David Golub - CEO Ross Teune - CFO and Treasurer Gregory Robbins - Managing Director.

Fin O'Shea - Wells Fargo Securities Troy Ward - Keefe, Bruyette & Woods Doug Mewhirter - SunTrust Robinson Humphrey Leslie Vandergrift - Raymond James Cliff Rackson - Rackson Asset Management.

Good afternoon, and welcome to the Golub Capital BDC Inc.’s June 30, 2015 Quarterly Earnings Conference Call. Before we begin, I would 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 Golub Capital BDC Inc.’s filings with the Securities and Exchange Commission.

For a slide presentation that we intend to refer to you on the earnings conference call, please visit the Investor Resources tab on the homepage of our Web site, www.golubcapitalbdc.com and click on the Events/Presentation's link to find the June 30, 2015 Investor Presentation.

Golub Capital BDC's earnings release is also available on the Company's Web site in the Investor Resources section. As a reminder, this call is being recorded for replay purposes. I will now turn the call over to David Golub, Chief Executive Officer of Golub Capital BDC. Please go ahead..

Thank you, Martin. Good morning everybody and thanks for joining us today. I'm joined at Golub Capital’s offices by Ross Teune, our Chief Financial Officer and Gregory Robbins, Managing Director here.

Yesterday evening we issued our quarterly earnings press release for the quarter ended June 30th and we also posted a supplemental earnings presentation on our Web site. We’re going to be referring to the presentation throughout today’s call. I'm going to start by giving an overview of the June 30, 2015 quarterly financial results.

And then going to hand the microphone to Ross who is going to take you through quarterly financial results in more detail and then I am going to come back at the end and talk about our strategy in the current environment and provide some closing remarks. Let me start with highlights, in short the quarter was very strong.

Company generated solid earnings in excess of our dividend. We succeeded in our goal deploying the capital we raised in the April offering quickly and in solid new loans and without any earnings dilution. We grew our Senior Loan Fund meaningfully as we’ve been talking about has been our goal and our credit performance was excellent.

Let me dive into some of the details. Net increase in net assets for the quarter or net income was 18.3 million or $0.36 a share that compares to 17.9 million or $0.38 a share for the quarter ended March 31st.

GAAP net investment income for the quarter was 15.2 million or $0.30 a share excluding a $700,000 GAAP accrual for the capital gains incentive fee. NII was 15.9 million or $0.32 per share. That compares to 14.8 million or $0.31 a share in the prior quarter.

We’re providing you with NII per share excluding the GAAP capital gains incentive fee accrual because while the capital gains incentive fee payable is calculated using a methodology that does not include unrealized gains and is therefore zero and it is likely to remain zero for the foreseeable future per GAAP we are required to include aggregate unrealized capital appreciation on investments in the calculation it is an hideous liquidation, and calculation and we’re required to accrue a capital gain incentive fee based on that calculation.

So even though there is no fee payable we required to accrue it, even though we think it’s likely that it will remain not payable for the foreseeable future. Net asset value per share for the quarter was $15.74 that compares to 15.61 for the quarter ended March 31st.

We’re very proud of this it’s the 12th consecutive quarterly increase in our net asset value per share. $0.13 accretion was attributable to two things; quarterly earnings in excess of our quarterly dividend and the stock offering that we completed in April that was at a premium to net asset value.

We had 3.1 million of net realized and unrealized gains on investments and secured borrowings for the quarter that was $0.06 a share this was the result of 4.8 million of net unrealized appreciation and 1.7 million of net realized losses.

The realized losses related primarily to writing-off one non-accrual investment pillar processing that was at a value consistent with our March 31, 2015 value. I’d also highlight that this is our 10th consecutive quarter with what I called in previous quarter’s negative credit losses.

Let me talk for a minute about new investment activity it was a strong quarter for new origination. We had total new origination commitments of 401.4 million that included 30.9 million of investment in senior loan fund.

Investment activity was heavily weighted to existing portfolio companies in the Golub Capital platform and to establish sponsor relationships and I’ll give you two datapoints on that but I think you’ll find interesting.

For Golub Capital as a whole and if we look at the first half of 2015 more than half of the middle market deals that we originated were with repeat borrowers, meaning companies that we previously lent to. And over 90% of the deals were with sponsors who we’ve previously done multiple deals with or what we call repeat sponsors.

If we look at the mix of the origination we continue to focus on one stop investments, the mix this quarter was 78% one stops, 13% traditional senior secured, 8% in the senior loan fund and 1% in equities.

Credit quality continues to be very strong, non-accruals were only 0.2% of total investments at fair value at the end of the quarter and over 90% of our investments have an internal risk rating of four or five our highest ratings.

If you turn to Slide 3 of the Investor Presentation, you can see in the table the $0.36 per share we earned from a net income perspective and the $0.32 per share we earned from the NII or net investment income perspective before accrual for the capital gains incentive fee and you can see our NAV per share of 15.74.

As shown at the bottom of the slide you can see the portfolio remains very well diversified we have investments today in 157 different portfolio companies at an average size of $9.4 million per investment, so very granular. I will now turn it over to Ross who will go over the financial results in more detail..

Great. Thanks, David. Starting on Slide 4 as David mentioned we had total originations of $401.4 million and total exists and sales of investments of $233.6 million, including the 233.6 million is 93.8 million of sales of senior secured loans to senior loan fund.

Subject to our approval by a partner in senior loan fund we plan to continue to sell senior secured loans to this fund in the future to enhance returns on these lower yielding, lower risk investments. Overall net investments growth for the quarter was 147.6 million.

13% of the new commitments were in traditional senior secured investments, 78% one-stops, 8% in senior loan fund and 1% in equity co-investments. Turning to Slide 5, these four charts provide a breakdown of the portfolio by investment type industry classification, size, and whether it's fixed versus floating rate.

Looking first at the chart at the top left hand side, we saw slight increases in the percentage of both one-stop investments, as well as in our investment in senior loan fund. These increases were offset by a decrease in traditional senior secured loans.

These modest changes between the investment categories are consistent with us originating a higher percentage of one-stop investments this quarter, as well as the impact of selling loans traditional senior secured loans from GBDC to senior loan fund. Regards to industry diversification the portfolio remains well diversified by industry.

There has been no significant changes in the industry classifications over the past few years. We continue to focus on investing in highly resilient companies with sustainable revenues and EBITDA, and companies with a relatively low cyclicality and low sensitivity to commodity prices.

And looking at the charts on the right hand side, the investment portfolio remains diversified by investment size and our debt investment portfolio remains predominantly invested in floating rate loans.

Turning to Slide 6, the weighted average rate, our new middle market investments was 6.8%, consistent with the weighted average rate on investments that paid off during the quarter.

The weighted average rate of 6.8% in new investments was up modestly from 6.5% the previous quarter primarily due to originating a higher percentage of one-stops this quarter. Our sense is that overall market pricing has been relatively stable over the past few months.

The weighted average rate on new investments is based on the contractual rate at the time of funding for variable rate loans the contractual rate would be the LIBOR, LIBOR spread and the impact of any LIBOR floor.

Shifting to the graph on the right hand side, this graph summarizes the investment portfolio spreads for the quarter focusing first on the grey line.

This line represents the income yield or the actual amount earned on the investments including interest and fee income but excluding the amortization of discounts in upfront origination fees, primarily due to a decline in prepayment fee income of approximately $500,000. The income yield decreased from 7.9% to 7.6% for the quarter.

The investment income yield or the dark blue line, which includes the amortization of fees and discounts, remains stable at 8.4% as an increase in discounts fee amortization caused by higher run off offset the decline in prepayment fees. The weighted average cost of debt remained relatively stable at 3.2% for the quarter.

Flipping to the next slide, overall credit quality continues to remain very strong with non-earning assets as a percentage of total investments on a cost basis at 0.5% and 0.2% as a percentage of total investments on a fair value basis.

As David previously mentioned we fully write-off one non-accrual investment this quarter which caused a decrease in non-accrual investments on a cost basis. This investment was previously valued at close to zero and therefore non-accrual investment on a fair value basis remained virtually unchanged at 0.2%.

Turning to Slide 8, the percentage of investments risk rated of five or four. Our two highest categories remain stable quarter-over-quarter and continue to represent over 90% of our portfolio. The percentage of investments risk rated one, two, or three decreased slightly and continues to remain very low.

As a reminder, independent valuation firms valued approximately 25% of our investments this quarter. And reviewing the more detailed balance sheet and income statement on the following two slides, we ended the quarter with total investments of 1.57 billion at fair value, total cash and restricted cash of 56.7 million and total assets of 1.65 billion.

Total debt was 823.1 million, which includes $461 million of floating rate debt issued through our securitization vehicles, 220.8 million of fixed rate debentures and 141.3 million of debt outstanding in our revolving credit facilities.

Total net asset value on a per share basis increased to 15.74, our GAAP debt to equity ratio was 1.03 times at June 30, while our regulatory debt which excludes the SBIC debentures was at 0.75 times, both right in line with our targets.

Flipping to the statement of operations, total investment income for the quarter was $30.4 million, up nearly $2 million from the previous quarter. The increase in investment income was primarily attributable to growth and average investments.

On the expense side total expenses are 15.2 million increased by 0.5 million primarily due to an increase in interest expense caused by higher average debt outstanding, as well as higher base management fees due to growth in average investments.

As David highlighted earlier, we had net realized and unrealized gains on investments of 3.1 million during the quarter and total net income of 18.3 million.

Turning to the following slide, the tables on the top provide a summary of our EPS and ROE both from a net investment income perspective and a net income perspective for the past five quarters, excluding the GAAP accrual for the capital gains incentive fee.

NII on a per share basis has remained relatively stable at $0.31 or $0.32 a share for the past five quarters. This is a return of about 8% prior to any GAAP capital gains incentive fee accrual.

Due to strong credit performance and strong equity gains, we have generated positive net realized and unrealized gains each over the past five quarters which has increased our ROE and NAV per share as shown on the table on the bottom of the slide. Turn to Slide 12, this slide provides some financial highlights for our investment in senior loan fund.

In conjunction with our partner we continue to focus on growing investments within this fund and total investments increased $66.4 million this quarter, a 35% increase from March 31st.

The annualized return for the quarter was 8.5% this decline from the previous quarter primarily due to mark to market unrealized losses and some broadly syndicated loans and middle market loans. Turning to next slide as of June 30th, we had approximately $70 million of capital for new investments.

This consists of restricted cash and unrestricted cash, undrawn SBIC debentures and availability in our revolving credit facilities. As we've previously reported on June 25th, we amended our 2010 debt securitization which extended the reinvestment period by two years and now goes to July 2017.

The pricing on the class A and class B notes remained unchanged, the class A notes pay interest at LIBOR plus 174 and the class B notes pay interest at LIBOR plus 2.4%.

As we also previously reported, subsequent to June 30th, we increased the size of our Wells Fargo Credit Facility from 150 million to 200 million we also extended the reinvestment period through July 2017 pricing on the facility remained unchanged at LIBOR plus 2.25%.

Turning to Slide 14, we summarize the terms of our debt financings and on Slide 15, our Board declared a distribution of $0.32 a share payable on September 29 to shareholders of record as of September 7.

I'll now turn it back to David, who’ll talk more about the strategy, our strategy and the current environment as well as some additional closing commentary..

Thanks Ross. We think one of the marks of being a good partner is thinking about things from your partners’ perspective and to that end as we were preparing for today's call we thought about what we would want to ask if we were on this call and we came up with two key questions that I want to talk briefly about right now.

The first one is anything changing in your strategy and the second is why have originations been so robust? Let me start with the first one. Is anything changing in our strategy? And the short answer is no. Our strategy is continuing to do more the same.

We plan to maintain our asset focus on senior secured loans in one-stops and to maintain balance sheet leverage at about current levels.

We plan to as Ross said continue to grow our senior loan fund with the support of our partner RGA, including by selling select lower yielding senior secured assets that are on balance sheet now to SLF and we will then replace those assets with higher yielding one-stops. We see a yield expansion opportunity with this strategy.

And we plan to grow only if growing makes sense this isn’t new we have said many times that we’re going to issue new equity if and only if we think it's good for existing shareholders and new shareholders.

One of the advantages we have at Golub Capital is that we have a very extensive platform we manage over $15 billion we have ample dry powder and other vehicles so we don’t need GBDC to grow at any particular point in time.

In fact our Board at its most recent meeting renewed our share repurchase program so we can buy back shares if it makes sense to do so at any time. Let me shift and talk about the second question.

Why have originations been so robust and what's been a relatively slow deal environment? Let me answer that question first by telling you a little bit about what we're not doing.

We're not relaxing our underwriting standards in the first half of 2015, we generated over 1,200 unique opportunities and we closed on less than 4% of them that hit rate is consistent with the level of underwriting selectivity we've had over the past five years we are and frankly always intend to be a credit for shop and you can see that in our results as of the June 30th quarter we have had 10 consecutive quarters with negative credit losses and 12 consecutive quarters with increasing NAV per share.

Second thing, we are not doing we are not moving out the risk curve. We've said for several quarters that we view middle market junior debt in today's environment to be downright and attractive. We continue to hold that belief and we remain focused on our strategy of some standing now of focusing on first lien senior secured loans and one-stops.

So that covers what we're not doing let's talk a little bit about what we are doing and why originations were robust in the last period. In short we are continuing to leverage our platform and our brand and these continue to grow in power and in capabilities.

I mentioned earlier that in the first half of calendar 2015, over half of the middle market loans we've originated have been to borrowers who we previously have a lending relationship with. And over 90% have involved sponsors with whom we've done multiple transactions.

So we are in a time period right now when some of our competitors are undergoing transitions, banks in general are continuing to retreat from middle market leverage lending and I think our capital is focused on boring old fashioned reliability has been resonating with our deal partners.

Another thing we have been focusing on is using our one-stop product. We have been using it particularly to help us win the deals we want to win.

One-stops as a category continues to gain share in the marketplace versus first lien, second lien or first lien junior debt type capital structures because in our opinion from a sponsors’ perspective they are just a better mouse trap.

We anticipate that’s going continue to be the case for the foreseeable future and we anticipate continuing to be a market leader in the product. So let me just sum up and then we'll take some questions. Our focus continues to be on avoiding taking any undue credit risk and leveraging the competitive advantages of our platform.

The second calendar quarter of 2015 was a solid quarter for a performance standpoint along all of the key metrics that we look at and we believe that we are well positioned to continue to be able to deliver attractive and consistent returns for our GBDC shareholders.

We anticipate we'll not be able to be as exciting as Donald Trump or tonight's republican primary revoke and debate but that’s not our aspiration. We are glad we don’t compete with Donald Trump. That concludes my remarks for today as always thanks for your time and continued support. And let’s open the line for questions..

And thank you very much. [Operator Instructions] And our first question comes from the line of Jonathon Bock, Wells Fargo Securities. Please go ahead..

Hi guys it's Fin O'Shea for Jon Bock, thank you.

Just one small question first was from a top line perspective was this quarter impacted at all in timing as in early repayments and late originations or was this a pretty clean top line yield?.

We had a significant amount of deal closing activity in the month of June. So I’d say there was some disproportionate weighting of new activity towards the tail end of the quarter..

And then a more general question, as you move sort of looking at portfolio yields you have been moving out marketing and with commentary today you are at least not going to loosened your standards so would this impact your ability or even willingness to make equity co-investments which have been a good contributor to your credit performance in the past?.

We've always been selective about making equity co-investments. We continue to use the same mentality and approach that we have historically used Fin so I think we have never counted on equity gains as being central to our strategy. I don’t anticipate that changing in the future..

And our next question comes from the line of Troy Ward. Please go ahead..

Hi David if you could just speak a little bit about we constantly have heard how banks are pulling back and how that affects the market, but obviously with GE Capital pulling out I think it might be even more direct impact on your business.

Can you speak to that a little bit and also what do you think the long-term ramifications of such a big player moving out of your competitive ranks?.

Sure so to just refresh the fact set for everybody on the call GE Capital determined in the early part of last quarter that they were going to divest a series of businesses in an effort to help GE achieve the status of no longer being a SIFY or Systemically Important Financial Institution and over the course of the quarter GE put its middle market lending business GE Antares up for sale GE Antares has as I understand it have been sold per contract but the deal has not yet closed to Canadian Pension Plan so I think first of all most important thing is GE Antares isn’t going away it is going to continue to exist under Canadian Pension Plan’s ownership we have a lot of respect and admiration for our colleagues at Antares.

We think they are very good at what they do we do a lot of business with them we anticipate continuing to do a lot of business with them in their new capacity. I think that this is more a story of continuity than of change. There is however one important change that will come with the transaction.

We predicted and we were right that the middle market lending business would be sold to a non-bank player and Canadian Pension Plan is a non-bank player and they are financing their acquisition of Antares in a manner consistent with a non-bank which means specifically in this case they are financing it with a large amounts of loans from banks and in particular loans that are led by Deutsche Bank and Credit Suisse.

So their cost of capital in their new ownership models is going to be meaningfully higher than it was when they could just call GE headquarters in Fairfield and say send money it's nice to have a triple A bank parent to be able to call and say send money it is a bit like being to the camp I would like that, but as an independent company they are no longer going to be able to do that, so we anticipate that not having access to the inexpensive financing that the GE has long had is going to be a strategic disadvantage and Antares is going to need to learn how to manage and they will and they are not going away and we anticipate there will be some opportunities for us to gain some share but we don’t anticipate this is going to be a gargantuan change..

But longer term based on your cost to funding commentary it would seem to be all else equal that should lead to maybe potentially flood in water spreads for the assets in the future?.

There is an argument that says that first let me give you a counter argument which is the GE Antares business has long had a strategy of being mostly a syndicator in another words they arrange new loans they keep a piece but mostly they sell the rest of it to other buyers so they have historically needed to place their originations at a level that would enable them to find willing buyers to purchase the remaining part of the loan.

And my expectation is that in their new ownership they are going to continue with the strategy of being mostly in the syndication business. So I think there maybe some reason for some modest pressure on spreads upward pressure but I don’t know that it's going to be that meaningful again I think our judgment is more continuity than change..

Just kind of along that theme but stepping down from the big players in the space going by what you are talking about syndication and such are you seeing any with all of the other things going on in the space and particularly in the BDC space where folks have been more capital constrained.

Are you seeing any higher degree of maybe books available out there loan packages not necessarily from the BDC but from maybe other players I mean what's and what's your appetite when you think about potential for getting a portfolio of loans from another lender..

So we've always been interested in being a potential buyer for portfolios of loans that become available and in our experience this tends to be a cyclical opportunity and what I mean by that is that some lenders get themselves into trouble in downturns often the trouble isn’t necessarily that the underlying loans that they've purchased are going bad often the problem is that they've financed their loan portfolio with some kind of mismatched inappropriately short-term financing that blows up on them so during the last downturn we were an active buyer of loans and portfolios of loans in the last couple of years there has been relatively little activity in the space could that change, sure I think we’re more likely to see a significant uptick though after the credit cycle turns..

And our next question comes from the line of Doug Mewhirter. Please go ahead..

My question about GE Capital was answered very completely I just one other question regarding the senior loan fund, and I know there is a -- the entirety it seems to be from asset class the entirety of the growth of the senior loan fund has been from Golub selling assets, first lien assets into the fund, do you anticipate the fund to have more organic growth in the future or will you continue to use Golub the sort of a conduit where you are sort of the away-station for assets before they get sent to the fund or some combination?.

I think some combination is going to be the right answer..

And do you think that the -- when do you anticipate that the fund being more of an organic originator of loans in proportion to its total growth?.

I am not sure I understand your question..

Where the fund -- when will the fund start adding I guess meaningful assets to it directly rather than going through Golub like you did this quarter?.

Honest answer, not sure, we right now have significant on balance sheet assets that are lower yielding that we think are appropriate candidates for consideration by ourselves and by our partner to be sold to SLF, we also think there maybe circumstances that arise in the future where it makes sense for SLF to consider purchases other than from GBDC’s balance sheet.

So I think we’re going to be opportunistic on that front..

And just could you just remind me what the capacity for Golub to invest in the sub-notes and equity is what the sort of the term loan capacity is right now in the SLF?.

Well, I can answer it in the hypothetical and in the practical. So in the hypothetical this investment in SLF is subject to the 30% limitation we are very, very, very far from the 30% limitation right now, the 30% limitation would be in excess of $400 million investment by Golub Capital in SLF, right now we’re under 100 million.

Practically speaking right now, we’re limited by what we think is the right pace of growth for SLF because the ability to increase the GBDC investment in SLF is at our discretion obviously in cooperation with RGA..

And our next question comes from the line of Leslie Vandergrift with Raymond James. Go ahead..

I just had a quick question about the yield on the SLF going down quarter-over-quarter the total return.

You mentioned some unrealized offers on some middle market and probably syndicated loans in there I was curious if you could give some color over if those are one off or something we need to be looking at further just a little bit more information in detail there?.

There is going to be some natural volatility in the ROE of SLF from quarter-to-quarter, I don’t think there is anything to worry about there if that’s your question are there any pending credit blow ups in there, we don’t see anything that is on the horizon..

I guess a bit specifically with this quarter going down was it ones that you had just sold down or were these from when you were just moving with the SLF to begin these recent unrealized offers obviously it has been volatile and it's been increasing in the past few quarters over and over, but the decrease in annualized total return for this quarter what was the issue there?.

There is quite a few kind of broadly syndicated loans in there and a broadly syndicated loan market has been a little kind of volatile quarter-over-quarter and so there were a handful of marks done on deals that went from 99.5 down to 99 and then kind of one or two middle market names that they have brought down one or two.

So, again as David mentioned there is nothing here that hit our watch list or we feel hasn’t permanent impairment of any sort it was just being kind of a handful of marks that went down..

Okay, all right. Thank you..

Yes, and again we do risk rated loans here we have -- just have that here, but again 95% of loans have risk rating of four or five within SLF as well very similar to GBDC..

[Operator Instructions] Our next question comes from the line of Cliff Rackson with Rackson Asset Management. Please go ahead..

I wonder if you could talk a little bit about the impact of the LIBOR floor in association with interest rates, short rates going up over the next three months to a year.

What LIBOR, is it three months LIBOR or one month LIBOR or you have had to and how much of those that have to go up for to begin to impact your spreads between the rate you're getting and the rate you are paying with this all so some of it is LIBOR based?.

So I am going to answer that question, I think it would be useful if the folks could flip to Page 14 for my answer, so let's talk about the asset side first. On the asset side virtually all of our assets are floating rate and virtually all of those assets are subject to LIBOR floors in most cases the LIBOR floor is 1%.

There are few that are lower a few that are a little higher but most of them are 1%. So very specifically increases in LIBOR between where it is at now and 1% will not result in increase in interest income, so small increases in LIBOR actually hurt us a little bit from an earnings standpoint.

There is a chart on Page 85 of the 10-Q which actually shows you some sensitivity analysis that relate to this question. On the liability side we have primarily LIBOR denominated debt.

Our SBIC debt which you can see at the bottom of Page 14 is it sticks at roughly 3.7% but the predominant portion of our debt is LIBOR denominated in general it is a three month LIBOR and so to hit the headline here, the headline is that increases in LIBOR from where we are now to about 1% modestly bad for GBDC increases over 1% quite good for GBDC with almost a one-to-one relationship between increase in GBDC’s, ROE and increases in LIBOR?.

And gentlemen there are no further questions.

Well, thanks everybody again for joining us this afternoon, and enjoy its nice debate. Take care..

And ladies and gentlemen, this concludes the conference for today. We thank you for your participation and have a great rest of the day everyone..