non-accrual status as of September 30, 2014, meaning that the Company has ceased recognizing interest income on the loan.
(7) As defined in the 1940 Act, the Company is deemed to be both an "Affiliated Person" of and "Control" this portfolio company as the Company owns more than 25% of the portfolio company's outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement). See Note 5 in the accompanying notes to the consolidated financial statements for transactions during the year ended September 30, 2014 in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control.
(8) The investment is treated as a non-qualifying asset under Section 55(a) of the 1940 Act.  Under the 1940 Act, the Company may not acquire any any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company's total assets.
(9) Non-income producing securities.
(10) As defined in the 1940 Act, the Company is deemed to be an "Affiliated Person" of the portfolio company as the Company along with affiliated entities owns five percent or more of the portfolio company's voting securities.  See Note 5 in the accompanying notes to the financial statements for transactions during the year ended September 30, 2014 in which the issuer was an Affiliated Person (but not a portfolio company that the Company is deemed to control).

 

See Notes to Consolidated Financial Statements.

 

24
 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Note 1.Organization

 

Golub Capital BDC, Inc. (“GBDC” and, collectively with its subsidiaries, the “Company”) is an externally managed, closed-end, non-diversified management investment company. GBDC has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the "1940 Act"). In addition, for U.S. federal income tax purposes, GBDC has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

 

The Company’s investment strategy is to invest primarily in senior secured, one stop (a loan that combines characteristics of traditional first lien senior secured loans and second lien or subordinated loans), second lien and subordinated (a loan that ranks senior only to a borrower’s equity securities and ranks junior to all of such borrower’s other indebtedness in priority of payment) loans of, and warrants and minority equity securities in, U.S. middle market companies that are, in most cases, sponsored by private equity firms. The Company has entered into an investment advisory agreement (the “Investment Advisory Agreement”) with GC Advisors LLC (the “Investment Adviser”), under which the Investment Adviser manages the day-to-day operations of, and provides investment advisory services to, the Company. Under an administration agreement (the “Administration Agreement”) the Company is provided with certain services by an administrator (the “Administrator”), which is currently Golub Capital LLC.

 

Note 2.Significant Accounting Policies and Recent Accounting Updates

 

Basis of presentation: The Company is an investment company as defined in the accounting and reporting guidance under Accounting Standards Codification (“ASC”) Topic 946 – Financial Services – Investment Companies (“ASC Topic 946”).

 

The accompanying interim consolidated financial statements of the Company and related financial information have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications consisting solely of normal accruals that are necessary for the fair presentation of financial results as of and for the periods presented. All intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation.

 

Fair value of financial instruments: The Company applies fair value to all of its financial instruments in accordance with ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC Topic 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity-specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

 

The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market and the current market conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for financial instruments classified as Level 3.

 

25
 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Any changes to the valuation methodology are reviewed by management and the Company’s board of directors (the “Board”) to confirm that the changes are appropriate. As markets change, new products develop and the pricing for products becomes more or less transparent, the Company will continue to refine its valuation methodologies. See further description of fair value methodology in Note 6.

 

Use of estimates: The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Consolidation: As provided under Regulation S-X and ASC Topic 946, the Company will generally not consolidate its investment in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the results of the Company’s wholly-owned subsidiaries in its consolidated financial statements. The Company does not consolidate its noncontrolling interest in Senior Loan Fund LLC (“SLF”). See further description of the Company’s investment in SLF in Note 4.

 

Assets related to transactions that do not meet ASC Topic 860 — Transfers and Servicing (“ASC Topic 860”) requirements for accounting sale treatment are reflected in the Company’s consolidated statements of financial condition as investments. Those assets are owned by special purpose entities, including Golub Capital BDC 2010-1 LLC ("2010 Issuer"), Golub Capital BDC CLO 2014 LLC (“2014 Issuer”), Golub Capital BDC Funding LLC ("Funding") and Golub Capital BDC Revolver Funding, LLC (“Revolver Funding”), that are consolidated in the Company’s consolidated financial statements. The creditors of the special purpose entities have received security interests in such assets and such assets are not intended to be available to the creditors of GBDC (or any affiliate of GBDC).

 

Cash and cash equivalents: Cash and cash equivalents are highly liquid investments with an original maturity of three months or less at the date of acquisition. The Company deposits its cash in financial institutions and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits.

 

Restricted cash and cash equivalents: Restricted cash and cash equivalents include amounts that are collected and are held by trustees who have been appointed as custodians of the assets securing certain of the Company’s financing transactions. Restricted cash is held by the trustees for payment of interest expense and principal on the outstanding borrowings or reinvestment into new assets. In addition, restricted cash and cash equivalents include amounts held within the Company’s small business investment companies (“SBICs”). The amounts held within the SBICs are generally restricted to the originations of new loans from the SBICs and the payment of U.S. Small Business Administration (“SBA”) debentures and related interest expense.

 

Revenue recognition:

 

Investments and related investment income: Interest income is accrued based upon the outstanding principal amount and contractual interest terms of debt investments. For the three months ended December 31, 2014 and 2013, the Company earned interest of $27,319 and $24,563, respectively. As of December 31, 2014 and September 30, 2014, the Company had interest receivable of $6,185 and $5,791, respectively.

 

Loan origination fees, original issue discount and market discount or premium are capitalized, and the Company accretes or amortizes such amounts over the life of the loan as interest income. For the three months ended December 31, 2014 and 2013, interest income included $1,670 and $1,908, respectively, of accretion of discounts. For the three months ended December 31, 2014 and 2013, the Company received loan origination fees of $3,062 and $2,982, respectively.

 

26
 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

For investments with contractual payment-in-kind (“PIK”) interest, which represents contractual interest accrued and added to the principal balance that generally becomes due at maturity, the Company will not accrue PIK interest if the portfolio company valuation indicates that the PIK interest is not collectible. For the three months ended December 31, 2014, the Company recorded PIK income of $502 and received PIK payments in cash of $201. For the three months ended December 31, 2013, the Company recorded PIK income of $413 and received PIK payments in cash of $1,750.

 

In addition, the Company may generate revenue in the form of amendment, structuring or due diligence fees, fees for providing managerial assistance, consulting fees and prepayment premiums on loans. The Company records these fees as fee income when received. All other income is recorded into income when earned. For the three months ended December 31, 2014 and 2013, fee income included $147 and $1,000, respectively, of prepayment premiums.

 

For the three months ended December 31, 2014 and 2013, the Company received interest and fees in cash, which excludes capitalized loan origination fees, in the amounts of $25,156 and $25,130, respectively.

 

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Each distribution received from limited liability company (“LLC”) and limited partnership (“LP”) investments is evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, the Company will not record distributions from equity investments in LLCs and LPs as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment. For the three months ended December 31, 2014, the Company recorded dividend income of $18 and return of capital distributions of $8. For the three months ended December 31, 2013, the Company recorded dividend income of $16 and return of capital distributions of $1,350.

 

Investment transactions are accounted for on a trade-date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the cost basis of investment, without regard to unrealized gains or losses previously recognized. The Company reports current period changes in fair value of investments that are measured at fair value as a component of the net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations.

 

Non-accrual loans: A loan may be left on accrual status during the period the Company is pursuing repayment of the loan. Management reviews all loans that become 90 days or more past due on principal and interest, or when there is reasonable doubt that principal or interest will be collected, for possible placement on non-accrual status. When a loan is placed on non-accrual status, unpaid interest credited to income is reversed. Additionally, any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, payments are likely to remain current. The total fair value of non-accrual loans was $2,233 and $5 as of December 31, 2014 and September 30, 2014, respectively.

 

Partial loan sales: The Company follows the guidance in ASC Topic 860 when accounting for loan participations and other partial loan sales. Such guidance requires a participation or other partial loan sale to meet the definition of a “participating interest”, as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain on the Company’s consolidated statements of financial condition and the proceeds are recorded as a secured borrowing until the definition is met. Secured borrowings are carried at fair value to correspond with the related investments, which are carried at fair value. See Note 7 for additional information.

 

27
 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Income taxes: The Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC, among other things, the Company is required to meet certain source of income and asset diversification requirements and timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each tax year. The Company has made, and intends to continue to make, the requisite distributions to its stockholders, which will generally relieve the Company from U.S. federal income taxes with respect to all income distributed to its stockholders.

 

Depending on the level of taxable income earned in a tax year, the Company may choose to retain taxable income in excess of current year dividend distributions, and would distribute such taxable income in the next tax year. The Company would then pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income, determined on a calendar year basis, could exceed estimated current calendar year dividend distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the three months ended December 31, 2014 and 2013, no amount was recorded for U.S. federal excise tax.

 

The Company accounts for income taxes in conformity with ASC Topic 740 — Income Taxes (“ASC Topic 740”). ASC Topic 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in financial statements. ASC Topic 740 requires the evaluation of tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. There were no material uncertain income tax positions through December 31, 2014. The 2011 through 2014 tax years remain subject to examination by U.S. federal and most state tax authorities.

 

Dividends and distributions: Dividends and distributions to common stockholders are recorded on the record date. The amount to be paid out as a dividend or distribution is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment.

 

The Company has adopted a dividend reinvestment plan (“DRIP”) that provides for reinvestment of any distributions the Company declares in cash on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, if the Board authorizes and the Company declares a cash distribution, then stockholders who have not “opted out” of the DRIP will have their cash distribution automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash dividend. The Company may use newly issued shares under the guidelines of the DRIP (if the Company’s shares are trading at a premium to net asset value), or the Company may purchase shares in the open market in connection with the obligations under the plan. In particular, if the Company’s shares are trading at a significant discount to net asset value and the Company is otherwise permitted under applicable law to purchase such shares, the Company intends to purchase shares in the open market in connection with any obligations under the DRIP.

 

In the event the market price per share of the Company’s common stock on the date of a distribution exceeds the most recently computed net asset value per share of the common stock, the Company will issue shares of common stock to participants in the DRIP at the greater of the most recently computed net asset value per share of common stock or 95% of the current market price per share of common stock (or such lesser discount to the current market price per share that still exceeds the most recently computed net asset value per share of common stock).

 

28
 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Share Repurchase Plan: On August 5, 2014, the Board approved a share repurchase program (the “Program”) which allows the Company to repurchase up to $50,000 of the Company’s outstanding common stock on the open market at prices below the Company’s NAV as reported in its then most recently published consolidated financial statements. The Program may be implemented at the discretion of management. The shares may be purchased from time to time at prevailing market prices, through open market transactions, including block transactions. The Company did not make any repurchases of its common stock during the three months ended December 31, 2014.

 

Deferred financing costs: Deferred financing costs represent fees and other direct incremental costs incurred in connection with the Company’s borrowings. As of December 31, 2014 and September 30, 2014, the Company had deferred financing costs of $9,436 and $9,515, respectively. These amounts are amortized and included in interest expense in the consolidated statements of operations over the estimated average life of the borrowings. Amortization expense for the three months ended December 31, 2014 and 2013 was $1,047 and $439, respectively.

 

Deferred offering costs: Deferred offering costs consist of fees paid in relation to legal, accounting, regulatory and printing work completed in preparation of equity offerings. Deferred offering costs are charged against the proceeds from equity offerings when received. As of December 31, 2014 and September 30, 2014, deferred offering costs, which are included in other assets on the consolidated statements of financial condition, were $247 and $247, respectively.

 

Recent accounting pronouncements: In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605). Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual and interim reporting periods beginning after December 15, 2016, and early application is not permitted. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

 

In August 2014, FASB issued ASU 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and Financial Liabilities of a Consolidated Collateralized Financing Entity, containing new guidance for fair valuing the financial assets and financial liabilities of a consolidate collateralized financing entity. This guidance is effective for annual and interim periods beginning after December 15, 2015. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

 

Note 3.Related Party Transactions

 

Investment Advisory Agreement: Under the Investment Advisory Agreement, the Investment Adviser manages the day-to-day operations of, and provides investment advisory services to, GBDC. The Board most recently reapproved the Investment Advisory Agreement in May 2014. The Investment Adviser is a registered investment adviser with the Securities and Exchange Commission (the “SEC”). The Investment Adviser receives fees for providing services, consisting of two components, a base management fee and an Incentive Fee (as defined below).

 

The base management fee is calculated at an annual rate equal to 1.375% of average adjusted gross assets at the end of the two most recently completed calendar quarters (including assets purchased with borrowed funds and securitization-related assets, leverage, unrealized depreciation or appreciation on derivative instruments and cash collateral on deposit with custodian but adjusted to exclude cash and cash equivalents so that investors do not pay the base management fee on such assets) and is payable quarterly in arrears. Additionally, the Investment Adviser is voluntarily excluding assets funded with secured borrowing proceeds from the base management fee. The base management fee is adjusted, based on the actual number of days elapsed relative to the total number of days in such calendar quarter, for any share issuances or repurchases during such calendar quarter. For purposes of the Investment Advisory Agreement, cash equivalents means U.S. government securities and commercial paper instruments maturing within 270 days of purchase (which is different than the GAAP definition, which defines cash equivalents as U.S. government securities and commercial paper instruments maturing within 90 days of purchase). To the extent that the Investment Adviser or any of its affiliates provides investment advisory, collateral management or other similar services to a subsidiary of the Company, the base management fee will be reduced by an amount equal to the product of (1) the total fees paid to the Investment Adviser by such subsidiary for such services and (2) the percentage of such subsidiary’s total equity, including membership interests and any class of notes not exclusively held by one or more third parties, that is owned, directly or indirectly, by the Company.

 

29
 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

The Company has structured the calculation of the Incentive Fee to include a fee limitation such that an Incentive Fee for any quarter can only be paid to the Investment Adviser if, after such payment, the cumulative Incentive Fees paid to the Investment Adviser since April 13, 2010, the effective date of the Company’s election to become a BDC, would be less than or equal to 20.0% of the Company’s Cumulative Pre-Incentive Fee Net Income (as defined below).

 

The Company accomplishes this limitation by subjecting each quarterly Incentive Fee payable under the Income and Capital Gain Incentive Fee Calculation (as defined below) to a cap (the “Incentive Fee Cap”). The Incentive Fee Cap in any quarter is equal to the difference between (a) 20.0% of Cumulative Pre-Incentive Fee Net Income and (b) cumulative Incentive Fees of any kind paid to the Investment Adviser by GBDC since April 13, 2010. To the extent the Incentive Fee Cap is zero or a negative value in any quarter, no Incentive Fee would be payable in that quarter. If, for any relevant period, the Incentive Fee Cap calculation results in the Company paying less than the amount of the Incentive Fee calculated above, then the difference between the Incentive Fee and the Incentive Fee Cap will not be paid by GBDC and will not be received by the Investment Adviser as an Incentive Fee either at the end of such relevant period or at the end of any future period. “Cumulative Pre-Incentive Fee Net Income” is equal to the sum of (a) Pre-Incentive Fee Net Investment Income (as defined below) for each period since April 13, 2010 and (b) cumulative aggregate realized capital gains, cumulative aggregate realized capital losses, cumulative aggregate unrealized capital depreciation and cumulative aggregate unrealized capital appreciation since April 13, 2010.

 

“Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the calendar quarter (including the base management fee, taxes, any expenses payable under the Investment Advisory Agreement and the Administration Agreement, any expenses of securitizations and any interest expense and dividends paid on any outstanding preferred stock, but excluding the Incentive Fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature such as market discount, debt instruments with PIK interest, preferred stock with PIK dividends and zero coupon securities, accrued income that the Company has not yet received in cash.

 

Incentive Fees are calculated and payable quarterly in arrears (or, upon termination of the Investment Advisory Agreement, as of the termination date).

 

The income and capital gains incentive fee calculation (the “Income and Capital Gain Incentive Fee Calculation”) has two parts, the income component (the “Income Incentive Fee”) and the capital gains component (the “Capital Gain Incentive Fee” and, together with the Income Incentive Fee, the “Incentive Fee”). The Income Incentive Fee is calculated quarterly in arrears based on the Company’s Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter.

 

For the three months ended December 31, 2014 and 2013, the Income Incentive Fee incurred was $932 and $3,032, respectively.

 

30
 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Because of the structure of the Income Incentive Fee, it is possible that an Incentive Fee may be calculated under this formula with respect to a period in which the Company has incurred a loss. For example, if the Company receives Pre-Incentive Fee Net Investment Income in excess of the hurdle rate (as defined below) for a calendar quarter, the Income Incentive Fee will result in a positive value and an Incentive Fee will be paid unless the payment of such Incentive Fee would cause the Company to pay Incentive Fees on a cumulative basis that exceed the Incentive Fee Cap. Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the Company’s net assets (defined as total assets less indebtedness and before taking into account any Incentive Fees payable during the period) at the end of the immediately preceding calendar quarter, is compared to a fixed “hurdle rate” of 2.0% quarterly. If market interest rates rise, the Company may be able to invest funds in debt instruments that provide for a higher return, which would increase Pre-Incentive Fee Net Investment Income and make it easier for the Investment Adviser to surpass the fixed hurdle rate and receive an Incentive Fee based on such net investment income.

 

The Company’s Pre-Incentive Fee Net Investment Income used to calculate this part of the Incentive Fee is also included in the amount of its total assets (excluding cash and cash equivalents but including assets purchased with borrowed funds and securitization-related assets, unrealized depreciation or appreciation on derivative instruments and cash collateral on deposit with custodian) used to calculate the 1.375% base management fee annual rate.

 

The Company calculates the Income Incentive Fee with respect to its Pre-Incentive Fee Net Investment Income quarterly, in arrears, as follows:

 

·Zero in any calendar quarter in which the Pre-Incentive Fee Net Investment Income does not exceed the hurdle rate;
·100% of the Company’s Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.5% in any calendar quarter. This portion of the Company’s Pre-Incentive Fee Net Investment Income (which exceeds the hurdle rate but is less than 2.5%) is referred to as the “catch-up” provision. The catch-up is meant to provide the Investment Adviser with 20.0% of the Pre-Incentive Fee Net Investment Income as if a hurdle rate did not apply if the Company’s Pre-Incentive Fee Net Investment Income exceeds 2.5% in any calendar quarter; and
·20.0% of the amount of the Company’s Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.5% in any calendar quarter.

 

The sum of these calculations yields the “Income Incentive Fee”. This amount is appropriately adjusted for any share issuances or repurchases during the quarter.

 

The Capital Gain Incentive Fee equals (a) 20.0% of the Company’s Capital Gain Incentive Fee Base (as defined below), if any, calculated in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), which commenced with the calendar year ending December 31, 2010, less (b) the aggregate amount of any previously paid Capital Gain Incentive Fees. On August 5, 2014, the Company amended the Investment Advisory Agreement, effective as of June 30, 2014, to provide that the Capital Gain Incentive Fee Base is reduced by the amount of any unamortized deferred financing costs, if and to the degree that such costs exceed unrealized capital appreciation. The Company’s “Capital Gain Incentive Fee Base” equals (1) the sum of (i) realized capital gains, if any, on a cumulative positive basis from the date the Company elected to become a BDC through the end of each calendar year, (ii) all realized capital losses on a cumulative basis and (iii) all unrealized capital depreciation on a cumulative basis less (2) all unamortized deferred financing costs, if and to the extent such costs exceed all unrealized capital appreciation on a cumulative basis.

 

31
 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

·The cumulative aggregate realized capital losses are calculated as the sum of the amounts by which (a) the net sales price of each investment in the Company’s portfolio when sold is less than (b) the accreted or amortized cost basis of such investment.
·The cumulative aggregate realized capital gains are calculated as the sum of the differences, if positive, between (a) the net sales price of each investment in the Company’s portfolio when sold and (b) the accreted or amortized cost basis of such investment.
·The aggregate unrealized capital depreciation is calculated as the sum of the differences, if negative, between (a) the valuation of each investment in the Company’s portfolio as of the applicable Capital Gain Incentive Fee calculation date and (b) the accreted or amortized cost basis of such investment.

 

The Capital Gain Incentive Fee payable as calculated under the Investment Advisory Agreement (as described above) for the three months ended December 31, 2014 and 2013 was $0 for each period. However, in accordance with GAAP, we are required to include the aggregate unrealized capital appreciation on investments in the calculation and accrue a capital gain incentive fee on a quarterly basis, as if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Advisory Agreement. If the Capital Gain Incentive Fee Base, adjusted as required by GAAP to include unrealized appreciation, is positive at the end of a period, then GAAP requires the Company to accrue a capital gain Incentive fee equal to 20% of such amount, less the aggregate amount of the actual Capital Gain Incentive Fees paid and capital gain incentive fees accrued under GAAP in all prior periods. If such amount is negative, then there is no accrual for such period. The resulting accrual under GAAP in a given period may result in additional expense if such cumulative amount is greater than in the prior period or a reversal of previously recorded expense if such cumulative amount is less than in the prior period. There can be no assurance that such unrealized capital appreciation will be realized in the future. Since inception through December 31, 2014, the Company has not made any Capital Gain Incentive Fee payments. For the three months ended December 31, 2014 and 2013, the Company accrued a capital gain incentive fee under GAAP of $139 and $0, respectively.

 

The sum of the Income Incentive Fee and the Capital Gain Incentive Fee is the “Incentive Fee.”

 

As described above, the Incentive Fee will not be paid at any time if, after such payment, the cumulative Incentive Fees paid to date would be greater than the Incentive Fee Cap.

 

Administration Agreement: Under the Administration Agreement, the Administrator furnishes GBDC with office facilities and equipment, provides GBDC with clerical, bookkeeping and record keeping services at such facilities and provides GBDC with other administrative services as the Administrator, subject to review by the Board, determines necessary to conduct the Company’s day-to-day operations. GBDC reimburses the Administrator the allocable portion (subject to the review and approval of the Board) of overhead and other expenses incurred by it in performing its obligations under the Administration Agreement, including rent, fees and expenses associated with performing compliance functions and GBDC’s allocable portion of the cost of its chief financial officer and chief compliance officer and their respective staffs. The Board reviews such expenses to determine that these expenses are reasonable and comparable to administrative services charged by unaffiliated third party asset managers. Under the Administration Agreement, the Administrator also provides on the Company’s behalf significant managerial assistance to those portfolio companies to which the Company is required to provide such assistance and will be paid an additional amount based on the cost of the services provided, not to exceed the amount the Company receives from such portfolio companies.

 

Included in accounts payable and accrued expenses is $607 and $548 as of December 31, 2014 and September 30, 2014, respectively, for accrued allocated shared services under the Administration Agreement. The administrative service fee expense under the Administration Agreement for the three months ended December 31, 2014 and 2013 was $607 and $582, respectively.

 

32
 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Other related party transactions: The Administrator pays for certain unaffiliated third-party expenses incurred by the Company. Such expenses include postage, printing, office supplies and rating agency fees. These expenses are not marked-up and represent the same amount the Company would have paid had the Company paid the expenses directly. These expenses are subsequently reimbursed in cash.

 

Total expenses reimbursed to the Administrator during the three months ended December 31, 2014 and 2013 were $156 and $323, respectively.

 

As of December 31, 2014 and September 30, 2014, included in accounts payable and accrued expenses were $302 and $156, respectively, for accrued expenses paid on behalf of the Company by the Administrator.

 

During the three months ended December 31, 2014 and 2013, the Company sold $15,825 and $0, respectively, of investments to SLF at fair value.

 

Note 4.Investments

 

Investments as of December 31, 2014 and September 30, 2014 consisted of the following:

 

   As of December 31, 2014   As of September 30, 2014 
   Par   Cost   Fair Value   Par   Cost   Fair Value 
Senior secured  $251,822   $248,688   $245,689   $268,136   $265,042   $262,859 
One stop   1,019,488    1,005,455    1,005,954    952,359    939,765    940,729 
Second lien   59,903    59,130    59,457    59,902    59,086    59,964 
Subordinated debt   3,584    3,565    3,724    3,584    3,564    3,710 
Subordinated notes in SLF (1)   28,871    28,871    28,871    25,589    25,589    25,589 
LLC equity interests in SLF (1)   N/A    10,937    10,834    N/A    9,318    9,242 
Equity   N/A    35,159    46,197    N/A    35,216    45,519 
Total  $1,363,668   $1,391,805   $1,400,726   $1,309,570   $1,337,580   $1,347,612 

 

 

(1)SLF's proceeds from the subordinated notes and LLC equity interests invested in SLF were utilized by SLF to invest in senior secured loans.

 

33
 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

The following tables show the portfolio composition by geographic region at cost and fair value as a percentage of total investments in portfolio companies. The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business.

 

   As of December 31, 2014   As of September 30, 2014 
Cost:                    
United States                    
Mid-Atlantic  $312,180    22.4%  $306,582    22.9%
Midwest   283,557    20.4    274,923    20.6 
West   272,259    19.6    288,915    21.6 
Southeast   330,084    23.7    283,935    21.2 
Southwest   115,857    8.3    116,105    8.7 
Northeast   77,868    5.6    67,120    5.0 
Total  $1,391,805    100.0%  $1,337,580    100.0%
                     
Fair Value:                    
United States                    
Mid-Atlantic  $307,130    21.9%  $302,159    22.4%
Midwest   287,231    20.5    278,527    20.7 
West   274,042    19.6    291,587    21.6 
Southeast   333,988    23.8    288,565    21.4 
Southwest   118,187    8.5    117,923    8.8 
Northeast   80,148    5.7    68,851    5.1 
Total  $1,400,726    100.0%  $1,347,612    100.0%

 

34
 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

The industry compositions of the portfolio at cost and fair value were as follows:

 

   As of December 31, 2014   As of September 30, 2014 
Cost:                    
Aerospace and Defense  $73,787    5.3%  $75,696    5.6%
Automobile   10,731    0.8    14,630    1.1 
Banking   17,469    1.3    17,292    1.3 
Beverage, Food and Tobacco   115,617    8.3    119,912    9.0 
Buildings and Real Estate   32,858    2.4    28,502    2.1 
Cargo Transport   1,939    0.2    1,942    0.1 
Containers, Packaging and Glass   31,041    2.2    31,136    2.3 
Diversified Conglomerate Manufacturing   77,137    5.5    73,053    5.5 
Diversified Conglomerate Service   165,931    11.9    167,034    12.5 
Electronics   124,920    9.0    107,274    8.0 
Finance   13,060    0.9    13,059    1.0 
Grocery   20,098    1.4    18,056    1.3 
Healthcare, Education and Childcare   256,971    18.5    224,961    16.8 
Home and Office Furnishings, Housewares and Durable Consumer   7,079    0.5    6,897    0.5 
Insurance   19,508    1.4    19,547    1.5 
Investment Funds and Vehicles   39,808    2.9    34,907    2.6 
Leisure, Amusement, Motion Pictures and Entertainment   54,762    3.9    55,126    4.1 
Mining, Steel, Iron and Non-Precious Metals   5,180    0.4    5,136    0.4 
Oil and Gas   1,292    0.1    1,310    0.1 
Personal and Non-Durable Consumer Products   32,614    2.3    32,065    2.4 
Personal, Food and Miscellaneous Services   47,935    3.4    39,815    3.0 
Personal Transportation   -    -    -    - 
Printing and Publishing   30,433    2.2    30,495    2.3 
Retail Stores   177,807    12.8    186,067    13.9 
Telecommunications   25,304    1.8    24,865    1.9 
Textiles and Leather   5,256    0.4    5,266    0.4 
Utilities   3,268    0.2    3,537    0.3 
Total  $1,391,805    100.0%  $1,337,580    100.0%

 

   As of December 31, 2014   As of September 30, 2014 
Fair Value:                    
Aerospace and Defense  $72,098    5.1%  $74,470    5.5%
Automobile   10,640    0.8    14,546    1.1 
Banking   17,421    1.2    17,245    1.3 
Beverage, Food and Tobacco   114,622    8.2    119,610    8.9 
Buildings and Real Estate   33,259    2.4    28,703    2.1 
Cargo Transport   1,836    0.1    1,923    0.1 
Containers, Packaging and Glass   31,992    2.3    32,500    2.4 
Diversified Conglomerate Manufacturing   77,647    5.5    74,058    5.5 
Diversified Conglomerate Service   168,029    12.0    170,397    12.6 
Electronics   126,647    9.0    108,695    8.1 
Finance   10,519    0.8    10,530    0.8 
Grocery   20,310    1.4    18,267    1.3 
Healthcare, Education and Childcare   259,892    18.6    227,144    16.8 
Home and Office Furnishings, Housewares and Durable Consumer   5,520    0.4    5,241    0.4 
Insurance   19,806    1.4    19,844    1.5 
Investment Funds and Vehicles   39,705    2.8    34,830    2.6 
Leisure, Amusement, Motion Pictures and Entertainment   53,457    3.8    53,922    4.0 
Mining, Steel, Iron and Non-Precious Metals   5,223    0.4    5,182    0.4 
Oil and Gas   1,307    0.1    1,325    0.1 
Personal and Non-Durable Consumer Products   33,171    2.4    32,620    2.4 
Personal, Food and Miscellaneous Services   48,497    3.5    40,194    3.0 
Personal Transportation   2,308    0.2    1,599    0.1 
Printing and Publishing   30,832    2.2    30,910    2.3 
Retail Stores   181,854    13.0    189,857    14.1 
Telecommunications   25,529    1.8    25,098    1.9 
Textiles and Leather   5,295    0.4    5,319    0.4 
Utilities   3,310    0.2    3,583    0.3 
Total  $1,400,726    100.0%  $1,347,612    100.0%

 

35
 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Senior Loan Fund LLC:

 

The Company co-invests with RGA Reinsurance Company (“RGA”) in senior secured loans through SLF, an unconsolidated Delaware LLC. SLF is capitalized as transactions are completed and all portfolio and investment decisions in respect to SLF must be approved by the SLF investment committee consisting of two representatives of each of the Company and RGA (with unanimous approval required from (i) one representative of each of the Company and RGA or (ii) both representatives of each of the Company and RGA).

 

SLF is capitalized with subordinated notes and LLC equity interest subscriptions from its members. As of December 31, 2014, the Company and RGA owned 87.5% and 12.5%, respectively, of both the outstanding subordinated notes and LLC equity interests. Additionally, SLF has entered into a senior secured revolving credit facility (as amended, the “SLF Credit Facility”) with Wells Fargo Bank, N.A., through its wholly-owned subsidiary Senior Loan Fund II LLC (“SLF II”) which as of December 31, 2014 allowed SLF II to borrow up to $150,000 at any one time outstanding, subject to leverage and borrowing base restrictions. As of December 31, 2014, SLF had subordinated note commitments from the Company and RGA totaling $100,000, of which approximately $32,995 and $29,245 in aggregate principal amount was funded at December 31, 2014 and September 30, 2014, respectively. As of September 30, 2014, SLF had LLC equity interest subscriptions from the Company and RGA totaling $25,000, of which approximately $12,499 and $9,318 in aggregate was called and contributed as of December 31, 2014 and September 30, 2014, respectively.

 

As of December 31, 2014 and September 30, 2014, SLF had total assets at fair value of $126,370 and $107,228, respectively. As of December 31, 2014 and September 30, 2014, SLF’s portfolio was comprised of first lien senior secured loans to 38 and 31 different borrowers, respectively. As of December 31, 2014 and September 30, 2014, none of these loans was on non-accrual status. The portfolio companies in SLF are in industries similar to those in which the Company may invest directly. Additionally, as of December 31, 2014 and September 30, 2014, SLF had commitments to fund various undrawn revolvers and delayed draw investments to its portfolio companies totaling $7,602 and $10,136, respectively.

 

Below is a summary of SLF’s portfolio, followed by a listing of the individual loans in SLF’s portfolio as of December 31, 2014 and September 30, 2014:

 

   As of
December 31,
2014		   As of
September 30,
2014		 
Senior secured loans (1)  $122,516   $103,695 
Weighted average current interest rate on senior secured loans (2)   5.3%   5.2%
Number of borrowers in SLF   38    31 
Largest loan to a single borrower (1)  $8,208   $8,229 
Total of five largest loans to borrowers (1)  $30,468   $31,132 

 

 

(1)At principal/par amount.

(2)Computed as the (a) annual stated interest rate on accruing senior secured loans, divided by (b) total senior secured loans at principal/par amount.

 

36
 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

SLF Loan Portfolio as of December 31, 2014

            Current         
         Maturity  Interest   Principal/Par   Fair 
Portfolio Company  Business Description  Investment Type  Date  Rate (1)   Amount   Value (2) 
1011778 B.C. ULC (Burger King Worldwide, Inc. )  Beverage, Food and Tobacco  Senior Loan  10/2021   4.5%  $3,000   $2,996 
5.11, Inc. (3)  Textiles and Leather  Senior Loan  02/2020   6.0    3,282    3,279 
Acosta, Inc.  Diversified Conglomerate Service  Senior Loan  09/2021   5.0    3,000    3,005 
ACTIVE Network, Inc.  Electronics  Senior Loan  11/2020   5.5    1,980    1,943 
ARG IH Corporation (3)  Beverage, Food and Tobacco  Senior Loan  11/2020   4.8    2,145    2,143 
Atrium Innovations  Personal and Non Durable Consumer Products  Senior Loan  02/2021   4.3    3,547    3,437 
BJ's Wholesale Club, Inc.  Retail Stores  Senior Loan  09/2019   4.5    2,977    2,930 
Blue Coat Systems, Inc.  Electronics  Senior Loan  05/2019   4.0    1,985    1,938 
BMC Software, Inc.  Electronics  Senior Loan  09/2020   5.0    1,911    1,865 
Brasa (Holdings) Inc.  Personal, Food and Miscellaneous Services  Senior Loan  07/2019   5.0    8,208    8,153 
Brickman Group Ltd. LLC  Farming and Agriculture  Senior Loan  12/2020   4.0    1,995    1,943 
Connect Merger Sub, Inc.  Telecommunications  Senior Loan  04/2020   4.8    3,965    3,924 
Dell, Inc.  Electronics  Senior Loan  04/2020   4.5    1,980    1,979 
Dialysis Newco, Inc.  Healthcare, Education and Childcare  Senior Loan  04/2021   4.5    2,488    2,475 
Diversified Foodservice Supply, Inc. (3)  Beverage, Food and Tobacco  Senior Loan  12/2018   5.8    4,194    4,194 
EAG, INC. (Evans Analytical Group)  Diversified Conglomerate Service  Senior Loan  07/2017   5.0    2,366    2,366 
Federal-Mogul Corporation  Automobile  Senior Loan  04/2021   4.8    3,990    3,969 
GSDM Holdings Corp. (3)  Healthcare, Education and Childcare  Senior Loan  06/2019   5.3    1,795    1,795 
Hygenic Corporation, The  Personal and Non Durable Consumer Products  Senior Loan  10/2018   6.0    4,527    4,527 
K&N Engineering, Inc. (3)  Automobile  Senior Loan  07/2019   5.3    3,894    3,894 
Mister Car Wash Holdings, Inc.  Automobile  Senior Loan  08/2021   5.0    2,992    3,001 
National Veterinary Associates, Inc.  Personal, Food and Miscellaneous Services  Senior Loan  08/2021   4.8    998    989 
Paradigm DKD Group, LLC  Buildings and Real Estate  Senior Loan  11/2018   6.0    2,053    2,011 
Paradigm DKD Group, LLC  Buildings and Real Estate  Senior Loan  11/2018   6.0    360    346 
Paradigm Management Services, LLC (3)  Healthcare, Education and Childcare  Senior Loan  01/2019   5.5    6,247    6,247 
Payless ShoeSource, Inc.  Retail Stores  Senior Loan  03/2021   5.0    1,990    1,831 
Plano Molding Company, LLC (3)  Home and Office Furnishings, Housewares, and Durable Consumer  Senior Loan  10/2018   5.3    1,815    1,815 
Print Payroll Services, LLC  Diversified/Conglomerate Service  Senior Loan  06/2019   5.7    2,943    2,943 
Print Payroll Services, LLC  Diversified/Conglomerate Service  Senior Loan  06/2019   5.7    568    568 
Reliant Pro ReHab, LLC (3)  Healthcare, Education and Childcare  Senior Loan  06/2017   6.0    4,296    4,296 
Rug Doctor LLC (3)  Personal and Non Durable Consumer Products  Senior Loan  12/2016   6.3    4,875    4,875 
Scientific Games International, Inc.  Hotels, Motels, Inns, and Gaming  Senior Loan  10/2020   6.0    3,965    3,918 
Self Esteem Brands, LLC (3)  Leisure, Amusement, Motion Pictures, Entertainment  Senior Loan  02/2020   5.0    6,185    6,185 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior Loan  05/2018   5.5    968    968 
Syncsort Incorporated (3)  Electronics  Senior Loan  03/2019   5.8    4,953    4,953 
Systems Maintenance Services Holding, Inc. (3)  Electronics  Senior Loan  10/2019   5.0    2,433    2,433 
Take 5 Oil Change, L.L.C. (3)  Automobile  Senior Loan  07/2018   6.3    1,426    1,426 
U.S. Water Services, Inc.  Utilities  Senior Loan  08/2018   5.8    3,452    3,452 
U.S. Water Services, Inc.  Utilities  Senior Loan  08/2018   6.8    403    403 
U.S. Water Services, Inc.  Utilities  Senior Loan  08/2018   5.8    165    165 
W3 Co.  Oil and Gas  Senior Loan  03/2020   5.8    2,977    2,873 
WII Components, Inc. (3)  Home and Office Furnishings, Housewares, and Durable Consumer  Senior Loan  07/2018   5.5    3,223    3,223 
                 $122,516   $121,676 

 

 

(1)Represents the weighted average annual current interest rate as of December 31, 2014. All interest rates are payable in cash.

(2)Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Board's valuation process described elsewhere herein.

(3)The Company also holds a portion of the first lien senior secured loan in this portfolio company.

 

37
 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

SLF Loan Portfolio as of September 30, 2014

            Current         
         Maturity  Interest   Principal/Par   Fair 
Portfolio Company  Business Description  Investment Type  Date  Rate (1)   Amount   Value (2) 
5.11, Inc. (3)  Textiles and Leather  Senior Loan  02/2020   6.0%  $3,290   $3,294 
ACTIVE Network, Inc.  Electronics  Senior Loan  11/2020   5.5    1,985    1,975 
ARG IH Corporation (3)  Beverage, Food and Tobacco  Senior Loan  11/2020   4.8    2,151    2,152 
Atrium Innovations  Personal and Non Durable Consumer Products  Senior Loan  02/2021   4.3    3,556    3,498 
BJ's Wholesale Club, Inc.  Retail Stores  Senior Loan  09/2019   4.5    2,985    2,944 
Blue Coat Systems, Inc.  Electronics  Senior Loan  05/2019   4.0    1,990    1,958 
BMC Software, Inc.  Electronics  Senior Loan  09/2020   5.0    1,915    1,886 
Brasa (Holdings) Inc.  Personal, Food and Miscellaneous Services  Senior Loan  07/2019   5.0    8,229    8,215 
Connect Merger Sub, Inc.  Telecommunications  Senior Loan  04/2020   4.8    3,975    3,943 
Dell, Inc.  Electronics  Senior Loan  04/2020   4.5    1,985    1,974 
Dialysis Newco, Inc.  Healthcare, Education and Childcare  Senior Loan  04/2021   4.5    2,494    2,491 
Diversified Foodservice Supply, Inc. (3)  Beverage, Food and Tobacco  Senior Loan  12/2018   5.8    4,194    4,194 
El Pollo Loco Inc. (3)  Personal, Food and Miscellaneous Services  Senior Loan  10/2018   5.3    4,740    4,758 
Federal-Mogul Corporation  Automobile  Senior Loan  04/2021   4.8    4,000    3,972 
GSDM Holdings Corp. (3)  Healthcare, Education and Childcare  Senior Loan  06/2019   5.3    1,800    1,800 
Nuveen Investments, Inc.  Finance  Senior Loan  05/2017   4.2    3,000    2,997 
Paradigm DKD Group, LLC  Buildings and Real Estate  Senior Loan  11/2018   5.8    2,058    2,058 
Paradigm DKD Group, LLC  Buildings and Real Estate  Senior Loan  11/2018   5.8    468    468 
Paradigm Management Services, LLC (3)  Healthcare, Education and Childcare  Senior Loan  01/2019   5.5    6,247    6,247 
Payless ShoeSource, Inc.  Retail Stores  Senior Loan  03/2021   5.0    1,995    1,925 
Plano Molding Company, LLC (3)  Home and Office Furnishings, Housewares, and Durable Consumer  Senior Loan  10/2018   5.3    1,827    1,827 
Print Payroll Services, LLC  Diversified Conglomerate Service  Senior Loan  06/2019   5.6    2,950    2,950 
Rug Doctor LLC (3)  Personal and Non Durable Consumer Products  Senior Loan  12/2016   6.3    4,939    4,939 
Rug Doctor LLC (3)  Personal and Non Durable Consumer Products  Senior Loan  12/2016   6.3    428    428 
Scientific Games International, Inc.  Hotels, Motels, Inns, and Gaming  Senior Loan  10/2020   4.3    3,975    3,905 
Self Esteem Brands, LLC (3)  Leisure, Amusement, Motion Pictures, Entertainment  Senior Loan  02/2020   5.0    6,324    6,324 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior Loan  05/2018   5.5    970    970 
Syncsort Incorporated (3)  Electronics  Senior Loan  03/2019   5.8    4,966    4,966 
Systems Maintenance Services Holding, Inc. (3)  Electronics  Senior Loan  10/2019   5.0    2,439    2,439 
Take 5 Oil Change, L.L.C. (3)  Automobile  Senior Loan  07/2018   6.3    1,429    1,429 
U.S. Water Services, Inc.  Utilities  Senior Loan  08/2018   5.8    3,461    3,461 
U.S. Water Services, Inc.  Utilities  Senior Loan  08/2018   6.8    386    386 
U.S. Water Services, Inc.  Utilities  Senior Loan  08/2018   5.8    165    165 
W3 Co.  Oil and Gas  Senior Loan  03/2020   5.8    2,985    2,981 
WII Components, Inc. (3)  Home and Office Furnishings, Housewares, and Durable Consumer  Senior Loan  07/2018   5.5    3,394    3,378 
WII Components, Inc. (3) (4)  Home and Office Furnishings, Housewares, and Durable Consumer  Senior Loan  07/2018   N/A(5)    -    (1)
                 $103,695   $103,296 

 

 

(1) Represents the weighted average annual current interest rate as of September 30, 2014. All interest rates are payable in cash.

(2) Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the Board's valuation process described elsewhere herein.

(3) The Company also holds a portion of the first lien senior secured loan in this portfolio company.

(4) The negative fair value is the result of the unfunded commitment being valued below par.

(5) The entire commitment was unfunded at September 30, 2014. As such, no interest is being earned on this investment.

 

The Company has committed to fund $87,500 of subordinated notes and $21,875 of LLC equity interest subscriptions to SLF. The amortized cost and fair value of the subordinated notes held by the Company was $28,871 and $28,871, respectively, as of December 31, 2014, and $25,589 and $25,589, respectively, as of September 30, 2014. As of December 31, 2014, the subordinated notes pay a weighted average interest rate of three-month London Interbank Offered Rate (“LIBOR”) plus 8.0%. For the three months ended December 31, 2014 and 2013, the Company earned interest income on the subordinated notes of $550 and $181, respectively. As of December 31, 2014 and September 30, 2014, $10,937 and $9,318 of the Company’s LLC equity interest subscriptions had been called and contributed. For the three months ended December 31, 2014 and 2013, the Company received $0 and $0 in dividend income from the LLC equity interests.

 

38
 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Below is certain summarized financial information for SLF as of December 31, 2014 and September 30, 2014 and for the three months ended December 31, 2014 and 2013:

 

   As of
December 31,
2014		   As of
September 30,
2014		 
Selected Balance Sheet Information:          
Investments in loans receivable, at fair value  $121,676   $103,296 
Cash and other assets   4,694    3,932 
Total assets  $126,370   $107,228 
           
Senior credit facility  $74,750   $66,600 
Payable for open trades   4,950    - 
Other liabilities   1,294    822 
Total liabilities   80,994    67,422 
Subordinated notes and members' equity   45,376    39,806 
Total liabilities and net assets  $126,370   $107,228 

 

   Three months ended December 31, 
   2014   2013 
Selected Statement of Operations Information:          
Interest income  $1,600   $333 
Fee income   2    - 
Total investment income   1,602    333 
           
Interest expense   1,108    206 
Administrative service fee   47    16 
Management and incentive fees   -    - 
Other expenses   25    9 
Total expenses   1,180    231 
Net investment income   422    102 
           
Net change in unrealized appreciation (depreciation) on investments and subordinated notes   (452)   642 
Net increase (decrease) in net assets  $(30)  $744 

 

39
 

  

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Note 5.Transactions with Affiliated Companies

 

An affiliated company is a company in which the Company has an ownership of 5% or more of its voting securities. A controlled affiliate is a company in which the Company owns more than 25% of its voting securities. Transactions related to our investments with both controlled and non-controlled affiliates for the three months ended December 31, 2014 were as follows:

 

Portfolio  Fair value at   Purchases   Redemptions   Sales   Discount   Net realized   Net unrealized   Fair value at   Interest and   Dividend 
Company  September 30, 2014   (cost)   (cost)   (cost)   accretion   gains / (losses)   gains / (losses)   December 31, 2014   fee income   income 
Controlled Affiliates                                                  
Senior Loan Fund LLC *  $34,831   $4,900   $-   $-   $-   $-   $(26)  $39,705   $550   $- 
Non-Controlled Affiliates                                                  
Barcelona Restaurants, LLC   3,080    -    -    -    -    -    327    3,407    -    - 
Total Controlled and                                                  
Non-Controlled Affiliates  $37,911   $4,900   $-   $-   $-   $-   $301   $43,112   $550   $- 

 

 

*Together with RGA, the Company co-invests through SLF. SLF is capitalized as transactions are completed and all portfolio and investment decisions in respect to SLF must be approved by the SLF investment committee consisting of two representatives of the Company and RGA (with unanimous approval required from (i) one representative of each of the Company and RGA or (ii) both representatives of each of the Company and RGA). Therefore, although the Company owns more than 25% of the voting securities of SLF (even though these "voting securities" do not afford the Company the right to elect directors of SLF or any other special rights), the Company does not believe that it has control over SLF for purposes of the 1940 Act or otherwise.

 

Note 6.Fair Value Measurements

 

The Company follows ASC Topic 820 for measuring fair value. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the assets or liabilities or market and the assets’ or liabilities’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Assets and liabilities are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the asset or liability as of the measurement date. The three levels are defined as follows:

 

Level 1: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2: Inputs include quoted prices for similar assets or liabilities in active markets and inputs that are observable for the assets or liabilities, either directly or indirectly, for substantially the full term of the assets or liabilities.

Level 3: Inputs include significant unobservable inputs for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value are based upon the best information available and may require significant management judgment or estimation.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset’s or a liability’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The Company assesses the levels of assets and liabilities at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfers. There were no transfers among Level 1, 2 and 3 of the fair value hierarchy for assets and liabilities during the three months ended December 31, 2014 and 2013. The following section describes the valuation techniques used by the Company to measure different assets and liabilities at fair value and includes the level within the fair value hierarchy in which the assets and liabilities are categorized.

 

40
 

 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Investments

 

Level 1 investments are valued using quoted market prices. Level 2 investments are valued using market consensus prices that are corroborated by observable market data and quoted market prices for similar assets and liabilities. Level 3 investments are valued at fair value as determined in good faith by the Board, based on input of management, the audit committee and independent valuation firms that have been engaged at the direction of the Board to assist in the valuation of each portfolio investment without a readily available market quotation at least once during a trailing twelve-month period under a valuation policy and a consistently applied valuation process. This valuation process is conducted at the end of each fiscal quarter, with approximately 25% (based on fair value) of the Company’s valuations of debt and equity investments without readily available market quotations subject to review by an independent valuation firm. All investments as of December 31, 2014 and September 30, 2014, with the exception of money market funds included in cash and cash equivalents (Level 1 investments), were valued using Level 3 inputs of the fair value hierarchy.

 

When determining fair value of Level 3 debt and equity investments, the Company may take into account the following factors, where relevant: the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons to publicly traded securities, and changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments may be made and other relevant factors. The primary method for determining enterprise value uses a multiple analysis whereby appropriate multiples are applied to the portfolio company’s net income before net interest expense, income tax expense, depreciation and amortization (“EBITDA”). The enterprise value analysis is performed to determine the value of equity investments and to determine if debt investments are credit impaired. If debt investments are credit impaired, the Company will use the enterprise value analysis or a liquidation basis analysis to determine fair value. For debt investments that are not determined to be credit impaired, the Company uses a market interest rate yield analysis to determine fair value.

 

In addition, for certain debt investments, the Company may base its valuation on indicative bid and ask prices provided by an independent third party pricing service. Bid prices reflect the highest price that the Company and others may be willing to pay. Ask prices represent the lowest price that the Company and others may be willing to accept. The Company generally uses the midpoint of the bid/ask range as its best estimate of fair value of such investment.

 

Due to the inherent uncertainty of determining the fair value of Level 3 investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be received or settled. Further, such investments are generally subject to legal and other restrictions or otherwise are less liquid than publicly traded instruments. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, the Company may realize significantly less than the value at which such investment had previously been recorded.

 

The Company’s investments are subject to market risk. Market risk is the potential for changes in the value due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which the investments are traded.

 

41
 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Secured Borrowings

 

The Company has elected the fair value option under ASC Topic 825 — Financial Instruments relating to accounting for debt obligations at their fair value for its secured borrowings which arose due to partial loan sales which did not meet the criteria for sale treatment under ASC Topic 860. The Company reports changes in the fair value of its secured borrowings as a component of the net change in unrealized (appreciation) depreciation on secured borrowings in the consolidated statements of operations. The net gain or loss reflects the difference between the fair value and the principal amount due on maturity.

 

All secured borrowings as of December 31, 2014 and September 30, 2014 were valued using Level 3 inputs under the fair value hierarchy, and the Company’s approach to determining fair value of Level 3 secured borrowings is consistent with its approach to determining fair value of the Level 3 investments that are associated with these secured borrowings as previously described.

 

The following tables present fair value measurements of the Company’s investments and secured borrowings and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of December 31, 2014 and September 30, 2014:

 

As of December 31, 2014:  Fair Value Measurements Using 
Description  Level 1   Level 2   Level 3   Total 
Assets:                    
Debt investments(1)  $-   $-   $1,343,695   $1,343,695 
Equity investments(1)   -    -    57,031    57,031 
Money market funds (1)(2)   31,076    -    -    31,076 
Total assets:  $31,076   $-   $1,400,726   $1,431,802 
Secured borrowings:  $-   $-   $380   $380 

 

As of September 30, 2014:  Fair Value Measurements Using 
Description  Level 1   Level 2   Level 3   Total 
Assets:                    
Debt investments(1)  $-   $-   $1,292,851   $1,292,851 
Equity investments(1)   -    -    54,761    54,761 
Money market funds (1)(2)   37,199    -    -    37,199 
Total assets:  $37,199   $-   $1,347,612   $1,384,811 
Secured borrowings:  $-   $-   $389   $389 

 

 

(1)Refer to the consolidated schedules of investments for further details.
(2)Incuded in cash and cash equivalents and restricted cash and cash equivalents on the consolidated statements of financial condition.

 

42
 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

The net change in unrealized appreciation (depreciation) for the three months ended December 31, 2014 and 2013 reported within the net change in unrealized appreciation (depreciation) on investments in the Company’s consolidated statements of operation attributable to the Company’s Level 3 assets held as of December 31, 2014 and 2013 was $869 and $3,104, respectively.

 

The following table presents the changes in investments and secured borrowings measured at fair value using Level 3 inputs for the three months ended December 31, 2014 and 2013:

 

   Three months ended December 31, 2014   Three months ended
December 31, 2014		 
   Debt Investments   Equity Investments   Total Investments   Secured borrowings 
                 
Fair value, beginning of period  $1,292,851   $54,761   $1,347,612   $389 
                     
Net change in unrealized appreciation (depreciation) on investments   (1,817)   706    (1,111)   - 
Realized gain (loss) on investments   (46)   1,772    1,726    - 
Fundings of revolving loans, net   (90)   -    (90)   - 
Fundings of investments   128,335    3,135    131,470    - 
PIK interest   390    -    390    - 
Proceeds from principal payments and sales of portfolio investments   (77,598)   (3,343)   (80,941)   - 
Repayments on secured borrowings   -    -    -    (9)
Accretion of discounts and amortization of premiums   1,670    -    1,670    - 
                     
Fair value, end of period  $1,343,695   $57,031   $1,400,726   $380 

 

   Three months ended December 31, 2013   Three months ended
December 31, 2013		 
   Debt Investments   Equity Investments   Total Investments   Secured borrowings 
                 
Fair value, beginning of period  $990,172   $34,473   $1,024,645   $8,809 
                     
Net change in unrealized appreciation on investments   2,058    4,589    6,647    - 
Net change in unrealized appreciation on secured borrowings   -    -    -    76 
Realized gain / (loss) gain on investments   (4,522)   (472)   (4,994)   - 
Fundings of revolving loans, net   (277)   -    (277)   - 
Fundings of investments   250,848    5,365    256,213    - 
PIK interest   (653)   -    (653)   - 
Proceeds from principal payments and sales of portfolio investments   (102,220)   (1,350)   (103,570)   - 
Proceeds from secured borrowings   -    -    -    16,448 
Repayments on secured borrowings   -    -    -    (11,010)
Amortization of discount and premium   1,908    -    1,908    43 
                     
Fair value, end of period  $1,137,314   $42,605   $1,179,919   $14,366 

 

43
 

  

Golub Capital BDC, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(In thousands, except shares and per share data)

 

The following table presents quantitative information about the significant unobservable inputs of the Company’s Level 3 investments and secured borrowings as of December 31, 2014 and September 30, 2014.

 

Quantitative information about Level 3 Fair Value Measurements
   Fair value as of
December 31,
2014		   Valuation Techniques  Unobservable Input  Range (Weighted Average)
Assets:              
Senior secured loans (1)(2)(3)  $197,924   Market rate approach  Market interest rate  4.5% - 30.8% (6.5%)
        Market comparable companies  EBITDA multiples  5.0x - 18.2x (10.4x)
               
Subordinated Notes of SLF  $28,871   Market rate approach  Market interest rate  8.2%
               
One stop loans (1)(4)(5)  $948,965   Market rate approach  Market interest rate  5.0% - 50.3% (8.2%)
        Market comparable companies  EBITDA multiples (6)  5.0x - 30.0x (9.8x)
           Revenue multiples (6)  0.8x - 46.1x (8.8x)
               
Subordinated and second lien loans (1)(7) $42,153   Market rate approach  Market interest rate  5.0% - 12.0% (9.6%)
        Market comparable companies  EBITDA multiples  9.0x - 16.3x (12.4x)
               
Equity securities (8)  $46,197   Market comparable companies  EBITDA multiples (9)  4.5x - 17.7x (10.0x)
           Revenue multiples (9)  2.8x - 46.10x (15.2x)
               
Liabilities:              
Secured borrowings (10)  $380   Market rate approach  Market interest rate  6.0%
        Market comparable companies  EBITDA multiples  30.0x

 

 

(1)The fair value of this asset class was determined using the market rate approach as the investments in this asset class were determined not to be credit impaired using the market comparable companies approach. The unobservable inputs for both valuation techniques have been presented, but the fair value as of December 31, 2014 was determined using the market rate approach.
(2)Excludes $47,760 of loans at fair value, which the Company valued using indicative bid and ask prices provided by an independent third party pricing service.
(3)Excludes $5 of non-accrual loans at fair value, which the Company valued on a liquidation basis.
(4)Excludes $54,761 of loans at fair value, which the Company valued using indicative bid and ask prices provided by an independent third party pricing service.
(5)Excludes $2,228 of non-accrual loans at fair value, which the Company valued on a liquidation basis.
(6)The Company valued $786,404 and $162,561 of one stop loans using EBITDA and revenue multiples, respectively. All one stop loans were also valued using the market rate approach.
(7)Excludes $21,028 of loans at fair value, which the Company valued using indicative bid and ask prices provided by an independent third party pricing service.
(8)Excludes $10,834 of LLC equity interests in SLF at fair value, which the Company valued using the net asset value.
(9)The Company valued $43,155 and $3,042 of equity investments using EBITDA and revenue multiples, respectively.
(10)The fair value of the secured borrowings was determined using the market rate approach as the corresponding investments were determined not to be credit impaired using the market comparable companies approach. The unobservable inputs for both valuation techniques have been presented, but the fair value as of December 31, 2014 was determined using the market rate approach.

 

44
 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Quantitative information about Level 3 Fair Value Measurements
   Fair value as of
September 30,
2014		   Valuation Techniques  Unobservable Input  Range (Weighted Average)
Assets:              
Senior secured loans (1)(2)(3)  $227,431   Market rate approach  Market interest rate  4.5% - 33.8% (7.3%)
        Market comparable companies  EBITDA multiples (4)  5.0x - 14.8x (9.1x)
           Revenue multiples (4)  0.8x - 4.3x (3.1x)
               
Subordinated Notes of SLF  $25,589   Discounted cash flow analysis  Discount rate  8.0%
               
One stop loans (1)(5)(6)  $883,582   Market rate approach  Market interest rate  5.0% - 43.3% (8.2%)
        Market comparable companies  EBITDA multiples (7)  5.5x - 30.0x (9.8x)
           Revenue multiples (7)  2.8x - 11.0x (6.1x)
               
Subordinated and second lien loans (8)  $42,418   Market rate approach   Market interest rate  9.0% - 12.0% (8.9%)
        Market comparable companies  EBITDA multiples  9.0x - 16.3x (12.4x)
               
Equity securities (9)  $45,519   Market comparable companies  EBITDA multiples (10)  4.5x - 18.0x (10.0x)
           Revenue multiples (10)  2.8x - 3.8x (3.5x)
               
Liabilities:              
Secured borrowings (11)  $389   Market rate approach  Market interest rate  6.0%
        Market comparable companies  EBITDA multiples  30.0x

 

 

(1)The fair value of this asset class was determined using the market rate approach as the investments in this asset class were determined not to be credit impaired using the market comparable companies approach. The unobservable inputs for both valuation techniques have been presented, but the fair value as of September 30, 2014 was determined using the market rate approach.
(2)Excludes $35,423 of loans at fair value, which the Company valued using indicative bid and ask prices provided by an independent third party pricing service.
(3)Excludes $5 of non-accrual loans at fair value, which the Company valued on a liquidation basis.
(4)The Company valued $180,334 and $47,097 of senior secured loans using EBITDA and revenue multiples, respectively. All senior secured loans were also valued using the market rate approach.
(5)Excludes $55,280 of loans at fair value, which the Company valued using indicative bid and ask prices provided by an independent third party pricing service.
(6)Excludes $1,867 of loans at fair value, which the Company valued on a liquidation basis.
(7)The Company valued $800,306 and $83,276 of one stop loans using EBITDA and revenue multiples, respectively. All one stop loans were also valued using the market rate approach.
(8)Excludes $21,256 of loans at fair value, which the Company valued using indicative bid and ask prices provided by an independent third party pricing service.
(9)Excludes $9,242 of LLC equity interests in SLF at fair value, which the Company valued using the net asset value.
(10)The Company valued $43,518 and $2,001 of equity securities using EBITDA and revenue multiples, respectively.
(11)The fair value of the secured borrowings was determined using the market rate approach as the corresponding investments were determined not to be credit impaired using the market comparable companies approach. The unobservable inputs for both valuation techniques have been presented, but the fair value as of September 30, 2014 was determined using the market rate approach.

 

The above tables are not intended to be all-inclusive but rather to provide information on significant unobservable inputs and valuation techniques used by the Company.

 

The significant unobservable inputs used in the fair value measurement of the Company’s debt and equity investments and secured borrowings are EBITDA multiples, revenue multiples and market interest rates. The Company uses EBITDA multiples and, to a lesser extent revenue multiples, on its debt and equity investments and secured borrowings to determine any credit gains or losses. Significant increases or decreases in either of these inputs in isolation would result in a significantly lower or higher fair value measurement. The Company uses market interest rates for loans to determine if the effective yield on a loan is commensurate with the market yields for that type of loan. If a loan’s effective yield is significantly less than the market yield for a similar loan with a similar credit profile, then the resulting fair value of the loan may be lower.

 

Other Financial Assets and Liabilities

 

ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. As a result, with the exception of the line item titled “debt” which is reported at cost, all assets and liabilities approximate fair value on the consolidated statements of financial condition due to their short maturity. Fair value of the Company’s debt is estimated using Level 3 inputs by discounting remaining payments using comparable market rates or market quotes for similar instruments at the measurement date, if available.

 

45
 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

The following are the carrying values and fair values of the Company’s debt as of December 31, 2014 and September 30, 2014. Fair value is estimated using Level 3 inputs by discounting remaining payments using applicable market rates or market quotes for similar instruments at the measurement date, if available.

 

   As of December 31, 2014   As of September 30, 2014 
   Carrying Value   Fair Value   Carrying Value   Fair Value 
                     
Debt  $714,650   $711,536   $697,150   $693,869 

 

Note 7.Borrowings

 

In accordance with the 1940 Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing. On September 13, 2011, the Company received exemptive relief from the SEC allowing it to modify the asset coverage requirement to exclude the SBA debentures from this calculation. As such, the Company’s ratio of total consolidated assets to outstanding indebtedness may be less than 200%. This provides the Company with increased investment flexibility but also increases its risks related to leverage. As of December 31, 2014, the Company’s asset coverage for borrowed amounts was 244.4%.

 

Debt Securitizations: On July 16, 2010, the Company completed a $300,000 term debt securitization (“2010 Debt Securitization”). The notes (“2010 Notes”) offered in the 2010 Debt Securitization were issued by the 2010 Issuer, a subsidiary of Golub Capital BDC 2010-1 Holdings LLC (“Holdings”), a direct subsidiary of the Company, and the Class A 2010 Notes and Class B 2010 Notes are secured by the assets held by the 2010 Issuer. The 2010 Debt Securitization was executed through a private placement of $174,000 of Aaa/AAA Class A 2010 Notes of the 2010 Issuer which, as amended, bear interest at three-month LIBOR plus 1.74%. The $10,000 face amount of Class B 2010 Notes bears interest at a rate of three-month LIBOR plus 2.40%, and the $116,000 face amount of Subordinated 2010 Notes does not bear interest. In partial consideration for the loans transferred to the 2010 Issuer as part of the 2010 Debt Securitization, Holdings retained all of the Class B and Subordinated 2010 Notes totaling $10,000 and $116,000, respectively, and all of the membership interests in the 2010 Issuer, which Holdings initially purchased for two hundred and fifty dollars. On February 15, 2013, the Company amended the 2010 Debt Securitization to issue an additional $29,000 in Class A 2010 Notes, $2,000 in Class B 2010 Notes and $19,000 in Subordinated 2010 Notes. The additional Class A 2010 Notes of the 2010 Issuer were sold through a private placement and the additional Class B 2010 Notes and additional Subordinated 2010 Notes were retained by Holdings. On November 15, 2013, Holdings sold the $12,000 of Class B 2010 Notes and on November 20, 2013, the transaction closed and proceeds of $11,999 were received. The Class A 2010 Notes and Class B 2010 Notes are included in the December 31, 2014 and September 30, 2014 consolidated statements of financial condition as debt of the Company. As of December 31, 2014 and September 30, 2014, the Subordinated 2010 Notes were eliminated in consolidation.

 

Through July 20, 2015, all principal collections received on the underlying collateral may be used by the 2010 Issuer to purchase new collateral under the direction of the Investment Adviser in its capacity as collateral manager of the 2010 Issuer and in accordance with the Company’s investment strategy, allowing the Company to maintain the leverage in the 2010 Debt Securitization. The 2010 Notes are scheduled to mature on July 20, 2023. As part of the 2010 Debt Securitization, the Company entered into a master loan sale agreement with Holdings and the 2010 Issuer under which the Company agreed to sell or contribute certain senior secured and second lien loans (or participation interests therein) to Holdings, and Holdings agreed to sell or contribute such loans (or participation interests therein) to the 2010 Issuer and to purchase or otherwise acquire the Subordinated 2010 Notes. The 2010 Notes are the secured obligations of the 2010 Issuer, and an indenture governing the 2010 Notes includes customary covenants and events of default.

 

46
 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

As of December 31, 2014 and September 30, 2014, there were 84 and 85 portfolio companies with a total fair value of $345,621 and $337,763, respectively, securing the 2010 Notes. The pool of loans in the 2010 Debt Securitization must meet certain requirements, including asset mix and concentration, collateral coverage, term, agency rating, minimum coupon, minimum spread and sector diversity requirements.

 

The interest charged under the 2010 Debt Securitization is based on three-month LIBOR, which as of December 31, 2014 was 0.2%. For the three months ended December 31, 2014 and 2013, the components of interest expense, cash paid for interest, average interest rates and average outstanding balances for the 2010 Debt Securitization were as follows:

 

   For the three months ended December 31, 
   2014   2013 
Stated interest expense  $1,104   $1,069 
Amortization of debt issuance costs   228    142 
Total interest and other debt financing expenses  $1,332   $1,211 
Cash paid for interest expense  $1,093   $1,004 
Annualized average stated interest rate   2.0%   2.0%
Average outstanding balance  $215,000   $208,478 

 

The classes, amounts, ratings and interest rates (expressed as a spread to three-month LIBOR) of the Class A and B 2010 Notes are as follows:

 

Description   Class A 2010 Notes   Class B 2010 Notes
         
Type    Senior Secured Floating Rate    Senior Secured Floating Rate
Amount Outstanding   $203,000   $12,000
Moody's Rating    "Aaa"    "Aa"
S&P Rating    "AAA"    "AA"
Interest Rate    LIBOR + 1.74%    LIBOR + 2.40%
Stated Maturity   July 20, 2023   July 20, 2023

 

On June 5, 2014, the Company completed a $402,569 term debt securitization (“2014 Debt Securitization”). The notes (“2014 Notes”) offered in the 2014 Debt Securitization were issued by the 2014 Issuer, a wholly-owned subsidiary of the Company, and are secured by a diversifed portfolio of senior secured and second lien loans held by the 2014 Issuer. The 2014 Debt Securitization was executed through a private placement of $191,000 of Aaa/AAA Class A-1 2014 Notes which bear interest at three-month LIBOR plus 1.75%, $20,000 of Aaa/AAA Class A-2 2014 Notes which bear interest at a rate of three-month LIBOR plus 1.45% through December 4, 2015 and three-month LIBOR plus 1.95% thereafter and $35,000 of Aa2/AA Class B 2014 Notes which bear interest at a rate of three-month LIBOR plus 2.50%. The $37,500 face amount of Class C 2014 Notes bear interest at a rate of three-month LIBOR plus 3.50%, and the LLC equity interests do not bear interest. In partial consideration for the loans transferred to the 2014 Issuer as part of the 2014 Debt Securitization, the Company received $119,069 of LLC equity interests in the 2014 Issuer. The Company retained all of the Class C 2014 Notes and LLC equity interests totaling $37,500 and $119,069, respectively. The Class A-1, Class A-2 and Class B 2014 Notes are included in the December 31, 2014 consolidated statements of financial condition as debt of the Company. As of December 31, 2014, the Class C 2014 Notes and LLC equity interests were eliminated in consolidation.

 

47
 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Through April 28, 2018, all principal collections received on the underlying collateral may be used by the 2014 Issuer to purchase new collateral under the direction of the Investment Adviser in its capacity as collateral manager of the 2014 Issuer and in accordance with the Company’s investment strategy, allowing the Company to maintain the initial leverage in the 2014 Debt Securitization. The 2014 Notes are scheduled to mature on April 25, 2026. As part of the 2014 Debt Securitization, the Company entered into a master loan sale agreement with the 2014 Issuer under which the Company agreed to sell or contribute certain senior secured and second lien loans (or participation interests therein) to the 2014 Issuer and to purchase or otherwise acquire the LLC equity interestsissued by the 2014 Issuer. The 2014 Notes are the secured obligations of the 2014 Issuer, and an indenture governing the 2014 Notes includes customary covenants and events of default.

 

As of December 31, 2014 and September 30, 2014, there were 74 and 69 portfolio companies with a total fair value of $398,515 and $371,764, respectively, securing the 2014 Notes. The pool of loans in the 2014 Debt Securitization must meet certain requirements, including asset mix and concentration, collateral coverage, term, agency rating, minimum coupon, minimum spread and sector diversity requirements.

 

The interest charged under the 2014 Debt Securitization is based on three-month LIBOR, which as of December 31, 2014 was 0.2%. For the three months December 31, 2014 and 2013, the components of interest expense, cash paid for interest, annualized average interest rates and average outstanding balances for the 2014 Debt Securitization were as follows:

 

   For the three months ended December 31, 
   2014   2013 
Stated interest expense  $1,290     N/A  
Amortization of debt issuance costs   160     N/A  
Total interest and other debt financing expenses  $1,450     N/A  
Cash paid for interest expense  $2,011     N/A  
Annualized average stated interest rate   2.1%    N/A  
Average outstanding balance  $246,000     N/A  

 

The classes, amounts, ratings and interest rates (expressed as a spread to three-month LIBOR) of the Class A-1, A-2 and B 2014 Notes are as follows:

 

Description   Class A-1 2014 Notes   Class A-2 2014 Notes   Class B 2014 Notes
             
Type    Senior Secured Floating Rate    Senior Secured Floating Rate    Senior Secured Floating Rate
Amount Outstanding   $191,000   $20,000   $35,000
Moody's Rating    "Aaa"    "Aaa"    "Aa2"
S&P Rating    "AAA"    "AAA"    "AA"
Interest Rate    LIBOR + 1.75%   LIBOR + 1.45% (1)    LIBOR + 2.50%
Stated Maturity   April 25, 2026   April 25, 2026   April 25, 2026

 

 

(1) The Class A-2 Notes bear interest at three-month LIBOR plus 1.45% through December 4, 2015 and three-month LIBOR plus 1.95% thereafter.

 

The Investment Adviser serves as collateral manager to the 2010 Issuer and the 2014 Issuer under separate collateral management agreements and receives a fee for providing these services. The total fees payable by the Company under its Investment Advisory Agreement are reduced by an amount equal to the total aggregate fees that are paid to the Investment Adviser by the 2010 Issuer and the 2014 Issuer for rendering such collateral management services.

 

48
 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

SBA Debentures: On August 24, 2010, GC SBIC IV, L.P. (“SBIC IV”), a wholly-owned subsidiary of the Company, received approval for a license from the SBA to operate as an SBIC. On December 5, 2012, GC SBIC V, L.P. (“SBIC V”), a wholly owned subsidiary of the Company, received a license from the SBA to operate as an SBIC. SBICs are subject to a variety of regulations and oversight by the SBA concerning the size and nature of the companies in which they may invest as well as the structures of those investments.

 

The licenses allow the Company’s SBICs to obtain leverage by issuing SBA-guaranteed debentures, subject to issuance of a capital commitment by the SBA and customary procedures. These debentures are non-recourse to the Company, have interest payable semiannually and a ten-year maturity. The interest rate is fixed at the time of issuance at a market-driven spread over U.S. Treasury Notes with ten-year maturities.

 

Under present SBIC regulations, the maximum amount of SBA-guaranteed debentures that may be issued by multiple licensees under common management is $225,000 and the maximum amount that may be issued by a single SBIC licensee is $150,000. As of December 31, 2014, SBIC IV and SBIC V had $150,000 and $58,750 of outstanding SBA-guaranteed debentures, respectively, leaving incremental borrowing capacity of $16,250 for SBIC V under present SBIC regulations. As of September 30, 2014, SBIC IV and SBIC V had $150,000 and $58,750, respectively, of outstanding SBA-guaranteed debentures.

 

SBIC IV and SBIC V may each borrow up to two times the amount of its regulatory capital, subject to customary regulatory requirements. As of December 31, 2014, the Company had committed and funded $75,000 to SBIC IV and SBIC IV had SBA-guaranteed debentures of $150,000 outstanding that mature between March 2021 and September 2024. As of December 31, 2014, the Company had committed and funded $37,500 to SBIC V, and SBIC V had SBA-guaranteed debentures of $58,750 outstanding that mature between September 2023 and September 2024.

 

The interest rate on $208,750 of outstanding debentures is fixed at an average annualized interest rate of 3.7%. For the three months ended December 31, 2014 and 2013, the components of interest expense, cash paid for interest, average interest rates and average outstanding balances for the SBA debentures were as follows:

 

   For the three months ended December 31, 
   2014   2013 
Stated interest expense  $1,936   $1,593 
Amortization of debt issuance costs   487    225 
Total interest and other debt financing expenses  $2,423   $1,818 
Cash paid for interest expense  $-   $- 
Annualized average stated interest rate   3.7%   3.5%
Average outstanding balance  $208,750   $182,546 

 

Revolving Credit Facility: On July 21, 2011, Funding, a wholly-owned subsidiary of the Company, entered into a senior secured revolving credit facility (as amended, the “Credit Facility”) with Wells Fargo Securities, LLC, as administrative agent, and Wells Fargo Bank, N.A., as lender, which as of December 31, 2014 allowed Funding to borrow up to $150,000 at any one time outstanding, subject to leverage and borrowing base restrictions.

 

On October 17, 2014, the Company and Funding amended the Credit Facility to, among other things, extend the reinvestment period during which Funding can draw under the Credit Facility from October 21, 2014 to November 22, 2015, and extended the stated maturity date from October 22, 2018 to October 17, 2019.

 

On December 18, 2014, the Company and Funding amended the Credit Facility to, among other things, allow for the addition of a second lender under the facility.

 

49
 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Through the reinvestment period, the Credit Facility bears interest at one-month LIBOR plus 2.25% per annum. After the reinvestment period, the rate will reset to one-month LIBOR plus 2.75% per annum for the remaining term of the Credit Facility. In addition to the stated interest expense on the Credit Facility, the Company is required to pay a non-usage fee rate between 0.50% and 2.00% per annum depending on the size of the unused portion of the Credit Facility.

 

The Credit Facility is collateralized by all of the assets held by Funding, and the Company has pledged its interests in Funding as collateral to Wells Fargo Bank, N.A., as the collateral agent, under an ancillary agreement to secure the obligations of the Company as the transferor and servicer under the Credit Facility. Both the Company and Funding have made customary representations and warranties and are required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities. Borrowing under the Credit Facility is subject to the leverage restrictions contained in the 1940 Act.

 

The Company plans to transfer certain loans and debt securities it has originated or acquired from time to time to Funding through a purchase and sale agreement and may cause Funding to originate or acquire loans in the future, consistent with the Company’s investment objectives.

 

As of December 31, 2014 and September 30, 2014, the Company had outstanding debt under the Credit Facility of $44,900 and $27,400, respectively. For the three months ended December 31, 2014 and 2013, the Company had borrowings on the Credit Facility of $33,550 and $186,600 and repayments on the Credit Facility of $16,050 and $50,250, respectively. For the three months ended December 31, 2014 and 2013, the components of interest expense, cash paid for interest, annualized average interest rates and average outstanding balances for the Credit Facility were as follows:

 

   For the three months ended December 31, 
   2014   2013 
Stated interest expense  $142   $640 
Facility fees   162    168 
Amortization of debt issuance costs   149    71 
Total interest and other debt financing expenses  $453   $879 
Cash paid for interest expense  $270   $584 
Annualized average stated interest rate   2.4%   2.5%
Average outstanding balance  $23,059   $103,564 

 

Revolver: On November 22, 2013, Revolver Funding, a wholly owned subsidiary of the Company, entered into a $15,000 revolving line of credit (“Revolver”), which may be increased up to $30,000, with The PrivateBank and Trust Company (“PrivateBank”).

 

Effective November 24, 2014, the Company and Revolver Funding amended the Revolver to, among other things,(a) extended the stated maturity date from November 22, 2019 to November 22, 2020 and (b) extended the term under which borrowings under the Revolver bear an interest rate of either one-month, two-month or three-month LIBOR plus 3.50% per annum or PrivateBank’s prime rate plus 1.50% per annum through November 22, 2015 from November 22, 2014 and one-month, two-month or three-month LIBOR plus 2.50% per annum or PrivateBank’s prime rate plus 0.50% per annum for the period subsequent to November 22, 2015.

 

The Revolver is collateralized by all of the assets held by Revolver Funding. Both the Company and Revolver Funding have made customary representations and warranties and are required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities. Borrowing under the Revolver is subject to the leverage restrictions contained in the 1940 Act. In addition, the Company pays a fee of 0.25% per annum on any unused portion of the Revolver.

 

50
 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

As of December 31, 2014 and September 30, 2014, the Company had no outstanding debt under the Revolver. For the three months ended December 31, 2014 and 2013, the Company had no borrowings and repayments on the Revolver. For the three months ended December 31, 2014 and 2013, the components of interest expense, cash paid for interest, annualized average interest rates and average outstanding balances for the Revolver were as follows:

  

   For the three months ended December 31, 
   2014   2013 
Stated interest expense  $-   $- 
Facility fees   9    - 
Amortization of debt issuance costs   23    6 
Total interest and other debt financing expenses  $32   $6 
Cash paid for interest expense  $9   $4 
Annualized average stated interest rate    N/A      N/A  
Average outstanding balance  $-   $- 

 

The average total debt outstanding (including the debt under the 2010 Debt Securitization, the 2014 Debt Securitization, SBA debentures, Credit Facility and Revolver) for the three months ended December 31, 2014 and 2013 was $692,809 and $494,588, respectively.

 

For the three months ended December 31, 2014 and 2013, the effective annualized average interest rate, which includes amortization of debt financing costs and non-usage facility fees, on the Company’s total debt outstanding (excluding secured borrowings) was 3.3% and 3.1%, respectively.

 

A summary of the Company’s maturity requirements for borrowings as of December 31, 2014 is as follows:

 

   Payments Due by Period 
       Less Than           More Than 
   Total   1 Year   1-3 Years   3-5 Years   5 Years 
                     
2010 Debt Securitization  $215,000   $-   $-   $-   $215,000 
2014 Debt Securitization   246,000    -    -    -    246,000 
SBA debentures   208,750    -    -    -    208,750 
Credit Facility   44,900    -    -    44,900    - 
Revolver   -    -    -    -    - 
Total borrowings  $714,650   $-   $-   $44,900   $669,750 

 

Secured Borrowings: Certain partial loan sales do not qualify for sale accounting under ASC Topic 860 because these sales do not meet the definition of a “participating interest”, as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain as an investment on the consolidated statement of financial condition and the portion sold is recorded as a secured borrowing in the liabilities section of the consolidated statement of financial condition. For these partial loan sales, the interest earned on the entire loan balance is recorded within “interest income” and the interest earned by the buyer in the partial loan sale is recorded within “interest and other debt financing expenses” in the consolidated statement of operations.

 

51
 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

As of December 31, 2014 and September 30, 2014, the Company recognized secured borrowings at fair value of $380 and $389, respectively, and the fair values of the loans that are associated with these secured borrowings was $1,307 and $1,325, respectively. These secured borrowings were the result of the Company’s completion of partial loan sales of one stop loans associated with two portfolio companies that did not meet the definition of a “participating interest”. As a result, sale treatment was not allowed and these partial loan sales were treated as secured borrowings.

 

During the three months ended December 31, 2014, there were no partial loan sales, no fundings on revolving and delayed draw secured borrowings and repayments on secured borrowings totaled $9. During the three months ended December 31, 2013, there were two partial loan sales totaling $8,227, net fundings on revolving secured borrowings totaling $93 and repayments on secured borrowings totaled $2,882. For the three months ended December 31, 2014, the effective annualized average interest rate on secured borrowings, which includes amortization of original issuance costs, was 4.5%, interest expense was $4, and amortization of original issue discount was an amount less than $1. For the three months ended December 31, 2013, the effective annualized average interest rate on secured borrowings, which includes amortization of original issuance costs, was 7.4%, interest expense was $135 and amortization of original issue discount was $43.

 

Note 8.Commitments and Contingencies

 

Commitments: The Company had outstanding commitments to fund investments totaling $131,842 and $124,548 under various undrawn revolvers and other credit facilities as of December 31, 2014 and September 30, 2014, respectively.

 

Indemnifications: In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties that provide general indemnifications. The Company’s maximum exposure under these arrangements is unknown, as these involve future claims that may be made against the Company but that have not occurred. The Company expects the risk of any future obligations under these indemnifications to be remote.

 

Off-balance sheet risk: Off-balance sheet risk refers to an unrecorded potential liability that may result in a future obligation or loss, even though it does not appear on the consolidated statements of financial condition. The Company has entered and, in the future, may again enter into derivative instruments that contain elements of off-balance sheet market and credit risk. Derivative instruments can be affected by market conditions, such as interest rate volatility, which could impact the fair value of the derivative instruments. If market conditions move against the Company, it may not achieve the anticipated benefits of the derivative instruments and may realize a loss. The Company minimizes market risk through monitoring its investments and borrowings.

 

Concentration of credit and counterparty risk: Credit risk arises primarily from the potential inability of counterparties to perform in accordance with the terms of the contract. The Company has engaged and, in the future, may engage again in derivative transactions with counterparties. In the event that the counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the creditworthiness of the counterparties or issuers of the instruments. The Company’s maximum loss that it could incur related to counterparty risk on its derivative instruments is the value of the collateral for that respective derivative instrument. It is the Company’s policy to review, as necessary, the credit standing of each counterparty.

 

Legal proceedings: In the normal course of business, the Company may be subject to legal and regulatory proceedings that are generally incidental to its ongoing operations. While there can be no assurance of the ultimate disposition of any such proceedings, the Company does not believe any disposition will have a material adverse effect on the Company’s consolidated financial statements.

 

52
 

 

Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Note 9.Financial Highlights

 

The financial highlights for the Company are as follows:

 

   Three months ended December 31, 
Per share data(1):  2014   2013 
Net asset value at beginning of period  $15.55   $15.21 
Dividends and distributions declared   (0.32)   (0.32)
Net investment income   0.31    0.31 
Net realized gain (loss) on investments   0.04    (0.12)
Net change in unrealized appreciation (depreciation) on investments   (0.03)   0.15 
Net asset value at end of period  $15.55   $15.23 
           
Per share market value at end of period  $17.93   $19.11 
Total return based on market value(2)   14.42%   12.18%
Total return based on average net asset value/members' equity *   8.18%   8.92%
Shares outstanding at end of period   47,171,518    43,325,575 
           
Ratios/Supplemental Data:          
           
Ratio of expenses (without incentive fees) to average net assets/members' equity *   6.42%   5.58%
Ratio of incentive fees to average net assets/members' equity *   0.58%   1.82%
Ratio of total expenses to average net assets/members' equity *   7.00%   7.40%
Ratio of net investment income to average net assets/members' equity   7.85%   7.97%
           
Net assets at end of period  $733,718   $659,981 
Average debt outstanding  $692,809   $494,588 
Average debt outstanding per share  $14.69   $11.42 
Asset coverage ratio (3)   244.38%   266.88%
Portfolio turnover *   23.40%   36.52%

 

 

*Annualized for a period less than one year.
(1)Based on actual number of shares outstanding at the end of the corresponding period or the weighted average shares outstanding for the period, unless otherwise noted, as appropriate.
(2)Total return based on market value assumes dividends are reinvested.
(3)In accordance with the 1940 Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing. On September 13, 2011, the Company received exemptive relief from the SEC allowing it to modify the asset coverage requirement to exclude the SBA debentures from this calculation. As such, the Company’s ratio of total consolidated assets to outstanding indebtedness may be less than 200%. This provides the Company with increased investment flexibility but also increases its risks related to leverage.

 

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Golub Capital BDC, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
(In thousands, except shares and per share data)

 

Note 10.Earnings Per Share

 

The following information sets forth the computation of the net increase in net assets per share resulting from operations for the three months ended December 31, 2014 and 2013:

 

   Three months ended December 31, 
   2014   2013 
Earnings available to stockholders  $15,172   $14,837 
Basic and diluted weighted average shares outstanding   47,121,194    43,285,250 
Basic and diluted earnings per common share  $0.32   $0.34 

 

Note 11.Dividends and Distributions

 

The Company’s dividends and distributions are recorded on the record date. The following table summarizes the Company’s dividend declarations and distributions during the three months ended December 31, 2014 and 2013:

 

         Amount   Cash   DRIP Shares   DRIP Shares 
Date Declared  Record Date  Payment Date  Per Share   Distribution   Issued   Value 
                       
Three months ended December 31, 2014              
11/17/2014  12/18/2014  12/29/2014  $0.32   $14,193    52,020   $885 
                           
Three months ended December 31, 2013                
11/26/2013  12/17/2013  12/27/2013  $0.32   $13,092    42,643   $758 

  

Note 12.Subsequent Events

 

On February 3, 2015, the Company’s Board declared a quarterly distribution of $0.32 per share payable on March 27, 2015 to holders of record as of March 20, 2015.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The information contained in this section should be read in conjunction with our interim and unaudited consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q. In this report, “we,” “us,” “our” and “Golub Capital BDC” refer to Golub Capital BDC, Inc. and its consolidated subsidiaries.

 

Forward-Looking Statements

 

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including statements as to:

 

·our future operating results;
·our business prospects and the prospects of our portfolio companies;
·the effect of investments that we expect to make and the competition for those investments;
·our contractual arrangements and relationships with third parties;
·actual and potential conflicts of interest, GC Advisors LLC, or GC Advisors, and other affiliates of Golub Capital Incorporated and Golub Capital LLC, collectively, Golub Capital;
·the dependence of our future success on the general economy and its effect on the industries in which we invest;
·the ability of our portfolio companies to achieve their objectives;
·the use of borrowed money to finance a portion of our investments;
·the adequacy of our financing sources and working capital;
·the timing of cash flows, if any, from the operations of our portfolio companies;
·general economic trends and other external factors;
·the ability of GC Advisors to locate suitable investments for us and to monitor and administer our investments;
·the ability of GC Advisors or its affiliates to attract and retain highly talented professionals;
·our ability to qualify and maintain our qualification as a Regulated Investment Company, or RIC, and as a business development company;
·general price and volume fluctuations in the stock markets;
·the impact on our business of Dodd-Frank and the rules and regulations issued thereunder; and
·the effect of changes to tax legislation and our tax position.

 

Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words “may,” “might,” “will,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “estimate,” “anticipate,” ”predict,” “potential,” “plan” or similar words. The forward looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth elsewhere in this quarterly report on Form 10-Q and as “Risk Factors” in our annual report on Form 10-K for the year ended September 30, 2014.

 

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We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements and future results could differ materially from historical performance. Although we undertake no obligation to revise or update any forward-looking statements except as required by law, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the Securities and Exchange Commission, or the SEC, including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K. This quarterly report on Form 10-Q contains statistics and other data that have been obtained from or compiled from information made available by third-party service providers. We have not independently verified such statistics or data.

 

Overview

 

We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended, or the 1940 Act. In addition, for U.S. federal income tax purposes, we have elected to be treated as a RIC under Subchapter M of the Internal Revenue Code of 1986 as amended, or the Code. As a business development company and a RIC, we are also subject to certain constraints, including limitations imposed by the 1940 Act and the Code. We were formed in November 2009 to continue and expand the business of our predecessor, Golub Capital Master Funding LLC, which commenced operations in July 2007, in making investments in senior secured, one stop (a loan that combines characteristics of traditional first lien senior secured loans and second lien or subordinated loans), second lien and subordinated (a loan that ranks senior only to a borrower’s equity securities and ranks junior to all of such borrower’s other indebtedness in priority of payment) loans and warrants and minority equity securities of middle market companies that are, in most cases, sponsored by private equity firms.

 

Our shares are currently listed on The NASDAQ Global Select Market under the symbol “GBDC”.

 

Our investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation through debt and minority equity investments. We intend to achieve our investment objective by (1) accessing the established loan origination channels developed by Golub Capital, a leading lender to middle market companies with over $10.0 billion in capital under management as of December 31, 2014, (2) selecting investments within our core middle market company focus, (3) partnering with experienced private equity firms, or sponsors, in many cases with whom we have invested alongside in the past, (4) implementing the disciplined underwriting standards of Golub Capital and (5) drawing upon the aggregate experience and resources of Golub Capital.

 

Our investment activities are managed by GC Advisors and supervised by our board of directors of which a majority of the members are independent of us.

 

Under an investment advisory agreement, or the Investment Advisory Agreement, which was most recently reapproved by our board of directors in May 2014, we have agreed to pay GC Advisors an annual base management fee based on our average adjusted gross assets as well as an incentive fee based on our investment performance. Under an administration agreement, or the Administration Agreement, we are provided with certain administrative services by an administrator, or the Administrator, which is currently Golub Capital LLC. Under the Administration Agreement, we have agreed to reimburse the Administrator for our allocable portion (subject to the review and approval of our independent directors) of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement.

 

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We seek to create a diverse portfolio that includes senior secured, one stop, second lien and subordinated loans and warrants and minority equity securities by investing approximately $5.0 to $30.0 million of capital, on average, in the securities of middle market companies. We may also selectively invest more than $30.0 million in some of our portfolio companies and generally expect that the size of our individual investments will vary proportionately with the size of our capital base.

 

We generally invest in securities that have been rated below investment grade by independent rating agencies or that would be rated below investment grade if they were rated. These securities, which may be referred to as “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. In addition, many of our debt investments have floating interest rates that reset on a periodic basis and typically do not fully pay down principal prior to maturity, which may increase our risk of losing part or all of our investment.

 

As of December 31, 2014 and September 30, 2014, our portfolio at fair value was comprised of the following:

 

   As of December 31, 2014   As of September 30, 2014 
   Investments   Percentage of   Investments   Percentage of 
Investment  at Fair Value   Total   at Fair Value   Total 
Type  (In thousands)   Investments   (In thousands)   Investments 
Senior secured  $245,689    17.5%  $262,859    19.5%
One stop   1,005,954    71.8    940,729    69.8 
Second lien   59,457    4.2    59,964    4.4 
Subordinated debt   3,724    0.3    3,710    0.3 
Subordinated notes in SLF (1)   28,871    2.1    25,589    1.9 
LLC equity interests in SLF (1)   10,834    0.8    9,242    0.7 
Equity   46,197    3.3    45,519    3.4 
Total  $1,400,726    100.0%  $1,347,612    100.0%

 

(1)SLF's proceeds from the subordinated notes and LLC equity interests invested in SLF were utilized by SLF to invest in senior secured loans.

 

One stop loans include loans to technology companies undergoing strong growth due to new services, increased adoption and/or entry into new markets. We refer to loans to these companies as late stage lending loans. Other targeted characteristics of late stage lending businesses include strong customer revenue retention rates, a diversified customer base and backing from growth equity or venture capital firms. In some cases, the borrower’s high revenue growth is supported by a high level of discretionary spending. As part of the underwriting of such loans and consistent with industry practice, we may adjust our characterization of the earnings of such borrowers for a reduction or elimination of such discretionary expenses, if appropriate. As of December 31, 2014, one stop loans included $162.6 million of late stage lending loans at fair value. During the three months ended December 31, 2014,  we recharacterized $47.1 million of late stage lending loans at fair value from senior secured loans to one stop loans.

 

As of December 31, 2014 and September 30, 2014, we had debt and equity investments in 147 and 145 portfolio companies, respectively, and investments in subordinated notes and Limited Liability Company, or LLC, equity interests in SLF. For the three months ended December 31, 2014 and 2013, our income producing debt investments, which represented nearly 100% of our total debt investments, had a weighted average annualized income yield (which is calculated as income from interest and fees excluding amortization of capitalized fees and discounts divided by the average fair value of earning investments) of 7.8% and 8.6%, respectively, and a weighted average annualized investment income yield (which is calculated as income from interest, fees and amortization of capitalized fees and discounts divided by average fair value of earning investments) of 8.3% and 9.3%, respectively.

 

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Revenues: We generate revenue in the form of interest and fee income on debt investments and capital gains and distributions, if any, on portfolio company investments that we originate or acquire. Our debt investments, whether in the form of senior secured, one stop, second lien or subordinated loans, typically have a term of three to seven years and bear interest at a fixed or floating rate. In some instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments fluctuates significantly from period to period. Our portfolio activity also reflects the proceeds of sales of securities. In some cases, our investments provide for deferred interest payments or payment-in-kind, or PIK, interest. The principal amount of loans and any accrued but unpaid interest generally become due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, amendment, structuring or due diligence fees, fees for providing managerial assistance and consulting fees. Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts as interest income. We record prepayment premiums on loans as fee income. Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded as dividend income on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Distributions received from LLC, and limited partnership, or LP, investments are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, we will not record distributions from equity investments in LLCs and LPs as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment.

 

We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the cost basis of the investment or derivative instrument, without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments and derivative instruments that are measured at fair value as a component of the net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations.

 

Partial loan sales: We follow the guidance in Accounting Standards Codification, or ASC, Topic 860 – Transfers and Servicing, or ASC Topic 860, when accounting for loan participations and other partial loan sales. Such guidance requires a participation or other partial loan sale to meet the definition of a “participating interest”, as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales, which do not meet the definition of a participating interest, remain on our consolidated statements of assets and liabilities and the proceeds are recorded as a secured borrowing until the definition is met.

 

Expenses: Our primary operating expenses include the payment of fees to GC Advisors under the Investment Advisory Agreement, our allocable portion of overhead expenses under the Administration Agreement and other operating costs described below. We bear all out-of-pocket costs and expenses of our operations and transactions, including:

 

·organizational expenses;
·calculating our net asset value (including the cost and expenses of any independent valuation firm);
·fees and expenses incurred by GC Advisors payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated with, evaluating and making investments, which fees and expenses may include, among other items, due diligence reports, appraisal reports, any studies that may be commissioned by GC Advisors and travel and lodging expenses;
·interest payable on debt, if any, incurred to finance our investments and expenses related to unsuccessful portfolio acquisition efforts;
·offerings of our common stock and other securities;
·investment advisory and management fees, including any incentive fees;
·administration fees and expenses, if any, payable under the Administration Agreement (including payments based upon our allocable portion of the Administrator’s overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our chief compliance officer, chief financial officer and their respective staffs);

 

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·fees payable to third parties, including agents, consultants or other advisors, relating to, or associated with, evaluating and making investments in portfolio companies, including costs associated with meeting financial sponsors;
·transfer agent, dividend agent and custodial fees and expenses;
·U.S. federal and state registration and franchise fees;
·all costs of registration and listing our shares on any securities exchange;
·U.S. federal, state and local taxes;
·independent directors’ fees and expenses;
·costs of preparing and filing reports or other documents required by the SEC or other regulators;
·costs of any reports, proxy statements or other notices to stockholders, including printing costs;
·costs associated with individual or group stockholders;
·costs associated with compliance under the Sarbanes-Oxley Act of 2002, as amended;
·our allocable portion of any fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums;
·direct costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs;
·proxy voting expenses; and
·all other expenses incurred by us or the Administrator in connection with administering our business.

 

We expect our general and administrative expenses to be relatively stable or decline as a percentage of total assets during periods of asset growth and to increase during periods of asset declines.

 

GC Advisors, as collateral manager for Golub Capital BDC 2010-1 LLC, or the 2010 Issuer, a wholly-owned subsidiary of ours, under a collateral management agreement, or the 2010 Collateral Management Agreement, is entitled to receive an annual fee in an amount equal to 0.35% of the principal balance of the portfolio loans held by the 2010 Issuer at the beginning of the collection period relating to each payment date, which is payable in arrears on each payment date. This fee, which is less than the management fee payable under the Investment Advisory Agreement, is paid directly by the 2010 Issuer to GC Advisors and offset against such management fee. Accordingly, the 1.375% management fee paid by us to GC Advisors under the Investment Advisory Agreement on all of our assets, including those indirectly held through the 2010 Issuer, is reduced, on a dollar-for-dollar basis, by an amount equal to such 0.35% fee paid to GC Advisors by the 2010 Issuer. Under the 2010 Collateral Management Agreement, the term ‘‘collection period’’ refers to a quarterly period running from the day after the end of the prior collection period to the fifth business day of the calendar month in which a payment date occurs. This fee may be waived by the collateral manager. The 2010 Collateral Management Agreement does not include any incentive fee payable to GC Advisors. In addition, the 2010 Issuer paid Wells Fargo Securities, LLC a structuring and placement fee for its services in connection with the initial structuring and subsequent amendment of a $350.0 million term debt securitization, or the 2010 Debt Securitization. The 2010 Issuer also agreed to pay ongoing administrative expenses to the trustee, collateral manager, independent accountants, legal counsel, rating agencies and independent managers in connection with developing and maintaining reports, and providing required services in connection with the administration of the 2010 Debt Securitization.

 

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GC Advisors, as collateral manager for Golub Capital BDC CLO 2014 LLC, or the 2014 Issuer, a wholly-owned subsidiary of ours, under a collateral management agreement, or the 2014 Collateral Management Agreement, is entitled to receive an annual fee in an amount equal to 0.25% of the principal balance of the portfolio loans held by the 2014 Issuer at the beginning of the collection period relating to each payment date, which is payable in arrears on each payment date. This fee, which is less than the management fee payable under the Investment Advisory Agreement, is paid directly by the 2014 Issuer to GC Advisors and offset against such management fee. Accordingly, the 1.375% management fee paid by us to GC Advisors under the Investment Advisory Agreement on all of our assets, including those indirectly held through the 2014 Issuer, is reduced, on a dollar-for-dollar basis, by an amount equal to such 0.25% fee paid to GC Advisors by the 2014 Issuer. Under the 2014 Collateral Management Agreement, the term ‘‘collection period’’ refers to a quarterly period running from the day after the end of the prior collection period to the tenth business day prior to the payment date. This fee may be waived by the collateral manager. The 2014 Collateral Management Agreement does not include any incentive fee payable to GC Advisors. In addition, the 2014 Issuer paid Wells Fargo Securities, LLC a structuring and placement fee for its services in connection with the initial structuring of a $403.0 million term debt securitization, or the 2014 Debt Securitization. The 2014 Issuer also agreed to pay ongoing administrative expenses to the trustee, collateral manager, independent accountants, legal counsel, rating agencies and independent managers in connection with developing and maintaining reports, and providing required services in connection with the administration of the 2014 Debt Securitization.

 

The administrative expenses of each of the 2010 Issuer and the 2014 Issuer are paid on each payment date in two parts: (1) a component that is paid in a priority to other amounts distributed by the 2010 Issuer or the 2014 Issuer, as applicable, subject to a cap equal to the sum of 0.04% per annum of the adjusted principal balance of the portfolio loans and other assets held by the 2010 Issuer or the 2014 Issuer, as applicable, on the last day of the collection period relating to such payment date, plus $150,000 per annum, and (2) a component that is paid in a subordinated position relative to other amounts distributed by the 2010 Issuer or the 2014 Issuer, as applicable, equal to any amounts that exceed the aforementioned administrative expense cap. We believe that these administrative expenses approximate the amount of ongoing fees and expenses that we would be required to pay in connection with a traditional secured credit facility. Our common stockholders indirectly bear all of these expenses.

 

Recent Developments

 

On February 3, 2015, our board of directors declared a quarterly distribution of $0.32 per share of our common stock payable on March 27, 2015 to holders of record as of March 20, 2015.

 

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Consolidated Results of Operations

 

Consolidated operating results for the three months ended December 31, 2014 and 2013 are as follows:

 

   For the three months ended December 31,   Variances 
   2014   2013   2014 vs. 2013 
   (In thousands) 
             
Interest income  $25,099   $22,474   $2,625 
Income from accretion of discounts and origination fees   1,670    1,908    (238)
Interest income from subordinated notes in SLF   550    181    369 
Dividend income   18    16    2 
Fee income   208    1,000    (792)
                
Total investment income   27,545    25,579    1,966 
                
Total expenses   12,988    12,319    669 
                
Net investment income   14,557    13,260    1,297 
                
Net realized gains (losses) on investments   1,726    (4,994)   6,720 
Net change in unrealized appreciation (depreciation) on investments and secured borrowings   (1,111)   6,571    (7,682)
                
Net income  $15,172   $14,837   $335 
                
Average earning portfolio company investments, at fair value  $1,372,572   $1,089,469   $283,103 
                
Average debt outstanding (1)  $692,809   $494,588   $198,221 

 

 

(1)For the three months ended December 31, 2014, we have excluded $0.4 million of secured borrowings, at fair value, which were the result of participations and partial loan sales that did not meet the definition of a "participating interest", as defined in the guidance to ASC Topic 860.

 

Net income can vary substantially from period to period for various reasons, including the recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, quarterly comparisons of net income may not be meaningful.

 

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Investment Income

 

Investment income increased from the three months ended December 31, 2013 to the three months ended December 31, 2014 by $2.0 million primarily as a result of an increase in the average earning investment balance, which is the annual average balance of accruing loans in our investment portfolio, of $283.1 million. These increases were partially offset by a decline in the weighted average annualized investment income yield of 1.0% and a decline in fee income of $0.8 million.

 

The decrease in the weighted average annualized investment income yield from the three months ended December 31, 2013 to the three months ended December 31, 2014 was driven primarily by interest rate compression on new investments and the change in asset mix of our portfolio. Higher yielding second lien and subordinated debt investments decreased from 9.9% of the portfolio as of December 31, 2013 to 4.5% of the portfolio as December 31, 2014 with an offsetting increase in lower yielding senior secured and one stop investments.

 

The annualized income yield by security type for the three months ended December 31, 2014 and 2013 was as follows:

 

   For the three months ended December 31, 
   2014   2013 
Senior secured   6.3%   7.2%
One stop   8.0%   8.7%
Second lien   9.5%   11.6%
Subordinated debt   8.4%   13.9%
Subordinated notes in SLF (1)   8.3%   4.3%

 

 

(1) SLF's proceeds from the subordinated notes invested in SLF were utilized by SLF to invest in senior secured loans.

 

Annualized income yields on senior secured and one stop investments have declined, as shown in the table above, for the three months ended December 31, 2014 compared to the three months ended December 31, 2013 primarily due to a general trend of interest rate compression on new investments. The decrease in yield on second lien debt is primarily attributable to repayments of high yielding second lien investments since December 31, 2013 and the inclusion of $0.4 million of prepayment fees during the three months ended December 31, 2013. The decrease in yield on subordinated debt is primarily due to repayments in subordinated debt investments and the lower current yield on the two remaining subordinated debt investments as of December 31, 2014 as shown in the Consolidated Schedule of Investments. The income yield on subordinated notes of SLF increased for the three months ended December 31, 2014 compared to the three months ended December 31, 2013 as the spread on the subordinated notes was increased to the London Interbank Offered Rate, or LIBOR, plus 8.0% from LIBOR plus 4.0% subsequent to the closing of SLF’s senior secured revolving credit facility, or, as amended, the SLF Credit Facility, with Wells Fargo Bank, N.A, in January 2014.

 

For additional details on investment yields and asset mix, refer to the “Liquidity and Capital Resources - Portfolio Composition, Investment Activity and Yield” section below.

 

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Expenses

 

The following table summarizes our expenses:

 

   For the three months ended December 31,   Variances 
   2014   2013   2014 vs. 2013 
   (In thousands) 
             
Interest and other debt financing expenses  $5,694   $4,092   $1,602 
Base management fee   4,821    3,824    997 
Incentive fee   1,071    3,032    (1,961)
Professional fees   629    658    (29)
Administrative service fee   607    582    25 
General and administrative expenses   166    131    35 
Total expenses  $12,988   $12,319   $669 

 

Interest expense and debt facility fees increased by $1.6 million from the three months ended December 31, 2013 to the three months ended December 31, 2014 primarily due to an increase in weighted average of outstanding borrowings from $494.6 million for the three months ended December 31, 2013 to $692.8 million for the three months ended December 31, 2014. The increase in our debt was driven by the issuance of $246.0 million of notes pursuant to the 2014 Debt Securitization as well as the increase in our use of debt under our Small Business Administration, or SBA, debentures through small business investment companies, or SBICs, which had outstanding balances of $208.8 million as of December 31, 2014 and $196.3 million as of December 31, 2013. These increases were partially offset by a decrease in our use of debt under the senior secured revolving credit facility, or the Credit Facility, entered into by Golub Capital BDC Funding LLC, or Funding, a wholly-owned subsidiary of ours, with Wells Fargo Securities, LLC, as administrative agent, and Wells Fargo Bank, N.A., as lender, to $44.9 million as of December 31, 2014 from an outstanding balance of $165.9 million as of December 31, 2013.

 

Amortization of debt issuance costs increased by $0.6 million from the three months ended December 31, 2013 to the three months ended December 31, 2014 primarily due to additional capitalized debt issuance costs associated with the 2014 Debt Securitization The increase in our effective annualized average interest rate on our outstanding debt from 3.1% for the three months ended December 31, 2013 to 3.3% for the three months ended December 31, 2014 was primarily the result of the increase in amortization of debt issuance costs and the issuance of new SBA debentures at higher interest rates. The interest rates on the SBA debentures are fixed at the time of issuance at a market driven spread over U.S. Treasury Notes with ten-year maturities.

 

The base management fee increased as a result of a sequential increase in average assets from December 31, 2013 to December 31, 2014. The administrative service fee remained relatively stable from the three months ended December 31, 2013 to the three months ended December 31, 2014 due to efficiencies gained by the Administrator in servicing a growing portfolio.

 

Incentive fee expense decreased by $2.0 million from the three months ended December 31, 2013 to the three months ended December 31, 2014 as the interest rate compression on new investments and the change in asset mix of our portfolio caused a decline in our pre-incentive fee net investment income, expressed as a rate of return on the value of our net assets. Due to this decline, we were not fully through the catch-up provision of the incentive fee calculation. For the three months ended December 31, 2014, incentive fee expense as a percentage of Pre-Incentive Fee Net Investment Income was 6.9% compared to 18.6% for the three months ended December 31, 2013.

 

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The Administrator pays for certain expenses incurred by us. These expenses are subsequently reimbursed in cash. Total expenses reimbursed by us to the Administrator for the three months ended December 31, 2014 and 2013 were $0.2 million and $0.3 million, respectively.

 

As of December 31, 2014 and September 30, 2014, included in accounts payable and accrued expenses were $0.3 million and $0.2 million, respectively, for accrued expenses paid on behalf of us by the Administrator.

 

Net Realized and Unrealized Gains and Losses

 

The following table summarizes our net realized and unrealized gains (losses) for the periods presented:

 

   For the three months ended December 31,   Variances 
   2014   2013   2014 vs. 2013 
   (In thousands) 
             
Net realized gain (loss) on investments  $1,727   $(4,994)  $6,721 
                
Net realized gain (loss)   1,727    (4,994)   6,721 
                
Unrealized appreciation on investments   6,896    13,772    (6,876)
Unrealized (depreciation) on investments   (7,981)   (7,366)   (615)
Unrealized appreciation on investments in SLF (1)   -    651    (651)
Unrealized (depreciation) on investments in SLF (1)   (26)   (410)   384 
Unrealized (appreciation) on secured borrowings   -    6    (6)
Unrealized depreciation on secured borrowings   -    (82)   82 
                
Net change in unrealized appreciation (depreciation) on investments, investments in SLF and secured borrowings  $(1,111)  $6,571   $(7,682)

 

 

(1)Unrealized appreciation and (depreciation) on investments in SLF include our investments in the subordinated notes and LLC equity interests in SLF.

 

For the three months ended December 31, 2014, we had a net realized gain of $1.7 million primarily due to the sale of two equity investments.

 

During the three months ended December 31, 2014, we had $6.9 million in unrealized appreciation on 73 portfolio company investments, which was offset by $8.0 million in unrealized depreciation on 120 portfolio company investments. Unrealized appreciation during the three months ended December 31, 2014 resulted from an increase in fair value primarily due to the rise in market prices associated with portfolio company investments. Unrealized depreciation primarily resulted from the amortization of discounts, negative credit related adjustments that caused a reduction in fair value and the reversal of the net unrealized appreciation on the equity investments sold during the three months ended December 31, 2014. Additionally, we had less than $1,000 in net unrealized depreciation on secured borrowing proceeds for the three months ended December 31, 2014. The unrealized depreciation resulted from the amortization of discounts associated with the investments funded by the secured borrowing proceeds.

 

For the three months ended December 31, 2014, we had $26,000 in unrealized depreciation on our investment in SLF LLC equity interests. The unrealized depreciation on the SLF LLC equity interests was primarily driven by negative market yield adjustments associated with broadly syndicated loans in SLF’s investment portfolio. For the three months ended December 31, 2014, we had no unrealized appreciation or depreciation on our investment in SLF subordinated notes.

 

For the three months ended December 31, 2013, we had net realized losses on investments totaling $5.0 million primarily due to the sale of our investment in one underperforming portfolio company and the write off of two non-accrual portfolio company investments.

 

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During the three months ended December 31, 2013, we had $13.8 million in unrealized appreciation on 64 portfolio company investments, which was partially offset by $7.4 million in unrealized depreciation on 115 portfolio company investments. Unrealized appreciation during the three months ended December 31, 2013 resulted from an increase in fair value primarily due to the rise in market prices and a reversal of prior period unrealized depreciation associated with the portfolio company investment sales and write-offs. Unrealized depreciation primarily resulted from the amortization of discounts and negative credit related adjustments that caused a reduction in fair value. Additionally, we had $0.1 million in net unrealized depreciation on secured borrowing proceeds related to two portfolio company investments for the three months ended December 31, 2013. The unrealized depreciation resulted from the amortization of discounts and the rise in market prices associated with the investments funded by the secured borrowing proceeds.

 

For the three months ended December 31, 2013, we had $0.6 million in unrealized appreciation on our investment in SLF LLC equity interests, which was partially offset by $0.4 million in unrealized depreciation on our investment in SLF subordinated notes. The unrealized depreciation was the result of the lower yielding contractual rate compared to comparable market pricing of subordinated notes. Unrealized appreciation on the SLF LLC equity interests was driven by positive credit-related adjustments associated with SLF’s investment portfolio as well the offsetting impact of the pricing on the subordinated notes.

 

Liquidity and Capital Resources

 

For the three months ended December 31, 2014, we experienced a net increase in cash and cash equivalents of $0.6 million. During the period, we used $40.8 million in operating activities primarily as a result of fundings of portfolio investments of $131.5 million. This was partially offset by proceeds from principal payments and sales of portfolio investments of $80.9 million and net investment income of $14.6 million. During the same period, cash provided by investment activities of $39.1 million was driven by the decrease in restricted cash and cash equivalents. Lastly, cash provided by financing activities was $2.3 million, primarily driven by borrowings on debt of $33.6 million that were partially offset by repayments of debt of $16.1 million and distributions paid of $14.2 million.

 

For the three months ended December 31, 2013, we experienced a net increase in cash and cash equivalents of $15.6 million. During the period we used $138.9 million in operating activities, primarily as a result of fundings of portfolio investments of $256.2 million. This was partially offset by proceeds from principal payments and sales of portfolio investments of $103.6 million and net investment income of $13.3 million. During the same period, cash used in investment activities of $1.4 million was driven by the increase in restricted cash and cash equivalents. Lastly, cash provided by financing activities was $155.9 million, primarily driven by borrowings on debt of $215.4 million that were partially offset by repayments of debt of $50.2 million and distributions paid of $13.1 million.

 

As of December 31, 2014 and September 30, 2014, we had cash and cash equivalents of $5.7 million and $5.1 million, respectively. In addition, we had restricted cash and cash equivalents of $35.7 million and $74.8 million as of December 31, 2014 and September 30, 2014, respectively. Cash and cash equivalents are available to fund new investments, pay operating expenses and pay distributions. As of December 31, 2014, $17.6 million of our restricted cash and cash equivalents could be used to fund new investments that meet the investment guidelines established in the 2010 Debt Securitization and the 2014 Debt Securitization, or collectively, the Debt Securitizations, which are described in further detail in Note 7 to our consolidated financial statements, and for the payment of interest expense on the notes issued in the Debt Securitizations. $3.9 million of such restricted cash and cash equivalents can be used to fund investments that meet the guidelines under the Credit Facility as well as for the payment of interest expense and revolving debt of the Credit Facility. $0.2 million of such restricted cash and cash equivalents can be used to fund investments that meet the guidelines under the $15.0 million revolving line of credit, or the Revolver, entered into by Golub Capital BDC Revolver Funding, LLC, or Revolver Funding, our wholly-owned subsidiary, with PrivateBank and Trust Company on November 22, 2013, as well as for the payment of interest expense and revolving debt of the Revolver. The remaining $14.0 million of restricted cash and cash equivalents can be used to fund new investments that meet the regulatory and investment guidelines established by the SBA for our SBICs, which are described in further detail in Note 7 to our consolidated financial statements, and for interest expense and fees on our outstanding SBA debentures.

 

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As of December 31, 2014 and September 30, 2014, we had outstanding commitments to fund investments totaling $131.8 million and $124.5 million, respectively. These amounts may or may not be funded to the borrowing party now or in the future. The unfunded commitments relate to loans with various maturity dates, but the entire amount was eligible for funding to the borrowers as of December 31, 2014 and September 30, 2014, respectively, subject to the terms of each loan’s respective credit agreement.

 

As of December 31, 2014, the Credit Facility, as amended, allows Funding to borrow up to $150.0 million at any one time outstanding, subject to leverage and borrowing base restrictions. As of December 31, 2014 and September 30, 2014, subject to leverage and borrowing base restrictions, we had approximately $105.1 million and $122.6 million, respectively, of remaining commitments and $59.3 million and $70.0 million, respectively, of availability on the Credit Facility. As of December 31, 2014 and September 30, 2014, we had $44.9 million and $27.4 million outstanding under the Credit Facility, respectively. As of December 31, 2014 and September 30, 2014, the Revolver allows Revolver Funding to borrow up to $15.0 million at any one time outstanding, subject to leverage and borrowing base restrictions. As of December 31, 2014 and September 30, 2014, subject to leverage and borrowing base restrictions, we had $15.0 million and $15.0 million, respectively, of remaining commitments and $1.7 million and $1.2 million, respectively, of availability on the Revolver. As of both December 31, 2014 and September 30, 2014, we had no borrowings outstanding under the Revolver.

 

On July 16, 2010, we completed the 2010 Debt Securitization, as amended on February 15, 2013, in which the 2010 Issuer issued an aggregate of $350.0 million of notes, the 2010 Notes, including $203.0 million of Class A 2010 Notes, which bear interest at a rate of three-month LIBOR plus 1.74%, $12.0 million of Class B 2010 Notes, which bear interest at a rate of three-month LIBOR plus 2.40%, and $135.0 million face amount of Subordinated 2010 Notes that do not bear interest. On November 15, 2013, we sold $12.0 million of Class B 2010 Notes and, on November 20, 2013, the transaction closed and proceeds of $12.0 million were received. The Class A 2010 Notes and Class B 2010 Notes of the 2010 Debt Securitization are included in the December 31, 2014 and September 30, 2014 consolidated statements of financial condition as our debt.

 

On June 5, 2014, we completed the 2014 Debt Securitization in the which the 2014 Issuer issued an aggregate of $402.6 million of securities including $191.0 million of Class A-1 2014 Notes, which bear interest at a rate of three-month LIBOR plus 1.75%, $20.0 million of Class A-2 2014 Notes, which bear interest at a rate of three-month LIBOR plus 1.45% through December 4, 2015 and three-month LIBOR plus 1.95% thereafter, $35.0 million of Class B 2014 Notes, which bear interest at a rate of three-month LIBOR plus 2.50%, $37.5 million of Class C 2014 Notes, which bear interest at a rate of three-month LIBOR plus 3.50%, and $119.1 million of LLC equity that does not bear interest. We retained all of the Class C 2014 Notes and LLC equity interests totaling $37.5 million and $119.1 million, respectively. The Class A-1, Class A-2 and Class B 2014 Notes are included in the December 31, 2014 and September 30, 2014 consolidated statements of financial condition as our debt and the Class C 2014 Notes and LLC equity interests were eliminated in consolidation. As of December 31, 2014 and September 30, 2014, we had outstanding debt under the 2014 Debt Securitization of $246.0 million. As of December 31, 2013, the 2014 Debt Securitization had not been completed.

 

Under present SBIC regulations, the maximum amount of SBA-guaranteed debentures that may be issued by multiple licensees under common management is $225.0 million and the maximum amount that a single SBIC licensee may issue is $150.0 million. As of December 31, 2014, GC SBIC IV, L.P., or SBIC IV, and GC SBIC V, L.P., or SBIC V, each a wholly-owned subsidiary of us, had $150.0 million and $58.8 million, respectively, of outstanding SBA-guaranteed debentures leaving incremental borrowing capacity of $16.2 million for SBIC V under present SBIC regulations. As of September 30, 2014, SBIC IV and SBIC V had $150.0 million and $58.8 million, respectively, of outstanding SBA-guaranteed debentures.

 

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SBIC IV and SBIC V may each borrow up to two times the amount of its regulatory capital, subject to customary regulatory requirements. As of December 31, 2014, we had committed and funded $75.0 million to SBIC IV, and had SBA-guaranteed debentures of $150.0 million outstanding that mature between March 2021 and September 2024. As of December 31, 2014, we had committed and funded $37.5 million to SBIC V and had SBA-guaranteed debentures of $58.8 million outstanding that mature between September 2023 and September 2024.

 

In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing. On September 13, 2011, we received exemptive relief from the SEC allowing us to modify the asset coverage requirement to exclude the SBA debentures from this calculation. As such, our ratio of total consolidated assets to outstanding indebtedness may be less than 200%. This provides us with increased investment flexibility but also increases our risks related to leverage. As of December 31, 2014, our asset coverage for borrowed amounts was 244.4% (excluding the SBA debentures).

 

Although we expect to fund the growth of our investment portfolio through the net proceeds from future securities offerings and through our dividend reinvestment plan as well as future borrowings, to the extent permitted by the 1940 Act, we cannot assure you that our efforts to raise capital will be successful. In addition to capital not being available, it also may not be available on favorable terms.

 

We believe that our existing cash and cash equivalents and available borrowings as of December 31, 2014 will be sufficient to fund our anticipated requirements through at least December 31, 2015.

 

Portfolio Composition, Investment Activity and Yield

 

As of December 31, 2014 and September 30, 2014, we had investments in 147 and 145 portfolio companies, respectively, with a total fair value of $1,361.0 million and $1,312.8 million, respectively, and had investments in subordinated notes and LLC equity interests in SLF with a total fair value of $39.7 million and $34.8 million, respectively. The following table shows the asset mix of our new origination commitments for the three months ended December 31, 2014 and 2013:

 

   For the three months ended December 31, 
   2014   2013 
   (In thousands)   Percentage of
Commitments		   (In thousands)   Percentage of
Commitments		 
                 
Senior secured  $77,297    52.8%  $35,404    12.3%
One stop   62,747    42.9    203,245    70.4 
Second lien   -    -    20,534    7.1 
Subordinated notes in SLF (1)   3,281    2.2    24,216    8.4 
LLC equity interests in SLF (1)   1,619    1.1    3,459    1.2 
Equity securities   1,516    1.0    1,905    0.6 
                     
Total new investment commitments  $146,460    100.0%  $288,763    100.0%

 

 

(1)SLF's proceeds from the subordinated notes and LLC interests invested in SLF were utilized by SLF to invest in senior secured loans. As of December 31, 2014, SLF funded senior secured loans to 38 different borrowers.

 

The asset mix of new origination commitments may fluctuate quarter-over-quarter due to a variety of factors. During the three months ended December 31, 2014, we experienced an increase in the amount of senior secured originations as we closed a few larger senior secured investments. However, consistent with our origination mix in fiscal year ended September 30, 2014, we continue to expect the majority of our originations will be in one stop investments for the fiscal year ended September 30, 2015. For the three months ended December 31, 2014 and 2013, we had approximately $60.2 million and $99.1 million, respectively, in proceeds from principal payments and return of capital distributions of portfolio companies. For the three months ended December 31, 2014 and 2013, we had sales of securities in seven and three portfolio companies, respectively, aggregating approximately $20.7 million and $4.5 million, respectively, in net proceeds.

 

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The following table shows the par, amortized cost and fair value of our portfolio of investments by asset class:

 

   As of December 31, 2014 (1)   As of September 30, 2014 (1) 
       Amortized   Fair       Amortized   Fair 
   Par   Cost   Value   Par   Cost   Value 
   (In thousands) 
                         
Senior secured:                              
Performing  $248,797   $245,675   $245,684   $265,103   $262,021   $262,854 
Non-accrual (2)   3,025    3,013    5    3,033    3,021    5 
                               
One stop:                              
Performing   1,015,031    1,001,481    1,003,726    952,359    939,765    940,729 
Non-accrual (2)   4,457    3,974    2,228    -    -    - 
                               
Second lien:                              
Performing   59,903    59,130    59,457    59,902    59,086    59,964 
Non-accrual (2)   -    -    -    -    -    - 
                               
Subordinated debt:                              
Performing   3,584    3,565    3,724    3,584    3,564    3,710 
Non-accrual (2)   -    -    -    -    -    - 
                               
Subordinated notes in SLF: (3)                              
Performing   28,871    28,871    28,871    25,589    25,589    25,589 
Non-accrual (2)   -    -    -    -    -    - 
                               
LLC equity interests in SLF: (3)   N/A    10,937    10,834    N/A    9,318    9,242 
                               
Equity:   N/A    35,159    46,197    N/A    35,216    45,519 
                               
Total  $1,363,668   $1,391,805   $1,400,726   $1,309,570   $1,337,580   $1,347,612 

 

 

(1)Nine and 11 of our loans included a feature permitting a portion of the interest due on such loan to be PIK interest as of December 31, 2014 and September 30, 2014, respectively.
(2)We refer to a loan as non-accrual when we cease recognizing interest income on the loan because we have stopped pursuing repayment of the loan or, in certain circumstances, it is past due 90 days or more on principal and interest or our management has reasonable doubt that principal or interest will not be collected. See "—Critical Accounting Policies—Revenue Recognition."
(3)SLF's proceeds from the subordinated notes and LLC equity interests invested in SLF were utilized by SLF to invest in senior secured loans.

 

The following table shows the weighted average rate, spread over LIBOR of floating rate, fixed rate and fees of investments originated and the weighted average rate of sales and payoffs of portfolio companies during the three months ended December 31, 2014 and 2013:

 

   For the three months ended December 31, 
   2014   2013 
Weighted average rate of new investment fundings   6.8%   7.2%
Weighted average spread over LIBOR of new floating rate investment fundings   5.8%   6.1%
Weighted average rate of new fixed rate investment fundings   N/A    N/A 
Weighted average fees of new investment fundings   1.8%   1.2%
Weighted average rate of sales and payoffs of portfolio companies   6.5%   9.6%

 

For the three months ended December 31, 2014 and 2013, the weighted average annualized income yield on the fair value of income producing loans in our portfolio was 7.8% and 8.3%, respectively. As of December 31, 2014, 97.4% and 97.1% of our debt portfolio at fair value and at cost, respectively, had interest rate floors that limit the minimum applicable interest rates on such loans. As of September 30, 2014, 97.6% and 97.2% of our debt portfolio at fair value and at cost, respectively, had interest rate floors that limit the minimum applicable interest rates on such loans.

 

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As of December 31, 2014, the median earnings before interest, taxes, depreciation and amortization, or EBITDA, for our portfolio companies was $23.6 million. The median EBITDA is based on the most recently reported trailing twelve-month EBITDA received from our portfolio companies. The median EBITDA of our portfolio companies excludes underlying borrowers in SLF.

 

As part of the monitoring process, GC Advisors regularly assesses the risk profile of each of our investments and rates each of them based on an internal system developed by Golub Capital and its affiliates. This system is not generally accepted in our industry or used by our competitors. It is based on the following categories, which we refer to as GC Advisors’ internal performance rating:

 

Internal Performance Ratings
Rating   Definition
5   Involves the least amount of risk in our portfolio. The borrower is performing above expectations, and the trends and risk factors are generally favorable.
     
4   Involves an acceptable level of risk that is similar to the risk at the time of origination. The borrower is generally performing as expected, and the risk factors are neutral to favorable.
     
3   Involves a borrower performing below expectations and indicates that the loan’s risk has increased somewhat since origination. The borrower may be out of compliance with debt covenants; however, loan payments are generally not past due.
     
2   Involves a borrower performing materially below expectations and indicates that the loan’s risk has increased materially since origination. In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due (but generally not more than 180 days past due).
     
1   Involves a borrower performing substantially below expectations and indicates that the loan’s risk has substantially increased since origination. Most or all of the debt covenants are out of compliance and payments are substantially delinquent. Loans rated 1 are not anticipated to be repaid in full and we will reduce the fair market value of the loan to the amount we anticipate will be recovered.

 

Our internal performance ratings do not constitute any rating of investments by a nationally recognized statistical rating organization or represent or reflect any third-party assessment of any of our investments.

 

For any investment rated 1, 2 or 3, GC Advisors will increase its monitoring intensity and prepare regular updates for the investment committee, summarizing current operating results and material impending events and suggesting recommended actions.

 

GC Advisors monitors and, when appropriate, changes the internal performance ratings assigned to each investment in our portfolio. In connection with our valuation process, GC Advisors and our board of directors review these internal performance ratings on a quarterly basis.

 

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The following table shows the distribution of our investments on the 1 to 5 internal performance rating scale at fair value as of December 31, 2014 and September 30, 2014:

 

   As of December 31, 2014   As of September 30, 2014 
Internal  Investments   Percentage of   Investments   Percentage of 
Performance  at Fair Value   Total   at Fair Value   Total 
Rating  (In thousands)   Investments   (In thousands)   Investments 
5  $155,411    11.1%  $129,806    9.7%
4   1,135,019    81.0    1,144,232    84.9 
3   99,707    7.1    68,944    5.1 
2   10,584    0.8    4,625    0.3 
1   5    0.0*   5    0.0*
Total  $1,400,726    100.0%  $1,347,612    100.0%

 

* Represents an amount less than 0.1%.

 

Senior Loan Fund LLC

 

We co-invest with RGA Reinsurance Company, or RGA, in senior secured loans through SLF, an unconsolidated Delaware LLC. SLF is capitalized as transactions are completed and all portfolio and investment decisions in respect to SLF must be approved by the SLF investment committee consisting of two representatives of each of us and RGA (with unanimous approval required from (i) one representative of each of us and RGA or (ii) both representatives of each of us and RGA).

 

SLF is capitalized with subordinated notes and LLC equity interest subscriptions from its members. As of December 31, 2014, we and RGA owned 87.5% and 12.5%, respectively, of both the outstanding subordinated notes and LLC equity interests. As of December 31, 2014, SLF had subordinated note commitments from us and RGA totaling $100.0 million, of which approximately $33.0 million and $29.2 million in aggregate principal amount was funded as of December 31, 2014 and September 30, 2014, respectively. As of December 31, 2014, SLF had LLC equity interest subscriptions from us and RGA totaling $25.0 million, of which approximately $12.5 million and $9.3 million in aggregate was called and contributed as of December 31, 2014 and September 30, 2014, respectively.

 

As of December 31, 2014, the SLF Credit Facility, as amended, which SLF entered into through its wholly-owned subsidiary, Senior Loan Fund II, or SLF II, allows SLF II to borrow up to $150.0 million subject to leverage and borrowing base restrictions. The reinvestment period of the SLF Credit Facility ends April 11, 2015, and the stated maturity date is April 11, 2019. As of December 31, 2014 and September 30, 2014, SLF II had outstanding debt under the SLF Credit Facility of $74.8 million and $66.6 million, respectively.

 

Through the reinvestment period, the SLF Credit Facility bears interest at one-month LIBOR plus a rate between 1.75% and 2.25%, depending on the composition of the collateral asset portfolio, per annum. After the reinvestment period, the rate will reset to one-month LIBOR plus 2.75% per annum for the remaining term of the SLF Credit Facility.

 

As of December 31, 2014 and September 30, 2014, SLF had total assets at fair value of $126.4 million and $107.2 million, respectively. As of December 31, 2014 and September 30, 2014, SLF’s portfolio was comprised of first lien senior secured loans to 38 and 31 different borrowers, respectively. As of both December 31, 2014 and September 30, 2014, none of these loans was on non-accrual status. The portfolio companies in SLF are in industries similar to those in which we may invest directly. Additionally, as of December 31, 2014 and September 30, 2014, SLF had commitments to fund various undrawn revolving credit and delayed draw loans to its portfolio companies totaling $7.6 million and $10.1 million, respectively.

 

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Below is a summary of SLF’s portfolio, followed by a listing of the individual loans in SLF’s portfolio as of December 31, 2014 and September 30, 2014:

 

   As of December 31, 2014   As of September 30, 2014 
   (Dollars in thousands) 
Senior secured loans (1)  $122,516   $103,695 
Weighted average current interest rate on senior secured loans (2)   5.3%   5.2%
Number of borrowers in SLF   38    31 
Largest loan to a single borrower (1)  $8,208   $8,229 
Total of five largest loans to borrowers (1)  $30,468   $31,132 

 

 

(1)At principal amount.
(2)Computed as (a) the sum of (i) the annual stated interest rate on each accruing senior secured loan multiplied by (ii) each loan's principal amount divided by (b) total senior secured loans at principal amount.

 

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SLF Loan Portfolio as of December 31, 2014

            Current         
         Maturity  Interest   Principal/Par   Fair 
Portfolio Company  Business Description  Investment Type  Date  Rate (1)   Amount   Value (2) 
                (In thousands) 
1011778 B.C. ULC (Burger King Worldwide, Inc. )  Beverage, Food and Tobacco  Senior Loan  10/2021   4.5%  $3,000   $2,996 
5.11, Inc. (3)  Textiles and Leather  Senior Loan  02/2020   6.0    3,282    3,279 
Acosta, Inc.  Diversified Conglomerate Service  Senior Loan  09/2021   5.0    3,000    3,005 
ACTIVE Network, Inc.  Electronics  Senior Loan  11/2020   5.5    1,980    1,943 
ARG IH Corporation (3)  Beverage, Food and Tobacco  Senior Loan  11/2020   4.8    2,145    2,143 
Atrium Innovations  Personal and Non Durable Consumer Products  Senior Loan  02/2021   4.3    3,547    3,437 
BJ's Wholesale Club, Inc.  Retail Stores  Senior Loan  09/2019   4.5    2,977    2,930 
Blue Coat Systems, Inc.  Electronics  Senior Loan  05/2019   4.0    1,985    1,938 
BMC Software, Inc.  Electronics  Senior Loan  09/2020   5.0    1,911    1,865 
Brasa (Holdings) Inc.  Personal, Food and Miscellaneous Services  Senior Loan  07/2019   5.0    8,208    8,153 
Brickman Group Ltd. LLC  Farming and Agriculture  Senior Loan  12/2020   4.0    1,995    1,943 
Connect Merger Sub, Inc.  Telecommunications  Senior Loan  04/2020   4.8    3,965    3,924 
Dell, Inc.  Electronics  Senior Loan  04/2020   4.5    1,980    1,979 
Dialysis Newco, Inc.  Healthcare, Education and Childcare  Senior Loan  04/2021   4.5    2,488    2,475 
Diversified Foodservice Supply, Inc. (3)  Beverage, Food and Tobacco  Senior Loan  12/2018   5.8    4,194    4,194 
EAG, INC. (Evans Analytical Group)  Diversified Conglomerate Service  Senior Loan  07/2017   5.0    2,366    2,366 
Federal-Mogul Corporation  Automobile  Senior Loan  04/2021   4.8    3,990    3,969 
GSDM Holdings Corp. (3)  Healthcare, Education and Childcare  Senior Loan  06/2019   5.3    1,795    1,795 
Hygenic Corporation, The  Personal and Non Durable Consumer Products  Senior Loan  10/2018   6.0    4,527    4,527 
K&N Engineering, Inc. (3)  Automobile  Senior Loan  07/2019   5.3    3,894    3,894 
Mister Car Wash Holdings, Inc.  Automobile  Senior Loan  08/2021   5.0    2,992    3,001 
National Veterinary Associates, Inc.  Personal, Food and Miscellaneous Services  Senior Loan  08/2021   4.8    998    989 
Paradigm DKD Group, LLC  Buildings and Real Estate  Senior Loan  11/2018   6.0    2,053    2,011 
Paradigm DKD Group, LLC  Buildings and Real Estate  Senior Loan  11/2018   6.0    360    346 
Paradigm Management Services, LLC (3)  Healthcare, Education and Childcare  Senior Loan  01/2019   5.5    6,247    6,247 
Payless ShoeSource, Inc.  Retail Stores  Senior Loan  03/2021   5.0    1,990    1,831 
Plano Molding Company, LLC (3)  Home and Office Furnishings, Housewares, and Durable Consumer  Senior Loan  10/2018   5.3    1,815    1,815 
Print Payroll Services, LLC  Diversified/Conglomerate Service  Senior Loan  06/2019   5.7    2,943    2,943 
Print Payroll Services, LLC  Diversified/Conglomerate Service  Senior Loan  06/2019   5.7    568    568 
Reliant Pro ReHab, LLC (3)  Healthcare, Education and Childcare  Senior Loan  06/2017   6.0    4,296    4,296 
Rug Doctor LLC (3)  Personal and Non Durable Consumer Products  Senior Loan  12/2016   6.3    4,875    4,875 
Scientific Games International, Inc.  Hotels, Motels, Inns, and Gaming  Senior Loan  10/2020   6.0    3,965    3,918 
Self Esteem Brands, LLC (3)  Leisure, Amusement, Motion Pictures, Entertainment  Senior Loan  02/2020   5.0    6,185    6,185 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior Loan  05/2018   5.5    968    968 
Syncsort Incorporated (3)  Electronics  Senior Loan  03/2019   5.8    4,953    4,953 
Systems Maintenance Services Holding, Inc. (3)  Electronics  Senior Loan  10/2019   5.0    2,433    2,433 
Take 5 Oil Change, L.L.C. (3)  Automobile  Senior Loan  07/2018   6.3    1,426    1,426 
U.S. Water Services, Inc.  Utilities  Senior Loan  08/2018   5.8    3,452    3,452 
U.S. Water Services, Inc.  Utilities  Senior Loan  08/2018   6.8    403    403 
U.S. Water Services, Inc.  Utilities  Senior Loan  08/2018   5.8    165    165 
W3 Co.  Oil and Gas  Senior Loan  03/2020   5.8    2,977    2,873 
WII Components, Inc. (3)  Home and Office Furnishings, Housewares, and Durable Consumer  Senior Loan  07/2018   5.5    3,223    3,223 
                 $122,516   $121,676 

 

 

(1)Represents the weighted average annual current interest rate as of December 31, 2014. All interest rates are payable in cash.
(2)Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in the board of directors' valuation process described elsewhere herein.
(3)We also hold a portion of the first lien senior secured loan in this portfolio company.

 

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SLF Loan Portfolio as of September 30, 2014

            Current         
         Maturity  Interest   Principal/Par   Fair 
Portfolio Company  Business Description  Investment Type  Date  Rate (1)   Amount   Value (2) 
                (In thousands) 
5.11, Inc. (3)  Textiles and Leather  Senior Loan  02/2020   6.0%  $3,290   $3,294 
ACTIVE Network, Inc.  Electronics  Senior Loan  11/2020   5.5    1,985    1,975 
ARG IH Corporation (3)  Beverage, Food and Tobacco  Senior Loan  11/2020   4.8    2,151    2,152 
Atrium Innovations  Personal and Non Durable Consumer Products  Senior Loan  02/2021   4.3    3,556    3,498 
BJ's Wholesale Club, Inc.  Retail Stores  Senior Loan  09/2019   4.5    2,985    2,944 
Blue Coat Systems, Inc.  Electronics  Senior Loan  05/2019   4.0    1,990    1,958 
BMC Software, Inc.  Electronics  Senior Loan  09/2020   5.0    1,915    1,886 
Brasa (Holdings) Inc.  Personal, Food and Miscellaneous Services  Senior Loan  07/2019   5.0    8,229    8,215 
Connect Merger Sub, Inc.  Telecommunications  Senior Loan  04/2020   4.8    3,975    3,943 
Dell, Inc.  Electronics  Senior Loan  04/2020   4.5    1,985    1,974 
Dialysis Newco, Inc.  Healthcare, Education and Childcare  Senior Loan  04/2021   4.5    2,494    2,491 
Diversified Foodservice Supply, Inc. (3)  Beverage, Food and Tobacco  Senior Loan  12/2018   5.8    4,194    4,194 
El Pollo Loco Inc. (3)  Personal, Food and Miscellaneous Services  Senior Loan  10/2018   5.3    4,740    4,758 
Federal-Mogul Corporation  Automobile  Senior Loan  04/2021   4.8    4,000    3,972 
GSDM Holdings Corp. (3)  Healthcare, Education and Childcare  Senior Loan  06/2019   5.3    1,800    1,800 
Nuveen Investments, Inc.  Finance  Senior Loan  05/2017   4.2    3,000    2,997 
Paradigm DKD Group, LLC  Buildings and Real Estate  Senior Loan  11/2018   5.8    2,058    2,058 
Paradigm DKD Group, LLC  Buildings and Real Estate  Senior Loan  11/2018   5.8    468    468 
Paradigm Management Services, LLC (3)  Healthcare, Education and Childcare  Senior Loan  01/2019   5.5    6,247    6,247 
Payless ShoeSource, Inc.  Retail Stores  Senior Loan  03/2021   5.0    1,995    1,925 
Plano Molding Company, LLC (3)  Home and Office Furnishings, Housewares, and Durable Consumer  Senior Loan  10/2018   5.3    1,827    1,827 
Print Payroll Services, LLC  Diversified Conglomerate Service  Senior Loan  06/2019   5.6    2,950    2,950 
Rug Doctor LLC (3)  Personal and Non Durable Consumer Products  Senior Loan  12/2016   6.3    4,939    4,939 
Rug Doctor LLC (3)  Personal and Non Durable Consumer Products  Senior Loan  12/2016   6.3    428    428 
Scientific Games International, Inc.  Hotels, Motels, Inns, and Gaming  Senior Loan  10/2020   4.3    3,975    3,905 
Self Esteem Brands, LLC (3)  Leisure, Amusement, Motion Pictures, Entertainment  Senior Loan  02/2020   5.0    6,324    6,324 
Smashburger Finance LLC  Beverage, Food and Tobacco  Senior Loan  05/2018   5.5    970    970 
Syncsort Incorporated (3)  Electronics  Senior Loan  03/2019   5.8    4,966    4,966 
Systems Maintenance Services Holding, Inc. (3)  Electronics  Senior Loan  10/2019   5.0    2,439    2,439 
Take 5 Oil Change, L.L.C. (3)  Automobile  Senior Loan  07/2018   6.3    1,429    1,429 
U.S. Water Services, Inc.  Utilities  Senior Loan  08/2018   5.8    3,461    3,461 
U.S. Water Services, Inc.  Utilities  Senior Loan  08/2018   6.8    386    386 
U.S. Water Services, Inc.  Utilities  Senior Loan  08/2018   5.8    165    165 
W3 Co.  Oil and Gas  Senior Loan  03/2020   5.8    2,985    2,981 
WII Components, Inc. (3)  Home and Office Furnishings, Housewares, and Durable Consumer  Senior Loan  07/2018   5.5    3,394    3,378 
WII Components, Inc. (3) (4)  Home and Office Furnishings, Housewares, and Durable Consumer  Senior Loan  07/2018   N/A(5)   -    (1)
                 $103,695   $103,296 

 

 

(1)Represents the weighted average annual current interest rate as of September 30, 2014. All interest rates are payable in cash.
(2)Represents the fair value in accordance with ASC Topic 820. The determination of such fair value is not included in our board of directors' valuation process described elsewhere herein.
(3)We also hold a portion of the senior loan in this portfolio company.
(4)The negative fair value is the result of the unfunded commitment being valued below par.
(5)The entire commitment was unfunded as of September 30, 2014. As such, no interest is being earned on this investment.

 

We have committed to fund $87.5 million of subordinated notes and $21.9 million of LLC equity interest subscriptions to SLF. The amortized cost and fair value of the subordinated notes in SLF held by us were $28.9 million and $28.9 million, respectively, as of December 31, 2014, and $25.6 million and $25.6 million, respectively, as of September 30, 2014. The subordinated notes pay a weighted average interest rate of three-month LIBOR plus 8.0%. For the three months ended December 31, 2014 and 2013, we earned interest income of $0.6 million and $0.2 million, respectively, on the subordinated notes.

 

For the three months ended December 31, 2014 and 2013, we earned an annualized total return on our weighted average capital invested in SLF of 5.7% and 8.5%, respectively. The annualized total return on weighted average capital invested is calculated by dividing total income earned on our investments in SLF subordinated notes and LLC equity interests by the combined daily average of our investments in (1) the principal of the SLF subordinated notes and (2) the net asset value of the SLF LLC equity interests.

 

Below is certain summarized financial information for SLF as of December 31, 2014 and September 30, 2014 and for the three months ended December 31, 2014 and 2013:

 

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   As of December 31, 2014   As of September 30, 2014 
   (In thousands) 
Selected Balance Sheet Information, at fair value          
Investments in loans receivable, net of discount for loan origination fees  $121,676   $103,296 
Cash and other assets   4,694    3,932 
Total assets  $126,370   $107,228 
           
Senior credit facility  $74,750   $66,600 
Payable for open trades   4,950    - 
Other liabilities   1,294    822 
Total liabilities   80,994    67,422 
Subordinated notes and members' equity   45,376    39,806 
Total liabilities and net assets  $126,370   $107,228 

 

   Three months ended December 31, 
   2014   2013 
   (In thousands) 
Selected Statement of Operations Information:        
Interest income  $1,600   $333 
Fee income   2    - 
Total investment income   1,602    333 
           
Interest expense   1,108    206 
Administrative service fee   47    16 
Management and incentive fees   -    - 
Other expenses   25    9 
Total expenses   1,180    231 
Net investment income   422    102 
Net change in unrealized appreciation (depreciation) on investments and subordinated notes   (452)   642 
Net increase (decrease) in net assets  $(30)  $744 

 

SLF has elected to fair value the subordinated notes issued to us and RGA under ASC Topic 825 – Financial Instruments, or ASC Topic 825. The subordinated notes are valued by calculating the net present value of the future expected cash flow streams using an appropriate risk-adjusted discount rate model. For the three months ended December 31, 2014 and 2013, SLF recognized $0.0 million and $0.5 million in unrealized depreciation, respectively, on the subordinated notes. The following table presents the difference between fair value and the aggregate contractual principal amounts of subordinated notes for which the fair value option has been elected as of December 31, 2014 and September 30, 2014:

 

   As of December 31, 2014 
   (In thousands) 
   Par Value   Carrying Value   Fair Value   Unrealized Appreciation /
(Depreciation)		 
                     
Subordinated notes  $32,995   $32,995   $32,995   $- 

 

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   As of September 30, 2014 
   (In thousands) 
   Par Value   Carrying Value   Fair Value   Unrealized Appreciation /
(Depreciation)		 
                     
Subordinated notes  $29,245   $29,245   $29,245   $- 

 

Contractual Obligations and Off-Balance Sheet Arrangements

 

A summary of our significant contractual payment obligations as of December 31, 2014 is as follows:

 

   Payments Due by Period (In millions) 
       Less Than           More Than 
   Total   1 Year   1-3 Years   3-5 Years (1)   5 Years (1) 
                     
2010 Debt Securitization  $215.0   $-   $-   $-   $215.0 
2014 Debt Securitization   246.0    -    -    -    246.0 
SBA debentures   208.8    -    -    -    208.8 
Credit Facility   44.9    -    -    44.9    - 
Revolver   -    -    -    -    - 
Unfunded commitments (2)   131.8    131.8    -    -    - 
Total contractual obligations (3)  $846.5   $131.8   $-   $44.9   $669.8 

 

 
(1)The notes offered in the 2010 Debt Securitization are scheduled to mature on July 20, 2023, and the notes offered in the 2014 Debt Securitization are scheduled to mature on April 25, 2026. The SBA debentures are scheduled to mature between March 2021 and September 2024. The Credit Facility is scheduled to mature on October 17, 2019. The Revolver is scheduled to mature on November 22, 2020.
(2)Unfunded commitments represent all amounts unfunded as of December 31, 2014. These amounts may or may not be funded to the borrowing party now or in the future. The unfunded commitments relate to loans with various maturity dates, but we are showing this amount in the less than one year category as this entire amount was eligible for funding to the borrowers as of December 31, 2014.
(3)Total contractual obligations exclude $0.4 million of secured borrowings.

 

We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of December 31, 2014 and September 30, 2014, we had outstanding commitments to fund investments totaling $131.8 million and $124.5 million, respectively.

 

We have certain contracts under which we have material future commitments. We have entered into the Investment Advisory Agreement with GC Advisors in accordance with the 1940 Act. Under the Investment Advisory Agreement, GC Advisors provides us with investment advisory and management services. For these services, we pay (1) a management fee equal to a percentage of the average adjusted value of our gross assets and (2) an incentive fee based on our performance. To the extent that GC Advisors or any of its affiliates provides investment advisory, collateral management or other similar services to a subsidiary of ours, we reduce the base management fee by an amount equal to the product of (1) the total fees paid to GC Advisors by such subsidiary for such services and (2) the percentage of such subsidiary’s total equity that is owned, directly or indirectly, by us.

 

Under the Administration Agreement, the Administrator furnishes us with office facilities and equipment, provides us with clerical, bookkeeping and record keeping services at such facilities and provides us with other administrative services necessary to conduct our day-to-day operations. We reimburse the Administrator for the allocable portion (subject to the review and approval of our board of directors) of overhead and other expenses incurred by it in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and our allocable portion of the cost of our chief financial officer and chief compliance officer and their respective staffs. The Administrator also provides on our behalf significant managerial assistance to those portfolio companies to which we are required to offer to provide such assistance.

 

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If any of the contractual obligations discussed above is terminated, our costs under any new agreements that we enter into may increase. In addition, we would likely incur significant time and expense in locating alternative parties to provide the services we receive under our Investment Advisory Agreement and our Administration Agreement. Any new investment advisory agreement would also be subject to approval by our stockholders.

 

Distributions

 

In order to qualify as a RIC and to avoid corporate-level U.S. federal income tax on the income we distribute to our stockholders, we are required under the Code to distribute at least 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any, to our stockholders on an annual basis. Additionally, we must meet the annual distribution requirements of the U.S. federal excise tax rules. We intend to make quarterly distributions to our stockholders as determined by our board of directors.

 

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of our distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage requirements applicable to us as a business development company under the 1940 Act. If we do not distribute a certain percentage of our income annually, we will suffer adverse U.S. federal income tax consequences, including the possible loss of our qualification as a RIC. We cannot assure stockholders that they will receive any distributions.

 

To the extent our taxable earnings fall below the total amount of our distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains. Stockholders should read any written disclosure accompanying a dividend payment carefully and should not assume that the source of any distribution is our ordinary income or gains.

 

We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, our stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock unless a stockholder specifically “opts out” of our dividend reinvestment plan. If a stockholder opts out, that stockholder will receive cash distributions. Although distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, stockholders participating in our dividend reinvestment plan will not receive any corresponding cash distributions with which to pay any such applicable taxes.

 

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Related Party Transactions

 

We have entered into a number of business relationships with affiliated or related parties, including the following:

 

·We entered into an Investment Advisory Agreement with GC Advisors. Mr. Lawrence Golub, our chairman, is a manager of GC Advisors, and Mr. David Golub, our chief executive officer, is a manager of GC Advisors, and each of Messrs. Lawrence Golub and David Golub owns an indirect pecuniary interest in GC Advisors.

 

·Golub Capital LLC provides, and other affiliates of Golub Capital have historically provided, us with the office facilities and administrative services necessary to conduct day-to-day operations pursuant to our Administration Agreement.

 

·We have entered into a license agreement with Golub Capital LLC, pursuant to which Golub Capital LLC has granted us a non-exclusive, royalty-free license to use the name “Golub Capital.”

 

·Under a staffing agreement, or the Staffing Agreement, Golub Capital LLC has agreed to provide GC Advisors with the resources necessary to fulfill its obligations under the Investment Advisory Agreement. The Staffing Agreement provides that Golub Capital LLC will make available to GC Advisors experienced investment professionals and access to the senior investment personnel of Golub Capital LLC for purposes of evaluating, negotiating, structuring, closing and monitoring our investments. The Staffing Agreement also includes a commitment that the members of GC Advisors’ investment committee will serve in such capacity. Services under the Staffing Agreement are provided on a direct cost reimbursement basis.

 

·GC Advisors serves as collateral manager to the 2010 Issuer and the 2014 Issuer under collateral management agreements and receives a fee for providing these services that is offset against the base management fee payable by us under the Investment Advisory Agreement.

 

GC Advisors also sponsors or manages, and may in the future sponsor or manage, other investment funds, accounts or investment vehicles (together referred to as “accounts”) that have investment mandates that are similar, in whole and in part, with ours. For example, GC Advisors presently serves as the investment adviser to Golub Capital Investment Corporation, a private BDC that commenced operations on December 31, 2014, which primarily focuses on investing in senior secured and one stop loans.  In addition, our officers and directors serve in similar capacities for Golub Capital Investment Corporation. GC Advisors and its affiliates may determine that an investment is appropriate for us and for one or more of those other accounts. In such event, depending on the availability of such investment and other appropriate factors, and pursuant to GC Advisors’ allocation policy, GC Advisors or its affiliates may determine that we should invest side-by-side with one or more other accounts. We do not intend to make any investments if they are not permitted by applicable law and interpretive positions of the SEC and its staff, or if they are inconsistent with GC Advisors’ allocation procedures.

 

In addition, we have adopted a formal code of ethics that governs the conduct of our and GC Advisors’ officers, directors and employees. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the General Corporation Law of the State of Delaware.

 

Critical Accounting Policies

 

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States, or GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.

 

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Fair Value Measurements

 

We value investments for which market quotations are readily available at their market quotations. However, a readily available market value is not expected to exist for many of the investments in our portfolio, and we value these portfolio investments at fair value as determined in good faith by our board of directors under our valuation policy and process. We may seek pricing information with respect to certain of our investments from pricing services or brokers or dealers in order to value such investments. We also employ independent third party valuation firms for all of our investments for which there is not a readily available market value.

 

Valuation methods may include comparisons of the portfolio companies to peer companies that are public, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings, discounted cash flow, the markets in which the portfolio company does business and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, we will consider the pricing indicated by the external event to corroborate the private equity valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from values that may ultimately be received or settled.

 

Our board of directors is ultimately and solely responsible for determining, in good faith, the fair value of investments that are not publicly traded, whose market prices are not readily available on a quarterly basis or any other situation where portfolio investments require a fair value determination.

 

With respect to investments for which market quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as described below:

 

·Our quarterly valuation process begins with each portfolio company investment being initially valued by the investment professionals of GC Advisors responsible for credit monitoring.
·Preliminary valuation conclusions are then documented and discussed with our senior management and GC Advisors.
·The audit committee of our board of directors reviews these preliminary valuations.
·At least once annually, the valuation for each portfolio investment is reviewed by an independent valuation firm.
·The board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith.

 

The factors that are taken into account in fair value pricing investments include: available current market data, including relevant and applicable market trading and transaction comparables; applicable market yields and multiples; security covenants; call protection provisions; information rights; the nature and realizable value of any collateral; the portfolio company’s ability to make payments, its earnings and discounted cash flows and the markets in which it does business; comparisons of financial ratios of peer companies that are public; comparable merger and acquisition transactions; and the principal market and enterprise values.

 

Determination of fair values involves subjective judgments and estimates. Under current auditing standards, the notes to our consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements.

 

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We follow ASC Topic 820 Fair Value Measurements and Disclosures for measuring fair value. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the assets or liabilities or market and the assets’ or liabilities’ complexity. Our fair value analysis includes an analysis of the value of any unfunded loan commitments. Assets and liabilities are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the asset or liability as of the measurement date. The three levels are defined as follows:

 

Level 1: Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2: Inputs include quoted prices for similar assets or liabilities in active markets and inputs that are observable for the assets or liabilities, either directly or indirectly, for substantially the full term of the assets or liabilities.

Level 3: Inputs include significant unobservable inputs for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value are based upon the best information available and may require significant management judgment or estimation.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset’s or a liability’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and we consider factors specific to the asset or liability. We assess the levels of assets and liabilities at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfers. There were no transfers among Level 1, 2 and 3 of the fair value hierarchy for assets and liabilities during the three months ended December 31, 2014 and 2013. The following section describes the valuation techniques used by us to measure different assets and liabilities at fair value and includes the level within the fair value hierarchy in which the assets and liabilities are categorized.

 

Valuation of Investments

 

Level 1 investments are valued using quoted market prices. Level 2 investments are valued using market consensus prices that are corroborated by observable market data and quoted market prices for similar assets and liabilities. Level 3 investments are valued at fair value as determined in good faith by our board of directors, based on input of management, the audit committee and independent valuation firms that have been engaged at the direction of our board of directors to assist in the valuation of each portfolio investment without a readily available market quotation at least once during a trailing twelve-month period under a valuation policy and a consistently applied valuation process. This valuation process is conducted at the end of each fiscal quarter, with approximately 25% (based on fair value) of our valuations of debt and equity investments without readily available market quotations subject to review by an independent valuation firm. All investments as of December 31, 2014 and September 30, 2014, with the exception of money market funds included in cash and cash equivalents (Level 1 investments), were valued using Level 3 inputs of the fair value hierarchy.

 

When determining fair value of Level 3 debt and equity investments, we may take into account the following factors, where relevant: the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons to publicly traded securities, and changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments may be made and other relevant factors. The primary method for determining enterprise value uses a multiple analysis whereby appropriate multiples are applied to the portfolio company’s EBITDA. The enterprise value analysis is performed to determine the value of equity investments and to determine if debt investments are credit impaired. If debt investments are credit impaired, we will use the enterprise value analysis or a liquidation basis analysis to determine fair value. For debt investments that are not determined to be credit impaired, we use a market interest rate yield analysis to determine fair value.

 

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In addition, for certain debt investments, we may base our valuation on indicative bid and ask prices provided by an independent third party pricing service. Bid prices reflect the highest price that we and others may be willing to pay. Ask prices represent the lowest price that we and others may be willing to accept. We generally uses the midpoint of the bid/ask range as our best estimate of fair value of such investment.

 

Due to the inherent uncertainty of determining the fair value of Level 3 investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a market existed for such investments and may differ materially from the values that may ultimately be received or settled. Further, such investments are generally subject to legal and other restrictions or otherwise are less liquid than publicly traded instruments. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we may realize significantly less than the value at which such investment had previously been recorded.

 

Our investments are subject to market risk. Market risk is the potential for changes in the value due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which the investments are traded.

 

Valuation of Secured Borrowings

 

We have elected the fair value option under ASC Topic 825 relating to accounting for debt obligations at their fair value for our secured borrowings which arose due to partial loan sales which did not meet the criteria for sale treatment under ASC Topic 860. All secured borrowings as of December 31, 2014 and September 30, 2014 were valued using Level 3 inputs under the fair value hierarchy, and our approach to determining fair value of Level 3 secured borrowings is consistent with our approach to determining fair value of the Level 3 investments that are associated with these secured borrowings as previously described.

 

Valuation of Other Financial Assets and Liabilities

 

Fair value of our debt is estimated using Level 3 inputs by discounting remaining payments using comparable market rates or market quotes for similar instruments at the measurement date, if available.

 

Revenue Recognition:

 

Our revenue recognition policies are as follows:

 

Investments and Related Investment Income: Interest income is accrued based upon the outstanding principal amount and contractual interest terms of debt investments. Premiums, discounts, and origination fees are amortized or accreted into interest income over the life of the respective debt investment. For investments with contractual PIK interest, which represents contractual interest accrued and added to the principal balance that generally becomes due at maturity, we do not accrue PIK interest if the portfolio company valuation indicates that the PIK interest is not likely to be collectible. In addition, we may generate revenue in the form of amendment, structuring or due diligence fees, fees for providing managerial assistance, consulting fees and prepayment premiums on loans and record these fees as fee income when received. Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Distributions received from LLC and LP investments are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, we will not record distributions from equity investments in LLCs and LPs as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment.

 

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We account for investment transactions on a trade-date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the cost basis of investment, without regard to unrealized gains or losses previously recognized. We report changes in fair value of investments from the prior period that are measured at fair value as a component of the net change in unrealized appreciation (depreciation) on investments in our consolidated statement of operations.

 

Non-accrual: Loans may be left on accrual status during the period we are pursuing repayment of the loan. Management reviews all loans that become past due 90 days or more on principal and interest or when there is reasonable doubt that principal or interest will not be collected for possible placement on non-accrual status. We generally reverse accrued interest when a loan is placed on non-accrual. Additionally, any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. We restore non-accrual loans to accrual status when past due principal and interest is paid and, in our management’s judgment, are likely to remain current. The total fair value of our non-accrual loans was $2.2 million as of December 31, 2014 and $5,000 as of September 30, 2014.

 

Partial loan sales: We follow the guidance in ASC Topic 860, when accounting for loan participations and other partial loan sales. Such guidance requires a participation or other partial loan sale to meet the definition of a “participating interest”, as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales that do not meet the definition of a participating interest remain on our statements of assets and liabilities and the proceeds are recorded as a secured borrowing until the definition is met. Secured borrowings are carried at fair value to correspond with the related investments, which are carried at fair value.

 

Income taxes:

 

We have elected to be treated as a RIC under Subchapter M of the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC, we are required to meet certain source of income and asset diversification requirements, and timely distribute to our stockholders at least 90% of investment company taxable income, as defined by the Code, for each tax year. We have made and intend to continue to make the requisite distributions to our stockholders, which will generally relieve us from U.S. federal income taxes.

 

Depending on the level of taxable income earned in a tax year, we may choose to retain taxable income in excess of current year distributions into the next tax year in an amount less than what would trigger payments of federal income tax under Subchapter M of the Code. We would then pay a 4% excise tax on such income, as required. To the extent that we determine that our estimated current year annual taxable income may exceed estimated current year distributions, we accrue excise tax, if any, on estimated excess taxable income as taxable income is earned.

 

Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified within capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

We are subject to financial market risks, most significantly changes in interest rates. Many of the loans in our portfolio have floating interest rates, and we expect that our loans in the future may also have floating interest rates. These loans are usually based on a floating LIBOR and typically have interest rate reset provisions that adjust applicable interest rates under such loans to current market rates on a quarterly basis. The loans that are subject to the floating LIBOR rates are also subject to a minimum base rate, or floor, that we charge on our loans if the current market rates are below the respective floors. As of December 31, 2014 and September 30, 2014, the weighted average LIBOR floor on the loans subject to floating interest rates was 1.12% and 1.15%, respectively. In addition, the Class A and B 2010 Notes issued as a part of the 2010 Debt Securitization and the Class A-1, A-2 and B 2014 Notes issued as part of the 2014 Debt Securitization have floating interest rate provisions based on three-month LIBOR that resets quarterly, the Credit Facility has a floating interest rate provision based on one-month LIBOR that resets daily and the Revolver has a floating interest rate provision based on, at the election of Revolver Funding, either one-month, two-month or three-month LIBOR or PrivateBank’s prime rate that resets at contract maturity. As of December 31, 2014 and September 30, 2014, the weighted average LIBOR floor on the secured borrowings, which reset quarterly, was 1.00% and 1.00%, respectively. We expect that other credit facilities into which we enter in the future may have floating interest rate provisions.

 

Assuming that the interim and unaudited consolidated statement of financial condition as of December 31, 2014 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates.

 

           Net increase 
   Increase (decrease) in   Increase (decrease) in   (decrease) in 
Change in interest rates  interest income   interest expense   investment income 
   (in thousands) 
Down 25 basis points  $(73)  $(1,265)  $1,192 
Up 50 basis points   147    2,530    (2,383)
Up 100 basis points   2,426    5,060    (2,634)
Up 200 basis points   15,449    10,123    5,326 
Up 300 basis points   28,649    15,186    13,463 

 

Although we believe that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit market, credit quality, the size and composition of the assets in our portfolio and other business developments, including borrowing under the Debt Securitizations, the Credit Facility, the Revolver or other borrowings, that could affect net increase in net assets resulting from operations, or net income. Accordingly, we can offer no assurances that actual results would not differ materially from the analysis above.

 

We may in the future hedge against interest rate fluctuations by using standard hedging instruments such as interest rate swaps, futures, options and forward contracts to the limited extent permitted under the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates.

 

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Item 4: Controls and Procedures.

 

As of the period covered by this report, we, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on our evaluation, our management, including the chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective in timely alerting management, including the chief executive officer and chief financial officer, of material information about us required to be included in our periodic SEC filings. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, are based upon certain assumptions about the likelihood of future events and can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. There has not been any change in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

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Part II – Other Information

 

Item 1: Legal Proceedings.

 

Although we may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise, we are currently not a party to any pending material legal proceedings.

 

Item 1A: Risk Factors.

 

None.

 

Item 2: Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3: Defaults Upon Senior Securities.

 

None.

 

Item 4: Mine Safety Disclosures.

 

None.

 

Item 5: Other Information.

 

None.

 

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Item 6: Exhibits.

 

EXHIBIT INDEX

 

Number   Description
     
10.1   Thirteenth Amendment to Loan and Servicing Agreement, dated October 17, 2014, by and among Golub Capital BDC Funding LLC, as the Borrower; Golub Capital BDC, Inc., as Transferor and Servicer; Wells Fargo Securities, LLC, as the Administrative Agent; the lenders from time to time party thereto; the lender agents from time to time party thereto; and Wells Fargo Bank, N.A., as the Collateral Agent, the Account Bank, and the Collateral Custodian (amending the Loan and Servicing Agreement, dated as of July 21, 2011) (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 814-00794), filed on October 22, 2014).
     
10.2   Amendment No. 1 to Credit Agreement, dated as of November 24, 2014, by and among Golub Capital BDC Revolver Funding LLC, as the borrower; Golub Capital BDC, Inc., as servicer; and The PrivateBank and Trust Company as lender and administrative agent (amending the Credit Agreement, dated as of November 22, 2013) (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 814-00794), filed on November 26, 2014).
     
10.3   Amended and Restated Loan and Servicing Agreement, dated as of December 18, 2014, by and among Golub Capital BDC Funding LLC, as the Borrower; Golub Capital BDC, Inc., as Transferor and Servicer; Wells Fargo Securities, LLC, as the Administrative Agent; the lenders from time to time party thereto; the lender agents from time to time party thereto; and Wells Fargo Bank, N.A., as the Collateral Agent, the Account Bank, and the Collateral Custodian (amending the Loan and Servicing Agreement, dated as of July 21, 2011) (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 814-00794), filed on January 2, 2015).
     
31.1   Certifications by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
     
31.2   Certifications by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
     
32.1   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

 

 

* Filed herewith

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  Golub Capital BDC, Inc.
     
Dated: February 6, 2015 By /s/ David B. Golub
    David B. Golub
    Chief Executive Officer
    (Principal Executive Officer)
     
Dated: February 6, 2015 By /s/ Ross A. Teune
    Ross A. Teune
    Chief Financial Officer
    (Principal Accounting and Financial Officer)

 

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