Goldman Sachs BDC, Inc. ($GSBD)

Good morning, and thank you for joining us. My name is John Silas, a member of the Investor Relations team for Goldman Sachs BDC, Inc., and I would like to welcome everyone to the Goldman Sachs BDC, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] Before we begin today's call, I would like to remind our listeners that today's remarks may include forward-looking statements. These statements represent the company's belief regarding future events that, by their nature, are uncertain and outside of the company's control. The company's actual results and financial condition may differ, possibly materially, from what is indicated in those forward-looking statements as a result of a number of factors, including those described from time to time in the company's SEC filings. This audio cast is copyrighted material of Goldman Sachs BDC, Inc. and may not be duplicated, reproduced or rebroadcasted without our consent. Yesterday, after the market closed, the company issued an earnings press release and posted a supplemental earnings presentation, both of which can be found on the homepage of our website at www.goldmansachsbdc.com under the Investor Resources section and which include reconciliations of non-GAAP measures to the most directly comparable GAAP measures. These documents should be reviewed in conjunction with the company's quarterly report on Form 10-Q filed yesterday with the SEC. This conference call is being recorded today, Friday, May 8, 2026, for replay purposes. I'll now turn the call over to Vivek Bantwal, Co-CEO of Goldman Sachs BDC, Inc.

Thank you, John. Good morning, everyone, and thank you for joining us for our first quarter earnings conference call. I am here today with David Miller, our Co-Chief Executive Officer; Tucker Greene, our President and Chief Operating Officer; and Stan Matuszewski, our Chief Financial Officer. I would like to begin by providing important context on the composition of our portfolio, followed by sharing perspective on the current macro backdrop and our rigorous approach to valuation, particularly around our commitment to transparent mark-to-market accounting. I'll then highlight our perspective on why we continue to see private credit as a highly attractive asset class and why our GS platform is uniquely positioned to thrive in the current investment landscape, particularly over time as we transition away from the legacy portfolio. I'll then turn the call over to David and Tucker, who will dive into our first quarter results, portfolio activity and performance before handing it off to Stan to take us through our financial results. And finally, we'll open the line for Q&A. As we have discussed on prior calls, since GSBD's integration into the broader direct lending platform in 2022, we have been on a deliberate path to leverage the differentiated sourcing, underwriting and portfolio management oversight provided by access to the full Goldman Sachs private credit ecosystem where we have a 30-year track record. What you're seeing in our results today is the natural transition of our balance sheet. We are moving out of older positions from the legacy setup and into new opportunities that benefit from our enhanced sourcing and deeper origination funnel. Currently, about 58% of our portfolio consists of these more recent originations, while the remaining 42% represents older positions. The results of this strategic shift are clear. The 58% of the portfolio originated under our current underwriting capabilities is performing in line with expectations. In fact, we have seen low losses and only one name representing less than 0.5% of our total nonaccrual at cost. While we have seen some modest unrealized moves here, we believe those are primarily a reflection of broader market spread widening, not a sign of credit deterioration. This gives us immense confidence in our current credit selection process. As we've discussed, the 42% of the book consisting of legacy positions is where we see the bulk of our current credit volatility, accounting for roughly 72% of losses this quarter and over 99.5% of our total nonaccruals at cost. We've added 2 of these names to nonaccrual status this quarter, One GI LLC and 3Si Security Systems, Inc., which we view as idiosyncratic situations that we have been monitoring closely. Our internal workout teams are deeply engaged with these borrowers to maximize recovery. This brings me to a critical distinction that we believe is essential for our investors to understand, the difference between mark-to-market fluctuations and actual credit impairment. When the market price of risk increases, as evidenced by today's widening credit spreads, the mark-to-market value of existing loans naturally declines. This decline is not a reflection of the borrower's ability to pay but rather a result of current market demand for higher returns on the same level of credit risk. If the credit remains sound and ultimately repays at par, the investor recovers the full principal amount regardless of any interim price volatility through the life of the loan. On the other hand, true credit impairment occurs when a borrower's financial condition deteriorates so where they can no longer meet their obligations, resulting in a permanent loss of capital. This distinction is especially important in periods of heightened volatility with mark-to-market valuations will fluctuate to reflect market sentiment but underlying credit risk and borrower solvency remains stable. We view the losses we are seeing in the post-integration portfolio as the former type, mark-to-market in nature, while the credit impairment we are addressing is concentrated in the legacy portfolio. Looking back on the first quarter, the extent to which the market was affected by global geopolitical uncertainty, AI disruption across the software sector and a softer-than-anticipated M&A landscape is clear. The return of M&A activity in the second half of 2025 resulted in an increased number of deal closings in the first quarter of 2026. However, volumes were heavily skewed toward a small number of large-cap deals with sponsor activity continuing to lag and remaining below 10-year averages. Despite the growing backlog, the risk off sentiment across the market in Q1 drove the total U.S. private equity deal value down to the lowest since Q2 2025 levels. Although a more stable rate environment could help over time, any immediate recovery, particularly in the middle market remains uncertain. In times like these, when market uncertainty leads to increased volatility, our financial position, including valuation, remains our top priority. GSBD's quarterly valuation process, which aligns with our broader BDC complex is conducted by 3 independent sources: The private credit investing team; our valuation oversight group, which is independent of the investment decision-making process; and independent third-party valuation advisers, all of whom are subject to oversight by our independent Board of Directors. This multistep approach is intended to provide robust checks and balances and to support fair value determinations that are consistent, well documented and aligned with applicable regulatory standards. As we look across the landscape of early 2026, we believe the fundamental health of the private credit industry remains strong. Despite recent headlines, the data tells a story of continued resilience amidst some manager performance dispersion that is expected to continue. Default rates across both public and private credit markets remain at relatively low levels. To put this in perspective, the payment default rate for broadly syndicated loans in the public market stood at just 1.44% as of March 2026. This is well below the 10.8% peak default rate we witnessed during the global financial crisis. Performing senior secured credit portfolios benefit from fixed maturities and change of control provisions that generate par repayments and natural liquidity, further underscoring the structural advantage from a risk perspective of holding senior debt. We now expect to have the ability to reinvest proceeds from recent exits at wider spreads and more attractive risk-adjusted levels in the current environment. We would also note that recent media coverage of private credit has at times lacked necessary nuances. There is a tendency to conflate distinct segments of the credit markets, creating the impression of a broad "private credit problem" where in reality, stress is focused on certain pockets of the market. Looking ahead, if economic conditions were to soften, we would naturally expect to see an increase in nonaccrual rates and a greater performance divergence among managers. We believe the best way to prepare for such a shift is through the same disciplined underwriting culture and rigorous investment process that have guided our platform for 30 years. In periods of heightened market uncertainty, these principles are not just our foundation, they are our greatest competitive advantage. Another key focus for us has been the deliberate reduction of annualized recurring revenue ARR loans within our portfolio relative to the legacy setup. Within GSBD, we have successfully lowered our ARR exposure from nearly 39% of the portfolio during Q3 2022 at fair value to under 10% today. This shift is highly intentional and aligns with broader market trends, which we have highlighted earlier. While ARR lending served the purpose during the rapid growth cycles of previous years, the current environment demands a more rigorous approach. We are seeing a clear market-wide rotation away from revenue-based metrics in favor of traditional cash flow supported structures. We are proactively managing our legacy ARR positions through strategic exits or by facilitating conversions to EBITDA-based loans as these companies mature and are very selective in underwriting new ARR deals that are brought to market. By prioritizing these cash flow-centric assets, we are helping to ensure that our portfolio remains resilient and well positioned to deliver durable value to our investors. With heightened focus surrounding the software industry in recent months, our framework has continued to evolve as the landscape develops. While we are not immune to the fears of AI disrupting the software landscape, we remain confident in our ability to thoughtfully assess and help mitigate AI-related risks across both our current portfolio and new investment opportunities. With that, let me turn it over to my co-CEO, David.

Thanks, Vivek. I'd now like to turn to our first quarter results. Our net investment income per share for the quarter was $0.22 and net asset value per share was $12.17 as of quarter end, down approximately 3.7% from the fourth quarter, driven primarily by an increase in unrealized losses. NII this quarter was also impacted by higher incentive fee accrual under our shareholder-friendly fee structure. As a reminder, GSBD's incentive fee is subject to a 3-year total return look back, which ties our advisers' compensation directly to the cumulative economic value delivered to shareholders, including both income and the impact of gains and losses rather than income alone. While this weighed on reported NII in the quarter, it underscores the strong alignment between Goldman Sachs and our shareholders. The Board declared a second quarter 2026 base dividend of $0.32 per share payable to shareholders of record as of June 30, 2026. We ended the quarter with a net debt-to-equity ratio of 1.37x as of March 31, 2026, as compared to 1.27x as of December 31, 2025. We have maintained a conservative liability profile with no near-term unsecured maturities and a deliberately laddered bond maturity schedule. Our liquidity is underpinned by a diversified committed revolving credit facility across 15 bank lenders, structured with no mark-to-market exposure. Market confidence in our platform remains durable as evidenced by the continued strong oversubscription on our recent bond issuances. We consistently look to enforce proactive capital management to ensure we remain well positioned to execute our strategy regardless of broader market volatility. During the quarter, we made new commitments of approximately $46.5 million across 17 portfolio companies comprised of 6 new and 11 existing portfolio companies. 91.6% of our originations during the quarter were in first lien loans, which reflects our bias to investments that are at the top of the capital structure. Turning to portfolio composition. As of March 31, 2026, total investments in our portfolio were $3.23 billion at fair value, comprised of 98.7% in senior secured loans, 1% in a combination of preferred and common stock, 0.3% of unsecured debt and a negligible amount in warrants. With that, let me turn it over to Tucker to discuss repayments, fundamentals and credit quality.

Thanks, David. I'll first discuss the portfolio in more detail. At the end of the first quarter, the company held investments in 173 portfolio companies operating across 40 different industries. The weighted average yield of our total debt and income-producing investments at amortized cost at the end of the first quarter remained flat at 9.9% compared to the fourth quarter. Importantly, our portfolio companies have continued to have both top line growth and EBITDA growth quarter-over-quarter and year-over-year on a weighted average basis. The weighted average net debt to EBITDA of the companies in our investment portfolio increased slightly to 6x during the first quarter compared to 5.9x during the fourth quarter. At the same time, the current weighted average interest coverage of the companies in our investment portfolio at the end of the first quarter slightly decreased to 1.9x compared to 2x during the fourth quarter due to rounding. Our repayments during the first quarter totaled $82.8 million. Over 53% of this repayment activity was from pre-2022 vintage loans, demonstrating effective management of our assets. On the prepayment side, we continue to selectively pursue opportunities that support prudent leverage management with the goal of reducing leverage over time. On May 6, 2026, the Board approved and authorized a new 10b5-1 stock repurchase program to allow the company to repurchase up to 75 million of shares of the company's common stock, subject to certain limitations. The company expects to enter into this 10b5-1 stock repurchase program once the 2025 10b5-1 plan has been fully utilized or expires. And finally, turning to asset quality. We ended the first quarter with nonaccruals at approximately 4.7% of the portfolio at amortized cost, up from 2.8% in the prior quarter. While we never like to see this metric move upward, it is important to look at what is driving this change. The increase was primarily driven by 2 specific legacy investments that we have been monitoring closely, One GI LLC and 3Si Security Systems, Inc., which were placed on nonaccrual status due to financial underperformance. We view these as idiosyncratic situations rather than a reflection of broader portfolio stress. If you look at our new vintage originations, those made since 2022, we now represent 58% of our fair value. Credit performance remains sound with minimal nonaccruals. I did want to be clear about one thing. We do not view the legacy portfolio as a category that is migrating wholesale toward nonaccrual. In fact, subsequent to quarter end, we favorably restructured one of our legacy positions, leading to higher cash pay and improved seniority in the capital structure and received a full repayment at par on a separate legacy holding. The firm continues to maintain a proactive approach to monitoring, managing and resolving any associated credit issues. I will now turn the call over to Stan to walk through our financial results.

Thank you, Tucker. We ended the first quarter of 2026 with total portfolio investments at fair value of $3.2 billion, outstanding debt of $1.9 billion and net assets of $1.4 billion. As David mentioned, our ending net debt-to-equity ratio as of the end of the first quarter was 1.37x. At quarter end, approximately 62.5% of our total principal amount of debt outstanding was in unsecured debt. As of March 31, 2026, the company had approximately $974 million of borrowing capacity remaining under the revolving credit facility. As discussed last quarter in our Q4 earnings call, we wanted to remind investors of recent activity that occurred during Q1. On January 15, 2026, we borrowed $505 million under the revolving credit facility and used the proceeds together with cash on hand to repay the 2026 notes plus accrued and unpaid interest in full satisfaction of our obligations under the 2026 notes. Additionally, on January 28, 2026, we issued $400 million of 3-year investment-grade unsecured notes with a coupon of 5.1%. We also hedged the issuance by swapping the coupon from fixed to floating to match GSBD's floating rate investments. Over 100 investors participated in the company's day of live deal marketing, which resulted in the peak order book being 7.3x oversubscribed on our $300 million starting size. Subsequent to quarter end, in early May, we closed our amend and extend on the Truist revolving credit facility, reducing the size of the facility from $1.5 billion -- to $1.5 billion from approximately $1.7 billion to take out 3 non-extending lenders from last year, extending the maturity date to May 2031 from June 2030, removing the 10 bps credit spread adjustment from the drawn margin and reducing undrawn fees by 5 bps as well as adding flexibility to unsecured debt baskets, among other borrower-friendly changes. Before continuing to the income statement, as a reminder, in addition to GAAP financial measures, we also reference certain non-GAAP or adjusted measures. This is intended to make our financial results easier to compare to the results prior to our October 2020 merger with Goldman Sachs Middle Market Lending Corp., or MMLC. These non-GAAP measures remove the purchase discount amortization impact from our financial results. For the first quarter, GAAP and adjusted after-tax net investment income were $24.8 million and $24.7 million, respectively, as compared to $42.2 million and $41.8 million in the prior quarter. On a per share basis, GAAP net investment income was $0.22, equating to an annualized net investment income yield on book value of 7.2%. While net investment income for the quarter was below our quarterly dividend, we utilized a portion of our undistributed taxable net income to provide a consistent dividend to our existing shareholder base. Total investment income for the 3 months ended March 31, 2026, and December 31, 2025, was $78.8 million and $86.1 million, respectively. Our remaining undistributed taxable net income as of March 31, 2026, was approximately $94 million or $0.84 on a per share basis, providing meaningful cushion to support our dividend going forward. With that, I'll turn it back to Vivek for closing remarks.

Thanks, Dan, and thanks to everyone for joining our earnings call. We are excited to continue turning over the portfolio into new attractive opportunities using the full breadth of the Goldman Sachs platform while continuing to navigate through this market environment with humility and continued heightened discipline. With that, let's open the line for Q&A.

[Operator Instructions] We will take our first question from Arren Cyganovich with Truist Securities.

In terms of the pipeline of investment activity, maybe you touch a little bit about what you're seeing there, what sponsors are saying, how they're adjusting to kind of wider spreads and tighter documentation? And how long might it take to kind of rotate out of the legacy and have more of the newly originated loans in the portfolio?

Aaron, it's Vivek. Thanks for the question. I'd say a few things. I think that, obviously, you mentioned some of the kind of private equity-specific sort of things that are floating around out there. Beyond that, there's obviously kind of the geopolitical uncertainty and other things, too. So what I would say is, on the one hand, relative to where we were at the end of last year, deal activity is a little bit quieter overall. But on the other hand, with some of the retail pullback that you've seen from the nontraded BDCs for the deals that are getting done, it does seem like the pendulum is kind of swinging back in the direction of lenders in terms of just spreads and kind of leverage coming down a little bit, kind of documentation, et cetera. So on the deals that we are competing on right now, we really like those deals. We like the spreads that we're getting on those deals. And we find that there's just far less competition than there was, particularly sort of as we started to get into the end of 2025. And so that's a dynamic that we're actually excited about, again, notwithstanding just some of the the broader sort of noise out there. And so look, in terms of the second part of your question, that number kind of keeps kind of ticking down. We expect that number will kind of continue to tick down. And as that number ticks down, we'll be able to redeploy not just with the benefit of kind of the sort of post-integration sort of platform but also with the benefit of this kind of better spread environment in terms of what's going on out there.

And with the credit -- the 2 new credit nonaccruals that popped up, maybe you can provide a little bit of detail about are these older vintage? Are they something specific COVID related, et cetera? And how much of the NAV decline in the quarter was related to those 2 nonaccruals?

Yes. So it's David. From a credit mark perspective, about 60% of the marks that we saw were credit-specific events, those 2 being big ones in here plus some other legacy assets that we marked down during the quarter, including some names that we've talked about in the past. With those 2 events, one is in the PPM space. As you know, it's -- that space has been challenged over the last number of years. We're continuing to work with the sponsor now to optimize recoveries for the lenders there. Those conversations are ongoing. The other one, which was 3Si, if you look back over the past, had made some acquisitions, not all of the acquisitions have worked out like they thought. So leverage is elevated at this point in time, and that's why we put on nonaccrual. And once again, we're in active dialogue with the sponsors and our other lenders to optimize recovery.

We will take our next question from Ethan Kaye with Lucid Capital Markets.

Appreciate the commentary on kind of the pre-integration legacy assets versus the newly originated. But curious if you can kind of talk about maybe the outlook for rotating out of some of these legacy assets, particularly the underperformance -- sorry, the underperformers. Do you kind of have any visibility there on that?

Yes. I mean, if you see in the results, we had relatively light repayments in the first quarter. I think as we look into the second quarter, we've had an acceleration of that. I think we've already got over $100 million in repayments from a number of legacy names. So we're encouraged by that results. We're going to continue to address that proactively as they come up. We've got some maturities in the next 12 to 18 months of those legacy stuff. So we're going to be working hard to cycle out of those names and redeploy it into kind of the One GS ecosystem that we're operating in today with our new origination system and frankly, better spreads that we're seeing out here today. So we're optimistic. It's really hard to pinpoint exactly when these are going to be rotated out. But we've made decent progress, albeit slower than we like, and we'll continue to work on that in the coming quarters.

I would just add, I think the power of the One GS ecosystem is even more powerful in this environment, particularly what you're seeing going on with the retail flows in the nontraded BDC space because for us, the vast majority of our platform is institutional drawdown capital, about 83%. Our entire BDC complex is something like 17%. And so what that means is for this -- for GSBD, which is obviously an important part of our broader kind of complex, it's going to be able to compete in a more scaled way than it could if it was just a stand-alone entity. And there's very few, if anyone, out there right now as we're competing on deals that is showing up with the type of scale that we have in terms of solving problems or solving capital needs for clients as they're trying to put finances together on new deals. So again, there are fewer new deals overall but for the deals that are happening, our ability to source them on a differentiated basis and provide entire capital structure solutions because we're not as levered to some of the phenomena that's going on out there, I think is going to really help us. But to your point, it is going to be a little bit of a process as we continue to kind of roll out of some of these older names.

Great. That's good color. And then one other on the dividend. So you maintained the dividend in 2Q. You talked about using spillover this quarter to kind of cover the shortfall. Just kind of curious how long you're comfortable doing that? And if you could remind us maybe what are some of the levers that you feel you have to kind of get dividend coverage maybe back up to a more sustainable level here?

Yes. I mean, look, I mean, a very fair point. I think if you look at our results this quarter, they were negatively impacted by an outsized incentive fee. As a reminder, we've got a 3-year look back that's very shareholder-friendly on that incentive fee where it was elevated this quarter. But if you roll that forward over the next couple of quarters, we view a more muted incentive fee as a result of the same policy, which is certainly going to support the dividend in the near term. And it's our intent -- we obviously have to consult with our Board, but it would be our intent in the near term to maintain our dividend.

There are no further questions at this time. I will turn the conference back to Vivek for any additional or closing remarks.

Thanks, everyone, for joining. We appreciate your support and look forward to continuing the dialogue. Have a great weekend.