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Goldman Sachs BDC: Shareholders Do Not Approve Equity Sale Below NAV

  • Yesterday Goldman Sachs BDC (GBDC) reported that its shareholders had overwhelmingly voted in favor of the Board’s request to be permitted to sell equity below Net Asset Value, if deemed appropriate.
  • There were certain limitations built into the Board request. Most notably the hypothetical issuance cannot exceed 25% of the current share count.
  • However-and here’s the twist: the measure did not pass because of the high bar set by the rules.
  • The GSBD press release explains: “Approval of Proposal II [issuing stock below NAV] required the affirmative vote of stockholders holding (1) a majority of the outstanding shares of the Company’s common stock entitled to vote at the Annual Meeting and (2) a majority of the outstanding shares of the Company’s common stock entitled to vote at the Annual Meeting not held by affiliated persons of the Company. The Investment Company Act of 1940, as amended, defines “a majority of outstanding voting securities” of a company as: the lesser of (1) 67% or more of the voting securities present at the Annual Meeting if the holders of more than 50% of the outstanding voting securities of the company are present or represented by proxy; and (2) more than 50% of the outstanding voting securities of the company. The Company’s common stock is its only voting securities. Because the Company did not receive enough votes by non-affiliated persons to satisfy the 1940 Act approval requirements, the Company will not have the authority to sell shares of its common stock at a price or prices below the Company’s then-current NAV per share”.
  • The BDC Activist doubts that this will be  an impediment to a new stock issuance if GSBD chooses to go that route because the stock is trading well above book value.
  • As of the October 5th closing, GSBD’s stock price was at $21.74, close to its YTD high and way above June 2016’s NAV of $18.41.
  • In fact, given the just completed $115mn Convertible Debt offering, we would not be surprised to see GSBD issuing new stock before long, regardless of the shareholder vote results.
  • In its short history GSBD’s External Manager has been a cautious steward of the BDC’s capital, but  market conditions are very favorable and with the stock price riding high (which may be partly due to insider purchases) now would seem like the propitious time to grow the $1bn plus BDC.
  • The BDC Activist is not opposed to stock issuance at material premiums to book value and above the initial IPO price, as would be the case here.
  • Our only concern is that market conditions for deploying new capital into leveraged lending have rarely been so poor, with a mountain of capital already available and a dearth of new deals.
  • All the data suggests borrowers are paying very low spreads, getting very loose terms and continue to leverage up to levels equal to the highest ever seen.
  • GSBD