Why Golub Capital BDC Remains a Buy Despite Sector-Wide Headwinds

The business development company (BDC) sector has faced relentless headwinds in 2025, from geopolitical tensions to a protracted credit cycle and rising interest rate uncertainty. Yet, Golub Capital BDC (NASDAQ: GBDC) stands out as a rare beacon of resilience. Its structural advantages—low-cost debt, a floating-rate loan-dominated portfolio, and disciplined capital deployment—position it to weather macroeconomic turbulence while delivering consistent income. For income-focused investors, GBDC's unique positioning offers a compelling case for long-term value creation, even as broader sector challenges persist.

Structural Resilience: A Foundation of Low-Cost Debt and Extended Maturities

GBDC's ability to maintain a stable cost of capital is a cornerstone of its resilience. In Q3 2025, the company extended its $3.0 billion revolving credit facility with JPMorgan to 2030, reducing its incentive fee from 20% to 15% and locking in a weighted average cost of debt of 5.9%. This compares favorably to the sector average of 6.8%, creating a buffer against margin compression. The refinancing also extended the maturity of its debt, reducing refinancing risk in a rising rate environment.

The company's debt structure is further strengthened by its use of interest rate swaps to hedge the fair-value impact of its 2028 and 2029 Notes. This non-cash strategy neutralizes earnings volatility from rate fluctuations, ensuring consistent net investment income (NII). With 90% of its $8.96 billion portfolio in floating-rate loans, GBDC benefits directly from rate hikes, aligning its interest income with market conditions. This structural alignment is rare in a sector where many BDCs remain overexposed to fixed-rate debt.

Disciplined Capital Deployment: Quality Over Quantity

GBDC's underwriting discipline is a key differentiator. In Q3 2025, the company originated $556.8 million in new investments, with 87.4% allocated to one-stop loans (a hybrid of senior secured and junior debt). These investments carry a weighted average interest rate of 9.2% and a spread of 5.1% over the base rate, reflecting its ability to secure attractive terms in a competitive middle-market lending landscape.

The company's selectivity is evident in its low loan-to-value (LTV) ratios and high credit standards. It closes on just 3.1% of deals reviewed, with a median EBITDA of $79 million for 2025 originations. This focus on the core middle market—where risk-adjusted returns are superior to large-cap borrowers—ensures a diversified portfolio. The largest borrower represents only 1.5% of the debt portfolio, and the top 10 borrowers account for less than 12%, minimizing concentration risk.

Superior Risk Management: Liquidity, Hedging, and Shareholder Returns

GBDC's proactive risk management framework is a critical pillar of its resilience. The company maintains a $647 million liquidity buffer, including $99.8 million in cash and $547.3 million in undrawn commitments under its JPMorgan facility. This liquidity provides flexibility to capitalize on accretive opportunities or navigate downturns without compromising financial stability.

The company's hedging strategies further insulate it from volatility. By locking in stable debt costs and leveraging floating-rate assets, GBDC minimizes exposure to rate swings. Its conservative leverage ratio of 1.26x (debt-to-equity) also reduces refinancing risks, aligning with its long-term strategy of preserving capital.

Shareholder returns are another strength. GBDC repurchased 2.4 million shares for $34.3 million in Q3 2025, signaling management's confidence in the stock's intrinsic value. The company's 90% NII coverage ratio for its $0.39 quarterly distribution ensures the sustainability of its 10.4% annualized yield, even in a prolonged low-rate environment.

Sector-Wide Challenges and GBDC's Competitive Edge

The BDC sector faces systemic risks, including elevated default rates, regulatory scrutiny, and geopolitical volatility. However, GBDC's structural advantages—low-cost debt, floating-rate dominance, and disciplined underwriting—position it to outperform. Its proactive governance, transparent operations, and focus on downside protection make it a rare buy in a pressured sector.

For investors seeking income with downside protection, GBDC's combination of structural resilience, disciplined capital deployment, and superior risk management offers a compelling case. While broader market uncertainties persist, the company's long-term strategy of minimizing realized credit losses and maintaining operational consistency provides a durable edge.

Conclusion: A Rare Buy in a Pressured Sector

In a landscape where many BDCs struggle with margin compression and liquidity constraints, Golub Capital BDC's structural resilience and disciplined approach make it a standout. Its low-cost debt, floating-rate loan portfolio, and proactive risk management create a compelling long-term income opportunity. For investors willing to look beyond short-term volatility, GBDC represents a rare combination of stability, growth potential, and shareholder-friendly policies.

Investment Advice: Buy GBDC for its structural advantages and disciplined execution. Hold for the long term to benefit from its resilient portfolio and consistent dividend yield.