Earnings Call Transcript - GBDC Q4 2024

Operator, Operator

Hello, everyone, and welcome to GBDC's Earnings Call for the Fiscal Year and Fiscal Quarter Ended September 30, 2024. Before we begin, I'd like to take a moment to remind our listeners that remarks made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in GBDC's SEC filings. For materials we intend to refer to on today's earnings call, please visit the Investor Resources tab on the homepage of our website, which is www.golubcapitalbdc.com and click on the Events Presentations link. Our earnings release is also available on our website in the Investor Resources section. As a reminder, this call is being recorded. With that, I'm pleased to turn the call over to David Golub, Chief Executive Officer of GBDC.

David Golub, CEO

Hello, everybody, and thanks for joining us today. I'm joined by Chris Ericson, our Chief Financial Officer, and Matt Benton, our Chief Operating Officer. For those of you who are new to GBDC, our investment strategy is to focus on providing first lien senior secured loans to healthy, resilient middle-market companies that are backed by strong, partnership-oriented private equity sponsors. Yesterday, we issued our earnings press release for the fiscal quarter and for the year ended September 30, and we posted an earnings presentation on our website. We'll be referring to that presentation during the course of today's call. I'm going to start, as usual, with headlines and a summary of performance for the quarter, then Matt and Chris are going to go through our operating and financial performance for the quarter in more detail. Finally, I'll wrap up with our outlook for the coming period and take some questions. The headline is that GBDC had a good fourth quarter and a solid fiscal 2024. You'll remember that fiscal 2024 had a number of landmark events that made GBDC's shareholder value proposition more compelling. First, a permanent reduction in the Company's incentive fee rate; second, a new supplemental variable distribution framework that has led to $0.29 per share of supplemental distributions so far; and third, the closing of a second win-win-win affiliate merger with GBDC 3. So, while we're going to focus today on GBDC's performance for the final quarter of the fiscal year, I think it's important to keep in mind the transformational nature of fiscal 2024 as a whole. With that context, let me touch on a few highlights before I hand it over to Matt and Chris. Adjusted NII per share was $0.47 for the quarter. This corresponds to an adjusted NII return on equity of 12.4%. Adjusted NII return on equity for the full fiscal year was 12.9%. Adjusted net income per share for the quarter was $0.36, corresponding to an adjusted return on equity of 9.4% for the quarter. Adjusted return on equity for the full fiscal year was 10.7%. GBDC's results benefited from several trends we've highlighted over recent quarters. First, borrower performance remained generally strong, as you'll see when we discuss key credit metrics. Second, high base rates continue to boost the earnings power of GBDC's portfolio. Third, GBDC's industry-leading fee structure. The fee structure combined with a voluntary $0.03 per share incentive fee waiver from GBDC's investment manager during the quarter meant shareholders captured more of the value that GBDC created. That said, GBDC also faced some headwinds during the quarter, primarily from a tail of underperforming borrowers that everyone in credit is experiencing these days. We discussed last quarter about how GBDC had negative outcomes on loans to Pluralsight and Imperial Optical. During the September 30 quarter, we worked through a restructuring of Pluralsight as well as one other longtime non-accrual credit, and you can see this reflected in realized losses that are in this quarter's P&L. Our focus, as always, with underperforming borrowers is to use our deep bench of experienced investment professionals and the playbook we've developed over several decades to minimize ultimate losses. In both these cases, GBDC now holds post-restructuring equity positions that we believe have upside potential. During the September 30 quarter, we also took some fair value markdowns on several other underperforming companies. The quantum of net realized and unrealized losses improved quarter-over-quarter but was again higher than our version of normal. So, in short, fiscal Q4 performance was good; it wasn’t great. But it was good and it gave GBDC a solid ending to a transformational fiscal year that we believe sets up GBDC very well for the long term. I'll come back to this theme when I go through our outlook at the end of our prepared remarks. With that, I'll pass the mic over to Matt Benton to discuss the quarter in more detail.

Matt Benton, CFO

Thanks, David. I'm going to start on Slide 4. Adjusted NII per share was $0.47, corresponding to an adjusted NII ROE of 12.4%. Adjusted earnings per share was $0.36, corresponding to an adjusted net income ROE of 9.4%. GBDC's earnings were driven by three key factors. First, credit performance was generally solid, but as David said, we took some fair value write-downs on several underperformers. Second, earnings were supported by continued high base rates consistent with recent quarters; third, GBDC benefited from sustainably lower expenses due to its leading investment advisory fee structure; and fourth, Golub Capital, GBDC's investment manager, elected to voluntarily waive on a one-time basis, a portion of its fee this quarter. This equated to an approximately $0.03 per share benefit to net investment income and earnings. We did this to enhance the shareholder experience by giving investors an early benefit from the cost of funds reductions GBDC will recognize from the debt funding initiatives we undertook post quarter end. I'll hit on these exciting initiatives in more detail in a bit. Let me summarize portfolio activity and credit quality in the quarter. Gross originations were nearly $1 billion, up from last quarter as we sought to take leverage up modestly post-merger. After factoring in repayments and unfunded commitments associated with originations, net funds increased by $368 million sequentially. This represented net portfolio growth of approximately 5%. GBDC did not get the full benefit of the earnings power of this portfolio growth because much of that growth was back-end weighted. I want to offer some comments around the environment in general. The underwriting pendulum in the current environment has swung to more borrower-friendly across all credit markets from investment grade, which is trading at 20-year tights, to the broadly syndicated market to private credit. In larger size transactions especially, we are seeing spread compression, looser deal documentation, especially around EBITDA definitions, and higher leverage. As these underwriting trends have shifted over this past year, we have purposely chosen to be more selective and to focus more on core middle-market transactions. Our wide funnel allows us to see over 2,000 opportunities annually. Year-to-date, Golub Capital's origination stats depict our conservatism. First, the selectivity rate of 3%; second, a repeat borrower percentage of about 70%; third, Golub Capital acted as the lead or sole bookrunner in over 87% of our transactions and year-to-date, we have been the sole lender in almost a fourth of the deals that we’ve done. So, we're controlling structures and documentation, which, as everyone knows, is our typical MO. Fourth, our average LTVs at the time of origination have generally been in the mid-30% to mid-40% range with an average LTV of approximately 37%. Finally, given the risk-adjusted pricing dynamics, we are choosing to play in the core middle market. The median EBITDA for our origination has been below $60 million. While the overall credit performance of GBDC's investment portfolio remained strong, consistent with David's overview, we did see a small increase in Category 3 credits this quarter. Investments in rating categories 4 and 5 decreased slightly from 89.2% of the portfolio at fair value to 87.1% during the quarter. Investments in rating Category 3 increased from 10.1% of the portfolio at fair value to 11.6% quarter-over-quarter. Investments in rating categories 1 and 2 remained very low, representing just 1.3% of the total portfolio at fair value. As a percentage of total debt investments at fair value, nonaccruals increased slightly to 1.2% at quarter end from 1% in the June quarter. As a reminder, these metrics are well below the BDC sector average. In the quarter, the number of nonaccrual investments increased to 11% as the restructuring of three former nonaccrual investments was offset by the addition of four nonaccrual investments in the quarter. Several of these were very small positions. Continuing on Slide 4, let me briefly summarize distributions paid and certain balance sheet changes in the quarter. Distributions paid in the quarter of $0.49 per share included not only the quarterly base distribution of $0.39 per share but also the $0.05 per share quarterly variable supplemental distribution declared in August as well as the $0.05 per share special distribution declared in June 2024 in conjunction with the GBDC 3 merger closing. We expect these supplementals to eliminate GBDC's need to pay excise tax on undistributed earnings. As we've said in the past, we would prefer in general to return capital to shareholders versus paying any form of an excise tax. NAV per share decreased by $0.13 on a sequential basis to $15.19 because distributions were unusually high. Despite the decrease, GBDC's NAV per share is now $0.17 higher than it was at September 30, 2023, which we believe is a clear outlier in the BDC sector. From a leverage perspective, debt to equity increased quarter-over-quarter to 1.09 turns on a net cash basis. This includes cash trapped in debt securitizations for the purposes of paying down principal outstanding notes. As I mentioned earlier, with respect to assets, the increase in net leverage largely happened in the last few weeks of the quarter. GBDC's average net leverage during the quarter was just 1.02 turns. Increasing net leverage further, our target is 1.10 to 1.15 turns, which will be an additional tailwind for profitability. Let's turn to distributions declared in the quarter. The Board declared $0.43 of total distributions, a regular quarterly distribution of $0.39 per share and a fiscal Q4 supplemental distribution of $0.04 per share. Taken together, these distributions correspond to an annualized dividend yield of 11.3% based on GBDC's NAV per share as of September 30, 2024. Adjusted NII per share continues to significantly exceed the Company's regular quarterly distribution, resulting in regular distribution coverage of 121%. In addition, our board declared in June 2024, additional special distributions to be paid in three equal installments of $0.05 per share following the merger close on June 3, 2024. The final special distribution of $0.05 per share will be paid on December 13, 2024, for stockholders of record as of November 29, 2024. You can find more information about the record dates and payment dates for fiscal Q4 distributions on Slide 23 of the earnings presentation and about the variable supplemental distribution framework on Slide 24. I'm going to turn it over to Chris now to provide more detail on our results.

Chris Ericson, CFO

Thanks, Matt. Turning to Slide 7. You can see how the key earnings Matt just described translated into GBDC's September 30, 2024 NAV per share of $15.19. Adjusted NII per share of $0.47 was below the $0.49 of aggregate dividends paid out during the quarter. Net realized and unrealized losses were $0.11 per share. Together, these results drove a net asset value per share decrease to $15.19, down $0.13 per share from the prior quarter. Let's now go through the details of GBDC's financial results for the quarter ended September 30, 2024. We'll start on Slide 10, which summarizes our origination activity for the quarter. Net funds growth quarter-over-quarter increased by $368 million, representing a 5% increase in total portfolio size versus June 30, 2024. The asset mix of new investments shown in the middle of the slide remained predominantly one-stop loans. Looking at the bottom of the slide, the weighted average rate on new investments decreased modestly quarter-over-quarter to 10.7%. We continue to be highly selective as the average loan-to-value on Golub Capital's middle market originations during the quarter was below 40% with a disproportionate amount of these originations for repeat borrowers. Slide 11 shows GBDC's overall portfolio mix. As you can see, the portfolio breakdown by investment type remained consistent quarter-over-quarter, with one-stop loans continuing to represent around 86% of the portfolio at fair value. Slide 12 shows that GBDC's portfolio remains highly diversified by portfolio company, with an average investment size of approximately 30 basis points. Additionally, our largest single borrower represents just 1.5% of the portfolio and our top 10 largest borrowers represent just 13% of the portfolio. We believe in modulating credit risk through position size, which we believe has served GBDC well in previous credit cycles and will continue to be important in the context of the current cycle. As of September 30, 2024, 92% of the investment portfolio consisted of first lien senior secured floating rate loans to borrowers across a diversified range of what we believe to be resilient industries. The economic analysis on Slide 13 highlights the drivers of the change in GBDC's net investment spread to 5.2%. Let's walk through this slide in detail. If we start with the dark blue line, which is our investment income yield, and as a reminder, the investment income yield includes the amortization of fees and discounts. GBDC's investment income yield fell 30 basis points sequentially to 12%, primarily due to reduced discount amortization as compared to the prior quarter, as well as the impact of moderating investment spreads over recent quarters and, to a lesser extent, the impact of lower interest base rates in September. Our cost of debt, the teal line, increased 30 basis points to 6.8% as we saw the full quarter impact of the assumption of GBDC 3 debt funding facilities. Matt will detail later in the call how we already executed a multifaceted plan to reduce GBDC's post-merger debt funding costs. As a result, our weighted average net investment spread, the gold line decreased 60 basis points sequentially to 5.2%. Additionally, we recognized a decrease in interest expense during the quarter associated with marking to fair value our existing interest rate swaps on the 2028 and 2029 notes. Hedge accounting requires us to fair value the interest rate swaps on a quarterly basis and recognize any changes in fair value through interest expense. But it's important to recognize that this is a non-cash expense and will net to zero over the lives of the swaps. Consistent with prior periods, we have excluded the net change in fair value related to our interest rate swap hedges from the calculation of our weighted average cost of debt. Since these are non-cash amounts that will net to zero over the life of the swaps. We believe with nearly 80% of GBDC's total debt funding represented by floating rate exposure that GBDC is well positioned for declining interest rates. I'll turn the floor back over to Matt now.

Matt Benton, CFO

Thanks, Chris. Let's move on to Slides 14 and 15 and take a closer look at credit quality metrics. The headline is that credit remains solid. On Slide 14, you can see the non-accruals increased modestly by 20 basis points sequentially to 1.2% of total debt investments at fair value. Slide 15 shows the trend in internal performance ratings on GBDC's investments. As of September 30, 2024, approximately 87.1% of GBDC's investments were rated four or five, which means they're performing as expected or better than expected at underwriting. The proportion of loans rated one and two, which are the loans we believe are most likely to see significant credit impairment, remained very low, which is 1.3% of the portfolio at fair value. As we usually do, we're going to skip past Slides 16 through 19. These slides have more detail on GBDC's financial statements, dividend history, and other key metrics. Slide 21 describes some actions that we took subsequent to September 30, 2024, regarding GBDC's post-merger funding structure. Recall that at the time of the merger, we discussed the opportunity to drive improvements in GBDC's funding. In early November, we announced the pricing of a new $2.2 billion GBDC term debt securitization with AAA notes priced at SOFR plus 156 basis points, a very attractive level relative to the levels at which we borrow under our secured corporate revolver. This includes a four-year reinvestment period with attractive underlying structural terms that provide meaningful flexibility. In conjunction with the CLO pricing, we elected to announce a full repayment of certain of GBDC's legacy higher-cost debt securitizations. Additionally, we issued a notice of redemption to redeem the GBDC 3 2022-2 debt securitization in full on December 16, 2024. As a note, this securitization has pricing of three-month SOFR plus 260 basis points. Further, we announced an increase in the size of the JPMorgan credit facility to $1.9 billion and all amounts outstanding on the GBDC 3 DB credit facility were repaid and the facility was terminated. We believe the combination of these debt funding initiatives will meaningfully lower GBDC's cost of funds and leave GBDC again with one of the lowest cost debt funding structures in the BDC sector while also meaningfully extending its debt maturity ladder. We expect GBDC to recognize the full run-rate benefit of these actions in the March 31, 2025 quarter. Slide 22 details GBDC's funding structure and other key takeaways. Our weighted average cost of debt this quarter was 6.8%, as you heard me just describe, and we expect the funding actions that we took subsequent to quarter end to be expected to reduce GBDC's cost of funds over time. 43% of our debt funding is in the form of unsecured notes with no upcoming maturities in 2024 or 2025. The fixed rate notes coming due in 2026 and 2027 were issued with a weighted average coupon of 2.3%. As you've heard us say on prior occasions, we did not swap them out for floating exposure. The remainder of GBDC's total debt funding is floating rate or swapped to floating. Overall, GBDC's liquidity position remains strong, and we ended the quarter with approximately $1.4 billion of liquidity from unrestricted cash, undrawn commitments on our meaningfully over-collateralized corporate revolver, and the unused unsecured revolver provided by our adviser. I'm going to hand it back over to David now for closing remarks and Q&A.

David Golub, CEO

Thanks, Matt. So, to sum up, GBDC had a good fourth quarter and wrapped up a strong fiscal 2024. I want to end with our outlook and then I'm going to open the line for questions. We talked last quarter about a few headwinds that we anticipated the market, generally, and GBDC would face concerning credit spreads and origination. Our view today is largely unchanged, but I want to touch briefly on each of these three areas. First, let's talk about our outlook for credit. For the past couple of years, we've been talking about how we have been expecting to see more credit stress. I mentioned last quarter that it's here; the signs are all around us. You can see it today in the BSL market. LSTA estimates for the default rate adjusted for liability management transactions are now running at north of 4% annualized—that's more than double the long-term average. We can also see it in reports from major credit rating agencies like S&P and Fitch and from the major law firms that are covering restructurings and bankruptcies. Now I'm going to say something that may surprise many of you. We think this increased credit stress is a good thing. Golub Capital has consistently outperformed in challenging markets, and we're quite confident this will be the case again this cycle too. More defaults and more underperforming credits should cause market conditions to shift from where they are now, which is pretty borrower-friendly, to more lender-friendly. And it should chase out some of the 'tourists' who've entered direct lending but lack the characteristics to be successful long term. Let's shift now to the second headwind: spreads. The broadly syndicated loan market saw striking spread compression in 2024. I talked about this last quarter, and private credit lenders have also seen spread compression. The dynamic has been most pronounced among borrowers with over $100 million in EBITDA, what we call the large market segment. The large market segment is where a number of our competitors focus. I point out that it is not our focus. We prefer to focus on the core middle market. The core middle market wasn't immune from the spread compression trends, but we see wider pricing, lower leverage, better documentation terms, and frankly less competition there. Finally, regarding origination, consensus expectations had called for a robust recovery in the level of M&A activity in 2024. We were more cautious, and our call has proven to be correct. We've experienced a pickup in M&A activity this year, but not a large pickup. We do think we're going to see a pickup in 2025, with falling interest rates, less political uncertainty, and continued pressure on private equity sponsors to return money to LPs—all of these are tailwinds for M&A activity in 2025. I think it's early to predict an M&A super cycle, but we are seeing signs of improving activity. So, in sum, across all three of these headwinds, we see signs of better conditions, and we anticipate that market conditions are going to improve over the course of 2025. Having said that, I want to spend a minute on what happens if we're wrong on this. After all, consensus predictions have been wrong a lot in the last several years. Here's the good news: Whatever the coming period may bring, we think GBDC is well-positioned to outperform. This is because we think Golub Capital does a complementary set of things very well. We’re good at identifying resilient borrowers that are in resilient industries. Our relationships and incumbencies make us a preferred partner for attractive sponsor-backed companies. Our investment process and protocols enable us to identify and address issues that arise early on, and the depth of our expertise in managing problem credits helps us preserve value. We've built these competitive advantages over time with great intent and effort. This is our 30th anniversary year, and we're proud to be celebrating what we call 30 years of good boring. With that, let me open the line for questions.

Operator, Operator

We will now begin the question-and-answer session. Our first question comes from Robert Dodd with Raymond James. Robert, please go ahead.

Robert Dodd, Analyst

Hi, guys, and thanks for all the color on the call as always. One of the questions—I mean, David, you went through credit spreads, originations, etc. What about the terms you're starting to see—starting to see weaker EBITDA definitions, etc. and things like that? Where is that on the scale of best to worst across cycles? Because obviously, spreads sometimes reach a low and then spreads don't go down anymore, but everything else around in terms of document structures and definitions weakens and then that swings the other way at some point. So where would you say we are in the cycle of not just spreads, but all the other bits that go with it?

David Golub, CEO

Sure. Good question, Robert. I think it's important to think about documentation terms in particular in the context of the market segment. In the core middle market, we typically have strong protections against leakage of various sorts. We typically have strong definitions of EBITDA. In the larger market where we and other private credit lenders compete against the broadly syndicated market, there's more variability in the strength of documentation terms. Today, I would characterize documentation terms as being on the borrower-friendly side of the spectrum in the large market segment. They're not quite at 2021 levels, but they're relatively borrower-friendly. That's one of the reasons, Robert, why we've focused more than ever on sticking to our core focus on the middle market.

Robert Dodd, Analyst

I appreciate that color. To the point of 2021, I mean, you're clearly not calling 2025 as going to be another 2021. What are the colors like—what are the push and takes on—where do you expect it to be just behind '21 but meaningfully stronger than '22, '23, and '24? Or where would you rank it? And what would it take in terms of things you're seeing in the market because clearly not seeing that kind of yet? Or what would it take for you to put a super cycle label on it?

David Golub, CEO

So, 2025 M&A volumes are still a question mark right now. Let’s talk about both the tailwinds as well as the headwinds. On the tailwind side, we have somewhat lower rates, lower spreads, less political/policy uncertainty, and continuing pressure on private equity firms to deliver more disposition proceeds to their investors. But on the headwind side, we still have a lot of uncertainty regarding taxes, tariffs, spending levels, and geopolitical uncertainties that may delay more M&A activity. I’m not saying we're not going to have a big M&A year in 2025, but I think it's too early to make that call.

Robert Dodd, Analyst

Got it. One more, if I can. I mean you've done a lot of work on the balance sheet post-quarter end, pretty much all on the secure side with the CLOs, the credit facilities, etc. Would you say you're done with this for now? I mean, obviously, it can be revisited in a couple of years—with the structure of the secured side of the liability side, any thoughts on obviously unsecured spreads or spreads aren't just down for the BSL borrowers—they're down for BDC borrowers as well in terms of—so—how would you characterize the positioning? Are you done on the secured but there's still work to be done on the unsecured? Or how would you take a view on that?

David Golub, CEO

Look, we're never done balancing and optimizing GBDC's balance sheet. It's something we’re very focused on: sustaining a low-cost flexible balance sheet. Right now, we’ve gotten a lot of the benefits we talked about at the time of the merger, but we see attractive opportunities to put new debt on, both secured and unsecured. It's our job to keep looking for opportunities for GBDC to take advantage of that.

Operator, Operator

And your next question comes from the line of Paul Johnson with KBW. Paul, please go ahead.

Paul Johnson, Analyst

Apologies there. I was on mute. But thanks for taking my questions. Of the strong quarter deployment here, $1 billion of originations this quarter, can you give us a sense of what that was for the overall Golub platform, whether that was up across the platform as well or if this was mainly allocated towards GBDC? And I'd also ask, kind of given some of the comments on cautious on credit—the pricing environment is a little less favorable today. Why deploy so much now into this quarter instead of trying to pull a little bit back potentially for a better year of activity next year?

David Golub, CEO

Thanks, Paul. Good question. So, we always deploy across the whole Golub platform. This quarter is no different. We didn’t change our allocation policy in a way that was aimed at increasing allocations to GBDC. That said, we were seeing an opportunity to increase assets within GBDC, particularly because we were well under our target leverage level. I would argue, in the quarter we just finished, we were still significantly under our target leverage level. We had an average leverage over the quarter of just above 1x and our target is between 1.1 and 1.15. The total new investment commitments is a little overstated because there is some refinancing, repricing, simultaneous exit and entry activity. I would focus more on the net funds growth number of $368 million, which is pretty normal-looking. While it's a challenging environment for new origination, we have significant advantages, primarily our relationships with private equity sponsors.

Paul Johnson, Analyst

Appreciate that. That's a very helpful answer. And then one for possibly Chris, just on the noncash interest expense related to the swap this quarter. Is there any way to quantify kind of what that was on a per share basis of noncash interest expense that's the result of the swap markdown?

Chris Ericson, CFO

Paul, it was about $0.02 a share.

Operator, Operator

And your next question comes from the line of Ray Cheesman with Anfield Capital. Ray, please go ahead.

Ray Cheesman, Analyst

The first one is the decline in yield, is due mostly to anything you did that was new where the competition forced the spread down or is it, as I'm seeing in other bank credits I'm in, repricing is rather aggressive here?

David Golub, CEO

I would say it's a combination of factors. We've seen in the larger side of our portfolio—large market borrowers—some re-pricings taking place. The weighted average spread on new loans is lower than it has been in prior quarters, reflecting the spread compression we've been talking about. It's a variety of factors: re-pricing, larger market movements, and we all are going to see more of declining base rates over the coming period.

Ray Cheesman, Analyst

Considering the way Pluralsight started and proceeded with the sponsor simply packing up his toys and going home. I mean sponsors usually, you—I think your experience would say, usually work with their creditors and try to get a better outcome. I mean you're not seeing a repeat of that kind of behavior anywhere else in the portfolio, I hope.

David Golub, CEO

We always have good dialogue with our sponsor clients. There's a range of sponsor reactions to workout situations. Our first choice is to work with sponsors toward win-win solutions that involve continuing contributions. If a sponsor concludes they're not in a position to do so for any number of reasons, we're quite content to manage the situation effectively. I don't think it's going to be any different in the current period.

Ray Cheesman, Analyst

Last one for you is, are there, in your opinion, any additional vehicles inside of GBDC that will eventually make their way into our larger pile for continued either positive leverage on the operations side or cost of fund side or just in general, are we going to get bigger because we'll be better? Or do you think this is a good size for the current environment we're in?

David Golub, CEO

At Golub Capital, generally, we’re always looking for opportunities in areas where we have expertise and competitive advantage to grow the portfolio. I'm very satisfied with the strategy of GBDC; it's been very consistent for 14 years. I see more opportunities for us to grow in that strategy. I’m not anticipating any major changes or investments in unrelated areas as some of our competitors have done—that’s not our MO.

Ray Cheesman, Analyst

No, the question was really, is there a GBDC 4, which you think will eventually end up in our larger pile for continued either positive leverage on the operations side or cost of fund side or just in general, are we going to get bigger because we'll be better? Or do you think this is a good size for the current environment we're in?

David Golub, CEO

We do have a private BDC called GBDC 4. It's a public filer, you can look at it. It's possible that there will come a time after it matures where it would make sense to look at liquidity options for GBDC 4, including a potential merger with GBDC.

Ray Cheesman, Analyst

If you were to be $10 billion in size instead of $8 billion, is that something which would be an advantage in today's marketplace? Or do you think that the size you are now is optimal for the environment now?

David Golub, CEO

I think about that across all of Golub Capital and not specifically about GBDC. We're focused on making sure we have an appropriate size for the opportunities before us. We're not in the business of raising money and then deploying it as best we can. One of the questions we think is important is what's the right level of dry powder to develop to take advantage of market conditions.

Operator, Operator

Since there are no further questions, I want to thank everyone for their attendance today and their questions. And as usual, if anyone has anything else they would like to talk about, please feel free to reach out. Thanks for coming today.

David Golub, CEO

Thanks, everyone, and have a wonderful day.

Operator, Operator

This concludes today's call. Thank you all for joining. You may now disconnect.