Earnings Call Transcript - GSBD Q4 2025

John Silas, Investor Relations Team Member

Good morning. This 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. Fourth Quarter and Fiscal Year-End 2025 Earnings Conference Call. 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 audiocast 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 includes reconciliations of non-GAAP measures to the most directly comparable GAAP measures. These documents should be reviewed in conjunction with the company's annual report on Form 10-K filed yesterday with the SEC. This conference call is being recorded today, Friday, February 27, 2026 for replay purposes. I'll now turn the call over to Vivek Bantwal, Co-CEO of Goldman Sachs BDC, Inc.

Vivek Bantwal, Co-CEO

Thank you, John. Good morning, everyone, and thank you for joining us for our fourth quarter and fiscal year-end 2025 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 start by highlighting GSBD's progress since our integration, followed by an overview of our platform's activity during 2025. I'll then spend some time sharing our perspective on current market conditions amidst the most recent headlines in the software space. I'll then turn the call over to David and Tucker, who will dive into our fourth 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. Since GSBD's integration into the broader direct lending platform in 2022, we've enhanced our sourcing, underwriting, and portfolio management oversight. This quarter, the proportion of our portfolio benefiting from the 2022 reorganization has grown to 57%, while 43% still reflects deals made prior to the integration, which we call the legacy portfolio. From this integration, GSBD has directly benefited through a deeper origination funnel and the ability to invest in and frequently lead larger senior secured debt transactions supported by the platform's disciplined approach. We have approximately 250 investment professionals on our broader private credit platform. The scale of our investing team, the scale of our platform, and the incumbency, relationships, and investment prowess our team has built up over nearly 30 years stack up well against industry peers. What makes it more powerful and unique is having a private credit business attached to the number one global investment bank. In addition to the deal origination through our dedicated private credit team, we are able to draw on the relationships of more than 3,000 investment bankers, helping us identify potentially attractive opportunities from our number one M&A franchise that we can select from as a fiduciary to investors, subject to regulatory requirements. Before I dive into our view on the market, I'd like to highlight some broader stats that illustrate the progress GSBD has made as we continue to transition to the direct lending platform. The median EBITDA of the portfolio has increased 84% from year-end 2021 to $71.8 million at year-end 2025. Our exposure to first lien investments increased to 97% of the portfolio from 89% during that same period. Throughout 2025, GSBD demonstrated continued progress in addressing credit quality concerns and active management of the portfolio. PIK as a percentage of total investment income was 9% in Q4 2025, which is down from 15.3% in Q4 2024. Of that 9% during the fourth quarter, 5% of total investment income during the quarter was from PIK that was introduced as a loan modification or amendment after the initial agreement, the vast majority of which relates to the legacy portfolio. Our investments on nonaccrual decreased slightly to 1.9% of fair value from 2% during the year. This is well below our highest nonaccrual rate since the integration of 3.4% of fair value. Another topical consideration we've been keen to address is our exposure to annualized recurring revenue or ARR loans within our broader BDC complex, which includes GSBD. From its peak of 36.5% during Q3 2022, we have significantly reduced the ARR exposure within the BDC complex to approximately 5% at year-end 2025. Within GSBD specifically, ARR loans came down from nearly 39% of the portfolio on a fair value basis to 11% during that same time period. This trend is attributed to our strategic focus on EBITDA-based investments since integration and our proactive approach in mitigating ARR loans from the legacy portfolio as we seek strategic exits or EBITDA conversions for the existing loans in the space. Overall, our direct lending platform had another strong year in 2025, which directly benefited GSBD. For the year in the Americas specifically, we committed a total of approximately $14.6 billion, which was larger than the $13 billion committed during 2024 and more than double the activity in 2023, all the while remaining selective and disciplined in our underwriting approach. From a macro perspective, despite a volatile first half of 2025, total M&A volume globally throughout the year was up 44% from 2024. U.S. private equity deals reached nearly $1.2 trillion, marking the second time in history that deal volume has surpassed $1 trillion. Despite this being driven largely by mega deals exceeding $1 billion, we expect this M&A momentum in a potentially falling rate environment to continue and spur a resumption of private equity activity. A more favorable M&A environment should stimulate greater demand for credit financing. And despite the supply of credit remaining robust, we do anticipate spreads to moderately widen during the market dynamics we've seen over the past month. We believe that in today's market environment, differentiation among managers will increasingly be driven by sourcing quality, underwriting discipline, collateral oversight and creditor protections. Let's get to the topic of software. We have a very experienced software investing team. Our view, informed by extensive collaboration across Goldman Sachs, including our 13,000 software engineers, our technology investment banking team, and our growth equity investors who are early to companies like Anthropic, is that AI's impact will be highly company-specific and nuanced. We will come back to the topic of software and go through some more detail on our framework and a case study, but our broader private credit platform has operated with an incredibly high bar focusing on what we believe are high-quality situations in our very broad funnel. As it relates to the recent headlines in software and the volatility we've seen in equity markets, we understand the concerns regarding AI's potential impact on certain software business models. However, as credit investors positioned at the top of the capital structure, our lens is fundamentally different from, say, equity investors. We don't participate in growth or equity valuation upside. We're focused on the durability of assets and their cash flows. This credit-focused perspective provides some insulation from valuation volatility. That said, we recognize that sufficiently severe disruption could impact creditworthiness, which is why we maintain ongoing vigilance and are prepared to adapt if our thesis on any portfolio company changes materially. We are focused on lending to scaled incumbent businesses that are deeply entrenched in mission-critical workflows and complex use cases, evidenced by strong retention and efficient growth. These structural features, among other things, are key characteristics that we seek in software companies that demonstrate real incumbency advantages. Our direct lending platform has a long history of investing in the software sector with investments in the sector dating back to 2008 when we launched our first senior direct lending fund. We have been proactively assessing the impacts of AI on the software space for years. We passed on our first deal due to AI concerns in October 2023 and rolled out an internal framework to evaluate AI disruption risk in early 2025, which is incorporated into all new investments in addition to our ongoing monitoring of existing portfolio exposure. The characteristics of our framework include, but are not limited to, acting as mission-critical systems of record with proprietary data and deep domain expertise solving for complex use cases and deterministic outcomes with no tolerance for errors, leveraging the accumulation of context, and a deep understanding of customers' unique requirements to drive critical business processes, providing broad platforms versus single-product tools, operating on modern underlying architecture with limited technical debt, actively innovating and embedding AI into their own products, operating in regulated and risk-averse industries with long-term customer relationships and trust as well as having proven track records of managing security, compliance, regulatory and governance complexities. We look at each opportunity through this lens in the underwriting process. Across our broader Direct Lending Americas platform, we have closed or committed to 26 new software deals since January 2025 that exhibit strong KPIs including an average Rule of 40 of 55.8%, comprised of 16.6% recurring revenue growth and 39.1% cash EBITDA margins. During the third quarter 2025, revenue growth and EBITDA margins of our Direct Lending Americas software portfolio improved to 9.2% and 34.9%, respectively, up from 7.8% and 30.3% a year earlier, respectively. Let me provide a concrete example of how we leverage the Goldman Sachs ecosystem for both proprietary origination and enhanced diligence by discussing our largest committed software deal during the quarter, Clearwater Analytics. Clearwater Analytics, founded in 2004 and based in Boise, Idaho, provides cloud native investment accounting, analytics and reporting solutions for institutional investors, including insurance companies. Goldman Sachs has been around this company for a very long time. We were approached by the sponsors looking to take Clearwater private as the only organization that we believe could have provided a 100% solution on a transaction of this size in both public and private markets in addition to offering M&A advice. We showed the sponsors indicative financing terms across both markets and ultimately, the sponsor selected the private credit alternative where we were able to structure and negotiate a mutually beneficial bilateral credit facility that included our desired long-term size allocation. The bilateral process simplified and streamlined the sponsor's financing process while protecting the confidentiality of the M&A process, which was critically important for the M&A execution. This is an example of leveraging the broader Goldman Sachs ecosystem to deliver differentiated origination and outcomes for our investors. The other part of the ecosystem relates to diligence in our AI framework. The deal team benefited from a firsthand perspective on Clearwater's capabilities and value proposition with Goldman Sachs being a customer of Clearwater across our Asset and Wealth Management and Global Banking and Markets divisions. The deal team was able to conduct multiple calls with our engineering colleagues to validate our credit thesis and build a high degree of conviction related to the mission criticality and stickiness of the solution and competitive positioning and durability in a rapidly evolving technology landscape. So, in December 2025, the GS Private Credit Complex committed to 100% of a $3.5 billion investment in a new unitranche financing to support the take private of Clearwater by Warburg Pincus and Permira. A few weeks later, the sponsors brought nine other lenders into the deal. The Goldman Sachs private credit complex retained our desired $1.235 billion of the facility, and the GS BDC will own $75 million of that at closing. The Clearwater investment highlights key characteristics that underscore our approach to investing in software amidst an evolving and nuanced investing environment. Clearwater's advantages are not about the cost to write code. They're about owning the customer relationship, leveraging proprietary data with network effects, navigating regulatory complexity, and providing the insurance policy that mission-critical systems will work reliably. These structural and strategic advantages enable Clearwater to continue providing value to its customers and benefit from AI advancements rather than be disrupted by them. Looking forward, our framework will continue to evolve as the landscape develops. While AI remains a dynamic and rapidly evolving area, we remain confident in our ability to thoughtfully assess and help mitigate AI-related risks across both our current portfolio and new investment opportunities. That said, and this is important, this is not a time for complacency, but rather a time to remain humble, proactive, disciplined and forward-looking. We are focused on the implications of AI, not only within software but across the broader business landscape, and we continue to leverage the differentiated capabilities of the Goldman Sachs ecosystem in support of our portfolio. With that, let me turn it over to my co-CEO, David.

David Miller, Co-CEO

Thanks, Vivek. I'd now like to turn to our fourth quarter results. Our net investment income per share for the quarter was $0.37, and net asset value per share was $12.64 as of quarter end. This decrease of approximately 1% relative to third quarter NAV was largely due to net realized and unrealized losses in the quarter. The Board declared a fourth quarter 2025 supplemental dividend of $0.03 per share payable on or about March 20, 2026, to shareholders of record as of March 9, 2026. Adjusted for the impact of the supplemental dividend related to the fourth quarter earnings, the company's fourth quarter 2025 adjusted NAV per share is $12.61. The Board also declared a first quarter 2026 base dividend per share of $0.32 to shareholders of record as of March 31, 2026. We ended the quarter with a net debt-to-equity ratio of 1.27x as of December 31, 2025, as compared to 1.17x as of September 30, 2025. GSBD committed approximately $1.2 billion in new commitments throughout the year in 35 new deals. Of the commitments made to new portfolio companies, Goldman Sachs played a lead role in approximately 75% of the deals. During the quarter, we made new commitments of approximately $394.9 million across 27 portfolio companies comprised of 7 new and 20 existing portfolio companies. 100% of our originations during the quarter were in first lien loans, which continues to reflect our bias in primarily maintaining exposure to investments that are at the top of the capital structure. During the quarter, in addition to Clearwater, we also acted as sole lead arranger in the acquisition of KUIU, which is an e-commerce native apparel and accessory brand focused on outdoor enthusiasts. This transaction exemplified our ability to lean into a high-quality company and commit 100% of the financing, which is an illustration of the platform's deep sponsor relationships. Turning to portfolio composition. As of December 31, 2025, total investments in our portfolio were $3.26 billion at fair value, comprised of 38.4% in senior secured loans, 1.3% in a combination of preferred and common stock and a negligible amount of warrants.

Tucker Greene, President and Chief Operating Officer

Thanks, David. I'll first discuss the portfolio in more detail. At the end of the fourth quarter, the company held investments in 171 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 fourth quarter was 9.9% as compared to 10.3% at the end of the third quarter. Importantly, our portfolio companies continue 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 5.9x during the fourth quarter compared to 5.8x during the third quarter. At the same time, the current weighted average interest coverage of the companies in our investment portfolio at the end of the fourth quarter increased to 2x compared to 1.9x during the third quarter. As Vivek and David mentioned, we had a strong quarter of originations with an increase in our net funding as we continue to enhance the portfolio. Sales and repayment activity totaled $251.6 million during the quarter, primarily driven by full repayment and exit of 13 portfolio companies. One notable exit this quarter was with a portfolio company that our platform has been invested in for approximately 8 years. This company is a software provider for the staffing, recruitment, and contingent labor industry. Now, despite performance remaining steady and showing no indication of deterioration in the near or long term, we decided to sell the loan at $0.99 to other lenders given anticipated headwinds and AI disruption risk within the industry. This is a strong example of our ability to be proactive and cautious towards exiting strong companies that we believe have potential AI risk. Our total repayments during 2025 amounted to $1.1 billion. Over 78% of this repayment activity was from pre-2022 vintage loans, demonstrating effective management of our assets. As of December 31, 2025, pre-2022 vintage investments constitute approximately 43% of GSBD's portfolio at fair market value. The firm maintains a proactive approach to monitoring, managing, and resolving any associated credit issues. Throughout this past quarter, we utilized our 10b5-1 stock repurchase plan. We repurchased over 1.5 million shares for $15 million, which is accretive to NAV by $0.04 per share. Since implementing the 10b5-1 plan in June 2025, we have repurchased $52.2 million or 4.7 million shares. And finally, turning to asset quality. As of December 31, 2025, we placed Pluralsight's first Lien/Senior Secured Debt position on nonaccrual status. Investments on nonaccrual status increased slightly to 2.8% and 1.9% of the total investment portfolio at amortized cost and fair value from 2.5% and 1.5% as of September 30, 2025.

Stanley Matuszewski, Chief Financial Officer

Thank you, Tucker. We ended the fourth quarter of 2025 with total portfolio investments at fair value of $3.3 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 fourth quarter was 1.27x. At quarter end, approximately 69% of our total principal amount of debt outstanding was in unsecured debt. As of December 31, 2025, the company had approximately $1.1 billion of borrowing capacity remaining under the revolving credit facility. Subsequent to quarter end, 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 notes. Also subsequent to quarter end, 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. 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 results easier to compare to results prior to our October 2020 merger with Goldman Sachs Middle Market Lending Corp., or MMLC. For the fourth quarter, GAAP and adjusted after-tax net investment income was $42.2 million and $41.8 million, respectively, as compared to $45.3 million and $44.8 million, respectively, in the prior quarter. On a per share basis, GAAP net investment income was $0.37, equating to an annualized net investment income yield on book value of 11.7%. Total investment income for the 3 months ended December 31, 2025, and September 30, 2025, was $86.1 million and $91.6 million, respectively.

Vivek Bantwal, Co-CEO

With that, I'll turn it back to Vivek for closing remarks. Thanks, Stan, and thanks, 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, Operator

We will go first to Finian O'Shea with Wells Fargo.

Finian O'Shea, Analyst

I wanted to inquire about Clearwater. It's all quite intriguing, perhaps more from the banks' platform perspective than software. It seems like you had a favorable position there through Goldman. Could you provide some insight into a situation like plus 450, where those major clean names appear to have a price that isn't much higher than BSL or the bank solution on a true leverage-adjusted basis? How competitive was that in the market? Did you lean more towards leverage risk or quality pricing at the lower end? I'm just trying to understand how unique your approach was in your underwriting.

Vivek Bantwal, Co-CEO

Thank you for your question. I believe it's a very insightful one. This serves as a prime example, especially as the M&A cycle begins to pick up. One of our advantages is our connection to the leading M&A investment bank, which allows us to access intriguing opportunities. Take privates are particularly appealing since maintaining confidentiality is crucial in such deals. Our ability to offer a comprehensive solution minimizes leakage risk for the sponsor. While I won't get into specific names or disclosures, you should know that when we provide certainty in an M&A context on a bilateral basis, we add value for the client by delivering a complete solution and ensuring seamless execution, allowing them to focus on the broader M&A picture. This leads to incremental value for us. We believe that M&A situations, especially take privates, are significant sources of alpha because when we engage in direct negotiations with sponsors that are mutually beneficial, it results in a more productive dialogue and better outcomes compared to competitive processes where we must navigate the game theory of competition.

Finian O'Shea, Analyst

I appreciate that. And I guess, name specific, that's very helpful. And sort of as a follow-up, I'll give you and the team a plug for the shareholder letter on semi-liquids. Not having studied your nontraded semi-liquid as much, just curious if there is a different structure that administers the sort of safe flaws in semi-liquid and evergreen altogether or if it's just a matter of better education as other prominent voices have been saying as well? I appreciate that.

Vivek Bantwal, Co-CEO

Thank you for your feedback on the letter. It's important to note that we apply the same standards across all our vehicles and investors. We follow a single process reviewed by one investment committee, which is rigorous and sets a high threshold for deals to qualify for our platform. Once a deal is approved, we distribute it proportionally based on different vehicles' criteria, ensuring equitable sharing of opportunities. From a fee perspective, any earnings from these deals are directly passed to the limited partners in each vehicle, allowing them to benefit equally from the value generated on our platform. It's also worth mentioning that we don’t refer to our offerings as semi-liquid, despite the common understanding of that term. Our liquidity provisions are more complex, and we ensure our clients clearly understand how our nontraded BDC operates. One aspect of this is that these are illiquid assets, and the additional returns in private credit compared to public credit compensate for this illiquidity. In contrast to drawdown funds, we have specific liquidity mechanisms with redemption caps, as well as provisions for the manager and Board to enact gates. It’s crucial for investors to comprehend the totality of their portfolio construction, so they only allocate portions of their investments where they can accept extended periods without liquidity. We've been deliberate in sizing our vehicle, prioritizing drawdown capital, which allows for better modulation of our platform since a smaller portion of our funding comes from evergreen sources. This reduces deployment pressure and avoids potential impacts on credit selection that might arise if retail components became overly significant. While rapid scaling is attainable by focusing heavily on retail, we believe our more measured approach positions us well to navigate market cycles. As noted in the letter, we experienced minor inflows reduction and increased redemption activity in the fourth quarter, yet our metrics were still favorable compared to industry trends. By maintaining diverse funding sources, we can effectively deploy capital throughout market cycles and aim for optimal risk-adjusted returns for our clients.

Finian O'Shea, Analyst

Good stuff. I'll do one follow. Dividend, you guys have historically been front-footed about that. Incentive fee adjusted SOFR look-through adjusted, you look a little bit below. Any sort of updated views on how you're thinking about the 32 base?

David Miller, Co-CEO

We feel positive about our adjustments from last year, taking the current curve into account. We are also somewhat hopeful about potential spread widening. It's still early, and many are still determining prices, but we're noticing spreads between 25 to 50 basis points in both coupon and OID. Given this, we are quite confident in maintaining the dividend at its current level.

Operator, Operator

We'll go next to Heli Sheth with Raymond James.

Heli Sheth, Analyst

So I believe you mentioned that spillover is at $0.97 a share, and that's kind of starting to approach or it's over actually 3/4 of the base dividend. Is there any strategy there looking forward, how we should think about deployment of that spillover heading into 2026? And will it be used to cover any shortfall of earnings?

Stanley Matuszewski, Chief Financial Officer

Yes. So in terms of the spillover, that's come down year-over-year. We had done with the restructure of our dividend structure into base and supplemental structure earlier in 2025, we utilized a certain portion of that spillover. To the extent that we would need to, we could issue a special distribution. We don't have any current plans for that right now. And as a result of our supplemental distributions, we could also issue some incremental NII.

Heli Sheth, Analyst

Got it. And as a quick follow-up, as originations and repayments remain kind of elevated in this environment, are you seeing any sort of shift in the mix of the deals that you're seeing in the pipeline, whether it be in terms of sponsor or nonsponsor incumbent versus new borrowers, LTVs?

Vivek Bantwal, Co-CEO

No, I wouldn't say the composition of the deal flow is changing. I would say that there continues to be signs of an increase in M&A activity. Obviously, this is not the case in software due to recent developments in public markets and around software. However, in other industries, we are observing more discussions, and we'll see where those discussions lead.

Operator, Operator

We'll go next to Ethan Kaye with Lucid Capital Markets.

Ethan Kaye, Analyst

I appreciate the general color on software. You did mention you rolled out this AI kind of risk framework in the beginning of 2025. With that being said, it sounds like you were kind of cognizant of some of the risks, cognizant of the emerging risk prior to that, but maybe formalized it in 2025. But I guess I'm curious when you apply that framework to the current portfolio, do you find any names that maybe kind of wouldn't have passed muster had they been underwritten while that framework was in place?

David Miller, Co-CEO

Yes, thank you for the question, Ethan. We turned down our first AI deal in 2023, and we've been aware of this for some time. We formalized our AI framework in early 2025 and implemented it. The majority of our portfolio holds up well, though there are a few legacy assets that may not meet the weaker metrics and are more like point solutions. Some of these have already been marked down in our books, and we are actively working to exit those. Additionally, as mentioned in the script, we are very proactive in account management. For instance, we sold one asset that was on the weaker side of that AI framework for $0.99 to other lenders who had a different perspective. We're closely monitoring those names. Overall, we feel positive about our software portfolio. Moreover, if you examine our general software portfolio in GSBD, the performance is strong. Revenue growth is approximately 10.3% year-over-year, and margins have expanded by about 5 points to 34.3%, which is a better performance than the overall portfolio. So, we feel confident about that.

Ethan Kaye, Analyst

Great. I appreciate that color. I guess on repurchases, so you guys have prudently been kind of buying back shares here. You mentioned you repurchased over $50 million under the current authorization, which I believe is $75 million through June. And I know it's formulaic, but given what you know about the inputs and the underlying formula, wondering kind of whether you anticipate that full utilization of that $75 million by expiration and then whether you would explore kind of a new authorization in second half of '26?

Stanley Matuszewski, Chief Financial Officer

Thank you for the question. One of the components that affects our operations is our net debt-to-equity ratio, which has increased period-over-period and is close to our target. This ratio is a factor in our ability to continue buying back shares. We will keep evaluating the potential to use that buyback program in the future. Currently, we have around $23 million left in that program, and we have been careful in our approach to utilizing it. However, our decisions will also depend on other market opportunities and the movements of spreads.

Operator, Operator

This concludes the question-and-answer session. At this time, we will turn the call over to Vivek for any closing remarks.

Vivek Bantwal, Co-CEO

Thanks, everyone, for the time today. We really appreciate the continued engagement and look forward to continuing the dialogue. Let us know if you have any more questions, and have a great rest of the day.