What happened?
Veteran business development company Golub Capital BDC (GBDC -0.81%) is expanding its presence on the market. The company announced that it is floating a 1.75 million share issue of its common stock, which it expects to close by Monday, June 12. The issue is being underwritten in its entirety by UBS (UBS -3.63%) Investment Bank; UBS will subsequently sell the new shares on the market.
UBS will pay $18.71 per share for the entirety of the issue, a purchase that will total over $32.7 million for the coffers of the business development company (BDC). UBS will also have the right to buy up to an additional 262,500 shares of Golub Capital BDC at the same price.
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Golub Capital BDC said it would use the proceeds "to invest in portfolio companies in accordance with our investment objective and strategies and for general corporate purposes."
Does it matter?
Floating new shares from time to time is standard operating procedure for Golub Capital BDC. In fact, it's standard operating procedure for most BDCs.
That's because such companies, due to legal restrictions, are limited in the amount of debt financing they can raise. Meanwhile, as most of them elect to be treated as "regulated investment companies," they are required to pay out at least 90% of their earnings in the form of shareholder dividends. That squeeze between borrowing limits and mandatory dividend spending basically forces them to to go the markets for financing, hence the frequent share issues.
In fact, this is the second time so far this year that Golub Capital BDC has blasted a 1.75 million share issue onto the market. At the moment, the company has nearly 57 million shares outstanding. So, neither issue should raise serious dilution concerns.
In the BDC world, share issuance is often a good sign, indicating that a company has opportunities to deploy more capital in the small- and mid-sized business loans in which it specializes. Golub Capital BDC has managed to grow net assets and profitability lately, and it's been a solid performer. As such, I'd consider this round of capital raising to be a positive development -- it'll give this capable, well-managed company a chance to improve both line items going forward.
