Goldman Sachs BDC, Inc. (“GSBD”) and Goldman Sachs Middle Market
Lending Corp. (“MMLC”) announced today that they have amended and
restated the Agreement and Plan of Merger, dated December 9, 2019
(the “Original Merger Agreement”). GSBD and MMLC are affiliated
business development companies that are managed by Goldman Sachs
Asset Management, L.P. (“GSAM”).
In order to comply with provisions of the Investment Company Act
of 1940 which require that a merger of affiliated business
development companies not result in dilution to either party, the
Original Merger Agreement contained a closing condition whose
satisfaction was dependent on the trading price of GSBD’s common
stock. Heightened volatility in the current market precipitated by
the COVID-19 pandemic has created uncertainty as to whether this
condition can be met. As a result, on June 11, 2020, GSBD and MMLC
amended and restated the Original Merger Agreement in its entirety
(as amended and restated, the “Amended and Restated Merger
Agreement”) to eliminate the closing condition while ensuring that
the transaction would not result in dilution to either party. Key
changes in connection with the Amended and Restated Merger
Agreement include the following:
- The consideration has been changed from a fixed exchange ratio
to a “net asset value for net asset value” exchange, whereby the
exchange ratio will be determined at closing such that shares
issued by GSBD to MMLC shareholders will result in an ownership
split of the combined company based on each of GSBD’s and MMLC’s
respective net asset values. Based on March 31, 2020 net asset
values and pro forma for the MMLC distributions, transaction costs
and the repayment of MMLC’s revolving credit facility described
below, GSBD would issue approximately 1.0656 shares for each MMLC
share outstanding. The total share consideration to MMLC
shareholders would represent a 17% premium to the pro forma MMLC
net asset value, based on the closing market price of GSBD as of
June 10, 2020.1
- The variable cap on GSAM’s incentive fees (the “Variable
Incentive Fee Cap”) has been extended for an additional year,
through the end of 2021. The Variable Incentive Fee Cap provides
that incentive fees payable to GSAM will be reduced if net
investment income (”NII”) would be less than $0.48 per share
without implementation of the incentive fee cap.
- Upon closing the transaction, GSAM has agreed to reimburse GSBD
and MMLC for all fees and expenses incurred and payable by GSBD or
MMLC or on their behalf in connection with the transaction, subject
to a cap of $4 million with respect to each of GSBD and MMLC.2
- Prior to closing the merger, MMLC’s board of directors will
declare a $75 million distribution to MMLC shareholders relating to
the pre-closing period. This distribution is an amount equal to
approximately 8.1% of MMLC’s March 31, 2020 net asset value.
“We believe the merger of GSBD and MMLC will result in
significant benefits for each set of shareholders, and we are
pleased to move forward with the transaction on amended terms,
despite the recent market volatility,” said Brendan McGovern,
President and CEO of GSBD and MMLC. “The combined company will
benefit from increased scale and balance sheet strength, which are
key attributes in the current market environment.”
Additional
Highlights:
- GSAM expects the merger to be accretive to GSBD’s NII per share
both in the short and long-term, reflecting the Variable Incentive
Fee Cap through 2021 described above, as well as anticipated
optimization of the combined company’s capitalization following the
close of the transaction.
- The merger will result in an overall improvement in GSBD’s
portfolio metrics, including a higher portfolio yield, greater
single-name diversification and a reduction in the percentage of
non-accrual investments.
- Based on the respective net asset values of GSBD and MMLC at
March 31, 2020 pro forma for the $75 million distribution to MMLC
shareholders and other additional adjustments, the merger will
result in significant deleveraging, with GSBD’s net debt to equity
decreasing from 1.40x at March 31, 2020, to 1.14x. This expected
deleveraging creates more capacity to deploy capital into today’s
attractive investment environment while adding a greater margin of
safety to maintain GSBD’s investment grade credit rating and comply
with regulatory and contractual leverage ratio requirements.
- Simultaneous with the closing of the merger, MMLC’s revolving
credit facility due March 2022 will be repaid in full and GSBD’s
revolving credit facility will be expanded to $1,695 million.
Pricing on GSBD’s revolving credit facility will remain unchanged
at LIBOR + 1.875%.
- The combination more than doubles the size of GSBD, and is
expected to result in benefits of scale, including improved access
to diversified funding sources, cost synergies and greater trading
liquidity.
- The transaction represents a combination with a known and
seasoned portfolio, as all of MMLC’s investments were originated by
GSAM and 95% of MMLC’s investment portfolio overlaps with that of
GSBD.3
As a result of the merger, GSBD’s total investments and
commitments will be $3.2 billion, comprised of investments in 111
portfolio companies operating across 39 different industries.3 The
combination will result in a 40 basis point increase on the
weighted average yield of GSBD’s investment portfolio at amortized
cost.4 GSBD’s exposure to senior secured loans will increase from
92.0% to 95.6% of total investments.3 The portfolio’s single name
diversification by number of portfolio companies will increase by
4%. Investments on non-accrual will decrease from 0.9% to 0.4% of
the total investment portfolio at amortized cost. The median EBITDA
of the portfolio companies will remain relatively unchanged, from
$37.8 to $37.5 million.5
To aid in the analysis of a potential transaction, the board of
directors of each of GSBD and MMLC established a special committee,
consisting exclusively of their respective independent directors.
The board of directors of both GSBD and MMLC, following the
recommendation of each of their special committees, have
unanimously approved the Amended and Restated Merger Agreement and
the transactions contemplated therein. The consummation of the
merger is currently expected to occur in Q4 2020, subject to
satisfaction of certain closing conditions, including GSBD and MMLC
stockholder approval, regulatory approval and other closing
conditions.
BofA Securities, Inc. served as financial advisor and Dechert
LLP serves as the legal counsel to the special committee of GSBD.
Morgan Stanley & Co. LLC served as financial advisor and
Eversheds Sutherland (US) LLP serves as the legal counsel to the
special committee of MMLC. GSAM’s legal advisor is Wachtell,
Lipton, Rosen & Katz.
Please direct any questions regarding obtaining access to the
conference call to Goldman Sachs BDC, Inc. Investor Relations, via
e-mail, at gsbdc-investor-relations@gs.com.
ENDNOTES
1 Premium calculated as the product of the exchange ratio and
the closing price of GSBD as of June 10, 2020 as compared to the
March 31, 2020 pro forma MMLC NAV for the $75 million distribution
and other adjustments. 2 Estimated aggregated transaction cost is
$11.7 million. 3 Measured on a fair value basis as of March 31,
2020. 4 Computed based on the (a) annual actual interest rate or
yield earned plus amortization of fees and discounts on the
performing debt and other income producing investments, divided by
(b) the total investments (including investments on non-accrual and
non-incoming producing investments) at amortized cost, in each case
as of March 31, 2020. 5 For a particular portfolio company, EBITDA
typically represents net income before net interest expense, income
tax expense, depreciation and amortization. Median EBITDA is based
on the pro-forma combined company’s debt investments as of March
31, 2020, excluding investments where 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. As of March 31, 2020, investments where EBITDA
may not be the appropriate measure of credit risk represented 31.7%
of total debt investments at fair value for the pro-forma combined
company. Portfolio company statistics are derived from the most
recently available financial statements of each portfolio company
as of the respective reported end date. Portfolio company
statistics have not been independently verified by us and may
reflect a normalized or adjusted amount.
ABOUT GOLDMAN SACHS BDC, INC.
Goldman Sachs BDC, Inc. is a specialty finance company that has
elected to be regulated as a business development company under the
Investment Company Act of 1940. GSBD was formed by The Goldman
Sachs Group, Inc. (“Goldman Sachs”) to invest primarily in
middle-market companies in the United States, and is externally
managed by Goldman Sachs Asset Management, L.P., an SEC-registered
investment adviser and a wholly-owned subsidiary of Goldman Sachs.
GSBD seeks to generate current income and, to a lesser extent,
capital appreciation primarily through direct originations of
secured debt, including first lien debt, unitranche loans,
including last out portions of such loans, and second lien debt,
and unsecured debt, including mezzanine debt, as well as through
select equity investments. For more information, visit
www.goldmansachsbdc.com. Information on the website is not
incorporated by reference into this press release and is provided
merely for convenience.
ABOUT GOLDMAN SACHS MIDDLE MARKET LENDING CORP.
Goldman Sachs Middle Market Lending Corp. is a specialty finance
company that has elected to be regulated as a business development
company under the Investment Company Act of 1940. MMLC was formed
by Goldman Sachs Group, Inc. to invest primarily in middle-market
companies in the United States, and is externally managed by
Goldman Sachs Asset Management, L.P., an SEC-registered investment
adviser and a wholly-owned subsidiary of Goldman Sachs. MMLC seeks
to generate current income and, to a lesser extent, capital
appreciation primarily through direct originations of secured debt,
including first lien debt, unitranche loans, including last out
portions of such loans, and second lien debt, and unsecured debt,
including mezzanine debt, as well as through select equity
investments.
FORWARD-LOOKING STATEMENTS
This press release may contain 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
thereof or other variations thereon 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. These statements represent GSBD’s belief
regarding future events that, by their nature, are uncertain and
outside of GSBD’s control. There are likely to be events in the
future, however, that we are not able to predict accurately or
control. Any forward-looking statement made by us in this press
release speaks only as of the date on which we make it. Factors or
events that could cause our actual results to differ, possibly
materially from our expectations, include, but are not limited to,
the ability of the parties to consummate the merger on the expected
timeline, or at all, failure of GSBD or MMLC to obtain the
requisite stockholder approval for the Proposals (as defined below)
set forth in the Proxy Statement (as defined below), the ability to
realize the anticipated benefits of the merger, effects of
disruption on the business of GSBD and MMLC from the proposed
merger, the effect that the announcement or consummation of the
merger may have on the trading price of GSBD’s common stock on the
New York Stock Exchange, the combined company’s plans,
expectations, objectives and intentions as a result of the merger,
any decision by MMLC to pursue continued operations, any
termination of the Amended and Restated Merger Agreement, future
operating results of GSBD or MMLC, the business prospects of GSBD
and MMLC and the prospects of their portfolio companies, actual and
potential conflicts of interests with GSAM and other affiliates of
Goldman Sachs , general economic and political trends and other
factors, the dependence of GSBD’s and MMLC’s future success on the
general economy and its effect on the industries in which they
invest; and future changes in laws or regulations and
interpretations thereof, and the risks, uncertainties and other
factors we identify in the sections entitled “Risk Factors” and
“Cautionary Statement Regarding Forward-Looking Statements” in
filings we make with the Securities and Exchange Commission
(“SEC”), including those contained in the Proxy Statement, when
such documents become available, and it is not possible for us to
predict or identify 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.
Additional Information and Where to Find It
This communication relates to a proposed business combination
involving GSBD and MMLC, along with related proposals for which
stockholder approval will be sought (collectively, the
“Proposals”). In connection with the Proposals, each of GSBD and
MMLC intend to file relevant materials with the SEC, including a
registration statement on Form N-14, which will include a joint
proxy statement of GSBD and MMLC and a prospectus of GSBD (the
“Proxy Statement”). This communication does not constitute an offer
to sell or the solicitation of an offer to buy any securities or a
solicitation of any vote or approval. No offer of securities shall
be made except by means of a prospectus meeting the requirements of
Section 10 of the Securities Act. STOCKHOLDERS OF EACH OF GSBD
AND MMLC ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE
SEC, INCLUDING THE PROXY STATEMENT WHEN IT BECOMES AVAILABLE, AS
WELL AS ANY AMENDMENTS OR SUPPLEMENTS THERETO, BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT GSBD, MMLC, THE MERGERS AND THE
PROPOSALS. Investors and security holders will be able to
obtain the documents filed with the SEC free of charge at the SEC’s
web site, http://www.sec.gov or, for documents filed by GSBD, from
GSBD’s website at http://www.GoldmanSachsBDC.com.
Participants in the Solicitation
GSBD and MMLC and their respective directors, executive officers
and certain other members of management and employees of GSAM and
its affiliates, may be deemed to be participants in the
solicitation of proxies from the stockholders of GSBD and MMLC in
connection with the Proposals. Information about the directors and
executive officers of GSBD is set forth in its proxy statement for
its 2020 annual meeting of stockholders, which was filed with the
SEC on May 12, 2020. Information about the directors and executive
officers of MMLC is set forth in its Annual Report on Form 10-K for
the year ended December 31, 2019, which was filed with the SEC on
February 27, 2020 and its proxy statement for its 2019 annual
meeting of stockholders, which was filed with the SEC on September
11, 2019. Information regarding the persons who may, under the
rules of the SEC, be considered participants in the solicitation of
the GSBD and MMLC stockholders in connection with the Proposals
will be contained in the Proxy Statement when such document becomes
available. This document may be obtained free of charge from the
sources indicated above.
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version on businesswire.com: https://www.businesswire.com/news/home/20200611005394/en/
Goldman Sachs BDC, Inc. Investor Contact: Florina Mendez,
917-343-7823 Media Contact: Patrick Scanlan, 212-902-6164
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