Goldman Sachs BDC, Inc. (GSBD) Q3 2016 Earnings Report, Transcript and Summary

Good morning. This is Dennis, and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs BDC, Inc., Third Quarter 2016 Earnings Conference Call. Please note that all participants will be in listen-only mode until the end of the call, when we will open up the line for questions. I will now turn the call over to Ms. Katherine Schneider, Head of Investor Relations at Goldman Sachs BDC. Katherine, you may begin your conference.

Thanks, Dennis. Before we begin today's call, I would like to remind our listeners that today's remarks may include forward-looking statements. These statements represent the Company's beliefs regarding future events that, by their nature, are uncertain and outside of the Company's control. The Company's actual results and financial condition may differ, possibly materially, from what is indicated in those forward-looking statements as a result of a number of factors, including those described from time to time in the Company's SEC filings. This audiocast is copyrighted material of Goldman Sachs BDC, Inc., and may not be duplicated, reproduced, or rebroadcast without our consent. Yesterday after the market closed, the Company issued an earnings press release and posted a supplemental earnings presentation, both of which can be found on the home page of our website, at www.goldmansachsbdc.com, under the Investor Resources section. These documents should be reviewed in conjunction with the Company's Form 10-Q filing, filed yesterday with the SEC. This conference call is being recorded today, November 4, 2016, for replay purposes. I'll now turn the call over to Brendan McGovern, CEO of Goldman Sachs BDC.

Thank you, Katherine. Good morning, everyone, and thank you for joining us for our third quarter earnings conference call. To outline the call, I'll start by providing an overview of our results for the third quarter. I'll then turn the call over to Jon Yoder to discuss our investment activity and portfolio metrics. Jonathan Lamm, our CFO, will discuss our financial results in greater detail. And finally, I'll conclude with some closing remarks before we open the line for Q&A. We are pleased to report strong operating results for Q3. Earnings per share were $0.62, up significantly from $0.19 in Q2, primarily driven by unrealized appreciation in the portfolio. Net investment income per share was $0.51, a slight increase from the $0.50 produced in the second quarter. Net asset value per share increased by $0.17, and ended the quarter at $18.58. As we announced after the close yesterday, our Board declared a $0.45 per share dividend payable to shareholders of record as of December 31. We are pleased that our net investment income has continued to exceed our dividend, reflecting attractive underlying yields on our assets and a low operating expense structure. This quarter, our NII exceeded our dividend by 14%. Year-to-date, our NII has exceeded our dividend by approximately 18%. Moving on to investment activity. Gross and net originations were $138 million and $30 million, respectively, resulting in 2% growth of our total investment portfolio. We end the quarter with a debt-to-equity ratio of 0.7 times, which continues to be within our target leverage range of 0.5 to 0.75 times. Subsequent to quarter-end, we issued $115 million principal amount of 4.5%, 5.5-year convertible notes. This was a significant milestone for the company, as it demonstrated our ability to access the institutional unsecured financing market. With this offering, we believe our shareholders benefit from greater diversity of funding sources, increased financial flexibility, and enhanced funding stability. In addition, we believe that the inclusion of a modest amount of fixed-rate debt in our capital structure is prudent and may provide some protection from spread compression that could take place in a rising-rate environment. Furthermore, I would note that the strike price on the convertible bond is 32% above the company's net asset value per share and, as such, this was an opportune time to access the convertible market. With that, let me turn it over to Jon Yoder.

Thanks, Brendan. During the quarter, we continued to see strong demand for credit, from both sponsored and non-sponsored middle market companies, particularly when considering that demand for credit is often seasonally slower in the third quarter period. Our deal flow mix continues to be roughly two-thirds sponsored and one-third non-sponsored, though sponsor activity has increased compared with the muted levels we saw at the start of the year. With that as backdrop, we are pleased with our investment activity during the quarter, particularly our ability to originate attractive new investments, and continue to stay within our target leverage range of 0.5 to 0.75 times debt to equity. To quantify our investment activity this quarter, we made new investment commitments of $138 million, including an additional $6 million investment in the Senior Credit Fund. The new investment commitments were comprised of 56% in first lien debt, 4% in first lien/last-out unitranche debt, 29% in second lien debt, 6% in preferred stock, and 5% in the Senior Credit Fund. Sales and repayment activity totaled $109 million, primarily driven by full repayments from two portfolio companies and partial sales of two other investments. The full repayments were our $20 million second lien investment in Oasis Outsourcing and our $23 million second lien investment in Extraction Oil & Gas. I'd like to pause on the repayment of our loan to Extraction for just a moment. As we've previously discussed, we have long been highly selective in our participation in energy investments. In May 2014, we made a second lien loan to Extraction, which is an oil and gas company primarily operating in the Wattenberg basin. Our investment was predicated on the company's underlying asset value, which we believe provided meaningful downside protection and a conservative capitalization with strong loan-to-value and low leverage. Despite the challenging commodity price environment that followed, Extraction has been successful in managing the pace of production in line with the market to protect its balance sheet and maximize the value of its assets. During the third quarter, Extraction tapped the capital markets for a $550 million offering of unsecured notes. Net proceeds of this transaction were used to repay, in full, and at a premium to par, our second lien senior secured loan. We were able to achieve a gross IRR on this investment of 12%. Following the repayment of Extraction, our aggregate energy exposure at fair value now totals just 1.3%. As of September 30, 2016, total investments in our portfolio were $1.143 billion at fair value, comprised of 91% senior secured loans, including 38% in first lien, 28% in first lien/last-out unitranche, 25% second lien; 3% in preferred and common stock; and 6% in the Senior Credit Fund. We also had $7 million of unfunded commitments, bringing total investments and commitments to $1.150 billion. The portfolio continues to be well diversified, with investments in 39 portfolio companies operating across 27 different industries and with no significant industry concentration. The weighted-average net debt to EBITDA of the companies in our portfolio at quarter-end was 4.6 times, relatively unchanged quarter-over-quarter. The weighted-average interest coverage of the companies in our portfolio at quarter-end was 2.9 times, also steady quarter over quarter. Turning to the Senior Credit Fund. We are very pleased with the continued growth of this investment, where we have earned a 15% return on our invested capital over the past year. We and our partner were able to grow investments in the Senior Credit Fund by 11% during the quarter and by 52% year-over-year. Our investment in the Senior Credit Fund now represents approximately 6% of the company's total investment portfolio. During the quarter, we and our partner originated $86 million of investments in seven new companies and two existing portfolio companies, bringing the total size of the portfolio to $392 million. All of these new investments were in first lien senior-secured floating-rate loans with interest rate floors. The Senior Credit Fund had sales and repayments of $47 million, driven primarily by the repayment or refinancing of loans to three portfolio companies. Total activity in the Senior Credit Fund resulted in net portfolio growth of $36 million during the quarter. The Senior Credit Fund portfolio remains well diversified, with investments in 32 portfolio companies operating across 20 different industries and also with no significant industry concentration. I'll now turn the call over to Jonathan to walk through our financial results.

Thanks, Jon. We entered the third quarter of 2016 with total portfolio investments at fair value of $1.143 billion, outstanding debt of $471 million, and net assets of $675 million. Our net investment income per share was $0.51, as compared to $0.50 in the prior quarter and $0.57 in the quarter ended September 30, 2015. As Brendan mentioned earlier, our Board of Directors declared a third quarter dividend of $0.45 per share, payable to shareholders of record as of December 31. For the trailing five quarters, we have consistently outearned our dividend on a net investment income bases. We believe that this is a testament to the earnings power of our portfolio as well as to our low-cost operating structure. During the quarter, our average debt-to-equity ratio was 0.74 times, as compared to 0.68 times during the previous quarter. The increase in average leverage was primarily attributed to new portfolio investments made at the beginning of the quarter coupled with partial portfolio sales near quarter-end. We ended the third quarter with a debt-to-equity ratio of 0.7 times, unchanged as compared to June 30. Turning to the income statement, our total investment income for the third quarter was $34 million, up from $29.3 million last quarter, primarily driven by higher interest income, including greater accelerated accretion and prepayment income. Total expenses before taxes were $15 million for the third quarter, as compared to $10.9 million in the prior quarter. Expenses were up quarter-over-quarter, primarily driven by an increase in incentive fees. The higher incentive fees are attributed to higher pre-incentive fee earnings in the quarter, as the company had net unrealized appreciation reversing out some unrealized depreciation from prior quarters. As a reminder, our incentive fee calculation takes into account net realized and unrealized losses and, therefore, can display volatility from one quarter to the next. We believe this feature provides the proper shareholder alignment, as the fee is based on total return and not just the NII. We ended the quarter with net asset value per share at $18.58, up approximately 1% from the prior quarter, driven by unrealized appreciation and net investment income that exceeded the dividends. Our supplemental earnings presentation provides a NAV bridge to walk you through these changes. As Brendan mentioned earlier, subsequent to quarter-end we issued $115 million principal amount of 4.5% convertible notes. The convertible notes mature on April 1, 2022, unless repurchased or converted in accordance with the terms prior to such date. Net proceeds of the offering were used to pay down a portion of the debt under our revolving credit facility. We believe that the introduction of this unsecured debt into our capital structure provides our shareholders with significant benefits, including diversifying our funding sources, providing greater financial flexibility, and enhancing our funding stability. However, while we are very pleased with the terms that we were able to achieve in this offering, we also considered the impact of the offering to our blended total cost of financing and limited the offering to just over 20% of our debt capacity, at the top end of our target leverage ratio. We believe that this mix delivers our shareholders the benefits we were seeking to achieve without unduly increasing the overall cost of financing. With that, I will turn it back to Brendan.

Great. Thanks, Jonathan. Overall, we are very pleased to have produced a strong quarter for our shareholders. This quarter demonstrated our ability to continue to produce net investment income that is higher than our dividend, driven by our ability to originate attractive and differentiated investments. We continue to believe that the current economic backdrop of steady growth provides an attractive environment to pursue our direct lending strategy, and we remain focused on maintaining disciplined underwriting standards on new investment opportunities. So, with that and on behalf of the team, we thank you for your time and continued support. And now, Dennis, we'd like to open up the line for questions.

[Operator Instructions]. Your first question is from the line of Leslie Vandergrift with Raymond James. Please go ahead.

A good quarter, obviously. We got the originations up. It was good to see that the SCF and everything is moving together, everything is moving up. A quick question on the increased second liens this quarter. Obviously, total originations went up, but the percent of new second lien investments went up, as well. Is that just a replacement kind of like-for-like yield there because of the repayments in the energy second liens? Or, is that you saw more of a market demand for that and it was a good return for the risk?

Leslie, I'm not sure that's accurate. We'll pull the data. But if you look at our originations this quarter, the bulk was in first lien investments, including our investment in Alemco, and we did sell down a portion of that participation, as well. And I think similarly when you look at our repayments -- which were Oasis, which was a second lien, and Extraction, which Jon discussed which was also a second lien -- I think the net result was an overall stable mix of second investments in the overall portfolio.

Yes, I agree on the mix. I just went on the originations and not more than first lien, but a larger percent of the originations than it had been previously, more of a focus issue. I assumed it was just a switch, kind of one for one, on the energy you guys that were paying back and then going into --?

Leslie, I think just to add to Brendan's commentary, this quarter there were two significant new originations. One was a follow-on, which was in a second lien investment. The other one was a first lien investment. So, I guess the broader point is I certainly wouldn't -- there's no change in the market to speak of or change in our strategy of focus to speak of. This is a pretty small sample set. But regardless, 60% of what we originated this quarter was first lien.

Yes, of course. And we appreciate that. Just was curious on that. So, it was just one big one. On the Extraction side, congratulations on getting the money back on that one after [indiscernible] at a premium, so, down to 1% now on energy. So I know prices are back up. Are we seeing any good first lien opportunities come out of that sector right now?

Again, I think nothing really noteworthy to speak of, and I think we've addressed this topic in the past. Certainly as a sector, one where the market is experiencing some of the negatives associated with the volatility in underlying commodity price environments. And so, no doubt over time, Leslie, there will be opportunities that we think are attractive, like Extraction was in our estimation, on a one-off basis, on sort of a micro investment basis. But I wouldn't say as a platform that we are aggressively pursuing that particular part of the market. Broadly speaking -- and again, we've talked about this historically -- our goal here is to build a very diversified portfolio. We do think there is a very specific opportunity in the part of the middle market where we're focused, which we think is really right in the heart of the middle market. That gives a very broad-based opportunity set. So, I wouldn't really point, Leslie, to any one specific sector, including E&P, as a focus area for us.

Okay. All right. Perfect. And then, last question, any update on NTS? I know you discussed it last quarter, about some of the issues being resolved. But it's still on non-accruals, if I see this correctly in there. So, just some updates on that?

Leslie, you're right. We discussed this at some length last quarter. It's the only investment in the portfolio on non-accrual. As we mentioned on last quarter's call, we were successful in coming to a resolution with the company and the sponsors back in July. And that resolution included new capital coming in to sort of fuel new growth in the business. We're just now starting to see the early results of that capital infusion. I'd say it's too early to draw broad conclusions. We're pleased by the fact that the capital is being deployed on the schedule and in the manner that we expected. But certainly too soon to draw any sort of significant conclusions. I think the one thing I would add is in terms of our decision as to when and whether to turn it back on to accrual status, I think we're going to want to see some sustained performance and not sort of a short-term or one-time spurt of growth. So, as I say, I guess, more broadly, just a little bit too soon to draw any real conclusions here.

Your next question is from Jonathan Bock with Wells Fargo Securities. Please go ahead.

May be we'll start really quickly with the Senior Credit Fund, because I find it interesting and clearly it's surpassing our expectations. Jon, Brendan, walk us through what we might be able to see from a growth perspective in terms of income contribution? Specifically, I believe you've done more direct originations through that vehicle at spread levels that have increased slightly or at least -- may be said a different way -- not declined. That's different than perhaps our expectation. I was just curious to see, one, how it's done and, two, how long that will last?

Sure. Jon, it's Brendan. I'll kick off, and I'll turn it over to Mr. Yoder, who I'm sure has some thoughts, as well. By and large, this is a component of our strategy that we do quite like. It's a differentiating focus for us. It's an opportunity for the platform to pull levers that will facilitate accretive growth of the portfolio when different parts of the market are operating in different ways. I think what you've seen out of us historically is a very nice, consistent, measured pace of growth in that portfolio, and this particular quarter we did see an uptick in new originations. We also did see an uptick in fees that the BDC was able to generate by virtue of those originations and how the fund works. So, overall, we are quite pleased with where we are with the portfolio. As you alluded to, the mix of assets here is a combination of some direct originations as well as some syndicated originations. I'll turn it to Jon just to kind of walk through that dynamic.

So, one of the things, just to sort of set the table here, what we've attempted to do with the Senior Credit Fund on the asset side is certainly not to create a broadly syndicated loan portfolio. And if you look at the nature of the assets, they certainly bear no resemblance to a broadly syndicated loan portfolio. For sure, I think probably implicit in your question, Jon, is the observation that the broadly syndicated loan markets have ground tighter over the last few weeks, particularly as it's become more apparent that the Fed is likely to raise rates in December and people seem to be cycling money out of fixed-rate high-yield and into floating-rate loans. And that certainly has driven down spreads in the broadly syndicated loan market, at least for the time being. Of course, who knows how long that persists? If it appears that the Fed is not going to hike much beyond December, you could see those flows reverse. But in any event, that's certainly the observation that's current at the moment.

Okay.

What we've attempted to do here is, again, not to create a broadly syndicated loan portfolio, but rather to find really attractive upper middle market companies. Sometimes those come to us through agents in what I would describe as more narrow syndications, and sometimes they come directly through our direct-to-sponsor, direct-to-owner network. And you're right, Jon, in your observation that more recently, as a percentage of the deals that we've been doing, we've done more in the sort of non-agented, direct-to-sponsor or direct-to-business owner space. And you're also correct in observing that in those deals we've generally earned about 100 -- a bit over 100 basis points of excess spread. And so, as Brendan was saying, that's a toggle for us to be able to pull to the extent that the spread environment continues to be tough in the upper middle market space. And we think that flexibility is important.

Got it. So, clearly, I understand the superlative spread married with the fact that there is fee income that gets generated off it that's also an excellent offset or a good place to, for lack of a better word, hide in a tighter spread environment, by and large, is a good offset. I'd ask a question then, Brendan. So, we're at $100 million of overall equity commitment. There's $30 million effectively left. When can we be thinking about expansion of this, if it is providing such value, without expanding it to the point where it becomes the only primary earnings driver that we talk about?

Right. I think again for context, today it is a 6% -- the BDC's investment in the SCF is a 6% position in the book. So, it is certainly at the upper end of the size of the portfolio, but the flow though, obviously, as we discussed, is through a very descriptive set of investments. We do have the capability with our partner to continue to grow the opportunity set, as well as to attract new funding for that vehicle. So, so long as the opportunity set and the ability for the platform persists to find new and differentiated opportunities, we're certainly not concerned about the capital available to grow the investment in that space. And so, we look forward to continuing to find good origination opportunities within that differentiated strategy.

Got it. And the last point -- and I believe you've filed publicly -- you have a private BDC kind of in the lurch, if you will, which -- one, it limits the mistakes or, I should say, kind of lower the mistakes that folks make by aggressively issuing equity, which in many cases in this space is the reason a lot of folks underperform. And so, walk us through the private side of your business in terms of the capital being raised. And more importantly, Brendan, on a go-forward basis, how that factors into the calculus as to whether or not you choose to raise equity. Because clearly, you haven't. And while it can be accretive, you've chosen to remain conservative. So, give us color on that and how the private capital that you've raised factors into that equation.

Right. I definitely appreciate the question, Jon. And we have gotten certainly over the years over our time as a Public Company a lot of questions about the growth strategy. I think implicit in those questions has been a fear that there would be tremendous growth in the BDC, ongoing capital raises that might limit valuation multiples that might cause, frankly, stress on the financial condition of the company. Obviously, every share we issue we view that as creating a fixed charge, an obligation to pay a dividend. And to the extent you issue those shares and raise that capital without the benefit of the assets to support that dividend, it puts the management in a challenging position to be disciplined on new investments. So, as a platform, we also think it's important that we have good, robust access to capital so that we can remain in the flow of opportunities, so that we can be a solutions provider and a partner to those of our clients who are seeking capital. And so, the route we've gone is to hopefully get the best of both worlds for all of our investors. As you described, we publicly have filed with respect to our private BDC. There is capital there that's available to be accessed in a drawdown structure to find new opportunities. And similarly, we think that creates the fact returns that we've seen in the BDC, that's right. We've maintained a levered profile and, as a consequence, we've had very, very strong net investment income which, as we described, on a year-to-date basis has exceeded our dividend by 18%, and I think that gives investors a lot of comfort. And so, over all, we're trying to find that right blend, that right balance, on behalf of shareholders in the BDC around growth and some of the challenges associated with growth. And I'd say, frankly, Jonathan, more recently the questions have flipped. Given the premium, doesn't it make sense to raise capital? And we're certainly mindful of the accretive nature of those potential raises at a certain price, and we think that that can be attractive. But we also take into consideration our pipeline of opportunities, the potential for repayments which reduce the potential for that to tick up. And overall, what we're trying to do is have a capital structure in the BDC which will be within the optimal leverage ratio that can support the very attractive income that we're kicking off.

Your next question comes from the line of Christopher Testa with National Securities. Please go ahead.

Just curious, the unitranche yields by cost were down a decent amount quarter-over-quarter. Just wondering if that's more a function of the competitive nature of the market? Or, if you had some higher-yielding unitranche loans repaid? Just any color there is appreciated.

Yes, so, we didn't have any higher-yielding unitranches repay this quarter. The repayments were limited to a couple of second lien investments. In terms of the competitive environment for unitranches, I guess what I would say is it's been observed that there has been a fair bit of capital formation in the private credit space this year. What I think perhaps is sometimes not as observed is that a lot of that capital has been flowing to some of the largest players, who are focused on upper middle market unitranches. So, I do think that there probably is more pricing competitive pressure for the upper middle market sort of unitranche transactions than in other places. And I'd say, for us, that's not a place that we're particularly focused, and this kind of actually dovetails much with Jonathan Bock's question and Brendan's answer around our discipline in capital raising. The opportunities that we see at the moment are more in the, what we think of as, the heart of the middle market, not the upper middle market company where this has more competitive pressures, but in sort of the middle of the middle market, where we think there's been less capital flowing to players that are active in that space. We think that that's a good place to put capital to work.

Got it. And just given your commentary on sponsor finance picking up quarter-to-date, obviously from the beginning of the year, should we expect unitranche relative to first lien to potentially pickup, as well, given that this kind of seems to be popular with sponsors at the moment?

I wouldn't necessarily draw that conclusion. I think again, I think there needs to be an understanding that, while I do agree that the unitranche product is particularly popular with upper middle market types of transactions, I wouldn't necessarily say that carries its way all the way through the rest of the middle market, especially where we live which is more the middle of the middle market. There's some unitranche activity, for sure, and we've obviously been active in that. But we still see regular stretch first lien and some second lien, as well. So, I don't think there's a trend in our markets necessarily strongly towards unitranche.

Okay. Great. And how much prepayment fee income and OID acceleration did you guys have in the quarter?

Sorry, Christopher. What was the question there?

How much prepayment fee income and acceleration of OID you have in the quarter?

It was like close to $1 million.

Got it. And just kind of, I guess, dovetailing off of that, it seems that the run rate of earnings, even absent the OID acceleration of prepayment fees, is well above the dividend. Just curious what your thoughts are on a potential special or bumping up the regular level of the dividend?

It's certainly a question that we think through with our Board as we go forward. I think today when you look at the valuation of our shares, for example, we think investors get the benefit of retaining that excess income into NAV, which is then valued at a multiple of that NAV. I don't think, Chris, it's prudent for us to raise the ongoing dividend rate at this point in time. We agree that there is cushion in the model, but we think that cushion affords us a lot of flexibility to adapt to market conditions over time. And we think that's a valuable asset for the company. And accepting ultimately whether it's a special or retaining it to NAV, I think you can trust that we'll be thoughtful about what will be the best outcome for shareholders in a pretty considered way.

Your next question is from the line of Derek Hewett with Bank of America Merrill Lynch. Please go ahead.

Good quarter. Thank you for taking my question. Actually, most of my questions have been asked. But Brendan, I believe you had mentioned that prepayments could remain elevated, I think in response to a question from Jonathan. And if my understanding is correct, what's driving that trend?

Well, I think there's -- I wouldn't necessarily, Derek, point to anything specifically. Oftentimes, you can just think about the mere aging of the portfolio and the life cycle of the portfolio. There's a handful of companies in the portfolio where we're certainly aware of corporate actions and activity for sales of those companies. That's an ordinary course of activity, certainly, in the middle market. So, for example, I wouldn't necessarily point to overall economic or spread conditions as a driver of those prepayments. There's certainly not an overall dynamic in the portfolio where the companies in the book see the opportunity to refinance at different rates. Typically, it's a corporate action that's going to be the main driver of that. And obviously, in a relatively concentrated portfolio, that's got the impact that you might see over time. So nothing broad based or economically driving that potential; more, I would say, success of those companies and the potential for the sponsors or the owners to sell those on to new investors.

Okay. And as a corollary, do you think if prepayments continue to remain somewhat elevated given corporate actions, should we also see a corresponding increase in fees? Or, is -- are prepayment fees -- is there any prepayment protection in any of those investments at this point?

I certainly wouldn't want to project with any specificity, but as a general matter we certainly do try to structure our investments with some modicum of call protection. I think we've seen that run through our numbers this quarter with some of our repayments. And so, that's a general attribute of the loan structuring. Obviously, the timing and the magnitude of that is going to be a function of which investments and when are repaid. But as a general matter and I think if you look back at historically, Derek, over our experience when we did have those repayments, there's generally some fee or acceleration of that discount that runs through the P&L.

Your next question is from the line of Jim Young with West Family Investments. Please go ahead.

Can you talk about from your deal flow what you're experiencing with respect to the proprietary nature from the private wealth management teams within Goldman Sachs? And is this a robust source of deals for you? And in general, can you characterize these deals as -- how would you characterize the risk/reward nature of these -- this pipeline?

Great question. Interestingly, we just did sort of a, I guess I'd characterize it as, a mid-year review of all our activity in that space. The answer to your question is it's a very robust source of deal flow for us. We've seen more deal opportunities from that space this year than we've seen in any other prior year. The attributes of the deals that we get through that channel very frequently are -- some of our best deals come from there. What we find is -- whereas in the sponsored side, we find that sponsors generally are continuously pushing lenders for more and more leverage, and that's not surprising given they themselves are being pushed on valuations if they're out looking to buy companies. And therefore, they need more leverage to make the numbers work. What we find in the non-sponsored side, or the family-owner side, is that they're not trying to sell for IRRs. They're not trying to sell for a three- or five-year hold period. They're looking for capital that's for a specific purpose, whether it's an acquisition, whether it is a growth capital infusion, whether it's to buy out a family member or a business partner. And so, when they're looking for capital, they're looking for a specific amount to accomplish that business purpose and not, as I say, just for arbitrary IRR target. And so, as a result, that tends to mean that the leverages they're looking for is less. It tends to mean that they want to repay you more quickly, because they generally don't want to have leverage on their business since they're not sort of IRR focused. And so, we do like the attributes of those transactions. There's also, really, just much less competitive pressure in those deals because, honestly, we're one of the few, if not the only, specialty lender that has a huge non-sponsored sourcing network around the country. So we oftentimes find that it's really just us or nothing, and that helps a lot, as well, with structuring good deals.

Okay. So out of the one-third of your unsponsored deals -- you mentioned two-thirds come from sponsored deals; one-third from unsponsored -- out of the one-third unsponsored transactions, what percentage of those are internally sourced?

Of the one-third non-sponsored, it's a majority. I don't have the exact number at hand, but it's certainly a significant majority.

Your next question is from Doug Mewhirter from SunTrust. Please go ahead.

Good morning. This is actually Matya Rothenberg on for Doug Mewhirter. Thank you for taking my questions.

Good morning.

As you mentioned, you got some extra structuring fees from the Senior Credit Fund this quarter. Are you still seeing similar transactions? Or, have those opportunities tapered off a little bit?

We chatted a bit about this with Jon Bock's question. We do continue to see opportunities within that space. And as we discussed and I think as we've seen the benefit this quarter, to the extent the loans are being originated by our platform that does give rise to the fee income that we've seen this quarter. So, by and large, as a strategy, one where we've seen continued growth. We have seen our investment in the SCF grow at a nice, steady, measured pace. I think the pace of our originations this quarter were elevated relative to some recent quarters. So, we're certainly pleased with that outcome. And as we look forward, I think this is one of what we think are really several toggles within our overall business model that we can pull on to continue to produce nice operating results.

Okay. Thanks. And then, getting a little more specific, you wrote down your investment to Bolttech Mannings a bit further this quarter. Can you give us an update on that business and how you're thinking about your position?

Sure. So, maybe just to start with the company, what they do, Bolttech basically is an MRO company. They provide services to a number of industries in the MRO space: petrochemicals, refinery, power producers. And so, when you look at the mark-down this quarter, I would say probably two things that were driving that: one, a bit of a softer environment in one of their geographies, Canada, specifically, which was a bit softer; and also, over the past few quarters there has been a bit of a loss of some of their higher-margin business in a rental portion of their space. So that has contributed to underperformance financially for the company. That said, we do remain very encouraged by the ongoing sponsorship of this company and the directional support that's been provided by Grey Mountain, the sponsor here. Continue to monitor it closely. But as you described, we did mark it down a bit this quarter.

At this time, there are no further questions. Please continue with any closing remarks.

Thank you, Dennis, and thank you all for your time and attention. If you have additional follow-up questions, please feel free to reach out to Katherine, and we'd be happy to jump on the phone. Have a great day.

Ladies and gentlemen, this does conclude the Goldman Sachs BDC, Inc., third quarter 2016 earnings conference call. You may now disconnect.