Golub Capital: New SBIC License Approved

Golub Capital BDC, Inc. (NASDAQ: GBDC, www.golubcapitalbdc.com), a business development company announced that its wholly owned subsidiary, GC SBIC VI, L.P., has received approval for a license from the United States Small Business Administration (“SBA”) to operate as a small business investment company (“SBIC”). This is the third SBIC license granted to the Company through its SBIC subsidiaries and allows GC SBIC VI, L.P. to obtain up to $50.0 million of leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment by the SBA and customary procedures. Debentures are loans issued by an SBIC which have interest payable semi-annually and a ten-year maturity. The interest rate is fixed at the time of issuance at a market-driven spread over U.S. Treasury Notes with ten-year maturities.

As an SBIC, GC SBIC VI, L.P. will be subject to a variety of regulations and oversight by the SBA concerning, among other things, the size and nature of the companies in which it may invest as well as the structure of those investments.

From GBDC’s press release .

The Chicago-based Business Development Company is one of the first players in the sector to take advantage of the expansion of the SBA’s SBIC program.

Back in December 2015, Congress expanded total allowable borrowing capacity under the Small Business Investment Companies program to $350mn.

GBDC will have funded $25mn in equity in SBIC VI, in order to have access to the full $50mn in additional debentures.

The SBIC debenture program represents a major-but not the leading-source of GBDC’s borrowing.

As of September 30, 2016, SBIC IV and SBIC V had $150,000 and $127,000 of outstanding SBA-guaranteed debentures outstanding or $277mn in total.

GBDC’s total borrowing was $865mn, making SBIC borrowing 32% of total GBDC debt outstanding.

On a pro-forma basis, assuming the use of $23mn of undrawn SBIC debentures and the additional $50mn from the new license, the SBA will ultimately be providing 37% of the BDC’s $938mn in borrowings.

ADDITIONAL POINT

Many BDCs, and other existing SBIC license holders, are interested in gaining additional licenses to max out availability under the SBA’s debenture program.

However, the SBIC has been reluctant to approve new licenses until lenders are close to full capacity on already approved licenses.

With a flood of capital-both SBIC-funded and from other sources-available in the lower middle market, and with a tepid market for new deals-many BDCs have struggled to max out their SBIC borrowing capacity.

Some other BDCs are limited in their ability to access SBIC debentures because their Investment Advisors manage SBIC licenses for other funds under their control.

GBDC-with a large and efficient origination network-has been able to deploy funds in its SBIC subsidiaries-and gain approval of this final increase in debenture capacity.

FUN FACT

Currently, GBDC’s stated interest borrowing on the 10 year long SBIC dentures is 3.6%.

By contrast, the BDC’s Revolver’s current cost all-in (not including unused line fees) is just over 3.0% and rises to a pro-forma 3.5% in its amortization period.

Both the SBIC license and the Revolver are secured by a portion of the BDC’s investment portfolio, and are subject to a variety of covenants.

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https://bdcreporter.com/2017/01/golub-capital-new-sbic-license-approved/