Golub Capital's Q1 2025: Navigating Contradictions in M&A Outlook, Borrower Liquidity, and Geopolitical Resilience

These are the key contradictions discussed in Golub Capital BDC, Inc.'s latest 2025 Q1 earnings call, specifically including: M&A Outlook and Portfolio Strategy, Balance Sheet Restructuring Plans, Portfolio's Resilience to Geopolitical Environments, Borrower Liquidity Issues, Creditworthiness of Middle Market Borrowers, and Impact of Geopolitical Risks:



Strong Financial Performance:
- Golub Capital BDC, Inc. reported adjusted NII per share of $0.39 for the December 31 quarter, corresponding to an adjusted NII return on equity of 10.1%.
- The strong results were driven by high base rates, attractive spreads, and a reduction in borrowing costs.

Credit Quality and Portfolio Growth:
- GBDC's portfolio credit metrics improved, with investments in Ratings category 4 and 5 increasing to 90% of the portfolio at fair value.
- This growth was supported by new deal activity and the successful resolution of previously non-accrual investments.

Reduced Costs and Profitability Outlook:
- The weighted average cost of debt decreased to 6.2%, reflecting benefits from debt funding structure initiatives and Moody's rating upgrade.
- These efforts are expected to enhance forward profitability, providing a valuable buffer against potential base rate or investment spread reductions.

Macroeconomic Observations and Market Dynamics:
- Golub Capital noted that while the U.S. economy is doing well, signs of elevated credit stress are present, with BSL market default rates doubling the 20-year average.
- The company anticipates continued optimism in the business climate but also anticipates increased dispersion in BDC performance, given the cross currents of the market.