Golub Capital: Issues New Unsecured Notes: Implications and Consequences

May 20, 2026

NEWS

NEW YORK–(BUSINESS WIRE)– Golub Capital BDC, Inc. (GBDC), announced that it has priced an underwritten public offering of $500 million in aggregate principal amount of 6.250% notes due 2031 (the “Notes”). The Notes will mature on June 1, 2031 and may be redeemed in whole or in part at the Company’s option at any time prior to May 1, 2031, at par plus a “make-whole” premium, and thereafter at par.

Wells Fargo Securities, LLC, J.P. Morgan Securities LLC, Santander US Capital Markets LLC, SMBC Nikko Securities America, Inc., Truist Securities, Inc., Capital One Securities, Inc., MUFG Securities Americas Inc., RBC Capital Markets, LLC, Regions Securities LLC and SG Americas Securities, LLC are acting as joint book-running managers for this offering. BNP Paribas Securities Corp., CastleOak Securities, L.P., CIBC World Markets Corp., Comerica Securities, Inc., FNB America Securities LLC, Goldman Sachs & Co. LLC, Lucid Capital Markets, LLC, Morgan Stanley & Co. LLC, Oppenheimer & Co. Inc., Raymond James & Associates, Inc. and U.S. Bancorp Investments, Inc are acting as co-managers for the offering. The offering is expected to close on May 27, 2026, subject to customary closing conditions.

The Company intends to use the net proceeds from this offering to repay a portion of the outstanding indebtedness under the Company’s senior secured revolving credit facility with JPMorgan Chase Bank, N.A. (the “JPM Credit Facility”). However, the Company may re-borrow under the JPM Credit Facility or borrow under the Company’s unsecured revolving credit facility with GC Advisors LLC for general corporate purposes, which may include investing in portfolio companies in accordance with the Company’s investment strategy.GBDC – Press Release – May 19, 2026

ANALYSIS

We thought it would be interesting to analyze how this most recent unsecured note offering will impact GBDC’s cost of capital, earnings, and return on equity.

This is relevant right now not only for GBDC but for scores of other BDCs – both public and private – caught in what we are calling the Big Squeeze.

You Know This

Notwithstanding recent market developments, spreads on new loans have been shrinking over the last several years, drastically reducing portfolio yields and, in turn, investment income and earnings.

That process is well known and documented.

Going Its Own Way

However, less discussed is that BDC borrowing costs have not been declining commensurately, even though some BDCs have secured slightly better terms from their secured bank lenders.

The principal challenge is that new unsecured debt issuance – like the one GBDC has just undertaken and the many others that have taken place in recent months or are being completed as we write this – is being undertaken at relatively high yields.

Double Whammy

Adding to the pain for many BDCs is that the “expensive” new notes being added are mostly replacing unsecured notes issued during the ZIRP era at interest rates that are unimaginable today.

Very Cheap

In the case of GBDC, the BDC has been benefiting for years from two unsecured notes – one for $600mn and another for $350mn at derisory interest rates: 2.500% and 2.050% respectively.

The $600mn matures on August 24, 2026, and the $350mn on February 15, 2027.

Essentially, GBDC is now borrowing on an unsecured basis at a premium of up to 4.0% over what they have been paying if they repay the existing unsecured notes with new notes.

Very roughly, that will cost GBDC over($9mn) a quarter of higher borrowing costs once both existing notes are refinanced.

Evasive Measures

Up to a point, GBDC – and other BDCs in this situation – can choose to refinance all or some of the unsecured notes with incremental draws under their secured debt facilities, either a bank Revolver or an on-balance-sheet CLO.

This is modestly cheaper – we estimate an all-in borrowing cost of about 5.4% currently on GBDC’s JP Morgan credit facility.

Nonetheless, even the secured, floating-rate debt is significantly more expensive than the legacy unsecured notes.

Moreover, neither GBDC nor most other BDCs want to rely too heavily on their secured debt to fund themselves, and who can blame them?

Bottom Line

As a result, GBDC – and many of its peers – are in something of a trap: having to pay more to borrow at a time when their own borrowers are paying less.

The result is that, in some cases, the newly issued unsecured notes barely cover their costs once all BDC expenses are taken into account.

Here’s a pro-forma illustration:

In the IQ 2026, GBDC’s average yield on new loans booked was reportedly 8.8%.

This just issued new note will cost 6.250%, and the BDC charges a very fair 1.0% Management Fee on its investment assets.

That means the net percentage gain is 1.55%, but that is further reduced by GBDC’s Incentive Fee of 15%.

That brings the percentage received by shareholders down to 1.326%, or just 15% of the gross yield being charged a borrower.

On the portion of investment assets funded in this way, the shareholders – squeezed from both sides – are making a very modest return.

That’s before factoring in any provision for credit losses, all of which would be borne by the shareholders.Pro-forma

Swapped

GBDC – and most other BDCs issuing unsecured debt – are “swapping” out fixed-rate payments like this one for floating-rate payments to better align the cost of their assets and liabilities.

(During the ZIRP era, most BDCs did not bother to do so because fixed-rate notes were so low.)

However, “swapping” fixed for floating has only a modest impact on the all-in yield GBDC pays: about (40 bps ) less, according to our analysis.

Right now, it makes a lot of sense to “swap” into a floating rate, but GBDC may regret that decision if rates increase by 50 bps or more; that’s another issue.

Out Of Our Control

Here’s more bad news.

The medium-term unsecured note market remains open, but thanks to the war with Iran and higher-than-expected government spending, borrowing costs are rising.

A month or two from now, GBDC, or any other BDC with a similar balance sheet and reputation, may be paying even more, squeezing profits even more.

GBDC can still achieve a very modest accretive return, but other BDCs with unsecured notes coming due may end up paying more to borrow than they will receive from lending.

Real Life

The Big Squeeze is having very real consequences on BDC profitability.

For GBDC, analysts project that recurring income per share will continue to decline.

The BDC is expected to post Net Investment Income Per Share (NIIPS) of $1.36 in FY 2026, ending in September 2026, down from $1.49 per share in FY 2025.

In FY 2027, earnings are estimated to fall again to $1.26 per share, with one estimate as low as $1.15.

Much of that decline will be due to the higher cost of borrowing that the BDC faces.

Many other BDCs that have enjoyed rock-bottom borrowing costs for years will face similar challenges.

The Good News

We are approaching the end of the debt issued during the ZIRP era.

In about a year, virtually all the inexpensive notes will have matured, and BDC borrowing costs will “normalize”.