Executive Summary / Key Takeaways

• Goldman Sachs BDC, Inc. ($GSBD) is strategically leveraging its deep integration with the broader Goldman Sachs private credit platform to drive proprietary deal flow and maintain a strong bias towards first-lien senior secured loans, enhancing credit quality and risk mitigation.
• The company has proactively adjusted its dividend policy, introducing a flexible structure with a $0.32 per share base dividend and variable supplemental distributions, positioning it for a lower-yielding environment and ensuring long-term dividend stability.
• GSBD demonstrated robust investment activity in Q3 2025, with new commitments reaching their highest level since Q4 2021 at $470.6 million, alongside significant repayments of $374.4 million, primarily from older vintages, facilitating portfolio rotation into new, high-quality credits.
• Despite a modest tightening in portfolio yield, GSBD's portfolio companies exhibit strong underlying fundamentals, with weighted average net debt to EBITDA remaining flat at 5.8x and interest coverage improving to 1.9x in Q3 2025, while non-accruals decreased to 1.5% of fair value.
• GSBD maintains a strong balance sheet with a net debt-to-equity ratio of 1.17x, below its 1.25x target, and ample liquidity, further bolstered by successful unsecured note offerings and a NAV-accretive share repurchase program.

The Goldman Sachs Edge: Underwriting Excellence in Middle-Market Private Credit

Goldman Sachs BDC, Inc. ($GSBD) operates as a specialty finance company, primarily focused on providing debt and select equity investments to U.S. middle-market companies, generally defined as those with $5 million to $200 million in annual EBITDA. Its core investment objective is to generate current income and, to a lesser extent, capital appreciation. The company's strategic narrative is deeply intertwined with its unique position as an integral part of the Goldman Sachs global private credit platform. This affiliation provides an unparalleled sourcing engine for investment opportunities, allowing GSBD to maintain a highly selective and disciplined approach in a competitive deal environment.

GSBD's journey began in 2012, culminating in its IPO in 2015. A pivotal moment arrived in October 2020 with the merger with Goldman Sachs Middle Market Lending Corp. (GS MMLC), which significantly expanded its asset base. However, the most transformative strategic initiative was the March 2022 integration of its legacy BDC business with Goldman Sachs' merchant bank and special situations group. This created a unified private credit team, broadening GSBD's origination capabilities and granting access to proprietary deal flow previously unavailable. This integration has enabled GSBD to evaluate and invest in a wider spectrum of high-quality opportunities, from middle-market to large-cap companies, a tangible competitive advantage in a crowded market.

The company's overarching strategy emphasizes direct originations, leading the negotiation and structuring of loans, and holding investments to maturity. In many cases, GSBD acts as the sole investor or controls investor rights, reinforcing its influence and risk management capabilities. This approach is reflected in its portfolio composition, which has seen a deliberate shift towards higher-quality, lower-risk assets. First-lien positions, including first-lien/last-out unitranche debt, increased from 89.4% in December 2021 to 96.3% by year-end 2024, demonstrating a clear move away from second-lien unsecured debt and preferred equity.

Technological Differentiators and Risk Mitigation

While GSBD is fundamentally a financial services company, its technological differentiation lies not in product innovation but in its sophisticated, proprietary risk management and underwriting frameworks. Recognizing the transformative potential of AI and the inherent risks in software investing, GSBD has developed and implemented a proprietary framework over the past two years to assess both software and AI disruption risk in its underwriting process. This framework is a critical technological differentiator, enabling the company to focus on "mission-critical, market-leading companies with core systems of record across all our software deals." This proactive approach to risk assessment in rapidly evolving sectors like software and AI provides a tangible benefit: enhanced downside risk mitigation. The "so what" for investors is a more resilient portfolio, better equipped to withstand technological shifts and market volatility, contributing to more stable long-term financial performance and protecting shareholder value.

Competitive Positioning in a Dynamic Market

GSBD operates in a highly competitive BDC market, vying with established players such as Ares Capital Corporation (ARCC), Main Street Capital Corporation (MAIN), Hercules Capital, Inc. (HTGC), and BlackRock TCP Capital Corporation (TCPC). While larger competitors like ARCC may possess greater scale and faster deal origination, GSBD's primary competitive advantage stems from its direct affiliation with Goldman Sachs. This connection provides superior deal-sourcing capabilities and a strong brand reputation, often securing lead roles in competitive transactions. For instance, in Q3 2025, GSBD served as lead on 7 of its 13 new portfolio companies, a testament to the "power of the GS platform". This differentiated origination capacity allows GSBD to achieve higher spreads on unique originations, even as broader market spreads remain tight.

Compared to a generalist like ARCC, GSBD's Goldman Sachs backing can offset ARCC's scale by providing access to a broader network for deal sourcing, potentially leading to improved pricing power and more robust growth in specific segments. Against MAIN, which focuses on smaller lower middle-market deals, GSBD's emphasis on larger middle-market transactions (typically $10 million to $75 million) and secured debt positions it as a more risk-averse lender, though it might appear less agile in niche markets. When contrasted with HTGC's venture debt focus in technology, GSBD's diversified secured debt approach offers stability, while HTGC might show stronger revenue growth in high-potential industries. However, GSBD's proprietary AI/software risk assessment framework helps it strategically participate in technology, mitigating some of HTGC's specialized advantage. Against TCPC, GSBD's Goldman Sachs reputation fosters stronger client trust, though TCPC's flexibility in deal structuring could offer an edge in certain scenarios.

The broader private credit market has surged to a record $1.8 trillion, with BDCs filling a $350 billion financing gap for small and medium-sized businesses left by traditional banks. This trend, coupled with a persistent lack of distributions to paid-in capital (DPI) and a buildup of private equity dry powder, is driving sponsors to act. GSBD's management believes the M&A market resurgence is the "start of a longer-term trend", with total M&A dollar volumes in Q3 2025 up 40.9% year-over-year compared to Q3 2024. This increased activity directly benefits GSBD, which saw its new investment commitments and repayments reach their highest levels since the 2022 platform integration in Q3 2025.

Financial Performance and Operational Discipline

GSBD's financial performance in the third quarter of 2025 reflects a disciplined approach amidst evolving market conditions. Net investment income per share for the quarter was $0.40, with a net asset value (NAV) per share of $12.75 at quarter-end. Adjusted for the $0.04 per share supplemental dividend, the adjusted NAV per share was $12.71. The company's annualized net investment income yield on book value stood at 12.5%.

Total investment income for the three months ended September 30, 2025, was $91.6 million, a decrease from $110.41 million in the prior year period, primarily due to a smaller portfolio size and a decline in base interest rates. Payment-in-kind (PIK) income also decreased, reflecting a reduction in investments generating PIK interest. Despite this, GSBD's portfolio companies demonstrated underlying strength, with both top-line and EBITDA growth quarter-over-quarter and year-over-year on a weighted average basis. The weighted average net debt to EBITDA remained flat at 5.8x, and interest coverage improved to 1.9x from 1.8x in Q2 2025.

The company's focus on credit quality is evident in its non-accrual status, which decreased to 1.5% of fair value in Q3 2025 from 1.6% in Q2 2025. This improvement occurred despite placing a more senior tranche of Dental Brands on non-accrual due to underperformance, which management noted was a "tiny position in this fund". This indicates that overall portfolio health is stable, with write-downs primarily affecting legacy names.

GSBD maintains a robust balance sheet, with a net debt-to-equity ratio of 1.17x as of September 30, 2025, comfortably below its target leverage of 1.25x. Liquidity is strong, with approximately $1.143 billion of borrowing capacity remaining under the revolving credit facility. The company further optimized its financing structure in Q3 2025 by issuing $400 million of 5.65% unsecured notes due 2030, which was 4x oversubscribed, and hedging this issuance with an interest rate swap to match its floating-rate investments. This strategic debt management enhances financial flexibility and aligns with its investment portfolio.

Strategic Initiatives and Outlook

GSBD's strategic initiatives are geared towards capitalizing on anticipated market recovery and reinforcing its competitive advantages. The company's proactive adjustment of its dividend policy in late 2024, introducing a $0.32 per share base dividend and variable supplemental distributions, positions it well for a "lower yield environment, where emphasis on credit selection will be paramount". This new structure, coupled with a reduction in the incentive fee from 20% to 17.5%, aims to align long-term earnings power with shareholder value. The Board also declared a Q4 2025 base dividend of $0.32 per share and a Q3 2025 supplemental dividend of $0.04 per share.

Management anticipates an acceleration in deal activity through year-end 2026, driven by recent and expected base rate cuts, a renewed risk-on sentiment, and the substantial dry powder held by private equity firms. While spreads are expected to remain tight, GSBD's unique origination platform is expected to continue securing attractive pricing. The company's "banking colleagues believe we are in the second year of a 5- to 7-year M&A market recovery", with a growing backlog of transactions. GSBD remains focused on rotating its portfolio, with 86% of Q3 2025 repayments coming from pre-2022 investments, allowing for redeployment into new, high-quality credits.

Risks and Challenges

Despite its strengths, GSBD faces several risks. The company's forward-looking statements acknowledge substantial risks and uncertainties, including disruptions in capital markets, general economic uncertainty, and geopolitical instability. The potential for covenant-lite loans in its portfolio could lead to lower recovery values in default scenarios. While GSBD has assessed its tariff exposure as low (approximately 3% of fair value with high exposure due to supply chain dependencies), global trade policy developments remain a risk. Broader market drawdowns, as cautioned by Goldman Sachs CEO David Solomon, could impact equity markets by 10% to 20% within the next 12 to 24 months, potentially affecting portfolio valuations.

The BDC sector as a whole faces risks from a weakening economy, high consumer debt, and potential dividend cuts as interest rates decline. Structural headwinds like spread compression and falling base rates could pressure earnings and dividend coverage. While GSBD's management fees were noted by one analyst as potentially high (3.9% in 2024), the company's recent incentive fee reduction and dividend policy adjustments aim to address shareholder alignment in a lower-yielding environment.

Conclusion

Goldman Sachs BDC, Inc. is strategically positioned as a formidable player in the middle-market private credit landscape, leveraging its deep integration with the Goldman Sachs ecosystem to drive proprietary deal flow and maintain a high-quality, senior-secured investment portfolio. The company's proactive dividend adjustments and disciplined capital management underscore its commitment to long-term shareholder value in a dynamic market. With robust investment activity, improving credit fundamentals, and a strong balance sheet, GSBD is well-prepared to capitalize on the anticipated M&A market recovery. Its proprietary risk assessment frameworks, particularly for software and AI disruption, provide a crucial technological moat, enhancing portfolio resilience against evolving industry challenges. As the private credit market continues to expand, GSBD's ability to selectively originate high-quality credits and effectively manage its portfolio, supported by the broader Goldman Sachs platform, reinforces its investment thesis as a compelling opportunity for discerning investors seeking income and capital appreciation.