Good morning. This is Gemaria, and I will be your conference facilitator today. I would like to welcome everyone to the Goldman Sachs BDC Incorporated fourth quarter and year-end 2021 earnings conference call. Please note that all participants will be in listen-only mode until the end of the call, when we will open a line up for questions. 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 belief 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 homepage of our website at www.goldmansachsbdc.com under the Investor Resources section and which includes reconciliations of non-GAAP measures to the most directly comparable GAAP measures. These documents should be reviewed in conjunction with the company's annual report on Form 10-K filed yesterday with the SEC. This conference call is being recorded today, Friday, February 25, 2022, for replay purposes. I'll now turn the call over to Brendan McGovern, Chief Executive Officer of Goldman Sachs BDC.
Thank you, Gemaria. Good morning, everyone, and thank you for joining us for our fourth quarter earnings conference call. I'm here today with Jon Yoder, our Chief Operating Officer, and Carmine Rossetti, our Chief Financial Officer. I'll begin the call by providing a brief overview of our fourth quarter results before discussing the current market environment in more detail. I'll then turn the call over to Jon to describe our portfolio activity before we hand it to Carmine to take us through our financial results. Finally, we'll open the line for Q&A. With that, let's get to our fourth quarter results. Overall, we're pleased to report another quarter of solid income generation for the portfolio. Net investment income per share was $0.56. Excluding the impact of asset acquisition accounting in connection with the merger with MMLC, Q4 adjusted net investment income was $0.48 per share.
Net asset value per share decreased slightly to $15.86 per share as of December 31, a decrease of approximately 38 basis points from the end of the third quarter. As we announced after the market closed yesterday, our board declared a $0.45 per share dividend payable to shareholders of record as of March 31, 2022. Looking back, 2021 was a remarkable year in many respects for the private credit space broadly, and GSBD specifically, as the loose monetary policy environment fueled a strong economic recovery and a record investment activity. As we discussed extensively over the past several quarters, last year was marked by record repayment activity as the company saw more than 45% of its portfolio through 2020 year-end turnover in 2021.
Despite this unusual repayment activity, the team managed to grow the company's investments at fair value by over 7% year-over-year, which is a testament to the platform's outstanding origination capabilities and hustle over the past year. In addition, our investment activity was highly focused on the top of the capital structure, and as a result, our first lien exposure increased by about 700 basis points from year-end 2020, ending at about 85% of the total portfolio at the end of 2021. With this improvement in lien type, we believe it's prudent to target a funded debt-to-equity ratio of about 1.25 times. For much of the year 2020, our leverage ratio hovered well below this target at about one times as we balanced the wave of repayments with sensible investment activity in an overall competitive environment.
We are pleased to see the leverage ratio tick higher in Q4, with an ending and average debt-to-equity of 1.16 times and 1.04 times respectively. In this environment of elevated repayment and investment activity, our focus has been on maintaining a high-quality book with attractive credit characteristics, which we believe will serve the company well in the long term. We maintain our historical focus on middle-market origination as the median EBITDA of the companies in our book stayed relatively constant at just under $40 million. Our focus on smaller companies allowed us to maintain strong underwriting standards as we made only one covenant-lite loan during the year, which was a follow-on investment to a company that has performed well and has seasoned within our portfolio.
That said, the combination of high portfolio turnover in the current competitive market environment, coupled with a higher mix of first lien assets, did put pressure on yields during the year. Q4 origination yields were 7.5%, which compares to 7.7% over the course of 2021, reflecting continued competition for high-quality assets. In addition, the weighted average net debt-to-EBITDA ratio of our portfolio companies moved higher to 6.4x at year-end 2021 compared to 6x at the end of 2020, reflecting a trend toward lower leverage portfolio company exposures being refinanced into new deals during the quarter. On last quarter's call, we discussed the inflationary trends that continue to mark the current environment.
Thus far, inflationary pressures have not caused significant stress for our portfolio companies, which we believe is a reflection of our focus on high-quality companies with value-added products and services that provide a modicum of pricing power in the current environment. We are observing, however, that macroeconomic inflationary pressures are creating pronounced interest rate volatility. The yield on the 10-year note currently stands at almost 2%, versus 1.5% at the beginning of the year. At the same time, three-month LIBOR has more than doubled to 50 basis points from 21 basis points we saw at the beginning of the year, and the forward curve is projecting three-month LIBOR at 1.9% by the end of the year. Most economists are predicting seven to nine interest rate hikes by the Fed over the coming year.
In light of the changing environment, we wanna highlight a few points. First, 99.4% of our portfolio was in floating rate assets as of the end of the year, typically with LIBOR floors of around 1%. Next, we have been actively managing our debt stack, and at year-end, more than half of our liability structure was in fixed rate notes. As a result of this asset and liability profile, we would initially expect some pressure on net interest margins as the front of the curve ticks higher, but the contractual LIBOR floors on our assets cause the yields to remain stable. However, once LIBOR exceeds those floors, all other things being equal, the rising rate environment should be a tailwind to net interest margins as asset yields move higher while the majority of our liability costs remain fixed. Finally, turning to asset quality.
Non-accrual investments increased to 2.5% and 1.8% of the portfolio costs and fair value, respectively. The increase was a result of the addition of one of our investments in Convene to the non-accrual list. As we have discussed previously, Convene has been impacted by the reduction in demand for shared meeting space in the COVID environment but has benefited from capital support from its owners. We placed the investment on non-accrual this quarter as we expect to monetize this position this quarter at a discount to our carrying value. We don't expect this monetization to have a meaningful impact to NAV, and we will seek to recycle the proceeds back into other income-producing loan assets. With that, let me turn it over to Jon Yoder.
Great. Thanks, Brendan. The continued strong capital markets environment during the quarter enabled the team to again be active on the new origination front. Our new investment commitments remain focused on first lien senior secured loans. During the quarter, we made 32 new investment commitments amounting to $723 million. We originated $461 million in loans to 13 new portfolio companies and made $262 million of follow-on investments to existing portfolio companies, primarily to finance M&A activity. As Brendan mentioned, sales and repayment activity, while below last quarter's record, remained elevated, totaling $296 million, driven by the full repayment of investments in 7 portfolio companies. Turning to portfolio composition.
As of December 31, 2021, total investments in our portfolio were $3.478 billion at fair value, comprised of 97.5% in senior secured loans, including 84.7% in first lien, 4.7% in first lien last out unitranche, and 8.1% in second lien debt, as well as a negligible amount in unsecured debt, and 2.5% in a combination of preferred and common stock and warrants. We also had $442 million of unfunded commitments as of December 31, bringing total investments and commitments to $3.920 billion. As of quarter end, the company held investments in 121 portfolio companies operating across 38 different industries.
The weighted average yield of our investment portfolio at cost at the end of Q4 was 7.9%, as compared to 8.3% as of the end of the third quarter. The weighted average yield of our total debt in income-producing investments at cost decreased to 8.4% at the end of Q4 from 8.6% at the end of Q3. Turning to credit quality. The underlying performance of our portfolio companies overall was stable quarter-over-quarter. The weighted average net debt to EBITDA of the companies in our investment portfolio was 6.4 times at quarter-end, as compared to 6 times from the prior quarter. The weighted average interest coverage of the companies in our investment portfolio at quarter-end was 2.5 times, which is flat with the prior quarter.
As of December 31, 2021, investments on non-accrual status increased to 1.8% and 2.5% of the total investment portfolio at fair value and amortized cost, respectively, up from 0.1% and 0.7% as of the end of the third quarter. Again, as Brendan mentioned, this is due to putting Convene on non-accrual status. I will now turn the call over to Carmine to walk through our financial results.
Thank you, John. We ended the fourth quarter of 2021 with total portfolio investments at fair value of $3.5 billion, outstanding debt of $1.87 billion, and net assets of $1.61 billion. We also ended the fourth quarter with a net debt-to-equity ratio of 1.14 times, which is an increase from 0.91 times at the end of Q3, as investment fundings exceeded repayments for the first time in several quarters. At quarter end, 54% of the company's outstanding borrowings were in unsecured debt, and $837 million of capacity was available under our secured revolving credit facility. On April 1, 2022, the company's $155 million or 0.5% convertible notes will come due.
Our current expectation is to use the capacity under our secure revolving credit facility to fund the maturity, but we continue to assess market conditions for other alternatives to term out our debt. I'd note that at 4.5%, the convertible notes are our most expensive liability, and we look forward to optimizing our liability structure with the maturity of these notes. Before continuing to the income statement, as a reminder, in addition to GAAP financial measures, we will also reference certain non-GAAP or adjusted measures. This is intended to make the company's financial results easier to compare to results prior to our October 2020 merger with MMLC. These non-GAAP measures remove the impact of the purchase discount from our financial results.
For Q4, GAAP and adjusted after-tax net investment income were $57.3 million and $48.9 million respectively, as compared to $64.3 million and $48.8 million respectively in the prior quarter. A decrease in quarter-over-quarter GAAP net investment income was primarily due to a reduction in accelerated accretion as a result of more normalized repayment levels this quarter as compared to historically high repayments last quarter. On a per share basis, GAAP net investment income was $0.56 compared to $0.62 in the third quarter. Adjusted net investment income was $0.48 in both Q4 and Q3. Distributions during the quarter totaled $0.45 as compared to $0.50 last quarter, which included the last of three $0.05 special distributions that were implemented following the merger with MMLC in Q4 2020.
Net asset value per share on December 31, 2021 was $15.86 per share as compared to $15.92 per share as of September 30, 2021. With that, I'll turn it back to Brendan for closing remarks.
Thanks, Carmine. As many of you are aware, I recently announced that I'm retiring from Goldman Sachs effective mid-March. In addition, we announced last night that Jon Yoder is giving up his duties as Chief Operating Officer of our BDC vehicles. Going forward, Jon will be focusing exclusively on the Goldman Sachs renewable power platform, which he has led with great success since its inception. Jon and I are delighted to be giving over the reins to the very capable hands of Alex Chi and
David Miller, who'll become co-CEOs of GSBD effective March seventh, and to Gabriela Skurnik, who'll become the COO of GSBD and our other BDC vehicles effective March seventh. As new co-CEOs, Alex and David bring a wealth of experience and leadership to the platform, having collectively served approximately 40 years with Goldman Sachs in investment banking and middle market lending leadership positions respectively. Together with Gabriela, Alex and David will bring to bear all the capabilities of the firm and will no doubt improve upon the stewardship of Goldman Sachs BDC. In our decade at the helm of GSBD, John and I have been blessed with the opportunity to work each and every day with an amazing and talented team.
There are far too many people to call out individually, but suffice to say, John and I are in debt to the many men and women across Goldman Sachs that have consistently and persistently delivered top-notch results for all the stakeholders of GSBD. Over the years, I've enjoyed ending each of these conference calls by thanking you, the shareholders of GSBD. On behalf of John and the rest of the team, it has been a privilege to manage your capital these many years, and we wish you all the best. With that, let's turn the call back to Gemaria and open line for Q&A.
Ladies and gentlemen, we will now take a moment to compile the Q&A roster. The first question will come from Robert Dodd with Raymond James.
Hi, guys, good luck in future endeavors. Brendan, it might seem a little odd asking you this question since you're leaving, but once you're gone, just to clarify, I mean, in terms of forward strategy, right, I presume, I mean, there's going to be no changes, but I just wanna, let's put it this way, I would like to get it on record on a call, the forward strategy type of assets, you know, et cetera, are gonna remain the same.
Yeah. Look, Robert, of course, you're right. I think Alex and David at the right time will be speaking with all of you and, you know, you and our shareholders specifically about those go-forward plans. I can tell you that, you know, in the context of this transition, I've been spending a lot of time with Alex and David and Gabriela and the broader team. You know, I don't think, Robert, you should be bracing for anything dramatically different than what we've been doing over the years. You know, just for a little bit of context, you know, in our press release that we put out when we announced my departure in December, there's a lot of biographical information on Alex and David.
Both have been with Goldman Sachs for a long, long time, as partners of the firm. You know, David has been leading an investment platform for the balance sheet, that has been focused on middle market, lending and origination. That's been the core of what he's been doing, for a very, very long time in his career, including prior to Goldman Sachs, at GE. Alex has been, here with the firm since 1994, within investment banking. As we know, you know, Goldman has, you know, the preeminent investment banking franchise, in the world, and Alex has had leadership positions in both leveraged finance as well as sponsored coverage.
Over the course of the past two years, he's worked within what we historically called our merchant banking division, which is now part of the combined asset management division, focused on bigger cap originations and sponsored transactions, you know, benefiting from his you know very long and deep relationships within the sponsor community. I think broadly speaking, you know, what you can expect and you know certainly as a shareholder will hope to expect will be really continued excellence where you know leadership can bring to bear the full capabilities of Goldman Sachs to originate transactions for the regulated vehicles and the BDCs that we manage. I think we can leave it at that for now.
I'm sure you'll have lots of opportunities to engage with David and Alex specifically on a go-forward basis.
I appreciate that. Thank you. Now, perhaps a more interesting question. Get to EBITDA. I mean, as you said, there was some, you know, went up to 6.4, some lower leverage loans paid off. Is that 6.4 the same LTV, i.e., you know, it's higher enterprise value businesses as well, or has there been any shift in the loan-to-value? Perhaps, you know, has there been any, you know, when we look at how the market's going right now in terms of the public equity markets, some of the more techy names, the enterprise values are compressing. That doesn't mean the private equity multiples are. Can you give us any color around that?
Yeah. Look, I think first, just on the math specifically, because I think it's worth just a bit more detail. As we highlighted, and I know, Robert, you and I had a detailed conversation on this last quarter, you know, the repayment environment, you know, for the market has been significant. I think for GSBD specifically, it's been really unusually high. As I said in the remarks, 45% of the book that we came in to January first with repaid over the course of 2021, which is a really significant amount. You think about the normal cadence of a loan. You make a loan, it tends to de-leverage over the course of its lifetime.
You know, we've been focused on, as we talked about good document standards, that there's forced de-leveraging in those structures. When you see that repayment activity, naturally that's gonna be your lower levered deals coming out of the book that are getting replaced by a new market origination. That math this quarter I think was a little bit stark. I'll tell you, we also had a lot of follow-on investing activity, which typically means you're re-leveraging the business, you know, back to the original underwrite. I think that, you know, the numbers you see are sort of reflective of, you know, the current market environment.
To your LTV question, I will tell you at underwriting when you're measuring the actual invested capital in those companies, we'll put aside the mark-to-market for a moment. LTVs have been trending down despite that leverage multiple moving up and higher. As you know, our focus and orientation has tended to be away from, you know, companies and industries that, you know, don't attract, you know, high multiples, cyclical industries, heavy manufacturing industries, very capital-intensive industries, not a big part of our book. You know, the historical context there. We focus on technology and software and healthcare and healthcare services and IT services, which, you know, produce, you know, stable recurring revenues and therefore tend to generate higher enterprise value multiples, as well.
Again, looking at underwrites, yeah, notwithstanding the tick up in that other leverage metric, LTVs have been coming down. I think it is fair to say in the. You know, if you were to mark to market those private equities, you know, just looking at what's gone in the tech space, you know, over the course of the past several months, that probably is down. But when you're starting at, you know, at a 25% loan-to-value range, there's significant and tremendous junior capital beneath you, to cushion that loss before you see exposure within our loan portfolio.
Got it. Thank you. Last one from me if I can. This quarter, if I remember right, is the last quarter of committed waivers to get to $0.48 on adjusted NII. Obviously we've already declared the March dividend at $0.45. But you know, should we be expecting any more waivers? None were disclosed, so presumably not. What's the comfort level of you know of reaching that $0.45, obviously with the rate curve where it is pretty good in the second half?
Yeah. Let me hit that. Look, as we talked about in the script, if you think about the current environment, the changes over the last year or two, you know, clearly there's been, you know, overall pressure on yields. Yeah, I think if you look at this quarter specifically compared to the rest of 2021, we also have dynamic of a reduction in those early repayments, therefore the acceleration of the OID. Yeah, I think it's fair to say those continue to be headwinds. I think on the yield portion of the cadence, you know, things have stabilized. I think it has been our experience. You see that kind of running through the numbers.
I think it's safe to say over the past couple of years, it's been a lower yield building environment. As I also you know talked about in the prepared remarks, if you look at last year, leverage was basically stuck at 1x for most of the year. You start to think about the earnings power of the company going forward. You've got those headwinds on the rate side. We'll see what happens in the repayment environment as well. I think there's a couple other you know tools in the toolkit within the company, which is moving back up into the target leverage range. Yeah, which I think you'll see that happen, probably not getting all the way there this quarter.
I think that's a possibility for the firm. Again, I think you've got yields that are normalizing. You've got, you know, this quarter, as we talked about Convene being a non-accrual, that's $2 million of income. We do expect that will be monetized and put back into earning assets for the quarter on a go-forward basis. I think if you take all that together in the absence of the fee waiver, we're still below that 45%, that 45-cent per share number. But I think when you look at, you know, when you look at the total dollar amount of the waiver, as you know, we've actually been waiving to the tune of 48 cents per share.
I think the delta, you know, the delta between, you know, the dividend of $0.45, you know, versus that waiver, you know, keep that in mind as well. I think the big wild card, you know, for the company going forward becomes that rate environment. I you know talked about it again, and we got a lot of disclosure in the Q around this. You know, mathematically, I think the question will be, you know, what happens, you know, to the front end of the curve here, and given the profile of the business, which is virtually 100% floating rate loans with a one to four.
As we talked about initially, there'll be a headwind, and I think you'll probably see that running through in Q1 as we start to move up in rates. But once you get to the liability floor, it becomes a significant benefit to the company. We've also been active on the liability management front. You know, we've fixed more than half of our liabilities into turned back fixed rate notes. Yeah, I think not appropriate for me in the context of my departure to talk about fee waivers going forward, but I think you've certainly seen over the years, you know, Goldman Sachs be really thoughtful about its approach from a fiduciary perspective.
You know, I think there's a lot of different levels to pull. We'll see how things develop over the course of next year. I think generally when you look at the book, when you look at the company, the asset quality is good. The liability structure's in a really good spot, all of which bodes well for a really good foundation for Alex and David and Gabriela to take the business forward from here.
Okay. I appreciate that. Thank you. Again, good luck in the future, Brendan. I appreciate everything, all your comments over the years. Thanks a lot.
For sure. Thanks, Robert.
Again, as a reminder, if you would like to ask a question that is star, then 1 on your telephone keypad. At this time, there appears to be no further questions in queue. Please continue with any closing remarks. Actually, we do have a question in the queue from Finian O'Shea with Wells Fargo. Please proceed.
Hey, Fin.
Hey. Hey, everyone. Good morning, and congratulations, Brendan, Jon, and everyone else coming in as well. Actually, to that matter, I wanted to follow on Robert's question on platform changes with the new leadership coming from the IBD and banking group. Mr. Yoder's moving elsewhere. It does feel like there's a lot of writing on the wall that things will be a bit different whether in origination style or management style. You know, that doesn't have to be bad. It can obviously be good. You know, just I'd say at a high level if things are gonna be completely the same, then why are the moving pieces so different?
You know, any comment you can provide on how, you know, the folks at GSAM were thinking about the architecture here, in light of your departure, Brendan?
Yeah. Look, I wouldn't read too much into the changes, you know, Fin, that you're describing in the context of the broader strategy and structure. You know, as you and I have talked about, you know, offline, for me personally, you know, this just felt like a good natural time for me to move on to pursue some different endeavors. That was for me just a personal decision based on how I see this, you know, the next leg of my career here. I don't think there are broader implications beyond that. You know, John, as you know, who was a key architect of this business since inception has been really successfully leading that renewable power business.
While it feels like all this might be coming together, you know, at this point in time, these are actually, you know, things that have been kind of, you know, behind the scenes, taking place for quite some time. I think there continues to be, you know, good stability overall within the group and the firm. Obviously, you know David Yu quite well, who's been here with the company for a long time and continues to be, you know, focused on the group and the business.
I think when you look at the forward for the business, just like I talked about, having spent a lot of time, with Alex and David and their respective teams, you know, what I can tell you is there's a lot of commonality of approach in terms of having a really good credit culture, in terms of having a really good disciplined focus, on client service and all the things that, you know, we think have contributed to the success, of GSBD over the years. I don't think you're gonna see, you know, tremendously significant wholesale changes, day one strategically or otherwise. I think if anything, there's, like I said, new resources, that get brought to bear, to benefit the company, over time.
You know, I think as you start to engage and spend some time and meet with Alex and David and team, you'll see that coming through in spades. I can tell you I have a lot of confidence in the go forward of the company and the team, and the platform, and I'm sure you'll come to the same conclusion.
Absolutely. Very helpful. Unrelated follow-up on the capital raising side, the strategy you've been pretty successful with, private retail to public, with you know MMLC and such, that style seems to be being de-emphasized by a lot of your peers, in the way of the newer non-traded perpetual private retail strategy, which you know are unrelated to BDCs, but they are debatably cannibalizing a fundraising channel. You know, obviously there are others. There are you know public offerings, ATMs and institutional private to public, so forth. But just any high-level thoughts on that, if you... Sorry, go ahead.
Yeah, sure. Look, here's what I would say, Stan. You know, I think I speak confidently for Alex and David and Goldman on this topic. When you look at the private credit space more broadly, you know, certainly relative to 10 years when we launched this platform, being a scaled participant is just table stakes in this space. Having the ability to bring to bear different pools of capital to compete in the market for assets, that could be whether those are larger cap unitranche opportunities or more bespoke middle market lending opportunities, scale is the key.
As an asset manager, you know, the approach that I've had on behalf of Goldman, and I think, you know, is shared by Alex and David, our approach is to be agnostic as to how investors wanna access our core capabilities, which is the ability to source and underwrite and just manage a portfolio of proprietary loans. There are gonna be certain investors who might be institutions who might want separately managed accounts or a single investor fund. There might be other investors that prefer the liquidity associated with a public BDC. There might be other investors that are insurance clients that have regulatory issues that they're trying to accomplish with how they access this asset class. Our job as an asset manager is to create on-ramps for all those different clients.
I think that means that, you know, I think the observation that we have is there continues to be a really attractive opportunity for investors who want to invest privately into a BDC that might go public later on. You know, investors on this platform have had really good success and really good returns in doing that. I think there are other investors who prefer the simplicity and the liquidity profile of a fund that is continuously offered, where you can invest all of your capital day one. I suspect that that'll be a tool in the toolkit that the firm has going forward as well. I don't think that really changes anything strategically for the platform in any way, shape, or form.
Like I said, the goal is to create as many on-ramps for clients who want access, you know, the very significant capabilities of Goldman Sachs. I think if we do that, we'll be quite successful.
Awesome. Hopeful. Thank you and congratulations again and best of luck on your next endeavor.
Thanks, Stan.
At this time, there are no further questions. Please continue with any closing remarks.
Okay. Well, thank you, Maria. Thank you all as always for listening in. If you have any questions, please don't hesitate to reach out to us directly. We hope you have a great day and a great weekend. Bye-bye.
Ladies and gentlemen, this does conclude the Goldman Sachs BDC, Inc. fourth quarter and year-end 2021 earnings conference call. Thank you for your participation. You may now disconnect.