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Golub Capital BDC Inc (NASDAQ:GBDC)
Q2 2021 Earnings Call
May 11, 2021, 3:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the GBDC's March 31, 2021 Quarterly Earnings Conference Call.

Before we begin, I would like to take a moment to remind our listeners that remarks made during this call may contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 statements other than statements of historical facts made during this call, may constitute forward-looking statements, and are not guarantees of future performance or results, and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements, as a result of a number of factors, including those described from time-to-time in GBDC's filings with the SEC. For materials, the company intends to refer to on today's earnings call, please visit the Investor Resources tab on the homepage of the company's website, www.golubcapitalbdc.com and click on the Events/Presentations link. GBDC's earnings release is also available on the company's website in the Investor Resources section. As a reminder, this call is being recorded for replay purposes.

I would now like to hand the call over to David Golub, Chief Executive Officer of Golub Capital BDC. Thank you, sir. Please go ahead.

David B. Golub -- Chief Executive Officer

Thank you, operator. Hello everybody, and thanks for joining us today, I'm joined by Chief Financial Officer, Ross Teune; Senior Managing Director, Greg Robbins; and Managing Director, Jon Simmons.

Yesterday in the afternoon, we issued our earnings press release for the quarter ended March 31st, and we posted an earnings presentation on our website. We're going to be referring to this presentation throughout the call today. For those of you who are new to GBDC, our investment strategy today is and since inception it has been, to focus on providing first lien senior secured loans to healthy, resilient middle market companies, that are backed by strong partnership oriented private equity sponsors. The headline for the quarter ended March 31st, is that GBDC's results were strong. GBDC had both strong net investment income and continued strong credit performance. We will discuss these topics in greater detail as we go through today's presentation. Gregory is going to start, he's going to provide a brief overview of GBDC's performance for the March 31st quarter, and then he is going to hand it off to John and Ross, for a more detailed review of the quarter's results. I'll then come back at the end, to provide some closing commentary and I'll open the line for questions.

With that, Gregory, Let's take a closer look at GBDC's results for the quarter and the key drivers of those results.

Gregory A. Robbins -- Managing Director

Thank you, David. Turning to slide 4 for the quarter ended March 31st, GBDC's adjusted NII per share was $0.29, adjusted EPS was $0.55 and ending NAV per share was $14.86. The key drivers of those strong results are summarized on slide 6. First, our portfolio companies generally continue to perform well. This won't come as a surprise, if you happen to see the Golub Capital Middle Market report for March 31, which we published about a month ago, based on actual financial data from Golub Capital's middle market borrowers. The report for calendar Q1 showed the highest rate of year-over-year profit growth, since we began tracking data in 2013. Strong earnings growth across GBDC's portfolio was reflected in the four positive credit quality trends listed on the right hand side of the slide. We'll go into them in more detail shortly.

Second GBDC took advantage of attractive market conditions to continue to optimize its balance sheet. We executed a second unsecured bond issuance, building on the success of our inaugural offering last year. We also closed a new corporate revolver. These financings are consistent with the strategy, you've heard us discuss before; low-cost flexible financing with limited near term maturities.

Finally, middle market new deal activity was solid. It wasn't a record origination quarter like the December quarter, but it was meaningfully improved from last year's June and September quarters.

Let's drill down on the four positive credit quality trends listed on the right hand side of the slide, starting with our internal performance ratings. Slide 7 summarizes the positive trends in the internal performance ratings of GBDC's portfolio in the post COVID period. Specifically, since March 31, 2020, we've seen essentially no increase in the percentage of the portfolio performing materially below expectations in categories 1 and 2. Those two categories constituted only 1.1% of the portfolio at quarter end. We have seen upward credit migration, a steady increase in categories 4 and 5, and a corresponding decrease in category 3. To remind folks, categories 4 and 5 are loans performing at or better than our expectations at underwriting, and category 3 are loans that are performing or expected to perform below expectations.

In the quarter ended March 31, categories, 4 and 5, increased from 81% of the portfolio as of 12/31 to 86.9% of the portfolio as a 3/31. Category 3 decreased from 17.9% to 12% over the same period. The proportion of the portfolio rated 3 as of 3/31 was pretty close to our pre-COVID normal of around 10%.

A second key indicator of continued credit improvement, is the fact that non-accruals remained very low. In fact, non-accruals declined quarter-over-quarter, from 1.2% to 1% as a percentage of investments at fair value at 3/31 and are now back to pre-COVID levels. We'll come back to this point in our usual discussion of GBDC's financial results.

Slide 8 shows two other indicators of improving credit quality. No net realized losses and solid net unrealized gains. This slide provides a bridge from GBDC's $14.60 NAV per share as of 12/31, to its increased $40.86. NAV per share as of 3/31.

Let's walk through the bridge; first adjusted NII per share was $0.29, in line with our quarterly dividend. Second, no realized losses were recorded during the quarter. Third, net unrealized gains were $0.26 per share. These unrealized gains reflect the continued reversal of unrealized losses incurred in the March 2020 quarter. In fact, our strong unrealized gains through the post COVID period have driven reversals of over 85% of the March 2020 unrealized losses on a price basis.

Let's now take a closer look at our results for the quarter ended March 31st. For that, let me hand the call over to Jon Simmons, to walk you through the results in more detail. Jon?

Jonathan D. Simmons -- Director, Corporate Strategy

Thanks Gregory. Please turn to slide 10 for a summary of our results for the quarter. You can see on the right hand side of the slide, that for the quarter ended March 31st, 2021, each of adjusted NII per share, adjusted net realized and unrealized gain per share and adjusted EPS, were consistent with the prior quarter's strong results. As a result, our NAV per share at March 31st, 2021 increased to $14.86. On May 7, 2021 our Board declared a quarterly distribution of $0.29 per share, payable on June 29th, 2021 to stockholders of record, as of June 11, 2021. This distribution is consistent with our goal of having quarterly cash distributions of approximately 8% of NAV, on an annualized basis.

Turning to slide 11, new investment commitments for the quarter ended March 31st, totaled $234.7 million, after factoring in total exits and sales of investments of $345 million, as well as unrealized appreciation and other portfolio activity, total investments at fair value decreased by 2.5% or $112 million during the quarter. As Gregory noted, originations this quarter were quite strong, but so are repayments. As of March 31, 2021, we had $44.7 million of undrawn revolver commitments and $160.6 million of undrawn delayed-draw term loan commitments. These unfunded commitments are relatively small in the context of our balance sheet and liquidity position. As shown at the bottom of the table, the weighted average spread over LIBOR on new floating rate investments of 5.5% declined closer to pre-COVID levels.

Slide 12 shows that our portfolio mix by investment type has remained consistent quarter-over-quarter, with one-stop loans continuing to represent our largest investment category at 81% of the portfolio.

Slide 13 shows that GBDC's portfolio remained highly diversified by obligor, with an average investment size of less than 40 basis points. As of March 31st, 97% of our portfolio remained in first lien senior secured floating-rate loans, and defensively positioned in what we believe to be resilient industries, insulated from COVID 19.

Turning to slide 14, this graph summarizes the portfolio yields and net investment spreads for the quarter. Focusing first on the light blue line, this line is the income yield or the amount earned on our investments, including interest and fee income, but excluding the amortization of upfront origination fees and purchase price premium. The income yield increased by 10 basis points to 7.5% for the quarter ended March 31st, 2021. The investment income yield or the darker blue line, which includes the amortization of fees and discounts, also increased by 10 basis points to 8% during the quarter. The income yield in the investment income yield both increased primarily due to higher fee income and discount amortization our weighted average cost of debt, the aqua blue line increased by 10 basis points to 3%, primarily as a result of the acceleration of deferred financing fees from early redemptions of $165 million, and relatively higher priced SBIC debentures.

Our net investment spread, which is the green line, which is the difference between the investment income yield and the weighted average cost of debt, remained stable at 5%.

With that, I'll hand the call over to Ross, to continue the discussion of our quarterly results. Ross?

Ross A. Teune -- Chief Financial Officer and Treasurer

Thanks Jon. Flipping to the next two slides, non-accrual investments as a percentage of total debt investments at cost and fair value remained low and decreased to 1.4% and 1% respectively as of March 31st. During the quarter, the number of non-accrual investments decreased to six portfolio company investments from seven portfolio company investments, as one portfolio company investment returned to accrual status.

As Gregory discussed in his opening commentary, as a result of strong portfolio company performance, the percentage of investments rated 3 on our internal performance rating scale, decreased to 12% of the portfolio at fair value as of March 31st. As a reminder, independent valuation firms value at least 25% of our investments, each quarter.

Slide 17 and 18 provide further details on our balance sheet and income statement, as of and for the three months ended March 31st. Turning to slide 19, the graph on the top summarizes our quarterly returns on equity over the past five years and the graph on the bottom summarizes our quarterly distributions, as well as our special distributions over that same timeframe.

Turning to slide 20, this graph illustrates our long history of strong shareholder returns since our IPO. Slide 21 summarizes our liquidity and investment capacity as of March 31st, which remains strong, with over $800 million of capital available through cash, restricted cash and availability on our revolving credit facilities.

We also highlight our continued progress during the quarter and optimizing the right hand side of our balance sheet. Three key highlights; first on February 11th, we closed on a $475 million revolving credit facility with J.P. Morgan, which matures on February 11, 2026, and has an interest rate that ranges from one month LIBOR plus 1.75% to one month LIBOR plus 1.875%.

Second, on February 24th, we issued $400 million of unsecured notes, which bear a fixed interest rate of 2.5% and mature on August 24, 2026. With the completion of our second unsecured debt issuance, our percentage of unsecured debt as a percentage of total debt, increased to 38% as of March 31st. And finally on February 23rd, we decreased the borrowing capacity under our revolving credit facility with Morgan Stanley to $75 million. After the end of the quarter, we further amended this revolving credit facility to, among other things, extend the reinvestment period through April 12, 2024; extend the maturity date to April 12, 2026; and reduce the interest rate on borrowings to one month LIBOR plus 2.05% from one month LIBOR plus 2.45%.

Slide 22 summarizes the terms of our debt capital, as of March 31st. And last on slide 23, we summarize our recent distributions to stockholders. Most recently, our Board declared a quarterly distribution of $0.29 per share payable on June 29 to stockholders of record as of June 11.

With that, I'll now turn it back to David for some closing remarks. David?

David B. Golub -- Chief Executive Officer

Thanks Ross. So to sum up, GBDC had a strong quarter. Adjusted net investment income matched our dividend; realized credit losses were nil; and unrealized gains were substantial, continuing the reversal of unrealized losses that we incurred in the March 31, 2020 quarter. Let's talk about our outlook for the rest of this calendar year, and then we'll take your questions.

At the risk of sounding out of character, the headline is that I am cautiously optimistic. We believe GBDC has four powerful tailwinds going into the coming period. One tailwind is, GBDC's strong portfolio performance. We've highlighted through today's presentation, the positive credit trends that we've seen over the last quarter and the last 12 months, our pre-COVID underwriting has proved strong, and as a consequence, we won't be distracted in the coming period by needing to play defense on a troubled portfolio.

A second tailwind is the economy. Many of the sectors we like to lend to were booming, areas like software and healthcare and business services. Just look at the record profit growth that we reported in the Q1 Golub Capital Middle Market report the Gregory referenced. Going forward, the economies reopening, fiscal stimuluses taking effect, monetary policy remains accommodative, these factors all point to likely continued economic strength for the next several quarters.

A third tailwind comes from the strength of the private equity ecosystem in which we operate. The private equity industry has over $1.7 trillion of drypowder, that's according to Preqin data. In the first quarter of 2021, the private equity industry had its strongest ever fundraising quarter, that's according to Private Equity International. So we believe there's a lot of pent-up demand for sponsor driven middle-market M&A, now that COVID uncertainty is abating, and we anticipate that the coming period is likely to be one of robust private equity dealmaking.

Finally, a fourth tailwind is that GBDC has ample liquidity and flexibility to capture this attractive opportunity set. You'll recall that one of our key goals in navigating COVID, was not only to fortify the company's balance sheet in the face of COVID related uncertainty, but also for the company on even stronger footing, to take advantage of new opportunities. I think we're in a good position to do that.

That all said, you know I'm not by nature an optimist, so let me elaborate on three reasons on why I'm only cautiously optimistic. First, from a macro perspective, while near term economic prospects look bright, there is longer term uncertainty, especially around inflation. Our economy is booming, and yet at the same time, government and central bank policy right now, is to apply even more fiscal stimulus, and even more accommodative monetary policy. I don't know how that's going to play out. I don't think anybody can predict the outcome of this economic policy cocktail. A big question is, whether price increases that we're seeing right now in commodities and wage pressure, whether that's going to translate into accelerating inflation, and I don't think anybody knows the answer to that yet.

Second reason for caution, liquid credit markets are strong. High yield spreads are at 20 year tights. If this strength continues, I'd expect to see some continued pressure on loan spreads, terms and leverage in our market, as I've said many times before, the middle market is insulated, but not immune from what's going on in broader credit markets.

Third reason for caution, COVID still raging in many parts of the world. This isn't just a tragedy for all the people in those communities. It also means, we're very likely to see new COVID variants develop. Variants our vaccines may not protect us from. So we may not be done yet with this dreadful COVID virus. But enough on the cautions, there always clouds in the sky. Overall I think GBDC is very well positioned, and that the coming period will likely play to Golub Capital strengths.

Thanks. Operator, please open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from Finian O'Shea with Wells Fargo Securities.

Finnian O'Shea -- Wells Fargo Securities -- Analyst

Hi everyone. Good afternoon. First question, David, on the outlook for origination. Historically, you've been -- the Golub platform has been very active in these very large unitranche offering, some exceeding $2 billion. Those seem to be coming back, but in our observation, contrary to former periods where we'd see them, today, the syndication market appears very hot as well. Do you agree with that? Is this -- first I guess, are these large market opportunities coming back? And second, are they gaining -- do they represent -- lenders competing more heavily with the syndicated market, or for the sponsor demand tilting in your favor? I'll stop there.

David B. Golub -- Chief Executive Officer

Thanks Finn. Good to hear from you. So let me take a step back and answering that question, because I think there are a number of trends that are running in different directions. First trend is, the development of a large unitranche product that sponsors can use, if they want it. I think there has definitely been a marked change over the last couple of years. We've been the leader, as you point out, in providing these large unitranches. But it's not just us, and I think sponsors increasingly look at the possibility of financing their deals with a large unitranche, as one of the options on the menu, in a way that, even as recently as three or four years ago, wasn't the case.

Now under what circumstances, do sponsors prefer doing a large unitranche to doing a broadly syndicated first lien, second lien deal, that's a second question. And you're 100% right that, when the broadly syndicated markets are hot, that it's possible sometimes to get a combination of pricing or leverage or terms or all three that are more attractive in the syndicated market, than then are possible to get in a private one stop. But even when markets are receptive like they are now, there are often transactions, where a private one-stop makes more sense, that may be because the sponsor needs to move more quickly than the syndicated market will permit, or needs to arrange a deal with more confidentiality, doesn't want to share information with a lot of market participants, or it's a situation in which the company is going to be doing serial acquisitions, and we're growing, scaling up, the company is going to be easier using a one-stop capital structure, as opposed to a more complicated multilayer capital structure.

So my view is, there is a secular trend toward increased market share for larger one-stops, that that's going to continue. There will be ups and downs in that secular trend, that will be driven by where we -- what we're seeing in the M&A market and what we're seeing in the broadly syndicated market. I think right now, to your point, we're seeing a particularly robust syndicated market, and it's harder for private lenders to compete with, than during periods when those markets are choppy. One thing I think we can all be certain of, which is that, choppy markets will return at some point, and one has to look at these trends over an extended period of time. Makes sense?

Finnian O'Shea -- Wells Fargo Securities -- Analyst

Yeah. No, absolutely. It's very helpful. And I'll just do a follow-on, on your economic commentary at the end on the item of inflation, potentially labor inflation. We are seeing on the higher level, more viewpoints that suggest that that's a potential concern. Do you see anything in your portfolio companies that are more labor intensive? Cracks, restaurants, so forth, any indications of emerging pressure on that front?

David B. Golub -- Chief Executive Officer

I'm seeing trends in our portfolio that are reflective of what we're all reading about in the front pages of the financial press, which is that, it's increasingly challenging in many areas of the country to hire. And I think that, it can be a good thing or a bad thing, depending on how one looks at it. I think the good aspect of it is that, it's leading to some higher wages in some areas, which over the course of the last two decades, have seen stagnant wages, and that's probably a good thing. It's a bad thing, if this becomes part of accelerating inflationary expectations, which then drives inflationary expectations into other areas. I think it's going to be very interesting to watch the Bureau Labor Statistics data over the course of the coming months, and tomorrow actually is the next release, and one of the pieces of data I like to look at, I think that's really interesting is, they release a month over month version of inflation in addition to their annual version. And if you look at the recent month-over-month data, it has been accelerating. So I'm very interested to see, whether we're going to see a continuation of that acceleration, or whether we're going to see a stabilization.

Finnian O'Shea -- Wells Fargo Securities -- Analyst

Interesting and we'll check that out tomorrow. Well, thanks for taking our questions and congrats on the quarter.

David B. Golub -- Chief Executive Officer

Thanks Finn.

Operator

Your next question comes from Ryan Lynch with KBW.

Ryan Lynch -- KBW -- Analyst

Hey, good afternoon guys. I wanted a -- had a couple of questions on kind of your thoughts during some of the -- during your underwriting process for a couple of different themes [Phonetic]. So you guys are obviously a big lender in the software space, and it seems that annual recurring revenue blended is becoming much more and more prevalent, it seems like that's even accelerated kind of more during COVID and even now, kind of as we are recovering, coming out of COVID. So just can you talk about from a higher level, how do you think about lending based on ARR versus cash flow for some of these software names or other recurring revenue names?

David B. Golub -- Chief Executive Officer

Sure. So let me provide some context first, just for those who perhaps aren't so familiar with what we're talking about. Golub Capital has been a leader in providing financing to the sponsor backed buyouts of software companies for many, many years, more than a decade, and about eight years ago, in addition to lending to more mature software companies that are generating significant cash flows, we began lending to companies that were at an earlier stage. We refer to these as recurring revenue loans, and these are companies that have a proven software-as-a-service model. They've got great product, they've got loyal customers, they have got significant recurring revenues that are growing rapidly. Their clients are renewing their business with them at high rates. But in part because these companies are growing rapidly, and are investing a lot in sales and marketing, they are not -- they're either not highly profitable. In some cases, they're not profitable at all. And so, traditional credit metrics don't book the same with these companies, as those same credit metrics look like with the more mature software companies.

We are a pioneer in identifying this recurring revenue loan niche as being attractive niche. We've been very active in it, Ryan, as you point out, over the last eight years, we've had virtually no losses in this space. It has been a very successful space for Golub Capital. As we look at those loans, the key underwriting criteria, boil down to whether we believe there'd be a strategic buyer who'd want to buy the company at a price that would be more than sufficient to get us out, if the growth projections of the company were not fulfilled. If something happened that caused the company's business plan to increase revenues at a rapid rate. Not to be sustainable, we want to make sure there is an appropriate second way out for us, so that we are not going to be subjected to a meaningful credit loss.

This is tricky, because you're talking about companies that are not highly profitable, that are earlier stage in their development, and I think it requires enormous amounts of expertise, underwriting expertise, industry expertise and underwriting skill. I think it's something we're very good at. I don't think that it's inappropriate. I think it is appropriate, that there have been some commentators around saying, that there are some people who are active in this space, who maybe don't have the level of expertise to be as active as they currently seem to be. This is not the easiest to learn kind of lending that there is. This is tricky stuff.

Ryan Lynch -- KBW -- Analyst

That's really helpful color on kind of your overall thought process, history in that area. Kind of on that same sort of topic though, obviously there were certain businesses that were significantly impacted on the negative side for COVID, and those businesses you know, if they've survived or are probably going to have some pretty major tailwinds as the economy reopens. Conversely, in some of these software needs potentially, a lot of the growth or adoption, as the economy or a lot of the business has been virtualized and kind of work from home, so some of that growth or adoption might have been accelerated or pulled forward during COVID, and there might not be the same sort of tailwinds going forward. So how are you guys thinking about that and taking that into your underwriting process, as you guys look at more deals in the software space, kind of at this point in time, with hopefully the economy reopening and some of those acceleration of some of those trends may fading?

David B. Golub -- Chief Executive Officer

Yeah, I guess, I'm not a big believer in your premise. I think in many parts of the software industry -- look every software company has got to be looked at individually. But what we've seen in many parts of our software universe is that, there were COVID impacts. Not to say there wasn't still revenue growth, but the pace of revenue growth would have been higher, if the sales force had been able to travel, and meet in person with customers and push along the sales pipeline in the traditional way. So if your premise was right, I think we'd be seeing right now -- we'd be seeing a notable decline in the growth rate of software companies generally. And if I hearken back to the Golub Capital Middle Market Index report that Gregory alluded to in our opening remarks, that's not what the numbers show. The numbers show continued, very high revenue growth for software companies, and -- my bet is that that's going to continue.

Ryan Lynch -- KBW -- Analyst

Okay. That's fair enough. Just one last one if I can, kind of switching gears to your capital structure. First, congrats on the -- on your second unsecured debt issuance that was attractive rate, and kind of on that point, when you guys were initially talking about layering on some unsecured debt, I kind of got the impression and obviously correct me if I'm wrong, that you guys were going to maybe have a third or so percent of your liability structure in unsecured notes. With this most recent rate of 2.5%, of course that rate can always move, depending on the market terms and a portion you want to ladder out your maturities for that unsecured debt. Does that change though -- that 2.5% rate does that -- where you guys issued your last bond, and does that change kind of the way you guys are thinking about layering on unsecured debt as a percentage of your liability structure?

David B. Golub -- Chief Executive Officer

Yeah, it's a great question Ryan, and I think we always think about the debt structure in the same way, which is, it's a balancing of multiple goals. Your point, if I'm understanding you right is, 2.5%, that's really low and it's particularly low by historical standards for unsecured debt, would that drive us toward potentially increasing the proportion of unsecured in our stack? And the answer is yes, subject to other goals too, including as you point out, laddering maturities and also subject to our needing incremental capital. Right now, if you look at our right-hand side of the balance sheet, we've got in enormous amount of unused capacity with almost none of the J.P. Morgan line drawn. So we certainly want to be careful not to take on incremental unsecured, that we don't need. But in the long-run if unsecured, is as inexpensive as it is now, I think that does change the calculus for the proportion of the capital structure, that it may make sense to have an unsecured.

Ryan Lynch -- KBW -- Analyst

Okay, understood. That's all for me. I appreciate the time this afternoon, guys.

Operator

And your next question comes from Robert Dodd with Raymond James.

Robert Dodd -- Raymond James -- Analyst

Hi, guys and congratulations on the quarter and the portfolio looks in really good shape. So on one of the comments you made, David, I mean the liquid markets are hot, and there is a concern that I think you have perhaps, not so much about the spreads, they're going to do what they do, but the terms. If you were to -- the terms and structures, if you were to look at things that say, coming into your pipeline today versus maybe coming in, in January. Has the expectation from the borrower or the hope maybe from the borrower, shifted even over that timeframe, on the structure side, for the pricing, I mean are people just asking for more and more, and could we expect that -- the structural protections to maybe weaken a little bit as we go forward from here?

David B. Golub -- Chief Executive Officer

So I think if these trends, more broadly Robert, is are we in a a borrower friendly period or a lender friendly period? And when you're in one or the other, things tend to keep moving in that direction, until there is a turnabout. So since I would say June of 2020, we've been on a borrower friendly trend, and I think over successive months and quarters since June of 2020, I would say yes to your question. I would say that there has been movement that's been in favor of borrowers, and that has been true in all three of pricing, meaning spreads; terms, meaning documentation terms and covenants, and levels of leverage all three. Now in liquid markets, those changes have been more pronounced, more significant than they've been in private markets, but I think we're seeing it in private markets as well. All goes back to that same phrase I repeat like a mantra, we're insulated, but not immune in the middle market from what's happening in broader credit markets.

Robert Dodd -- Raymond James -- Analyst

Understood. Another one, if I can sneak [Phonetic], I mean obviously when you loo at the -- the BSL market doesn't have the later alternatives, for example, it's one of the advantages of doing some of these mega tranches. But when the incumbent borrowers that you've got in your portfolios, are they -- is there any increase in reaching out hope, beginning the process of maybe adding or increasing DDTL opportunities, if -- the M&A market looks pretty hot. The existing borrowers looking to maybe expand more into DDTL, and that was something obviously a year ago that we were trying to reduce. But is that, and if that's the case, I mean does that add extra incumbency protection, because obviously that's something potentially you can do, but the BSL market probably isn't going to offer people?

David B. Golub -- Chief Executive Officer

So DDTLs are definitely a tool that some sponsors like to use, especially if they're doing buy and build strategies, and it is -- you're correct, that it's easier to do it in private deals. It is possible to do in a syndicated deal. There are syndicated deals that have DDTLs, but it is easier to do in private deals, and it's much expensive to do from an issuer standpoint in private deals, a very significant chunk of the business that we do with existing companies in our portfolio, comes in the form of acquisition financing, and that often is DDTLs. Not always, sometimes it's some incremental term loan and some DDTL at the same time, sometimes it's only incremental term loan.

But I think a point you were making is really important, which is in any of these scenarios, being the incumbent lender, being the incumbent lead, is hugely valuable, because you're the -- you're in the pole position, you're the go-to-lender for incremental needs, absent there being some really compelling reason to do a global refinancing, which is distracting and expenses.

Robert Dodd -- Raymond James -- Analyst

I appreciate that. Thank you.

Operator

I would now like to turn the call back over to David Golub for closing remarks.

David B. Golub -- Chief Executive Officer

Thank you, Brenda. I appreciate everyone joining us today. Thanks for your questions. Thanks for listening, and as always if you have any questions over the course of the coming quarter, please feel free to reach out. We look forward to talking to you again next quarter.

Operator

[Operator Closing Remarks].

Duration: 40 minutes

Call participants:

David B. Golub -- Chief Executive Officer

Gregory A. Robbins -- Managing Director

Jonathan D. Simmons -- Director, Corporate Strategy

Ross A. Teune -- Chief Financial Officer and Treasurer

Finnian O'Shea -- Wells Fargo Securities -- Analyst

Ryan Lynch -- KBW -- Analyst

Robert Dodd -- Raymond James -- Analyst

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