GOLUB Capital BDC (GBDC) risk factors, 2024 10-K

Risks Relating to Our Business and Structure

1. 01We are subject to risks associated with the current interest rate environment and to the extent we use debt to finance our investments, changes in interest rates will affect our cost of capital and net investment income
2. 02We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses
3. 03Changing interest rates could affect the value of our investments and make it more difficult for portfolio companies to make periodic payments on their loans
4. 04We are dependent upon GC Advisors for our success and upon its access to the investment professionals and partners of Golub Capital and its affiliates
5. 05We can provide no assurance that we will be able to replicate the historical results achieved by other entities managed or sponsored by members of GC Advisors’ investment committee, or by GC Advisors or its affiliates
6. 06Our financial condition, results of operations and cash flows depend on our ability to manage our business effectively
7. 07There are significant potential conflicts of interest as a result of our arrangements with GC Advisors and its affiliates and GC Advisors’ investment committee that could affect our investment returns
8. 08There are conflicts related to the obligations of GC Advisors’ investment committee, GC Advisors or its affiliates have to other clients and conflicts related to fees and expenses of such other clients
9. 09The allocation of time and focus by personnel of GC Advisors and its affiliates to existing portfolio company investments held by other funds and accounts could reduce the time that such individuals have to spend on our investing activities
10. 10GC Advisors’ investment committee, GC Advisors or its affiliates could, from time to time, possess material non-public information, limiting our investment discretion
11. 11Our management and incentive fee structure creates incentives for GC Advisors that are not fully aligned with the interests of our stockholders and could induce GC Advisors to make certain investments, including speculative investments
12. 12Our securities could be purchased by GC Advisors or its affiliates
13. 13The majority of our portfolio investments are in the form of securities that are not publicly traded. As a result, GC Advisors, as valuation designee, subject to oversight by our board of directors, determines the fair value of these securities in good faith
14. 14Conflicts related to other arrangements with GC Advisors or its affiliates
15. 15Our ability to enter into transactions with our affiliates is restricted, which could limit the scope of investments available to us
16. 16our voting securities or certain of that person’s affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC
17. 17We have entered into the Adviser Revolver resulting in a conflict of interest between GC Advisors’ obligation to act in its own best interest and in our best interest
18. 18GC Advisors could make certain investment decisions for the purpose of receiving transaction fees
19. 19Reductions, waivers or absorptions of fees and costs can temporarily result in higher returns to investors than they would otherwise receive if full fees and costs were charged
20. 20GC Advisors could prioritize its relationship with a borrower or private equity sponsor instead of seeking the most advantageous terms for our investments
21. 21GC Advisors operates in multiple business lines and could pursue additional business lines, which could create a conflict of interest in the allocation of its time and focus
22. 22Golub Capital could pursue strategic transactions, which could create a conflict of interest in the allocation of GC Advisors’ time and focus
23. 23We and GC Advisors could be the target of litigation or regulatory investigations
24. 24We will be subject to corporate-level income tax if we are unable to qualify as a RIC
25. 25We could need to raise additional capital to grow because we must distribute most of our income
26. 26We could have difficulty paying our required distributions if we recognize income before, or without, receiving cash representing such income
27. 27The tax treatment of a non-U.S. stockholder in its jurisdiction of tax residence will depend entirely on the laws of such jurisdiction and could vary considerably from jurisdiction to jurisdiction
28. 28Regulations governing our operation as a business development company affect our ability to, and the way in which we, raise additional capital. As a business development company, the necessity of raising additional capital exposes us to risks, including the typical risks associated with leverage
29. 29We finance our investments with borrowed money, which will accelerate and increase the potential for gain or loss on amounts invested and could increase the risk of investing in us
30. 30(1)Assumes $8.7 billion in total assets, $4.7 billion in debt and $4.0 billion in net assets as of September 30, 2024 and an effective annual interest rate of 6.21% as of September 30, 2024
31. 31We are subject to risks associated with the Debt Securitizations
32. 32We are subject to certain risks as a result of our direct or indirect interests in the junior notes and membership interests of each Securitization Issuer
33. 33The notes and membership interests that we hold that are issued by the Securitization Issuers are subordinated obligations of the applicable Securitization Issuer and we could be prevented from receiving cash from such Securitization Issuer
34. 34The interests of holders of the senior classes of securities issued by the Securitization Issuers could not be aligned with our interests
35. 35trustee under the indenture to repay the obligations of holders of the notes we hold, or to pay a dividend to holders of the membership interests
36. 36A Securitization Issuer could fail to meet certain asset coverage tests
37. 37We could be required to assume liabilities of a Securitization Issuer and are indirectly liable for certain representations and warranties in connection with each Debt Securitization
38. 38Certain Securitization Issuers could issue additional Notes
39. 39We are subject to risks associated with any Revolving Credit Facility that utilizes a Funding Subsidiary as our interests in any Funding Subsidiary are subordinated and we could be prevented from receiving cash on our equity interests from a Funding Subsidiary
40. 40The ability to sell investments held by our Funding Subsidiaries is limited
41. 41We can enter into repurchase agreements, which are another form of leverage
42. 42Adverse developments in the credit markets can impair our ability to enter into new debt financing arrangements
43. 43Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties could have a material adverse effect on us, GC Advisors and our portfolio companies
44. 44See “Business — Regulation — Qualifying Assets.”
45. 45The majority of our portfolio investments are recorded at fair value as determined in good faith by our valuation designee and, as a result, there could be uncertainty as to the value of our portfolio investments
46. 46Government intervention in the credit markets could adversely affect our business
47. 47Our board of directors could change our investment objective, operating policies and strategies without prior notice or stockholder approval
48. 48Provisions of the General Corporation Law of the State of Delaware and our certificate of incorporation and bylaws could deter takeover attempts, which could have an adverse effect on the price of our common stock
49. 49GC Advisors can resign on 60 days’ notice, and we can provide no assurance that we would be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations
50. 50The Administrator can resign on 60 days’ notice, and we can provide no assurance that we would be able to find a suitable replacement, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations
51. 51Our business could be unable to realize the benefits anticipated by the GBDC 3 Merger, including estimated cost savings, or it could take longer than anticipated to achieve such benefits

Risks Relating to Our Investments

1. 52Economic recessions or downturns could impair our portfolio companies and defaults by our portfolio companies will harm our operating results
2. 53Inflation could adversely affect the business, results of operations and financial condition of our portfolio companies
3. 54Our debt investments are risky and we could lose all or part of our investments
4. 55Our investments in leveraged portfolio companies are risky, and we could lose all or part of our investment
5. 56Our investments in private and middle-market portfolio companies are risky, and we could lose all or part of our investment
6. 57An investment strategy focused primarily on privately held companies presents certain challenges, including, but not limited to, the lack of available information about these companies
7. 58We would be subject to risks if we are required to assume operation of portfolio companies upon default
8. 59The lack of liquidity in our investments could adversely affect our business
9. 60Price declines and illiquidity in the corporate debt markets could adversely affect the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation
10. 61Our portfolio companies could prepay loans, which could reduce our yields if capital returned cannot be invested in transactions with equal or greater expected yields
11. 62We are subject to risks to the extent we invest in covenant-lite loans
12. 63We are subject to credit and default risk and our portfolio companies could be unable to repay or refinance outstanding principal on their loans at or prior to maturity
13. 64We have not yet identified the portfolio company investments we will acquire and we could have difficulty sourcing investment opportunities
14. 65We are a non-diversified investment company within the meaning of the 1940 Act and, therefore we are not limited with respect to the proportion of our assets that could be invested in securities of a single issuer
15. 66Our portfolio could be concentrated in a limited number of portfolio companies and industries, which will subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry
16. 67We could hold the debt securities of leveraged companies that could, due to the significant volatility of such companies, enter into bankruptcy proceedings
17. 68Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio
18. 69Because we generally do not hold controlling equity interests in our portfolio companies, we generally will not be able to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments
19. 70Our portfolio companies could incur debt that ranks equally with, or senior to, our investments in such companies and such portfolio companies could fail to generate sufficient cash flow to service their debt obligations to us
20. 71not sufficient to repay the outstanding secured loan obligations, then our unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio company’s remaining assets, if any
21. 72The disposition of our investments could result in contingent liabilities
22. 73GC Advisors’ liability is limited, and we have agreed to indemnify GC Advisors against certain liabilities, which could lead GC Advisors to act in a riskier manner on our behalf than it would when acting for its own account
23. 74We could be subject to risks related to investments in non-U.S. companies
24. 75We could be subject to risks if we engage in hedging transactions and could become subject to risks if we invest in foreign securities
25. 76We could suffer losses from our equity investments
26. 77We could be subject to lender liability claims with respect to our portfolio company investments

Risks Relating to Investors in Our Securities

1. 78Investing in our securities could involve an above average degree of risk
2. 79Shares of closed-end investment companies, including business development companies, often trade at a discount to their net asset value
3. 80There is a risk that investors in our equity securities will not receive distributions or that our distributions will not grow over time and a portion of our distributions could be a return of capital
4. 81We have not established any limit on the amount of funds we can use from available sources, such as borrowings, if any, or proceeds from private placements of our common stock, to fund distributions (which could reduce the amount of capital we ultimately invest in assets)
5. 82The market price of our common stock after the GBDC 3 Merger could be affected by factors different from those affecting our common stock before the GBDC 3 Merger
6. 83The market price of our securities could fluctuate significantly
7. 84The Unsecured Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have incurred or could incur in the future
8. 85The indenture governing the Unsecured Notes contains limited protection for holders of the Unsecured Notes
9. 86If an active trading market for the Unsecured Notes does not develop, holders could not be able to resell them
10. 87If we default on our obligations to pay our other indebtedness, we could not be able to make payments on the Unsecured Notes
11. 88If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required
12. 89A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or the Unsecured Notes, if any, or change in the debt markets, could cause the liquidity or market value of the Unsecured Notes to decline significantly
13. 90An increase in market interest rates could result in a decrease in the market value of the Unsecured Notes
14. 91The optional redemption provision could materially adversely affect the return on the Unsecured Notes
15. 92We could be unable to repurchase the Unsecured Notes upon a Change of Control Repurchase Event
16. 93We are a holding company and depend on payments from our subsidiaries in order to make payments on any debt securities that we could issue as well as to pay distributions on our common stock. Any debt securities that we issue will be structurally subordinated to the obligations of our subsidiaries
17. 94Holders of any preferred stock that we could issue will have the right to elect members of the board of directors and have class voting rights on certain matters
18. 95otherwise be the case if they fully exercised their rights. We cannot state precisely the amount of any such dilution in share ownership because we do not know at this time what proportion of the shares would be purchased as a result of such rights offering
19. 96Our stockholders will experience dilution in their ownership percentage if they do not participate in our dividend reinvestment plan
20. 97Our stockholders could receive shares of our common stock as dividends, which could result in adverse tax consequences to them
21. 98Sales of substantial amounts of our common stock in the public market could have an adverse effect on the market price of our common stock
22. 99The trading market or market value of our publicly issued debt securities could fluctuate
23. 100Terms relating to redemption could materially adversely affect the return on any debt securities that we could issue
24. 101our common stock could become more volatile
25. 102Our stock repurchase program could affect the price of our common stock and increase volatility and could be suspended or terminated at any time, which could result in a decrease in the trading price of our common stock
26. 103We are currently in a period of capital markets disruption and economic uncertainty
27. 104Events outside of our control, including public health crises, could negatively affect our portfolio companies, our investment adviser and the results of our operations
28. 105We could experience fluctuations in our quarterly operating results
29. 106Political uncertainty could adversely affect our business
30. 107New or modified laws or regulations governing our operations could adversely affect our business
31. 108We incur significant costs as a result of being a publicly traded company
32. 109Our compliance with Section 404 of the Sarbanes-Oxley Act involves significant expenditures, and non-compliance with Section 404 of the Sarbanes-Oxley Act would adversely affect us and the market price of our common stock
33. 110Technological innovations and industry disruptions could negatively impact us
34. 111We are highly dependent on information systems and systems failures could significantly disrupt our business, which could, in turn, negatively affect the market price of our common stock and our ability to pay distributions
35. 112Failure or alleged failure to comply with applicable data protection and privacy laws and regulations could subject us to ongoing costs and, in some cases, fines and reputational harm
36. 113Cybersecurity risks and cyber incidents could adversely affect our business or the business of our portfolio companies
37. 114Our business and operations could be negatively affected if we become subject to stockholder activism, which could cause us to incur significant expense, hinder the execution of our investment strategy or impact our stock price
38. 115We and/or our portfolio companies could be materially and adversely impacted by global climate change
39. 116We are subject to risks related to corporate social responsibility