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Golub Capital BDC, Inc. ("GBDC," or the "Company"), a business development company (NASDAQ:GBDC), announced today that it entered into a definitive merger agreement with Golub Capital BDC 3, Inc. ("GBDC 3"), with GBDC as the surviving company, subject to certain stockholder approvals and customary closing conditions. Following the merger, GBDC is expected to have $8.5 billion of total assets at fair value and investments in over 340 portfolio companies, on a pro forma basis as of September 30, 2023. The Boards of Directors of both GBDC and GBDC 3 have approved the transaction with the participation throughout by, and the unanimous support of, their respective independent directors.
Under the terms of the proposed merger, stockholders of GBDC 3 will receive newly issued shares of GBDC based on a ratio determined shortly before merger close (the "Exchange Ratio"). GBDC 3 stockholders will receive GBDC shares based on a ratio that is the greater of: (a) a NAV-for-NAV exchange of shares with GBDC; or (b) if GBDC shares are trading at a premium to NAV at the closing of the merger, a number of shares of GBDC equal in value to GBDC 3's NAV per share, plus a premium of up to 50% of any premium to NAV in the trading price of GBDC shares at merger close, with a maximum premium equal to 3% of GBDC 3's NAV per share. The process for determining the Exchange Ratio is described more fully in the section below under the title "Exchange Ratio."
GBDC believes the proposed merger with GBDC 3 is compelling for GBDC stockholders for several reasons:
The transaction is expected to be immediately accretive to GBDC's net investment income per share. This accretion is expected to be driven by the combined company's lower incentive fees and lower combined operating expenses.
The combined company will have incremental investment capacity as financial leverage at closing on a pro forma basis as of September 30, 2023 is expected to decrease from GBDC's stand-alone GAAP leverage of 1.24x to approximately 1.10x.
Additionally, the exchange ratio structure offers the potential for further accretion to GBDC's NAV per share if GBDC is trading at a premium to NAV when the merger closes (see section below under the title "Exchange Ratio").
Based on the earnings power of the Company and the new incentive fee rate, on January 16, 2024, GBDC's board of directors increased GBDC's quarterly base distribution by over 5% and declared a quarterly distribution of $0.39 per share, which is payable on March 29, 2024, to stockholders of record as of March 1, 2024. GBDC's Board expects to continue to evaluate the potential for supplemental distributions under its quarterly variable supplemental distribution framework, which was introduced in fiscal year 2023.
GBDC's Board has also announced its intention to declare additional special distributions totaling $0.15 per share, to be distributed in three consecutive quarterly payments of $0.05 per share per quarter, with the record date of the first special distribution expected to occur shortly after the closing of the proposed merger.2
David B. Golub, CEO of GBDC, said, "We believe the proposed merger with GBDC 3 is a win-win-win—good for GBDC stockholders, good for GBDC 3 stockholders and good for GBDC. We're pleased to announce the proposed reduction of GBDC's incentive fee rate to 15.0% in connection with the proposed merger, another milestone in GBDC's history of raising the bar for shareholder alignment. GBDC's pro forma fee structure positions it to provide market-leading returns across different economic and interest rate environments while keeping its investment strategy focused at the top of the capital structure (first lien, first out senior secured sponsor backed floating rate loan investment strategy). We believe this will be a unique differentiator especially in the context of GBDC's meaningfully increased scale post-merger."
The combined company will remain externally managed by GC Advisors and all current GBDC officers and directors will remain in their current roles. The combined company will continue to trade under the ticker GBDC on the Nasdaq Global Select Market.
Consummation of the proposed merger is subject to GBDC and GBDC 3 stockholder approvals, customary regulatory approvals and other closing conditions. Assuming satisfaction of these conditions, the transaction is expected to close in the second calendar quarter of 2024.
Prior to the anticipated closing of the proposed merger, each of GDBC and GBDC 3 currently intends to maintain its usual practice of declaring and paying distributions and, to the extent necessary, will declare and pay any special distributions required to distribute sufficient taxable income to continue to comply with its regulated investment company status.
Exchange Ratio
Under the terms of the proposed merger, stockholders of GBDC 3 will receive newly issued shares of GBDC for each share of GBDC 3 based on the Exchange Ratio determined shortly before merger close. The Exchange Ratio will be calculated based upon (i) the NAV per share of GBDC and GBDC 3 ("GBDC NAV Per Share" and "GBDC 3 NAV Per Share")3, each determined shortly before merger close, and (ii) the market price of GBDC common stock ("GBDC Price")4 shortly before merger close. Formulaically, the Exchange Ratio will be determined as follows:
The Exchange Ratio is subject to adjustment only in the event of a reclassification, recapitalization or similar transaction by either company.
GBDC will hold a conference call to discuss the proposed merger at 11:30 a.m. (Eastern Time) on Wednesday, January 17, 2024.
All interested parties may participate in the conference call by dialing (888) 330-3529 approximately 10-15 minutes prior to the call; international callers should dial +1 (646) 960-0656. Participants should reference Golub Capital BDC, Inc. when prompted. For slide presentations that we intend to refer to on the conference call, please visit the Investor Resources link on the homepage of our website (www.golubcapitalbdc.com) and click on the Overview of Proposed Merger With Golub Capital BDC 3, Inc. Presentation under Events/Presentations. An archived replay of the call will be available shortly after the call until 11:59 p.m. (Eastern Time) on January 31, 2024. To hear the replay, please dial (800) 770-2030. International dialers, please dial +1 (647) 362-9199. For all replays, please reference program ID number 7089069.
Morgan Stanley & Co. LLC served as financial advisor to the special committee of the independent directors of GBDC. Keefe, Bruyette & Woods, A Stifel Company, served as financial advisor to the special committee of the independent directors of GBDC 3.
Posted In: GBDC