IPO Report: Goldman Sachs BDC (GSBD)

Francis Gaskins |

Goldman_Sachs.jpgGoldman Sachs BDC (GSBD) is a specialty finance closed end fund focused on lending to middle-market companies.

GSBD is one of four IPOs scheduled for this week. The IPO calendar is available here IPOpremium

GSBD is based in New York, NY, and planned a $123 million IPO with a market capitalization of $726 million. The price range midpoint is $11. GSBD expects to IPO Wednesday March 18, 2015, on the NYSE. SEC filings

The manager and joint-managers are BofA Merrill; Goldman; Morgan; Citigroup: Credit Suisse: Wells Fargo.  The co-managers are Raymond James; SunTrust Robinson

Goldman Sachs BDC Overview

Since GSBD was formed in 2012 through December 31, 2014, GSBD originated more than $1.27 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits and repayments.

Goldman Sachs BDC Conclusion

Neutral

Merrill is the lead underwriter so we know it is a retail deal.  Just another  BDC.  Goldman only owns 20% pre-IPO.

Mid-market junk bonds.

Goldman Sachs division is the investment manager.

Price-to-book of 1.05 is higher than AINV & PSEC, but lower than GBDC, see 'compare' below.

Closed end funds often trade at a discount to net asset value.

Yield of 8.9%, lower than AINV & PSEC, see 'compare' below.

Goldman Sachs BDC Valuation

Glossary

Valuation Ratios

Mrkt Cap (mm)

 

Yield

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Sept 9 mos

         

Goldman Sachs BDC (GSBD)

$726

 

8.87%

1.05

1.05

17%

             

SCORECARD

.

Mgt

Market

Market Do-

Proprie-

Total

1-5, 5 is high

.

.

Grwth

mination

tary

rating

20 is perfect

.

3

1

2

1

C+, 7

             

Compare

           

Valuation Ratios

Mrkt Cap (mm)

 

Yield

Price /BkVlue

Price /TanBV

 

ranked by market cap

         

Apollo Investment (AINV)

$1,830

 

10.32%

0.92

0.92

 

Prospect Capital (PSEC)

$3,060

 

11.72%

0.83

0.83

 

Golub Capital BDC (GBDC)

$828

 

7.29%

1.13

1.13

 

Goldman Sachs BDC (GSBD)

$726

 

8.87%

1.05

1.05

 

Triangle Capital (TCAP)

$777

 

9.22%

1.47

1.47

 
             

Sector performance

 

Last yr

Last 6 mos

Last month

 

Apollo Investment (AINV)

-12%

-12%

flat

 

Prospect Capital (PSEC)

-21%

-16%

-3%

 

Golub Capital BDC (GBDC)

-9%

6%

flat

 

Triangle Capital (TCAP)

 

-11%

-12%

3%

 

 

Goldman Sachs BDC Business

GSBD is a specialty finance company focused on lending to middle-market companies. Since GSBD was  formed in 2012 through December 31, 2014, GSBD originated more than $1.27 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits and repayments.

GSBD seeks to generate current income and, to a lesser extent, capital appreciation through direct originations of secured debt, including first lien, first lien/last-out unitranche and second lien debt, unsecured debt, including mezzanine debt, and, to a lesser extent, investments in equities.

Goldman Sachs BDC Focus

GSBD invests primarily in U.S. middle-market companies, which we believe have been underserved in recent years by traditional providers of capital such as banks and the public debt markets. However, GSBD  may from time to time invest in larger or smaller companies. GSBD

GSBD generally uses the term “middle-market” to refer to companies with EBITDA of between $5 million and $75 million annually. However, GSBD may from time to time invest in larger or smaller companies.

Goldman Sachs BDC Origination Strategy

GSBD's origination strategy focuses on leading the negotiation and structuring of the loans or securities in which GSBD invests and holding the investments in the portfolio to maturity.

In many cases, GSBD is the sole investor in the loan or security in GSBD's portfolio.

Where there are multiple investors, w GSBD generally seeks to control or obtain significant influence over the rights of investors in the loan or security.

Goldman Sachs BDC Portfolio

As of December 31, 2014, GSBD had 45 investments in 34 portfolio companies with an aggregate fair value of $913.95 million.

As of December 31, 2014, 99.3% of GSBD's portfolio investments at fair value were in U.S. domiciled companies.

As of December 31, 2014, on a fair value basis, approximately 84.5% of debt investments were invested in debt bearing a floating interest rate with an interest rate floor and approximately 15.5% of debt investments were in debt bearing a fixed interest rate (including preferred stock investments).

Goldman Sachs BDC Investment Advisor

GSAM, a Delaware limited partnership, serves as the investment adviser and has been registered as an investment adviser with the SEC since 1990.

Subject to the supervision of the Board of Directors, a majority of which is made up of independent directors (including an independent Chairman), GSAM manages our day-to-day operations and provides  with investment advisory and management services and certain administrative services.

GSAM is part of Goldman Sachs Group Inc. (GA), $80 billion market cap, a public company that is a bank holding company, financial holding company and a world-wide, full-service financial services organization. Group Inc. is the general partner and owner of GSAM. GSAM has been providing financial solutions for investors since 1988 and had approximately $1.02 trillion of assets under supervision as of December 31, 2014.

Goldman Sachs BDC Formation Transactions

GSBD was formed as Goldman Sachs Liberty Harbor Capital, LLC on September 26, 2012 and commenced operations on November 15, 2012, using seed capital contributions received from Group Inc.

On March 29, 2013, GSBD elected to be treated as a BDC under the Investment Company Act. On April 1, 2013, GSBD  converted from a Delaware limited liability company to a Delaware corporation named Goldman Sachs BDC, Inc.

For the year ended December 31, 2013, GSBD closed offerings of 25,260,470 shares of common stock in private placements totaling approximately $505.43 million, of which Group Inc. acquired 701,760 shares of our common stock totaling approximately $14.08 million.
Goldman Sachs BDC Competitive Advantages

The Goldman Sachs Platform: Goldman Sachs is a leading global financial institution that provides a wide range of financial services to a substantial and diversified client base, including companies and high net worth individuals, among others.

The firm is headquartered in New York, and maintains offices across the United States and in all major financial centers around the world.

Group Inc.’s asset management subsidiary, GSAM, is one of the world’s leading investment managers with over 700 investment professionals and approximately $1.02 trillion of assets under supervision as of December 31, 2014. GSAM’s investment teams, including the GSAM Private Credit Group, capitalize on the relationships, market insights, risk management expertise, technology and infrastructure of Goldman Sachs.

Goldman Sachs BDC Investment Constraints

The Investment Company Act imposes numerous constraints on the operations of BDCs. For example, BDCs generally are required to invest at least 70% of their total assets primarily in securities of qualifying U.S. private companies or thinly traded public companies, cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the time of investment.

As a BDC, GSBD must not acquire any assets other than “qualifying assets” specified in the Investment Company Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.”

Pursuant to rules adopted by the SEC, “eligible portfolio companies” include certain companies that do not have any securities listed on a national securities exchange and public companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million.

Goldman Sachs BDC Competition

Primary competitors provide financing to middle-market companies and include other BDCs, commercial and investment banks, commercial financing companies, collateralized loan obligations, private funds, including hedge funds, and, to the extent they provide an alternative form of financing, private equity funds.

Some of the existing and potential competitors are substantially larger and have considerably greater financial, technical and marketing resources. For example, some competitors may have a lower cost of funds and access to funding.

Goldman Sachs BDC 5% Shareholders Pre-IPO

The Goldman Sachs Group, 20%.

Goldman Sachs BDC Dividends

Expects to pay at the rate of $.45 per quarter, which is $1.80 annually or 8.87% annual yield at the price range mid-point of $20.50.

Goldman Sachs BDC Use of Proceeds

GSBD expects to net $118 million from its IPO. Funds are allocated to repaying debt.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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