Golub Capital BDC's 7.050% Notes Due 2028: Strategic Financing and Risk-Reward Dynamics for Income Investors

Golub Capital BDC, Inc. (NASDAQ: GBDC) has recently priced a $250 million public offering of additional 7.050% notes due 2028, bringing the total outstanding principal of this series to $700 million after combining with the initial $450 million issued in December 2023Golub Capital BDC, Inc. Prices Public Offering of $250 Million 7.050% Notes Due 2028^[1]. These notes, maturing on December 5, 2028, are callable prior to November 5, 2028, at par plus a make-whole premiumGolub Capital BDC, Inc. Announces Fiscal Year 2025 Third Quarter Financial Results^[2]. The proceeds will be used to repay a portion of the company's senior secured revolving credit facility with JPMorgan Chase BankGolub Capital BDC Earnings Q2 2025^[3]. For income-focused investors, this issuance represents a high-yield opportunity, but its strategic value and risk-reward profile must be evaluated through the lens of Golub's capital structure, sector dynamics, and credit fundamentals.

Strategic Rationale: Refinancing and Leverage Management

Golub's decision to issue these notes aligns with broader trends in the BDC sector, where companies are increasingly leveraging unsecured debt to optimize capital structures. According to a report by the Leveraged Finance Association, BDCs issued $9.05 billion in unsecured debt in 1Q25, a 18.3% year-over-year increaseBDC Quarterly Wrap: 1Q25 - LSTA^[4]. By issuing the 7.050% notes, Golub aims to refinance higher-cost debt under its JPMorgan facility, which carries a variable rate tied to a 1.525%–1.775% marginGolub Capital BDC : Quarter Ended June 30, Earnings Presentation^[5]. This refinancing strategy reduces near-term interest rate volatility and extends maturities, enhancing liquidity. The company's GAAP leverage ratio stood at 1.30x as of June 30, 2025Golub Capital BDC, Inc. Prices Public Offering of $250 Million …^[6], a level consistent with sector norms but slightly elevated compared to the 0.91x average for all BDCs in 1Q25BDC Facts & Stats | Insights | Mayer Brown^[7].

Credit Risk Assessment: BBB Rating and Sector Comparisons

Fitch Ratings affirmed Golub's senior unsecured debt at 'BBB' with a stable outlook as of April 14, 2025Fitch Affirms Golub Capital BDC's IDR at 'BBB'; Outlook Stable^[8], reflecting its access to unsecured markets and a capital structure where unsecured debt comprises 42% of total fundingGolub Capital BDC : Quarter Ended June 30, Earnings Presentation^[9]. While 'BBB' is the lowest rung of investment-grade ratings, Fitch notes that Golub's credit profile benefits from its diversified loan portfolio and proactive refinancing effortsFitch Ratings affirms Golub Capital BDC at ^[10]. However, the rating agency also cautions that the BDC's leverage metrics remain sensitive to interest rate movements and portfolio performanceCredit Ratings - Golub Capital BDC, Inc. (NASDAQ: GBDC)^[11].

In the broader BDC sector, Golub's yield of 7.05% compares favorably to the average unsecured debt yields of peers. For instance, Main Street Capital's recent 7.25% notes due 2029 and Ares Capital's 7.5% notes due 2030 reflect similar risk-return profilesBDC Quarterly Wrap: 1Q25 - LSTA^[12]. Yet Golub's slightly lower yield is offset by its stronger liquidity position, including a JPMorgan credit facility amended in 2025 to extend maturity to 2030 and increase the accordion provision to $3 billionGolub Capital BDC Earnings Q2 2025^[13].

Risk-Reward Profile for Income Investors

For income-focused investors, the 7.050% yield offers a compelling return, particularly in a low-growth environment where alternatives like Treasuries yield less than 4%. However, the risks are non-trivial. The 'BBB' rating implies vulnerability to economic downturns, and Golub's leverage ratio of 1.30x exceeds the sector average, increasing sensitivity to rising interest ratesBDC Facts & Stats | Insights | Mayer Brown^[14]. Additionally, the BDC sector reported net realized losses of $804 million in 1Q25BDC Quarterly Wrap: 1Q25 - LSTA^[15], underscoring the importance of portfolio quality. Golub's weighted average non-accrual rate of 1.36%Golub Capital BDC, Inc. Announces Fiscal Year 2025 Third Quarter Financial Results^[16] is in line with industry benchmarks, but investors must monitor credit trends in its loan portfolio, which is heavily weighted toward first-lien loans (86.4% of total assets in 1Q25)BDC Quarterly Wrap: 1Q25 - LSTA^[17].

Conclusion: Balancing Yield and Prudence

Golub Capital BDC's 7.050% notes due 2028 present a strategic refinancing opportunity that aligns with sector-wide trends toward unsecured debt. The 'BBB' rating and stable outlook provide a baseline of credit safety, but investors should remain cautious about leverage levels and macroeconomic risks. For those seeking income with moderate risk, these notes could complement a diversified BDC portfolio—provided they are held alongside higher-credit-quality instruments and hedged against interest rate volatility. As the BDC sector continues to evolve, Golub's ability to maintain its stable outlook while optimizing its capital structure will be critical to unlocking long-term value.