3
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
Commission file number
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
|
|
(Address of Principal Executive Offices) |
(Zip Code) |
Registrant’s Telephone Number, Including Area Code: (
Not Applicable
Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
None |
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None |
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None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer: |
☐ |
Accelerated filer: |
☐ |
☒ |
Smaller reporting company: |
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Emerging growth company: |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of May 9, 2023 was
1
GOLDMAN SACHS MIDDLE MARKET LENDING CORP. II
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2023
|
INDEX |
PAGE |
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3 |
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PART I. |
4 |
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ITEM 1. |
4 |
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4 |
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5 |
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6 |
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7 |
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8 |
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16 |
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ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
33 |
ITEM 3. |
44 |
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ITEM 4. |
44 |
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PART II |
44 |
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ITEM 1. |
44 |
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ITEM 1A. |
44 |
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ITEM 2. |
45 |
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ITEM 3. |
45 |
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ITEM 4. |
45 |
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ITEM 5. |
45 |
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ITEM 6. |
45 |
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47 |
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2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “target,” “estimate,” “intend,” “continue” or “believe” or the negatives of, or other variations on, these terms or comparable terminology. You should read statements that contain these words carefully because they discuss our plans, strategies, prospects and expectations concerning our business, operating results, financial condition and other similar matters. We believe that it is important to communicate our future expectations to our investors. Our forward-looking statements include information in this report regarding general domestic and global economic conditions, our future financing plans, our ability to operate as a business development company (“BDC”) and the expected performance of, and the yield on, our portfolio companies. There may be events in the future, however, that we are not able to predict accurately or control. The factors listed under “Risk Factors” in this report and in our annual report on Form 10-K for the year ended December 31, 2022, as well as any cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. The occurrence of the events described in these risk factors and elsewhere in this report could have a material adverse effect on our business, results of operations and financial position. Any forward-looking statement made by us in this report speaks only as of the date of this report. Factors or events that could cause our actual results to differ from our forward-looking statements may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the U.S. Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K. The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which preclude civil liability for certain forward-looking statements, do not apply to the forward-looking statements in this quarterly report and in our annual report on Form 10-K for the year ended December 31, 2022, because we are an investment company. The following factors are among those that may cause actual results to differ materially from our forward-looking statements:
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Goldman Sachs Middle Market Lending Corp. II
Consolidated Statements of Assets and Liabilities
(in thousands, except share and per share amounts)
|
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March 31, |
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December 31, |
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2023 (Unaudited) |
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2022 |
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Assets |
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Investments, at fair value |
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Non-controlled/non-affiliated investments (cost of $ |
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$ |
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$ |
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||
Non-controlled affiliated investments (cost of $ |
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|
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||
Total investments, at fair value (cost of $ |
|
$ |
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$ |
|
||
Investments in affiliated money market fund (cost of $ |
|
|
|
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— |
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Cash |
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Interest and dividends receivable |
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Deferred financing costs |
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Other assets |
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— |
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Total assets |
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$ |
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$ |
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||
Liabilities |
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Debt |
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$ |
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$ |
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Interest and other debt expenses payable |
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Management fees payable |
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Distribution payable |
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— |
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Accrued expenses and other liabilities |
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Total liabilities |
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$ |
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|
$ |
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||
) |
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Net assets |
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Preferred stock, par value $ |
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$ |
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$ |
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Common stock, par value $ |
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Paid-in capital in excess of par |
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Distributable earnings (loss) |
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( |
) |
|
Total net assets |
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$ |
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$ |
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||
Total liabilities and net assets |
|
$ |
|
|
$ |
|
||
Net asset value per share |
|
$ |
|
|
$ |
|
||
The accompanying notes are part of these unaudited consolidated financial statements.
4
Goldman Sachs Middle Market Lending Corp. II
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
(Unaudited)
|
|
For the Three Months Ended |
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For the Three Months Ended |
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March 31, 2023 |
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March 31, 2022 |
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Investment income: |
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From non-controlled/non-affiliated investments: |
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|
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Interest income |
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$ |
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$ |
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||
Payment-in-kind income |
|
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Other income |
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From non-controlled affiliated investments: |
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Interest income |
|
|
|
|
|
— |
|
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Dividend income |
|
|
|
|
|
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||
Other income |
|
|
|
|
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— |
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Total investment income |
|
$ |
|
|
$ |
|
||
Expenses: |
|
|
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Interest and other debt expenses |
|
$ |
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|
$ |
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||
Management fees |
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Incentive fees |
|
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— |
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Professional fees |
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Directors’ fees |
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Directors’ and officers’ liability insurance |
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Offering costs |
|
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— |
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Other general and administrative expenses |
|
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|
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||
Total expenses |
|
$ |
|
|
$ |
|
||
Management fee waiver |
|
|
— |
|
|
|
( |
) |
Net expenses |
|
$ |
|
|
$ |
|
||
Net investment income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Net realized and unrealized gains (losses): |
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Net realized gain (loss) from: |
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Non-controlled/non-affiliated investments |
|
$ |
|
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$ |
— |
|
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Foreign currency transactions |
|
|
|
|
|
— |
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|
Net change in unrealized appreciation (depreciation) from: |
|
|
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Non-controlled/non-affiliated investments |
|
|
( |
) |
|
|
|
|
Non-controlled affiliated investments |
|
|
|
|
|
— |
|
|
Foreign currency translations |
|
|
( |
) |
|
|
|
|
Net realized and unrealized gains (losses) |
|
$ |
( |
) |
|
$ |
|
|
Net increase (decrease) in net assets from operations |
|
$ |
|
|
$ |
( |
) |
|
Weighted average shares outstanding |
|
|
|
|
|
|
||
Net investment income (loss) per share (basic and diluted) |
|
$ |
|
|
$ |
( |
) |
|
Earnings (loss) per share (basic and diluted) |
|
$ |
|
|
$ |
( |
) |
|
The accompanying notes are part of these unaudited consolidated financial statements.
5
Goldman Sachs Middle Market Lending Corp. II
Consolidated Statements of Changes in Net Assets
(in thousands, except per share amounts)
(Unaudited)
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
|
|
|
|
|
|
|
||
Net assets at beginning of period |
|
$ |
|
|
$ |
|
||
Increase (decrease) in net assets from operations: |
|
|
|
|
|
|
||
Net investment income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Net realized gain (loss) |
|
|
|
|
|
— |
|
|
Net change in unrealized appreciation (depreciation) |
|
|
( |
) |
|
|
|
|
Net increase (decrease) in net assets from operations |
|
$ |
|
|
$ |
( |
) |
|
Capital transactions: |
|
|
|
|
|
|
||
Issuance of common shares |
|
$ |
|
|
$ |
|
||
Net increase in net assets from capital transactions |
|
$ |
|
|
$ |
|
||
Total increase in net assets |
|
$ |
|
|
$ |
|
||
Net assets at end of period |
|
$ |
|
|
$ |
|
||
The accompanying notes are part of these unaudited consolidated financial statements.
6
Goldman Sachs Middle Market Lending Corp. II
Consolidated Statements of Cash Flows
(in thousands, except shares and per share amounts)
(Unaudited)
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
|
|
|
|
|
|
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net increase (decrease) in net assets from operations: |
|
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net increase (decrease) in net assets from operations to net cash provided by (used for) operating activities: |
|
|
|
|
|
|
||
Purchases of investments |
|
|
( |
) |
|
|
( |
) |
Payment-in-kind interest capitalized |
|
|
( |
) |
|
|
( |
) |
Investments in affiliated money market fund, net |
|
|
( |
) |
|
|
|
|
Proceeds from sales of investments and principal repayments |
|
|
|
|
|
|
||
Net realized (gain) loss on investments |
|
|
( |
) |
|
|
— |
|
Net change in unrealized (appreciation) depreciation on investments |
|
|
|
|
|
( |
) |
|
Net change in unrealized (appreciation) depreciation on foreign currency translation |
|
|
( |
) |
|
|
|
|
Amortization of premium and accretion of discount, net |
|
|
( |
) |
|
|
( |
) |
Amortization of deferred financing costs |
|
|
|
|
|
|
||
Amortization of deferred offering costs |
|
|
— |
|
|
|
|
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
||
(Increase) decrease in interest and dividends receivable |
|
|
|
|
|
( |
) |
|
(Increase) decrease in other assets |
|
|
( |
) |
|
|
|
|
Increase (decrease) in interest and other debt expenses payable |
|
|
|
|
|
|
||
Increase (decrease) in management fees payable |
|
|
|
|
|
— |
|
|
Increase (decrease) in incentive fees payable |
|
|
— |
|
|
|
|
|
Increase (decrease) in directors’ fees payable |
|
|
— |
|
|
|
|
|
Increase (decrease) in accrued expenses and other liabilities |
|
|
|
|
|
|
||
Net cash provided by (used for) operating activities |
|
$ |
( |
) |
|
$ |
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
||
Proceeds from issuance of common stock |
|
$ |
|
|
$ |
|
||
Offering costs paid |
|
|
( |
) |
|
|
( |
) |
Distributions paid |
|
|
( |
) |
|
|
— |
|
Financing costs paid |
|
|
( |
) |
|
|
( |
) |
Borrowings on debt |
|
|
|
|
|
|
||
Repayments of debt |
|
|
— |
|
|
|
( |
) |
Net cash provided by (used for) financing activities |
|
$ |
|
|
$ |
( |
) |
|
Net increase (decrease) in cash |
|
$ |
|
|
$ |
|
||
Effect of foreign exchange rate changes on cash and cash equivalents |
|
|
|
|
|
( |
) |
|
Cash, beginning of period |
|
|
|
|
|
|
||
Cash, end of period |
|
$ |
|
|
$ |
|
||
Supplemental and non-cash activities |
|
|
|
|
|
|
||
Interest expense paid |
|
$ |
|
|
$ |
|
||
The accompanying notes are part of these unaudited consolidated financial statements.
7
Goldman Sachs Middle Market Lending Corp. II
Consolidated Schedule of Investments as of March 31, 2023
(in thousands, except share and per share amounts)
(Unaudited)
Investment (1) |
Industry |
Interest |
Reference Rate and |
Maturity |
Par/Shares |
|
Cost |
|
Fair |
|
Footnotes |
|||
1st Lien/Senior Secured Debt - |
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||||||
Admiral Buyer, Inc. (dba Fidelity Payment Services) |
Diversified Financial Services |
S + |
$ |
|
$ |
|
$ |
|
(4) (5) |
|||||
Admiral Buyer, Inc. (dba Fidelity Payment Services) |
Diversified Financial Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
Admiral Buyer, Inc. (dba Fidelity Payment Services) |
Diversified Financial Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
Bigchange Group Limited |
Software |
SN + |
|
GBP |
|
|
|
|
|
(4) (5) (7) |
||||
Bigchange Group Limited |
Software |
SN + |
|
GBP |
|
|
|
|
|
(4) (5) (6) (7) |
||||
Bigchange Group Limited |
Software |
|
SN + |
|
GBP |
|
|
( |
) |
|
( |
) |
(4) (5) (6) (7) |
|
BSI3 Menu Buyer, Inc (dba Kydia) |
Diversified Financial Services |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
BSI3 Menu Buyer, Inc (dba Kydia) |
Diversified Financial Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
Businessolver.com, Inc. |
Health Care Technology |
L + |
|
|
|
|
|
|
(4) (5) |
|||||
Businessolver.com, Inc. |
Health Care Technology |
L + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
Checkmate Finance Merger Sub, LLC |
Entertainment |
L + |
|
|
|
|
|
|
(4) (5) |
|||||
Checkmate Finance Merger Sub, LLC |
Entertainment |
|
L + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
Clearcourse Partnership Acquireco Finance Limited |
IT Services |
SN + |
|
GBP |
|
|
|
|
|
(4) (5) (7) |
||||
Clearcourse Partnership Acquireco Finance Limited |
IT Services |
SN + |
|
GBP |
|
|
|
|
|
(4) (5) (6) (7) |
||||
CloudBees, Inc. |
Software |
L + |
|
|
|
|
|
|
(4) (5) |
|||||
CloudBees, Inc. |
Software |
L + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
Coding Solutions Acquisition, Inc. |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
Coding Solutions Acquisition, Inc. |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
Coding Solutions Acquisition, Inc. |
Health Care Providers & Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
Computer Services, Inc. |
Diversified Financial Services |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
Coretrust Purchasing Group LLC |
Diversified Financial Services |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
Coretrust Purchasing Group LLC |
Diversified Financial Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
Coretrust Purchasing Group LLC |
Diversified Financial Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
CST Buyer Company (dba Intoxalock) |
Diversified Consumer Services |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
CST Buyer Company (dba Intoxalock) |
Diversified Consumer Services |
S + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
DFS Holding Company, Inc. |
Distributors |
S + |
|
|
|
|
|
|
(4) |
|||||
DFS Holding Company, Inc. |
Distributors |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (6) |
||
Frontgrade Technologies Holdings Inc. |
Aerospace & Defense |
S + |
|
|
|
|
|
|
(4) |
|||||
Frontgrade Technologies Holdings Inc. |
Aerospace & Defense |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (6) |
||
Governmentjobs.com, Inc. (dba NeoGov) |
Software |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
Governmentjobs.com, Inc. (dba NeoGov) |
Software |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
Governmentjobs.com, Inc. (dba NeoGov) |
Software |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
Groundworks, LLC |
Diversified Consumer Services |
S + |
|
|
|
|
|
|
(4) |
|||||
Groundworks, LLC |
Diversified Consumer Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (6) |
||
Groundworks, LLC |
Diversified Consumer Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (6) |
||
HealthEdge Software, Inc. |
Health Care Technology |
L + |
|
|
|
|
|
|
(4) (5) |
|||||
HealthEdge Software, Inc. |
Health Care Technology |
L + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
HealthEdge Software, Inc. |
Health Care Technology |
L + |
|
|
|
|
|
|
(4) (5) |
|||||
HealthEdge Software, Inc. |
Health Care Technology |
P + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
HealthEdge Software, Inc. |
Health Care Technology |
|
L + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
HumanState Limited (dba PayProp) |
Diversified Consumer Services |
SN + |
|
GBP |
|
|
|
|
|
(4) (5) (7) |
||||
HumanState Limited (dba PayProp) |
Diversified Consumer Services |
|
SN + |
|
GBP |
|
|
( |
) |
|
( |
) |
(4) (5) (6) (7) |
|
HumanState Limited (dba PayProp) |
Diversified Consumer Services |
|
SN + |
|
GBP |
|
|
|
|
( |
) |
(4) (5) (6) (7) |
||
iCIMS, Inc. |
Professional Services |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
iCIMS, Inc. |
Professional Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
iCIMS, Inc. |
Professional Services |
|
S + |
|
|
|
— |
|
|
( |
) |
(4) (5) (6) |
||
The accompanying notes are part of these unaudited consolidated financial statements.
8
Goldman Sachs Middle Market Lending Corp. II
Consolidated Schedule of Investments as of March 31, 2023 (continued)
(in thousands, except share and per share amounts)
(Unaudited)
Investment (1) |
Industry |
Interest |
Reference Rate |
Maturity |
Par/Shares |
|
Cost |
|
Fair |
|
Footnotes |
|||
Intelligent Medical Objects, Inc. |
Health Care Technology |
S + |
$ |
|
$ |
|
$ |
|
(4) (5) |
|||||
Intelligent Medical Objects, Inc. |
Health Care Technology |
S + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
Intelligent Medical Objects, Inc. |
Health Care Technology |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
iWave Information Systems, Inc. |
Software |
S + |
|
|
|
|
|
|
(4) (5) (7) |
|||||
iWave Information Systems, Inc. |
Software |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) (7) |
||
Kaseya Inc. |
IT Services |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
Kaseya Inc. |
IT Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
Kaseya Inc. |
IT Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
LCG Vardiman Black, LLC (dba Specialty Dental Brands) |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
MerchantWise Solutions, LLC (dba HungerRush) |
Diversified Financial Services |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
MerchantWise Solutions, LLC (dba HungerRush) |
Diversified Financial Services |
S + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
MerchantWise Solutions, LLC (dba HungerRush) |
Diversified Financial Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
Millstone Medical Outsourcing, LLC |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
Millstone Medical Outsourcing, LLC |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
Millstone Medical Outsourcing, LLC |
Health Care Providers & Services |
P + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
NFM & J, L.P. (dba the Facilities Group) |
Professional Services |
L + |
|
|
|
|
|
|
(4) (5) |
|||||
NFM & J, L.P. (dba the Facilities Group) |
Professional Services |
L + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
NFM & J, L.P. (dba the Facilities Group) |
Professional Services |
|
P + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
PDDS Holdco, Inc. (dba Planet DDS) |
Health Care Technology |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
PDDS Holdco, Inc. (dba Planet DDS) |
Health Care Technology |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
PDDS Holdco, Inc. (dba Planet DDS) |
Health Care Technology |
S + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
PDDS Holdco, Inc. (dba Planet DDS) |
Health Care Technology |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
PDDS Holdco, Inc. (dba Planet DDS) |
Health Care Technology |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
Qualawash Holdings, LLC |
Commercial Services & Supplies |
L + |
|
|
|
|
|
|
(4) (5) |
|||||
Qualawash Holdings, LLC |
Commercial Services & Supplies |
P + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
Qualawash Holdings, LLC |
Commercial Services & Supplies |
L + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
Rubrik,Inc. |
Software |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
Rubrik,Inc. |
Software |
S + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
Solaris (dba Urology Management Holdings, Inc.) |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
|
|||||
Solaris (dba Urology Management Holdings, Inc.) |
Health Care Providers & Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(6) |
||
Southeast Mechanical, LLC (dba. SEM Holdings, LLC) |
Diversified Consumer Services |
S + |
|
|
|
|
|
|
(4) (5) (8) |
|||||
Southeast Mechanical, LLC (dba. SEM Holdings, LLC) |
Diversified Consumer Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) (8) |
||
Southeast Mechanical, LLC (dba. SEM Holdings, LLC) |
Diversified Consumer Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) (8) |
||
SpendMend, LLC |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
SpendMend, LLC |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
SpendMend, LLC |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
Spotless Brands, LLC |
Diversified Consumer Services |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
Spotless Brands, LLC |
Diversified Consumer Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
Trader Corporation |
Automobiles |
C + |
|
CAD |
|
|
|
|
|
(4) (5) (7) |
||||
Trader Corporation |
Automobiles |
|
C + |
|
CAD |
|
|
( |
) |
|
( |
) |
(4) (5) (6) (7) |
|
WebPT, Inc. |
Health Care Technology |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
WebPT, Inc. |
Health Care Technology |
S + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
WebPT, Inc. |
Health Care Technology |
|
S + |
|
|
|
( |
) |
|
( |
) |
(4) (5) (6) |
||
Whitewater Holding Company LLC |
Diversified Consumer Services |
L + |
|
|
|
|
|
|
(4) (5) |
|||||
Whitewater Holding Company LLC |
Diversified Consumer Services |
L + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
The accompanying notes are part of these unaudited consolidated financial statements.
9
Goldman Sachs Middle Market Lending Corp. II
Consolidated Schedule of Investments as of March 31, 2023 (continued)
(in thousands, except share and per share amounts)
(Unaudited)
Investment (1) |
Industry |
Interest |
Reference Rate |
Maturity |
Par/Shares |
|
Cost |
|
Fair |
|
Footnotes |
|||
Whitewater Holding Company LLC |
Diversified Consumer Services |
L + |
$ |
|
$ |
|
$ |
|
(4) (5) |
|||||
Whitewater Holding Company LLC |
Diversified Consumer Services |
L + |
|
|
|
|
|
|
(4) (5) |
|||||
Whitewater Holding Company LLC |
Diversified Consumer Services |
L + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
Zarya Intermediate, LLC (dba iOFFICE) |
Real Estate Mgmt. & Development |
S + |
|
|
|
|
|
|
(4) (5) |
|||||
Zarya Intermediate, LLC (dba iOFFICE) |
Real Estate Mgmt. & Development |
|
S + |
|
|
|
— |
|
|
( |
) |
(4) (5) (6) |
||
Total 1st Lien/Senior Secured Debt |
|
|
|
|
|
|
|
|
|
|
|
|||
1st Lien/Last-Out Unitranche (9)- |
|
|
|
|
|
|
|
|
|
|
|
|||
EDB Parent, LLC (dba Enterprise DB) |
Software |
S + |
$ |
|
$ |
|
$ |
|
(4) (5) |
|||||
EDB Parent, LLC (dba Enterprise DB) |
Software |
S + |
|
|
|
|
|
|
(4) (5) (6) |
|||||
Total 1st Lien/Last-Out Unitranche |
|
|
|
|
|
|
|
|
|
|
|
|||
Investment (1) |
Industry |
Initial |
Par/Shares |
|
Cost |
|
Fair |
|
Footnotes |
|||
Preferred Stock - |
|
|
|
|
|
|
|
|
|
|||
CloudBees, Inc. |
Software |
|
|
$ |
|
$ |
|
(4) (5) (11) |
||||
Governmentjobs.com, Inc. (dba NeoGov) |
Software |
|
|
|
|
|
|
(4) (5) (11) |
||||
Total Preferred Stock |
|
|
|
|
|
|
|
|
|
|||
Common Stock - |
|
|
|
|
|
|
|
|
|
|||
Southeast Mechanical, LLC (dba. SEM Holdings, LLC) |
Diversified Consumer Services |
|
|
$ |
|
$ |
|
(4) (5) (8) (11) |
||||
Whitewater Holding Company LLC |
Diversified Consumer Services |
|
|
|
|
|
|
(4) (5) (11) |
||||
Total Common Stock |
|
|
|
|
|
|
|
|
|
|||
Warrants - |
|
|
|
|
|
|
|
|
|
|||
CloudBees, Inc. |
Software |
|
|
$ |
|
$ |
|
(4) (5) (11) |
||||
Total Warrants |
|
|
|
|
|
|
|
|
|
|||
Investments in Affiliated Money Market Fund - |
|
|
|
|
|
|
|
|
|
|||
Goldman Sachs Financial Square Government Fund - Institutional Shares |
|
|
|
|
$ |
|
$ |
|
(12) (13) |
|||
Total Investments in Affiliated Money Market Fund |
|
|
|
|
|
|
|
|
|
|||
Total Investments - |
|
|
|
|
$ |
|
$ |
|
|
|||
The accompanying notes are part of these unaudited consolidated financial statements.
10
Goldman Sachs Middle Market Lending Corp. II
Consolidated Schedule of Investments as of March 31, 2023 (continued)
(in thousands, except share and per share amounts)
(Unaudited)
PIK - Payment-In-Kind
The accompanying notes are part of these unaudited consolidated financial statements.
11
Goldman Sachs Middle Market Lending Corp. II
Consolidated Schedule of Investments as of December 31, 2022
(in thousands, except share and per share amounts)
Investment # |
Industry |
Interest |
Reference Rate and |
Maturity |
Par/Shares |
|
Cost |
|
Fair |
|
Footnotes |
|||
1st Lien/Senior Secured Debt - |
|
|
|
|
|
|
|
|
||||||
Admiral Buyer, Inc. (dba Fidelity Payment Services) |
Diversified Financial Services |
S + |
$ |
|
$ |
|
$ |
|
(1) (2) |
|||||
Admiral Buyer, Inc. (dba Fidelity Payment Services) |
Diversified Financial Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
Admiral Buyer, Inc. (dba Fidelity Payment Services) |
Diversified Financial Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
Bigchange Group Limited |
Software |
SN + |
|
GBP |
|
|
|
|
|
(1) (2) (4) |
||||
Bigchange Group Limited |
Software |
SN + |
|
GBP |
|
|
|
|
|
(1) (2) (3) (4) |
||||
Bigchange Group Limited |
Software |
|
SN + |
|
GBP |
|
|
( |
) |
|
( |
) |
(1) (2) (3) (4) |
|
BSI3 Menu Buyer, Inc (dba Kydia) |
Diversified Financial Services |
S + |
|
|
|
|
|
|
(1) (2) |
|||||
BSI3 Menu Buyer, Inc (dba Kydia) |
Diversified Financial Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
Businessolver.com, Inc. |
Health Care Technology |
L + |
|
|
|
|
|
|
(1) (2) |
|||||
Businessolver.com, Inc. |
Health Care Technology |
L + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
Checkmate Finance Merger Sub, LLC |
Entertainment |
L + |
|
|
|
|
|
|
(1) (2) |
|||||
Checkmate Finance Merger Sub, LLC |
Entertainment |
|
L + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
Clearcourse Partnership Acquireco Finance Limited |
IT Services |
SN + |
|
GBP |
|
|
|
|
|
(1) (2) (4) |
||||
Clearcourse Partnership Acquireco Finance Limited |
IT Services |
SN + |
|
GBP |
|
|
|
|
|
(1) (2) (3) (4) |
||||
CloudBees, Inc. |
Software |
L + |
|
|
|
|
|
|
(1) (2) |
|||||
CloudBees, Inc. |
Software |
L + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
Coding Solutions Acquisition, Inc. |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
(1) (2) |
|||||
Coding Solutions Acquisition, Inc. |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
Coding Solutions Acquisition, Inc. |
Health Care Providers & Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
Computer Services, Inc. |
Diversified Financial Services |
S + |
|
|
|
|
|
|
(1) |
|||||
Coretrust Purchasing Group LLC |
Diversified Financial Services |
S + |
|
|
|
|
|
|
(1) (2) |
|||||
Coretrust Purchasing Group LLC |
Diversified Financial Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
Coretrust Purchasing Group LLC |
Diversified Financial Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
CST Buyer Company (dba Intoxalock) |
Diversified Consumer Services |
S + |
|
|
|
|
|
|
(1) |
|||||
CST Buyer Company (dba Intoxalock) |
Diversified Consumer Services |
S + |
|
|
|
|
|
|
(1) (3) |
|||||
DFS Holding Company, Inc. |
Distributors |
|
S + |
|
|
|
— |
|
|
— |
|
(1) (3) |
||
DFS Holding Company, Inc. |
Distributors |
|
S + |
|
|
|
— |
|
|
— |
|
(1) (3) |
||
DFS Holding Company, Inc. |
Distributors |
|
S + |
|
|
|
— |
|
|
— |
|
(1) (3) |
||
Governmentjobs.com, Inc. (dba NeoGov) |
Software |
L + |
|
|
|
|
|
|
(1) (2) |
|||||
Governmentjobs.com, Inc. (dba NeoGov) |
Software |
|
L + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
Governmentjobs.com, Inc. (dba NeoGov) |
Software |
|
L + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
HealthEdge Software, Inc. |
Health Care Technology |
L + |
|
|
|
|
|
|
(1) (2) |
|||||
HealthEdge Software, Inc. |
Health Care Technology |
L + |
|
|
|
|
|
|
(1) (2) |
|||||
HealthEdge Software, Inc. |
Health Care Technology |
|
L + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
HealthEdge Software, Inc. |
Health Care Technology |
|
L + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
HealthEdge Software, Inc. |
Health Care Technology |
|
L + |
|
|
|
— |
|
|
( |
) |
(1) (2) (3) |
||
HumanState Limited (dba PayProp) |
Diversified Consumer Services |
SN + |
|
GBP |
|
|
|
|
|
(1) (4) |
||||
HumanState Limited (dba PayProp) |
Diversified Consumer Services |
|
SN + |
|
GBP |
|
|
( |
) |
|
( |
) |
(1) (3) (4) |
|
HumanState Limited (dba PayProp) |
Diversified Consumer Services |
|
SN + |
|
GBP |
|
|
( |
) |
|
( |
) |
(1) (3) (4) |
|
iCIMS, Inc. |
Professional Services |
S + |
|
|
|
|
|
|
(1) (2) |
|||||
iCIMS, Inc. |
Professional Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
iCIMS, Inc. |
Professional Services |
|
S + |
|
|
|
— |
|
|
( |
) |
(1) (2) (3) |
||
Intelligent Medical Objects, Inc. |
Health Care Technology |
S + |
|
|
|
|
|
|
(1) (2) |
|||||
Intelligent Medical Objects, Inc. |
Health Care Technology |
S + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
Intelligent Medical Objects, Inc. |
Health Care Technology |
|
S + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
The accompanying notes are part of these unaudited consolidated financial statements.
12
Goldman Sachs Middle Market Lending Corp. II
Consolidated Schedule of Investments as of December 31, 2022 (continued)
(in thousands, except share and per share amounts)
Investment # |
Industry |
Interest |
Reference Rate |
Maturity |
Par/Shares |
|
Cost |
|
Fair |
|
Footnotes |
|||
iWave Information Systems, Inc. |
Software |
S + |
$ |
|
$ |
|
$ |
|
(1) (4) |
|||||
iWave Information Systems, Inc. |
Software |
|
S + |
|
|
|
( |
) |
|
( |
) |
(1) (3) (4) |
||
Kaseya Inc. |
IT Services |
S + |
|
|
|
|
|
|
(1) (2) |
|||||
Kaseya Inc. |
IT Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
Kaseya Inc. |
IT Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
LCG Vardiman Black, LLC (dba Specialty Dental Brands) |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
MerchantWise Solutions, LLC (dba HungerRush) |
Diversified Financial Services |
S + |
|
|
|
|
|
|
(1) (2) |
|||||
MerchantWise Solutions, LLC (dba HungerRush) |
Diversified Financial Services |
S + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
MerchantWise Solutions, LLC (dba HungerRush) |
Diversified Financial Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
Millstone Medical Outsourcing, LLC |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
(1) (2) |
|||||
Millstone Medical Outsourcing, LLC |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
(1) (2) |
|||||
Millstone Medical Outsourcing, LLC |
Health Care Providers & Services |
P + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
NFM & J, L.P. (dba the Facilities Group) |
Professional Services |
L + |
|
|
|
|
|
|
(1) (2) |
|||||
NFM & J, L.P. (dba the Facilities Group) |
Professional Services |
L + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
NFM & J, L.P. (dba the Facilities Group) |
Professional Services |
|
L + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
PDDS Holdco, Inc. (dba Planet DDS) |
Health Care Technology |
S + |
|
|
|
|
|
|
(1) (2) |
|||||
PDDS Holdco, Inc. (dba Planet DDS) |
Health Care Technology |
S + |
|
|
|
|
|
|
(1) (2) |
|||||
PDDS Holdco, Inc. (dba Planet DDS) |
Health Care Technology |
S + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
PDDS Holdco, Inc. (dba Planet DDS) |
Health Care Technology |
|
S + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
PDDS Holdco, Inc. (dba Planet DDS) |
Health Care Technology |
|
S + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
Qualawash Holdings, LLC |
Commercial Services & Supplies |
L + |
|
|
|
|
|
|
(1) (2) |
|||||
Qualawash Holdings, LLC |
Commercial Services & Supplies |
L + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
Qualawash Holdings, LLC |
Commercial Services & Supplies |
|
L + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
Rubrik,Inc. |
Software |
S + |
|
|
|
|
|
|
(1) (2) |
|||||
Rubrik,Inc. |
Software |
S + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
Southeast Mechanical, LLC (dba. SEM Holdings, LLC) |
Diversified Consumer Services |
S + |
|
|
|
|
|
|
^ (1) (2) |
|||||
Southeast Mechanical, LLC (dba. SEM Holdings, LLC) |
Diversified Consumer Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
^ (1) (2) (3) |
||
Southeast Mechanical, LLC (dba. SEM Holdings, LLC) |
Diversified Consumer Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
^ (1) (2) (3) |
||
SpendMend, LLC |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
(1) (2) |
|||||
SpendMend, LLC |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
SpendMend, LLC |
Health Care Providers & Services |
S + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
Spotless Brands, LLC |
Diversified Consumer Services |
S + |
|
|
|
|
|
|
(1) |
|||||
Spotless Brands, LLC |
Diversified Consumer Services |
|
S + |
|
|
|
( |
) |
|
( |
) |
(1) (3) |
||
Trader Corporation |
Automobiles |
C + |
|
CAD |
|
|
|
|
|
(1) (4) |
||||
Trader Corporation |
Automobiles |
|
C + |
|
CAD |
|
|
( |
) |
|
( |
) |
(1) (3) (4) |
|
WebPT, Inc. |
Health Care Technology |
L + |
|
|
|
|
|
|
(1) (2) |
|||||
WebPT, Inc. |
Health Care Technology |
L + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
WebPT, Inc. |
Health Care Technology |
|
L + |
|
|
|
( |
) |
|
( |
) |
(1) (2) (3) |
||
Whitewater Holding Company LLC |
Diversified Consumer Services |
L + |
|
|
|
|
|
|
(1) (2) |
|||||
Whitewater Holding Company LLC |
Diversified Consumer Services |
L + |
|
|
|
|
|
|
(1) (2) |
|||||
Whitewater Holding Company LLC |
Diversified Consumer Services |
L + |
|
|
|
|
|
|
(1) (2) |
|||||
Whitewater Holding Company LLC |
Diversified Consumer Services |
L + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
Whitewater Holding Company LLC |
Diversified Consumer Services |
L + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
Zarya Intermediate, LLC (dba iOFFICE) |
Real Estate Mgmt. & Development |
S + |
|
|
|
|
|
|
(1) (2) |
|||||
Zarya Intermediate, LLC (dba iOFFICE) |
Real Estate Mgmt. & Development |
|
S + |
|
|
|
— |
|
|
( |
) |
(1) (2) (3) |
||
Total 1st Lien/Senior Secured Debt |
|
|
|
|
|
|
|
|
|
|
|
|||
The accompanying notes are part of these unaudited consolidated financial statements.
13
Goldman Sachs Middle Market Lending Corp. II
Consolidated Schedule of Investments as of December 31, 2022 (continued)
(in thousands, except share and per share amounts)
Investment # |
Industry |
Interest |
Reference Rate |
Maturity |
Par/Shares |
|
Cost |
|
Fair |
|
Footnotes |
|||
1st Lien/Last-Out Unitranche (5)- |
|
|
|
|
|
|
|
|
|
|
|
|||
EDB Parent, LLC (dba Enterprise DB) |
Software |
S + |
$ |
|
$ |
|
$ |
|
(1) (2) |
|||||
EDB Parent, LLC (dba Enterprise DB) |
Software |
S + |
|
|
|
|
|
|
(1) (2) (3) |
|||||
Total 1st Lien/Last-Out Unitranche |
|
|
|
|
|
|
|
|
|
|
|
|||
Investment # |
Industry |
Initial |
Par/Shares |
|
Cost |
|
Fair |
|
Footnotes |
|||
Preferred Stock - |
|
|
|
|
|
|
|
|
|
|||
CloudBees, Inc. |
Software |
|
|
$ |
|
$ |
|
(1) (2) (7) |
||||
Governmentjobs.com, Inc. (dba NeoGov) |
Software |
|
|
|
|
|
|
(1) (2) (7) |
||||
Total Preferred Stock |
|
|
|
|
|
|
|
|
|
|||
Common Stock - |
|
|
|
|
|
|
|
|
|
|||
Southeast Mechanical, LLC (dba. SEM Holdings, LLC) |
Diversified Consumer Services |
|
|
$ |
|
$ |
|
^ (1) (2) (7) |
||||
Whitewater Holding Company LLC |
Diversified Consumer Services |
|
|
|
|
|
|
(1) (2) (7) |
||||
Total Common Stock |
|
|
|
|
|
|
|
|
|
|||
Warrants - |
|
|
|
|
|
|
|
|
|
|||
CloudBees, Inc. |
Software |
|
|
$ |
|
$ |
|
(1) (2) (7) |
||||
Total Warrants |
|
|
|
|
|
|
|
|
|
|||
Total Investments - |
|
|
|
|
$ |
|
$ |
|
|
|||
The accompanying notes are part of these unaudited consolidated financial statements.
14
Goldman Sachs Middle Market Lending Corp. II
Consolidated Schedule of Investments as of December 31, 2022 (continued)
(in thousands, except share and per share amounts)
(+) |
(++) |
Par amount is presented for debt investments, while the number of shares or units owned is presented for equity investments. Par amount is denominated in U.S. Dollars ("$") unless otherwise noted, Great British Pound ("GBP") or Canadian dollar ("CAD"). |
# |
Percentages are based on net assets. |
^ |
As defined in the Investment Company Act, the investment is deemed to be an “affiliated person” of the Company because the Company owns, either directly or indirectly, |
(1) |
Represents co-investments made with in accordance with the terms of the exemptive relief received from the U.S. Securities and Exchange Commission. See Note 3 “Significant Agreements and Related Party Transactions”. |
(2) |
The fair value of the investment was determined using significant unobservable inputs. See Note 5 “Fair Value Measurement”. |
(3) |
Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion. The unfunded loan commitment may be subject to a commitment termination date that may expire prior to the maturity date stated. The negative cost, if applicable, is the result of the capitalized discount being greater than the principal amount outstanding on the loan. The negative fair value, if applicable, is the result of the capitalized discount on the loan. See Note 7 "Commitments and Contingencies". |
(4) |
The investment is not a qualifying asset under Section 55(a) of the Investment Company Act. The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying assets represent at least |
(5) |
In exchange for the greater risk of loss, the “last-out” portion of the Company's unitranche loan investment generally earns a higher interest rate than the “first-out” portions. The “first-out” portion would generally receive priority with respect to payment of principal, interest and any other amounts due thereunder over the “last-out” portion. |
(6) |
Securities exempt from registration under the Securities Act, and may be deemed to be “restricted securities”. As of December 31, 2022, the aggregate fair value of these securities is $ |
(7) |
Non-income producing security. |
PIK - |
Payment-In-Kind |
The accompanying notes are part of these unaudited consolidated financial statements.
15
Goldman Sachs Middle Market Lending Corp. II
Notes to the Consolidated Financial Statements
(in thousands, except share and per share amounts)
1. ORGANIZATION
Goldman Sachs Middle Market Lending LLC II ("MMLC LLC II") was formed on February 21, 2020. Effective November 23, 2021, MMLC LLC II converted from a Delaware limited liability company to a Delaware corporation named Goldman Sachs Middle Market Lending Corp. II (the “Company”, which term refers to either Goldman Sachs Middle Market Lending Corp. II or Goldman Sachs Middle Market Lending Corp. II together with its consolidated subsidiary, as the context may require), which, by operation of law, is deemed for purposes of Delaware law the same entity as MMLC LLC II. The Company commenced operations on October 29, 2021. On November 23, 2021, the Company's initial investors (other than the Initial Member (as defined below)) funded the initial portion of their capital commitment to purchase shares of common stock, at which time the Initial Member's initial capital contribution to MMLC LLC II was cancelled. The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “Investment Company Act”). In addition, the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2021.
The Company’s investment objective is to generate current income and, to a lesser extent, capital appreciation primarily through direct originations of secured debt, including first lien debt, unitranche debt, including last-out portions of such loans, and second lien debt, and unsecured debt, including mezzanine debt, as well as through select equity investments.
Goldman Sachs Asset Management, L.P. (“GSAM”), a Delaware limited partnership and an affiliate of Goldman Sachs & Co. LLC (including its predecessors, “GS & Co.”), is the investment adviser (the “Investment Adviser”) of the Company. The term “Goldman Sachs” refers to The Goldman Sachs Group, Inc. (“GS Group Inc.”), together with GS & Co., GSAM and its other subsidiaries.
The Company is conducting an offering pursuant to which investors will make a capital commitment (a “Commitment”) to purchase shares of the Company’s common stock pursuant to a subscription agreement entered into with the Company pursuant to which the investor will agree to purchase common stock for an aggregate purchase price equal to its Commitment. Each investor will be required to purchase shares of the Company’s common stock each time the Company delivers a drawdown notice at least five business days (measured from the date we send such notice by mail or electronically, as applicable, rather than the date such notice is received) prior to the required funding date (the “Drawdown Date”). The offering and sale of common stock will be exempt from registration pursuant to Regulation D and Regulation S promulgated under the U.S. Securities Act of 1933, as amended, for offers and sales of securities that do not involve a public offering and for offers and sale of securities outside of the United States.
GS & Co. and Goldman Sachs International will assist the Company in conducting its private placement offering pursuant to agreements between the Company and each of GS & Co. and Goldman Sachs International.
On October 4, 2021 ("Initial Closing Date"), the Company began accepting subscription agreements ("Subscription Agreements") from investors acquiring shares of its common stock of the Company in the Company's private offering. Under the terms of the Subscription Agreements, investors are required to make capital contributions up to the undrawn amount of their capital commitment to purchase stock each time the Company delivers a drawdown notice. The final date on which the Company accepted Subscription Agreements occurred on March 24, 2023 (the “Final Closing Date”).
The investment period commenced on the Initial Closing Date and will continue until the third anniversary of the Final Closing Date, provided that it may be extended by the board of directors of the Company (the “Board of Directors” or “Board”), in its discretion, for one additional twelve-month period, and, with the approval of a majority-in-interest of the stockholders, for up to one additional year thereafter (such period, including any extensions, the “Investment Period”). In addition, the Board of Directors may terminate the Investment Period at any time in its discretion.
Following the end of the Investment Period, the Company will have the right to issue drawdowns only (i) to pay, and/or establish reserves for, actual or our anticipated expenses, liabilities, including the payment or repayment of indebtedness for borrowed money (including through the issuance of notes and other evidence of indebtedness), other indebtedness, financings or extensions of credit, or other obligations, contingent or otherwise, including the Management Fee (as defined below), whether incurred before or after the end of the Investment Period, (ii) to fulfill investment commitments made or approved by the BDC investment committee of GSAM’s Private Credit Team (the “BDC Investment Committee”) prior to the expiration of the Investment Period, (iii) to engage in hedging transactions, or (iv) to make additional investments in existing portfolio companies, which may include new financings of such portfolio companies (each, an “Additional Investment”) (including transactions to hedge interest rate or currency risks related to an Additional Investment).
16
The Company will continue to operate as a private reporting company, until the earlier of the following events, each referred to as an “Exit Event”: (i) any listing of the Company’s shares of common stock on a national securities exchange (a “listing”), including in connection with an initial public offering (“IPO”), (ii) merger with another entity, including an affiliated company, subject to any limitations under the Investment Company Act or (iii) the sale of all or substantially all of the assets of the Company. If the Company has not consummated an Exit Event by the sixth anniversary of the Final Closing Date, the Board of Directors (to the extent consistent with its fiduciary duties and subject to any necessary stockholder approvals and applicable requirements of the Investment Company Act and the Code) will meet to consider the Company’s potential wind down and/or liquidation and dissolution.
An affiliate of the Investment Adviser made a capital commitment to the Company of $
The Company has formed a wholly owned subsidiary, which is structured as Delaware limited liability company, to hold certain equity or equity-like investments in portfolio companies.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s functional currency is U.S. dollars (“USD”) and these consolidated financial statements have been prepared in that currency. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to Regulation S-X. This requires the Company to make certain estimates and assumptions that may affect the amounts reported in the consolidated financial statements and accompanying notes. These consolidated financial statements reflect normal and recurring adjustments that in the opinion of the Company are necessary for the fair statement of the results for the periods presented. Actual results may differ from the estimates and assumptions included in the consolidated financial statements.
Certain financial information that is included in annual consolidated financial statements, including certain financial statement disclosures, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes related thereto for the year ended December 31, 2022, included in the Company’s annual report on Form 10-K, which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 2, 2023. The results for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the full fiscal year, any other interim period or any future year or period.
Certain prior period information has been reclassified to conform to the current period presentation. The reclassification has no effect on the Company’s consolidated financial position or the consolidated results of operations as previously reported.
As an investment company, the Company applies the accounting and reporting guidance in Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies (“ASC 946”) issued by the Financial Accounting Standards Board (“FASB”).
Basis of Consolidation
As provided under ASC 946, the Company will not consolidate its investment in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the financial position and results of operations of its wholly owned subsidiary, MMLC II Blocker I, LLC. All significant intercompany transactions and balances have been eliminated in consolidation.
Revenue Recognition
The Company records its investment transactions on a trade date basis, which is the date when the Company assumes the risks for gains and losses related to that instrument. Realized gains and losses are based on the specific identification method.
Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discounts and premiums to par value on investments purchased are accreted and amortized, respectively, into interest income over the life of the respective investment using the effective interest method. Loan origination fees, original issue discount (“OID”) and market discounts or premiums are capitalized and amortized into interest income using the effective interest method or straight-line method, as applicable. Exit fees that are receivable upon repayment of a loan or debt security are amortized into interest income over the life of the respective investment. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts are recorded as interest income.
Fees received from portfolio companies (directors’ fees, consulting fees, administrative fees, tax advisory fees and other similar compensation) are paid to the Company, unless, to the extent required by applicable law or exemptive relief, if any, therefrom, the Company only receives its allocable portion of such fees when invested in the same portfolio company as another account managed by the Investment Adviser.
17
Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies. Interest and dividend income are presented net of withholding tax, if any.
Certain investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK represents accrued interest or accumulated dividends that are added to the principal amount or shares (if equity) of the investment on the respective interest or dividend payment dates rather than being paid in cash and generally becomes due at maturity or upon the investment being called by the issuer. PIK is recorded as interest or dividend income, as applicable. If at any point the Company believes PIK is not expected to be realized, the investment generating PIK will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are generally reversed through interest or dividend income, respectively.
Certain structuring fees, amendment fees, syndication fees and commitment fees are recorded as other income when earned. Administrative agent fees received by the Company are recorded as other income when the services are rendered over time.
Non-Accrual Investments
Investments are placed on non-accrual status when it is probable that principal, interest or dividends will not be collected according to contractual terms. Accrued interest or dividends generally are reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual investments may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual investments are restored to accrual status when past due principal and interest or dividends are paid and, in management’s judgment, principal and interest or dividend payments are likely to remain current. The Company may make exceptions to this treatment if an investment has sufficient collateral value and is in the process of collection. As of March 31, 2023 and December 31, 2022, the Company did not have any investments on non-accrual status.
Investments
The Company carries its investments in accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), issued by the FASB, which defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. Fair value is generally based on quoted market prices provided by independent price sources. In the absence of quoted market prices, investments are measured at fair value as determined by the Investment Adviser, as the valuation designee ("Valuation Designee") designated by the Board of Directors, pursuant to Rule 2a-5 under the Investment Company Act.
Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material. See Note 5 “Fair Value Measurement.”
The Company generally invests in illiquid securities, including debt and equity investments, of middle-market companies. The Board of Directors has designated to the Investment Adviser day-to-day responsibilities for implementing and maintaining internal controls and procedures related to the valuation of the Company’s portfolio investments. Under valuation procedures approved by the Board of Directors and adopted by the Valuation Designee, market quotations are generally used to assess the value of the investments for which market quotations are readily available (as defined in Rule 2a-5). The Investment Adviser obtains these market quotations from independent pricing sources. If market quotations are not readily available, the Investment Adviser prices securities at the bid prices obtained from at least two brokers or dealers, if available; otherwise, the Investment Adviser obtains prices from a principal market maker or a primary market dealer. To assess the continuing appropriateness of pricing sources and methodologies, the Investment Adviser regularly performs price verification procedures and issues challenges as necessary to independent pricing sources or brokers, and any differences are reviewed in accordance with the valuation procedures. If the Valuation Designee believes any such market quotation does not reflect the fair value of an investment, it may independently value such investment in accordance with valuation procedures for investments for which market quotations are not readily available.
With respect to investments for which market quotations are not readily available, or for which market quotations are deemed not reflective of the fair value, the valuation procedures approved by the Board of Directors and adopted by the Valuation Designee, contemplate a multi-step valuation process conducted by the Investment Adviser each quarter and more frequently as needed. As the valuation designee, the Investment Adviser is primarily responsible for the valuation of the Company’s assets, subject to the oversight of the Board of Directors, as described below:
18
Money Market Funds
Investments in money market funds are valued at net asset value (“NAV”) per share and are considered cash equivalents for the purposes of the management fee paid to the Investment Adviser. See Note 3 “Significant Agreements and Related Party Transactions.”
Cash
Cash consists of deposits held at a custodian bank. As of March 31, 2023 and December 31, 2022, the Company held an aggregate cash balance of $
Foreign Currency Translation
Amounts denominated in foreign currencies are translated into USD on the following basis: (i) investments and other assets and liabilities denominated in foreign currencies are translated into USD based upon currency exchange rates effective on the last business day of the period; and (ii) purchases and sales of investments, borrowings and repayments of such borrowings, income, and expenses denominated in foreign currencies are translated into USD based upon currency exchange rates prevailing on the transaction dates.
The Company does not isolate the portion of the results of operations resulting from changes in foreign exchange rates on investments from fluctuations arising from changes in market prices of securities held. Such fluctuations are included within the net realized and unrealized gains or losses on investments. Fluctuations arising from the translation of non-investment assets and liabilities, if any, are included with the net change in unrealized gains (losses) on foreign currency translations in the Consolidated Statements of Operations.
Foreign securities and currency translations may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices to be more volatile than those of comparable U.S. companies or U.S. government securities.
19
Income Taxes
The Company recognizes tax positions in its consolidated financial statements only when it is more likely than not that the position will be sustained upon examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized upon settlement. The Company reports any interest expense related to income tax matters in income tax expense and any income tax penalties under expenses in the Consolidated Statements of Operations.
The Company’s tax positions have been reviewed based on applicable statutes of limitation for tax assessments, which may vary by jurisdiction, and based on such review, the Company has concluded that no additional provision for income tax is required in the consolidated financial statements. The Company is subject to potential examination by certain taxing authorities in various jurisdictions. The Company’s tax positions are subject to ongoing interpretation of laws and regulations by taxing authorities.
The Company has elected to be treated as a RIC commencing with its taxable year ended December 31, 2021. So long as the Company maintains its qualification for tax treatment as a RIC, it will generally not be required to pay corporate-level U.S. federal income tax on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. As a result, any U.S. federal income tax liability related to income earned and distributed by the Company represents obligations of the Company’s stockholders and will not be reflected in the consolidated financial statements of the Company.
To maintain its tax treatment as a RIC, the Company must meet specified source-of-income and asset diversification requirements and timely distribute to its stockholders for each taxable year at least 90% of its investment company taxable income (generally, its net ordinary income plus the excess of its realized net short-term capital gains over realized net long-term capital losses, determined without regard to the dividends paid deduction). In order for the Company not to be subject to U.S. federal excise taxes, it must distribute annually an amount at least equal to the sum of (i) 98% of its net ordinary income (taking into account certain deferrals and elections) for the calendar year, (ii) 98.2% of its capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year, and (iii) any net ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years. The Company, at its discretion, may carry forward taxable income in excess of calendar year dividends and pay a 4% nondeductible U.S. federal excise tax on this income. If the Company chooses to do so, this generally would increase expenses and reduce the amount available to be distributed to stockholders. The Company will accrue excise tax on estimated undistributed taxable income as required.
The Company’s consolidated subsidiary is subject to U.S. federal and state corporate level income taxes. Income tax expense, if any, is included under the income category for which it applies in the Consolidated Statements of Operations.
Distributions
Distributions from net investment income and net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined in accordance with GAAP. The Company may pay distributions in excess of its taxable net investment income. This excess would be a tax-free return of capital in the period and reduce a stockholder’s tax basis in its shares. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in capital in excess of par, accumulated undistributed net investment income or accumulated net realized gain (loss), as appropriate, in the period that the differences arise. Temporary and permanent differences are primarily attributable to differences in the tax treatment of certain loans and the tax characterization of income and non-deductible expenses. These differences are generally determined in conjunction with the preparation of the Company’s annual RIC tax return. Distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a distribution is determined by the Board of Directors each quarter and is generally based upon the earnings estimated by the Investment Adviser. The Company may pay distributions to its stockholders in a year in excess of its net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. The Company intends to timely distribute to its stockholders substantially all of its annual taxable income for each year, except that the Company may retain certain net capital gains for reinvestment and, depending upon the level of the Company’s taxable income earned in a year, the Company may choose to carry forward taxable income for distribution in the following year and pay any applicable tax. The specific tax characteristics of the Company’s distributions will be reported to stockholders after the end of the calendar year. All distributions will be subject to available funds, and no assurance can be given that the Company will be able to declare such distributions in future periods.
Deferred Financing Costs
Deferred financing costs consist of fees and expenses paid in connection with the closing of and amendments to the revolving credit facility with Bank of America, N.A (the “BoA Revolving Credit Facility”) and the revolving credit facility between the Company and Truist Bank (the "Truist Revolving Credit Facility" and together with the BoA Revolving Credit Facility, the "Revolving Credit Facilities"). These costs are amortized using the straight-line method over the respective terms of the Revolving Credit Facilities. Deferred financing costs related to the Revolving Credit Facilities are presented separately as an asset on the Company’s Consolidated Statements of Assets and Liabilities.
20
Offering Costs
Offering costs consist primarily of fees and expenses incurred in connection with the continuous offering of shares, including legal, printing and other costs, as well as costs associated with the preparation and filing of the Company’s registration statement on Form 10. Offering costs are recognized as a deferred charge and are amortized on a straight line basis over 12 months beginning on the date of commencement of operations.
3. SIGNIFICANT AGREEMENTS AND RELATED PARTY TRANSACTIONS
Investment Management Agreement
The Company entered into an investment management agreement effective as of November 1, 2021 (the “Investment Management Agreement”) with the Investment Adviser, pursuant to which the Investment Adviser manages the Company’s investment program and related activities.
Management Fee
The Company pays the Investment Adviser a management fee (the “Management Fee”), accrued and payable quarterly in arrears. The Management Fee is equal to
For the three months ended March 31, 2023 and 2022, Management Fees amounted to $
Incentive Fee
Pursuant to the Investment Management Agreement, the Company pays to the Investment Adviser an incentive fee (the “Incentive Fee”) as follows:
The Incentive Fee consists of
i. Quarterly Incentive Fee Based on Income
For the portion of the Incentive Fee based on income, the Company’s Investment Adviser is entitled to receive the Incentive Fee based on Company income if the Company’s Ordinary Income (as defined below) exceeds a quarterly “hurdle rate” (as defined below) of
The “hurdle amount” for the Incentive Fee based on income is determined on a quarterly basis, and is equal to
The Incentive Fee based on income for each quarter is determined as follows:
21
The amount of the Incentive Fee based on income that will be paid to the Investment Adviser for a particular quarter will equal the excess of the Incentive Fee so calculated minus the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant Trailing Twelve Quarters but will not exceed the Incentive Fee Cap (as described below, and subject to the limitations set forth in Section 205(b)(3) of the Advisers Act).
The Incentive Fee based on income that is paid to the Investment Adviser for a particular quarter is subject to a cap (the “Incentive Fee Cap”). The Incentive Fee Cap for any quarter is an amount equal to (a)
“Ordinary Income” means interest income, dividend income and any other income (including any accrued income that we have not yet received in cash and any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter minus our operating expenses accrued during the calendar quarter (including the Management Fee, administrative expenses and any interest expense and dividends paid on issued and outstanding preferred stock, but excluding the Incentive Fee).
“Cumulative Net Return” means (x) the Ordinary Income in respect of the relevant Trailing Twelve Quarters minus (y) any Net Capital Loss (as defined below), if any, in respect of the relevant Trailing Twelve Quarters.
If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no Incentive Fee based on income to the Investment Adviser for such quarter. If, in any quarter, the Incentive Fee Cap is a positive value but is less than the Incentive Fee based on income that is payable to the Investment Adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an Incentive Fee based on income to the Investment Adviser equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the Incentive Fee based on income that is payable to the Investment Adviser for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an Incentive Fee based on income to the Investment Adviser equal to the Incentive Fee calculated as described above for such quarter without regard to the Incentive Fee Cap. In certain limited circumstances, an Incentive Fee based on income will be payable to the Investment Adviser although the net income for such quarter did not exceed the hurdle rate or the Incentive Fee will be higher than it would have been if calculated based on the Company’s performance for the applicable quarter without taking into account the Trailing Twelve Quarters.
“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in such period and (ii) aggregate capital gains, whether realized or unrealized, in such period.
For the three months ended March 31, 2023 and 2022, Incentive Fees based on income amounted to $0 and $0. As of March 31, 2023, $0 remained payable.
22
ii. Annual Incentive Fee Based on Capital Gains
The portion of Incentive Fee based on capital gains is determined and paid annually in arrears at the end of each calendar year or, in the event of a listing, the date on which such event occurs. At the end of each calendar year (or the occurrence of a listing), the Company will pay the Investment Adviser an Incentive Fee equal to (A)
The Company accrues, but does not pay, a portion of the Incentive Fee based on capital gains with respect to net unrealized appreciation. Under GAAP, the Company is required to accrue an Incentive Fee based on capital gains that includes net realized capital gains and losses and net unrealized capital appreciation and depreciation on investments held at the end of each period. In calculating the accrual for the Incentive Fee based on capital gains, the Company considers the cumulative aggregate unrealized capital appreciation in the calculation, since an Incentive Fee based on capital gains would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Management Agreement. This accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital appreciation or depreciation. If such amount is positive at the end of a period, then the Company records a capital gains incentive fee equal to
For the three months ended March 31, 2023 and 2022, the Company accrued Incentive Fees based on capital gains under GAAP of $0 and $12, which were not realized.
Administration and Custodian Fees
The Company has entered into an administration agreement with State Street Bank and Trust Company (the “Administrator”) under which the Administrator provides various accounting and administrative services to the Company. The Company pays the Administrator fees for its services as it determines to be commercially reasonable in its sole discretion. The Company also reimburses the Administrator for all reasonable expenses. To the extent that the Administrator outsources any of its functions, the Administrator pays any compensation associated with such functions. The Administrator also serves as the Company’s custodian (the “Custodian”).
For the three months ended March 31, 2023 and 2022, the Company incurred expenses for services provided by the Administrator and the Custodian of $
Transfer Agent Fees
The Company has entered into a transfer agency agreement (the “Transfer Agency Agreement”), with GS & Co. pursuant to which GS & Co. serves as the Company’s transfer agent (“Transfer Agent”), registrar and disbursing agent. The Company pays the Transfer Agent fees at an annual rate of
For the three months ended March 31, 2023 and 2022, the Company incurred expenses for services provided by the Transfer Agent of $
23
Affiliates
The table below presents the Company’s affiliated investments:
|
|
Beginning Fair Value Balance |
|
|
Gross |
|
|
Gross |
|
|
Net Realized |
|
|
Net Change in |
|
|
Ending |
|
|
Dividend, |
|
|||||||
For the Three Months Ended March 31, 2023 |
|
|
|
|
|
|
|
|||||||||||||||||||||
Non-Controlled Affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Goldman Sachs Financial Square Government Fund |
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
Southeast Mechanical, LLC (dba. SEM Holdings, LLC) |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||||
Total Non-Controlled Affiliates |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
For the Year Ended December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
Non-Controlled Affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Goldman Sachs Financial Square Government Fund |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||
Southeast Mechanical, LLC (dba. SEM Holdings, LLC) |
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total Non-Controlled Affiliates |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Due to Affiliates
The Investment Adviser pays certain general and administrative expenses, including legal expenses, on behalf of the Company in the ordinary course of business. As of March 31, 2023 and December 31, 2022, there were $
Co-investment Activity
In certain circumstances, the Company can make negotiated co-investments pursuant to an order from the SEC permitting it to do so. On November 16, 2022, the SEC granted to the Investment Adviser, the BDCs advised by the Investment Adviser and certain other affiliated applicants exemptive relief on which the Company expects to rely to co-invest alongside certain other client accounts managed by the Investment Adviser (collectively with the Company, the “Accounts”), which may include proprietary accounts of Goldman Sachs, in a manner consistent with the Company's investment objectives and strategies, certain Board-established criteria, the conditions of such exemptive relief and other pertinent factors (the “Relief”). Additionally, if the Investment Adviser forms other funds in the future, the Company may co-invest alongside such other affiliates, subject to compliance with the Relief, applicable regulations and regulatory guidance, as well as applicable allocation procedures. As a result of the Relief, there could be significant overlap in the Company’s investment portfolio and the investment portfolios of other Accounts, including, in some cases, proprietary accounts of Goldman Sachs.
The Goldman Sachs Asset Management Private Credit Team is composed of investment professionals dedicated to the Company’s investment strategy and to other funds that share a similar investment strategy with the Company. The Goldman Sachs Asset Management Private Credit Team is responsible for identifying investment opportunities, conducting research and due diligence on prospective investments, negotiating and structuring the Company’s investments, and monitoring and servicing the Company’s investments. The team works together with investment professionals who are primarily focused on investment strategies in syndicated, liquid credit. Under the terms of the Relief a “required majority” (as defined in Section 57(o) of the Investment Company Act) of the Company’s independent directors must make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction are reasonable and fair to the Company and the Company’s stockholders and do not involve overreaching in respect of the Company or its stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of the Company’s stockholders and is consistent with the then-current investment objectives and strategies of the Company.
In addition, the Company has filed an application to amend the Relief to permit the Company to participate in follow-on investments in the Company's existing portfolio companies with certain affiliates covered by the Relief if such affiliates, that are not BDCs or registered investment companies, did not have an investment in such existing portfolio company. There can be no assurance if and when the Company will receive the amended exemptive order.
24
Placement Agent Agreement
The Company has entered into an agreement with each of Goldman, Sachs & Co. LLC and Goldman Sachs International pursuant to which Goldman, Sachs & Co. LLC and Goldman Sachs International will assist the Company in conducting private placement offerings. Goldman, Sachs & Co. LLC and Goldman Sachs International have entered into or will enter into sub-placement agreements (together with the agreements with Goldman Sachs & Co. LLC and Goldman Sachs International, the “Placement Agent Agreements”) with various sub-placement agents to assist in conducting the private placement offering. The placement agents are not expected to be compensated by the Company for their services, but may charge investors a placement fee with respect to their investments in the Company. The placement agents may also be compensated by the Investment Adviser, in its discretion, for certain services including promotional and marketing support, stockholder servicing, operational and recordkeeping, sub-accounting, networking or administrative services. These payments are made out of the Investment Adviser’s own resources and/or assets, including from the revenues or profits derived from the advisory fees the Investment Adviser receives from the Company.
4. INVESTMENTS
The Company’s investments (excluding investments in money market funds, if any) consisted of the following:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
Investment Type |
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
|
||||
1st Lien/Senior Secured Debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
1st Lien/Last-Out Unitranche |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total investments |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The industry composition of the Company’s investments at fair value and net assets was as follows:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
Industry |
|
Fair Value |
|
|
Net Assets |
|
|
Fair Value |
|
|
Net Assets |
|
||||
Diversified Financial Services |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Diversified Consumer Services |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Software |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Health Care Providers & Services |
|
|
|
|
|
|
|
|
|
|
|
|
||||
IT Services |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Health Care Technology |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Professional Services |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Automobiles |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Real Estate Mgmt. & Development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Aerospace & Defense |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Distributors |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Commercial Services & Supplies |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Entertainment |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
The geographic composition of the Company’s investments at fair value was as follows:
Geographic |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|
|
||
United States |
|
|
% |
|
|
% |
|
|
||
United Kingdom |
|
|
|
|
|
|
|
|
||
Canada |
|
|
|
|
|
|
|
|
||
Total |
|
|
% |
|
|
% |
|
|
||
5. FAIR VALUE MEASUREMENT
The fair value of a financial instrument is the amount that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price).
The fair value hierarchy under ASC 820 prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities. The three levels of the fair value hierarchy are as follows:
Basis of Fair Value Measurement
Level 1 – Inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The types of financial instruments included in Level 1 include unrestricted securities, including equities and derivatives, listed in active markets.
25
Level 2 – Inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. The types of financial instruments in this category include less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities and certain over-the-counter derivatives where the fair value is based on observable inputs.
Level 3 – Inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately held entities and certain over-the-counter derivatives where the fair value is based on unobservable inputs.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Note 2 “Significant Accounting Policies” should be read in conjunction with the information outlined below.
The table below presents the valuation techniques and the nature of significant inputs generally used in determining the fair value of Level 2 and Level 3 Instruments.
Level 2 Instruments |
Valuation Techniques and Significant Inputs |
Equity and Fixed Income |
The types of instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency include commercial paper, most government agency obligations, most corporate debt securities, certain mortgage-backed securities, certain bank loans, less liquid publicly listed equities, certain state and municipal obligations, certain money market instruments and certain loan commitments.
Valuations of Level 2 Equity and Fixed Income instruments can be verified to quoted prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g. indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources. |
Derivative Contracts |
Over-the-counter ("OTC") derivatives (both centrally cleared and bilateral) are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, calibration to market-clearing transactions, broker or dealer quotations, or other alternative pricing sources with reasonable levels of price transparency. Where models are used, the selection of a particular model to value an OTC derivative depends upon the contractual terms of, and specific risks inherent in, the instrument, as well as the availability of pricing information in the market. The Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, voluntary and involuntary prepayment rates, loss severity rates and correlations of such inputs. For OTC derivatives that trade in liquid markets, model inputs can generally be verified and model selection does not involve significant management judgment. OTC derivatives are classified within Level 2 of the fair value hierarchy when significant inputs are corroborated by market evidence. |
Level 3 Instruments |
Valuation Techniques and Significant Inputs |
Bank Loans, Corporate Debt, and Other Debt Obligations |
Valuations are generally based on discounted cash flow techniques, for which the significant inputs are the amount and timing of expected future cash flows, market yields and recovery assumptions. The significant inputs are generally determined based on relative value analyses, which incorporate comparisons both to credit default swaps that reference the same underlying credit risk and to other debt instruments for the same issuer for which observable prices or broker quotes are available. Other valuation methodologies are used as appropriate including market comparables, transactions in similar instruments and recovery/liquidation analysis. |
Equity |
Recent third-party investments or pending transactions are considered to be the best evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as appropriate and available: (i) Transactions in similar instruments; (ii) Discounted cash flow techniques; (iii) Third party appraisals; and (iv) Industry multiples and public comparables. Evidence includes recent or pending reorganizations (for example, merger proposals, tender offers and debt restructurings) and significant changes in financial metrics, including: (i) Current financial performance as compared to projected performance; (ii) Capitalization rates and multiples; and (iii) Market yields implied by transactions of similar or related assets. |
26
Level 3 Instruments |
Fair |
|
Valuation |
Significant |
Range of Significant |
Weighted |
|
As of March 31, 2023 |
|
|
|
|
|
|
|
Bank Loans, Corporate Debt, and Other Debt Obligations |
|||||||
1st Lien/Senior Secured Debt |
$ |
|
Discounted cash flows |
Discount Rate |
|||
1st Lien/Last-Out Unitranche |
|
|
Discounted cash flows |
Discount Rate |
— |
||
Equity |
|
|
|
|
|
|
|
Preferred Stock |
$ |
|
Comparable multiples |
EV/EBITDA(6) |
— |
||
|
|
|
Comparable multiples |
EV/Revenue |
— |
||
Common Stock |
|
|
Comparable multiples |
EV/EBITDA(6) |
|||
Warrants |
|
|
Comparable multiples |
EV/Revenue |
— |
||
As of December 31, 2022 |
|
|
|
|
|
|
|
Bank Loans, Corporate Debt, and Other Debt Obligations |
|||||||
1st Lien/Senior Secured Debt |
$ |
|
Discounted cash flows |
Discount Rate |
|||
1st Lien/Last-Out Unitranche |
|
|
Discounted cash flows |
Discount Rate |
— |
||
Equity |
|
|
|
|
|
|
|
Preferred Stock |
$ |
|
Comparable multiples |
EV/EBITDA(6) |
— |
||
|
|
|
Comparable multiples |
EV/Revenue |
— |
||
Common Stock |
|
|
Comparable multiples |
EV/EBITDA(6) |
|||
Warrants |
|
|
Comparable multiples |
EV/Revenue |
— |
||
As noted above, the income and market approaches were used in the determination of fair value of certain Level 3 assets as of March 31, 2023 and December 31, 2022. The significant unobservable inputs used in the income approach are the discount rate or market yield used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. An increase in the discount rate or market yield would result in a decrease in the fair value. Included in the consideration and selection of discount rates or market yields is risk of default, rating of the investment, call provisions and comparable company investments. The significant unobservable inputs used in the market approach are based on market comparable transactions and market multiples of publicly traded comparable companies. Increases or decreases in market comparable transactions or market multiples would result in an increase or decrease, in the fair value.
The following is a summary of the Company’s assets categorized within the fair value hierarchy:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||||||||||
Assets |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||||||
1st Lien/Senior Secured Debt |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||||
1st Lien/Last-Out Unitranche |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||||
Preferred Stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||||
Common Stock |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||||
Warrants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||||
Investments in Affiliated Money Market Fund |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||||
27
The below table presents a summary of changes in fair value of Level 3 assets by investment type:
Assets |
|
Beginning |
|
|
Purchases(1) |
|
|
Net |
|
|
Net Change in |
|
|
Sales and |
|
|
Net |
|
|
Transfers |
|
|
Transfers |
|
|
Ending Balance |
|
|
Net Change in |
|
||||||||||
For the Three Months Ended March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
1st Lien/Senior Secured Debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|||||
1st Lien/Last-Out Unitranche |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
||||
Preferred Stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||||
Common Stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||||
Warrants |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|||||
For the Three Months Ended March 31, 2022 |
|
|||||||||||||||||||||||||||||||||||||||
1st Lien/Senior |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
||||
1st Lien/Last-Out Unitranche |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
2nd Lien/Senior Secured Debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Unsecured Debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Preferred Stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||||
Common Stock |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||||
Warrants |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||||||
Debt Not Carried at Fair Value
The fair value of the Company’s debt, which would have been categorized as Level 3 within the fair value hierarchy as of March 31, 2023 and December 31, 2022, approximates its carrying value because the Revolving Credit Facilities have variable interest based on selected short-term rates.
6. DEBT
On November 1, 2021, the Initial Member approved the application of the reduced asset coverage requirements in Section 61(a)(2) of the Investment Company Act to the Company and such election became effective the following day. As a result of this approval, the Company is currently allowed to borrow amounts such that its asset coverage ratio, as defined in the
The Company’s outstanding debt was as follows:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||
|
|
Aggregate |
|
|
Amount |
|
|
Carrying |
|
|
Aggregate |
|
|
Amount |
|
|
Carrying |
|
||||||
BoA Revolving Credit Facility(1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Truist Revolving Credit Facility(2) |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Total debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The combined weighted average interest rates of the aggregate borrowings outstanding for the three months ended March 31, 2023 and for the year ended December 31, 2022 were
28
BoA Revolving Credit Facility
The Company entered into the BoA Revolving Credit Facility on November 26, 2021 with Bank of America, N.A. (“BoA”), as administrative agent (the “Administrative Agent”), lead arranger, letter of credit issuer and lender. Subject to availability under the “Borrowing Base,” the maximum principal amount of the BoA Revolving Credit Facility was $
Proceeds from the BoA Revolving Credit Facility may be used for investments, working capital, expenses and general corporate purposes (including to pay dividends or distributions).
Amounts drawn under the BoA Revolving Credit Facility may be prepaid at any time without premium or penalty, subject to applicable breakage costs. Loans are subject to mandatory prepayment for amounts exceeding the Borrowing Base or the lenders’ aggregate commitment and to the extent required to comply with the Investment Company Act, as applied to BDCs. Transfers of interests in the Company by investors are subject to certain restrictions under the BoA Revolving Credit Facility. In addition, any transfer of shares from a stockholder whose undrawn commitments are included in the Borrowing Base to a stockholder that is not eligible to be included in the Borrowing Base (or that is eligible to be included in the Borrowing Base at a lower advance rate) may trigger mandatory prepayment obligations.
The BoA Revolving Credit Facility is secured by a perfected first priority security interest in the unfunded capital commitments of the Company’s investors (with certain exceptions) and the proceeds thereof, including an assignment of the right to make capital calls, receive and apply capital contributions, and enforce remedies and claims related thereto, and a pledge of the collateral account into which capital call proceeds are deposited. Additionally, under the BoA Revolving Credit Facility, in certain circumstances after an event of default, the Administrative Agent will be able to require investors to fund their capital commitments directly to the Administrative Agent for the purposes of repaying the loans, but lenders cannot seek recourse against a stockholder in excess of such stockholder's obligation to contribute capital to the Company.
The BoA Revolving Credit Facility contains customary representations, warranties, and affirmative and negative covenants, including without limitation, representations and covenants regarding treatment as a RIC under the Code and as a BDC under the Investment Company Act and restrictions on the Company’s ability to make certain distributions, to incur additional indebtedness, to incur any liens on the collateral and to permit certain transfers of stockholders’ ownership interest in the shares. The BoA Revolving Credit Facility includes customary conditions precedent to the draw-down of loans and customary events of default. As of March 31, 2023, the Company was in compliance with these covenants.
Costs of $
The below table presents the summary information of the BoA Revolving Credit Facility:
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
|
||
|
|
|
|
|
|
|
|
||
Borrowing interest expense |
|
$ |
|
|
$ |
|
|
||
Facility fees |
|
|
|
|
|
|
|
||
Amortization of financing costs |
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
||
Weighted average interest rate |
|
|
% |
|
|
% |
|
||
Average outstanding balance |
|
$ |
|
|
$ |
|
|
||
29
Truist Revolving Credit Facility
The Company entered into the Truist Revolving Credit Facility on February 28, 2023 with Truist Bank, as administrative agent, lead arranger, letter of credit issuer and lender.
The Truist Revolving Credit Facility is a multicurrency facility, and as of March 31, 2023, total commitments under the Truist Revolving Credit Facility were $
The Company’s obligations to the lenders under the Truist Revolving Credit Facility are secured by a first priority security interest in substantially all of the Company’s portfolio of investments and cash, with certain exceptions. The Truist Revolving Credit Facility contains certain covenants, including: (i) maintaining a minimum shareholders’ equity, (ii) maintaining an asset coverage ratio of at least
The Truist Revolving Credit Facility may be guaranteed by certain of the Company’s subsidiaries that are formed or acquired by the Company in the future (collectively, the “Subsidiary Guarantors”). The Truist Revolving Credit Facility also includes representations and warranties, conditions precedent to funding of draws and events of default (including a change in control event of default trigger).
Costs of $
The below table presents the summary information of the Truist Revolving Credit Facility:
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
Borrowing interest expense |
|
$ |
— |
|
|
N/A |
Facility fees |
|
|
|
|
N/A |
|
Amortization of financing costs |
|
|
|
|
N/A |
|
Total |
|
$ |
|
|
N/A |
|
Weighted average interest rate |
|
|
— |
% |
|
N/A |
Average outstanding balance |
|
$ |
— |
|
|
N/A |
7. COMMITMENTS AND CONTINGENCIES
Capital Commitments
The Company had aggregate capital commitments and undrawn capital commitments from investors as follows:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||
|
|
Capital |
|
|
Unfunded |
|
|
% of Capital |
|
|
Capital |
|
|
Unfunded |
|
|
% of Capital |
|
||||||
Common Stock |
|
$ |
|
|
$ |
|
|
|
% |
|
$ |
|
|
$ |
|
|
|
% |
||||||
30
Portfolio Company Commitments
The Company may enter into investment commitments to fund investments through signed commitment letters. In many circumstances, borrower acceptance and final terms are subject to transaction-related contingencies. These are disclosed as commitments upon execution of a final agreement. As of March 31, 2023, the Company believed that it had adequate financial resources to satisfy its unfunded commitments.
|
|
Unfunded Commitment Balances (1) |
|
|||||
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
1st Lien/Senior Secured Debt |
|
|
|
|
|
|
||
Admiral Buyer, Inc. (dba Fidelity Payment Services) |
|
$ |
|
|
$ |
|
||
Bigchange Group Limited |
|
|
|
|
|
|
||
BSI3 Menu Buyer, Inc (dba Kydia) |
|
|
|
|
|
|
||
Businessolver.com, Inc. |
|
|
|
|
|
|
||
Checkmate Finance Merger Sub, LLC |
|
|
|
|
|
|
||
Clearcourse Partnership Acquireco Finance Limited |
|
|
|
|
|
|
||
CloudBees, Inc. |
|
|
|
|
|
|
||
Coding Solutions Acquisition, Inc. |
|
|
|
|
|
|
||
Coretrust Purchasing Group LLC |
|
|
|
|
|
|
||
CST Buyer Company (dba Intoxalock) |
|
|
|
|
|
|
||
DFS Holding Company, Inc. |
|
|
|
|
|
|
||
Frontgrade Technologies (dba Cobham Holdings Inc) |
|
|
|
|
|
— |
|
|
Governmentjobs.com, Inc. (dba NeoGov) |
|
|
|
|
|
|
||
Groundworks, LLC |
|
|
|
|
|
— |
|
|
HealthEdge Software, Inc. |
|
|
|
|
|
|
||
HumanState Limited (dba PayProp) |
|
|
|
|
|
|
||
iCIMS, Inc. |
|
|
|
|
|
|
||
Intelligent Medical Objects, Inc. |
|
|
|
|
|
|
||
iWave Information Systems, Inc. |
|
|
|
|
|
|
||
Kaseya Inc. |
|
|
|
|
|
|
||
LCG Vardiman Black, LLC (dba Specialty Dental Brands) |
|
|
|
|
|
|
||
MerchantWise Solutions, LLC (dba HungerRush) |
|
|
|
|
|
|
||
Millstone Medical Outsourcing, LLC |
|
|
|
|
|
|
||
NFM & J, L.P. (dba the Facilities Group) |
|
|
|
|
|
|
||
PDDS Holdco, Inc. (dba Planet DDS) |
|
|
|
|
|
|
||
Qualawash Holdings, LLC |
|
|
|
|
|
|
||
Rubrik,Inc. |
|
|
|
|
|
|
||
Solaris (dba Urology Management Holdings, Inc.) |
|
|
|
|
|
— |
|
|
Southeast Mechanical, LLC (dba. SEM Holdings, LLC) |
|
|
|
|
|
|
||
SpendMend, LLC |
|
|
|
|
|
|
||
Spotless Brands, LLC |
|
|
|
|
|
|
||
Trader Corporation |
|
|
|
|
|
|
||
WebPT, Inc. |
|
|
|
|
|
|
||
Whitewater Holding Company LLC |
|
|
|
|
|
|
||
Zarya Intermediate, LLC (dba iOFFICE) |
|
|
|
|
|
|
||
Total 1st Lien/Senior Secured Debt |
|
$ |
|
|
$ |
|
||
1st Lien/Last-Out Unitranche |
|
|
|
|
|
|
||
EDB Parent, LLC (dba Enterprise DB) |
|
$ |
|
|
$ |
|
||
Total 1st Lien/Last-Out Unitranche |
|
$ |
|
|
$ |
|
||
Total |
|
$ |
|
|
$ |
|
||
Contingencies
In the normal course of business, the Company enters into contracts that provide a variety of general indemnifications. Any exposure to the Company under these arrangements could involve future claims that may be made against the Company. Currently, no such claims exist or are expected to arise and, accordingly, the Company has not accrued any liability in connection with such indemnifications.
8. NET ASSETS
Capital Drawdowns
The following table summarizes the total shares issued and proceeds related to capital drawdowns:
Share Issue Date |
|
Shares Issued |
|
|
Proceeds Received |
|
||
For the three months ended March 31, 2023 |
|
|
|
|
|
|
||
February 21, 2023 |
|
|
|
|
$ |
|
||
Total capital drawdowns |
|
|
|
|
$ |
|
||
For the three months ended March 31, 2022 |
|
|
|
|
|
|
||
March 16, 2022 |
|
|
|
|
$ |
|
||
Total capital drawdowns |
|
|
|
|
$ |
|
||
31
Distributions
The following table reflects the distributions declared on the Company’s common stock:
Date Declared |
|
Record Date |
|
Payment Date |
|
Amount Per Share |
|
|
For the three months ended March 31, 2023 |
|
|||||||
|
|
|
$ |
|
||||
There were
9. EARNINGS (LOSS) PER SHARE
The following information sets forth the computation of basic and diluted earnings per share:
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
|
||
Net increase (decrease) in net assets from operations |
|
$ |
|
|
$ |
( |
) |
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
||
Basic and diluted earnings (loss) per share |
|
$ |
|
|
$ |
( |
) |
|
|
Diluted earnings per share equal basic earnings per share because there were no common share equivalents outstanding during the period presented.
10. FINANCIAL HIGHLIGHTS
The below table presents the schedule of financial highlights of the Company:
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Per Share Data:(1) |
|
|
|
|
|
|
||
NAV, beginning of period |
|
$ |
|
|
$ |
|
||
Net investment income (loss) |
|
|
|
|
|
( |
) |
|
Net realized and unrealized gains (losses)(2) |
|
|
( |
) |
|
|
|
|
Net increase (decrease) in net assets from operations(2) |
|
$ |
|
|
$ |
( |
) |
|
NAV, end of period |
|
$ |
|
|
$ |
|
||
Shares outstanding, end of period |
|
|
|
|
|
|
||
Weighted average shares outstanding |
|
|
|
|
|
|
||
Total return based on NAV(3) |
|
|
% |
|
|
( |
%) |
|
Supplemental Data/Ratio(4): |
|
|
|
|
|
|
||
Net assets, end of period |
|
$ |
|
|
$ |
|
||
Ratio of net expenses to average net assets |
|
|
% |
|
|
% |
||
Ratio of expenses (without incentive fees and interest and other debt expenses) |
|
|
% |
|
|
% |
||
Ratio of interest and other debt expenses to average net assets |
|
|
% |
|
|
% |
||
Ratio of incentive fees to average net assets |
|
—% |
|
|
|
% |
||
Ratio of total expenses to average net assets |
|
|
% |
|
|
% |
||
Ratio of net investment income to average net assets |
|
|
% |
|
|
( |
%) |
|
Portfolio turnover |
|
|
% |
|
|
% |
||
Subsequent events after the date of the Consolidated Statements of Assets and Liabilities have been evaluated through the date the unaudited consolidated financial statements were issued. Other than the items discussed below, the Company has concluded that there is no impact requiring adjustment or disclosure in the consolidated financial statements.
On May 3, 2023, the Board of Directors declared a distribution equal to an amount up to the Company's taxable earnings per share, including net investment income (if positive) for the period April 1, 2023 through June 30, 2023, payable on or about July 28, 2023 to shareholders of record as of July 6, 2023.
32
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties. References to “we,” “us,” “our,” and the “Company,” mean Goldman Sachs Middle Market Lending Corp. II or Goldman Sachs Middle Market Lending Corp. II, together with its consolidated subsidiary, as the context requires. The terms “GSAM,” our “Adviser” or our “Investment Adviser” refer to Goldman Sachs Asset Management, L.P., a Delaware limited partnership. The term “GS Group Inc.” refers to The Goldman Sachs Group, Inc. The term “Goldman Sachs” refers to GS Group Inc., together with Goldman Sachs & Co. LLC (including its predecessors, “GS & Co.”), GSAM and its other subsidiaries and affiliates. The discussion and analysis contained in this section refer to our financial condition, results of operations and cash flows. The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. Please see “Cautionary Statement Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with this discussion and analysis. Our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this report.
OVERVIEW
We are a specialty finance company focused on lending to middle-market companies. We are a closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “Investment Company Act”). In addition, we have elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), and we expect to qualify annually for tax treatment as a RIC, commencing with our taxable year ended December 31, 2021. From our commencement of investment operations on October 29, 2021 through March 31, 2023, we have originated $358.30 million in aggregate principal amount of debt and equity investments prior to any subsequent exits and repayments. We seek to generate current income and, to a lesser extent, capital appreciation primarily through direct originations of secured debt, including first lien, unitranche debt, including last-out portions of such loans, and second lien debt, and unsecured debt, including mezzanine debt, as well as through select equity investments.
“Unitranche” loans are first lien loans that extend deeper in a borrower’s capital structure than traditional first lien debt and may provide for a waterfall of cash flow priority between different lenders in such loan. In a number of instances, we may find another lender to provide the “first-out” portion of a unitranche loan while we retain the “last-out” portion of such loan, in which case, the “first-out” portion of the loan would generally receive priority with respect to the payment of principal, interest and any other amounts due thereunder as compared to the “last-out” portion that we would continue to hold. In exchange for taking greater risk of loss, the “last-out” portion generally earns a higher interest rate than the “first-out” portion of the loan. We use the term “mezzanine” to refer to debt that ranks senior in right of payment only to a borrower’s equity securities and ranks junior in right of payment to all of such borrower’s other indebtedness. We may make multiple investments in the same portfolio company.
We may also originate “covenant-lite” loans, which are loans with fewer financial maintenance covenants than other obligations, or no financial maintenance covenants. Such covenant-lite loans may not include terms that allow the lender to monitor the performance of the borrower or to declare a default if certain criteria are breached. These flexible covenants (or the absence of covenants) could permit borrowers to experience a significant downturn in their results of operations without triggering any default that would permit holders of their debt (such as us) to accelerate indebtedness or negotiate terms and pricing. In the event of default, covenant-lite loans may recover less value than traditional loans as the lender may not have an opportunity to negotiate with the borrower prior to such default.
We expect to invest, under normal circumstances, at least 80% of our net assets (plus any borrowings for investment purposes), directly or indirectly in private middle-market credit obligations and related instruments. We define “credit obligations and related instruments” for this purpose as any fixed-income instrument, including loans to, and bonds and preferred stock of, portfolio companies and other instruments that provide exposure to such fixed-income instruments. “Middle market” is used to refer to companies with between $5 million and $200 million of annual earnings before interest expense, income tax expense, depreciation and amortization (“EBITDA”) excluding certain one-time and non-recurring items that are outside the operations of these companies. While, as a result of fluctuations in the net-asset value of one asset relative to other assets, private middle-market credit obligations and related instruments may represent less than 80% of our net assets (plus any borrowings for investment purposes) at any time, we may not invest, under normal circumstances, more than 20% of our net assets (plus any borrowings for investment purposes) in securities and other instruments that are not private middle-market credit obligations and related instruments. To the extent we determine to invest indirectly in private middle-market credit obligations and related instruments, we may invest through certain synthetic instruments, including derivatives that have similar economic characteristics to private middle-market credit obligations. For purposes of determining compliance with our 80% policy, each applicable derivative instrument will be valued based upon its market value. We will notify our stockholders at least 60 days prior to any change to the 80% investment policy described above.
We expect to directly or indirectly invest at least 70% of our total assets in middle-market companies domiciled in the United States. However, we may from time to time invest opportunistically in large U.S. companies, non-U.S. companies, stressed or distressed debt, structured products, private equity or other opportunities, subject to limits imposed by the Investment Company Act.
33
While our investment program is expected to focus primarily on debt investments, our investments may include equity features, such as a direct investment in the equity or convertible securities of a portfolio company or warrants or options to buy a minority interest in a portfolio company. Any warrants we may receive with debt securities will generally require only a nominal cost to exercise, so as a portfolio company appreciates in value, we may achieve additional investment return from these equity investments. We may structure the warrants to provide provisions protecting our rights as a minority-interest holder, as well as puts, or rights to sell such securities back to the portfolio company, upon the occurrence of specified events. In many cases, we may also obtain registration rights in connection with these equity investments, which may include demand and “piggyback” registration rights.
For a discussion of the competitive landscape we face, please see “Item 1A. Risk Factors—Competition—We operate in a highly competitive market for investment opportunities” and “Item 1. Business—Competitive Advantages.” in our annual report on Form 10-K for the year ended December 31, 2022.
KEY COMPONENTS OF OPERATIONS
Investments
Our level of investment activity can and will vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment, the amount of capital we have available to us and the competitive environment for the type of investments we make.
As a BDC, we may not acquire any assets other than “qualifying assets” specified in the Investment Company Act, unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Pursuant to rules adopted by the Securities and Exchange Commission (the “SEC”), “eligible portfolio companies” include certain companies that do not have any securities listed on a national securities exchange and public companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million.
Revenues
We generate revenues in the form of interest income on debt investments and, to a lesser extent, capital gains and distributions, if any, on equity securities that we may acquire in portfolio companies. Some of our investments may provide for deferred interest payments or payment-in-kind (“PIK”) income. The principal amount of the debt investments and any accrued but unpaid interest generally becomes due at the maturity date.
We generate revenues primarily through receipt of interest income from the investments we hold. In addition, we may generate revenue in the form of commitment, origination, structuring, syndication, exit fees or diligence fees, fees for providing managerial assistance and consulting fees. Portfolio company fees (directors’ fees, consulting fees, administrative fees, tax advisory fees and other similar compensation) will be paid to us, unless, to the extent required by applicable law or exemptive relief, if any, therefrom, we receive our allocable portion of such fees when invested in the same portfolio company as other client accounts managed by our Investment Adviser (collectively with the Company, the “Accounts”), which other Accounts could receive their allocable portion of such fee. We do not expect to receive material fee income as it is not our principal investment strategy. We record contractual prepayment premiums on loans and debt securities as interest income.
Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies. Interest and dividend income are presented net of withholding tax, if any.
34
Expenses
Our primary operating expenses include the payment of the management fee (the “Management Fee”) and the incentive fee (the “Incentive Fee”) to our Investment Adviser, legal and professional fees, interest and other debt expenses and other operating and overhead related expenses. The Management Fee and Incentive Fee compensate our Investment Adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other expenses of our operations and transactions in accordance with the investment management agreement (the “Investment Management Agreement”) and administration agreement (“Administration Agreement”), including:
In addition, we shall bear the fees and expenses related to the preparation and maintaining of any necessary registrations with regulators in order to market the common stock of the Company in certain jurisdictions and fees and expenses associated with preparation and maintenance of any key information document or similar document required by law or regulation.
Our Investment Adviser will not be required to pay expenses of activities, which are primarily intended to result in sales of common stock, including all costs and expenses associated with the preparation and distribution of the Subscription Agreements.
We expect our general and administrative expenses to be relatively stable or decline as a percentage of total assets during periods of asset growth and to increase during periods of asset declines.
Leverage
We expect from time to time to borrow funds for a variety of purposes, subject to the limitations of the Investment Company Act, including to bridge fundings for investments in advance of drawdowns, as part of our investment strategy, to meet other short-term liquidity needs, including to pay the Management Fee, and to facilitate our hedging activities. Sources of leverage include the issuance of senior securities (including preferred stock) and other credit facilities (secured by investments and/or pledges of Undrawn Commitments).
Our revolving credit agreement with Bank of America, N.A., as administrative agent (as amended, the “BoA Revolving Credit Facility”), and our revolving credit agreement with Truist Bank, as administrative agent (the "Truist Revolving Credit Facility" and together with the BoA Revolving Credit Facility, the "Revolving Credit Facilities"), allow us to borrow money and lever our investment portfolio, subject to the limitations of the Investment Company Act, with the objective of increasing our yield. This is known as “leverage” and could increase or decrease returns to our stockholders. The use of leverage involves significant risks. We are permitted to borrow amounts such that our asset coverage ratio, as defined in the Investment Company Act, is at least 150% after such borrowing (if certain requirements are met).
35
Certain trading practices and investments, such as reverse repurchase agreements, may be considered borrowings or involve leverage and thus may be subject to Investment Company Act restrictions. In accordance with applicable SEC staff guidance and interpretations, when we engage in such transactions, instead of maintaining an asset coverage ratio of at least 150% (if certain requirements are met), we may segregate or earmark liquid assets, or enter into an offsetting position, in an amount at least equal to our exposure, on a mark-to-market basis, to such transactions (as calculated pursuant to requirements of the SEC). Short-term credits necessary for the settlement of securities transactions and arrangements with respect to securities lending will not be considered borrowings for these purposes. Practices and investments that may involve leverage but are not considered borrowings are not subject to the Investment Company Act’s asset coverage requirement, and we will not otherwise segregate or earmark liquid assets or enter into offsetting positions for such transactions. The amount of leverage that we employ will depend on the assessment by our Investment Adviser and our board of directors (the “Board of Directors” or the “Board”) of market conditions and other factors at the time of any proposed borrowing.
PORTFOLIO AND INVESTMENT ACTIVITY
Our portfolio (excluding investments in money market funds, if any) consisted of the following:
|
|
As of |
|
|||||||||||||
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
||||
|
|
($ in millions) |
|
|||||||||||||
First Lien/Senior Secured Debt |
|
$ |
264.97 |
|
|
$ |
263.42 |
|
|
$ |
240.89 |
|
|
$ |
239.70 |
|
First Lien/Last-Out Unitranche |
|
|
6.54 |
|
|
|
6.48 |
|
|
|
6.35 |
|
|
|
6.30 |
|
Preferred Stock |
|
|
2.71 |
|
|
|
2.99 |
|
|
|
2.71 |
|
|
|
2.83 |
|
Common Stock |
|
|
0.67 |
|
|
|
0.79 |
|
|
|
0.67 |
|
|
|
0.77 |
|
Warrants |
|
|
0.22 |
|
|
|
0.03 |
|
|
|
0.22 |
|
|
|
0.07 |
|
Total investments |
|
$ |
275.11 |
|
|
$ |
273.71 |
|
|
$ |
250.84 |
|
|
$ |
249.67 |
|
The weighted average yield of our portfolio by asset type (excluding investments in money market funds, if any), at amortized cost and fair value, was as follows:
|
|
As of |
|
|||||||||||||
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
||||
Weighted Average Yield(1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
First Lien/Senior Secured Debt(2) |
|
|
11.9 |
% |
|
|
12.1 |
% |
|
|
11.2 |
% |
|
|
11.3 |
% |
First Lien/Last-Out Unitranche(2)(3) |
|
|
13.5 |
% |
|
|
13.6 |
% |
|
|
13.2 |
% |
|
|
13.2 |
% |
Preferred Stock(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Common Stock(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Warrants(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total Portfolio |
|
|
11.8 |
% |
|
|
11.9 |
% |
|
|
11.1 |
% |
|
|
11.2 |
% |
The following table presents certain selected information regarding our investment portfolio (excluding investments in money market funds, if any):
|
|
As of |
|
||||||
|
|
March 31, |
|
December 31, |
|
||||
Number of portfolio companies |
|
|
|
37 |
|
|
|
34 |
|
Percentage of performing debt bearing a floating rate(1) |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
Percentage of performing debt bearing a fixed rate(1)(2) |
|
|
—% |
|
|
—% |
|
||
Weighted average leverage (net debt/EBITDA)(3) |
|
|
|
5.6 |
x |
|
|
5.7 |
x |
Weighted average interest coverage(3) |
|
|
|
1.6 |
x |
|
|
1.7 |
x |
Median EBITDA(3) |
|
$ |
61.02 million |
|
$ |
51.54 million |
|
||
36
For a particular portfolio company, we also calculate the level of contractual interest expense owed by the portfolio company and compare that amount to EBITDA (“interest coverage ratio”). We believe this calculation method assists in describing the risk of our portfolio investments, as it takes into consideration contractual interest obligations of the portfolio company. Weighted average interest coverage is weighted based on the fair value of our performing debt investments, excluding investments where interest coverage may not be the appropriate measure of credit risk, such as cash collateralized loans and investments that are underwritten and covenanted based on recurring revenue.
Median EBITDA is based on our debt investments, excluding investments where net debt to EBITDA may not be the appropriate measure of credit risk, such as cash collateralized loans and investments that are underwritten and covenanted based on recurring revenue.
Portfolio company statistics are derived from the most recently available financial statements of each portfolio company as of the reported end date. Statistics of the portfolio companies have not been independently verified by us and may reflect a normalized or adjusted amount.
As of March 31, 2023 and December 31, 2022, investments where net debt to EBITDA may not be the appropriate measure of credit risk represented 39.8% and 41.4% of total debt investments at fair value.
Our Investment Adviser monitors the financial trends of each portfolio company on an ongoing basis to determine each is meeting its respective business plan and to assess the appropriate course of action for each company. Our Investment Adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which may include: (i) assessment of success in adhering to the portfolio company’s business plan and compliance with covenants; (ii) periodic or regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments; (iii) comparisons to our other portfolio companies in the industry, if any; (iv) attendance at and participation in Board meetings or presentations by portfolio companies; and (v) review of monthly and quarterly financial statements and financial projections of portfolio companies.
As part of the monitoring process, our Investment Adviser also employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our Investment Adviser grades the credit risk of all investments on a scale of 1 to 4 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of origination or acquisition), although it may also take into account under certain circumstances the performance of the portfolio company’s business, the collateral coverage of the investment and other relevant factors. The grading system for our investments is as follows:
• Grade 1 investments involve the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit;
• Grade 2 investments involve a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup the cost of our investment are neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a grade of 2;
• Grade 3 investments indicate that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition, including as a result of factors such as declining performance and non-compliance with debt covenants; however, payments are generally not more than 120 days past due; and
• Grade 4 investments indicate that the risk to our ability to recoup the initial cost basis of such investment has substantially increased since origination or acquisition, and the portfolio company likely has materially declining performance. For debt investments with an investment grade of 4, in most cases, most or all of the debt covenants are out of compliance and payments are substantially delinquent. For investments graded 4, it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit.
37
Our Investment Adviser grades the investments in our portfolio at least quarterly and it is possible that the grade of a portfolio investment may be reduced or increased over time. For investments graded 3 or 4, the Investment Adviser enhances its level of scrutiny over the monitoring of such portfolio company. The following table shows the composition of our portfolio on the 1 to 4 grading scale:
|
|
As of |
|
|||||||||||||
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
Investment Performance Rating |
|
Fair Value |
|
|
Percentage of |
|
|
Fair Value |
|
|
Percentage of |
|
||||
|
|
(in millions) |
|
|
|
|
|
(in millions) |
|
|
|
|
||||
Grade 1 |
|
$ |
3.83 |
|
|
|
1.4 |
% |
|
$ |
— |
|
|
|
— |
% |
Grade 2 |
|
|
269.88 |
|
|
|
98.6 |
|
|
|
249.66 |
|
|
|
100.0 |
|
Grade 3 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Grade 4 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total Investments |
|
$ |
273.71 |
|
|
|
100.0 |
% |
|
$ |
249.66 |
|
|
|
100.0 |
% |
The following table shows the amortized cost of our performing and non-accrual investments (excluding investments in money market funds, if any):
|
|
As of |
|
|||||||||||||
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
Amortized Cost |
|
|
Percentage of |
|
|
Amortized Cost |
|
|
Percentage of |
|
||||
|
|
(in millions) |
|
|
|
|
|
(in millions) |
|
|
|
|
||||
Performing |
|
$ |
275.11 |
|
|
|
100.0 |
% |
|
$ |
250.84 |
|
|
|
100.0 |
% |
Non-accrual |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total Investments |
|
$ |
275.11 |
|
|
|
100.0 |
% |
|
$ |
250.84 |
|
|
|
100.0 |
% |
Investments are placed on non-accrual status when it is probable that principal, interest or dividends will not be collected according to the contractual terms. Accrued interest or dividends generally are reversed when an investment is placed on non-accrual status. Interest or dividend payments received on non-accrual investments may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual investments are restored to accrual status when past due principal and interest or dividends are paid and, in management’s judgment, principal and interest or dividend payments are likely to remain current. We may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection.
The following table shows our investment activity by investment type(1):
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
|
|
($ in millions) |
|
|||||
Amount of investments committed at cost: |
|
|
|
|
|
|
||
First Lien/Senior Secured Debt |
|
$ |
15.56 |
|
|
$ |
22.22 |
|
Total |
|
$ |
15.56 |
|
|
$ |
22.22 |
|
Proceeds from investments sold or repaid: |
|
|
|
|
|
|
||
First Lien/Senior Secured Debt |
|
$ |
0.49 |
|
|
$ |
0.02 |
|
Total |
|
$ |
0.49 |
|
|
$ |
0.02 |
|
Net increase in portfolio |
|
$ |
15.07 |
|
|
$ |
22.20 |
|
Number of new portfolio companies with new investment commitments |
|
|
3 |
|
|
|
4 |
|
Total new investment commitment amount in new portfolio companies |
|
$ |
15.44 |
|
|
$ |
22.22 |
|
Average new investment commitment amount in new portfolio companies |
|
$ |
5.15 |
|
|
$ |
5.56 |
|
Number of existing portfolio companies with new investment commitments |
|
|
1 |
|
|
|
— |
|
Total new investment commitment amount in existing portfolio companies |
|
$ |
0.12 |
|
|
$ |
— |
|
Weighted average remaining term for new investment commitments (in years)(2) |
|
|
5.6 |
|
|
|
5.2 |
|
Percentage of new debt investment commitments at floating interest rates |
|
|
100.0 |
% |
|
|
100.0 |
% |
Percentage of new debt investment commitments at fixed interest rates(3) |
|
|
— |
% |
|
|
— |
% |
Weighted average yield on new debt and income producing investment commitments(4) |
|
|
12.3 |
% |
|
|
7.2 |
% |
Weighted average yield on new investment commitments(5) |
|
|
12.3 |
% |
|
|
7.2 |
% |
Weighted average yield on debt and income producing investments sold or repaid(6) |
|
|
11.5 |
% |
|
|
7.0 |
% |
Weighted average yield on investments sold or repaid(7) |
|
|
11.5 |
% |
|
|
7.0 |
% |
38
RESULTS OF OPERATIONS
Our operating results were as follows:
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
|
|
($ in millions) |
|
|||||
Total investment income |
|
$ |
7.87 |
|
|
$ |
0.68 |
|
Net expenses |
|
|
(3.32 |
) |
|
|
(1.10 |
) |
Net investment income (loss) |
|
|
4.55 |
|
|
|
(0.42 |
) |
Net realized gain (loss) on investments |
|
|
0.01 |
|
|
|
— |
|
Net unrealized appreciation (depreciation) on investments |
|
|
(0.23 |
) |
|
|
0.02 |
|
Net realized and unrealized gain (losses) on translations and transactions |
|
|
(0.52 |
) |
|
|
0.06 |
|
Net realized and unrealized gains (losses) |
|
|
(0.74 |
) |
|
|
0.08 |
|
Net increase (decrease) in net assets from operations |
|
$ |
3.81 |
|
|
$ |
(0.34 |
) |
Net increase (decrease) in net assets from operations can vary from period to period as a result of various factors, including acquisitions, the level of new investment commitments, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation in the investment portfolio.
Investment Income
Our investment income was as follows:
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
|
|
($ in millions) |
|
|||||
Interest income |
|
$ |
7.02 |
|
|
$ |
0.64 |
|
Payment-in-kind income |
|
|
0.70 |
|
|
|
0.02 |
|
Other income |
|
|
0.12 |
|
|
|
0.02 |
|
Dividend income |
|
|
0.03 |
|
|
—(1) |
|
|
Total investment income |
|
$ |
7.87 |
|
|
$ |
0.68 |
|
Investment income for the three months ended March 31, 2023 was driven by our deployment of capital into income producing investments.
Expenses
Our expenses were as follows:
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
|
|
($ in millions) |
|
|||||
Interest and other debt expenses |
|
$ |
2.12 |
|
|
$ |
0.21 |
|
Management fees |
|
|
0.50 |
|
|
|
0.07 |
|
Incentive fees |
|
|
— |
|
|
|
0.01 |
|
Professional fees |
|
|
0.22 |
|
|
|
0.15 |
|
Directors’ fees |
|
|
0.17 |
|
|
|
0.12 |
|
Directors’ and officers’ liability insurance |
|
|
0.02 |
|
|
|
0.15 |
|
Offering costs |
|
|
— |
|
|
|
0.25 |
|
Other general and administrative expenses |
|
|
0.29 |
|
|
|
0.21 |
|
Total expenses |
|
$ |
3.32 |
|
|
$ |
1.17 |
|
Management fee waiver |
|
|
— |
|
|
|
(0.07 |
) |
Net Expenses |
|
$ |
3.32 |
|
|
$ |
1.10 |
|
39
In the table above:
Net Change in Unrealized Appreciation (Depreciation) on Investments
Any changes in fair value are recorded in change in unrealized appreciation (depreciation) on investments. For further details on the valuation process, refer to Note 2 “Significant Accounting Policies—Investments” in our consolidated financial statements. Net change in unrealized appreciation (depreciation) on investments consisted of the following:
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
|
|
($ in millions) |
|
|||||
Unrealized appreciation |
|
$ |
0.69 |
|
|
$ |
0.17 |
|
Unrealized depreciation |
|
|
(0.92 |
) |
|
|
(0.15 |
) |
Net change in unrealized appreciation (depreciation) on investments |
|
$ |
(0.23 |
) |
|
$ |
0.02 |
|
The change in unrealized appreciation (depreciation) on investments consisted of the following:
|
|
For the Three Months Ended |
|
|
|
|
March 31, 2023 |
|
|
|
|
($ in millions) |
|
|
Portfolio Company: |
|
|
|
|
Clearcourse Partnership Acquireco Finance Limited |
|
$ |
0.35 |
|
Qualawash Holdings, LLC |
|
|
0.09 |
|
CloudBees, Inc. |
|
|
0.07 |
|
DFS Holding Company, Inc. |
|
|
0.06 |
|
Governmentjobs.com, Inc. (dba NeoGov) |
|
|
0.04 |
|
Coretrust Purchasing Group LLC |
|
|
(0.01 |
) |
Other, net (1) |
|
|
(0.03 |
) |
Spotless Brands, LLC |
|
|
(0.03 |
) |
BSI3 Menu Buyer, Inc (dba Kydia) |
|
|
(0.07 |
) |
MerchantWise Solutions, LLC (dba HungerRush) |
|
|
(0.20 |
) |
iCIMS, Inc. |
|
|
(0.50 |
) |
Total |
|
$ |
(0.23 |
) |
|
|
For the Three |
|
|
|
|
($ in millions) |
|
|
Portfolio Company: |
|
|
|
|
CloudBees, Inc. |
|
|
0.10 |
|
Governmentjobs.com, Inc. (dba NeoGov) |
|
|
0.04 |
|
WhiteWater Holding Company LLC |
|
|
0.01 |
|
Checkmate Finance Merger Sub, LLC |
|
|
0.01 |
|
BSI3 Menu Buyer, Inc (dba Kydia) |
|
|
0.01 |
|
Millstone Medical Outsourcing, LLC |
|
|
(0.01 |
) |
Other, net (1) |
|
|
(0.01 |
) |
Coding Solutions Acquisition, Inc. |
|
|
(0.01 |
) |
NFM & J, L.P. (dba the Facilities Group) |
|
|
(0.02 |
) |
HealthEdge Software, Inc. |
|
|
(0.03 |
) |
Bigchange Group Limited |
|
|
(0.07 |
) |
Total |
|
$ |
0.02 |
|
40
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The primary use of existing funds and any funds raised in the future is expected to be for our investments in portfolio companies, cash distributions to, or stock repurchases from, our stockholders or for other general corporate purposes, including paying for operating expenses or debt service to the extent we borrow or issue senior securities.
We expect to generate cash primarily from the net proceeds of any future offerings of securities, drawdowns of capital commitments, future borrowings and cash flows from operations. To the extent we determine that additional capital would allow us to take advantage of additional investment opportunities, if the market for debt financing presents attractively priced debt financing opportunities, or if our Board of Directors otherwise determines that leveraging our portfolio would be in our best interest and the best interests of our stockholders, we may enter into credit facilities in addition to the Revolving Credit Facilities, or issue other senior securities. We would expect any such credit facilities may be secured by certain of our assets and may contain advance rates based upon pledged collateral. The pricing and other terms of any such facilities would depend upon market conditions when we enter into any such facilities as well as the performance of our business, among other factors. As a BDC, with certain limited exceptions, we are only permitted to borrow amounts such that our asset coverage ratio, as defined in the Investment Company Act, is at least 150% after such borrowing (if certain requirements are met). See “—Key Components of Operations—Leverage.” As of March 31, 2023 and December 31, 2022, our asset coverage ratio based on the aggregate amount outstanding of our senior securities (which includes our Revolving Credit Facilities) was 258% and 316%. We may also refinance or repay any of our indebtedness at any time based on our financial condition and market conditions.
We may enter into investment commitments through signed commitment letters that may ultimately become investment transactions in the future. We regularly evaluate and carefully consider our unfunded commitments using GSAM’s proprietary risk management framework for the purpose of planning our capital resources and ongoing liquidity, including our financial leverage.
An affiliate of the Investment Adviser made a capital commitment to us of $100 on October 29, 2021 (commencement of operations) and served as our initial member (the “Initial Member”). We cancelled the Initial Member’s interest in us on November 23, 2021, the first date on which investors (other than the Initial Member) made their initial capital contribution to purchase shares of our common stock (the “Initial Drawdown Date”). We began accepting subscription agreements (“Subscription Agreements”) from investors acquiring common shares in our private offering. Under the terms of the Subscription Agreements, investors are required to make capital contributions up to the amount of their undrawn capital commitment to purchase shares each time we deliver a drawdown notice.
As of the dates indicated, we had aggregate capital commitments and undrawn capital commitments from investors as follows:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||
|
|
Capital |
|
|
Unfunded |
|
|
% of Capital |
|
|
Capital |
|
|
Unfunded |
|
|
% of Capital |
|
||||||
Common Stock |
|
$ |
546.43 |
|
|
$ |
369.82 |
|
|
|
32 |
% |
|
$ |
543.34 |
|
|
$ |
367.88 |
|
|
|
32 |
% |
The following table summarizes the total shares issued and proceeds related to capital drawdowns:
Share Issue Date |
|
Shares Issued |
|
|
Proceeds |
|
||
For the three months ended March 31, 2023 |
|
|
|
|
|
|
||
February 21, 2023 |
|
|
62,172 |
|
|
$ |
1.15 |
|
Total capital drawdowns |
|
|
62,172 |
|
|
$ |
1.15 |
|
For the three months ended March 31, 2022 |
|
|
|
|
|
|
||
March 16, 2022 |
|
|
1,823,817 |
|
|
$ |
34.05 |
|
Total capital drawdowns |
|
|
1,823,817 |
|
|
$ |
34.05 |
|
Contractual Obligations
We have entered into certain contracts under which we have future commitments. Payments under the Investment Management Agreement, pursuant to which GSAM has agreed to serve as our Investment Adviser, are equal to (1) a percentage of value of our average gross assets and (2) a two-part Incentive Fee. Under the Administration Agreement, pursuant to which State Street Bank and Trust Company has agreed to furnish us with the administrative services necessary to conduct our day-to-day operations, we pay State Street Bank and Trust Company (the “Administrator”) such fees as may be agreed between us and our Administrator that we determine are commercially reasonable in our sole discretion. Either party or the stockholders, by a vote of a majority of our outstanding voting securities, may terminate the Investment Management Agreement without penalty on at least 60 days’ written notice to the other party. Either party may terminate the Administration Agreement without penalty upon at least 30 days’ written notice to the other party. The following table shows our contractual obligations as of March 31, 2023:
41
|
|
Payments Due by Period ($ in millions) |
|
|||||||||||||||||
|
|
Total |
|
|
Less Than |
|
|
1 – 3 |
|
|
3 – 5 |
|
|
More Than |
|
|||||
BoA Revolving Credit Facility(1) |
|
$ |
111.96 |
|
|
$ |
111.96 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Truist Revolving Credit Facility(2) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
BoA Revolving Credit Facility
We entered into the BoA Revolving Credit Facility on November 26, 2021 with Bank of America, N.A. (“BoA”), as administrative agent (the “Administrative Agent”), lead arranger, letter of credit issuer and a lender. We amended the BoA Revolving Credit Facility on July 26, 2022 and November 14, 2022.
Subject to availability under the “Borrowing Base” (as defined by the BoA Revolving Credit Facility), the maximum principal amount of the BoA Revolving Credit Facility was $127.59 million as of March 31, 2023. The Borrowing Base is calculated based on the unfunded capital commitments of the investors meeting various eligibility requirements (subject to investor concentration limits) multiplied by specified advance rates. The stated maturity date of the BoA Revolving Credit Facility is November 24, 2023.
Under the BoA Revolving Credit Facility, prior to the amendment on July 26, 2022, we had the ability to elect either LIBOR or the alternate base rate at the time of drawdown, and loans may be converted from one rate to another at any time, subject to certain conditions. Interest rate on obligations under the BoA Revolving Credit Facility was the prevailing LIBOR for one month plus 2.85% per annum or (B) an alternate base rate (the greatest of (i) the Prime Rate plus 1.85%, (ii) the Federal Funds Rate plus 0.50% plus 1.85%, and (iii) Adjusted LIBOR Rate plus 1.00%). Effective July 26, 2022, we have the ability to elect Daily Simple SOFR, Term SOFR, the applicable alternative currency rate, or the alternate base rate at the time of drawdown, and loans may be converted from one rate to another at any time, subject to certain conditions. The interest rate on obligations under the BoA Revolving Credit Facility is (A) the prevailing Daily Simple SOFR, Term SOFR for the applicable interest period or the applicable alternative currency rate, in each case, plus any applicable credit spread adjustment, plus 2.85% per annum, or (B) an alternate base rate (the greatest of (i) the Prime Rate plus 1.85% per annum, (ii) the Federal Funds Rate plus 0.50% plus 1.85% per annum, and (iii) Term SOFR with a one-month tenor plus 1.00%). We pay a 0.35% annualized fee on a quarterly basis on committed but undrawn amounts under the BoA Revolving Credit Facility.
For further details, see Note 6 “Debt – BoA Revolving Credit Facility” to our consolidated financial statements included in this report.
Truist Revolving Credit Facility
We entered into the Truist Revolving Credit Facility on February 28, 2023 with Truist Bank, as administrative agent, lead arranger, letter of credit issuer and lender.
The Truist Revolving Credit Facility is a multicurrency facility, and as of March 31, 2023, total commitments under the Truist Revolving Credit Facility were $305.00. The Truist Revolving Credit Facility also has an accordion feature, subject to the satisfaction of various conditions, which could bring total commitments under the Truist Revolving Credit Facility to $750.00. Any amounts borrowed under the Truist Revolving Credit Facility will mature, and all accrued and unpaid interest will be due and payable, on February 28, 2028.
Borrowings denominated in USD, including amounts drawn in respect of letters of credit, bear interest (at our election) of either (i) Term SOFR plus a margin of either 2.00% or 1.75% (subject to certain gross borrowing base conditions), plus an additional 0.10% credit adjustment spread, (ii) an alternate base rate, which is the highest of (x) Prime Rate in effect on such day, (y) Federal Funds Effective Rate for such day plus 1/2 of 1.00% and (z) Term SOFR for an interest period of one (1) month plus 1.00%, plus a margin of either 1.00% or 0.75% (subject to certain gross borrowing base conditions). Borrowings denominated in non-USD bear interest of the applicable term benchmark rate or daily simple RFR plus a margin of either 2.00% or 1.75% (subject to certain gross borrowing base conditions), plus, in the case of borrowings denominated in Pound Sterling (GBP) only, an additional 0.0326% credit adjustment spread or 0.1193% credit adjustment spread, for 1-month tenor and 3-months tenor borrowings, respectively. With respect to borrowings denominated in USD, we may elect either Term SOFR, or an alternative base rate at the time of borrowing, and such borrowings may be converted from one benchmark to another at any time, subject to certain conditions.
For further details, see Note 6 “Debt – Truist Revolving Credit Facility” to our consolidated financial statements included in this report.
42
Off-Balance Sheet Arrangements
We may become a party to investment commitments and to financial instruments with off-balance sheet risk in the normal course of our business to fund investments and to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of March 31, 2023, we believed that we had adequate financial resources to satisfy our unfunded commitments. Our unfunded commitments to provide funds to portfolio companies were as follows:
|
|
As of |
|
|
As of |
|
|
||
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|
||
|
|
(in millions) |
|
|
|||||
Unfunded Commitments |
|
|
|
|
|
|
|
||
First Lien/Senior Secured Debt |
|
$ |
66.77 |
|
|
$ |
76.44 |
|
|
First Lien/Last-Out Unitranche |
|
|
1.87 |
|
|
|
2.06 |
|
|
Total |
|
$ |
68.64 |
|
|
$ |
78.50 |
|
|
HEDGING
Subject to applicable provisions of the Investment Company Act and applicable Commodity Futures Trading Commission (“CFTC”) regulations, we may enter into hedging transactions in a manner consistent with SEC guidance. To the extent that any of our loans are denominated in a currency other than U.S. dollars, we may enter into currency hedging contracts to reduce our exposure to fluctuations in currency exchange rates. We may also enter into interest rate hedging agreements. Such hedging activities, which will be subject to compliance with applicable legal requirements, may include the use of futures, options, swaps and forward contracts. Costs incurred in entering into such contracts or in settling them, if any, will be borne by us. Our Investment Adviser has claimed no-action relief from CFTC registration and regulation as a commodity pool operator pursuant to a CFTC Rule 4.5 with respect to our operations, with the result that we will be limited in our ability to use futures contracts or options on futures contracts or engage in swap transactions. Specifically, CFTC Rule 4.5 imposes strict limitations on using such derivatives other than for hedging purposes, whereby the use of derivatives not used solely for hedging purposes is generally limited to situations where (i) the aggregate initial margin and premiums required to establish such positions does not exceed five percent of the liquidation value of our portfolio, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; or (ii) the aggregate net notional value of such derivatives does not exceed 100% of the liquidation value of our portfolio. Moreover, we anticipate entering into transactions involving such derivatives to a very limited extent solely for hedging purposes or otherwise within the limitations of CFTC Rule 4.5.
In August 2022, Rule 18f-4 under the Investment Company Act, regarding the ability of a BDC (or a RIC) to use derivatives and other transactions that create future payment or delivery obligations (including reverse repurchase agreements and similar financing transactions), became effective. Under the newly adopted rule, BDCs that make significant use of derivatives are subject to a value-at-risk leverage limit, a derivatives risk management program, testing requirements and requirements related to board reporting. These new requirements will apply unless the BDC qualifies as a “limited derivatives user,” as defined under the adopted rules. Under the new rule, a BDC may enter into an unfunded commitment agreement that is not a derivatives transaction, such as an agreement to provide financing to a portfolio company, if the BDC has, among other things, a reasonable belief, at the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each case as it becomes due. Under the final rule, when we trade reverse repurchase agreements or similar financing transactions, including certain tender option bonds, we need to aggregate the amount of any other senior securities representing indebtedness (e.g., bank borrowings, if applicable) when calculating our asset coverage ratio. We currently operate as a “limited derivatives user” and these requirements may limit our ability to use derivatives and/or enter into certain other financial contracts.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially.
For a description of our critical accounting policies, see Note 2 “Significant Accounting Policies” to our consolidated financial statements included in this report. We consider the most significant accounting policies to be those related to our Valuation of Portfolio Investments, Revenue Recognition, Non-Accrual Investments, Distribution Policy, and Income Taxes.
RECENT DEVELOPMENTS
On May 3, 2023, our Board of Directors declared a distribution equal to an amount up to our taxable earnings per share, including net investment income (if positive) for the period April 1, 2023 through June 30, 2023, payable on or about July 28, 2023 to shareholders of record as of July 6, 2023.
43
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to financial market risks, most significantly changes in interest rates. Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. Because we expect to fund a portion of our investments with borrowings, our net investment income is expected to be affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.
As of March 31, 2023 and December 31, 2022, on a fair value basis, 100% of our performing debt investments bore interest at a floating rate. Our borrowings under the BoA Revolving Credit Facility and the Truist Revolving Credit Facility bear interest at a floating rate.
We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities.
Based on our March 31, 2023 Consolidated Statement of Assets and Liabilities, the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure:
As of March 31, 2023 |
|
Interest |
|
|
Interest |
|
|
Net |
|
|||
($ in millions) |
|
|
|
|
|
|
|
|
|
|||
Up 300 basis points |
|
$ |
6.66 |
|
|
$ |
(3.12 |
) |
|
$ |
3.54 |
|
Up 200 basis points |
|
|
4.44 |
|
|
|
(2.08 |
) |
|
|
2.36 |
|
Up 100 basis points |
|
|
2.22 |
|
|
|
(1.04 |
) |
|
|
1.18 |
|
Up 75 basis points |
|
|
1.66 |
|
|
|
(0.78 |
) |
|
|
0.88 |
|
Up 50 basis points |
|
|
1.11 |
|
|
|
(0.52 |
) |
|
|
0.59 |
|
Up 25 basis points |
|
|
0.55 |
|
|
|
(0.26 |
) |
|
|
0.29 |
|
Down 25 basis points |
|
|
(0.55 |
) |
|
|
0.26 |
|
|
|
(0.29 |
) |
Down 50 basis points |
|
|
(1.11 |
) |
|
|
0.52 |
|
|
|
(0.59 |
) |
Down 75 basis points |
|
|
(1.66 |
) |
|
|
0.78 |
|
|
|
(0.88 |
) |
Down 100 basis points |
|
|
(2.22 |
) |
|
|
1.04 |
|
|
|
(1.18 |
) |
Down 200 basis points |
|
|
(4.44 |
) |
|
|
2.08 |
|
|
|
(2.36 |
) |
Down 300 basis points |
|
|
(6.66 |
) |
|
|
3.12 |
|
|
|
(3.54 |
) |
We may, in the future, hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the Investment Company Act, applicable CFTC regulations and in a manner consistent with SEC guidance. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our Co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our Co-Chief Executive Officers and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2023. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may be a party to certain legal proceedings, including proceedings relating to the enforcement of our rights under loans to or other contracts with our portfolio companies. We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us.
Item 1A. Risk Factors.
An investment in our securities involves a high degree of risk. Except as set forth below, there have been no material changes to the risk factors previously reported under Item 1A. “Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2022, which was filed
44
with the SEC on March 2, 2023. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially affect our business, financial condition and/or operating results.
Our business and the businesses of our portfolio companies are dependent on bank relationships and recent concerns associated with the banking system may adversely impact us.
The financial markets have recently experienced volatility in connection with concerns that some banks, especially small and regional banks, may have significant investment-related losses that might make it difficult to fund demands to withdraw deposits and other liquidity needs. Although the federal government has announced measures to assist certain banks and protect depositors, some banks have already been impacted and others may be adversely impacted, by such volatility. Our business and the businesses of our portfolio companies are dependent on bank relationships and we are proactively monitoring the financial health of these relationships. Continued strain on the banking system may adversely impact the business, financial condition and results of operations of us and our portfolio companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table summarizes the total shares issued and proceeds related to capital drawdowns:
Share Issue Date |
|
Shares Issued |
|
|
Proceeds |
|
||
For the three months ended March 31, 2023 |
|
|
|
|
|
|
||
February 21, 2023 |
|
|
62,171 |
|
|
$ |
1.15 |
|
Total capital drawdowns |
|
|
62,171 |
|
|
$ |
1.15 |
|
Each of the above issuances and sales of our common stock, par value $0.001 per share, was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) of the Securities Act and Regulation D or Regulation S under the Securities Act. Each purchaser of common stock was required to represent that it is (i) either an “accredited investor” as defined in Rule 501 of Regulation D under the Securities Act or, in the case of stock sold outside the United States, not a “U.S. person” in accordance with Regulation S of the Securities Act and (ii) was acquiring the common stock for investment and not with a view to resell or distribute. We did not engage in general solicitation or advertising, and did not offer securities to the public, in connection with such issuance and sale.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Index to Exhibits, which is incorporated herein by reference.
45
INDEX TO EXHIBITS
EXHIBIT NO. |
|
EXHIBIT |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
10.1* |
|
|
|
|
|
31.1* |
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31.2* |
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31.3* |
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32.1* |
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32.2* |
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32.3* |
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101.INS* |
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Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document |
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101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104* |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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GOLDMAN SACHS MIDDLE MARKET LENDING CORP. II |
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Date: May 9, 2023 |
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/s/ Alex Chi |
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Name: Alex Chi |
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Title: Co-Chief Executive Officer and Co-President |
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(Co-Principal Executive Officer) |
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Date: May 9, 2023 |
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/s/ David Miller |
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Name: David Miller |
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Title: Co-Chief Executive Officer and Co-President |
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(Co-Principal Executive Officer) |
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Date: May 9, 2023 |
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/s/ David Pessah |
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Name: David Pessah |
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Title: Chief Financial Officer and Treasurer |
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(Principal Financial Officer and Principal Accounting Officer) |
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47