KBRA Expects to Rate Goldman Sachs BDC, Inc.'s Senior Unsecured Notes BBB

KBRA expects to rate Goldman Sachs BDC, Inc.'s (“GSBD” or “the company”) issuance of senior unsecured notes BBB. The rating outlook is Stable. The proceeds will be used to repay borrowings under the company's bank revolving credit facility.

Key Credit Considerations

The rating is supported by Goldman Sachs BDC, Inc.'s ties to Goldman Sachs' ("GS") $2.5 trillion of Assets Under Supervision along with SEC exemptive relief to co-invest with GS affiliates. GS provides the company with robust deal sourcing, research, a large sponsor network, and strong banking relationships. Additionally, the company has a solid management team, which has a long track record working with the private debt markets with each member of senior management having 20 or more years of experience in the industry. Also, the rating is supported by GSBD’s $3.4 billion well-diversified investment portfolio comprised largely of senior secured first lien loans (~95%) to 144 portfolio companies across 38 sectors with a median portfolio company EBITDA of ~$54 million as of December 31, 2023. GSBD focuses primarily on middle-market companies in the U.S. that are private equity sponsored or often non-sponsored family-run businesses that provide significant equity cushion with low LTVs. The weighted average leverage was 6.1x and interest coverage of 1.5x, using a “current quarter” calculation. At December 31, 2023, the top four portfolio sectors were Software (17.4%), Health Care Providers & Services (12.4%), Professional Services (9.9%), and Diversified Financial Services (9.7%). Further supporting the rating is GSBD's diversified funding profile consisting of $860 million of senior unsecured notes and a $1.7 billion revolving credit facility with 15 lenders as part of the syndicate as of December 31, 2023. Liquidity remains solid with $723 million in available bank credit with $360 million of unsecured notes coming due in February 2025 and unfunded commitments of $308 million. The bank credit availability will increase with the issuance of the notes, further increasing liquidity. As of December 31, 2023, the company’s percentage of unsecured senior debt to total debt outstanding was a solid ~47%, providing sound unencumbered assets for the benefit of unsecured noteholders, in KBRA’s view. Gross leverage was 1.14x, well within regulatory coverage of 2:1, and within the company’s target range of less than 1.25x, comparable to peers. The company’s asset coverage was 187%, leaving a solid 25% cushion to allow for market volatility in less favorable markets.

GSBD has historically maintained somewhat elevated non-accruals compared to peers, driven, in part, by its investment portfolio prior to its merger with an affiliate BDC in 2020. As of December 31, 2023, GSBD had ten portfolio companies on non-accrual, with non-accruals as a percentage of total investments at cost and fair value totaling 3.8% and 2.3%, respectively. During the quarter, the company added one portfolio company to non-accrual, and three portfolio companies were removed. Further counterbalancing the company's strengths are the potential risk related to the company’s illiquid investments, retained earnings constraints as a Regulated Investment Company (RIC), and a more uncertain economic environment with high interest rates, geopolitical risks, and the potential of increasing non-accruals.

GSBD is an externally managed, closed-end, non-diversified investment management company that elected to be treated as a Business Development Company (BDC) under the 1940 Act as an RIC, which, among other things, must distribute to its shareholders at least 90% of the company’s investment company taxable income. The company is formed as a Delaware limited liability company. The company is managed by Goldman Sachs Asset Management, L.P. ("GSAM"), an affiliate of Goldman Sachs & Co. LLC. GSBD's affiliate BDC, Goldman Sachs Private Credit Corp., is rated by KBRA (Issuer and Senior Unsecured Debt Ratings: BBB/Stable Outlook).

Rating Sensitivities

Positive rating momentum could be achieved if GSBD's credit metrics remain solid despite an uncertain economic environment amid high rates, inflation, and geopolitical risks. A rating downgrade and/or Outlook change to Negative could be considered if there is a significant downturn in the U.S. economy with negative impact on GSBD's earnings performance, asset quality, and leverage. A significant change in senior management and/or risk management policies could also lead to a negative rating action. 

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Methodologies

• Financial Institutions: Finance Company Global Rating Methodology
• ESG Global Rating Methodology

Disclosures

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1003349

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